西南航空 (LUV) 2020 Q1 法說會逐字稿

Good morning, and welcome to the Southwest Airlines' First Quarter 2020 Conference Call.

My name is Chad, and I will be moderating today's call.

This call is being recorded, and a replay will be available on southwest.com in the Investor Relations section.

(Operator Instructions)

At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations.

Please go ahead, sir.

Thanks, Chad, and thank you all for joining us today.

We're going to start out with prepared remarks from Gary Kelly, our Chairman and CEO; Mike Van de Ven, Chief Operating Officer; Tom Nealon, our President; and Tammy Romo, Executive Vice President and CFO.

And then, of course, we'll open it up for Q&A.

A few quick disclaimers before we get started.

We will make forward-looking statements in our remarks, which are based on our current expectations of future performance.

And of course, our actual results could differ from current expectations for a number of reasons.

We called out special items in first quarter 2020, and we'll make reference to those results that compare to prior year GAAP results.

Both of these topics are covered in our earnings release disclosures as well as on the IR website.

Today, we issued a press release announcing underwritten public offerings of our common stock and convertible notes.

We cannot discuss those offerings on this call, and we won't be taking questions about them.

We will, however, discuss our current liquidity position, cash burn and related topics, and we'll take questions about those and other topics as always.

So with that, we'll go ahead and get started, and I'll turn it over to Gary.

Thanks, Ryan, and good morning, everybody, and thanks for joining our first quarter 2020 earnings call.

It's all about COVID-19 effects, of course.

Our route system is over 95% domestic.

We had a very strong January and February performance with solid unit revenue growth and better-than-expected cost performance.

Earnings were higher in each month year-over-year.

Our operation was performing magnificently.

And that's in terms of on-time performance and baggage handling, and our customer service scores were industry-leading.

We saw no COVID-19 effects on bookings until the end of February and the effects on bookings and cancellations and traffic beginning in March were unprecedented and quite frankly, breathtaking.

So here we are.

One of Southwest's greatest and most enduring strengths is its preparedness, and we were prepared.

On the heels of last year's outstanding performance, and despite the MAX grounding and the excellent momentum that continued into January, February, we were in a very strong and healthy position when the coronavirus struck.

We started the year and March with a surplus of liquidity and that was by well over $1 billion.

We began this year with the smallest amount of debt to total capital in our history, only 24%.

And on a $27 billion balance sheet, we had over $10 billion of unencumbered aircraft.

While no one anticipated this economic catastrophe, we were prepared.

And Mike, Tom and Tammy will detail all the actions taken since March 1. But in summary, including spending cuts, schedule reductions, fuel price declines and the elimination of shareholder returns, we reduced our planned spending for 2020 by over $6 billion.

Excluding working capital changes and proceeds from the payroll support program of the CARES Act, our cash burn for April is roughly $900 million, and that includes CapEx and debt service.

Our goal will be to drive that lower in May and June through more aggressive schedule cuts and hopefully increasing revenues.

The pure cash outflows or spending has been cut in half from pre-COVID levels.

Our financial management philosophy has always been and will continue to be very conservative.

It has served us well, and no one can match the track record of profitability or the financial position of Southwest Airlines.

No one has served shareholders or bondholders better over the last 49 years, and we intend to continue that record.

Cash in this environment is an asymmetrical risk.

Not enough?

That is a huge problem.

Too much?

We'll pay down debt or we'll buy available assets opportunistically.

We're in a recession.

And historically, it has taken years, typically 5 or more, for business travel to recover.

With some businesses issuing no-travel orders, that has to be the expectation going forward: that business travel will recover very slowly.

Further, this recession has already put tens of millions of Americans out of work, and consumer sentiment has been severely damaged.

That will also affect near-term travel demand expectations.

And finally, for those who are willing and able to travel, the country needs to open back up so there's something for people to do when they get there.

So I mention all of this to underscore the imperative of low cost in this environment because every traveler will demand a low fare.

That's our business model, and we're America's strongest and most successful low fare carrier.

We're working on a variety of things: number one, strategic plans that are based on 3 basic recovery scenarios, and that's being led by our President, Tom Nealon.

We're working on customer experience modifications at the airport and on the airplane to ensure that customers feel safe.

We're working on our capital structure and liquidity needs to see us through this pandemic so that we emerge healthy and strong.

We're obviously working on the fleet, and that's being led by our Chief Operating Officer, Mike Van de Ven.

And then last, we're working on early retirement and other voluntary exit or reduced work programs for our employees.

So before I pass to Mike, I want to thank all of our employees.

This has been a crisis unprecedented in our history, but our people are battle-hardened.

They are resilient.

And they are fearless, and they have done a masterful job running the airline, serving our customers and implementing myriad new procedures and protocols, and they are all vital to this company.

And they are essential to our country, and they are my heroes.

I'm very grateful to our employees, and I'm very grateful to our leaders for keeping Southwest strong.

And with that, Mike, I'll hand it over to you, sir.

Well, hey thanks, Gary.

And I really appreciate your comments about our people.

They really are tenacious.

And to lean into this kind of headwind and deal with their own personal uncertainty and angst is just, frankly, amazing.

And they're steadfast, they're fearless, and I just couldn't be more proud to be a part of this team.

Now as you mentioned, the year began really with our best overall January and February operations that we've had in probably over a decade.

And all the critical operating measures of on-time performance or bag handling and the lowest ratio of customer complaints to the DOT, we were in the top 2 for the industry in each measure.

And we were realizing the efficiencies of various technology and equipment investments that we had made previously to be able to execute our schedule and recover from regular operations.

And those investments proved to be invaluable in March, and they allowed us to rapidly adjust our network and our crewing and our maintenance plans as we reacted to the COVID-19 demand changes.

And I think they're going to be great assets for our NOC to minimize our daily operating costs as we move forward.

So when the year started, the MAX return to service plan was one of our primary focus points.

Now our operations' focus is threefold: first, ensuring that our environment is safe for our employees and customers; second, rapidly adapting our daily operations to whatever existing conditions are out there; and third, managing our fleet.

And as we prepare and position the operation to support, hopefully, an eventual business recovery.

So we're managing through all that coordination through our emergency response program, and that is led by one of our emergency directors, our Senior VP of Operations and Hospitality, Steve Goldberg, and he is doing a tremendous job.

He has 53 teams across the company working together on a daily basis to manage the crisis.

And it's coordinated and it's focused with intentional efforts and deliveries that are -- that span specifically across 30-, 60- and 90-day time frames.

The highest priority is ensuring that we create an environment for both our employees and our customers that introduces whatever additional mitigation techniques and strategies are needed to minimize the spread of this virus.

We've implemented social distancing procedures throughout the operation where feasible.

We've added voluntary temperature checks, and our employees have access to adequate masks and wipes and hand sanitizers while at work.

We're in the process of adding a plexiglass face guard shields for our ticket counter gate and our cargo agent positions.

In terms of aircraft cleaning, we have an enhanced overnight cleaning process that includes wiping down all high-use areas in the cabin and the galleys and the cockpit with a hospital-grade disinfectant.

In addition to that, each month, every aircraft receives an additional application of a disinfectant through the use of an electrostatic mister and as well as an application of an anti-microbial mist, and that covers all the surface of the aircraft.

So those procedures provide protection for up to 30 days against virus contamination.

And then, lastly, we're in the process of adding additional cleaning procedures during the turn, and we expect to have those in place within the next 30 days.

We're using social distancing techniques for customers during the boarding process and while on board, and we've eliminated our in-cabin service to further mitigate risk.

So in short, we will be ready to support our employees and our customers' needs as travel begins to rebound.

As we move into May, the disruptions that we've experienced associated with all the various state-by-state travel restrictions, some of the international restrictions and then the ATC closures have been abating.

