Marcy Brand – Senior Director of Investor Relations Gary Kelly – Chairman, President, and Chief Executive Officer Tammy Romo – Senior Vice President of Finance and Chief Financial Officer Linda Rutherford – Vice President of Communications and Outreach Robert Jordan – Executive Vice President and Chief Commercial Officer Mike Van de Ven – Executive Vice President and Chief Operating Officer Ron Ricks – Executive Vice President and Chief Legal and Regulatory Officer

Andrew Didora – Bank of America Tom Kim – Goldman Sachs Savi Syth – Raymond James Julie Yates – Credit Suisse Jamie Baker – JPMorgan Helane Becker – Cowen Joseph Denardi – Stifel Duane Pfennigwerth – Evercore Terry Maxon – The Dallas Morning News Jack Nicas – Wall Street Journal Andrea Ahles – Fort Worth Star-Telegram Dawn Gilbertson – The Arizona Republic

Please standby. We're about to begin. Welcome to the Southwest Airlines Second Quarter 2015 Conference Call. My name is Tom, 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. At this time, I would like to turn the conference over to Ms. Marcy Brand, Senior Director of Investor Relations. Please go ahead ma'am.

Thank you, Tom. Hello everyone. And welcome to today's call to discuss our second quarter 2015 results. On the call today, we have Gary Kelly, Chairman, President, and CEO; Tammy Romo, Senior Vice President of Finance and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer; Mike Van de Ven, Executive Vice President and Chief Operating Officer; and Ron Ricks, Executive Vice President and Chief Legal and Regulatory Officer. Please note today's call will include forward-looking statements and 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 in the Investor Relations section of southwest.com for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. At this time, I will turn the call over to Gary for opening remarks.

Thank you, Marcy and thanks everyone for joining us for our second quarter 2015 earnings call. We had an outstanding quarter. We are looking forward to another strong revenue performance in the third quarter, at least from our current perspective. I want to start by paying tribute to [indiscernible] due, which is to all of our 47,000 employees. These are the terrific results. They work very hard to deliver them. They've also worked very hard to build Southwest Airlines and of course, they work hard every day to serve our customers and each other. They're superb and these results are test of that. It's no secret that this was eagerly an all-time the quarterly record. Last 12 months return on the invested capital is all above – a record. You have to go all the way back to 1980, which was a 29.2% performance. Fuel prices were down 33% to a little over $2 a gallon and of course that was a huge driver in our year-over-year earnings increase. And we assume the fuel prices will continue to be moderate for at least the next several quarters and hopefully long after that. Our revenue production was very solid and especially considering our softer economy than we were planning for, and also considering the industry's growth and seats and our own 7% available seat mile growth. Our traffic was strong. We had a record load factors. Our passengers grew 5.6%, which outpaced easily our modest 2% seat growth. Our unit revenue comparisons year-over-year is somewhat deceiving. Our RASM declined 4.7%, but a point of that is attributable to a year ago $47 million accounting estimate change. In addition to that, there was a 2.6% effect for increased stage length engaged. So if you take all that into account, it really leaves a year-over-year decline of only about a little over 1% due to the somewhat softer demand or softer economy. We have a large percentage of new markets or markets in development that's around 18%. This will decline as we go forward and especially into next year and almost all of the 7% capacity growth in second quarter was in Dallas, Washington Reagan and LaGuardia and a small amount in some new international markets. Dallas alone was up 150% year-over-year. Its load factors and profit margins and return on invested capital, all exceed system average. And in that statistic I'm talking about the new Dallas markets not just Dallas in total. In Dallas we've lowered fares, we've added flights, we've stimulated demand and we've created meaningful competition for the first time in decades, which is exactly what we said that we were going to do. We've added capacity in the second quarter in other domestic markets, but those have essentially been funded by cuts in other preexisting markets that we had served. So looking ahead, we are delighted to announce this morning an amendment, an exertion of our co-brand credit card agreement with Chase. They are absolutely a terrific partner. You've heard a lot about our strategic initiatives over last five years and in particular our all new rapid rewards program. So this updated deal is a testament to the enormous success of our new program and the new Chase deal amounts to what is a stealth fixed initiative or at least an extension of the current all the rapid rewards. So as we reported this morning with our release we'll recognize an additional $250 million in revenue for the second half, which will continue on in future quarters and then of course, we'll also recognize an additional onetime benefit in July of $150 million. So with that, along with some improvement that we've noted in our core business, our sequential revenue trends will improve significantly from second quarter to third quarter. So, this is an interesting year for us. We have the AirTran integration behind us. We're continuing to optimize the large number of converted or we call them developing markets. Secondly, we're following through with the secular opportunity to expand Love Field. Third, we're seeing the full year effect of our significant expansion in Washington Reagan and LaGuardia, as a consequence of buying slots from American upon their merger with U.S. Airways. We're following through gradually with our commitment to launch Southwest international service in July of last year and follow through with the launch of new international service in Houston at Hobby for the first time since the 1960s. And it has Love Field like opportunities to lower fares, add flights and stimulate the market. Obviously, the scale there is much, much smaller and admittedly the risk is greater. So we'll take all of that into account with our expansion plans. We're also gradually returning aircraft from an out of service state to an in service state, as the integration of the AirTran fleet or its replacement fully completes. So we're able to grow this year without adding any net aircraft. And again start the year with around 700 units, so we planned in the year at about 700 units. For next year, our fleet plans are unchanged. Tammy will give you some updates as to some of the pluses and minuses within that, but we're still targeting to grow the fleet around 2%. Our ASM plans which of course are always available seat mile capacity plans, which are always subject to change for next year, will be at least 5% and that's driven almost all by 2015's growth but no more than 6% and again that's all based on our current outlook. And I would just summarize all of those thoughts by just reminding everybody that we will very carefully manage our growth so that we can sustain our operational excellence, our outstanding customer service, our strong profit margins and returns on capital and maintain our strong balance sheet. And I believe in our people and I'm confident in our ability to manage all those things, so Tammy with that quick overview I'll turn it over to you.

