Southwest Airlines Co. (LUV) Investor Day

Corrected Transcript

23-Jun-2016 Southwest Airlines Co. (LUV) Investor Day

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

CORPORATE PARTICIPANTS

Marcy Brand Michael G. Van de Ven Managing Director-Investor Relations Chief Operating Officer & Executive Vice President Gary C. Kelly Randall E. Sloan Chairman, President & Chief Executive Officer Chief Information Officer & Senior Vice President Tammy Romo Andrew Watterson Chief Financial Officer & Executive Vice President Senior Vice President, Network and Revenue, Southwest Airlines Co. Robert E. Jordan Arthur Jeffery Lamb Chief Commercial Officer & Executive VP Executive Vice President-Corporate Services ......

OTHER PARTICIPANTS

Mike J. Linenberg Helane Becker Deutsche Bank Securities, Inc. Cowen & Co. LLC Andrew George Didora J. Yates Bank of America Merrill Lynch Credit Suisse Securities (USA) LLC (Broker) Matt Roberts Darryl Genovesi Raymond James & Associates, Inc. UBS Securities LLC Dan J. McKenzie Duane Pfennigwerth The Buckingham Research Group, Inc. Evercore Group LLC Jamie N. Baker Hunter K. Keay JPMorgan Securities LLC Wolfe Research LLC Joseph DeNardi Michael Wayne Derchin Stifel, Nicolaus & Co., Inc. CRT Capital Group LLC

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

MANAGEMENT DISCUSSION SECTION

Marcy Brand Managing Director-Investor Relations We are going to get started. Everyone, please continue to enjoy your lunch, but we're going to go ahead and get started with our presentations. I'd like to welcome all of our webcast listeners who are joining us today. I'll take this time to point out that today's presentations will include for ward-looking statements. Because these statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance and a variety of factors could cause actual results to differ materially.

Today's presentation will also include references to non-GAAP results. Therefore, please see the Investor Relation's section of southwest.com for further information regarding these forward -looking statements and for a reconciliation of non-GAAP results to GAAP results.

I now have the pleasure of introducing our first speaker, our fearless leader, Mr. Gary Kelly. You all know Gary, but what you might not know is that he is celebrating a milestone of his 30th anniversary with Southwest Airlines this year. Gary has received numerous awards and recognitions over the years and he would not be very happy with me if I listed them all right now. But this year alone, Gary has been named as the 2016 inductee into the Texas Business Hall of Fame. He's also the recipient of the prestigious 2016 Tony Jannus Award.

Under Gary's leadership, Southwest Airlines has grown to become the nation's largest airline and is a mainstay on Fortune's list of the Most Admired Companies in the World. So please help me welcome Mr. Gary Kelly...... Gary C. Kelly Chairman, President & Chief Executive Officer Well, thank you, Marcy. I just want to extend my welcome to everybody. Thank you all for coming out today and it's a pleasure to be here with you. We're very pleased to be here with you as well. So, we have a couple of objectives for the afternoon. We want to give you an update on how things are going at Southwest, but also give you a briefing on our plans for the next several years in particular.

Our primary focus for the last two years, 2015 and then the current year 2016, has been very much on the basics: sustain our profitability, we're very pleased with our profit levels; and a renewed focus on the hospitality of our customer service, the reliability of our operation, and we also have wonderful opportunities to continue growing the Southwest route network. We have a lot of fans out there who love Southwest Airlines, and we're just in that fortunate position where they would love to have more of us, so we want to manage that growth and we want to manage that in a very fundamental and stable way. Of course, we're very – again very pleased with the results that we're seeing from that so far.

We've managed a tremendous amount of change for the five years ended 2014. One of the goals also that we've had for 2015 and 2016 is to allow our network, our systems, our people all time to mature and stabilize and I think with any company, there just comes a time where there's change fatigue. So we've had a strong desire to make sure that things stabilize and indeed they have. In the meantime, we've also been, in the background if you will, investing for the future and preparing for another surge of change that is coming for 2017.

We have a new reservation system. We have a new international terminal that's un der construction where we will complete that and launch flights at Fort Lauderdale next year. We are prepared to fully retire all of the Classic

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 aircraft and that next year will amount to Boeing 737-300s. All the Boeing 737-500s will be retired this year, by the way. And then, of course, prepare to launch the Boeing 737-8, which is the newest member of the 7 37 family from Boeing.

So this morning, in particular, we want to update you on our fleet plans. We've got some new information on the most recent change that we've made in our Boeing delivery schedule. We have been very, very blessed to have a great partnership, great business relationship with the Boeing company for the entire 45 years of our existence and very, very pleased with the update that Tammy's going to provide you on our fleet this morning or this afternoon.

