Marcy Brand Gary C. Kelly - Chairman, Chief Executive Officer, President and Chairman of Executive Committee Tammy Romo - Chief Financial Officer and Senior Vice President of Finance Robert E. Jordan - Chief Commercial Officer, Executive Vice President and President of Airtran Airways Ginger C. Hardage - Senior Vice President of Culture and Communications

Michael Linenberg - Deutsche Bank AG, Research Division David E. Fintzen - Barclays Capital, Research Division Hunter K. Keay - Wolfe Research, LLC Helane R. Becker - Cowen Securities LLC, Research Division John D. Godyn - Morgan Stanley, Research Division Duane Pfennigwerth - Evercore Partners Inc., Research Division Thomas Kim - Goldman Sachs Group Inc., Research Division James D. Parker - Raymond James & Associates, Inc., Research Division Glenn D. Engel - BofA Merrill Lynch, Research Division Daniel McKenzie - The Buckingham Research Group Incorporated

Welcome to the Southwest Airlines Third Quarter 2013 Conference Call. My name is Tom, and I'll be moderating today's call. This call is being recorded, and a replay will be available on southwest.com, in the Investor Relations section. At this time, I'd like to turn the call over to Ms. Marcy Brand, Senior Director of Investor Relations. Please go ahead, ma'am.

Thank you, Tom. Good morning, everyone, and welcome to today's call to discuss our third quarter results. Joining me on the call today is Gary Kelly, our Chairman, President and CEO; Tammy Romo, Senior Vice President, Finance and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer and President of AirTran Airways; Mike Van de Ven, Executive Vice President and Chief Operating Officer. Today's call will begin with opening comments from Gary, followed by Tammy providing a review of our third quarter results and current outlook. We will move to the Q&A portion of the call following Tammy's remarks. Please be advised that today's call will include forward-looking statements. Because these statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance and a variety of factors could cause actual results to differ materially. As this call will include references to non-GAAP results, excluding special items, please reference this morning's press release and the Investor Relations section of southwest.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. And now I'll turn the call over to Gary for opening remarks. Gary C. Kelly: Thank you, Marcy, and thanks, everyone, for joining us this morning for our third quarter financial results. I'll just give a quick overview and then turn it over to Tammy Romo to cover the financial results. A very strong performance, especially from a revenue perspective, and it was reflecting a robust travel demand environment, but also significant achievements by our people in optimizing the route networks and integrating AirTran. Costs also moderated during the period, and it was a reflection of lower fuel prices versus a year ago and also reduced fuel consumption per unit versus a year ago. You'll note the increase in productivity with respect to our people versus a year ago, and that is despite the increase in capacity. I want to take this opportunity to thank all of our Southwest and AirTran employees for a great quarter. They are working exceptionally hard. The results show it and I really appreciate it. We've made great progress during the quarter on our strategic initiatives, in particular the AirTran integration, the fleet modernization and the international reservation system technology project. We broke ground on the Houston Hobby international terminal project, which is slated for 2015, and we started the countdown to the 2014 repeal of the Wright Amendment here at Dallas Love Field. There's a billboard outside Dallas Love Field that says, "51 weeks to nonstop love." Despite these solid results, we have a lot of work to do and also, I would add, a lot of upside. We still have about 15% of our capacity deployed as the AirTran brand, and it is not optimized. Because of the fleet conversions underway, we're under-scheduling our aircraft revenue service. That's compared to where we will be post-integration. And even though we're on track for our planned 2013 AirTran synergies, we have a higher percentage of our system in development. And all of these create earnings drags, which should dissipate post-integration. Considering all of that, it was an exceptionally satisfying quarter. Our fourth quarter outlook is encouraging as well, in particular the holiday bookings. And as you would expect, we, like everybody else, saw an impact from the government shutdown, but hopefully, that drag will be short lived. And then finally, our fourth quarter outlook for fuel prices is stable, at least for right now. We're finalizing our plans for 2014. They will most certainly have a bottom line that achieves our 15% return on invested capital mandate. We have no capacity growth planned for next year. In addition to running the business, our goals are to bring up the international service at Southwest and finish the AirTran integration. We'll be very focused on doing everything we can to make our 2014 plans a reality with the normal caveats, of course, for the economy and fuel prices. So, Tammy, with that very quick overview, let me turn the call over to you.