Thanks, Gary, and welcome everyone. We're very pleased to report all-time high quarterly earnings, excluding special items of $691 million or $1.03 per diluted share, which is a 43% increase from second quarter last year. Our GAAP net income was $608 million, including $83 million in special items. Second quarter operating income was a record $1.1 billion and our operating margin was a strong 22.5%. Our pre-tax margin grew by 6 points to 21.7% and our 12 months trailing pre-tax return on invested capital grew to 28.2%. We've generated $1 billion of free cash flow for the first half of this year and in May we announced a $1.5 billion share repurchase program. During the second quarter we repurchased $380 million in shares and we announced today that we plan to launch another $500 million accelerated stocks repurchase program soon, which will bring our share repurchases this year to nearly $1.2 billion. Once the new ASR, accelerated share repurchase is launched, we will have completed more than half of our $1.5 billion repurchase authorization in just under three months time. We also announced a 25% increase in our divided in May. Our divided yield is currently just under 1%. Revenues for the quarter were up 2% on a 7% capacity increase, and as Gary noted, we are extremely pleased with the development of our new markets which represented about 20% of our available seat miles. Our second quarter results also benefited substantially from lower fuel prices and our continued focus on non-fuel costs, particularly our fleet modernization effort. Our economic fuel cost savings in second quarter were almost $500 million, and without fuels, our unit costs were flat year-over-year, and when you exclude the records, $182 million profit sharing earned by all of our hard-working employees this quarter, our unit cost decreased nearly 2% year-over-year. And I would remind you all, that in order to fully understand our results you needed to keep in mind the impact of the increased stage land engaged to both revenue and cost. I'll take you through our revenues and cost in more detail, but the takeaway is that our network is producing strong margins and returns with or without the help of fuel. I'd like to congratulate all of our hard working employees on these exceptional second quarter results which marked our ninth quarter of consecutive record profitability. Diving more into revenues, we reported a record revenues of $5.1 billion. And on a unit basis, our passenger revenues were down 4.6%, which is right in line with guidance for the last couple of months. Total revenue per available seat miles was also down in a similar range. And demand for our low fares remain very strong throughout the quarter, resulting in record load factors for each month and the full quarter. Aside from softer yields experienced in May and June, our second quarter year-over-year unit revenues were impacted roughly two points to three points from higher engage and flying longer distances. As Gary walked you through the unusually high increase in stage engage is largely due to workforce in Dallas. Our year-over-year unit revenue comps were impacted by about a point from last year's revenue adjustment first privilege. Our new markets are maturing in line with plan. Demand in our new Dallas markets, and particular has just been tremendous with load factors with over 90% for the quarter and margins exceeding a system average performance. International is also developing as planned, which took into account the potential for us slower rate of ramp-up than a market like Dallas, which clearly had lots of pent-up demand for our legendary low fares. Our Rapid Rewards programs, as Gary said, is a huge success and continues to contribute significantly with nearly $80 million in incremental revenue a year-over-year in the second quarter. We're very pleased with the growth of our frequent flyer program, including the growth in the credit card program and we were thrilled to announce today that we recently amended and extended our credit card agreement with Chase. Terms of the agreement are confidential, however, the amended agreement includes improved economics over the life of the multi – what is a multi-year contract. For accounting purposes, this amendment triggers the requirements that follow the valuation methodology, prescribed by the 2009 update to the accounting standards versus the residual accounting methodology that we previously followed. This new methodology will put us on a more comparative accounting method to the industry. The effect of the amended contract and applying the new accounting methodology, is that we will be able to accelerate a portion of our revenue – revenue recognition associated with point sold to take. In addition, under the new accounting methodology and amended agreement, we will allocate a portion of the revenues to other revenue first as the 100% being allocated to passenger revenues, as has been the case over the past couple of years. As a result of the new accounting methodology, our year-over-year comparisons on PRASM will be distorted for at least a year's time, and the more relevant measure of our unit revenue performance would be RASM. With this in mind, we are a providing a RASM guidance for third quarter 2015, and we'll provide updates to our third quarter RASM outlook in our monthly traffic releases. And we'll continue to evaluate whether this will remain our practice beyond this quarter. Our preliminary estimate of the year-over-over benefit from the amended agreement, combined with the effect of the new accounting methodology is approximately $400 million and for the second half of 2015. Included in that $400 million is approximately $150 million that will be recorded in third quarter as a special revenue item. And this will result – this will result from the deferred revenue liability being revalued using the current estimated selling price for transportation resulting in a liability rejection and corresponding non-cash one-time increase to GAAP operating revenues. As this amount will be recorded as a special revenue item, it will be excluded from our reported RASM and thus is excluded from our third quarter right RASM guidance today. However, as a reminder, when you're modeling a third quarter you will want to keep in mind the profit sharing impact of special items. The remaining – approximately $250 million of the $400 million estimated impact to the second half of the year will benefit our reported unit revenues. Our preliminary estimate of the year-over-year benefit to each – third quarter and fourth quarter RASM is roughly two points to three points. One additional note is that in conjunction with our amended agreement with Chase, we are very excited to announce that we have also extended our long-term exclusive co-brand network agreement with FESA. So with our Chase agreement and corresponding a change in accounting methodology in mind and based on our current bookings of revenue trends we are estimating third quarter RASM will decline approximately 