Our published flight schedule is about 1,400 flights a day, and our focus is on running the most cost-effective operation.

We can be very flexible with the tools I mentioned earlier.

And we have the ability to look out 4-plus days with respect to bookings and demand, and we can easily reaccommodate customers, while simultaneously reducing our flight activity further.

So the goal there is to minimize our cash burn further and that comes in the form of a reduction in fuel and landing fees and engine flight costs.

The really -- the only drawback is that those cancellations in the near term, they count against the published DOT on-time arrival statistics.

But that hasn't really concerned me given the cash savings.

And actually, the fact that the on-time performance on the flights that we do operate, they're averaging in the mid- to upper-90s each day.

That significant reduction in flight activity has left us with excess aircraft.

So we're managing through that through a combination of long-term storage and parking programs.

So with respect to the storage program, we've moved 106 NG aircraft into a long-term storage program.

And combining those with our 34 MAX as we have 140 aircraft in long-term storage.

The additional NG aircraft were selected based on their age and the proximity to an upcoming significant heavy maintenance requirement.

So for those aircraft in long-term storage, it will take a minimum of 3 or 4 days of time and probably more to bring each of those aircraft current with respect to their maintenance programs before they can be reintroduced into the active fleet.

We have about 250 NGs in short-term parking programs that rotate in and out of active flying.

And the benefits of the short-term parking program is that the aircraft do remain part of the active fleet, and it's more cost-effective in terms of storage costs and the long-term storage program.

When it is time to bring the aircraft back into published flying schedules, our most cost-effective aircraft to fly is the MAX.

It has less fuel burn.

It's got lower engine and maintenance costs.

And there's not much to update on the MAX since our January earnings call.

Based on Boeing's latest update on the MAX return to service and given the maintenance and the pilot training requirements, it will take at least a couple of months before those aircraft are ready to fly revenue service.

So the MAX isn't included in any of our published flight schedules at this point.

And just as a reminder, Boeing has 27 aircraft in the Southwest Airlines configuration in their storage facilities.

So wrapping up, we've offered our employees voluntary extended leaves, to be home with their families if needed, through August.

And many of our operations employees are taking advantage of these programs and they're helping the company out in a big, big way.

We're exploring additional early out and further extended time-off options.

Our highest priority is the safety of our employees and customers as they work and travel.

We are actively managing our daily operational activity to take care of our customers at our lowest cost profile, and we have 390 aircraft in some form of a storage or a parking program to reduce cost.

And we have a great partner in Boeing, really, to manage our fleet plans in this time of uncertainty.

We literally are at war with COVID-19, and we are really blessed to have a ferocious group of warriors that are ready to fight.

And they really do inspire me every day.

And so with that, Tom, I'll turn it over to you.

All right.

Thank you, Mike.

Good morning, everybody.

So I also want to start by -- you got to acknowledge our team, our people.

So I want to thank all of our employees, especially all of our frontline employees who are out in the airports, our ground operations folks at our maintenance hangers, at our call centers, at our NOC, or network operations center.

And of course, a special thanks to our flight attendants and pilots that are on the planes every day taking care of our customers.

Honestly, you guys are all truly amazing.

And the respect and the admiration that I have for each of you really is indescribable.

What you're doing is heroic.

I just want to say thank you for all you're doing.

And that's very, very genuine.

I really mean that to you guys.

And by all accounts, the first quarter started off, as Gary and Mike kind of indicated already, it started off very much as we expected.

Demand and pricing were both strong.

We had very solid loads in our January and February and March bookings and RASM as well as capacity, were very much in line with our expectations.

So we had a lot of confidence in our RASM guidance of being up 3.5% to 5.5% for the quarter.

We always talk about our Rapid Rewards program, and it was also doing very, very well.

Consumer spending on our co-brand cards was very strong in January and February.

On a card member business, spend was at record levels and was up double digits year-over-year.

So great performance there.

And our customer satisfaction scores, which are always the very top of the industry, were also at record levels for both January and February, with both months being up double digits versus our internal targets, which are very stringent targets.

So phenomenal how the quarter was shaping up.

And obviously, everything changed very dramatically and very quickly.

And beginning in late February, we began to see a direct impact from COVID-19.

Now at that point, as Gary said, our bookings were still holding up relatively well, but we did begin to see a significant increase in cancellations, and this continued to accelerate into March.

Now by March 9, the situation had escalated dramatically.

The cancellations began to exceed new bookings, and this continued to grow into a massive spike in trip cancellations.

We ended the month of March with cancellations being up over 500% year-over-year, which resulted in a never-before-seen trend of net negative bookings.

So as demand collapsed and cancellations grew, we did what you would expect, we began to reduce our flights.

And for the back half of March, we ended up canceling 34% of our roughly 3,800 daily flights.

And for the full month of March, our capacity declined 17% year-over-year.

Now just to give some perspective of how rapidly and how deeply demand dropped off, even with a 34% reduction of flights in the back half of March, our load factors fell steadily to single digits by the last week of the month, and that's where they are today.

Our March operating revenue dropped nearly 50% year-over-year.

And of course, our ancillary and other revenues dropped off dramatically as well.

And as you'd expect, we're also experiencing lower partner revenue from Chase as the credit card portfolios are seeing reduced spending and lower acquisitions, none of which is a surprise in this environment.

So for the first quarter, our RASM performance was a negative 11.8%, and our revenue was $4.2 billion, which is off our expectations by just over $1 billion.

Now at this point, with a lot of the countries still sheltering in place and many states continuing to have some level of travel restrictions in place, we're continuing to see record low passenger demand and revenue trends here in April and May, with operating revenue down roughly 90% to 95% year-over-year and single-digit load factors.

Now, at this point, it is very, very tough to predict exactly how and when we'll see trends turn around.

So we're staying focused on those things that we can control and that we can manage to.

So we have control of our flight schedule.

And we have control over the quality of our operation, as Mike alluded to.

And we continue to have the highest customer and brand scores in the industry, and that's all because of the people of Southwest Airlines.

So shifting now to second quarter capacity.

Our April capacity was down 50% for the first 2 weeks of the month and will be down roughly 70% for the last 2 weeks of the month.

The full month of May is published down in the range of 60% to 70% compared with pre-COVID schedules.

And June capacity is currently down right around 50%.

For May and June, we've also shortened our operating day by removing many of our flights before 7 a.m.

and after 8 p.m.

So we've pulled our shoulder flying in.

We've also restructured service across our network while maintaining service to all of our domestic cities, including all 5 Hawaii markets, by the way, and we've been able to preserve over 80% of the itineraries that were available in the prior flight schedules.

The capacity reductions that I just mentioned will show up in republished schedules, but we'll also continue to manage capacity tactically and closer in based on demand.

And this is being managed jointly by our network planning team and our network operations center.

This is a day-to-day, week-to-week, very fluid situation, and we'll continue to make tactical capacity and schedule decisions as we need to.

Changing gears a bit -- quite a bit.

On our last call, I gave a quick update on our GDS initiative, which you might recall is focused on growing our share of the corporate travel market.

When we announced last week that we'll be going live on May 4 with travel ports Apollo and Worldspan GDS platforms, which means that all of our everyday low-fare content will now be available with industry standard ticketing and settlement capabilities.

And the response from the travel management companies and corporate travel managers across the country has been absolutely phenomenal, and we're excited about what this means for us and for our customers.

So from a corporate travel perspective, in spite of COVID, it is full speed ahead, and we will be in a strong position as business travel begins to come back.

It's going to take some time, but it will come back, and we'll take more than our share.

So I'm going to wrap up by saying this.

Without a doubt, Southwest came into the situation as the most well-prepared U.S. airline, and this will very likely reshape the industry to a degree that's not yet clear.