Thank you, Gary. Hi, everyone, and thanks for joining us today. We reported great results this morning, setting several records. Our net income, excluding special items, was a record $241 million, which was nearly 150% increase year-over-year, and EPS was a record $0.34, which was in line with consensus and represents 162% year-over-year increase. Our operating income was also a third quarter record at $439 million, which produced an operating margin of 9.7%. Our pretax ROIC for the 12 months ended September 30 was 11%. So, we're making great progress there. Our revenues for the quarter were also a third quarter record, increasing significantly year-over-year to $4.5 billion. On a unit basis, total operating revenues increased in the 4% to 5% range compared to third quarter last year on a 1% increase in ASM. Our passenger unit revenues increased a little over 5% compared to third quarter last year, with strong unit revenue improvement each month of the quarter. July and August were up about 4% to 5% and September was up 7% to 8% year-over-year, which is much improved from our first-half performance. July benefited from solid holiday traffic, and healthy demand drove strong yields throughout the quarter. Our business traffic also showed signs of strength. Our outstanding unit revenue performance was particularly notable considering the 4% increase in seats per trip and nearly 2% increase in stage length, which resulted in a drag on PRASM of about 2 points. But please keep in mind, the impact to unit revenue is more than offset by the significant unit cost benefit that is driving the EBIT improvement from our fleet modernization efforts. The large number of developing markets that Gary mentioned was also a drag on our PRASM results, year-over-year close to probably about 1 point. And again, roughly 15% of our network was deployed in new markets or in conversion markets as part of the AirTran integration and our ongoing network optimization efforts. These markets are progressing nicely and developing faster than traditional new Southwest markets. Our people are doing a fabulous job delivering our strategic and revenue initiatives, which contributed significantly to our record third quarter revenue performance. We realized approximately $120 million in net synergies during third quarter from the AirTran acquisition, with approximately 2/3 of that coming from net revenue synergy. In fact, about $45 million came from incremental codeshare revenue. Our Business Select revenues were approximately $27 million, and we recognized approximately $13 million in incremental revenues from our Rapid Rewards program. Our No Show policy was implemented in September and contributed $5 million in incremental revenues in third quarter, and we are on track with our expected $300 million EBIT improvement this year from our fleet modernization efforts, with close to half of that already realized in the first half of this year. Our Wright Amendment revenues were also strong, producing $85 million in third quarter. Looking ahead, we expect unit revenue trends to be choppy through the remainder of the quarter. Thus far, in October, we were impacted by the government shutdown. We're currently estimating about a $20 million impact from a reduction in government-related travel, and our best guess at this point is that October PRASM will be up about 1 percentage point. Holiday bookings for the remainder of the quarter are strong, and we currently are expecting healthy year-over-year unit growth for the November/December combined period. Keep in mind, the late Thanksgiving holiday will create difficult year-over-year comparisons in November but that would have a corresponding benefit, of course, to December. Shifting to freight revenues and other revenues, our freight revenues were a strong $41 million, benefiting from an expanded cargo network with the introduction of Southwest cargo on AirTran flights during third quarter. Other revenues decreased 7% year-over-year, largely due to AirTran fees continuing to decline with the transition of the AirTran network over to Southwest. EarlyBird revenues increased close to 20% year-over-year to approximately $50 million. And we recognized $62 million in other fees, including $4 million from the A1 to A15 premium boarding at the gate. We currently expect fourth quarter 2013 freight and other revenues to decrease from fourth quarter 2012, primarily due to the continued decline in AirTran fees as we continue to replace 717 flights and convert 737s to the Southwest fleet. Turning to fuel, our third quarter 2013 economic fuel price per gallon was $3.06, which was in line with expectations, and the 3.2% decline from last year was driven primarily by a favorable jet differential and just lower prices and $0.01 in hedging gains. Fuel and oil expense also benefited from better fuel efficiency from our fleet modernization efforts. Our third quarter fuel burn improved by between 3% to 4%, reducing our third quarter fuel costs by approximately $45 million. Our third quarter hedging premiums were $22 million, which was what we had expected for the quarter. For fourth quarter, we currently have up to 48% of our estimated fuel consumption hedged, but about only 12% of that protection is at Brent prices and that would kick in at $135. And another 36% is at Gulf Coast jet prices at $3.10 market prices and that was as of October 21. Based on this hedge position and current market prices, we expect our fourth quarter fuel price per gallon to be in the $3.05 to $3.10 range, and that reflects a $0.02 locked-in gain. Of course, over the last day or so, jet fuel has dropped again, and we are fully participating in the market declines with reduced prices as our floors are a modest 11% and are more than 20% below the current market. Our fourth quarter fuel hedging premiums are estimated to be comparable to third quarter's $22 million. Unit cost, excluding fuels, special items and profit sharing, increased 1% year-over-year, which was right in line with expectations. The modest year-over-year increase was primarily driven by increases in salaries, wages and benefits, airports and revenue-related costs, and those were partially offset by lower maintenance. We expect another good performance in fourth quarter. Based on current cost trends, we expect our fourth quarter unit cost, excluding fuel, special items and profit-sharing, to be relatively flat with fourth quarter 2012's $8.15. This track is right in line with our 2013 nonfuel CASM plan we communicated to you all last December that assumed a modest 1% year-over-year increase in our nonfuel unit cost, excluding special items and profit-sharing. Our anticipated unit cost performance in the second half of this year clearly reflects the benefit of our fleet modernization and other cost control efforts and we're just very pleased with our performance. On the non-operating cost side, our net interest expense was comparable year-over-year, a trend we expect to continue in the fourth quarter primarily as a result of continuing to pay down debt. Turning to the balance sheet and cash flow now, we had another quarter of strong cash flow generation, ending with $3.3 billion in cash and short-term investments. Through the first 9 months of 2013, we generated $1.2 billion of free cash flow and returned $572 million to shareholders through -- little over $500 million, and that was $0.5 billion in share repurchases and $71 million in dividends. Since May 2011, we have returned over $1.2 billion to shareholders through share repurchases and dividends. During third quarter, we executed a $150 million accelerated share repurchase program. That reduced our third quarter basic share count by approximately 11.5 million shares. We have $375 million remaining under our $1.5 billion share repurchase authorization. We've made approximately $267 million of debt and capital lease payments through the first 9 months of 2013, including approximately $50 million during the third quarter, and we have approximately $46 million more scheduled for the fourth quarter of this year. Based on scheduled debt payments, our leverage, including off-balance sheet aircraft leases, is expected to decline to the high 30% range by year end, and there has been no change to our 2013 capital spending forecast which remains in the $1.4 billion range. Overall, our invested capital balance is down $1.2 billion or 9% since last year, which is meaningful and in line with our 2013 plans. Just a quick recap of our fleet and capacity plans, which are relatively unchanged. Thus far, we've taken delivery of 12 of the 18 planned -800 firm orders and 2 leased -700 aircraft. On the retirement side, we transitioned our first 717 to Delta in September and work is ongoing to transfer 15 more this year. Combined with our Classic retirement schedule, we continue to manage to a relatively flat fleet. We transitioned 2 more AirTran -700s during the quarter, and 1 more, and bringing our total -700s converted to Southwest livery [ph] to '15. We plan to transition 4 more AirTran -700s this year, which will leave 33 next year once the Southwest international reservation system is in place. Our 2013 ASM capacity will increase about 2% year-over-year. And for 2014, our plans remain to keep capacity in line with this year. Our published flight schedule out through June 6 reflects our continued focus on optimizing the combined network, including 5 more AirTran markets converted to Southwest following Grand Rapids during the third quarter and 5 new overlap markets. We also recently made the decision to no longer operate AirTran's Baltimore to Bermuda service. And while we haven't ruled out a decision to return the future service to Bermuda on AirTran, currently it doesn't meet our performance targets. Next month's flight schedule begins the evolution of AirTran's Atlanta service into a Southwest point-to-point operation. And overall, as I mentioned previously, we have a high-volume of developing markets as we complete the AirTran of -- integration of AirTran. These markets, while a temporary drag on unit revenues, are expected to ramp up quickly to be a positive contributor. In closing, our strong third quarter results were very encouraging, with our strategic revenue initiatives largely on track, our cost control efforts are working as planned and we will continue to focus on maintaining our strong competitive position. Our financial position remains strong as ever, allowing us to deliver on our plan to aggressively manage our invested capital and return significant value to our shareholders. Our 15% pretax ROIC goal remains a priority, and we are on pace to significantly close the gap this year. And with that, I think we're ready to open it up for questions.