We're also going to share with you the status of our reservation system project, biggest in our history. It's going very, very well and along with that, our plans for future releases and then, of course, I know what you're all very interested in, in addition to the status of that project is what you should expect in terms of functionality gains along with what I hope will prove to be conservative estimates of the values that we hope to der ive from this new technology.

We're also going to give you an update on the various facilities and airport projects that we have across the country. We were talking at our table earlier about some of the constraints that we have in the United States for future aviation growth at airports, and we believe we've got a couple of cases on how we're going to address that. And then, of course, we're going to provide an update on the financial and operating trends in those plans as well.

So, I'm really, really pleased with our 2015 performance and first half 2016 has been even better. We're enjoying another excellent year with very manageable growth, very strong demand. Fuel prices continue to be well below 2014 levels. We've modified our hedging program techniques for future years accordingly to take these lower prices into account. And the results of all the changes that we've made over the last five years, and lower fuel prices, of course, has been very strong margins, and is also putting us in a position where we can provide outstanding shareholder returns.

So, if you go back five years, six years, we've made tremendous advances in a short period of time. We have – let's stop calling it All New Rapid Rewards, but our Rapid Rewards program, I just couldn't be mo re pleased with. That was launched five years ago, and we've seen tremendous value driven from that.

The AirTran acquisition also was consummated five years ago. That's all fully completed in 3.5 years into 2014 and I feel that we've more than realized the synergies that we were expecting in 2010, when we were contemplating that acquisition. We launched the Boeing 737-800 in 2012. We have over 100 of those aircraft in our fleet today. And again, we've been very pleased with the results in terms of our ability to schedule it in the system and match demand to the larger seat gauge as well as our ability to operate an airplane that's just a little bit different than what we have been accustomed to.

Of course, we've launched international service in 2014. It's about 3% of our capacity. So it's very modest and that is the way we want to continue to approach that expansion to make sure that we're doing – adding international routes in a very measured way, but we're very pleased with the operating performance of t hose routes as well as the commercial success of those routes.

I did want to put in a big plug finally for fleet modernization, so that was the fifth strategic initiative that we've been focused on. I think that that perhaps is the one that may be, not the least understood, but may be perhaps the least appreciated. And we have really put our prosperity to work through the improvements that we've been able to make in our profitability and especially in modernizing the fleet.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Of course, we're launching the Boeing 737-8, but we've also realized significant cost benefits, significant revenue benefits, operating benefits and then customer experience benefits from this fleet modernization. The used aircraft market was very supportive of us accelerating the retirement of the Boeing 717s and also the Classics. So, that's worked very, very well and then Tammy is going to again give us an update on now the changes that we have put into effect with the future Boeing delivery schedule.

But the fleet modernization efforts have been vast. They have been very successful. I want to thank Jack Smith and his tech ops team for bringing in, gosh, close to 100 used aircraft and getting them deployed on the Southwest maintenance program in the Southwest configuration and delivery. It's been a lot of extra work, but it's been very, very cost-effective for us and works extraordinarily well.

Before I turn it over to Tammy, I just wanted to close my opening remarks here by saying that it is always our people, 50,000 strong that do this hard work and obviously deliver these results and make all of this change happen, and I do want to thank them again and I want to congratulate them again on these great results.

And with that, Tammy, I'd like to invite you up to share your story. Tamm y Romo, our Chief Financial Officer, Southwest Airlines...... Tammy Romo Chief Financial Officer & Executive Vice President Good afternoon, everyone. It's great to be here with you all as always. It's always a lot of fun to be in the room with a lot of – I'm not going to say old – but friends that I've known in a while as well as new friends. We really appreciate your interest in Southwest as well as your investment. Since our last Investor Day, we've – I think it's fair to say, we have accomplished a lot. We've delivered exceptional results and we are committed to returning significant value to all of our shareholders.

As Marcy and Gary both mentioned, I'd like to spend some time this afternoon discussing our financial objectives. The Southwest family has worked together over the last several years to build a very strong foundation. We've transformed our business, so that we can continue to prosper and grow. And our financial performance has been quite strong.

First quarter margins were at levels we haven't seen in over 35 years, and we have industry-leading revenue growth, modest cost inflation, a strong balance sheet, and a healthy cash flows, which have all enabled us to provide healthy returns to our shareholders. As we celebrate our 45th year here at the Exchange, we are very proud of our track record of taking care of our employees, our customers, and our shareholders.

Over the next 20 minutes or so, I'd like to take you around the wheel that I have here on the screen. I'll focus in on four primary objectives: strong profits and returns on capital, a balanced capital structure, top -line revenue growth, and our commitment to maintain our cost advantage.

