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 Bob Jordan – Executive Vice President and Chief Commercial Officer Mike Van de Ven – Executive Vice President and Chief Operating Officer

Savi Syth - Raymond James Julie Yates - Credit Suisse Rajeev Lalwani - Morgan Stanley Darryl Genovesi - UBS David Fintzen - Barclays Michael Linenberg - Deutsche Bank Hunter Keay - Wolfe Research Joseph Denardi - Stifel Duane Pfennigwerth - Evercore Michael Lindenberger - The Dallas Morning News Andrea Ahles - Fort Worth Star-Telegram Jeffrey Dastin - Reuters

Welcome to the Southwest Airlines Third 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 call over to Ms. Marcy Brand, Senior Director of Investor Relations. Please go ahead ma'am.

Thank you, Tom and good morning everyone. And welcome to today's call to discuss third quarter 2015 results. Joining the call today, we have Gary Kelly, Chairman, President, and CEO; Tammy Romo, Executive Vice President and CFO; Bob Jordan, Executive Vice President and Chief Commercial Officer; and Mike Van de Ven, Executive Vice President and Chief Operating 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’d like to go ahead and turn the call over to Gary for opening remarks.

Thank you, Marcy and good morning everybody and thank you all for joining our third quarter 2015 earnings call. We are celebrating, this is a terrific quarter and really a terrific year. I am very proud of all of our people, all 47,000 of them and I want to thank them and congratulate them on these stellar results. This is the culmination of years of hard work on their part as well as daily dedication to running a great airline and taking great care of our customers. While it is true that the majority of the 71% surge in our earnings-per-share was due to a dramatic drop in jet fuel prices, there are a lot of other good things happening in this quarter. Our Rapid Rewards program continues to grow in terms of members and revenues and obviously the amended credit card deal is a highlight for the quarter and for future years. Next, our core passenger business overall is solid and steady and that's despite the very brisk competitive environment that we find ourselves in. I'm especially pleased with our record load factor and record revenues considering the aggressive Dallas, Love Field expansion, the transition of the AirTran markets this year, the slot acquisitions at DCA and LaGuardia and our continuing international expansion. Next, our cost performance was also very good. Profit sharing was up significantly and of course that’s a very good thing. Our nine-month accrual for profit sharing was a record $484 million and well earned by our people and of course they too are benefiting from dramatically lower fuel prices. As far as the year 2015 goes, I just want to recap our plan for a perspective. This year is a confluence of events, some planned and some not but the result is spectacular. We have significant opportunities to expand, Dallas, Love Field, Washington Reagan, LaGuardia International, Houston International all converging here in 2015. While we have significant opportunities, we also have significant access to low-cost incremental capacity to pursue these opportunities and that’s through the restoration of our aircraft utilization to more historic levels and our fleet over the last several years has been underutilized as we’ve been going through the merger process. And then finally with dramatically lower fuel prices, we have the cushion to mitigate this expansion risk and actually been very fortunate to help – have that help to drive record profits at the same time that we’re growing. So we’ve been able to significantly augment our revenue production this year also with the amended credit card deal. So all this has supported our growth plan of 7% in ASMs for 2015 and still resulted in record earnings and returns and our plans for 2016 are unchanged from our previous guidance. We are expecting unit revenue growth year-over-year in fourth quarter ‘15 which has been an improvement from the third quarter and that's primarily because our developing markets are continuing to mature rapidly. So we expect to end this year with roughly 700 airplanes and add roughly 15 aircraft next year, again for an available seat mile growth of between 5% and 6%. So the work over the last five years in particular has come together exceptionally well. We’re exceptionally well positioned for future growth and that will continue dependent upon our continued success with our low fare brand which of course is built with low-cost and our transparency and we’re exceptionally well-positioned for future growth but also dependent upon our continued success with our customer service and especially the hospitality of our people which is something that Southwest is beloved by our customers for. So with that brief overview, I’d like to turn it over to Tammy Romo, our CFO who will take us through the quarterly results.