This will begin our analyst portion of today's Q&A. [Operator Instructions] And we'll take our first question from Michael Linenberg with Deutsche Bank. Michael Linenberg - Deutsche Bank AG, Research Division: I guess a couple of questions here. When we think about maybe the opportunity at Love Field, and this is to Gary. I think you do about 120 departures, and I think you'll have 16 gates there. And I sort of think about Southwest doing 10 turns a gate or so although I think, Gary, we've joked about in the past, I think there's that 1 gate in L.A where you do like 13 flights a day -- or 13 departures. When we think about the potential size that, that airport could become, is it maybe 10 flights a gate per day or is there the opportunity to hardstand flights out there as well? Any color on that would be great. Gary C. Kelly: Well, with respect to your last question, all the departures there will be via a jet bridge. So the 16 Gates. I think 16 Gates is plenty. I think we'll have all we need and it's a little bit premature to speculate on what the potential is out of this market. But we're excited about the opportunity. I don't see any reason why you couldn't assume 10, at least right now. The bigger aircraft like 737-800 is probably not a reasonable expectation that you could get 10 800 departures a day per gate. On the other hand, I don’t think we'll have all 800s at Dallas Love Field. But your guesstimate for Dallas Love in the 120 range is about right, and I also agree with you that it's a reasonable assumption that the flight activity will go up, but it's a great airport, it's right on track in terms of the construction. 12 gates are open, 8 more will open next year and it'll be ready and we'll be ready. So we're very excited about the opportunity. Michael Linenberg - Deutsche Bank AG, Research Division: Hey, Gary, just one other on that. With schedule changes and typically, I think you go out like 220 days or so, like what schedule change should we look for when we should maybe see some changes to the Love schedule? What would be the potential timing on that? Gary C. Kelly: Well, we typically publish schedules every 2 months, and roughly your 220 is a decent guess. That could be as little as 6 months, maybe 7 months. So that will give you some idea what to look for early next year. Michael Linenberg - Deutsche Bank AG, Research Division: Okay, good. And then just my second question. When I look at your performance this last quarter, when I sort of think about Southwest and how you've priced in the past, a lot of times it would look like that you were more likely to go out with a fuller airplane at the expense of yield. And yet, it seems like this last quarter there were periods where we would see loads down and healthy yields. And I think it was just a function of a good strong pricing environment. But how much of that may be some of the new tools that you've been implementing? I know you've talked about that on the last call, the new O&D revenue management system, maybe some of your techniques on inventory and allocation among the different fare classes. Is that starting to kick in? Are you getting any sort of pickup on that? Anything incremental? Gary C. Kelly: Mike, I think that's really more evolutionary as opposed to a market change this year versus last year with respect to revenue management tools. But it is the right conclusion to draw that every year, we are adding to our tool chest there. I think more than anything -- and again, we had an 80.8% load factor for the quarter, which, as you know us historically, that's really high. It was off 1 point from a year ago. This year, we were purposefully using less sale activity, a reflection probably of a couple of things. One is just the conversion of AirTran markets into Southwest Airlines and also a reflection of what we believed was a healthier economy this year. So philosophically, we still want to be the low-fare carrier. We like to be aggressive with fare sales and we'll continue to use that technique. The other thing that is nice this year is that we have less markets that are "new" to Southwest and where we don't have to depend as much on price to generate trial on our flights or on an AirTran flight, either way. But it's, yes, just a better economic environment overall, much stronger travel demand in the third quarter than what we were seeing in the second quarter and as compared to a year ago. Finally, what is a reality in 2013 is the networks are connected and they were not a year ago, and the schedule in the third quarter was getting more and more optimized for those connected schedules. So they were completely independent a year ago and not nearly as efficient. And I'm sure we were using price to fill up airplanes as a consequence.

We'll take our next question from David Fintzen with Barclays. David E. Fintzen - Barclays Capital, Research Division: A question, just in thinking through the growth in seats per departure out into '14, I mean it's running sort of up for now. Presumably, that starts to come down, but is it still up 2-ish percent for 2014?

David, we'll still see -- we'll start seeing that tapering off, as you suggest. And so I don't know if it would be up quite 2%. But you're -- probably in the 1% to 2% range is a reasonable guess at this juncture. David E. Fintzen - Barclays Capital, Research Division: Okay. And the reason I ask is if we're looking at your -- just thinking, obviously, there's still a lot of piece moving around. If we're thinking about sort of the absolute x fuel cost growth of kind of tapering down the 3.5% range year-over-year, I mean, is the right way to start thinking about '14 from a cost perspective, I know it's early, sort of continuing that level of absolute cost inflation and then mitigating it with some of that upgauging? Does that kind of get us ballpark how we should be starting to think about '14 in terms of CASM?

