22-Apr-2021 Southwest Airlines Co.

Corrected Transcript

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22-Apr-2021

Southwest Airlines Co. (LUV)

Q1 2021 Earnings Call

Southwest Airlines Co. (LUV) Q1 2021 Earnings Call

Corrected Transcript 22-Apr-2021


2 Copyright © 2001-2021 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Ryan Martinez Managing Director-Investor Relations, Southwest Airlines Co.

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co.

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co.

Thomas M. Nealon President, Southwest Airlines Co.

Tammy Romo Executive Vice President & Chief Financial Officer, Southwest Airlines Co.

Andrew Watterson Executive Vice President and Chief Commercial Officer, Southwest Airlines Co.

Linda B. Rutherford Chief Communications Officer & Senior Vice President, Southwest Airlines Co.

Robert E. Jordan Executive Vice President-Corporate Services, Southwest Airlines Co.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Stephen Trent Analyst, Citigroup Global Markets, Inc.

Hunter Keay Analyst, Wolfe Research LLC

Ravi Shanker Analyst, Morgan Stanley & Co. LLC

Michael Linenberg Analyst, Deutsche Bank Securities, Inc.

Brandon R. Oglenski Analyst, Barclays Capital, Inc.

Jamie N. Baker Analyst, JPMorgan Securities LLC

Alison Sider Reporter, The Wall Street Journal

Dawn Gilbertson Consumer Travel Reporter, USA Today

Kyle Arnold Aviation Writer, The Dallas Morning News

Leslie Josephs Airline Reporter, CNBC

Richard N. Velotta Assistant Business Editor, Las Vegas Review-Journal, Inc.

Jay Singh Deputy Content Manager & Lead US Journalist, Simple Flying





MANAGEMENT DISCUSSION SECTION

Operator: Hello. And welcome to the Southwest Airlines First Quarter 2021 Conference Call. My name is Keith,

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. After today's prepared remarks, there will be an opportunity to ask questions.

[Operator Instructions]

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

Please go ahead, sir. ......................................................................................................................................................................................................................................................


Thank you, Keith, and I appreciate everyone joining today. In just a moment, we will share our prepared remarks

and then open it up for Q&A. And on today's call, we have our Chairman of the Board and CEO, Gary Kelly; Chief

Operating Officer, Mike Van de Ven; our President, Tom Nealon; and Executive Vice President and CFO, Tammy

Romo. We also have other senior executives with us for Q&A, including Andrew Watterson, Executive Vice

President and Chief Commercial Officer; and Bob Jordan, Executive Vice President of Corporate Services.

So, a few quick reminders and then we'll jump in. We will make forward-looking statements today and those are

based on our current expectations of future performance and our actual results could differ substantially from

these expectations. We also had several special items in our first quarter results, which we excluded from our

trends for non-GAAP purposes and we will reference those non-GAAP results in our remarks as well. We have

more information on both of these in our press release from this morning, so please make sure you check that out

as well as our Investor Relations website.

So, with that, we'll get started and I'll turn over the call to Gary. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co.

Thank you, Ryan. And good morning, everybody. And welcome to our first quarter 2021 call. The first quarter

results are notable first of all because they're a lot better than what we thought they would be back in January. But

even with that improvement, we still lost $1 billion, and it was worse than our fourth quarter results due to the

weaker seasonality of January and February travel. And clearly, that's not sustainable, but fortunately, we're here

to report that we believe the worst is now finally behind us. We have a much better outlook and report for second

quarter, and we'll give you all a full brief on the first quarter results and our second quarter outlook, but here are a

few topside highlights before I pass the call over to Mike.

Number one, thankfully, we received a second round of payroll support or PSP from the federal government and

effectively covering the first quarter. It was much needed. We're very grateful. We're the only airline who has

avoided pay cuts, layoffs, furloughs and the like. And I'm very, very gratified that our 50-year record remains intact

on that front. Not counting working capital changes and cash flow, our cash losses of $1.3 billion were more than

offset by the PSP. Number two, beginning with a mid-March inflection point, we finally began to see bookings

improve from the nine-month down 65% flat-line that we had been experiencing. So, vaccines, vaccinations, case

counts, and spring break all converged in the right way, and sensing this, we boosted our capacity by 50%

overnight or 1,000 daily departures in the middle of March.





Number three, taking into account our Voluntary Separation Program and attrition since June, our staffing

currently is at 92% of our June 2019 levels. And in addition, we've had thousands of people on leave. And now

that we're adding flights, we're smoothly recalling those that are needed on voluntary leaves and having avoided

the mess associated with furloughs. And as a result, we plan to fly 96% of our June 2019 ASMs, albeit with a

different route network, but the point being is that we're very well prepared to flex up our capacity. And even

having said that, I think that we're very well aware that it will still be messy, and we'll have to carefully manage.

Number four, please understand that the path back to breakeven and beyond is dependent upon two things.

Number one, we have to have sufficient flight and seat activity and you need to read into that, that means more

than what we've been doing prior to March. And number two, we've got to have more customers to fill those flights

and obviously read into that revenue. So, we have too much fixed costs for us to be profitable below roughly

3,000 to 3,300 flights a day and at least now it's realistic for us to project breakeven cash flow scenarios, which

are possible here in the second quarter.

So, in summary, I'm a lot of things here this morning. I'm relieved. I'm optimistic. I'm enthused. I'm grateful. And

I'm especially thankful to our tens of thousands of employees who have fought their way through this pandemic

and gotten us at least to this point. We've got a long way to go, but I'm very, very confident that we can all depend

upon our Southwest Warriors. They're very resilient.

And then finally, I'm pleased with the performances. The operation has been superb. The new cities are meeting

or exceeding our expectations. I'm glad to have all of them as permanent additions to our route network. The

addition of Global Distribution System capabilities could not have been a more timely add to our capabilities as

we're pushing aggressively into the huge managed travel business market and we've got a great domestic

network. We've got great service. And finally, they're going to have access to low fares. The cost and the

spending performance has also been excellent. And we're making great progress towards restoring our historic

productivity and efficiency. And then, I'm absolutely delighted with the deal that we reached with Boeing last

month that strategically secures our position as an all 737 operator with all the attendant competitive benefits that

that enables.

And with that, I'm going to turn it over to our COO, Mike Van de Ven, who I know will elaborate more on that, but

among other things. But Mike, great job, great performance, so take it away. ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co.

Well, thanks a lot, Gary. And well, we really had an action-packed start to the year. And I'm very proud of our

people and how they just continue to rise to the occasion. They've opened up four new stations in the first quarter

and two more in April, implemented a federal mask mandate, returned the MAX to service, secured a new long-

term Boeing order book for both the MAX 7 and the MAX 8, and reached service agreements with GE and CFM

International for the LEAP-1B engines, and all of that while running an exceptional operation.

So, we ended the quarter with an on-time performance of 86.2% and that was good for third in the industry and

that included a reduction of roughly 4.4 points due to weather. As you know, we've got large operations in Texas

and the entire state froze for several days in mid-February and that impacted our network as well as a winter

storm Xylia, which impacted Denver as we launched into our March base schedule. So, speaking of our March

schedule, we returned the MAX to revenue service on March 11, once we completed all of the maintenance

requirements, the pilot training and we had a self-imposed set of 200 plus readiness flights on the airplane. The

launch was limited to ten lines of flying and the airplanes was separated from the rest of the fleet for the first





month of service. On April 12, we increased the lines of flying to 55 lines and the aircraft are now fully

interchangeable across the network.

We currently have 64 MAX aircraft in the fleet, and we have 32 of those aircraft currently out of service, awaiting

FAA approval of repair instructions from Boeing. The repairs will ensure that a sufficient ground path exists for

certain components of the electrical power systems. These aircraft were identified by Boeing as part of a specific

production run and the impact of MAX lines of flying are being covered by spare aircraft in our next generation

fleet. We're not experiencing any significant operational impacts and once we receive FAA approval, it will take

two to three days per aircraft to make the repairs and then with all the aircraft work expected to be complete in

roughly three weeks.

So, turning back to the first quarter performance, our bag handling continues to produce all-time best company

results. We delivered 99.7% of all bags in planes without a mishandled claim. And as you know, we do that

carrying more free bags than anyone in the industry. And we continue to lead all marketing carriers with the

lowest customer complaint ratio to the DOT.

Perhaps the highlight of the first quarter was securing a new long-term order book with Boeing for the MAX 7 and

the MAX 8 as well as our agreement with GE and CFM International to maintain the LEAP-1B engines. So, we

announced our order book on March 29 and there are just a couple of items that I'd like to highlight. First, we

added 100 firm orders for the MAX 7, which will be the replacement aircraft for our 737-700s. We also converted

70 MAX 8 firm orders to MAX 7 firm orders. And that brings our firm order book for the MAX 7 and the MAX 8 to

200 and 149 aircraft respectively. We also added 155 options for either MAX 7 or MAX 8 aircraft and that brings

our total number of options to 270 aircraft and the interchangeability of the options of – between aircraft types,

that just gives us tremendous flexibility.

So, when you put all that together, we are maintaining a substantial operational and economic efficiency as a

result of the single fleet type and the LEAP-1B engine provides at least a 14% better fuel efficiency, quieter

engines and it has excellent dispatch reliability to support our on-time operation. We intend to retire a significant

number of our roughly 460 737-700s over the next 10 to 15 years and the MAX 7 is best-in-class aircraft for us in

that 150-seat category, just like the MAX 8 is the best-in-class for us at the 175-seat category.