Thanks, Gary and welcome everyone. We are pleased to report incredibly strong third quarter results marked by many records. Our third-quarter earnings excluding special items were a record $623 million, or $0.94 per diluted share, an increase of 71% over last year’s $0.55 per diluted share. Our GAAP net income was $584 million, including $39 million in special items. In addition to our usual special items related to out of period fuel hedging adjustments, we had two other large special items this quarter. First, we recorded an expense of $140 million associated with the tentative agreement with our pilots in accordance with accounting guidance, and second, as we discussed last quarter, we had a special revenue item of $172 million related to the required change in accounting methodology as a result of our amended credit card agreement with Chase. That was effective in July. Our operating income excluding special items was a third quarter record $1 billion which produced nearly a 700 basis point improvement in operating margin of 20.3%. And to top up these records, we produced a 12-month trailing pre-tax return on invested capital, excluding special items, of 31.1%. So congratulations to all of our terrific employees on this outstanding achievement. Total operating revenues in the third quarter, also a record, were $5.3 billion, up 10.8% year over year on a capacity increase of 7.6%. Passenger revenues were also a record $4.7 billion. Demand for our low fares remained very strong throughout the quarter resulting in nearly 9% growth in traffic and an all time quarterly high record low factor. The yield environment remained but stabilized and sequentially our third quarter unit revenue trends were above average driven by our credit card agreement with Chase, which again was amended in July. Our third quarter operating revenues included a $300 million from the amended Chase contract and resulting change in accounting. Included in that benefit was a one-time non-cash adjustment of $172 million, that reduced the deferred revenue liability and thereby increased revenue. This was recorded as a special revenue adjustment and was excluded from the RASM that we reported. The remaining $130 million incremental benefit was due to the improved economics of the co-brand contracts and required accounting treatment combined. This $130 million benefit was about a 2 to 3 point improvement to RASM and we expect a similar benefit in fourth quarter 2015 which is incorporated with the guidance. I will discuss here with you shortly. With the amended agreement with Chase and change in accounting treatment, our third quarter 2015 passenger revenues would have been $40 million higher and our other revenues would have been $170 million lower for a net incremental reduction to operating revenues of $130 million and of course we wouldn’t have had the $172 million special revenue adjustment. As Gary said, our Rapid Rewards program overall is a huge success and continue to contribute a significant incremental revenue year over year. On a unit basis, our third quarter operating revenues declined 0.4% on a 7.6% capacity increase and we are pleased with this very solid performance especially considering the impact of increased station scheduling which impacted our third quarter year-over-year unit revenues by about two points, as well as the high percentage of development markets which impacted year-over-year unit revenues by an additional point. For third quarter about 18% of our network was under development. We are delighted as we have been talking about here for some time with the performance of these new markets which are performing at or above our expectation and Dallas continues to outperform the systems margins and returns with a robust demand in all facets of our Dallas growth. International is also developing as planned and again very excited to begin international service out of Houston last week. So looking ahead to fourth quarter, so far demand for our low fares remains strong. Based on our current bookings and revenue trends we are estimating fourth quarter RASM will increase approximately 1% year over year, including about a $130 million estimated benefit from the Chase agreement and corresponding change in accounting treatment. Considering the estimated 2 percentage point impact of more stage engaged as well as another point impact from 12% of our network under development, all year-over-year we are very pleased with our fourth quarter revenue outlook. Turning to freight and other revenues, we are also very pleased there and we currently expect our fourth quarter freight revenues to be comparable to third quarter this year and as I discussed previously, other revenues increased significantly year-over-year and that was largely due to the amended Chase agreement. And in addition to certain ancillary revenues such as EarlyBird and Upgraded Boarding, those were also strong contributors to our other revenue growth. The growth in such ancillary revenues completely offset the loss of AirTran’s ancillary revenues, so we were – again just a strong performance from the ancillary revenue side. We expect another significant year-over-year increase in fourth quarter 2015 other revenues largely due to the combined impact of the Chase agreement and required accounting treatment change. So now I will walk through our cost performance briefly. Third quarter unit costs excluding special items decreased approximately 8% year-over-year due to substantially lower fuel prices and cost control particularly fleet modernization. Our economic fuel costs decreased almost $300 million year-over-year driven by the 25% decline in fuel prices and an improvement in fuel burn. Our fuel price per gallon declined $0.74 to $2.20 versus $2.94 in third quarter of last year. And our third-quarter fuel burn improved 1.8% year-over-year reducing our third-quarter fuel costs by approximately 80 million and we are on track to achieve our target of at least 74 that we mentioned in last November at our investor day. Based on our hedge position and market price just as of Monday we expect our fourth quarter ‘15 fuel price per gallon to be in the $2.05 to $2.10 range which is well below fourth quarter last year’s $2.62 per gallon. And since last fall, we -- just remind everybody, we’ve significantly participated in the market decline and we currently expect 2015 economic fuel costs to decline approximately $1.3 billion over last year. Excluding fuel and special items, our unit costs were up less than a percent which was largely driven by the 77% year-over-year increase in profit sharing and our profit sharing expense increase is a record 484 million as Gary mentioned. Excluding profit sharing and special items, our non-fuel unit costs decreased 1.6% year-over-year which way better than expected due to some cents particularly in advertising and technology related to project costs that had been shifted to fourth quarter 2015 and better-than-expected airport costs. Our modernization remains on track to produce an estimated 700 million EBIT this year even with the drop in fuel prices. Based on current cost trends we expect total fourth quarter unit cost excluding fuel, special items and profit-sharing to be comparable to fourth quarter last year’s $0.0822. Now I will move to the balance sheet and cash flow. Our investment grade balance sheet and cash flows remain very strong and we ended the quarter with $3.1 billion in cash and short-term investments. Our free cash flow was $1.6 billion with $583 million in third quarter alone. Our very strong cash flow generation has allowed us to deliver on our commitment to return significant value back to our shareholders while we continue to reinvest prudently in our business. During the third quarter we repurchased 500 million in common stock which brings our share repurchases this year to nearly 1.2 billion thus far. We received approximately 9.7 million shares under the $500 million accelerated share repurchase during -- and we expected to receive the remaining 25% of total shares expected by the end of this month. We currently have 700 million remaining of the 1.5 billion repurchase program that was authorized in May of this year. We’ve also repaid $170 million in debt and capital lease obligations thus far this year and our leverage including off-balance-sheet aircraft leases is in the low to mid 30% range. We continue to estimate our 2015 capital spend to be approximately $1.8 million and that excludes assets constructed for others which is estimated to be in the 50 million to 100 million range and that includes approximately 1.1 billion in aircraft spend. And for 2016 we continue to estimate aircraft spend in the $1.3 billion to $1.4 billion range with total CapEx estimated to be roughly $2 billion. Turning to our fleet plans for just a quick minute. We ended third quarter with 692 aircraft in our fleet and continue to expect our fleet to end with roughly 700 by the end of this year. And regarding capacity, our fourth quarter available seat miles are estimated to increase year-over-year approximately 8.5% on year-over-year seat growth of 4.4%. Our full year capacity growth remains on pace to increase approximately 7% year-over-year with the seat growing only 2.9% year-over-year which as you all know is driven in large part by Dallas’ new non-stop – longer haul flying and also on Washington Reagan, LaGuardia and our new international markets. Our 2016 growth plans haven’t changed, as Gary said, and we continue to expect to grow our available seat miles for the full year in the 5% to 6% range versus 2015 and as a reminder the vast majority of 2016’s growth will simply be the annualized impact of 2015 capacity additions that we discussed. So in conclusion, we couldn’t be more thrilled with our results this quarter. Substantially lower fuel prices along with solid revenues and cost controls produced a record earnings and our balance sheet and cash flows remain strong and we continue to be disciplined with our approach to capital allocation as evidenced by a very strong return on invested capital. So with that brief overview, I would like to close again by thanking all of our employees for their hard work and outstanding contributions to these strong results. Tom, with that, we’re ready to take questions.