Yes, I think that is fair. And then as Gary mentioned, we are working through our 2014 plan now, and we'll give you better guidance on that at our next conference call. David E. Fintzen - Barclays Capital, Research Division: Excellent. And then just a quick one. Just on the 800s, as you're bringing more 800s in, presumably you're going to hit the sort of least dilutive markets first and then kind of work down the system. Should we be thinking of sort of a lower marginal revenue generation on the 800 as you get more 800s into the system? Or is that kind of holding up as you get more and more of the new planes?

So far, it's been holding up, and I think what we're looking at right now for 800 deliveries next year, at least my expectation would be that it would hold up in 2014.

And we'll take our next question from Hunter Keay with Wolfe Research. Hunter K. Keay - Wolfe Research, LLC: If I look at the percentage of revenue passengers versus enplaned passenger, it looks like it's gradually declining. And if you apply, just sort of back-of-the-envelope, an average fare to that mix shift, it looks like the last year's third quarter, for example, I think you're sacrificing about $63 million of revenue, and that's about 150 basis points that would be PRASM growth. We talked on the last call about the incremental cost method versus deferred method of accounting, but you're not really recognizing the revenue and the cash. Given the incremental methods of recognizing this, does it seem like it's still appropriate? And how are you guys -- I know you just made a change to the frequent flier program recently, but how are you guys going to sort of ensure that the liability doesn't run away from you because of the generosity of the program, or at the very least, how you recognize it from an accounting perspective?

I think there's 2 -- I mean, the accounting is ultimately tied to the economics of the program. So obviously, we're monitoring all of that. And we recently increased, I guess, the redemption co-efficient, which would -- it's obviously a tool that we have to manage that liability. So we will continue to monitor that. But you're correct, we do account for that on the incremental cost method. Hunter K. Keay - Wolfe Research, LLC: Okay. All right, that's fine. And in terms of sort of, Gary, how you think about the brand and managing customer perception and customer confusion. If you guys are to do things like, say, restrict certain discounted fares, things like that, maybe a little more than just around the edges, is it fair to assume that maybe AirTran has to be retired, whether it's the website being shutdown or the planes being completely painted? The brand of AirTran has to pretty much go away before we think about you guys maybe tinkering with maybe a little more substantive revenue initiatives? Gary C. Kelly: I don't think so. In other words, to me what we want to do is manage the amount of change that's underway at any given point in time, more than being concerned about the brand confusion. Right now as you well know, there's a very different product at Southwest versus AirTran. So we're already dealing with that. And that challenge will continue to grow smaller every single month. So AirTran will begin to shrink pretty rapidly now that 717s are moving out of the fleet. So that's going to diminish over time. I think more importantly is the focus that I mentioned. So for 2014, we have a lot of work remaining to finish the international technology work, make sure that that's up and running, so that we can finish the AirTran integration into Southwest. That's a tremendous amount of work with those 2 things. The remaining AirTran integration includes a conversion of 33 737s into the Southwest livery, and I guess around 62 more 717s into Delta's livery. So as you can imagine, there's a lot of work involved with that fleet conversion. In addition to that we'll be replacing, on an airplane-by-airplane basis, all of the AirTran 717s that are going out of the fleet. So, we have to ingest all of those airplanes. So that's the perspective, in other words, to your question. With respect to our brand, I think that we'll want to continue to protect the brand. We'll want to continue to focus on the friendly aspect of the brand, the low fare, low-cost nature of our brand and look for opportunities where we can improve the customer experience and drive more revenues. But specifically, with respect to tinkering with our brand, that's something that we'll be involved with here, thinking about 2014. And then we'll do the same thing again in 2015. So nothing to report you specifically yet but stay tuned.

And we'll take our next question from Helane Becker with Cowen and Company. Helane R. Becker - Cowen Securities LLC, Research Division: So your average fare was up 11% in the quarter from $143 to $159. Can you say what percent of that -- can you divide that by mix? Business versus leisure? Or maybe a different way to ask it is can we expect that level of fare, at $159, $160, to continue going forward?

We actually saw an improvement in our mix, really across the board for the quarter. So we saw nice, healthy fares and which of course, was fueled by the demand environment and just an overall, an improvement in the mix. Helane R. Becker - Cowen Securities LLC, Research Division: Okay. And then for my follow-up question, Gary, if there are slots or other things available as a result of maybe a settlement with American and the Justice Department, are you guys interested in expanding out in Washington for opportunities? Gary C. Kelly: Absolutely. And I wouldn't restrict it just to Reagan. We would be interested in more slots at LaGuardia as well. So, I'm reasonably confident that there will be slots that become available. And then I'm assuming that there'll be an opportunity to bid. So if there is that opportunity, we'll certainly take advantage of the bidding. Last time the slots came up for bidding, we were outbid. So there's no guarantee that even if they're divested that we'll get any. But certainly, that's something that we are interested in, yes.

And we'll take our next question from John Godyn for Morgan Stanley. John D. Godyn - Morgan Stanley, Research Division: Gary, just on the last thing that you just mentioned there, that you thought you're pretty comfortable or confident, I don't remember what word you used, that slots were going to become available, is that sort of your view on whether we're going to see a settlement or not? I mean, is that the implication there? Gary C. Kelly: Well, yes. I'm not trying to be presumptuous here. That's just under the assumption that the merger goes through in one form or fashion, it's my belief that slots will become available. Obviously, if it doesn't go through, then I'm not assuming that any slots come on the market. I can't imagine that the merger goes forward without requiring divestiture. That's been our position from the very beginning. And obviously, the Justice Department seems to agree with that. John D. Godyn - Morgan Stanley, Research Division: Fair enough. I just wanted to clarify. The 0% capacity growth rate for 2014, you guys went out with that number a bit ago, and it certainly seems, as you're looking at trends in the fourth quarter, that things are going quite well. Is there anything that can happen in the next kind of 6 months that would cause you to revisit that number? Or should we think of that 0% as truly a firm number that won't be revisited until even farther? Gary C. Kelly: Well, no. I wouldn't lock it down that way. But it'll be plus or minus 0 based on everything that we know today. So you bring up the slot question in the same breath, and who knows? We may get slots that require that we fly, so we might need to increase capacity to take advantage of an opportunity like that. Again, this is just pure conjecture on my part to answer why would vary from that? Things could obviously change next year for the worse in the economy, and we might want to schedule less flights. So we'll definitely want to maintain that flexibility. But back to Hunter's question, we have a lot of work to do between now and the end of 2014. I would rather not introduce a lot of growth or even modest growth into that environment. I think we'll be very well prepared to contemplate growth opportunities after all the integration is complete, and I think we'll have a number of very exciting opportunities to think about. So really, now and next year is not the time to be thinking about that. John D. Godyn - Morgan Stanley, Research Division: Okay, fair enough. And Tammy, if I could just follow-up on what you said recently on business mix improving, is there anything you can tell us about sort of the last few quarters or just something to put it in perspective that puts how much it's been improving today versus some point in the past? I'm just trying to get a better sense of the trajectory there.