The acceleration of our fleet modernization I think makes great economic sense. It will also reduce carbon

emissions and noise levels which of course is better for the environment. And it also provides a superb cabin

experience for our customers and our employees.

Looking forward into the second quarter, we have a couple of important capabilities that we're going to add to the

operation. First, we're in the final stages of obtaining ETOPS certification for our MAX 8 fleet. So, the MAX and its

fuel burn advantages will allow us not only to reduce our operating cost to Hawaii, but it's also going to allow us to

fill all 175 seats in winter wind conditions, and that's something that we can't always accomplish with the next gen

fleet. And that was our plan all along, but of course, the efforts were delayed as a result of the MAX grounding.

Second, we're going to begin a fleet transition to an all-new maintenance record keeping system, beginning with

our 737-700s later this month. And this system replaces our wizard system, and that system is nearly 30 years

old. This new system provides us a foundation to real-time maintenance record keeping, paperless records,

improved planning, better analytics, and automated controls to enhance regulatory compliance. Once we

complete the transition of the 737-700 fleet, then the 737-800s and the MAX will follow later this year.





So, just in closing, I can certainly feel the operational momentum building and I have to tell you, it feels good. We

are in the process of bringing our entire fleet back into an operational status. We're coordinating our staffing to

ensure that we're resourced to fly at whatever our desired levels are. And we're introducing new capabilities and

navigating through an environment that continues to be impacted by COVID. And our people are just magnificent.

I can't say enough about them. They do all of these things, they still run a great operation, and it's amongst the

best we've ever delivered. And they're just the best team that I've ever been associated with, and my deepest

thanks to each and every one of them.

And so, with that, President Nealon, over to you. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co.

Okay. Thanks, Mike. Good morning, everybody. While we provide a pretty detailed investor updates each month

throughout the quarter and our earnings release certainly provides a lot of information this morning, so I'm going

to try not to repeat what you've already heard, but I do want to provide some color regarding first quarter's

revenue performance as well as some perspective on near-term trends and our outlook for the second quarter.

So, as you know in the first quarter, operating revenues decreased 52% year-over-year, we're down 60%

compared to the first quarter of 2019. And this is better than we were expecting three months ago when we last

spoke with you during the January call. February operating revenues ended up about 5 points better, in March,

about 15 points better, than our estimates in the same time. And that has really been the story over the past few

months. We had seen steady and very encouraging improvements in leisure travel demand and bookings week

after week, really since about mid-February.

We saw a very nice improvement in March with operating revenues down 10% year-over-year and down 54%

compared with March of 2019, which again was better than our guidance range of down 55% to 60%. March load

factor was 73%, also better than guidance, and passenger yield was down 34% year-over-year. Yields were down

quite a bit for the month once we got into March, but once we got into March, rather fares improved each week as

we saw demand steadily increase.

Close-in bookings held up well. We also began to see the booking curve extend further out. Keeping in mind that

business travel remained fairly stagnant, which I'll hit on in just a few minutes, I'd say that we were really very

pleased with March's overall performance. We were able to get a very good base of bookings in place for March

earlier in the booking curve and we did this through very targeted promotions that we ran back in December,

January and February time frames. And once we got into March, our revenue management team was able to do a

really nice job of managing our inventory closer in and managing yields.

And as expected, spring break performed really nicely, very well. It was bigger than just the spring break story.

The entire month of March really saw a steady build in passenger traffic. And just to give some perspective,

March's load factor was 20 points higher than what we experienced in January. And that was actually on higher

capacity as well, which I think really highlights the pent-up demand for leisure travel that we're seeing. And what's

encouraging is that this momentum continues into April. In our last investor update that was in mid-March, we

estimated April operating revenues to decline 45% to 55% versus 2019, but since that update, we've experienced

steady improving passenger volumes and fares. So, we're now estimating April operating revenues to decline in

the 40% to 45% range versus 2019, and that's with a load factor between 75% and 80%.

Now, the Easter holiday weekend at the beginning of the month performed very well as we expected, and leisure

traffic and bookings for the remainder of April haven't slowed down a bit. In our earnings release, we gave our first





estimate for May revenues, which shows further improvement in comparison with April's outlook. We estimate

May operating revenues to decline in the 35% to 40% range versus 2019 with a load factor in the 75% to 80%

range. And as we experienced in April, May holiday and non-holiday time periods are both looking very well in

terms of our leisure demand. And with these improving demand trends holding their pattern since mid-February, it

really has provided us a much better opportunity to manage the booking curve for April, May and beyond.

Our revenue guidance for April and May includes the expectation of sequentially improving load factors and also

improving passenger yields when compared with March. We expect the yields will still be down compared to 2019

levels, but that should be fairly intuitive given that we are almost solely reliant on leisure travelers at this point in

the recovery. Now that being said, though, we have been pleased how well close-in demand performed in March

and is trending so far for April. At this point, we aren't quite ready to provide an outlook for June, but I will say that

we're seeing bookings increase further out in the booking curve and they're building faster. Now, it's still pretty

early in the curve for June and July, but I will tell you that bookings are building nicely at this point and shaping up

seasonally as you expect for leisure travel.

So, in a normal year at this point, we would expect to be around 60% booked for May, and roughly 35% or so

booked for June and around 20% booked for July, and we are currently in the hunt with those levels of bookings.

Now, with June being one of our highest demand summer months, our current expectation would be for June's

revenue performance to be better than May relative to 2019. But we'll provide you with a June revenue outlook as

part of our investor update in mid-May. Now as vaccination counts rise and travel restrictions ease and leisure

demand increases, we are obviously pretty encouraged. It feels good. There's a feeling of optimism. But as you

know, the improvements, rather, skew heavily towards leisure demand now and through the summer and it's

simply too early to make much of a prediction on travel demand for the fall. And we are very mindful of the fact

that the demand recovery may not be a straight and quick path back to pre-pandemic levels, which brings us to

business travel.

Our corporate managed travel revenues were down 88% in the first quarter versus Q1 of 2019, which is

consistent with our fourth quarter 2020 results. However, we did see some modest improvement later in the

quarter, in particular in March, where corporate revenues were down 85% versus March of 2019. And based on

what we're seeing and hearing from our corporate customers, it continues to be very clear that domestic business

travel will certainly continue to significantly lag leisure recovery. And for now, we are planning for a scenario

where business travel will still be down 50% to 60% by the end of this year.

Now having said that, we are in fact seeing more and more of our customers beginning to allow their employees

to get off the bench and fly and travel, and they're beginning to unfreeze or relax their travel policies, but although

that's happening, we just aren't seeing the volumes come back at this point. Now, if you buy into surveys, and I

guess I sort of buy into surveys, the most recent GBTA Business Travel surveys suggested that roughly 60% of

respondents expect to resume domestic business travel in the third and fourth quarter of the year.

So, I guess we'll see. Time will tell in terms of the pace of business travel recovery. And it's also not clear, to be

honest with you, what percent of traditional business travel ultimately returns. Our view is that there could be 10%

to 20% reduction in business travel either permanently or at least for some extended period of time. But having

said all that, however the business demand curve shapes back up, I can tell you, as Gary alluded to just a

moment ago, that we are really well positioned, in fact this is the best positioning we've ever had in terms of going

after corporate business travel.

You're all very aware of the GDS initiatives, I'm not going to go on and on about that, but it closes a huge gap in

our corporate travel capabilities. As you guys know, we are live on Amadeus, Apollo, Galileo, and Worldspan





today, and we are very far down the path to implement the Sabre GDS platform in the coming months. And we

have a targeted-to-go live date that we will implement prior to Labor Day. So really good progress on this front

and the teams are doing an incredible job. So, we're feeling very good about where we are. Our sales teams are

out in the market. We are engaging with our customers at a very high level and very frequent level. And the

response has been incredible. So, I think we are really well positioned to gain some revenue and perhaps a little

bit of share.

Shifting gears to regional demand, I just want to give you a little bit of color on what we're seeing in terms of the

different parts of the network. In general, our leisure markets where restrictions have remained low continued to

outperform the rest of the system very nicely: beaches, mountains, sun and ski are all performing very well, which

is totally consistent with what you're hearing from the other carriers as well. A little more specifically to our

network, we are seeing strength in our Texas markets: Austin, Houston, Dallas and San Antonio. We're also

seeing strength in, really all of Florida, but in particular on the Gulf Coast of Florida, which includes Panama City,

Pensacola, Ft. Myers, Tampa. The desert mountain region is performing really nicely, which includes Phoenix,

Salt Lake City, Boise. Denver is also performing very well. So, there's a lot of strength within the network.

Demand continues to lag in areas such as the Northeast, Chicago's lagging a bit. California is lagging a bit

although it's really improving since the restrictions are being lifted. So, we are seeing improvements across the

system, which is encouraging. And honestly, whether cities have been lagging or outperforming, what we are

seeing is that all markets have improved fairly significantly recently compared to where they were in January and

February. So, as a result of what you just heard, we are comfortable adding back flights to capture additional

demand including Hawaii. And it's great to see demand from California to Hawaii as well as between the islands

ramp back up. And we're finally at a point where we can get to our Hawaii flight schedules up to where we hoped

we would be a year ago before the pandemic.