But we have a lot of reasons to be confident that Southwest will come out of this very strong and we'll be ready to compete aggressively in the new normal environment.

So with that, I'm going to turn it over to Tammy.

All right.

Thank you, Tom.

I'm happy to round out today's comments with a discussion on our costs, liquidity and fleet before we move to Q&A.

With our revenue production dramatically off trend, as Tom just covered, we are clearly focused on controlling our cost and preserving cash.

I want to commend our employees for their quick work to rally together to reshape our cost trajectory in the near term.

I'd also like to take a very quick moment to recognize our finance teams, legal teams, governmental affairs teams, commercial and operations teams, really, all Southwest teams for their tireless efforts over the past weeks.

Today's rapidly changing environment calls for rapidly evolving financial scenarios and forecasts and actions.

And our people have risen to the task day after day, and often, night after night.

They are truly warriors in the face of this significant challenge, and I want to sincerely thank them for their continued efforts.

Our first quarter unit cost trends illustrate how diligent we have been to reduce costs quickly.

Despite first quarter capacity declining nearly 7% year-over-year, which was 5 to 6 points lower than we previously expected, first quarter CASM, excluding fuel and profit sharing, increased only 5.1% year-over-year.

For March alone, we were able to save approximately $100 million in nonfuel cost based on self-help measures despite roughly 75% of our cost structure being fixed due to the sudden fall off in demand, coupled with close-in capacity reduction.

We saved another roughly $150 million in first quarter from less gallons consumed and the falling fuel prices, with roughly half of those savings coming from fewer gallons.

In second quarter, capacity is expected to be down at least 60%.

And we are estimating operating expenses to be down around 35%, both versus original expectations prior to the pandemic.

If you factor in the benefit from the fuel price decline, costs are expected to be down nearly 40% in second quarter versus plan.

So between our variable cost relief and self-help actions, we are seeing significant relief on the cost side relative to capacity cuts.

These combined efforts have resulted in a reduction of more than $2 billion in full year 2020 operating expenses.

In terms of capital spending, we have virtually eliminated all expenditures this year with over $1 billion in canceled our deferred projects and reduced aircraft delivery payments.

We've canceled or deferred hundreds of projects this year, but we are continuing to work on several critical work streams, such as our recent GDS launch that Tom covered.

We have a new agreement with Boeing and are currently working with them on our revised aircraft delivery and payment schedules for 2020 and 2021.

The agreement allows us to take no more than 48 aircraft through the end of 2021.

We have not nailed down the specifics, and we have some time to do so, but for 2020, at this point, we currently expect to receive fewer than the 27 MAX aircraft that we were previously planning for this year.

Between our work with Boeing and our retirement plans for -700 fleet, I feel very comfortable with our fleet flexibility over the next several years, both to flex down or up as needed.

And of course, we are mindful that the environment is fluid and dynamic, and we want to position ourselves to be able to adjust quickly based on a recovery of travel demand or to a prolonged recovery with no growth.

We have included our March 31 order book in our 10-Q that was filed this morning, and it isn't updated yet for this agreement.

However, for 2020 and 2021 deliveries, excluding the 16 leased aircraft with third parties, we have reduced our contractual deliveries with Boeing by at least 59 aircraft or roughly half.

I am proud of what we have accomplished quickly, and it is showing up in significantly lower cash burn in second quarter.

Our original outlook for second quarter pre-pandemic was average core cash burn in the range of $60 million to $65 million per day.

With actions to date, we now estimate our second quarter average core cash burn to be in the range of $30 million to $35 million per day.

And to be very, very clear, the average core cash burn that I'm sharing includes cash outflows, capital expenditures and debt service, but excludes the impacts from cash sales, refunds and proceeds from financing transactions and the payroll support program.

Of course, we've shared that we aren't seeing much in terms of bookings for second quarter.

In terms of revenue -- excuse me, in terms of refunds; roughly 80% of our tickets sold are nonrefundable.

Therefore, the majority of trip cancellations have resulted in issuances of travel credits.

For March, when trip cancellations peaked to record levels, total cash refunds were approximately $250 million.

Thus far in April, cash refunds are running roughly half that of March and total trip cancellations are somewhat elevated or much lower given the large spike last month.

So that brings me to a few thoughts I'd like to share with you on air traffic liability.

As of March 31, air traffic liability was $6.2 billion, of which $3.6 billion or 60% was our loyalty program balance outstanding for Rapid Rewards.

About 1/3 of our total air traffic liability balance represents travel credits that have already been issued, around $2.1 billion.

So that leaves a balance of $500 million to $600 million net, that is not related to Rapid Rewards or issued travel credits that we expect to fly in future months.

And this represents less than 10% of our total air traffic liability, which is very manageable.

On the cost front, I want to highlight one area that has really helped.

Our employees are pitching in to really save the company money by participating in voluntary time-off and temporary leave programs.

We had almost 490,000 hours reduced from these programs in March alone, saving us an estimated $15 million in salaries and wages.

We have over 3,000 employees utilizing voluntary leave and partial pay programs in April.

And for May, we currently have more than 7,000 employees electing to take voluntary leave.

As we adapt to a dramatically reduced flight schedule, we know we have to look at how best to manage our workforce and limit impact to our people.

We have extended leave programs through the end of August, and we are also considering options for voluntary early retirement, along with long-term leave programs.

I'll share a few quick comments on fuel.

Our first quarter fuel price was $1.90 per gallon, down $0.15 or 7.3% year-over-year.

Our Brent crude oil averaged $51 per barrel in first quarter, but the real story is the dramatic fall-off in prices with Brent crude oil at $69 per barrel in early January and ending at a low of $23 per barrel by the end of March.

We continue to see significant relief from lower energy prices.

Our lower market fuel prices saved as $80 million in first quarter compared to market prices at the beginning of the year.

For second quarter, we estimate a fuel price in the $1 to $1.10 per gallon range, which is down nearly $200 million since the beginning of the year and significantly lower than last year's second quarter fuel price of $2.13 per gallon.

When considering the reduction of fuel gallons this year due to capacity cuts, we currently estimate 2020 fuel expense to be down over $2 billion from beginning of year levels, which is much welcome relief on cost and cash in this low revenue environment.

Our fuel hedging program allows us to fully participate in falling market prices, which has continued to fall even in recent days, due to the lack of floor risk in our portfolio.

And while we have not made any adjustments to our hedges for 2020, the percentage hedged in our premium cost per gallon have increased as a direct result of lower fuel gallons being consumed.

This will continue to be the case as long as capacity is drastically reduced, but the $97 million fuel hedging premium cost this year remains unchanged.

So for example, we are more than 100% hedged in second quarter, triggering a GAAP loss of $2 million in first quarter other gains and losses for mark-to-market adjustments that were recognized in other comprehensive income in prior periods.

And our second quarter premium expense, albeit $4 million lower year-over-year at $24 million, spiked to $0.12 per gallon compared with the $0.05 per gallon in second quarter last year.

I simply want to point out that there isn't movement related to our hedging positions or premium costs in 2020.

There is just noise in the metrics related to the significant reduction of fuel gallons due to capacity cuts.

Despite the ongoing grounding of the fuel-efficient MAX fleet, our first quarter fuel efficiency improved 0.8% year-over-year due to reduced capacity in March.

As we cut flights, we operated fewer of our less fuel-efficient aircraft, which net to a slight improvement year-over-year.

And we should see further improvement year-over-year in second quarter for the same reason.

Finally, a few more quick thoughts on liquidity.

We ended first quarter with cash and short-term investments of $5.5 billion and we currently have a cash balance of over $9 billion.

We included in our press release this morning the detail of the sources of incremental cash this year, which totaled $6.8 billion through yesterday, so I won't list those again.

But we aren't done.