[Operator Instructions] We’ll now begin with our first question from Savi Syth with Raymond James.

Just on the growth opportunity, I’d like to discuss – and you’ve kind of talked about things, still being a substantial and a domestic growth opportunity here. I was wondering, does that come from just routes that you are not in today that you want to add or is it more from just increasing frequency and gaining share in the markets that you are in today, outside of what we see happen in Dallas?

We have 85 domestic mainland 48 state destinations today. I don't believe we have many more dots that we can add to the route map, so that’s first part of the answer. Among the 85 we have a variety of opportunities to add non-stop segments and especially in short haul markets if those markets begin to return to pre 2000 traffic levels we will have a lot of opportunities to add frequencies in those markets as examples.

And I guess you’ve also talked about – I think I see new [ph] and articles talking about the potential to gain share in the long haul market, now again going to Dallas, I understand that was kind of an artificial kind of holding back in that market but wonder if you can elaborate a little bit more on -- your comment on long haul market, market share opportunity and why maybe Southwest is lagging there and how you kind of ago about increasing that market share?

Savi, ,I think what you are picking up there was an interview that was done with Fortune and I really think that’s old news, so that article was really recounting where we’ve come over the last decade, so that was much more of a story 10 or 15 years ago. Today we are very pleased with the progress that we’ve made, you are very familiar with the initiatives that we’ve been working on over the last five years. So I think prospectively that would not be our messaging today that we believe that we can gain share in long haul markets. Now in terms of the expansion opportunities that we have, just geographically, since we’re just now getting started flying trans-border, obviously those will be long haul opportunities but that's really more a function of us building off of our domestic base having a very small presence internationally and having a lot of potential destinations that we can add to our route map. So we are pleased with the customer experience as we have it today. We are very pleased with the market performance whether it’s long, medium or short and we are happy to have the 737-800 as a component of our fleet. It’s just performing exceptionally well.

And if just may, what I am trying to understanding, Gary, is just the opportunity growth 5% to 6% type levels in the future. I am trying to understand is how much of that comes from domestic, I know the past commentary on international has been more of kind of slow growth and it’s 1% of ASM, so it’s a small base. Just trying to figure out, as you look out over the next three, four years even, just how the growth will be – what’s the composition of the growth and what level of growth is reasonable for Southwest?

Well, the only guidance I can give you on the growth rate is for 2016 and there we’re going to grow 5% to 6%. Next year, about a point or two of that will be international and beyond that we will just take that on a year-to-year basis and we will pursue the opportunities that are the most advantageous for us. Over time I think that most of our growth opportunities in the future will skew towards domestic but clearly most of these, virtually all of the new destinations will be international. But we are not operating under a route target either way. We've got decisions that we’re making still even for 2016 as to what we want to do with the additional capacities that we are adding next year. So again as Tammy has already pointed out, there is not much new plan for 2016 anyway because most of it is just going to be the full year effect of decisions that you are already familiar with here in 2015.

And we will take our next question from Julie Yates with Credit Suisse.

Realize it’s little early to comment on 2016 unit cost trends, can you offer any color at least directionally on what we should expect in 2016 assuming the pilot deal is ratified and can we look at the Q4 run rate of flat as a good proxy?

And Julie, you were breaking up a little bit there but I believe that you were asking about our 2016 cost performance, if I picked your question up right, is that correct?

Correct. Yes, I just said it, I know it’s a little early but can you offer any color directionally assuming that the pilot deal is ratified and can we look at the Q4 run rate of flat as a good proxy as we move into next year?