As you know, international testing remains in place. Overall, I'd say our international demand is performing just

fine. Not a lot to report. At this point, we are only serving eight of 14 international stations and we'll intend to bring

the remaining six back online as it makes sense and as restrictions ease. Little color and perspective on new

stations. At this point, we have opened ten of our announced 17 new airports and all of them are performing

terrific. In fact, there's not a clunker in the bunch. All of them are generating new customers, additional revenue

and collectively are contributing positively to our cash performance. We feel really good about what we are seeing

in our first ten, and more to come.

So, we'll begin service in Fresno on April 25, Destin/Fort Walton Beach on May 6, Myrtle Beach on May 23,

Bozeman, Montana on May 27, Jackson, Mississippi on June 6 and we also just announced last week Eugene,

Oregon will begin service on August 29, and we will begin service in Bellingham, Washington later this year. So,

all the new stations that are operating today are meeting or exceeding our expectations. They've been on our

radar for years. And it's great to see them up and operational. And honestly, it's kind of, it's pretty interesting. I

think our network planning team is batting 1,000%. So, this is really something and the operations are starting up

really cleanly.

In terms of our capacity, for the first quarter, capacity decreased 35% year-over-year. It was down 39% compared

with the first quarter of 2019, which was consistent with our expectations. And as planned we added, as Gary

alluded to, we added additional capacity in March, which equated to roughly 1,000 flights each day, beginning

mid-month and that really paid off as demand improved and these incremental flights improved our March

performance by roughly $150 million. That's revenue performance, about $150 million.





Our April capacity is expected to decline 24% and May capacity is expected to decline 18% relative to 2019

levels. Now this includes a modest increase in flying in April and about 3 points of incremental capacity in May

compared with our previous guidance, which is really just a result of the stronger demand outlook. At this point,

we are in the process of adjusting our June flight schedules and once the revisions are complete, we expect June

ASMs to decline 4% versus 2019. And as you've seen throughout the pandemic actually, we've cut more

business-oriented short haul flying and added more leisure-oriented longer haul flying as well as more connecting

itineraries, which is driving higher capacity with fewer aircraft and this makes up roughly 4 points to 5 points of the

14-point sequential capacity increase from May to June. And assuming the current trends continue, our

preliminary plans for July call for similar levels of capacity as June relative to 2019 levels, and we'll be finalizing

our July plans here very shortly.

So, in terms of passenger revenue and capacity, our focus remains on managing the next few months with as

much precision as possible, which is what we've been doing throughout the year, and improving our revenue

performance as well as improving our cash burn performance toward breakeven or better with an emphasis on or

better. That's our goal.

In terms of other revenues, our other revenues performed better than passenger revenue in the first quarter and

was down 15% year-over-year. For March, though, our other revenue was actually up 3% year-over-year. Our

ancillary products, specifically commissions from car, hotel and vacation bookings performed about in line with

passenger revenue. No surprise there. But the biggest contributor to our other revenue performance was our

Rapid Rewards program. In the first quarter, total revenue from our loyalty program was down 19% year-over-

year or 22% versus 2019. When you look at it at just the loyalty revenue that flows through other revenue,

revenue was down 12% versus 2019. This is a very strong performance especially relative to passenger

revenues.

And I think it just speaks very clearly to the strength of the program as a whole and the high level of engagement

that we have with our customers and they with us. The sequential improvement from Q4 was primarily driven by

increases in retail sales and commissions on new card acquisitions. Total co-brand card spend in March was only

down 1% versus March of 2019. And for the first time since the pandemic began, our credit card portfolio size

grew in the first quarter, again relative to 2019. So, we're thrilled to see that. So, our credit card portfolio remains

very strong. We're seeing the average spend per cardholder continue to improve. Attrition continues to be very,

very low and we are really very pleased with the performance of our program.

And I think you can see in our results we had more Rapid Rewards Members, more credit card holders and more

engagement from our customers and now we have more places for them to go with a lot more leisure

destinations. And building on that, our brand remains very strong. Our brand NPS scores continue to rank at the

very top of the industry, which is something that we focus on and watch a lot. We watch very closely. Our trip

NPS, which measures individual flight experiences is trending even higher right now as well, which speaks to our

people's focus on hospitality and producing great on-time performance. So, as Mike said, and I am so grateful for

our front-line employees. They execute every day with precision and grace, and I'm thankful for that.

And finally, I do want to share a few comments and our perspective regarding our focus on the environment,

which seems appropriate since today is Earth Day. Gary's already shared our long-term goal to be carbon neutral

by 2050, which is aligned with A4A's goal as an industry. And this isn't a new topic for us though. This is

something that we've been focused on for a long time. Our focus has certainly intensified over the past year, but

just for perspective, since 2002, we've invested more than $620 million in fuel efficiency initiatives, and that's

independent of new aircraft.





And in 2019, we saved more than 7 million gallons of fuel through flight planning initiatives. So, this is something

that again is not new to us. And as Mike discussed earlier, we plan on retiring a significant number of our roughly

460 737-700s over the next 10 to 15 years, and we'll be investing billions of dollars on new aircraft that are 14%

more fuel-efficient. And as it stands today, the carbon emissions that we generate on a per ASM basis is among

the very best in the industry and our fleet modernization program gives us a massive opportunity to continue to

significantly reduce our CO2 emissions over the next 10 to 15 years.

So, that's all great. We also know that fleet mod alone isn't nearly enough to get us to our goal of carbon neutral

by 2050. In our views, the most promising path over the next 10 to 15 years is a combination of fleet

modernization, operational fuel efficiency initiatives, air traffic control modernization and the introduction of

economically viable sustainable aviation fuels or SAF at scale. Today, we have a SAF offtake agreement in place

with Red Rocks Biofuels and our teams continue to work with the National Renewable Energy Lab or NREL on

the development of new SAF feedstocks and pathways.

We've also recently signed MOUs with both Marathon Petroleum and Phillips 66 to accelerate the production of

SAF with the objective of achieving affordable SAF with low carbon intensity scores at scale. And the crux of the

agreement is to work together toward the production of 300 million gallons of SAF in the 2025 timeframe. This is a

very ambitious target and there's a tremendous amount of work to be done, but it's also a really important step

forward, and we intend to work very closely with both Marathon and Phillips 66 throughout the process with the

intent to secure large offtake agreements that represent a significant share of the SAF that's produced. But to be

honest, this effort is not just about Southwest securing more SAF for Southwest. It's also about getting large

energy producers into the market getting production to scale at affordable prices.

We also believe that the use of carbon offsets can be appropriate and helpful. But we see this as a bridging

technique. Our use of offsets so far has been focused on renewable energy credits, which are natural gas offsets

to complete our headquarter campus 100% renewable energy plan. And up to this point, we have not been using

carbon offsets, but if used appropriately, again, they can be helpful whereas making offsets available to

customers or corporations who are looking to offset their travel emissions. So more to come on this, but again, we

see offsets as a bridging solution.

Direct air capture, new airframe and engine technologies and new energy sources such as hydrogen, power-to-

liquid or PtL also have tremendous promise. But we see these things being much further out, call it 2035 and

beyond, and our objective is to focus on things that we feel like we could have a real impact on over the next 10 to

15 years.

So, this is something that we are absolutely committed to achieving, but to be really clear, the industry is going to

have to work together. No single airline can do it alone. It's just impossible. So, it's going to take a lot of work with

a variety of organizations including the private sector and non-profits as well as strong support and policy from the

federal government and state governments. And we'll need innovation and scale from the energy industry. And

we'll also need continued advancements from the aerospace industry to become carbon neutral by 2050.

Now, Gary has asked me to be the executive sponsor for our environmental efforts, and I've asked Stacy

Malphurs, our Vice President of Supply Chain, who happens to be extremely knowledgeable of SAF and the end

to end fuel supply chain to take this on with me as well.

So, to wrap it up, we'll be providing a comprehensive report of what we're doing and the progress we're making in

our annual sustainability report, which we call the Southwest One Report, and we'll be publishing this online to our

investor site in the coming weeks.





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

Tammy Romo Executive Vice President & Chief Financial Officer, Southwest Airlines Co.

All right. Thank you, Tom. And hello, everyone. I'll round out today's comments with a few remarks on our

performance and an overview of our costs, fleet, liquidity and cash burn before we move on to Q&A. This

morning, we reported first quarter net income of $116 million or $0.19 per diluted share, which included $1.2

billion in payroll support. Excluding this benefit and other special items detailed in this morning's press release,

our first quarter net loss was $1 billion or a $1.72 loss per diluted share. While our losses persisted in first quarter,

I feel good about the progress we are making, in particular, as we move through second quarter here.

I want to commend our people on another solid cost performance, as we have to remain extra diligent with our

spending. Excluding special items, our first quarter total operating cost decreased 24% year-over-year to $3.3

billion and increased 17% year-over-year on a unit basis. Fuel represented about 35% of that decrease. Our first

quarter economic fuel price of $1.70 per gallon was at the midpoint of our guidance range and our fuel expense

declined 44% year-over-year.

Reduced capacity levels resulted in gallon consumption down 37%. The largest driver of our year-over-year

decline and economic price per gallon down 11%. We realized a modest hedging gain of approximately $1 million

or $0.01 per gallon and our hedging program premium costs were $25 million or $0.09 per gallon. While fuel price

was still below year-ago levels, energy prices have been creeping up over the past few quarters, which only

serves as a reminder of the importance of having a consistent and meaningful fuel hedging program. We have

great hedging protection in place with hedging gains beginning at Brent prices in the $65 to $70 per barrel range

and more material gains once you get to $80 per barrel and higher.