We remain laser-focused on reducing our cash burn and evaluating other sources of liquidity to further bolster our cash reserves, and we are in a great position to do so.

Our goal is to add capital in a way that protects the balance sheet and our investment grade rating while addressing the liquidity issue so that we are prepared for any scenario well into 2021.

We are the only domestic airline to be rated investment grade by all 3 rating agencies.

And even after our financing transactions thus far, we still have over $6 billion in unencumbered aircraft and roughly $2 billion in other unencumbered assets, such as real estate, spare engines and ground equipment, to name a few.

In closing and to reiterate our comments today, we are focused on keeping our employees and customers safe, conserving cash, adjusting our flight schedules and fleet as necessary, and leveraging our strong balance sheet and financial position to further boost our liquidity.

Despite our first quarter net loss, we still generated pretax return on invested capital of 18.1% or 14.3% after tax on a trailing 12-month basis.

We have a proven track record with a seasoned leadership team that has successfully managed through uncertain times.

We don't know how this crisis will continue to unfold, and we don't know what the recovery will look like from air travel to the broader economy.

But we came into this crisis as the best prepared U.S. airline, and we plan to emerge as the best prepared U.S. airline, both financially and operationally.

With that, Chad, we are ready to take analyst questions.

(Operator Instructions) The first question will come from Hunter Keay with Wolfe Research.

I hope you're well.

When you contemplate the debt maturities you're facing in the coming years and the issues you've had with the MAX, how do you think about the attractiveness of hundreds of lightly used NGs coming available on a global basis over the next few years?

Hunter, how are you doing?

We -- I'm doing great.

Yes, as we have significant flexibility with our fleet plan, Hunter.

And I'll just say that our preference is to get new airplanes from Boeing.

Boeing has been a great partner with us, and they have certainly been working with us to restructure our order book as we manage through the situation here.

So I think we'll have plenty of opportunities to get the new airplanes that we need from Boeing.

So -- but in any event, we will have plenty of aircraft should we have opportunities and need to tap into more airplanes.

And then I'll just also point out that we also have flexibility on the other side, which is to retire.

So we do have opportunities to retire our older airplanes, less fuel-efficient airplanes.

And just keep in mind that even though fuel prices are at low levels, fuel price -- fuel cost, as you know, is our second largest cost component.

So having a 14% savings on fuel burn relative to the next gen aircraft is still very meaningful and very significant.

So as always, we'll continue to do our fleet planning in a way that delivers good economics on an operating basis and also delivers low ownership costs for years and years to come.

Okay, Tammy.

And then, Gary, you mentioned you and Tom together are working on some high-level inputs on 3 -- well, you talked about 3 basic recovery scenarios.

I was wondering if you could just frame those out for me at a high level, either through capacity or revenue in terms of sort of -- I know you're not going to make any predictions here, but what are the numbers around those 3 basic recovery scenarios that you'd be comfortable sharing with us as you think about contingency planning?

Yes.

Sure, Hunter.

And I think they are really themes.

One would be the current trends continue.

So it's an L-shaped recovery.

Another one would be just a gradual increase off of an L-shaped recovery.

And then, thirdly, would be a U-shaped recovery, beginning, let's say, maybe in the fourth quarter, Tom.

So that work is underway.

And I think, Hunter, the way that I would want you all to think about this is we've got a commitment through September 30 with the PSP of the CARES Act to not involuntarily downsize the airline.

So we just -- if things don't improve, we'll have to do something after that.

So we just want to be very prepared with what our options are.

Tom, I would say, by mid-summer.

So we've got a pretty good line of sight to May.

My hope is that the May revenue trends continue to improve from where we are in April.

It does feel like we bottomed out the first week of April.

We've seen very gradual improvement in weeks 2 and 3. And so I would hope that that would continue.

We've got pretty modest expectations, I think it's fair to say, for June at this point.

And hopefully, we're too pessimistic there.

But by -- hopefully by July, August, we're beginning to see some improvement that would encourage us in terms of which plan to lock down on.

But I think the basic report is we've got to be prepared here, continue to be prepared, and we've got to be prepared for just about any negative scenario.

So hopefully, that gives you some insight.

As I mentioned, the net cash burn without working capital changes in April is $900 million.

We just -- we can't continue on at that pace.

So we would attack that with additional cost reductions and certainly cuts to the schedule would be the immediate levers that we would push.

You asked about the fleet.

Mike is working on the fleet plan.

And bringing in used equipment is more work, and it's -- it carries some additional risk, but we're not in a position right now where we're thinking that we want to grow the fleet anyway.

I think, Mike, you probably -- and Tammy said this, but -- so just thinking about the fleet, which again, is an element of answering your second question, our bias right now is to have fewer airplanes, not more airplanes.

If we get into the welcome scenario where we need more airplanes, I think we'll have all we want in a reasonable period of time.

So we -- Tammy made the point earlier today that we've got a program to retire a fair number of airplanes in 2020 and '21, that we were holding back on because of the delays with the MAX deliveries.

So I think we're looking more aggressively at that.

And just finally, we're already working on offering voluntary exit packages for our employees in addition to reduced work opportunities for employees in order to cut expenses.

So right now, the bias is towards shrinking the airline some, not radically.

Hopefully, we won't have to face that scenario.

But if we do, we'll have a plan.

And our next question will come from Duane Pfennigwerth with Evercore ISI.

Gary, I was hoping you could speak to what you have seen coming out of prior downturns.

Obviously, the situation has unique attributes.

But if we think back to post 9/11 or the period immediately following 9/11, it took the industry years to recover positive traffic growth, but it was only a couple of quarters for Southwest.

Why would post 9/11 be a good comparison for what is going on now?

And where do you think that comparison falls short?

I think at least the recessions that I experienced, Southwest was in a similar position where we were low cost, had a strong brand.

We were -- we've never been, of course, in the past, as large as we are today so we didn't have the same kind of a footprint.

But there's a lot of similarities.

We had a strong balance sheet.

We had plenty of cash, and we were prepared for the unexpected.

So I think all those are very similar.

The points that I was -- I'd be a little repetitive, but arguing earlier is that this is no doubt a recession and we've seen the same pattern in the previous 3 recessions that I experienced where business travel is cut very sharply, and businesses can be very disciplined and they can issue orders: thou shalt not travel.

And of course, we're seeing that now for different reasons, but perhaps in addition to economic reasons.

But the recovery, as you pointed out, of business travel, overall, was many years.

And so Southwest benefited in those recovery scenarios because of our low-cost and our low fares, and we gained share.

And it was very dramatic after the first Gulf War in the early 1990s.

And obviously, everything changed dramatically after 9/11, and we became, very shortly, the largest airline in the country by 2003, 2004.

So 2008 is more contemporary times for people, and you know what's happened there.

So I think that was my point, is that we are fully expecting that traffic will recover, but it will recover over a long period of time.

And we're sort of in the depths of this problem right now.

And it's hard to see through to the other side, but this too shall pass.

And I do hear and read comments about, well, New York is never going to be the same again.

Well, that's just crazy.

And no one knows exactly what the world is going to be like in the future.

But if we can have the roaring '20s following the Spanish flu of 1918, which is far worse than what we're experiencing today, there's every reason to have hope and confidence that we can get through this.

So -- but realistically, we just can't expect that things are going to be back to normal in 6 or 12 months.

I don't believe that for a minute.

So you need staying power, you need low cost, you need great people.

You need resolve.

And that's kind of where we are.

We also need a plan.

And I'm proud of our folks and how they have reacted so quickly to something that is really hard to wrap your mind around, but our folks have.

And if we need to radically restructure Southwest Airlines, we will do that.

I think we have a great product, and I think we have a very successful business model, and I don't feel that that will be necessary, but we're going to be prepared for every possible scenario here.