Sure. I can provide a little bit of color but we are still working through our 2016 plans, so I am not prepared to give you cost guidance here today. But just a couple of items of note, as you are thinking through 2016, while I would expect ongoing benefit from our fleet modernization effort, I wouldn’t expect the year-over-year impact to be as significant as this year since we are passing anniversary of 717 so we still get some benefit there. I’d also anticipate some cost pressures particularly salary raises and benefits, I think you noted and in addition, while we aren’t prepared to provide an implementation date of our reservation system until we get past a couple of milestones here, I would encourage you to keep in mind that we would expect to have some training costs associated with that implementation as well. So but as always, I think we’ve demonstrated year in, year out that we are very diligent when it comes to our cost control effort and we will work hard here and 2016 but until we have completed our planning effort here for 2016, I will hold off on giving you any specific guidance until later this year.

I mean to be clear, is that going to be later this year or will that be in January with Q4?

Well, it may be with Q4 with earnings, I don’t know, Julie, well but it will be later, I am just not prepared here today to give you specific guidance yet simply because we are still working through our plans with respect to cost for 2016.

Julie, the only thing I was going to add to what Tammy said is that again to be clear, with the pilot tentative agreement, if that is ratified, that will be a cost for that work group, that will be a cost increase next year but that is an investment in our people, it’s an investment in Southwest Airlines, it gives us certainty that we can plan around and obviously our objective here is to work together to grow Southwest Airlines. So obviously we’re very pleased to have the tentative agreement and we should know the results of that voting here in I guess two weeks.

Gary, let me ask you something we had talked about I think during the headquarters back in May, about you guys continuing to focus on expanding your fundamental margins. And so you are doing that again in the fourth quarter now that your RASM is back to positive and your costs are flat. Looking into next year, would you expect the spread for RASM to exceed the growth in CASM?

That will clearly be the target in that I would just again defer to Tammy and repeat what she said which is once we are ready we will provide the cost outlook for next year but part of the strategy with our growth in ’15 and ’16 is to allow this large percentage of markets that are under development, give them a chance to mature next year, so the percentage of markets under development a year from now, I think, Bob, will be in about the 5% range --

Yes.

So clearly we are well set on expectations for some tailwinds here with the RASM improvement and do the best job we can to match that up with some of the cost pressures that Tammy has referred to for next year. But clearly that will be our objective.

And Julie, the only other thing I would add to that, just keep in mind, we will have a full year impact from the Chase agreement. So just make sure to factor that into your thought as you are thinking about next year.

And you all, I know, will take some time to evaluate our revenue results but there is quite a bit of noise in those numbers. They look very solid today, whether you tease apart, the increase in the stage length, the increase in the gauge, some of the effective reclassification for accounting purposes for passenger revenues to other, there is quite a bit of noise there and it looks very good. So it’s just helpful that even with the noise the fourth quarter number shows a positive, so you don’t have to go through a lot of this analysis but if you are careful and you look at the analysis, I think you will be pretty impressed with the revenue performance here in the third quarter also.

And we will take our next question from Rajeev Lalwani with Morgan Stanley.

Just first on capacity growth as you look at next year, can you just talk about that cadence and maybe compare that the beginning of the year going towards maybe the end of the year?

In terms of just the capacity, Rajeev, yes, you will see similar – in terms of ASM growth you will see similar trends in the first quarter as you are seeing here in the fourth quarter, and then it will obviously taper out as we go through the year.

And then just continuing on a lot of comment around the revenue environment, I was just hoping to get more color, Gary touched on sort of competitive environment, so just to get your thoughts on sort of what makes that calm down going forward, is it fuel, is it just lapping certain dynamics, just your thoughts there would be great?

Well, I am chuckling because you are talking about competition in the industry et cetera, so we are doing well in this environment, we are a low cost carrier, we are a low fare brand and we are growing and we love the competition and we love being pro-consumer. So I think we will continue to manage our growth according to our ability to generate appropriate returns and we’re going to continue to work very hard to deliver on our low fare brand promise to our customers. So low fares is our specialty and our business and we’ve been profitable for 42 years with that, so I would expect that will continue.

And we will take our next question from Darryl Genovesi with UBS.

So Gary, you’ve got a couple things going on, I guess, you’ve got some new IT on the merchandising side and at the same time your average stage length continues to increase. And I just wondered if you could give us some updated thoughts on, any perhaps big picture kind of changes to the product positioning that you are concerned currently and others, been various questions asked on this topic over the years, which is wondering kind of how you are thinking currently about, things like perhaps doing a premium economy, perhaps plugging in more of a seat selection ability in the main cabin, those types of opportunities, anything you could say would be helpful?

You bet, and again thanks for the question there. So and you are right, we are continuing to invest in the company in various ways, so we have investments underway that are physical in nature in terms of airport capacity, we just opened up Houston Hobby, we’ve got a large project underway at LAX, we’ve got a large project underway at Fort Lauderdale which will create international flying capability there. So that’s one thing that we are doing that I think fits in somewhat with your question. From a technology perspective, we are replacing our reservation system but there is a broader commercial agenda that will roll out, Bob, over the next five years, I would say, lot of it will come on line sooner than that. But that will give us significantly updated capabilities to pursue our commercial goals, and then thirdly, we also have a similarly large agenda with Mike Van de Ven and his team on the operations side of the house. So there is a lot of infrastructure investment taking place. There is a lot of infrastructure spending by the way that will be occurring in 2016, so that will be something that Tammy will want to share when we are ready here at a future date. We are excited about all of that. With respect to the customer experience, there is no question that we will have better tools in the future to make more tactical decisions in terms of changes to the current approach. Having said that, and looking at the current results and our expectation for 2016, I am very happy with our customer experience and our focus right now is very much on the basics. It is using the tools that we have to improve the reliability of our operation and also to invest in our people to improve the hospitality of our customer service, and that we can do without new technology and it’s something that we are very excited about, the technology I think will certainly enhance our ability to better execute against those two goals. But we are really happy with the product that we have right now. I think we’ve actually got opportunities to improve further and the kinds of considerations that you are asking for, I think, something that we can think about in the future but we have no plans to make any changes that are material along those lines.