Based on market prices as of April 15, we expect our second quarter fuel price to be in the range of $1.85 to

$1.95 per gallon, including another modest hedging gain of $0.01 per gallon. Looking at 2022, we also have a

high-quality fuel hedge in place with a similar level of protection, but we would start recognizing hedging gains

around the $60 per barrel Brent range with more meaningful hedging gains beginning at $70 per barrel and

higher.

Last year, we took the opportunity to add our 2022 hedge position, while prices were lower. Our first quarter fuel

efficiency improved 5% year-over-year, primarily driven by many of our older aircraft remaining parked. Some of

the current fuel efficiency gains are temporary as we'll see some sequential pressure as we return more of our

older 737-700 aircraft to service this summer. However, we currently estimate our second quarter fuel efficiency

to be sequentially in line with first quarter's ASMs per gallon, partially due to returning the MAX to service last

month.

The MAX is our most fuel-efficient aircraft, and we have a line of sight to more significant improvements over

many years as we plan to retire a significant amount of our 737-700 aircraft in the next 10 to 15 years. We get at

least a 14% fuel efficiency improvement on a per aircraft basis each time we replace an end of life 737-700

aircraft with the new MAX. This will be a big driver of progress towards our long-term environmental goal.

Excluding fuel special items and profit sharing, first quarter operating cost decreased 19% year-over-year, on the

better end of our guidance range. On a unit basis, the increase was 23% year-over-year, primarily driven by the

35% reduction in capacity.





We continue to realize cost savings from our actions taken in response to the pandemic, including $412 million of

savings in first quarter salaries, wages and benefits, driven by the benefits of our employee voluntary leave

programs implemented last year. We had pay rate increases for our people that are flowing through this year, but

the voluntary program savings far offset that rate inflation. Outside of salary, wages and benefits, we had year-

over-year decreases in most other categories due to reduced capacity and the related cost relief, primarily in the

areas of maintenance, landing fees and employee customer and revenue driven cost.

In terms of a few other notable items in first quarter, our aircraft rental expense was $52 million, down 9% year-

over-year, driven by the return of leased 737-700 aircraft. Advertising spend has increased sequentially from

fourth quarter as we ramp up some marketing, but our first quarter advertising spend was down 8% year-over-

year. And we realized one-time favorable settlements in first quarter, primarily property taxes, and those are

reflected in our other operating expenses. Again, our first quarter cost performance was solid, and I appreciate all

the work our teams are doing to manage cost in this unprecedented environment.

Turning to second quarter, we currently expect operating expenses excluding fuel and oil expense, special items,

and profit sharing to increase in the range of 10% to 15% year-over-year and also to increase sequentially

compared with first quarter. We estimate that 60% to 70% of the expected sequential increase is due to variable

flight driven expenses as we plan to increase capacity to near 2019 levels by June. To support the increased flight

activity, we are recalling a portion of our employees who had elected our voluntary extended emergency time-off

program in terms of salaries, wages and benefits expense. Sequential cost increases from a few items account

for about one-third of the total sequential increase.

We have increases driven by a higher number of active employees in second quarter, including the impact of

recalled employees. Roughly half of our recalled employees will return in second quarter and some training will be

required for those employees that we recalled as we prepare for them to go back to work. Partially offsetting our

second quarter cost pressure from these recalls is an estimated $325 million in cost savings from our voluntary

separation and extended leave programs for those employees that took a voluntary separation last year and

those employees that remain on extended time off. With some early recalls, we now estimate annual 2021 cost

savings from our employee voluntary program to be in the range of $1.1 billion to $1.2 billion, down from our

previous estimate of $1.2 billion.

Outside of salary, wages and benefits, the largest drivers of our sequential cost pressure are flight driven cost

increases and landing fees, employee, customer and revenue related cost, and maintenance expense as we

prepare aircraft that have been parked for a return to revenue service as well as higher flight driven maintenance

expense as flights resume. These ramp-up costs combined represent the other two-thirds of our capacity driven

sequential cost increase. Outside of capacity driven cost increases, we expect sequential cost pressure driven by

airport cost inflation and higher aircraft ownership costs due to the MAX deliveries. And this rounds out the

majority of the remaining cost increases.

While we are facing expected sequential cost increases that naturally come with increased flight activity, we

expect our second quarter operating cost to remain below second quarter 2019 levels. And we expect that our

ramp-up cost pressures will vary and persist until we get capacity back to 2019 levels. That said, we remain laser

focused on cost control as we navigate through this recovery. Our first quarter interest expense was $114 million,

in line with fourth quarter, and assuming our current momentum continues we don't currently anticipate raising

additional debt. And based on current levels of debt outstanding and current interest rates, we expect second

quarter interest expense to be approximately $115 million. Our first quarter effective tax rate was 21%, which was

in line with our expectations. And we currently estimate our annual 2021 effective tax rate to be approximately

23%.





Mike covered the highlights of our Boeing agreement. I just want to add my thanks to the teams at Southwest,

Boeing and GE and CFM International for their tireless work to develop agreements that extend and support our

long-term relationship and that support our all Boeing 737 business model. Based on the refreshed order book

and our retirement plans over the next 10 to 15 years, I feel very comfortable with our ability to manage the size of

our fleet, support fleet modernization and pursue growth opportunities as they arise. And we can do this in a cost-

effective manner, in particular with manageable CapEx.

We ended first quarter with 730 aircraft including 61 MAX 8s. For second quarter, we expect to receive seven

MAX 8 deliveries and retire three 737-700s. And we will have one more MAX 8 delivery in third quarter and retire

up to six more 737-700s by the end of the year. Beyond 2021, we are going to wait a bit longer before we make a

decision about 2022 fleet plans and 2022 CapEx. That said, we are well positioned to begin retiring roughly 30 to

35 737-700s a year beginning next year.

Our firm orders should cover the majority of our fleet modernization plans and we will make decisions on

exercising options based on the economic and demand environment and based on growth opportunities and

capacity plans. As Mike mentioned, our options provide us tremendous flexibility. As expected, our first quarter

capital spending was $95 million, and we currently expect our full year 2021 capital spending to be roughly $500

million with an immaterial amount of aircraft CapEx and driven mostly by technology, facilities and operational

investments. We have plenty of flexibility to manage CapEx with our order book with aircraft CapEx on firm orders

of $700 million next year.

Before I wrap up and open the call up for questions, I'll provide an overview of our liquidity and cash burn. We

currently have approximately $14.3 billion in cash and short-term investment, in line with where we ended first

quarter. We are thankful to our federal government for providing continued economic relief to protect jobs as the

pandemic persists. We received $1.7 billion in Payroll Support Program proceeds during first quarter and expect

to soon receive an additional $259 million as our final distribution of the second round of PSP support, or $2

billion total from the PSP extension. We are currently working to finalize our agreement with the Treasury on the

third round of PSP support and expect to receive an additional $1.9 billion.

Our liquidity position provides a solid foundation as we operate in the wake of 2020's substantial losses and on

the heels of another substantial non-GAAP loss in the first quarter. Our first quarter average core cash burn was

$13 million per day, a $1 million sequential increase from fourth quarter with rising fuel prices offsetting improving

revenue trends. The material improvements in revenue began substantially in March, resulting in an $8 million

improvement from our February cash burn of $17 million per day to a March cash burn of $9 million per day.

When you include the benefits from future cash bookings and other changes in working capital, as we defined for

you in our earnings release, we flipped positive in March and produced cash flows of $4 million per day.

Assuming the continuation of positive revenue trends, we expect our average core cash burn in second quarter to

be in the range of $2 million to $4 million per day and we continue to expect to achieve cash burn breakeven with

revenue of roughly 60% to 70% of 2019 levels. Barring any unforeseen changes in current demand trends or cost

trends and assuming revenue and booking trends continue to build throughout second quarter, we are hopeful

that we can achieve core cash breakeven results or better by June.

In closing, while the effects of the pandemic persist, our Southwest team continues to conquer both the familiar

and unfamiliar challenges of the day. While we aren't out of the woods yet, we are encouraged by the rise in

vaccinations that seem to be unlocking the pent-up leisure demand that we all believed was there. We are





optimistic and hopeful that the worst is behind us, but we are mindful that business travel continues to significantly

lag leisure.

We will continue to manage our business closer in to focus on what we can control, maintaining a strong balance

sheet and liquidity position, reducing our cash burn as we work towards breakeven and managing tight cost

control and seeking efficiencies, especially as we begin to revamp capacity levels.

I am immensely proud of how our people continue to persevere and show up for our company, our customers and

each other. Working together, I am confident that our best is yet to come.

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

QUESTION AND ANSWER SECTION

Operator: Yes. Thank you. [Operator Instructions] And our first question is with Stephen Trent with Citi. ......................................................................................................................................................................................................................................................

Stephen Trent Analyst, Citigroup Global Markets, Inc. Q Good afternoon, everybody. And thank you very much for taking my questions. Just one quick one for you.

Tammy, I was intrigued by what you mentioned about your hedging policy and you guys also mentioned the

approach to climate change with renewable energy credits. Are you thinking about the energy credits and lower

emissions and your fuel hedging policy going forward, are you thinking about them in conjunction with one

another as, let's say, a holistic approach to these topics? ......................................................................................................................................................................................................................................................