And if it's a V-shape recovery, well, we'll all high-five each other and we'll go buy some more airplanes.

But I don't think that's the most likely outcome right now.

Does that answer the essence of your question?

That's helpful.

And just for a follow-up, in light of the actions that you're taking today, can you just give us some perspective on how you're thinking about the loans portion of the CARES stimulus package?

What are the positives and negatives of the loans?

And should we be thinking about the actions you're taking today as an alternative to that?

Or in addition to?

Yes, sir.

And I know Tammy will want to speak to this too.

But basically, coming into this, and again, at a pretty high level, we felt like it was important for the government, the federal government, to flood our country with liquidity so we could get through this crisis without having a depression.

So that's my view, and I think that view is shared by many.

And the way we tapped into that is through the CARES Act payroll support program thus far.

So you're all very familiar with that.

Our share was $3.2 billion, $3.3 billion.

We've gotten half of that so far.

We'll get the other half over the next 90 days, May, April -- I'm sorry, May, June, July.

I'll go forward with the calendar.

June, July.

Yes.

So the other part that you are referring to is the big loan program.

There's a little loan component of the payroll support program.

But the other part of the CARES Act that's available to the industry is the secured loan program.

And our share of that -- our pro rata share of that is $2.8 billion.

The application is due this week.

We will apply.

We'll reserve access to that amount.

Tammy can talk to you about the cost of that.

I think right now, we're not committed to taking advantage of that.

We have until September 30 to do so, and that will give us time to evaluate other financing options.

Obviously, with today's news, we're putting ourselves in a really strong liquidity position that I'm very pleased with.

But I think Hunter mentioned it, we're going to need to think beyond just this year and think how we're going to pay down this debt, how we're going to restructure the balance sheet over time.

So Tammy and her team will continue, I think -- well, I know, to be very active in working this.

The thing about the loan program is it carries, from your perspectives, it carries a lot of conditions.

We can't pay dividends during the time that the loan is outstanding plus a year; can't do any share repurchases.

You may not be as concerned about executive compensation, but it's just another restriction on the company's ability to manage.

So I think the cost of the debt is pretty reasonable.

I'll let Tammy speak to that.

But the security, the collateral required, we've been led to believe will be pretty lenient, but we don't know.

So I think all of those things have to be thought through very carefully.

And it could be that we want to entertain taking out that loan and then paying it off pretty quickly as long as the conditions also come off quickly as well.

So right now, it's out there as an option for us, and we're not committed to take it.

Anything you want to add, Tammy?

No, Gary.

I think you really covered it all.

Just in terms of the structure of the loan, that would be a 5-year senior secured term loan.

And as Gary said, the terms are reasonable, LIBOR plus 250 basis points, and it's attractive that the loan is prepayable at any time.

So it really just gives us a lot of options here, and it's certainly a wonderful backstop to have, and we're very grateful for that.

The next question will come from Jamie Baker of JPMorgan.

Gary, I was just thinking, I've known you almost 30 years, and I think this is the first time I've heard you refer to the roaring '20s.

I actually like that reference a lot, just not really part of the vernacular in the past.

I wasn't there.

I wasn't there, Jamie.

Oh, yes.

Not suggesting that either of us were.

First question for Tammy, could you give us the composition of the $2 billion in unencumbered nonaircraft assets?

Just the -- so the $2 billion of nonencumbered, they're just miscellaneous assets like gates, slots, simulators, really base...

Engines.

Yes.

Just general asset such as that.

Okay.

But LaGuardia and D.C. slots are in that pool.

You're counting that in that?

Yes.

Yes.

It would include all of that sort of -- those sort of assets.

Yes.

But no lightbulbs.

There's no lightbulbs in that number.

Got it.

Got it.

But also no loyalty assumptions, correct?

No, sir.

Okay.

And second question, probably for Gary.

You indicated this morning not fully selling the cabin going forward.

I'm curious if you could expand on what sort of limits you're envisioning?

And also how this will be reflected in how you guide on capacity?

I assume when you discuss capacity and when you file schedules, it's still going to be based on the entire seat complement, where in reality, flown capacity may be lower by whatever seat cap you put in place.

I mean, I guess that could be a difference of as much as 1/3 if we're taking out middle seats?

Yes, sir.

So I definitely want to speak to that.

And as I mentioned in my remarks, we've got a series of work efforts, and this is one.

So -- and I'll just, at the outset, say, this too shall pass.

So this is not forevermore.

Things will get back to normal.

It's just a question of when and what do we need to do to get from here to there.

So in the meantime, we all know that there is a health concern.

So here in Texas, Governor Abbott announced yesterday that the state is opening back up for business and they do informal polls, and it shows 3 quarters of the people think it's too soon.

So we know that we have work to do to convince customers that are willing and able to travel that it is safe to come to the airport.

It's safe to get on to the airplane.

And we all know the techniques.

We're going to -- where you've got masks.

So there's PPE.

We'll be doing cleaning and disinfecting and Mike went through all the things that we're doing there, which I'm very proud of, but then you've got social distancing.

There was a new story just this morning of a woman who was on a flight who -- it was unexpectedly full and she was uncomfortable with that.

So for now, we are thinking, and Tom will be working on this, we are thinking that perhaps we won't take bookings that would fill up an airplane.

So it would be something less than that.

Where there is nothing physical that I want us to do to an airplane, we're certainly not going to take out seats and nor would we go to the effort to block a middle seat nor would we prevent anybody from sitting in a middle seat, but we would simply manage it from a bookings standpoint.

That is an idea.

We haven't announced that yet.

We haven't implemented that yet, but that would be a logical way to address a concern about social distancing getting on the airplane.

So the flip of that, Jamie, would be, fine, you can try to sell out the airplane.

But if people aren't willing to risk that, well, then, you're going to fail.

So all this, again, argues for low cost, really managing our expenses carefully, making sure we have plenty of cash to manage our way through this time period.

We'll be thinking about mask and things like that with customers.

I know that one of our competitors had an announcement on that today.

We'll certainly be doing everything that we have to do to follow CDC guidelines.

But in terms of mandating that customers and employees have to be doing things, just stay tuned on that part of the question.

The next question will be from Mike Linenberg with Deutsche Bank.

Just, I guess, 2 here.

When I look at -- and maybe this is actually a question for Mike.

When I look at your capacity cuts, it does seem like that you are cutting a bit less than what you would suspect with revenues down 90% to 95%.

And I'm not sure how much of that is just a function of your network where you do a lot more point-to-point, or the fact that it does give you the flexibility to do a lot more close-in cancellations, which, in theory, should preserve more cash.

Just thoughts on that?

It's really the latter.

And so I think as a rule of thumb, you all should assume that we will schedule more than we'll fly.

Right now, it's guesswork as to what traffic demand will be.

And obviously, we -- right now, we're -- it's not such a guess to know that it will be light.

But Mike's team will -- it's sort of a two-pronged effort.

Tom's team will publish a reduced schedule, which, believe it or not, takes quite a bit of technological effort to accomplish.

And then Mike's team, on an operating basis, days ahead of a scheduled flight, will go in and cancel aggressively.

So Tom and Mike, you all may want to comment on that.

I, too, want to jump in on that one.

Mike, I actually like where we are at this point with our reductions for April, May and June.

If we need to take more capacity out, we can.

It's just -- honestly, it's a lot easier to take capacity out than it is to put capacity back in.

And I'd like to maintain as many itineraries as we possibly can and just respond accordingly.

But I think at this point, if you look at where we are -- take me, for example, our ASMs are down about 65%, but we're only reducing our O&D markets by 28%.

So we're maintaining itineraries.

Now that's quite different than the mix of our competition.

So I feel really good that we are serving the markets.

We have product on the shelf, if you will.

And if the product isn't selling, we'll take it out.