Sure. Just on our business mix. It did improve from the second quarter. I think we were at about -- I think we reported that we were about 30% in the second quarter of this year and that's up to about 35% here in this quarter. So, we have seen, when I was referring to signs of strength. That was kind of one of the reference points. Corporate sales also increased year-over-year. Actually, rather dramatically and -- so, just a lot of encouraging signs across-the-board.

We'll take our next question from Duane Pfennigwerth from Evercore. Duane Pfennigwerth - Evercore Partners Inc., Research Division: Just following up on John's question. When you're in a position to play offense again and start to grow, what are the relative attributes that you consider when deciding where to point your aircraft? Is it only a relative cost decision? And how has your experience in Atlanta changed your thinking in that regard? Gary C. Kelly: Let me take a shot at answering your question and you can tell me whether I'm on target with your relative cost point. We'll be looking for opportunities where it can play to our strengths and where we can stimulate traffic, looking for nonstop opportunities where we think there's sufficient traffic that's perhaps underserved. And as we think about the future, I don't think that there's anything that's fundamentally different about how we would contemplate growing. I think in this environment, with higher fuel prices and having more of a challenge in stimulating traffic, we'll just be a lot more measured in pursuing those opportunities. Dallas Love Field is an obvious opportunity. I'm sure we'll face vigorous competition from DFW. So we're not willing to commit yet exactly what we want to do and when, for competitive reasons. But right now, we're just focused on bringing up our international capabilities and finishing the AirTran integration and not focused on growing the airline. Duane Pfennigwerth - Evercore Partners Inc., Research Division: And then, broadly, can you talk about the cost buckets that will help or hurt CASM next year? And can you provide any update on your pilot negotiation? Gary C. Kelly: Tammy, you want to talk about the cost outlook? And then I'll try to chime in on the negotiations.

Yes. Our most significant cost reduction initiative, as you probably are aware, is our fleet modernization efforts. And so, you -- where you'll see those savings would be in our maintenance materials and repairs and our fuel and oil expense. And you're already starting to see some of the benefits in fuel efficiency. So those are going to be the primary 2 buckets where you'll see a reduction in cost. And of course, we'll continue our efforts, as always, just to control cost overall. And just a quick point on this year, if you recall, last year we went into the year with a goal to reduce our overhead by about $100 million and we're right on track with that goal. So -- and again, working through the 2014 plan, but -- as always, we're going to be very diligent in our cost control efforts. Gary C. Kelly: Duane you specifically asked about pilot negotiations. So, I'll answer that and just comment on the rest. But the -- I think the negotiations are going fine. And in terms of what's being discussed at the bargaining table, as you know that's going to be confidential. But there's nothing really that I can report at this point other than we're continuing to have meaningful discussions. Our pilots are very devoted to Southwest Airlines and certainly want to make sure that their company succeeds. And I'm very grateful for all the hard work that our pilots do for us every single day. But I would be remiss if I didn't also share that we're in negotiations with many other workgroups. In fact, most of our -- the vast majority of our union contract employees, their contracts are amendable at this point. So, we have a number of negotiations underway and they are all proceeding and all -- I feel like we're having a very good dialogue. But otherwise, just really not at liberty to provide any other insight there.

We'll take our next question from Thomas Kim with Goldman Sachs. Thomas Kim - Goldman Sachs Group Inc., Research Division: We're certainly pleased to see the improvement in the ROIC and I wanted to ask to what extent do you think you're somewhat handicapped to achieve the 50% target without necessarily growing the ASMs more meaningfully beyond, let's say -- in 2014, let's say. Gary C. Kelly: Why don't I take a shot at that and I'd love for Tammy to be able to comment as well. I don't think we are handicapped. I don't think achieving our return mandate is a function of growing ASMs. I think it is a direct function of us optimizing our route network. And as a follow-on, managing the revenue production. The other material input, of course, is fuel prices. And it is so nice to have stability in fuel prices. It's somewhat humorous to us that for 2 quarters in a row, we have the exact fuel price per gallon of $3.06 after all of our hedging for second and third quarter. And as I mentioned in my comments, the outlook for the fourth quarter is in that range. So that is extremely helpful. We want to maintain our low fare brand and not continually be forced to chase operating cost higher and higher and higher and higher. That's what creates so much instability in our [indiscernible] customer set. So -- well, we think we have very good revenue momentum, both I and Tammy have gone through the whole list of things with you that are not optimal yet. And again, just as a headline, I would say, we are in the midst of a major merger integration. And despite all of the noise that comes along with that, are producing record earnings here in the second and third quarter. So oftentimes, you see the opposite result. In other words, where people are really distracted and not performing. So I feel really good about where we are and Tammy and I and all of our leaders know darn well that we've got a number of opportunities that we can pursue. And that will be our focus. And as I said, our 2014 plan will have a result that achieves a 15% return on invested capital. I'm not guaranteeing that we can achieve it, but I am guaranteeing that we'll have a plan that provides that result. So Tammy, I think you want to answer?