Tammy Romo Executive Vice President & Chief Financial Officer, Southwest Airlines Co. A Yes. Absolutely. We'll – they're kind of really two different topics in mind but we are certainly thinking about them

all holistically.

Our fuel hedging program, as you know, we've had that in place for many years to provide us protection about –

against rising fuel prices. And looking forward a component of that will be sustainable aviation fuel. We're just not

at a point today where we're at significant volumes there with sustainable aviation fuel, so I see that being more

relevant with time. But as we look here, this year over the next several years with the hedging position that we

have in place, the purpose of that is really to protect against conventional fuel, which is obviously going to be what

we're heavily reliant on.

And Tom, did you have anything? ......................................................................................................................................................................................................................................................

Stephen Trent Analyst, Citigroup Global Markets, Inc. Q Okay. I appreciate that. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A





Yeah, Steve, I think that to get SAF up to where it needs to be, there's going to have to be some sort of market

making going on and there's going to have to be some level of incentive, tax credits for the producers, for the

blenders, for the consumers. So, yeah, I'm not sure, I think Tammy and I are both kind of early in exactly what's

the tax benefits are for all these various ESG oriented elements we're going to have to be investing in. But I think

that's part of we have to create in order to make SAF really viable, and economically viable if you will, going

forward, so I think it's kind of an open question to be honest with you at this point. ......................................................................................................................................................................................................................................................

Stephen Trent Analyst, Citigroup Global Markets, Inc. Q Appreciate the color. Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Hunter Keay with Wolfe Research. ......................................................................................................................................................................................................................................................

Hunter Keay Analyst, Wolfe Research LLC Q Hey, everybody. Good afternoon. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A Hey, Hunter. ......................................................................................................................................................................................................................................................

Hunter Keay Analyst, Wolfe Research LLC Q Hey. So, Gary, as you – Southwest has a long track record of looking after your shareholders. Obviously you and

others diluted a lot during COVID. So what do you think is the best way to sort of repay your shareholders? Is it

through buying back that stock? Is it through special dividends? Or is it really just sort of just taking the money,

investing it back in the business and just trying to grow the stock price through earnings? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A I think it's really a ways away before it's a real question for us, obviously, because we've got CARES Act

limitations that Tammy go, what, through... ......................................................................................................................................................................................................................................................

Tammy Romo Executive Vice President & Chief Financial Officer, Southwest Airlines Co. A September of 2023. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A 2023. ......................................................................................................................................................................................................................................................

Tammy Romo Executive Vice President & Chief Financial Officer, Southwest Airlines Co. A 2023. ......................................................................................................................................................................................................................................................





Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A 2023. As you're well aware, so it's post that environment. So I do think we've tried to be clear that our priorities

would be pay down the debt, number one, and then number two, grow the business. And obviously we think that

that's the best way to maintain the health of the enterprise, but also the best way to take care of all of our

stakeholders, certainly our shareholders.

And I'll let Tammy add if she wants to. I just think it's premature to telegraph what our thoughts might be ultimately

in terms of shareholder returns. I'm not a fan of special dividends. I don't mind sharing that. So I also don't mind

sharing that I haven't had that thought that we would be doing a special dividend and we couldn't do it until post

September 23, or 2023, anyway.

But it's – we've got four phases Hunter that we're thinking of. One is survival. Second is stabilize. Third would be

repair. And then fourthly would be back to prosperity. So we've sort of declared that until we stop losing money,

we're still in the survival mode. So that's a little out there for what we're thinking. Once we get to prosperity, I'd

love for us to get back to handsome shareholder returns. And I just feel like we need to repair the balance sheet

first.

I got the question this morning on CNBC and I thought it was a good one. We'd use share repurchases, as you

well know. We had a healthy dividend going into pandemic, as you well know. We also had the strongest balance

sheet and the lowest leverage in our history coming into 2020. And all of that is key in terms of thinking in the

future about what we would do with shareholder returns. So we've got to get our balance sheet back in order. It's

not broken, but we do have some work to do. And that's – I know we're all aligned here that that's our top priority. ......................................................................................................................................................................................................................................................

Hunter Keay Analyst, Wolfe Research LLC Q Yeah. No, I appreciate that color. And just a quick one here for you, Gary, as well. I know this is a – feels like a

crazy question, but if demand sort of doesn't get a whole lot worse but doesn't get a whole lot better either, we

find ourselves looking at PSP 4 maybe attached to the Infrastructure bill or something like that, is that something

that you expect to happen or would advocate for? Or would actively say we don't need it? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A That – well, not any – I will admit, that's not anything that I've contemplated. I'm very grateful that we've gotten not

one, not two, but three PSPs and I guess to be totally open on the question, we feel like we're on the cusp here of

achieving breakeven. It's hard for me to argue that Southwest would need any further support.

Now, the premise that you raise of course is that, if I can sort of extrapolate, that that isn't achieved and we sort of

bump along. And with my comments initially, yes, our first quarter turned out better than we thought it would be,

but we still lost $1 billion. Well, that can't go on indefinitely for any company and certainly for an airline.

So I don't think that that's what we're staring down. I don't think we're looking at $1 billion loss second, third, fourth

quarter. So given that, which is the only way I can really answer the question, I don't think we're in that scenario

so therefore, no, because this is a live question on this Infrastructure bill. And then finally, no, we're not

advocating for anything different other than just trying to provide our input on the spending and the investments

that are being contemplated in that bill along with the prospect of corporate tax increases. So that's our focus. ......................................................................................................................................................................................................................................................





Hunter Keay Analyst, Wolfe Research LLC Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Ravi Shanker with Morgan Stanley. ......................................................................................................................................................................................................................................................

Ravi Shanker Analyst, Morgan Stanley & Co. LLC Q Thanks. Good afternoon, everyone. Gary, can you share a little more detail on what the early conversations with

your corporate customers or potential corporate customers have been now that you have widespread GDS

integration? Is it different from your existing corporate customers given that kind of you're one of the first LCCs to

enter the space, kind of how those conversations trending? And how is the customer base looking versus what

you initially envisioned? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A Yeah, there – the managed travel accounts definitely are behaving differently than our non-managed travel

accounts. And I'm going to let Tom and Andrew speak to that. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A I was hoping you would. So the – let me just talk about the business travel for just a second. So the industries that

are starting to pop back up again, I consider business demand as thawing as opposed to leisure demand which is

hot. But the areas of the business demand that are starting to travel, it's a lot of government DoD, it is

manufacturing, some transportation. The areas that are not traveling are the big consulting firms which by the way

are the biggest consumers we have of air travel. So that's what's really not happening yet.

I think that in terms of the conversations with the large accounts at this point given that we are now on GDS

platforms, we're talking about this before. We're starting to see the channel shift that we'd expect to see given that

we're now on four GDS platforms. And I guess the honest answer is, the volumes are so low it's just hard to know

if we're seeing what we would have expected to see in terms of channel shift from one to the other. We are seeing

a little bit of shift, I think, Andrew, jump in if I'm not correct here is a little bit of shift from the Sabre BBR basic

product into more the standard GDS platform, so that's working well.

But, I guess just in general, the commentary we and our teams talk with – in fact, Dave did a great piece with

Hunter, I'm not sure if you guys read it. Took a while to read it. It was pretty long but it was really good. But the

conversation was really such that the customer really gets our product. They really want the product. We've just

been so hard to do business with, et cetera, et cetera. So I think the conversations with our large corporates are

really very, very positive and they just want us to be on the shelf in Sabre and the others and we will be. So we

just need to thaw out business travel I think. ......................................................................................................................................................................................................................................................

Andrew Watterson Executive Vice President and Chief Commercial Officer, Southwest Airlines Co. A This is Andrew. The only thing I would add to that is that these TMCs and corporations, we already have relations

with them, because through our direct connect and our SWABIZ platforms, they're customers now. Just was not

their preferred platform. So I would think of it more of as expanding our book of business with them rather than





introducing ourselves to these new corporates and TMCs. So the fact we're moving to something that's more to

their liking has received good returns from them. So that's why we expect to do better post-pandemic than pre-

pandemic with the largest corporations we had more of a standardized process that would go into the GDSs. ......................................................................................................................................................................................................................................................

Ravi Shanker Analyst, Morgan Stanley & Co. LLC Q Very helpful. Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Mike Linenberg with Deutsche Bank. ......................................................................................................................................................................................................................................................

Michael Linenberg Analyst, Deutsche Bank Securities, Inc. Q Oh, yeah. Hey. Good afternoon, everyone. Hey, Gary, earlier I saw a headline out about you making a comment

about business travel rebound not taking place for about 10 years. And I'm just curious, the context within that

comment. I don't know if it was a misquote or maybe there's some analysis that you guys have done, or maybe

it's your point referencing that maybe some portion of business is never going to come back. Can you just sort of

clarify or qualify that statement? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A I'd be happy to, Mike. Honestly, there's nothing new. I've said 10 years for a year, and my only point was it was

really – and you're an expert at all of this. We've just lived through an environment where it is impossible to

forecast. It's impossible to predict. We can all pontificate. And so all I've been saying is really in response, Mike,

to a question about will business travel ever recover. ......................................................................................................................................................................................................................................................

Michael Linenberg Analyst, Deutsche Bank Securities, Inc. Q Yeah. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A And I think it will. I think it's silly to sit here and say it will never recover. I mean, that's a bold statement. But, Mike,

it could be a long time. And that's where I've thrown out the 10 years and I've done that consistently.