That's what the operation is like, we'll take it in the NOC and we'll pull the capacity out.

It's just very hard to put it back in.

So I'd rather have it on hand and pull it out as necessary.

So Mike, that's why we said that we'll be reducing our capacity at least 60%.

And it could -- Mike, from the schedule, you can reduce it another 10 points, can't you?

Yes.

So we've got about 1,400 flights-ish scheduled for May.

And that's close -- we're operating slightly fewer than that today.

So I think that we can cut that down a little bit if we need to.

I think it's positioned really well.

And if the traffic isn't there, we're going to -- we'll be aggressive in cutting expenses.

And the other thing that we're trying to do here is reach a goal or a milestone of producing a cash profit, just looking at the flight operating costs.

So bringing in a little -- while it might appear on the surface that there's too much capacity, that's still cash positive, if you will, even though it may not be enough cash to cover overhead.

That's still saying that it's better to fly that flight and use that airplane as opposed to letting it just sit there on the ground.

Okay.

That's very helpful.

And then just, Gary, back to your -- in your opening comments, you talked about the importance of low fares.

And then I think within a sentence or 2, you also talked about this modification of the customer experience.

And it does feel like that there will be some permanent change to how people book and fly going forward.

Are those incongruous to have arguably higher costs tied to this new experience versus low fares?

How do -- how are you thinking about that now?

And I realize it's early.

Yes, Mike, it is early.

And again, I'm not willing to accept yet that the flight experience is forevermore changed.

So I don't agree with that.

For this year and until this pandemic is behind us, oh, yes, I think we're going to be living and operating differently.

Going to a restaurant is going to be different.

So -- but at some point, this will get behind us, and we will get back to normal.

So in the meantime, I think that's part of the restructuring effort that Tom is working on.

We need to be mindful of those things, see what kind of impact these things might have to our cost structure or our revenue opportunity.

I think what -- the point I was trying to impress on is it doesn't matter, everything is relative.

So it's -- this is going to apply evenly across the industry in terms of the change from here, and it just makes the low-cost position even more important than ever.

It's -- because there's going to be cost pressure in addition to revenue pressure.

And I think it's back to Duane's question.

History shows that through recessions, it's the low cost that wins, and that's served us well and, certainly, where our focus will be more than ever here going forward.

Ladies and gentlemen, we have time for one more question.

And we'll take our last question from Joe Caiado with Crédit Suisse.

Gary, I'll ask a high-level question.

The immediate focus has obviously been on doing everything you can to position Southwest to survive and to navigate the current crisis and come out the other side of this.

Are you worried at all about the supply chain that sits underneath you and especially perhaps smaller vendors and suppliers and their ability to navigate the crisis and then ultimately support an industry recovery?

Can you just comment on what you see in the supply chain and any concerns that you have there?

Well, Joe, that's a great question.

I think in this -- I mean, this is a catastrophe.

So it -- there's plenty to worry about.

And yes, I worry about that.

I worry about our suppliers.

There was an article in Aviation Daily, I guess it was this morning, about Airbus and reporting that they may not survive.

So this -- yes.

Now in terms of what we've seen so far, I don't think we've seen -- of course, it's only, in fairness, 7 weeks into this, and we got a long way to go.

But if Tammy leads up our supply chain, I don't know of any -- we're not running into any problems that are getting in the way of us executing.

I'll put it that way, that I'm aware of.

I agree, Gary.

I think our supply chain, our team is doing a fantastic job in what has been a really challenging situation just in terms of PPE.

They've worked really hard to secure that, but they've been able to secure what we need.

And at least so far, no major disruptions.

Okay.

Well, that wraps up the analyst portion of the call today.

Thank you all for joining, and have a nice afternoon.

Thank you.

Ladies and gentlemen, we will now begin the media portion of today's call.

I'd like to introduce Ms. Linda Rutherford, Senior Vice President and Chief Communications Officer.

Thank you, Chad.

Hello, everyone, and welcome.

And I think we'll go ahead and jump right into the Q&A portion, Chad, if you want to give them some instructions on how to queue up for questions.

(Operator Instructions) And our first question today will come from Mary Schlangenstein with Bloomberg.

I just wanted to ask real quickly.

Would Southwest go to the point of requiring passengers or crew to wear facemasks during flight or at the airport, I guess?

Mary, this is Mike.

We have been trying to follow CDC guidance as best we can.

We have highly recommended that our employees and our customers wear mask while they were at work or traveling.

And to date, we have seen the vast majority of our employees and our customers just naturally follow those instructions.

But we are in the process of rolling out a temporary policy that, at least with respect to our employees that are on the frontline-facing customers that in the near term, they'll need to wear masks while better work in their front-line positions.

And then we're also going to be in a position to have available for customers a mask if they would like to wear one and do not -- and they don't have one with them.

Okay.

But at this point, no requirement for passengers?

No requirement.

Yes, Mary.

But I do think that it's a valid question and one that it's fair to say that we're continuing to think through ourselves.

I just don't think we've gotten back to the point where the vast -- the majority of people have been confronted with this.

So everybody has been sheltering at home, and here in Texas, as we were talking earlier, now people can venture out starting on Friday.

And I think that we're going to find that there's a strong majority of people who aren't comfortable unless everyone around them has a mask on as an example.

So I think it's a little bit premature for us to make that judgment.

I think we're all inclined to let people make their -- use their own good common sense, but in this particular case, we may be -- we may need to be more aggressive there, but we haven't made that decision yet.

The next question comes from Tracy Rucinski with Reuters.

I wanted to ask about your agreement with Boeing to reduce MAX deliveries through 2021 and your order book review.

Is it fair to assume that as deliveries get pushed down the line that some will ultimately be canceled?

So yes, this is Mike again.

So we have -- so the MAX is a really good airplane.

We've got a great price on the airplane.

It's fuel-efficient.

It's got great engine performance.

The engine costs are really good.

And just in the long term at Southwest Airlines, it will be in our best position to bring that airplane into the fleet.

So we have a lot of flexibility with the Boeing order book.

And right now, we have so many airplanes sitting on the ground, it doesn't make a lot of sense to bring additional airplanes in from Boeing.

So we do have a lot of flexibility to shift orders down.

But as Gary said, I do think that this is going -- the industry is going to rebound, and we're ultimately going to have -- need airplanes to fly in the fleet.

And so we do want to bring the MAX on to the fleet.

And if we need to early retire or manage the fleet by taking older airplanes out of the fleet, I think that's the best position for us to be in.

But Tammy, we haven't -- there's no cancellation of the position.

They're just moving.

No.

Yes, I think your takeaway should be that we're still working through restructuring our order book with Boeing.

And just what we announced so far is just -- is a piece of that.

But it's just too early to know.

And obviously, Boeing is going to be very thoughtful with the MAX return to service, so we -- and we'll work with them on that and a delivery schedule that makes sense for Southwest, but no cancellations so far.

That's really helpful.

And just one more, if you could help us understand how the new situation affects your negotiations with Boeing regarding MAX compensation?

Well, I think that's all part of it.

In fairness, we don't need the MAX right now.

We don't need all the airplanes that we have.

So it's hard for me to argue to them that we're being damaged by MAX delays here in April, to be brutally honest.

So all of that, again, is -- we have a great relationship with Boeing.

I think, arguably, we're their best customer around the world.

And we've worked together through this MAX crisis so far, and I have every reason to believe that we'll continue to work very well together.

But there's nothing there's -- we don't have an issue with the MAX as we sit here today.

We're anxious to get it back in the air, and they're working hard with the FAA to get it ungrounded and recertified.

So we'll be looking forward to that.

And our next question will come from Leslie Josephs with CNBC.

I had just a question about your conversations, if you've had any, with the Federal government, the FAA, CDC, with Trump himself about safety at airports?