And then Tammy, on the fuel hedge margin, it looks like you reversed about half of what you had posted last quarter, I think it looks like you’ve got about $200 million left. Should that come through in Q4?

Yes, that’s correct. We provided you the liability and for the remainder of 2015 I want to say that in the 100 million to 125 million range, I think it was 116 million.

And we will take our next question from David Fintzen with Barclays.

Question on the Wright Amendment and flying, now that you’ve got – I guess, about a year thereabout, do you view the new flying as markets that have sort of jump started the typical market development cycle where you’re going to get to that 18 to 24 months processing you got there quite fast, or do you think it’s sort of these markets from here developed – like they are not finished developing that continue to go?

It’s both. First of all, we’ve never had anything like this. It’s a pretty unique – well it’s a very unique scenario and we were already in those markets already and had a lot of customers and I know you know all of this. So that clearly gave us a head-start and it allowed us in terms of our planning, if you go back 12 months before the launch of these flights, it allowed us to be more bold and more aggressive and just believing that those flights wouldn’t be a drag on our earnings, as we were – our objective for 2013, ’14 and ’15 was to hit our earnings targets and we’ve done that. Having said that, while they’ve out of the box virtually every flight, not literally but the almost every flight has been very successful financially. They are still developing, I mean any – as you know, our flight activity is up 50%, I believe the available seat mile capacity is up 188%. We all know that is huge and there are bound to be some imperfections there that need to be tuned. So we will continue to look at our schedule and we will continue to look at our revenue management and with the idea that we will continue to improve from here. But it is with the understanding that – and we’ve been very clear about this of the financial performance out of Dallas has been superb from day one. So the improvement may not be as sharp in those markets as it will be in some others but nonetheless I absolutely would expect that we will continue to see improvement from that capacity.

And just maybe a quick one in terms of – couple of weeks from new we find out about the TA, if it is voted down, how does the CASM guide change for the fourth quarter?

We will – if there is any change to our guidance, we will just update you as appropriate later this quarter.

And the first – just trying to help you a little bit here, that you don’t get a full quarter change because – and think about the fourth quarter, because the effective pay rate change date is November 1, Mike, if I remember right. So it’s not the – we would have a full quarter effect of the pay increase in the fourth quarter.

And in terms of how the contract is implemented, are there other things that sort of – from a crew planning standpoint et cetera that, sort of hit you cost wise upfront that you kind of manage over time or is it once the sort of contract goes in, that’s kind of the – that’s right run rate on the pilot side?

Again, I think we will need to win that is all certain one way or the other. I think we will need to go into the effects of the contract. But at least for the time being you’ve got good guidance from Southwest on the fourth quarter cost outlook. We booked the accrual for the bonus and with that we are assuming in our guidance that the agreement is ratified.

And we will take our next question from Michael Linenberg with Deutsche Bank.

Just two quick ones here. Tammy, the next year’s growth of 5% to 6% ASMs, do you have a – what percent on departures, I think you gave us departure growth for the fourth quarter and then the new Houston International terminal and it looks like you have been adding international flights from some other markets, how should we think about what part of that is international, split between international and domestic?

For 2016?

Yes, 2016.

Most of that’s going – it’s going to be weighted obviously towards domestic, so a small, I guess, probably call a point or so would be international and rest of that would be domestic.

And then just the departure growth rate?

Yes. Our seats – we are expecting those to be up – somewhere, 3.5, call it, 3.5%, 3.6% and that is going to – of course Dallas, LaGuardia and Reagan National and that’s call it probably half of that, and then the remainder with the other – just regional additions that we make here this year.

And just second question, I caught it somewhere in the press, I think it was reported that you paid $120 million to get access to the Love Field gates, so I was just wondering maybe if you could talk about how you got to that share value and whether or not – I mean do you have exclusivity of those gates or will you have to accommodate Delta, what’s the story there?

Well, I will answer the question, Mike and I just want to recognize that we are under a gag order from the federal judge on this case. So I am going to be very careful not to – not comply with his order. But the value was pretty straightforward, we simply looked at the equivalent values for slot controlled airports, slots are readily traded, and I would argue to you that there is no more effectively slot controlled airport in the United States than Dallas, Love Field. So it was pretty straightforward on how we arrived at that value and obviously you heard our results from Love Field. With respect to the exclusivity, this sub-lease operates like any other airport lease where, yes, we do have preferential rights to the gates and then are required to make reasonable accommodation which simply means if you have room available, then you can’t prohibit someone from using the gates and that’s the way it works, that’s where it works at Love Field, that’s the way it works everywhere. Obviously there is no room at Love Field for anybody other than Southwest on our gates, by the way we are operating.