Really, not much to add to that, Gary. Just, again, we're going to continue to be diligent on the cost side and of course, as we've demonstrated this year, we're very focused on managing our invested capital as well. Thomas Kim - Goldman Sachs Group Inc., Research Division: And then you certainly do have a very strong balance sheet, which affords you a lot of flexibility. And I wondered to what extent would you consider increasing your capital return to potentially juice up the ROIC?

Well, I won't speak to our future plans, but I think you can just look at what we've done here in 2013 and I think that's just evidence that we're committed to manage that as aggressively as we can. Gary C. Kelly: And we're very mindful of that. We have, last year in fact, we were very explicit that we were going to aggressively manage our invested capital. And Tammy pointed out that it's down, I believe, 9% year-over-year. So, no, we'll want to continue to do that. We've got very strong operating cash flow. I don't know anything right now about 2014 that would suggest that we won't have strong cash flow next year. There's always the things that are hard to predict, but like I said, we'll have a plan that will have a 15% return. And that will result in a very strong operating cash flow plan for next year.

We'll take our next question from Jim Parker with Raymond James. James D. Parker - Raymond James & Associates, Inc., Research Division: Following up on the questions about Atlanta, and when you all originally acquired AirTran, did you anticipate cutting back the number of flights to the extent that you have, or have you come up with better opportunities elsewhere that has caused you to cut back further? And then, what are your game plans for rebuilding service in Atlanta? Gary C. Kelly: Well, I'll speak to all of those and, Tammy, you chime in. When we struck the deal with AirTran, crude oil was a $80 a barrel. So we did not contemplate -- at that point, we didn't predict that oil would be at $110 a barrel. So I would say that. That has had a significant impact on, not just Atlanta, our entire domestic route system. So we've been trimming flights across the country. In fact it's a rarity to find cities that are having increased flight activity. The opportunity for many of our cities is to continue to add new destinations. But the short-haul markets, Jim, in particular, as you know, have really been hit hard over the last decade and have not recovered since 2007, '08 and '09. So, that would be my answer to your questions. No, we didn't plan on $100-plus crude oil. I believe we will have a substantial operation in Atlanta. We'll keep tuning it until we're satisfied that it's right. There is absolutely no mandate, whether it's Dallas Love Field or whether it's Atlanta that the flight activity has to be at a certain level. And the other thing I would mention about the number of flights, it's very misleading considering that the gauge, it's changing dramatically. So you'll be seeing 717s replaced by 737s in the trips. In other words, the trip count won't equate to the seat count and I'll just ask you to stay tuned on that. Atlanta is very important to us. We've had a wonderful reception there. Atlanta was a challenge for AirTran and we're seeing very meaningful improvements in the local market, in particular. So we have a big step coming up next month to convert to the point-to-point route system. If radical is the right word, it's a radical change for the operation. And the bookings, so far, look very solid. So I don't see a misstep there and am anxious to see if we can't build the business from here. At the same time, we are really hampered by the fact that it's not all one brand and the majority of the flights are still AirTran. And I think we're all looking forward to the day where it's all Southwest. And that will really put us in a position where we can best answer your question, and that won't be until the end of next year. So we've got a ways to go. We're very committed to the market. Regardless of the number of departures that we have, we're going to have a very large presence in Atlanta. Tammy, anything you want to add?

The only thing I'd add is, exactly what you said, we, in April 2014, we'll have 160 flights, which as you know Jim, compared to many of our other focused cities, I mean that's right in line with what we would traditionally do. So again, a very, I think, still a very strong presence there in April. And I think -- Bob, did you have anything that you wanted to add? Robert E. Jordan: Yes, Gary, really covered everything. I just would tag in on the November schedule change. It's a big deal. We're moving from a hub-and-spoke structure there that AirTran had, to a traditional -- a little more smooth throughout the day flight structure that Southwest would have. It provides a lot better local timings. We're just a couple of weeks away from that and we were already gaining local share as compared to AirTran. And bookings, well, thoroughly the bookings performance for that November schedule look really promising. We're seeing gains locally and we're seeing that we're holding on to the flow traffic and connect traffic as well. So not only would that be a better schedule for our local Atlanta customers. It'll be a better schedule, I'm very hopeful, in terms of financial performance. And typically, with a big schedule change like that, it takes the market a while to adapt to the change in flight timings and we're not seeing any dip at all. Gary C. Kelly: I just, Jim, have one quick color commentary to Tammy's point. Atlanta is one of the biggest cities that we operate in. Period. And it's bigger than Dallas, bigger than Houston, 2 original cities. Bigger than L.A., bigger than Oakland, the list goes on and on and on. So it's a very large operation for Southwest Airlines.

We'll take our next question from Glenn Engel with Bank of America Merrill Lynch. Glenn D. Engel - BofA Merrill Lynch, Research Division: Can you talk about international. How that's proceeding and when you hope to start flying that? Gary C. Kelly: Yes. International is proceeding right on pace. We're probably nearing the point where we can publicly release some milestones. I'm not ready to do that yet, but 2014 is still the plan and it's going to happen. There are -- after the Bermuda closing, there are 7 international destinations that will be the candidates for conversion from AirTran in 2014 over to Southwest. And they'll take place -- those conversions will take place throughout the year. So to bring up international, Glen, we've got to finish the technology, be ready to take [indiscernible]. Then, we have to convert the AirTran International airplanes and there's 33 737s. Mike Van De Ven and his team will add some Southwest 737s to that international fleet, but all of those things will have to take place to get international up and running. I don't believe there's anything that we need to do with route authorities, but our regulatory folks are all over that. I'm not aware of any issues on that front. So it's, again, primarily just getting the airplanes converted and getting the technology up and running. The technology milestones are in view. And what we have reported consistently to you all, and especially in the second quarter earnings call, is that, that project is right on target, right on schedule. So, my confidence in the deliverable for next year just goes up with every passing day because we keep hitting every milestone that we've given them. The company's very focused on it, which is again why I've answered several questions the way we have today, which -- this is a big effort and it does require focus and we're really pleased with how the project is progressing. So I certainly don't want any distractions for our team. Glenn D. Engel - BofA Merrill Lynch, Research Division: And does the flat capacity guidance next year include any significant -- any international? And what percent of the system do you think it could become way down the road? Gary C. Kelly: Well, it's really small now. Again, it's got 7 destinations and 33 part-time airplanes. They're not fully flying international routes. They're probably, I don't know, Bob, half of it is domestic. So -- is it 1%? Maybe 1% of our capacity today is international. And it's really premature. I'm not ready to give you the big prediction yet. I would simply say that the opportunity with 737s to North America, including Alaska, Hawaii, is 200 to 300 airplanes. That is not a prediction that we'll fulfill that, but it's a very large opportunity. And in many cases, the fares are very high. So, we think we've got ample opportunities to grow there as we do out of Dallas Love Field and other domestic opportunities too. So, we have no lack of opportunities. We just need to make sure that we're executing on our business plan and hitting our revenue and our cost targets.