Are you guys talking about either testing passengers or taking temperatures or anything like that?

I know Trump is speaking about that earlier today.

And also, Tammy, can you just go over the numbers for the MAX deferrals?

Well, the answer to your first question is yes.

We are talking with the administration, members of Congress about what the protocols should be.

And I think it's fair to say that the airlines for America Trade Association is leading the effort to advocate for some kind of health screening at the security checkpoint.

And I know our Chief Operating Officer has -- Mike Van de Ven has argued that it is -- it's just another element of security, if you will.

Just making sure that you don't have sick people on an airplane that could infect others.

So absolutely, those ideas are out there.

I don't have anything to report this morning other than what we agree with your thought that some kind of screening makes sense.

And I think to get people flying again, they need to be comfortable.

And I think that, that's one way to provide additional comfort.

But that would be in the hands of the federal government or some federal agencies doing those checks themselves there?

Well, that would be my opinion, and that's what we've advocated with our trade association, and that's what I believe they'll take forward to the administration and the members of Congress.

But again, your question is being actively discussed.

I don't -- I think what I'm reporting is I don't think any decisions have been made.

What -- the scenario that you're asking where perhaps the federal government does not take up a role, then what would we do?

I think that, that's a question we'd have to answer.

I think a lot of it, again, just depends on how long this goes on.

We're not prepared to be medical professionals.

But we're asking all the same questions that you are.

And obviously, again, speaking for Southwest, advocating that the federal government assume that role.

The screening is there.

So it seems very natural to be done at that point.

And is it possible for the MAX deferrals, too?

Is it possible, Tammy?

Sure, I'd be happy to take you through that.

So if you go back to last quarter, where we were sitting at that point in time is if you look at the MAX aircraft that were coming directly from Boeing, there were 107 deliveries.

And then we had another 16 that we are scheduled to take delivery from third parties.

So the agreement that we now have with Boeing is that we will take no more than 48 aircraft between now and the end of next year.

So that's how we get the reduction of at least 59.

So again, we're still working with them on the specifics and exactly how many airplanes we would want to take between now and the end of the year.

So keep in mind, with respect to the MAX, if you'll recall, we -- Boeing has 27 of our MAX aircraft that have been billed and produced.

And so at this point, we're not planning to -- we're planning to take less than those 27.

Again, we haven't worked through those details with Boeing, so those discussions are ongoing.

And as we lock that down, we'll certainly share that with you.

Leslie, this is Mike.

Also, just -- I know that you know this, but just remember that Boeing is not producing those airplanes today either.

And so they don't have a production schedule between now and the end of next year, that they can even tell you exactly how many airplanes would be available.

So that's part of the discussion with them about the order book.

What is their production capacity, what do we need and how does that start to play together.

The next question comes from Alison Sider with The Wall Street Journal.

Just wondering if you could talk about sort of the state of, I guess, labor relations and negotiations with the various workgroups right now.

It seemed like there was a lot of solidarity going into the discussions with the government and wondering if that's holding up or if there's any sense that there's sort of -- that's kind of fraying a bit?

Well, there's not -- just because of the severity of the crisis, there's just not a lot of -- there's not a lot of negotiations, if you will.

I think what we've got to do now is what I was referring to earlier, which is come up with scenario plans.

And then depending on how severe they are, I think that's when we would need to engage with our labor unions.

We've kept them informed about what's happened to the business.

We've kept them informed about the actions that we've been taking.

We've all had a common concern about the health and well-being of our employees.

And so I feel like that we are well aligned on that.

But there -- in an environment where we would need to seek concessions, all of that -- none of those conversations have taken place.

And I don't -- I think everyone can understand that nobody wants to make concessions.

I think my overarching message to our people, not labor relations, just our people, is that we're going to have to work together to get through this.

And it just -- and everyone in the country, with very few exceptions, is having to make sacrifices, and in some cases, very painful sacrifices.

That's nobody's fault.

But that is the reality.

And so I think we, at Southwest, are a family.

And just want to make sure that everybody is mentally prepared for the reality of the challenge.

And the fact that we may all have to band together here and make some painful sacrifices.

But that -- those conversations have not taken place other than just to try to set the expectation, just like I've shared it with you.

My hope is that we get through this without a lot of pain, but we've got to be prepared for the worst.

And it's pretty bad here in April.

So it's not theoretical.

I mean it's right here right now, and we've got to get passengers on the airplane in numbers that are sufficient to pay the bills or else we're going to have to take, obviously, a lot more drastic action.

But labor relations are no different than they were.

They're very solid.

And I got to believe that our people when -- if the time comes, and we need to do some things, I think we'll have a lot of very willing participants.

Is there any like normal ongoing work with contract negotiations like with pilots?

Or is that all kind of on hold until there's a little more clarity?

Yes.

All of that's confidential.

But I do think just -- yes, the headline is everything is in suspense when it comes to that because all of those are talking about the future.

And the future is just so uncertain.

It's really hard to -- it's back to Tammy and Mike's points about Boeing.

It's really hard to make plans for the future with Boeing when you don't know what the future is.

So I think -- and the other thing, Alison, is that everybody realizes that this is an emergency.

So there -- the health analogy is apt.

The Southwest is in intensive care.

So there are things that must be attended to today.

And there's -- just in terms of prioritizing the work efforts, there's things that can be attended to later.

And clearly, that's one of the laters.

What our people want is job security and pay security and benefits.

And they've got that at least for now.

And so we're not -- I think that's what they are most interested in, and we'll worry about what changes we can make at a later date.

But right now, it's -- we're just trying to make sure that we have a plan to survive this, and then we will be working hard to make sure that we have a plan to thrive once we get through this.

The next question is from David Koenig with the Associated Press.

Gary, you've covered some of this in response to Jamie Baker's question and also Mary's and here and there elsewhere.

But could you kick off again the things you're likely to do to make customers more comfortable about flying again?

And one example of that would be -- you discussed this, but how much less than full would you book flights?

And how long do you think you will have to do that?

You bet, Dave.

Well, I think it's just all the basic things that the country is going through in terms of -- we need to defeat the virus, right?

So we need a vaccine.

We need therapies to treat people who do get the virus.

We need testing to know who's sick and who's not sick.

We need the antibody testing.

All of those things I think are important for our customers to get comfortable going back to their normal routines.

And that would include air travel.

Then within the air travel environment, it's -- I think -- Mike, it's mostly just thinking about the airport.

I'm not talking about our employees.

I'm talking about our customers.

So it's really just thinking about the airport and the airplane environments.

So the screening -- health screening of individuals coming into the airport is pretty much ready-made given that you screen every single passenger who gets on an airplane.

So I think that would be a very logical thing to pursue, and that was an earlier question here with the media session -- or section.

Then in terms of what the airlines can do, I think it's providing masks for customers.

Maybe other PPE besides that, but primarily I think it's a mask.

And maybe hand sanitizers.

And so there are things like that to be considered.

And Tom Nealon is leading up the customer effort on that.

And I think you should expect some announcements from us soon on that front.

Then you have -- what's left is within our environment, it's pretty much the social distancing.

So we can do things within the airport to address that.

We can do things to modify our boarding process to accommodate social distancing.

And then you're finally left then in with the airplane.

And if you left every middle seat open, that would be booking the airplane to 2/3.

So you have a 66.66% load factor.

And I view that idea as a temporary thing.

Again, I don't accept that forevermore, people are going to stay 6 feet apart from each other, and we're masked for the rest of our lives.

I just don't believe that.

I think we'll get past this pandemic.

And with a little luck, we won't have one for another century.

But until we get to that point, we've got to be prepared for masks, certainly, and social distancing, certainly.

And I think we've got an effective way to think about that.

The other thing that I haven't -- I should have mentioned earlier, Tammy, to -- in our call, and shame on me for not doing it.