You know that a typical recessionary recovery is five years for business travel. And we've lived through a lot of

recessions together so that I feel confident of. What I'm not confident about is whether this is a typical recession,

number one. And it's got some pluses compared to a typical. It has the negative, because of everything that we

know about being able to work now with technology virtually and remotely. And that is a huge question mark. ......................................................................................................................................................................................................................................................


Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A





I'm on one other board besides Southwest, I've talked to other CEOs, talked to all my friends and colleagues here

at Southwest and we get plenty of anecdotal information that suggest that business travel will not recover to pre-

pandemic levels any time soon. So there's just no way to know. So no, I'm not predicting it's 10 years. Really what

I was trying to do is sort of tamp down the argument that it will never recover and just simply to say that who

knows. It could be a long recovery time period, but we're going to be prepared, Mike, regardless.

And so Tom and Andrew were just talking about GDS, and for Southwest I think that we will recover business

travel faster because we have a new avenue to gain business travelers. And we dramatically under-indexed the

managed travel market and that was because we weren't a part of the GDSs.

We've remedied that. We're the largest airline in the United States, by virtue of that I would argue that we're the

largest business airline in the United States, and as I said in my remarks, now the managed travel accounts will

have wide access to a great network, great service, no bag fees, no change fees and low fares. They will finally

have access to low fares. I think we will do extremely well there. ......................................................................................................................................................................................................................................................

Michael Linenberg Analyst, Deutsche Bank Securities, Inc. Q Great. That context is very helpful. Just my second question to Andrew, with the cities, 10 that have been

announced I think out of 17, interesting when you think back historically, Southwest was an airline that was very

sort of tactical and methodical in sort of additions, maybe one, two a year, maybe some years no cities. And now

all of a sudden, a deluge of cities. And some of these are actually small markets. And if I think back Southwest in

the past, some small markets, the company historically may have struggled. What – it sounds like the ramp-up is

going fairly well.

Andrew, maybe what has changed that you feel much stronger in moving into some of these smaller markets and

more quickly? Maybe it's just the pandemic, you strike when the iron is hot. Maybe it's the density of the

Southwest network, small cities can plug in and you can turn on and be successful far easier today than the

Southwest of 10 years ago. Maybe I answered the question. But if you could just give us some color because this

is kind of a different mode for Southwest with respect to new city development. ......................................................................................................................................................................................................................................................

Andrew Watterson Executive Vice President and Chief Commercial Officer, Southwest Airlines Co. A Certainly, I'll be happy to answer. And, Tom, feel free to join in. We are methodical. And so prior to the pandemic,

we have a practice every year of going through and looking at every place we could fly our aircraft and evaluating

them, at least a desktop if not in person visit. So all these cities were ones that were known to us and evaluated

prior to the pandemic. And so when the pandemic, as Gary talked about, we're unsure about the pace of business

travel return. And so because we have a lot of business travelers, if they were not to return in a timely manner we

would have a shortfall in revenue activity to deploy our people and assets against and with operating leverage

model you don't want that. So we want to make sure we have enough new cities to cover any potential shortfall in

that return. So that led us to go bigger scale than normal.

The cities we chose, we chose also to have a low risk as far as for maturation. And we've been in plenty of small

cities for a long time. Our West Texas cities and Pac Northwest cities they're modest and we do quite well.

Upstate New York. And the key is a small city that is relevant to a place where we have a large customer base.

And so if you look at all these small cities, they're either marquee destinations unto themselves or they're relevant

to a nearby large Southwest city where we have a large customer base who would be big purchasers of tickets to

these small cities. And so that's what's important to us.





And then we want to make sure we go in with at least a level of flight activity that allows for crew efficiencies, so

that we have originators and terminators that make us not to have crew deadheads that would undermine

inefficiencies. So all of those things must come together for us to add those new cities. So I think we are prepared

and it fits with our model I think is the answer. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A Hey, Mike. And I just want to pile on very quickly. ......................................................................................................................................................................................................................................................


Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A If we kind of reconcile to 1992 when you worked on our secondary offering, in those days, if you remember, rule

of thumb, but it's – we didn't want to go into a city in the early 1990s unless we thought we could do, let's say,

eight departures a day. And so I wouldn't translate what we're doing with these 17 cities as being a violation of

even that old rule of thumb because some of these "small cities", I think, Andrew, I won't name names because

we may not want to telegraph yet, but there are a handful that I can think of that you might think are small. We're

thinking they're going to be a dozen or more daily departures to a number of nonstop destinations.

So I do think the fact that we now have such a large US presence, it makes a lot of these "smaller" markets much

more viable today in terms of flight activity than it did 30 years ago. But the other thing I would point out is that

Miami isn't small. Bush isn't small. Colorado Springs isn't small. O'Hare's not small. So we do have a few cities

that have three or four daily departures on the route map and I would – Mike would call those small. And we have

experience with them, and we know that they can work. I don't think that that means that every city like that would

work but anyway, it's – we have been delighted that we can actually have the capacity to put them on the route

network here.

I got asked earlier today about whether we'll continue this, and I think Andrew's going to need – assuming that we

continue on our recovery path, he's going to need to take a lot of these airplanes and put them back into restoring

flight activity into our existing network. So that will challenge our ability to continue doing this play, but they're

permanent adds and we're delighted with the performance that we're seeing. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A I think just to give a little more, this is one question so we'll move on quickly. We've got about 45 aircraft or so,

Andrew, I think committed to the new cities so far. About 8% of the trips but as I talk about the business demand

thawing, as it begins to thaw, we're going to need to begin to get our network back in business travel shape. And

just to give you a little cue, because people were asking – ask us, so what does the – so when does the network

get back to normal? Well, the network is not going to get back to what it was because we have 17 new cities on

the network. What I can tell you is when you think about the principles and the characteristics of the Southwest

network, those will be intact.

Point-to-point, certainly you should expect to see a very similar mix of short, medium, long. And a similar mix of

direct and connecting traffic. And our focus once we begin to see business unthaw is we got to begin to put the





depth back into the markets like the St. Louis's and Milwaukee's and integral business markets and such. So it's

going to be an interesting – but that's also why we're getting more aircraft. So we're going to retire some, going to

have some incrementals. So it's going to take time, which is fine because the business traffic is not going to show

up on one Sunday and all of a sudden it's back. It's going to take time. And we'll begin to build our fleet back and

our network depth back. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A You spurred a lively topic there, Linenberg. So thank you. ......................................................................................................................................................................................................................................................

Michael Linenberg Analyst, Deutsche Bank Securities, Inc. Q Hey, Gary. I appreciate everyone. I appreciate the responses and especially the early 1990s reference, Gary. I

remember carrying everyone's bags. So it was a fun time. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A And Mike the thing that really pisses me off about you is you don't look any different. ......................................................................................................................................................................................................................................................

Michael Linenberg Analyst, Deutsche Bank Securities, Inc. Q You can't see me. ......................................................................................................................................................................................................................................................

Operator: Thank you. The next question comes from Brandon Oglenski with Barclays. ......................................................................................................................................................................................................................................................

Brandon R. Oglenski Analyst, Barclays Capital, Inc. Q Hey, guys. Well I wasn't on the early 1990s roadshow, so sorry about that. But, Gary, you did mention four

phases: your survival, stabilize, prepare, grow. I think it's the way you laid it out. It sounds like you're going to go

through stabilize and prepare pretty fast here, just with your June capacity outlook.

So I guess I just have one question for you because I know it's been a long call. But investors are wondering how

are you going to take advantage of your net debt position, especially relative to some of your larger competitors

that have other capital priorities in front of them? Is the view here that potentially you're going to grow into a

marketplace, potentially take share? Could that sustain lower fares in the future? Or should we be thinking, look,

we really want to get back to prior profitability before we push a lot of these fleet and network expansion

opportunities that you guys discussed? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A I think we want to keep all options available. And we've got a great balance sheet as it stands today. We will

absolutely have to get back to profitability regardless. We've got to get back to profitability and I already conceded

the balance sheet repair will be an objective. Tammy is already rethinking liquidity targets as well that will be more

robust perhaps than what we had before. So there are several things we'll want to think through but clearly we're

in a position where we have that option. We can pay down more debt more quickly or we can think about

expanding more rapidly as compared to some baseline.





And it's just too early to judge that yet, but we have tons of opportunities. We're a growth company. We know how

to manage growth. And we would be foolish to pass on what I think is the opportunity of a lifetime to grow this

airline in this environment. We are so well positioned. If in fact the business travel stays modest over the next 5 to

10 years, we are perfectly positioned to prosper in that environment with our low costs and our low fares. ......................................................................................................................................................................................................................................................

Brandon R. Oglenski Analyst, Barclays Capital, Inc. Q Thank you, Gary. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the last question in this session comes from Jamie Baker with JPMorgan. ......................................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Hey, everybody. I've got to tell you, I really liked Mike's question. I remember being in Telluride with him about 20

years ago and betting on the one market that you might open that year, and I'm sure the idea of Montrose never

crossed either of our youthful minds, but it's a good segue into my question. Is there a reservation or IT issue that

prevents you from flying to Canada? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A Tom, you want to talk about that. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A Yeah, there is. So to make Canada work for us, as both a business and leisure market, and we've got to be able

to sell it. It's back to the whole foreign currency, foreign point of sale thing that we talked about for a long time.