And we have time for 1 more question. We'll take our last question from Dan McKenzie with Buckingham research. Daniel McKenzie - The Buckingham Research Group Incorporated: Tammy, one quick clarification. Did you mention that codeshare revenue from AirTran was about $45 million for the third quarter?

That's correct. Daniel McKenzie - The Buckingham Research Group Incorporated: Got it. Gary C. Kelly: And that's net, Dan. So that's not - in other words, there's a lot more codeshare revenue than that, but we don't think that it -- well, incremental, is the right word, sorry. Daniel McKenzie - The Buckingham Research Group Incorporated: Got it. And I think you just might have intercepted my next question, Gary and that is, I think the estimate earlier this year was about $1 million today and I guess I was just wanting to reconcile those 2 numbers? Gary C. Kelly: Yes sir. Tammy, I don't know if you have the gross number here.

The total is, if I remember correctly, it's over $200 million -- it's over $200 million. I think $220 million, if I remember correctly. Gary C. Kelly: It's a giant number, Dan, but we know full well that it's not all incremental. So we've made our best effort to try to infer from the data what is incremental. Daniel McKenzie - The Buckingham Research Group Incorporated: Understood.

That's a big number. Daniel McKenzie - The Buckingham Research Group Incorporated: And then, I guess, just secondly. Does that codeshare benefit accelerate once the November schedules kick in, in Atlanta? How should we think of that? Gary C. Kelly: Well, I'll just give a topside answer and let Bob and Tammy think about your question here for a second. The connection bookings for Atlanta in the November schedule change look very good. And that may very well -- there may very well be some codeshare support in there. The only thing I would mention to you though, Dan, is that as time goes by and AirTran continues to shrink its fleet, which is happening now in an accelerated way every month between now and the end of next year, the codeshare numbers are logically going to come down as that entity shrinks. But yes, Atlanta is probably in a better position in November for codeshare. Robert E. Jordan: I would agree, absolutely. Just simply because the flight timings are better, I'll think you're going to see a modest -- at least a modest improvement in the codeshare benefit. The other thing to think about too is the -- as the AirTran fleet draws down, the AirTran fleet, and we've all mentioned this, but it's suboptimized, so that the AirTran network is suboptimized as compared to Southwest. So as those aircraft enter the Southwest network and are optimized, you'll in essence, trade that codeshare revenue for even more effective revenue because it's part of an optimized network in total. Gary C. Kelly: Right. And a much better customer experience too. Marcy, back you.

Well, thank you all for joining us today and as always, if you have any follow up questions, please feel free to give a call -- give me a call. Have a good day.

And ladies and gentlemen, we will now begin our media portion for today's call. I'd like first to introduce Ms. Ginger Hardage, Senior Vice President of Culture and Communications. Ginger C. Hardage: All right. Thank you so much, Tom, and thanks to everyone. We know it's now time for the media to queue up their questions they might have for Gary, Tammy, Mike and Bob. So, if you -- Tom would give those instructions, we're ready for that.

Ladies and gentlemen, this is our media portion of today's Q&A. [Operator Instructions] And we'll take our first question today from Terry Maxon with the Dallas Morning News.

This is a North Texas question. I understand you're not going to give us specifics until you're ready to give us specifics, but can you kind of tantalize us about what changes we'll see in the schedule out at Love Field, both on -- beyond the Wright Amendment area and inside the Wright Amendment area? Gary C. Kelly: Well, I think the -- beyond the Wright Amendment state area is, gosh, it feels like it's 1971 all over again. So, we've got lot of opportunities. We have a lot more opportunities than we have airplanes. So we'll be doing our best to prioritize what we do first and then just make sure we don't get the cart before the horse here. So, we're going to take this expansion opportunity like we would any other and be aggressive when we can and be cautious when that's what's called for. But, we've got opportunities, Terry, in every direction except for South. So it's, again, an abundance of opportunities there in some really high-fare markets. With respect to the Wright Amendment cities, we're not really contemplating any radical changes there. As I mentioned on the analyst call earlier, the short-haul markets -- and you've written about this, the short-haul markets have suffered over the last decade. We have already adjusted our supply to that reset of demand. And the other thing that will happen, of course, is that many of the cities, especially in Texas, are -- most of their flights are to Dallas. While being able now to expand Dallas will be very beneficial for those cities. So in other words, if we fly to the East Coast now out of Dallas, we'll have Texas customers that can now fly on Southwest via Dallas to that opportunity. And that's very substantial. So I think on balance, for the most part, there should be good new benefits for everybody and we're doing our best to make sure that we pay close attention to all of our cities that we serve and do the best that we can to take good care of them.