But we are a really high-quality, low-cost airline.

And we have never gotten our costs low by jamming extra seats on airplanes.

So it's a very comfortable seating environment.

And I think that's going to work again in our favor here.

And on the -- just circling back to the middle seat idea, Dave, I finally -- if I'm traveling with my 2 granddaughters, and I want one of them to sit by me in the middle seat, I want to have that option to do that.

So we're not going to physically restrict this or ask our flight attendants to be policemen and women on this.

We'll just -- we'll manage that.

If we do this, we'll manage it in some other means by simply just taking less than 100% bookings.

Sure.

I don't want to get into a discussion of pitch and all that, but you could say that, well, 2 people sitting in the same aisle seat, but one row back from each other.

They're closer than 6 feet.

So that's why I wondered if you meant take -- holding capacity at something less than 67%, but it sounds like that's kind of where you're thinking.

That's my thought.

Where we end up, we haven't made a final determination on that.

But with 2/3 of the airplane, it -- David, it kind of gets back to the same point, which is we just can't burn $900 million a month forever.

And so we've got to have some balance between social distancing and just the affordability for people to fly, right?

Even here in April, we have tens of thousands of people flying every single week, every single day.

And so I mean that's what the government has asked us to do is keep the transportation lines open.

So we're going to have to find some balance there, but we recognize that we'll need some distancing in terms of the airplane experience.

And David, this is Mike.

And the distancing is just that -- I just want you to be aware, that's just one additional form of mitigation, but there are a lot of other things that are going on in the airplane.

We've got a deep clean program of the airplane with those electrostatic misters and antimicrobial.

So there will be no disease floating around on that airplane.

We have -- we'll have -- everybody will have access to good personal hygienes with wipes or hand sanitizers and masks on board.

And then I just don't want you to forget that everybody is sitting and facing in the same direction.

We have very sophisticated filtering systems on the airplane.

So it's not like those viruses just spread around the airplane.

So I think the airplane environment is set up really well to be a pretty disinfected environment for our customers.

And if we can go find a way to just enhance that a little bit with some social distancing, that's just additional goodness to it.

And I think you'll see the same thing as you go through the airport with respect to the cleanliness of the facilities and then the availability for our employees and our customers to have exceptional personal hygiene in place as they go through that environment.

Our next question will come from Dawn Gilbertson with USA Today.

Gary, you mentioned at the top of the call, you saw -- you think things bottomed out first week of April.

You saw gradual improvement in the second and third week.

Can you give us any color on where you're seeing even the slightest uptick?

Are they tuned from these states that are lifting restrictions or maybe never had really tight restrictions?

And related to that, it may not feel like it, but a month from now, summer vacation season is set to begin.

Does Southwest see any scenario where there's a summer vacation season of any significance?

Yes.

Dawn, to your first question, yes, that's all proprietary information.

So one of the things that Tom and his team are doing is just looking to the future and seeing what route changes we can make that will really help strengthen our strong points.

And if there's some temporary exits that we want to make, we'll do that.

But otherwise, we'll keep that information very close to the vest.

Your summer travel season question is a good one.

We have decent bookings in place for July as an example.

We just have no idea.

We have no way to predict where cancellations will be.

And obviously, they've been very vigorous for the last 7 weeks.

So that's a question that we have.

So it's -- we'll be watching the demand for sort of June, July, August carefully.

If, in fact, the company -- the country opens up like we are reading about, hearing about, there are obviously half a dozen or more states that have relaxed their stay-at-home orders.

Businesses are opening back up.

I think that, that will put vacationers in a position where they can be more confident that, "hey, I can go somewhere fun and there will be something to do when I get there." So we -- I'll just use my family as an example.

They are determined, even though they've all sheltered in place, and they've been very cautious.

They are determined that we're going to the beach in July for vacation.

And I got to believe that we're one of many.

So it just remains to be seen whether or not that will materialize.

But there's no evidence right now other than extrapolating the current.

There's no evidence that would say that people won't be traveling for vacation.

But you have to believe that things are going to open up and that the kind of steps that Mike and Tom and Tammy and I have been describing as far as cleaning and mask and social distancing, all that will be acceptable to people.

Tom, any thoughts?

I guess just 1 or 2 thoughts.

In terms of any specific cities or markets where we're seeing a decline.

Yes, obviously, New York is having a tough time, that's pretty -- there are hotspots like that.

But I think more than that, I think that what we're seeing is the bookings are -- it's really more of a barbell kind of booking curve as opposed to 0 to 6, 7 to 13.

It's kind of spreading out 0 to 6, so people that really need to travel tend to be traveling.

And then 40 days and beyond, which kind of gets your summer question, that's where the other piece of the booking tends to be coming from.

And Gary's point is right.

Up until COVID hits, we had a pretty nice booking curve for June, July.

The question is going to be what he said, which is what does the cancellation curve look like.

So we just have to wait and see, and that will begin to be self-evident here in not-too-distant future.

But the demand right now in April, May and June, for those booking time frames is just pretty anemic, right?

That's just where we are.

And our last question today will come from David Slotnick with Business Insider.

Gary, you said earlier in the call, I think, in the very beginning that in the past recessions, you've seen corporate travel take about 5 years to return.

Everything that I'm reading is agreeing that corporate travel is probably going to -- obviously see a slow recovery than leisure.

Do you think in this case that it might be a bit of a longer return for corporate travel or delayed beginning of that return just because of company's fear in liability of having their employees travel during COVID, maybe events, meetings being canceled because work from home has been proven to be at least relatively feasible during this?

Yes.

The only thing I was going to say is it's -- when we think corporate, we think the really big companies, and Tom mentioned our corporate effort earlier.

So we're really referring to business travel, overall, which is rule of thumb is about 1/3 of the traffic for us and 1/3 of the traffic for the industry.

I think you can argue it many, many ways.

I think a lot of business travel and corporate travel for that matter is -- would be in large meetings or conventions.

And I would suppose that those are going to be slow to come back on for 2021 because a lot of those things have a long lead time, and you would think that people -- I mean, I even think of our own company with large events that we host, it's just really hard to know exactly what the world is going to be like.

And therefore, that kind of slows down making plans and making commitments.

So -- but that's sort of, again, an 18-month time horizon.

I read predictions by people that in 18 months, things are going to "be back to normal." And I wouldn't disclose that -- I wouldn't discount rather that possibility.

I think what we're trying to do is just put ourselves in a position where we can react effectively either direction.

If we need to upsize, that will be a pleasant thing, and we'll do that.

If we need to downsize, it will be less pleasant, but we'll be able to do that.

And I think the main thing I was trying to share with you all earlier is that based on history, in a recessionary environment, it is a long recovery period for businesses.

And it's intuitive to me on why that would be.

This one feels like -- which I think is your point, this one feels like it could be worse.

And you've got companies that are ordering their employees not to travel.

Again, there's historical precedents, I think, that are examples for these kinds of scenarios.

And I just don't think -- we're just not in the business of making predictions, I guess.

But I don't think there's any way to know.

And I know a lot of people are using Zoom and there's predictions that, that will forevermore change meetings, and I just don't believe that.

I think it's just one more tool that people have.

And if you're like me, I'm sick of these Zoom calls.

I'm ready to go talk to people face-to-face.

So I don't -- we don't know, but we're certainly prepared for a very long recovery.

Ladies and gentlemen, this concludes our question-and-answer session.

I would like to turn the conference back over to Ms. Rutherford for any closing remarks.

Thank you, Chad.

Thank you all for being with us today.

As always, if you have any follow-up questions, the communications team is ready to help you out.

You can give us a call at (214) 792-4847 or visit us at our media newsroom, www.swamedia.com.

Thank you all very much.

And thank you.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect your lines.