Southwest Airlines Company (LUV)

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Southwest Airlines Co. (LUV)

JPMorgan Aviation, Transportation and Defense Conference

March 04, 2013 8:45 am ET

Executives

Tammy Romo - Chief Financial Officer and Senior Vice President of Finance

Analysts

Jamie N. Baker - JP Morgan Chase & Co, Research Division

Mark Streeter - JP Morgan Chase & Co, Research Division

Presentation

Jamie N. Baker - JP Morgan Chase & Co, Research Division

Stay on schedule here is, as any good airline event ought to. It's a pleasure to be able to turn things over to Southwest Airlines and to introduce my good friend actually, Tammy Romo, who was promoted last fall to CFO and Vice President of Finance. Having spent considerable time at Southwest in various planning capacities, also time as Treasurer. And I see that you initially joined the company in 1991, that would have been when I got my start as well. That's probably one of the reasons that you were the one of the very first people that I was more lucky to meet in the industry. So it's a particularly nice to be able to welcome you to the stage and turn the microphone over to you. Thanks.

Tammy Romo

Thank you, Jamie. It's really great to be here. Yes, Jamie and I go way back, and so it's always nice to see a friendly face. And my instructions on this clicker were to avoid this button, so it really makes me want to push it, so -- but I'll try to follow instructions. Anyway, thanks again. It's great to be here with you this morning. And before I begin, Marcy requires me to read this statement, but of course, our presentation this morning includes references to historical non-GAAP financial data, as well as forward-looking statements. Because these statements are based on Southwest'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. For more information regarding forward-looking statements and reconciliations of non-GAAP to GAAP results, please refer to the Investor Relations site on southwest.com.

So now that we have all that out of the way, I thought I'd start by just updating you on the plan that we presented to you back in December. At the end of the year, we had a 7% pretax ROIC. And of course, as we went over with you in quite a bit of detail back in December, our plan is to grow that to 15% by year-end 2013.

And thus far, I'm happy to report to you that our first quarter is tracking in line with what we had laid out in our plan. We will be releasing our February traffic results later this week, and we expect low single-digits year-over-year PRASM growth in February. Both January and February, again, are in line with our expectations. Of course, we must keep a watchful eye on the broader economic conditions and are continuing to monitor demand closely for signs of weakening, resulting from the budget sequester situation and just higher consumer income taxes, of course, which we -- which could hurt consumer spending. Albeit with this juncture, bookings for March are solid and we currently expect first quarter 2013 PRASM increase in the low single digits. So at least so far, trends seem to be holding up.

Regarding fuel, energy prices, as you probably all know, have risen since the beginning of 2013 but fortunately have subsided here recently. And our current full year 2013 fuel price expectation based on the forward curve remains in line with our plan, which is in the $3.25 to $3.30 per gallon range.

Just to give you a quick update on the first quarter, our fuel price estimate is also unchanged at $3.30 per gallon. And although Brent crude prices have increased, crack spreads have decreased, so that gets us back in line with expectations.

Our unit costs, excluding fuel, profit-sharing and special items, guidance for the first quarter and full year, again, is also unchanged. We're still planning a year-over-year increase in the 5% to 6% range and an increase of approximately 1% for the full year. And finally, we also continue to aggressively manage our invested capital base.

Turning to our 2013 revenue plan. We have what we believe is a reasonable and achievable plan to grow our revenues, and our plan is to grow them by $1.1 billion in 2013 compared to 2012. Approximately $800 million of that planned growth is coming from our strategic initiatives, along with just the core business, of course. As I think you are all familiar, our strategic initiatives are the AirTran acquisition, the introduction of the 800 and our fleet modernization efforts, our revamped frequent flyer program and the replacement of our reservation system.

Our strategic initiatives also remain on track with respect to AirTran and our $400 million net synergy target. We have taken a significant step to begin connecting our Southwest and AirTran networks. And as of -- you might have noticed, as of February 23, we are now selling coach air itineraries at 39 airports for travel beginning March 10. As you might recall, we began testing in a handful of markets in January and that went really, really well. And we are now in the process of rolling it out to our combined 97 destinations, including international. The rollout is running very smoothly, and we remain on pace to fully connect the networks in April.

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