1% year-over-year. And while the economic indicators have been somewhat mixed, the economy overall being fairly solid and our revenue trends appear to be stabilizing and improving. With or without the Chase related benefit, July is currently trending a better than average sequentially and third quarter is also trending at sequentially from the second quarter. Overall, considering the estimated 2 percentage point impact of more stage and gauge, as well as our estimated 18% of our network under developments, we are very pleased with our third quarter revenue outlook. So turning to freight and other revenues, we are also pleased with our performance there. We currently expect third quarter 2015 freight revenues to be comparable to second quarter 2015. Other revenues declined slightly year-over-year from the elimination of AirTran fees with the integration completed in December last year. This was largely offset by continued strength and certain ancillary revenues such as EarlyBird Check-in and upgraded boarding. So a very good performance there. And other ancillary revenues were approximately $46 million. We expect third quarter 2015 other revenues to increase significantly from third quarter 2014, due to the change in accounting methodology I just walked you through regarding fee amended Chase agreements. So now, I will turn to our cost performance. Our second quarter unit costs, excluding special items decreased 12% on a year-over-year basis due to lower fuel prices, big cost control, fleet modernization and improved aircraft utilization. Our economic fuel costs were $400 million lower year-over-year, largely driven by a 33% decline of fuel prices and approximately 2% improvement in fuel burns. We are expecting a significant fuel savings again in third quarter, relative to a year ago and based on our hedge position and market prices as of Monday, we expect our third quarter fuel price per gallon to be at approximately $2.20, which is well below third quarter last year's $2.94. We made adjustments to our hedge book last fall, as you might remember when crude prices collapsed and we continue to actively manage our hedge book to balance exposure, with our desire to have some upside protection. Since last fall, we participated in the vast majority of the market decline and we currently expect our total 2015 economic fuel cost to decline approximately $1.3 billion from last year. And on the non-fuel cost side, excluding our special items of fuel, our unit costs were comparable year-over-year. Again this includes a 43% year-over-year increase in profit sharing. Excluding profit sharing and special items, our non-fuel unit cost decreased 1.8% year-over-year, driven largely by the fleet monetization benefit. Maintenance unit cost declined 4% year-over-year and our aircraft rental unit cost declined 27%, primarily due to the retirement of the 717 fleet. So, based on our current cost trends, we expect total third quarter unit cost, excluding fuel, special items and profit sharing to decrease year-over-year approximately 1%. And I'll note that we are still on track for full year 2015 unit cost, excluding fuel special items and profit sharing to decrease approximately 2% year-over-year. Moving now to the balance sheet and cash flow. We ended the quarter with $3.1 billion in cash and short-term investments and our operating cash flows for the first half of 2015 was $2.1 billion and our free cash flow was $1 billion of which we have returned approximately 80% to our shareholders thus far this year. Our balance sheet is strong with leverage of 33% including off balance sheet aircraft leases as of the end of the quarter and we continue to hold the distinction among U.S. airlines of having an investment grade rated balance sheet by all three rating agencies and we're very pleased to receive an upgrade by Moody's to BAA1 with a outlook positive during the quarter. We continue to estimate our 2015 capital spend to be approximately $1.8 billion and that excludes assets constructive for others, which is estimated to be in the $50 million to $100 million range net and this includes as a reminder approximately $1.1 billion in aircraft spend. We're still finalizing our 2016 CapEx plans, but continue to estimate our aircraft spend will be in the $1.3 billion to $1.4 billion range and total spend less than $2 billion. Overall our balance sheet and cash flows have remained strong throughout this year allowing us to continuing to invest in the business and return significant value to our shareholders, employees and customers. And that brings me to a quick recap of our fleet plans, I – Gary went through pretty fully, but I won't go into too much detail here, because I'll just reference you back to the earnings release, but we – end of the quarter was 689 aircraft in our fleets, and at the end continued to expect our fleet to reach roughly at 700 by the end of this year. Regarding capacity, our third quarter ASM are estimated to increase year-over-year approximately 8% on a year-over-year seat growth of 3.5%. For the full year, our 2015 capacity growth remains on pace to increase approximately 7% year-over-year and that's with seats growing just under 3% year-over-year. And again this year's plans are targeted largely on Dallas with a smaller portion of Washington Reagan, New York LaGuardia, international and other regional market opportunities. Gary walked you through the annualized impact of our 2015 capacity additions which again will contribute approximately 4% to 5% of our 2016 year-over-year capacity. And with a continued focus on optimizing our network, we currently plan to grow our 2016 ASM and the 5% to 6% range versus 2015. And as you think about our 2016 year-over-year ASM growth, keep in mind that the timing of our 2015 annualized growth will create a higher year-over-year rate of return, rate of growth in the first half of 2016 as compared to second half of 2016. So in conclusion of these are very exciting times at Southwest, demand for our low fares and friendly service is strong, and we're delighted with the overall performance of our network. And in closing, we've received a lot of questions regarding our historic 15% pre-tax goals which we've acknowledged is too low with today's fuel prices. Over the long run, our goal is to consistently deliver healthy profits and returns at or in excessive our cost to capital, which is currently under 8%. Given where we are today simply referring back to our historic goals is that meaningful and we will be providing annual financial goals of moving forward. In 2014, we delivered a strong 21.2% ROIC and for 2015 our goal is to exceed 21%. And we are well on our way to achieving that goal. For the 12 months ended June 30, our pre-tax ROIC is 28.2%, which is almost 18% after-tax, and our current outlook for the second half of 2015 is strong. Well, it's too early to provide guidance for 2016. Again, our goal is to sustain health margins and returns on capital in line with 2015. And with that overview, Tom, we're ready to take questions.