That's a thing we need to get done and, Jamie, it's not like it's an unconquerable technical path that we don't

know how to do. It's just a question that we keep putting GDS, and GDS, we have these other priorities keep

popping up, the ETOPS. So it's not that we don't know how to do it, it's just that it keeps getting knocked down the

list in terms of priority. But yeah, it's just a piece of work around the foreign currency and foreign language that we

keep talking about that we just keep deprioritizing because there's a bigger idea, but it's really as simple as that.

But we think there's probably five, six, seven, really nice markets, which by the way is one of the reasons

Bellingham is now in the schedule. Right. So there's some nice Canadian markets that could really do very well

on the Southwest network. It's just going to take us – we've just got to get a little more time to get that on top of

the list I think really. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A Yes, I totally agree with everything Tom said. But I would just reemphasize our previous conversation to his

question, which is okay, we've added these 17 destinations, we've got a lot more we'd like to add. I don't know

that we would have airplanes, so even if we tackled that technology challenge, I don't know that we would have

airplanes to be able to add those new markets. So I guess the point is, Jamie, I don't consider it to be an IT

obstacle for Southwest at all. It's whenever we're ready, we'll commit to that, we'll get the work done, we'll add it to

our route network. Right now, we've got all we can eat with the current capabilities we have.





Jamie N. Baker Analyst, JPMorgan Securities LLC Q Got it. And a follow-up to an earlier point. You mentioned that consultants are still pretty much grounded. Pre-

COVID can you remind me what your top three businesses were that make up corporate revenue and what

percentage of your corporate spend they represented? Top three or four. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A Specific companies or industries? ......................................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q I doubt you're going to give me the companies. Industries. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A I can't remind you because I've never told you. But I'll see what Tammy and Tom have to say. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A I think on, and you probably know as much if not more, but certainly defense is a big deal. It's not an industry but

DoD is a big traveler for us. Certainly financial services, banking is big and certainly professional services

consulting. In fact, if you look at the BTN100, I bet every major tier one, tier two consulting firm is in there. They're

big. Transportation, manufacturing. So the list goes on and on. Higher ed actually. The State of California higher

ed is a pretty big deal. So there's a long list I guess is the point. There's a lot of money tied up in it as well, so... ......................................................................................................................................................................................................................................................

Andrew Watterson Executive Vice President and Chief Commercial Officer, Southwest Airlines Co. A I think what's more important is this is not 80/20. Our largest ones make up a very, very small percentage of our

corporate book of business. Our corporate book of business is a long list with each one – we appreciate them all,

but it's a modest number compared to our overall revenue line item. ......................................................................................................................................................................................................................................................

Jamie N. Baker Analyst, JPMorgan Securities LLC Q Sure. That's very helpful. Thank you very much everybody. Take care. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A All right. See you. ......................................................................................................................................................................................................................................................


Okay. Well, that wraps up the analyst portion of our call today. And as always if you have any follow-up questions,

please give me a call at 214-792-4415. Thank you all for joining us and, Keith, I'll send it back to you. ......................................................................................................................................................................................................................................................





Operator: Yes. Thank you. Ladies and gentlemen, we will now begin with our media portion of today's call. I'd

like to first introduce Ms. Linda Rutherford, Senior Vice President and Chief Communications Officer. ......................................................................................................................................................................................................................................................


Thank you, Keith. I would like to welcome the representatives of the media to our call today. We can go ahead

and get started. So, Keith, if you would give them the instructions on how to queue up for questions. ......................................................................................................................................................................................................................................................

QUESTION AND ANSWER SECTION

Operator: Yes. [Operator Instructions] And the first question comes from Dawn Gilbertson with USA Today. I'm

sorry, here the question is with Alison Sider of The Wall Street Journal. ......................................................................................................................................................................................................................................................

Alison Sider Reporter, The Wall Street Journal Q Thank you. Hi. Yeah, I wanted to ask about the latest issues with the MAX, just curious how you're thinking about

this? How you – if it affects your ability to build confidence in the plane, given that there was a lot of vetting and a

new issue just cropped up? ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A Yeah. Hey, Dawn (sic) [Alison]. This is Mike. The issue with the airplane was, it was specific tail numbers that

were identified by Boeing as part of a production run. And they made certain changes in that production run and

may have caused some electrical ground and bonding issues in a couple different components. And the risk there

really is – was just inconsistent electrical currents to those systems. I think that we haven't had – we have had no

issues or any identification of that being an issue with our own operating experience with the airplane. And I think

the issue is well understood by Boeing. It's well understood by our engineers, and I think, it's a relatively

straightforward repair on the airplane. And as soon as the FAA comes out and approves Boeing's service

bulletins, we're ready to execute that repair. And I think, like I said, it's just a one or two-day repair on the

airplanes, and it's relatively straightforward. ......................................................................................................................................................................................................................................................

Alison Sider Reporter, The Wall Street Journal Q Got it. And I'm just curious if there are any, you know, when you found out about the issue a couple weeks ago,

what was the reaction? Was there any frustration to be kind of in this position again so soon after bringing the

plane back? ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A Well, you know, yeah. I mean, I think, it was – it's frustrating to have to go through that process again. I don't

know if lucky is the right word to it, but we had plenty of spare airplanes where the – in terms of an operational

issue, it was not a concern for us. But overall, Dawn, (sic) [Alison] I think Boeing's a good company. I think they've

clearly suffered over the last several years maybe with various quality issues across some of their product lines,

but at heart they're an engineering company and I feel like they need to be leaders in the aerospace and the





commercial businesses for our country. And I think, they understand that, and I think, they're going to get back to

their roots. And I have a lot of confidence that the MAX airplane is going to lead the way there. ......................................................................................................................................................................................................................................................

Alison Sider Reporter, The Wall Street Journal Q Got it. Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Dawn Gilbertson with USA Today. ......................................................................................................................................................................................................................................................

Dawn Gilbertson Consumer Travel Reporter, USA Today Q Hi. Good morning. I have two questions. First question is for Tom. Have you guys seen any impact from the State

Department's alert level that they raised, as you did back when the CDC started the testing requirement or is it too

early? What are you seeing there, if anything? ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A Could you go ahead and just elaborate a little bit on what you're talking about? I'm not really familiar with what

you're saying, Dawn. ......................................................................................................................................................................................................................................................

Dawn Gilbertson Consumer Travel Reporter, USA Today Q This week the State Department has been raising the alert level for international countries, including such popular

places as Mexico to better align with the CDC rankings, so now more than 80% of countries including, like I said,

some popular destinations have a higher alert level. And I know sometimes bookings take a hit when that

happens. I wondered if you see any impact at all or expect it. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A I know what you're talking about now because one of my kids booked. So the answer is no, I don't think we're

really seeing much of an impact on that at all at this point. What's your second question? ......................................................................................................................................................................................................................................................

Dawn Gilbertson Consumer Travel Reporter, USA Today Q The second question, I'm not sure who it's for. When you guys were recalling flight attendants recently, one of the

things you cited in one of the memos was an increase in people calling in sick. I'm curious why you're seeing an

increase in people calling in sick? Are you seeing an increase in infections as travel – COVID infections as travel

has rebounded? Or is there reluctance among flight attendants to return? Can someone talk about that a little bit?

Thank you. ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A Yeah. I'll jump in there with that. And then anybody else can add a little bit of color. But our labor contracts have a

very – we're very flexible for our people in terms of their sick banks and how they use sick. And it could be a

variety of things. It could be family issues that they're dealing with. It could be daycare issues that they're dealing

with. It could be illnesses their selves. It could be doctors' appointments. And as we're recalling people and they're





coming back into work I would argue that they don't have all of their personal lives all laid out as neatly as they

normally would. And so I think, we will see a spike in that as people are coming back to work, but I don't think that

it's any indication of a long-term trend or a big operational hiccup for us. We have reserves that will cover those

lines and we navigated through that pretty well. ......................................................................................................................................................................................................................................................

Dawn Gilbertson Consumer Travel Reporter, USA Today Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Kyle Arnold with The Dallas Morning News. ......................................................................................................................................................................................................................................................

Kyle Arnold Aviation Writer, The Dallas Morning News Q Thanks, guys. What are you seeing in the air fare environment? And are you going to be able to hit some of your

financial goals with the leisure traveler still – the leisure travel is very fickle in terms of air fares, still leading the

way? ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A Well, I guess I'll start and, Andrew, feel free to jump in. But like I described it earlier in the call is, I think, the

leisure side is pretty hot right now. I think the business demand side is starting to thaw out. But I literally have right

in front of me what are, what the booking curve and the fare curve looks like for the upcoming months and they're

pretty solid. And they're really encouraging so barring a trend shift I feel pretty good about where we are and it's

kind of back to what we've said in the call, barring a trend change we feel good about the opportunity to

breakeven, perhaps even make a little bit of a profit sometime in June or beyond.

So I think that's kind of how I'd answer at this point. The booking curve begins to get more extended out – further

out, it just gives us a lot more flexibility in terms of how we manage the inventories and the fares and it's starting

to take on normal booking distribution shape if you will. The level is too low but the shape is normal, so we're able

to manage our pricing more effectively and that's kind of where we are. So we feel good barring a trend change. ......................................................................................................................................................................................................................................................