Again, Mike, just one clarification, the numbers I gave you are for a carryover and it wasn’t clear if your question was carryover or in total, but it’s not going to move a lot, it’s probably somewhere in that 4%, the seats are probably somewhere in the 4% growth range.

We will take our next question from Hunter Keay with Wolfe Research.

We all think of Dallas as being Dallas obviously, that is very competitive, and the reality is two different airports there and at times they behave like different markets. So I love to hear what you guys have discovered as the Wright Amendment route is still up about the competitive dynamics in Dallas. In terms of sort of when Love Field and DFW truly compete with each other and maybe when they don’t as in maybe does the competitiveness become a little bit less important during trough period travel times, and are there times maybe these two airports may be distinct to – more distinct to one another than maybe a lot of people realize it at a high level, anything you can share of your experience are appreciated.

I would be happy to. I would say more than any other dual or multiple airport market that I can think of, they operate as one airport, and they have – I have been here for 30 years and they always have. So the prices are matched, they are matched, obviously when it’s Swiss Airlines leaving in the market, it’s been rate historically to have any low fare offering at DFW because of the dominance of that airport. So really it was left to Southwest in this market to provide that low fare competition. That changed materially in 2006 when President Bush signed the Wright Amendment compromise because we could then begin offering itineraries beyond the Wright Amendment area and you saw prices come down significantly. Now we are able of course after 2014 to fly those markets non-stop and so there are more seats available at lower fares, you’re seeing the increase in traffic not just at low but by virtue of that increased competition over DFW. What we’ve typically seen over a 30-year period is as we’ve grown with a focus on local traffic, the hub and spoke carriers and especially in DFW began to de-emphasize that and shift their focus to flow traffic which is why in the old days you’d say one-third of the flight is coming from Southwest, one third from the City Pair, one-third from Delta, one-third from American and Southwest would have two-thirds of the traffic on that segment. Dallas, Houston was my all time favourite example, and that phenomenon continued more and more and more because they simply could not compete effectively with our cost on those – especially those short haul segment. So they absolutely compete, I talk to customers here in the DFW area all the time who tell me that they choose between DFW and Southwest for various reasons, or rather Love Field for various reasons and – I mean the same situation, I can drive to DFW just as fast as I can drive to Love Field, and obviously I drive to Love Field but they are very close together and it is much more of a single market than Houston as an example, or the Washington DC area, maybe it’s more akin to the Bay Area where Oakland and SFO I think are pretty inter-changeable but it operates as one market.

And then as it relates to fuel hedging, Tammy, can you talk about some of the risk parameters that you guys put in place when you think about taking out a hedge position and how much you’re willing to absolute in terms of not just premium expenses in terms of sort of downside and upside and collateral being posted, what are the risk parameters you use when putting on hedges and when you make unfortunate hedging choices, is there a level of accountability that exists within your department, if the bet – if the wrong choice is made?

I’d be happy to walk you through that, Hunter. As you are aware, fuel represents one of our largest expenses, these are our first or second and it’s really pretty straightforward. Our fuel hedging program is designed to provide an insurance when prices are rising. Obviously when prices are low, that’s not as great of a risk and I think this quarter is evidence of that where we are producing very nice earnings. So we really look at our fuel hedging to help us mitigate the impact of the volatile swings that we see in fuel prices and just provide us at least a little more certainty with respect to what kind of fuel spikes we might have as we are planning for the future. So in terms of what do we think about, I think it’s all the things that you would expect us to, we certainly do consider our balance sheet in determining how much risk we’re able to absorb either on the high side or the low side, with respect to risk that we might be willing to accept with on the floor side. But that’s simply what we do. We really do a lot of scenario planning to make sure that we are comfortable with the possible prices – possible fluctuations in fuel as we work through our plan. So hopefully that gives you a little bit of insight. So we are looking up and down the curve to make sure that we’re comfortable when prices are high as well as when prices are low.

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

Gary, I think in that Fortune interview you also talked about potentially getting to a 90% load factor within five years. So I am wondering if that’s how you are managing the airline whether Southwest can handle that operationally and whether you have the appropriate ancillary revenue stream to have that strategy make sense?

To be honest with you, I don’t remember saying that. You might be right. Mike Van de Ven sitting next to me is about to punch me saying that, but I don’t know – honestly I don’t know if 90% is a realistic number or not, I really don’t know the context of the statement. But today -- I will answer it today, rather than trying to reconcile or whatever is in that article. Last year, Mike, we were an 83% annual load factor, that is 15 points higher than what we produced 15 years ago in the year 2000, and a lot of that increase – of course, it’s all been necessary that we’ve had economic imperatives to adjust our schedule to have fewer empty seats, we are also carrying more connecting passengers, still heavily weighted towards non-stop passengers but I think that, that’s all important background to think about your question. We lag the industry, think a lot of our employees believe that we are the highest low factor, but actually we lag in the industry because we don’t hub and spoke and we don’t schedule so intentionally for connecting customers. We’ve had not more of that way in recent years but not nearly as much as the rest of the industry. So it seems to me unless we continue to evolve more towards trying to fill airplanes up with connections, we are going to be somewhere here in the low 80s, we are running a bit ahead this year over year ago, we just had a record low factor for the third quarter which was at 85%, that was up one point versus a year ago, it feels like we will probably beat last year’s 83%-ish 2014 load factor, Mike, that we had, so I think we can kind of inch things along from here and I am happy at these levels, as long as the rest of our economics continue to be successful. So one of the things that we’ve tried to do over the last five to 10 years is have more customers per departure, so we would be relying less on having to raise our fares. That’s a great way to increase revenues and still keep our fares low. And obviously we’re getting closer to the point where that may not be as achievable. I think we have opportunities to manage our revenues better with revenue management techniques that’s one of the things that will come with our new reservation system and by adding value in areas like our frequent flier program. So very pleased with the improvement that we’ve seen with our credit card compensation there. So we will continue to look for opportunities to grow our unit revenues and I think for the most part that will need to come from optimizing our route network and less so in terms of trying to fill more empty seats.