Thank you, ma'am. [Operator Instructions] Thank you for waiting. We'll now begin with our first question from Andrew Didora with Bank of America.

Hi, everyone. Thank you for taking my question. I guess, Tammy, just wanted to question around prepared remarks in terms of your revenue trending up sequentially, what is driving this? Is it better volumes or have you been able to push price more than you had been able to over the course of May and June? Thanks.

Sure. We are seeing some softness in our yields. But again, we are seeing that pickup and just continuation of healthy demand. So the economy feels pretty good now, and of course we're expecting a tremendous benefit from Chase and the accounting related to that new contract.

And then, if I could just follow up to that. I know corporate is a much smaller part of your business, but just curious in terms of what your corporate customers are telling you about potential future, future demand out of that channel and if you're seeing any sort of slowdown on the corporate side? Thanks.

Sure. Our corporate sales grew pretty much in line with capacity, and our business mix is still roughly a third of our passenger. So no meaningful change there. And when you factor in the mix of our development markets and just the trend set we had on the yield side in the second quarter, we're very pleased with those trends. Our corporate sales – again on the revenue side, also we saw a nice increase there year-over-year. And our – business mix continues to run in the low 30% range.

You can see some year-over-year declines in some of the oil patch, so I think that's pretty consistent with all the headlines that you would know, but Paul, I don't know if you have anything to add, I think the – I don't know in fairness to your question that corporate accounts are telling us anything, but if we just look at the recent trends I agree with everything Tammy said. I don't think you are necessarily hearing anything or...

No, I think the corporate business is in line with the base business generally as you mentioned we're seeing points of modest weakness that you would expect like oil and gas in some cases manufacturing related to that, but we're seeing offsetting points of strength like healthcare and consulting and other sectors, so net-net I think it's about a wash.

Yeah, Gary, on the – on the oil related roots I didn't note it in my remarks because all others is treated where there's an impact, it really hasn't been that significant, it's very strong.

That's great. Thank you very much.

And we'll take our next question from Tom Kim with Goldman Sachs.

Hi. Great. Thanks very much. Gary, can you just help me understand how you think about the mix between pricing and load factors? And I guess just beyond staging gauge, it does seem like pricing is generally softer, not necessarily weak but softer for your sales in the industry and I'm wondering you got load factors up, pricing isn't necessarily a softer cadence. I'm just wondering, how do you think about that balance?

Well, I want to be fair to your question. If you look at our reported results here for the second quarter and despite the fact that passenger tripplings are longer, the average fare is down as a fact. I mean you're right, average fares are actually down year-over-year, so there is – it's very competitive industry and some of that is of course a function of us adding capacity in new markets which are under development. So I think in terms of the way we think about it going forward, we want to be the low fare carrier. We are working hard to support that by being the low cost producer. So we love keeping our fares low and would prefer to have more for airplanes. Our load factors are the highest in our history, and the differential between Southwest now and the legacy carriers is very small. So we like that and obviously if we can drive revenue through sources other than fares like our new Chase agreement, we're very, very pleased with that. So in the end, we just need to manage revenues, and it needs to provide a sufficient margin over our cost and hit our capital returns. So I think in that sense, we're somewhat agnostic, but perhaps biased towards higher loads and lower fares.

I appreciate that color. Thank you Gary. And then just as a bigger picture question. Can you share like your thoughts about, you know the ability to sort of still expand the market. Do you think that there is still opportunity within the U.S. to be growing the overall demand pie?

Well, again, all politics are local. So I think it just depends on the market. I was asked earlier this morning about why the industry isn't expanding faster given oral prices. There were physical constraints in some places, Love Field is the perfect example, where you can't continue to grow all field. Reagan is another example. So you just have to go market-by-market. As I think about Southwest Airlines, we have tactical opportunities to continue to grow our domestic market which is maturing every year. But we still interestingly enough have very exciting opportunities to do that. And frequencies to connect dots, I'll just highlight a recent one that we've done, which is Austin to St. Louis. And it makes perfect sense for us to do that, and it's off to a great start. Memphis is another one that we've highlighted over the course of the last year. It was an AirTran city, we decided to open it on Southwest. We did not replicate the AirTran network, we plugged it in a way that we thought maybe more sense for Southwest, and we are doing game busters out of Memphis. Contrast that now to what I would call pure expansion, which is as flying transporter and that's different. That's adding higher risk capacity to cities that don't know Southwest Airlines, unfortunately the ones we're adding right now are mostly dependent upon U.S. traffic, when we add a San José, Costa Rica as an example. But nonetheless, that is a higher risk flight as compared to adding Dallas to Chicago. So we just have to do this from the bottoms up, it's not a top down exercise and it's a nice thing that we've reported consistently as if we have a significant number of very handsome and deep opportunities to continue to grow. And then in most cases that means we're able to grow into a market and add some value by bringing lower fares. So how much stimulation is left in the U.S. overall, obviously a lot less here in 2015 than 20 years ago, but nonetheless you still have opportunities. I mean Dallas Love Field is the poster child, which is just an incredible success story. And there were a lot of critics that did not feel like there was much opportunity to grow and they were wrong. So we'll just look for those kinds of opportunities across the country and where they're available to us, we'll put in service, where they're not, we won't force it.

Gary, thanks a lot for that detailed discussion.

And we'll take our next question from Savi Syth with Raymond James.

Hey, good afternoon. So just a quick question on the hedging side, now that your – has anything changed on your side, is there what you're attempting to do with the hedges?

Yes. We did – I'll just walk you through what we've done since the third quarter – since the second quarter rather. So in the second quarter, if you recall the energy market, started to trend upwards. And with the decrease in the recount and increase in market demand, we were concerned market prices would continue to escalate. So we did add some positions for the second half of this year. But so far supply, as you know has continued to outlay demand which has depressed the market prices. So we're continuing to actively manage that. So for the second half of the year, the guidance that we gave you for the third quarter, includes roughly $0.40 of losses per gallon, but that's embedded in the $2 estimate that we gave you for the quarter, so the $2.20 estimate. So, I'll just point you to, Savi, just as a reminder, really the best way to do help guide for our fuel prices is just using sensitivity and as always we've included that in the earnings release for you to help you along with your modeling. So, that's – so that's the change that we've made since second quarter, I think the last guidance that we gave you for the full year as a reminder when we unwound our hedges back when the market collapsed back in the fall, I think at that time we guided you to about $0.20 of penalty for the – for the quarter, we got out of way of that largely in the second half. So our penalties are a little bit greater here in the second half of this year. But on average, I've got – kind of $0.25 average in my head for the full year. So up a little bit from what we reported to you previously.

