Southwest CEO on Earnings

" Airlines squeezing out a profit in the third quarter beating street estimates by a penny but the company -- is experiencing quote substantial cost pressures and quote. And it's out west for Jeff will continue on into the fourth quarter and perhaps into next year. Gary Kelly is the chairman and CEO Southwest Airlines and we welcome -- him to be -- the morning Gary could CEO. Morning Alexis thanks for having us. So it's like you all rhetoric and your tone is a lot better than when you and I spoke last quarter of last quarter Gary you said -- this is the worst revenue environment for the airline industry that I've ever seen. Has it changed."

" Always it's it's still very very bad. Just. So proud of our people I think that they've been working -- to adjust to this environment. And there has been a remarkable improvement for us. Since June though we -- June unit revenues were down. Probably nine close to 10% and -- September unit revenues were up three so. Nothing that we could it could predict back in July. When you know I last spoke so if that's very different than what we're saying in the rest of the industry so I do think. That the economy. Seems to be stabilizing as many have said. But I don't think that that accounts for the changes Southwest Airlines -- really think that our people deserve the credit for that."

" Let's talk a little bit about that revenue improvement. It -- particularly in the units in the seats. Why do you think that's picking up in September if it because you've been out there aggressively. Selling great fares it cheap discounts or you starting to see me. Consumers. Choose to fight personally as well as business travelers."

" I think it's a combination. If you look around the country at the airline industry in total you're not seeing a remarkable improvement. Nothing like what -- saying it southwestern airlines so. We we've had some very successful for sales. We've got a very successful promotion under way that underscores our commitment to low fares with our bags like free campaign. But as much as anything I think it's just the adjustments we've made to our flight schedule. Involving literally -- every employee at Southwest Airlines were we've turned out the unprofitable flights. We redeployed. That there are available aircraft time to. Very large and instantly successful new markets and so it's just a combination of although of those things I thing but. You look at our September traffic it was up. A significantly over last year 89%. With a record load factor. That was up twelve points over last year so a lot lot of things are going right itself -- compared to where we were back in the June July."

" But I guess I would assume that 1 morning your -- Gary continues to be rising costs and one of those big issues is jet fuel prices we talked about oil prices last quarter -- around seventy dollars a barrel. We're now at a new high this year up 60% from the lows what is that doing to the company."

" What stuff and I think that that's. The single reason that I might point out to. To our employees that the worst is now behind us we have a very significant threat from increasing fuel costs so. We're 45% hedged in the fourth quarter were 65% heads next year. To at least blunt that increase. But that's not the only cost pressure we face we've got rising. A labor cost we've got rising airport cost and so there's a number of the things we're going to have to continue to work very very hard advantage but at least we've seen an improvement in revenues our bookings are strong for the fourth quarter. We're going to have to continue to work hard to maintain those. I think as much as anything it's a great service our people provide in and -- low fare brand."

" List a couple questions here number one where are those fuel prices -- are they about seventy dollars a barrel particularly the 65% you mentioned for next year. And and secondly. How will you look to expand top line growth when you go into other markets."

" Well our fuel hedges. Result in projected fuel prices per gallon on jet fuel basis of roughly 220. A gallon in the fourth quarter about 240 gallon next year so we're somewhere heads to. I with a variety of products somewhere in the low seventies to mid eighties dollar range over the next eighteen months it's tough to give you an exact. Point but we do have decent hedges in place in that range. Is in terms of our route system and changes that we're going to continue to make. Our plans are to keep our capacity relatively flat for the foreseeable future at the plant for 30. We have introduced three new cities to the southwest route system this year that are showing. Very very strong results. And we have Milwaukee Wisconsin planned for November the first. And we haven't announced any new cities for next year yet but we're we're working on that as we speak so -- you know stay tuned for for more changes but. For now we want to try to keep our capacity. Very much in check in and not have it to increase. Much all next year."

" When Gary Kelly good to see things start a turnaround even slightly great having you here thanks so much. Great to be here thanks Alexis I was."