Andrew Watterson Executive Vice President and Chief Commercial Officer, Southwest Airlines Co. A So, this guidance that Tammy and Tom gave you includes the – what we saw in the spring of the leisure fares

getting stronger from the bottom of the winter wave through towards the summer, however the lack of business

travel that Gary and Tom talked about being some of the higher fares that they pay will be absent. So you can –

you know, our fares overall will still be down year over two years and year-over-year as a result of that. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A So, Kyle, this is just talking about our fares on average were down 20% in the first quarter. So this is – we're not –

we never give information about what we're going to charge. So that's – they're not speaking to that. We're just

talking about how the array of fares that we have average out with the demand that we have. But I would just say

this, the industry has more seats than it does passengers, and Economics 101 tells you that pricing will settle that,

but at a softer level. So we're down 20% this quarter. And what we'll be prepared for is a very low fare

environment for a long time which gets back into the discussion that we've been having all day about business





travel demand and that is our wheelhouse. We are low cost. We are low fare, and we can live on low fares and

we'll certainly make sure that we manage our business accordingly. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Leslie Josephs with CNBC. ......................................................................................................................................................................................................................................................

Leslie Josephs Airline Reporter, CNBC Q Hi. Thanks for taking my question. Two quick things. On the MAX, are you getting any compensation from Boeing

either in the form of payment or a discount on other planes? Do you have any sense of how much not having

those planes in service is costing Southwest? And then my second question, if you want to wait till after. ......................................................................................................................................................................................................................................................

Tammy Romo Executive Vice President & Chief Financial Officer, Southwest Airlines Co. A Yes, this is Tammy. In terms of the pricing on our aircraft with Boeing, that is confidential. We have shared with

you that the CapEx that we have with regard to our firm order book for next year is about $700 million and that is

for 30 aircraft. But it's just not that simple. There's a lot going into that and as you've alluded that incorporates

discounts from previous settlements that we've had with MAX – with Boeing on the MAX grounding as well as the

terms of our most recent agreement. But the actual terms itself are confidential. ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A And are you talking more specifically to this most recent grounding? ......................................................................................................................................................................................................................................................

Leslie Josephs Airline Reporter, CNBC Q Yes, the electrical issue. Do you get any discount? ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A Yeah. ......................................................................................................................................................................................................................................................

Leslie Josephs Airline Reporter, CNBC Q And is there, do you know what the financial impact is on you? ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A Yeah. We've got our arms around what we think that impact is. I will tell you, just in the scope of our operations,

it's not material. But they're new airplanes. The airplanes are warrantied by Boeing, and I think that we have – I

don't think that will be a concern for us at all. ......................................................................................................................................................................................................................................................

Leslie Josephs Airline Reporter, CNBC Q





Okay. And then my other question is what are your staffing needs for this year, and then going into next year, do

you expect to hire? And do you think that too many employees might have left the company permanently because

I know some employees who were on temporary leave are getting called back early? ......................................................................................................................................................................................................................................................

Michael G. Van de Ven Chief Operating Officer, Southwest Airlines Co. A Well, I think, I can maybe start with this, and I'll maybe have of my friends around the table talk. But the real

question is what we're looking for on the commercial side of the business to be able to go sense the demand out

there, and we're looking out five and six months. And then being able to lay out a schedule that responds to that

demand. And I feel like we have a lot of flexibility on the airplanes side and on the staffing side with plenty of

notice to be able to go fund that.

So just to be honest with you we can do any of the things. If demand falls off from here, we're in a good position. If

demand stays flat. We're in a good position. If it increases, we have ability to recall people on ExTO and if it really

explodes, we have the ability to go hire people. And so it's just – it's tricky and we're trying to make those

decisions as close in as possible so we haven't really thought about the second half of the year yet. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A I'll just summarize some comments that I made at the outset of our analyst call, which is we are currently at about

92% of our pre-pandemic staffing. And, of course, you pick a point in time and you can nudge that number

around, but that just gives you some sense. And what Tom was talking about was flying our June schedule at

96% of what we were pre-pandemic for June. We've had a little bit of attrition. We've had a voluntary separation

program and that's what gets us down from 100% down to this 92% level.

So we're comfortable. We're overstaffed right now in March, April. Projecting forward to June, we would be right at

the proper staffing if not a little bit short. So there's pluses and minuses. One department might be a little over,

one department might be a little under. But I think beyond to Mike's point, beyond June, I think what we're all

anxious to see is what do things look like when we get to June. Are we going to hit our forecast as we've

anticipated it, would the bookings for July, August, September look as good as we hope? Is there pent-up

demand that is not sustained beyond that? I mean, there's just a number of good questions that can be posed at

this point, so it's just a little bit premature.

But if we get to the point where we've got some staffing challenges, I think everybody here would consider that to

be a really high-quality problem. But Bob Jordan is here with us and Bob heads up our Corporate Services, which

includes HR so in terms of our current hiring, our current hiring plans, you might just share whatever you're willing

to share there. ......................................................................................................................................................................................................................................................

Robert E. Jordan Executive Vice President-Corporate Services, Southwest Airlines Co. A Yeah. You bet. And on the recalls, so we, gratefully we had about 11,000 folks take the ExTO, which was a terrific

response from our employees and we've recalled just south of half of that to meet the demand that everybody's

talked about here for the summer. And if you – again, you see more demand, we can be in the position to

continue the recall. We have begun to ramp back up our hiring ability. So before you can hire, you got to have

people that went off and did their jobs come back and sort of rebuild that team. So we are ready to hire. That's

very modest right now, it's key positions. But I think, if we see the demand continue, we are in a position to ramp

that back up quickly.





Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A I do think, again, to be straightforward about this, I think, we're all prepared for this to be messy. It's just not easy

to predict and then it's not easy to execute and we also don't want to end up with excess staffing. So, it's just

trying to strike the right balance here. It was really messy a year ago trying to downsize the airline, and I think,

we're all just going to have to recognize it will be – I think, we need to be up to the task here and manage well, but

just recognize it may be messy.

Now, having said that, our operation went up 50% in terms of flight activity overnight back in March and had a

flawless execution and outstanding performance. So, we've got a basis I think for our confidence going forward.

But we've been a hiring machine for 50 years, and I feel like we'll do well when we're ready to turn that back on.

But I'll look forward to that. I think that will be a high-quality problem. ......................................................................................................................................................................................................................................................

Leslie Josephs Airline Reporter, CNBC Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And the next question comes from Rick Velotta with Las Vegas Review-Journal. ......................................................................................................................................................................................................................................................

Richard N. Velotta Assistant Business Editor, Las Vegas Review-Journal, Inc. Q Thank you. I hope this is a little bit of a lighter topic than some of the heavy things that you've been discussing.

Does the company have any opinion on the City of Chicago's plan to enable the installation of slot machines at

Midway and O'Hare International Airport? And as a follow-up, does the company have any position on legislative

proposals to open Texas to legalized gambling with integrated casino resorts in Dallas, Houston, San Antonio and

Austin? ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A Hey, Rick, it's great to hear your name and hear your voice. And I understand where you're coming from. I would

say for Chicago, and I'm looking at a real estate guy here, I would say, yeah, anything that lowers our operating

costs at an airport we would be all for it. And I think, Las Vegas has led the way with some really innovative

techniques out there. So beyond that, I don't know that I'll comment on what's going on in the State of Texas right

now. But I guess by extension anything that generates more travel I bet everybody in this room would be all for it.

So, but good to hear from you, Rick. ......................................................................................................................................................................................................................................................

Richard N. Velotta Assistant Business Editor, Las Vegas Review-Journal, Inc. Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And we have time for one more question. That comes from Jay Singh with Simple Flying. ......................................................................................................................................................................................................................................................

Jay Singh Deputy Content Manager & Lead US Journalist, Simple Flying Q





Hi. Thanks. I just want to go back a little bit to your MAX comments earlier. So it seems like you have an appetite

for expansion, and you got an order book out until 2031. What's the argument against taking maybe a MAX 9 or

MAX 10 and freeing up some smaller jets for expansion when you've got pretty significant backlog with a lot of

flexibility? Thank you. ......................................................................................................................................................................................................................................................

Thomas M. Nealon President, Southwest Airlines Co. A Well, I think, the downside for us taking a MAX 9 or 10 is it doesn't fit our network. We just need – you know, our

network is built around point to point. We don't want to have too many connections and you start getting to a 9 or

10, you're quickly into 200 passenger aircraft and that's just too big for our network the way we run our business. ......................................................................................................................................................................................................................................................

Gary C. Kelly Chairman & Chief Executive Officer, Southwest Airlines Co. A Yeah, I think, we'd rather see Boeing – if that's our challenge, we like the 8, we like the 7 as well as we like the 8.

We don't – we're not certain what mix of those model numbers we'll have in the future. But just as a rule of thumb,

call it 50/50, 60/40, who cares. But if that is the issue, I think we would be pressing Boeing to increase their

production rates and again, that would be a high-quality problem. ......................................................................................................................................................................................................................................................

Jay Singh Deputy Content Manager & Lead US Journalist, Simple Flying Q Great. Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. And this concludes our question-and-answer session. I would like to return the conference

back over to Ms. Rutherford for any closing remarks. ......................................................................................................................................................................................................................................................


Thank you all for joining us today. And if you have any other questions our communications team is standing by,

214-792-4847. Of course, through our media website, www.swamedia.com. Thank you. ......................................................................................................................................................................................................................................................

Operator: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may

now disconnect your lines.





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