All right, and the only thing I would add Savi is that from a program strategy with prices lower and with a more comfortable cushion in our profit margin, and the – you just layer in the very expensive nature we're trying to hedge, I think it just argues to be less hedged if that's where you're headed as opposed to more hedged. And I think we're mostly focused right now in working our current position off, burring that off in the most cost effective way. But we've got a – a business that's built for substantially higher energy prices, fortunately. And the direction of energy prices right now seems to be a bit clear than it was 90 days ago. That's always dangerous to think. We know our energy prices are going to go, so we don't. But at least for right now, we have to have a view, and then we have to have some kind of behavior accordingly. And right now that's what we're managing to.

Yeah, and Savi, just one last note and we're currently participating in a large percentage of the – to the downside here, here in third quarter, third quarter 2015. It's not as quick as we were, but it's still substantial and it's producing, yeah, fuel prices well below a year ago level?

Great. That's all, very helpful. So, just on the – I'm assuming the 2016, has positioned [indiscernible] 2014, is that really maybe kind of balancing some of the locked in losses that you have in 2016?

That's our – we're still working on our 2016 and 2017 hedge book. And as Gary said our bias at this point is to lower jet fuel prices. So we're working to balance that as best as we can.

Got it. And if I may ask one other question and not related to the hedging, on the 18% of markets under development. Could you remind me again like what the drag is on your revenues currently. And then maybe – you think a portion of that will continue next year as you continue to open your market. So what's the drag that we can look forward to maybe being eliminated next year?

Yes. So, for the drag for the second quarter just to help you out, I think we've reported back to you in the first quarter that it was 0.6 roughly and for the second quarter the drag was a little over 1%.

All right. Great. Thank you very much.

You're welcome.

So you know it's – obviously it's pretty big number, but the other thing I would just reinforce to your question is we've shared great results for Dallas. And Dallas in other words is a whatever that revenue percentage is of our total. But Dallas would have been better. I think as the economy maybe stronger. So there – even though it's really good, even it has a drag. So I think that there is – if the economy improves, our markets develop obviously we're hopeful of some significant upside there. Can't promise that, but it's just common sense that tells you if you got these many new markets, that there – that they are creating some drag. So it's tough for us to estimate that but however you want to estimate is mine with me. But I think there is a pretty significant opportunity to improve here. And that's what we're going to be managing.

Thank you.

And we'll take our next question from Julie Yates with Credit Suisse. Julie Yates-Stewart: Good afternoon. Tanks for taking my question. Tammy, any change in how you're planning to report PRASM, I noticed you didn't give the June actual unit revenue growth for traffic a few weeks ago and today you guided to a Q2 RASM instead of July PRASM as you normally would have done. So is there any change of thinking there?

Yes, Julie. You are stating in and out. But I think I got your question. But please redirect me if I'm not answering it fully. Yes, we are planning to change at least for the third quarter of what we're reporting and on monthly traffic releases. We're going to be providing you a updated guidance on PRASM for the full quarter and that's really due to the Chase agreement and that we just executed here this month. We provided you our estimates but there is some noise between passenger revenues and other. We will be recognizing more of that revenue recognition in other that we have historically. So PRASM, year-over-year trends are not going to be all of that meaningful until we lap and that's when we get probably a year down the road. So at this point I just think it's more meaningful to provide you all our RASM that help you with your modeling. And so, we'll get through this quarter and then, we'll evaluate if we want to continue with that practice. Julie Yates-Stewart: Okay. So just to clarify there'll be no monthly numbers given the...

There will be no monthly number, but we do intend to provide you if there are any updates to our third quarter guidance for the full quarter in other words. Julie Yates-Stewart: Okay. Great. And then you filed your schedules through early march, when we file again your capacity plans little further out into 2016?

Our plan is to extend the schedule sort of as normal which would be, I'll say, about a month from now. Julie Yates-Stewart: Okay. And that will be for few months?

That's right. Julie Yates-Stewart: Okay. And then, just lastly on your goal of maintaining the 2015 ROIC levels in 2016, what are you assuming on fuel?

We haven't given you – we haven't given you our fuel numbers but I think using something we are looking at market numbers just like you are, but with or without fuel a year we are managing to – continue to deliver strong returns and very healthy returns above our cost of capital. So, we haven't really given you our forward yet for fuel for next year.

You know and duly in fairness to your question, it's a conceptual goal. So a change in fuel price assumptions this material is obviously going to impact what we would ultimately target as a number next year. But on a fuel constant basis is pretty easy to think about that we want to sustain the current level of operating margins from year-to-year or grow them, and then by implication we would want to sustain or grow our return on capital, what we ultimately adopt is the plan is going to be depended upon more variables than just fuel prices, but those are our goals. Julie Yates-Stewart: Okay. Thanks, Gary.

We'll take our next question from Jamie Baker with JPMorgan.

Hi, good afternoon. Tammy, just a housekeeping item, you quantify the Chase impact on the second half you also talk about it providing value over the life of the contract, I suppose that means that it does imply at least there's revenue upside associated to – to the relationship in 2016. Any additional color there?

Yes Jamie, if I'm tracking your question correctly, what we provided you is just the second – of the benefit for the second half this year. So if you annualize that – that should get you in the ballpark and again I'm talking about the $250 million of the $400 million.

Okay, that's helpful. Second question, considering you took a $55 million charge in the second quarter relative to ratification bonuses, is it safe to assume that your third quarter ex-fuel, ex-profit-sharing and CASM guide assumes the attendance ratified model?

Jamie, either way we're going to be roughly in the hunt of the guidance I gave you.

Okay. Fair enough. Thank you very much.

And we'll take our next question from Helane Becker with Cowen.

Thanks very much, operator. Tammy, you guys used to provide revenues [indiscernible] routes are you willing to do that still?