To follow-up on that. Love Field, I think you carried just under 8 million passengers in 2012. Is 10 million a year, once you get your schedule fully optimized out of Dallas Love Field post Wright Amendment, a reasonable target? Gary C. Kelly: I don't know that I would put a boundary on it yet. We haven't even gotten started with it. It does have a natural cap and although we're -- because we're so efficient, I don't know exactly what that is. But I wouldn't object to that as a reasonable number, but I'm not willing to predict it at this point.

We'll take our next question from David Koenig with the Associated Press.

Gary, just following up on the slots question that came up during analyst portion. Have you talked to anyone at American or Airways or even DOJ about that? Could you be part of some sort of prepackaged deal? Gary C. Kelly: Personally, I've not had serious conversations with anybody about anything with respect to that merger. If somebody wanted to talk to us about a deal, well absolutely, we would talk to them. There's nothing wrong with that. But generally, David, we don't comment on what kinds of things that we might be doing. But just with this situation, yes, I'm going to give you a straightforward answer, which is no, I've not been involved in any serious way with anybody.

Okay. And the reason I asked of course is -- so you were -- your comments earlier were just -- you were surmising based on your long experience in the industry. It wasn't any particular inside information you had from any of the participants? Gary C. Kelly: I have no inside information. And I - no, I think -- at least I tried to make it clear that I was -- I think what I said is, I was reasonably confident that there would be a divestiture required. And yes, that's based on our knowledge of the law and our knowledge of the slots that are hoarded at Reagan, in particular, and the fact that the Justice Department has sued to prevent the merger. So that's -- those are the inputs that I was using to voice that opinion.

We'll take our next question from Kelly Yamanouchi with the Atlanta Journal Constitution.

You mentioned that bookings looked good in the shift to point-to-point for Atlanta and I was wondering how the shift for the November schedule has been affecting unit revenues and load factors for Atlanta? And also, how it has been affecting the mix of Atlanta O&D passenger share so far? Gary C. Kelly: We don't know. Again, all I can tell you is what -- is repeat what we said before, which is, that the bookings look very good at this point in time compared to a year ago for Atlanta. And it is a very different operation. Bob is looking at these bookings in total. And what was interesting to us is that we did see a little bit more strength in the connecting bookings out of Atlanta. So -- but it's way too early to give you any insight along the lines that you were asking us. We'll probably need -- one day or one week doesn't make for a trend either. So we'll need some time to evaluate how good a schedule we have. I'm sure it won't be perfect and I'm sure there will be follow-on tunings that we'll want to do. And Bob, I'm pretty sure that we don't have every destination in place that we would like, much less all the frequencies. Robert E. Jordan: Right. Gary C. Kelly: So we've got a lot of work to do in Atlanta. And again, Kelly, the main thing to remember is, this is still dominated by AirTran brand and service. It's not close to being finished. So I'd say we're probably a good 18 months away before we've got something that we're totally satisfied with. But, this is a big step and based on the step that we've taken, we're very pleased with the results that we've seen so far. But all that's very premature.

We have time for one more question from Jack Nicas with the Wall Street Journal.

One thing, obviously, I think jumps out is the 11.3% hike in the average paid fare. Obviously, you folks are coming from a low base fare and then you're allowing bags to fly free, so still can be a deal there. But do you think that, that sort of increase significantly affected your strong revenue performance this quarter and do you think that this could lead to a trend of rising fares that would continue at Southwest as a result? Gary C. Kelly: Well, just a little quick background, and then make sure I answer your question. The 11% is a little misleading. If you look at the average passenger distance that they flew, that's called the average length of haul, that was up 4.3%. So in other words, one would expect to pay a higher fare to fly farther. So you have that effect going on. 4.3% is quite a change in a year-over-year comparison there, so that's part of the 11.3%. You also look in the statistics, you'll find that the yields went up, what, Tammy, 6.2%, 6.3% something. That's probably a better indicator for how much fares went up year-over-year. And those are -- we're a low-fare carrier. Those increases are a function of cost pressures. And the primary cost pressure that we are managing is fuel. It is true that fuel moderated year-over-year, but again, we're dealing with catching up to fuel increases that have been taking place over the last decade. And finally, we're getting caught up. If fuel prices are flat next year, I would hope that we wouldn't have to have fare increases, but that's just an opinion. I can't give you any insight, legally, as to what we're thinking about with fares going forward. Other than the obvious, which is, we want to be a low-fare carrier. That's who we are, so we're going to work very hard to keep our costs low, so that we can pass those savings along to our customers.

Okay. And one quick follow-up. Obviously, you folks have bucked the trend of charging for baggage. Will you be able to stick with that and continue to allow 2 bags to fly free and simultaneously keep those fares low? Or is there an opportunity there to, maybe, along with everyone else, charge for at least a bag or 2 and then therefore, drop your fares maybe a little bit? Gary C. Kelly: I believe we will. I would temper that with the following. Right now, it's our belief that we get more customers and more revenue by not charging for bags. In fact, there was a study that was released to the media this week, ranking Southwest as one of the most transparent, friendliest brands to work with, with the airline industry being ranked as a whole at the bottom. So we think that, that kind of a brand image brings us a lot of business that we would not get if we started charging for bags like everybody else. So there's a real value to being different than the herd and especially when you're different in a way that most everybody thinks, is really good. However, if -- over time, if customers prefer the unbundling approach, sort of an ala carte approach, and they understand it and they favor that, well, we'd be crazy not to provide our customers with what they want. But as I mentioned earlier, our focus right now to finish out this year and for 2014, is going to be, implement international service at Southwest Airlines, which is a very big effort, and finish the AirTran integration. A change in the fee structure would be, I think, a significant distraction. So, there are no plans to make any significant changes in 2014.

At this time, I'd like to turn the conference back over to Ms Hardage for any additional or closing remarks. Ginger C. Hardage: Well, thank you, all, for being on the call today. As you know, we stand by if you think of further questions as you're compiling your stories. That number to call is (214) 792-4847. Thanks, everyone, for being on the call.

And this does conclude today's conference. We appreciate your participation.