And then I think at the investor day you also said that once you get beyond 2015, the growth out of Love that you see yourselves as a low single digit type grower domestically. Is that still the case or has that changed at all?

I am sorry, I was thinking about your question, so is the question about our domestic growth opportunities to grow beyond Love Field? Well, no, I think we’ve got – we have a large opportunity to grow, it depends upon a number of things, it depends on fuel prices, fares, the economy, all things that you know, depends on our competition, but as we see things today, there are more than ample opportunities to grow domestically, and as I have said many many times, we will want to grow in a sensible way and we want to make sure that we maintain a strong balance sheet, we maintain hitting our profit targets, our return targets but it is important to grow, it’s important to keep the customers that we have. We will need to continue to add service to meet their needs as long as the traffic is growing. So not growing is obviously not – it’s not a good alternative but as the domestic economy continues to grow and especially if the short haul traffic continues to rebuild as – some of the early signs we’ve seen here 2015, then we will have ample opportunities to grow. I am reluctant to put a number on it. Whatever I say really doesn’t matter, we’re going to grow at the rate that is justified by our financial parameters as well as the demand in the marketplace. And if we are lucky to have growth opportunities like we’re experiencing right now out of Dallas, out of Washington, out of Houston International, then that will be fantastic and we will grow and we will manage it and we will continue hopefully to have a record earnings, that would be our goal.

And then just a quick one, Tammy, can you provide what the no-show fee revenue was in the quarter?

Sure, I’d be happy to pull that for you. It was 16 million for third quarter.

And ladies and gentlemen, we have time for one more question. We will take our last question from Duane Pfennigwerth with Evercore.

Only two from me, I am not going to ask you six or seven. So on the other revenue line, it looks like you increased nicely even excluding the new credit card agreement. Can you just talk about what is driving that and trends you expect going forward?

Yes. As I mentioned – as opened the call, we have had a nice growth in our ancillary revenue, obviously the Chase agreement is benefitting significantly in the other revenue line. So that’s going to be the large – that’s going to be the biggest piece of that, Duane. And we also had a freight – freight and others are also performing well, so we were actually quite pleased because our ancillaries offset as you know, we had the AirTran back seats coming off that we were pleased that that, offset our revenue but it’s primarily the Chase agreement and in addition we had a nice showing with EarlyBird and Upgraded Boarding, those are also contributors to our other revenue growth, and I think those are really the headlines. And one other note is just charters, we also had a very strong growth during the third quarter as well. I think our charters were up in the 20% to 30% range.

Duane, again just I am saying the same thing Tammy is but the Chase deal – if I do my arithmetic here right, accounts for all that about 25 million of the increase. So there is a $40 million adjustment out of passenger into other, in addition to the 130 million that we’ve been talking about, for the third quarter. So there is actually 170 million in other.

I think the trick was to get beyond AirTran because it was shrinking for a while and now it looks like it’s growing even ex this deal. And then on the domestic res migration, it sounds like you are messaging little bit on the cost side, the things that we can sort of look forward to on the revenue side levers that you haven’t pulled yet, can you give any update there, is it 2017, is it 2018, when can we start to get excited about the new levers that you haven’t pulled yet? Thanks for taking the questions.

Well, I am thinking to myself about the new levers that you must be referring to. In terms of the levers that we have been talking about, I think it’s primarily our new reservation system, with some enhanced revenue management capabilities, so I will let Tammy talk about that. But beyond that – and she has already made this point – you get the full year benefit of the new credit card deal which is something we are excited about for next year, and then we are working really hard to mature our route network, it’s gone through a lot of change over the last couple of years, we are absolutely expecting that we are going to drive more performance from that especially with the maturing of the developing markets. But Tammy, anything else you can add there?

No, I really don’t have much to add to that. The first phase of that, I agree, would be the revenue management opportunity and just continuing to optimize the network, and then as we get past – turning on our new reservation system, we will certainly provide a more insight at that time.

So when we would you expect it to turn on, is that a ’16 event?

We have not given the exact date yet but what we have said is that we will be on our current reservation through the end of 2016 and we have transitioned the systems beyond that. So we’re getting closer, so just stay tuned and we will be back in probably not too much longer with more details on the timeline, but we’re just not ready to lay out – all of that out for you today.