All right, no as well. Helane, we've start that and never we're not, it's a lot. It's tremendous. Right now, I definitely go.

Provide a delta

I know, I don't have the [indiscernible] Helane.

Okay, okay. Thank you.

We're not providing that breakout.

Okay. Thank you for that. And then, I think Gary you mentioned that, Houston was going to open the international terminal later this year. Do you have actually a date for that at this point?

We do and if I trust my memory to be correct, I believe it's October 15.

Okay.

Now, we're constructing a five gate terminal and that is required for us to operate and that construction is right on schedule. So it's been a fantastic project, and we're obviously looking forward to launching service. We got to schedule produced, all those seats are out there for sale, what is included is also launch of service to belief and then Bob, I think in November you follow-up with the launch of Liberia, Costa Rica.

It's great.

So it's very exciting for us and I think the potential of the terminal is roughly 25 daily departures and we are starting out much more modestly than that. And other airlines can use the gates, if at least, if they sign up to the lease. So but we're looking forward to it and we're on schedule with that.

And then, can I just ask a question about the Dallas Keith. I think you guys have to buy actually the two gates from United that you're adding. And now delta, I guess it's kind of interloping on that one gate. So when you increase the schedule on August 9 to 180 flights, how will you accommodate those other 14 flights?

Well, you asked a very good question, as you always do. Yes, we are sub-leasing the gates that United is leasing directly from the city of Dallas. And we bid for those gates, we rewarded the bid, we obviously entered into a contract with United and we received the consent of the city of Dallas to proceed with that transaction and the approval of the Department of Justice. When we add the flights that we, after paying good money for two gates, obviously we intend to use them and to their fullest and we have published our schedule, we'll move to 180 daily departures and to accommodate the court and its desire to maintain the status quo, we have extended I believe the term as a license, the delta to continue to operate their five daily departures and it will be difficult, because there is no room at those gates. If we do find that there's room then we want that room. So in any event, we all know that, there is scarce capacity at Dallas Love Field, but that is the status of it. And we'll work hard to support the court and their review of what is a complex issue. We don't see it as complicated, but we've been dealing with it for 34 years, but that's the status.

Okay, okay. Well, thinks very much. We'll look forward tomorrow's boot from the flight attendants.

Yes, indeed.

And we'll take our next question from Joseph Denardi with Stifel.

Hey, thanks. Good afternoon. Gary, I just want to clarify on the ROIC target, is the plan to no longer provide a longer-term target and if so, why is the year-to-year the right way to hand this? And then is the business being run to kind of ex-deal to hold margins flat or to grow them, I think, there's obviously a difference between the two?

Well. I'm not sure how to answer your question.

I think, this is complicated. I think given the current fuel price environment in the current industry environment, we are generating a substantial shareholder value well and in excess of our long-term 15% target. I think Tammy's only point is it, in the short-term, it sort of renders the whole 15% discussion moved. Because we're not targeting down to 15%, we won't do that for the next year. And with a little bit of to get fortune here will be many, many years of above the average returns on the capital, which is what we're striving for. So last year, we had a 21.2% return on the invested capital and our goal for 2015 was to beat that and thus far we are well ahead of that. So as we enter the fall, planning process for 2016, we will be straining to do the same thing again in 2016 to meet or beat or wherever we think we're going to end up here in 2015. We think that's the best way to grow shareholder value, if we can grow the business and on top of that grow the returns, it just provides very, very substantial shareholder returns. And that is our goal playing it simple. If fuel prices double between here and next year, that will make that an unrealistic goal in the short-term. It took us obviously a number of years to get adjusted to $100 crude oil. So hopefully that won't happen. We're trying to take steps, so that we don't see that kind of a shock for fuel prices back to the hedging discussion. But our goal for next year will be to continue to sustain very strong returns on capital.

Okay. And then Tammy, can you just give us what the no show fee revenue was in the quarter?

Sure. Just give me one minute before that. I'll come back, if we have another question.

We'll go ahead and move onto Duane Pfennigwerth with Evercore.

Hey, thanks. Wanted to come back to an earlier question about better than sequential revenue trends or better than normal seasonality. I forget the exact term. Can you just walk us through that again ex the deal and maybe playback the second quarter. Do you feel like there was yield softness and weakening closing yields. And if so when did that recover and is it something that you're seeing based on revenue that's booked in July or bookings for the rest of the quarter. Any additional commentary you can give us kind of excess to sort of accretive credit card deal would be great.

Well, let me know your comments Tammy, you clean all this up, but Duane I assume you've been on the call the entire time, I know it's a busy morning for you all, but the – where I netted down the second quarter was, there was "softness" for us to the extent of about 1%, whether its 2%, whether its zero, it sometimes is a little hard to tease out, because there is a lot of noise in Southwest Airlines in 2015, there is a lot of things going on, there is a lot of change. So we've tried to tease all that out. The comps versus a year-ago in the second quarter, at least to me appeared to be harder versus 2014 than the third quarter. So you have that going on as well, but just pure sequentially, I think it was our feeling before the deal, that things were beginning to improve perhaps a little bit. I just don't feel like you can necessarily take that to the bank. So whatever improvement it is, I think is rather modest, and the majority of the improvements sequentially that we're reporting to you is the Chase deal.

Okay.

The good news in what – at least what I was trying to explain with my remarks, my opening remarks is that to the extent that there is some softness, it doesn't feel to us like it's getting softer still. If anything it feels like we've seen a bit of the bottom and things are beginning to improve. But 90 days is a long time in our work. So a lot of things can change between now and September. But that's the way things feel right now and obviously the Chase – the Chase deal is pretty material. We've given you the numbers, so you can – you can do your own arithmetic if you want, but I think Tammy, you already said, it's $125 – $125 million a quarter. So you can kind of – I just can't do all the math, Duane, in my head, sitting here. Tammy anything do you want to add?