That concludes the analyst portion of today’s call. Thank you for joining. Ladies and gentlemen, we will now begin our media portion of today’s call. I’d like to first introduce Linda Rutherford, Vice President of Communications and Outreach.

Good day everyone. We’ll just jump straight to the questions, so Tom, if you could instruct them on how to queue up, we will get started.

[Operator Instructions] We will take our first question from Michael Lindenberger with Dallas Morning News.

I mean I wanted to ask you – you saved a lot of money on fuel and you’ve made a lot of efforts to try to keep your prices low by finding other revenue, I guess, by volume. Is there any calculation that you ought to invest some of these savings rather than share buybacks but in more aggressive pricing to drive up your volume and just sort of give the flying public the benefit that you guys have been sharing with your shareholders currently?

Well, first of all, we want to be America’s low fare leader and I think that we are. We are the only – I think the only – I was going to say the only major carrier – we’re the only carrier that doesn’t nickel and dime with bag fees, change fees, so we offer a tremendous value, and we have – we are meeting our financial goals with respect to our cash and our balance sheet and we are trying to serve all of our constituents, our people, our customers, our shareholders, so we are trying to take care of each one of those. Nobody a year ago saw a 50% decline in fuel prices looming. Nobody saw that, and so logic would tell you that as we sit here today it is going to be very difficult for any of us, you, me, Tammy, anybody, to predict what fuel prices will be a year from now. What I can tell you from experience is that it’s very difficult to increase fares rapidly. Customers hate that and it tends to chase away demand very rapidly. Everyone of our legacy competitors that we compete against has been bankrupt over the past decade and bankrupted primarily because of surging fuel prices. So I think speaking for Southwest, I am very reluctant to take our customers through a rollercoaster ride fares and if we are all lucky, and energy prices remain low for an extended period of time, I can assure you that we will continue to offer low fares and continue to add flights and grow Southwest Airlines. So that’s where the money is going. It’s going back to invest in the infrastructure for Southwest, we’re building new airports, we are building new technology for commercial purposes, for operational purposes and we are buying more airplanes. We are replacing our older airplanes and we are also adding growth so that we can expand in exciting places like we did last week by launching new international flights out of Houston.

If I can just ask one quick follow up, you mentioned the legacy airlines, obviously you guys have sort of stayed out of the flight between them and the Gulf carriers but it does implicate this sort of – you’re all in the same competitive mix, not obviously as much on the international carriers, but I am just wondering if you think there is any weakness in the legacy carriers position of arguing against the Gulf carriers, huge gains in the US market base in large part by lower fares and better service?

Well, I would certainly acknowledge that we are all in the same industry but I would also be quick to add that we often take a differing view – with respect to the particular issue that you mentioned, it is not our priority, we haven’t spent any time on it, and therefore we just have not taken a position.

We’ll go next to Andrea Ahles with the Star-Telegram.

Hi Gary, if you -- I heard you talk on the call about the Love Field case with Delta, in front of a federal judge. Delta was asked last week if they plan to appeal the ruling, if it goes against them and I wanted to ask you the same question, will you appeal – the Southwest appeal the judge’s ruling if it goes against Southwest?

Well, really I want to honor the judge’s order here and comply first of all. We are looking forward to the decision and would expect that hopefully soon and I think we will respond accordingly at that time.

You are not willing to come out like Delta side and say that yes, we definitely plan to appeal this to the Circuit Court if it goes against that.

I am not going to – not comply with the judge’s order to not comment on this case.

And we will take our next question from David Conny [ph] with The Associated Press.

I’ve got two questions, because I think the first one is probably a quick answer but can you say what your early load factors are on those international flights out of Houston and also on the cost side, that labor cost line really stands out, and even if that includes the pilots ratification bonus, even if it does, you are still up 14.4% and I am wondering if that is going to be a trend that your investors should expect to see going forward?

David, on the latter, that’s really profit sharing that’s driving this. So I would welcome that kind of increase but yes, that’s our variable pay component, when the company does well, our employees do even better. I’ve talked more – I forgot your first easy question.

Houston Hobby load factors, international –

Well I can report this, we’ve got by far the majority of our destinations or leisure destinations, those load factors are consistently very high. These are brand new markets. I am expecting us to have periods of time now when we have pretty light loads. The only markets that we’ve typically seen softer loads than we would like would be the more business markets which is primarily Mexico City and some of the flight times there aren’t optimal yet with the slot controls that they have in place. But I was there on Thursday and virtually all every flight going out there was full. So early returns are pretty much what we would have expected and I think we will do very well in that market, the fares have been very high, we’re going to come in with famous low fares and would very much expect to have the Southwest effect to kick in.

And we have time for one more question. We will take our last question from Jeffrey Dastin with Reuters.

Has Southwest finished its response to the Justice Department, civil investigative demand and kind of give any other updates on where that process stands now?

I think the only thing that I can appropriately comment on is that we are fully complying with the civil investigative demand. Certainly we’ve worked hard and turned over a lot of information but as to exactly where that stands, I can’t really comment any further. End of Q&A

And at this time I would like to turn the call back to Ms. Rutherford for any closing remarks.

Thank you all very much. Of course, if there is any follow up questions, don’t hesitate to call us or you can always reach out at swamedia.com and we will take care of you. Thanks and have a great day.

And this concludes today’s call. Thank you for joining.