Yeah. Duane, the only thing just to give as I mentioned earlier that the third quarter is trending up. And if I had to, it's probably about a point sequentially from the second quarter. And we are – we're continuing to see a very strong demand as Gary mentioned for low fares. And thus far in July including the Chase benefit, I would say, our July RASM is trending pretty much aligned with the last year. So while, it's a little difficult to tease all this out, I think, it's fair to say there is – the way I'm thinking of it is, we had some bad with the yield weakness in the second quarter, but trends have stabilized and I think improving a bit, so.

Yeah. And again, so what I mean with a lot of noise and Tammy just said the same thing. These are all trends without us doing the deep analysis. So is our improvement because the economy is improving, is because our development markets are improving, is it Dallas, is it Washington Reagan, are we seeing more improvement in the international? All that has to be – it takes a while to understand and now we're talking about predicting trends in the future, where we don't have that in-depth understanding necessarily. So, I think, it feels to me like the economy is strengthening a bit, we keep up with it just like you do, and all of the weekly reports that I see are all – they're mixed, they're continuing to be mixed. I just read one this morning before our call, and it was yet another mix to report on, on current trends. So, it could be that it's just our own developing markets are improving, which would be welcome also. But in any event, whatever it is we are definitely seeing an improvement in our sequential trends and certainly because of the Chase contract.

Okay. Thanks for that commentary.

And I was just going to jump in with the notion of revenue that was $18 million for the quarter.

And that does conclude the analyst Q&A portion of today's call. At this time, I would like to turn the call back to Ms. Brand.

Thank you, Tom and thank you all again for joining us today. And as always, I'll be available, if there are any follow up questions this afternoon.

And that does conclude the analyst portion of today's call. Thank you for joining. Ladies and gentlemen, we'll now begin our media portion of today's call. I would like to first introduce Ms. Linda Rutherford, Vice President of Communications and Outreach.

Good day everyone. Tom, if you could go ahead and give our members of the media instructions, on how to queue up for questions. We'll go ahead and get started.

Yes. Ma'am. [Operator Instructions] And thank you for standing by. We'll take our first question from Terry Maxon with The Dallas Morning News.

Afternoon, everybody.

Good afternoon, Terry.

Hey, Tammy set off of a great deal of excitement on May 19th when she gave the capacity estimates for your 2015 and 2016. Your numbers today instead of 7% to 8%, you're now at 7% for this year and 5% to 6% for this year instead of 6% to 7%. My question is, did you actually dial back capacity set more just a refinement of your estimates?

Hi, Terry. Yes. We will – I think, it's both really. We were always working on schedule as we look forward. And what we were simply dealing at that time I think we had our schedule out. And it was – I mean, simply reporting on the schedule that we had published at that time. And given the weakness that we saw in May and June and particularly on the yield, and as we're getting closer to publishing our schedule, we are dialing back our capacity a bit just based on – based on the trends that we saw on the yield side in the second quarter. And then also as we're getting – as we're thinking about next year, what we do know is that the carryover impact in this year's capacity is and the – for next year then the 4% to 5% range. And then above that as we told you, we're expecting to grow 5% to 6%. So where we brought a lot here, over the past couple of years. So we want to certainly digest that growth, and as we're thinking about our international expansion, while what we're seeing so far is in line with expectations. It does take a little bit of what we're experiencing and it does take a little bit longer for those markets to mature. So we factor all of that in to our capacity plans and just based on our current outlook and where we're not – we dialed that back just a bit. But Terry, what I'd also point out to you at that time, we as always, we tweaked our schedule and react to the current business outlook.

All right.

The only thing I would add is – it's not really a macro discussion, it's really more of a bottoms up discussion. So we have airplanes that are available for us to put to work in the fleet, which is the source of our capacity increase really both years, 2015 and 2016. Although we're adding a few airplanes next year to the fleet. And as we were publishing the schedule, we have pushed the utilization in the first part of this year, which has squeezed some flights into what I'll describe as a non-peak time period and they are sometimes less than desirable flights. So there's some opportunities to cut those back as we are beginning to restore more and more aircraft back into flying. So we have some things going on like that. Secondly, and I mentioned this on the Analyst Call, our international is a true expansion and it carries risk. And so, our folks are monitoring very carefully the performance of those markets and we do not want to grow those new expansion markets too fast. So those are – we're managing the business as opposed to reacting to the May 19 scenario and we want to continue to hear out strong profits, strong margins and grow the airline at the right pace, whether it's 5%, 6% or 7%, we'll figure out what that right pace is and we'll try to make that as dynamic as possible knowing that the airline is fairly set in concrete for a while. It's tough for us to turn it on a dime but we certainly are continuing to evaluate our opportunity of 2016 and haven't made final decisions about the capacity yet.

Okay.

Again products – Terry, one thought as well, because I think what you were referring to was the capacity for this year. It really – we're talking decimal point. In term

It's better to 10 points [indiscernible]

And so, it is a lot of attention for rounding.

2016 our thoughts have moved more. They've moved up, we've moved down, Mike Van de Ven has operating needs for some airplanes, so – we are not fully baked with our plans for 2016 yet, but those are the parameters that we're operating under.

Yeah, if the – on the capacity, I wondered further in fact you just rounded it a little bit differently, but when you're further out you are the vaguer the future is, but if I could follow up on our question that came up toward the end of the conference call with the analyst, the delta software situation, is it – do you anticipate operational issues once you do your August 9 and you've got 180 flights and there are five folded into one of your gates?

Well, it's not going to be easy and our people are planning as best they can and they will work really hard to serve our customers well, so I think it will be incumbent upon all parties to be cooperative and levelheaded but yeah it's going to be crowded.

Thank you.

We will take our next question from Jack Nicas with Wall Street Journal.

Good afternoon folks.

Hi Jack.

So can I ask this question, the DOJ is investigating Southwest and three other large U.S. airlines for possible collision on capacity, so what is – what's your take on this probe and how are you cooperating?

Well, we're cooperating by doing what they told us to, so we're good at supplying information and we know how to do that and we're busy complying with that request. There has been a lot of talk and advice on and we don't want to continue to perpetuate that, but I'd – you'd have to ask the Department of Justice, what's actually [ph] spon their desire to investigate. But we're fully compliant, we compliant with all the anti-trust laws, and we compliant with all laws for that matter and certainly that with the Federal Securities Laws. At the same time, we are – if you go back to the Terry's question of Tammy in the May 19th conference, we're doing our best to be transparent with our investors and answer their questions. But our focus is on the Southwest Airlines and managing our business and would not commenting or making comments about our competitors.

Okay. Thanks. And one other quick follow-up. Some of, I guess some of the analysts that have been on this call before over the past several months have criticized the industry and in some cases the Southwest for growing too quickly. And there is concerns among the analysts, concerns among the investors that capacity growth has been too rapid and jet fuel has been fueling that. Obviously, you've got a unique situation with Dallas Love Field, but what's your response to that criticism that you may be fueling too rapid of the growth to be sustainable and we may be going back into this moving bus cycle of the airline industry?

It's incumbent upon us to manage our business. And Southwest Airlines has competitive strength and we want to take forward advantage of those. We're a low cost carrier. We have substantially lower cost than our legacy competitors do. And I think, what people miss is that, we have opportunities to grow that many of our competitors do not and Dallas Love Field is a perfect example of that. Houston Hobby International is another perfect example of that. So we have not grown Southwest Airlines in three or four years. So we have a history of being prudent and measured and how we approach our business. And certainly, would want to continue that into the future. But we have opportunities to grow like we haven't had in years and we absolutely will grow this airline, that is in the best interest of our shareholders. And we have a fiduciary duty to create shareholder value and take care of our shareholders and as well as our employees for that matter and that's what we intend to do.

Thanks very much.

And we'll take our next question from Andrea Ahles with Fort Worth Star-Telegram.

Hi, good afternoon.

Hi, Andrea.

I was wondering, if you talk a little bit more about Love Field and you'd be mentioned in the comments that, it's the markets that are doing well and obviously you're adding more in August. You had previously said that Love were at load factors about 90% on some of those at Love Field. Are you still seeing that sort of yield or did the softness in May and June also affect Love Field. And do you – and also do you think fares are going start going up on some of those in the Dallas routes, that you've added in the past year post writ.

Andrea, I can report this. You're right, the things have changed since I told you that load factors at Love were 90%, they're now about 94%.

Okay.

Very, very full and very, very popular and our folks are working very hard at Love Field and they're doing a great job. So I'm very pleased with the results, I can't talk about that, any future pricing as usual. But we've got very strong results, stimulated the market with lower fares, we provided a competition that we promised. And I don't know how it could be any better. Well, I do know how it can be better. And hopefully, we'll be better soon, because we'll have even more access to our gates that we have paid for, so that we can add even more low fare flights. That would..

I'm sorry. Do you expect Houston to – do you expect to grow Houston as quickly you have Dallas in terms of that opportunity with the international base, once [indiscernible] in October or are you're going to be more measured because there is more risk with the international hub?

Not expect it to grow anywhere near as quickly. The potential is probably not – well, the potential is not nearly as great in terms of just sheer traffic and flights that you have compared to Dallas. But the theme is very similar, it is a market that is monopolized by one competitor with very high fares, and we will be able to go in finally and add some competition and significantly lower fares, and no doubt we'll simulate the market. Now, it is one thing for us to add flights between Dallas and New York or Washington or Chicago, better cities that we currently serve where the customers know us. As opposed to Houston, where we're now going to be adding the lease, which is of not only a city, but a country that is not familiar with Southwest Airlines, and probably doesn't drive an equivalent amount of traffic to United States. So the risk are different and we'll have to take that into account, and we will have more measured growth as an example with these international markets. Having said all that, we're still starting off with a nice bang. So I think we start off with nine daily departures, we're quickly adding a couple more this year. And we'll just continue to monitor the performance of those flights and evaluate whether we want to add more. Contrast that to Dallas Love Field and Bob, I think we will have added about 60 daily departures in one year – less than a year's time to Dallas. So we're not talking about 60 daily departures in Huston ever most likely, just to put in perspective.

All right. Thank you.

And we have time for one more question. We'll take our last question from Dawn Gilbertson with The Arizona Republic.

Good morning. Gary, I wonder if you could revisit for a minute in the website now down back in early June, what you've learned from it. What the real cause was in the past? Give us a sense of – can you quantify any financial impact from being down for a couple of days?

Well. Dawn, good to hear from you. Yeah, I think the headline there, it was just an extraordinarily successful sale. But, Bob, by the way did a tremendous job of managing through that challenge. So Bob, any thought do you want to share there to Dawn's question?

Well, Dawn, I think it shows you the power of a low fare. So we plan for these things as always we test and we were just overwhelmed with the demand the first couple of days. We did uncover some technical things that were fixed rapidly, but you just can't test everything. But really what is the demand coming to the side. At the end of the day, we decided to extend the sale by a day, which is a little abnormal for us and in totality, the sale performed better than we expected despite those two days that were an issue. So that last day in other word made up – more than made up for all of the issues in the bookings that we couldn't take those first couple of days. So at the end of the day despite the challenges, we know because our customers a lot of issues not being able to get into the website and we've really apologized for that. But at the end of the day, financially the sale was really good despite those issues.

Perfect.

Welcome.

And at this time, I'd like to turn the call back to Ms. Rutherford for any additional or closing remarks.

Thanks, Tom and thank you all for being with us today. If the media has any follow-up questions, please let us know. You can call 214-792-4847 or of course send an inquiry to swamedia.com. Thanks so much.

And this does conclude today's call. Thank you for joining.