Let's begin by focusing on our strong profits and capital. As you can see, our profits have grown tremendously over the last five years with margins expanding over fivefold. We attribute the success in large part to the implementation of our strategic initiatives and the optimization of our network. We have expanded our ROIC by 26 points over the past five years to a record 32.7% as you can see on the chart here.

As Gary mentioned, our strategic initiatives have all come together extremely well to deliver very strong returns. Our AirTran integration was complete at the end of 2014, which has allowed us to grow our network by 25% and has also allowed us to begin international service. Our international market, yes, they are 3% of our network and

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 growing, and we are flying to 11 international destinations in the Caribbean and in Latin America, and we will begin expanding soon to Cuba, pretty remarkable.

Our network is a significant strength at Southwest and you will be hearing more about our opportunities later in the panel, as you'll get to hear a lot from Andrew here shortly. And we've also benefited, as Ga ry mentioned, from our fleet modernization effort, and of course, that results in significantly lower maintenance costs as well as better fuel efficiency. And of course, our revamped and growing frequent flyer program, which has exceeded all of our expectations. And finally, I would certainly acknowledge that we've benefited from low fuel prices, but even on a fuel constant basis, our margins have been healthy.

This chart speaks to our commitment to deliver superior returns. As you can see on the chart, our 2015 ROIC far exceeded returns delivered by the S&P, consumer discretionary and transport stocks. And our 2015 ROIC well exceeded our cost of capital, which will continue to be a long-term focus for us.

Moving ahead on the wheel, let's spend a little bit of time on capital efficiency. Our balance sheet remains strong at the end of first quarter with $3.6 billion in cash and short-term investments, and our cash flow from operations has been strong, and capital spending is at manageable levels. And I'll spend quite a bit of time here with you shortly on our capital expenditures. Our focus on strong free cash flow generation has enabled us to keep our decades-long commitment of returning substantial value to our shareholders.

Including our $1 billion available revolver, our liquidity, as you can see in that first chart, was $4.6 billion at the end of the first quarter, and the middle chart speaks to our strong capital structure. Our leverage remains in the low 30% range and this includes our off-balance – the net present value of our off-balance-sheet leases. And this last chart in the slide illustrates how our operating cash flows have increased consistently over the last five years to $3.2 billion in 2015 and half that amount in the first quarter of this year alone.

We have preserved our industry-leading balance sheet with the designation as the only domestic carrier with an investment grade rating from all three rating agencies. Our leverage is in the low -to-mid 30% range, and as you can see here from the chart, we have very manageable levels of debt repayment with $300 million bullets through this year as well as the next year.

And as Gary mentioned, we are investing in our future, and we are investing in our business at prudent level. We are disciplined in our investment decisions and actively manage our capital spend. I can assure you we spend a lot of time on this, and those are always fun discussions around Southwest. The investments we are making that we will share with you today provide meaningful returns for years to come and will help us sustain our healthy cash flows and profits through the cycle.

Starting with 2016, total CapEx remains in the $2 billion range, as you can see from the bar to your far left. Now, if I could draw your eyes to the blue portion of that bar, $1.3 billion relates to aircraft purchases, which I will cover in great detail here shortly. I first want to cover our non-aircraft CapEx represented by the yellow, the red and the gray bar. As you can see, technology and facilities spend are significant drivers. Technology spend for 2016, which is shown here by the gray bar, is estimated to be roughly $250 million. The majority of this spend relates to two primary bodies of work: our reservation system and our operational initiatives.

In total, we're estimating the capital spend on our reservation system will be about $500 million with the majority of that completed by the end of 2017. As our panel will cover, the corresponding benefits of our new reservation system are significant and we will be able to recoup our $500 million investment by 2020.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 With regards to the operational initiatives, we're investing about $200 million to $300 million there over the next couple of years, which we also expect to recoup that investment by 2020. Facilities is another portion of our CapEx, I want to point out, and that is the red bar. That spend for 2016 is estimated to be around $150 million, which is attributable to a number of projects as Gary mentioned, and Jeff Lamb will be sharing a lot mor e detail about that when we have our panel discussion.

So to summarize, we expect our non-aircraft CapEx to be in the $600 million to $700 million range for 2016. These investments will carry into 2017, where we expect our non-aircraft CapEx to peak before bending back down as we move forward.

So now, I'd like to focus on our aircraft CapEx, which is represented by the blue bars. If you'll recall on our first quarter earnings call, we said that we were evaluating our fleet plans, in light of our decision to further accelerate the retirement of our Classic fleet and to no later than September 2017, and we've completed the analysis of our order book.

So, with the support of our wonderful partner, Boeing, we are announcing today that we have restructured our order book to optimize our fleet retirement through 2025. I will review these changes in quite a bit of detail on the next two slides, but the impact on our CapEx from the changes was to defer $1.9 billion of aircraft CapEx beyond 2020. This resulted in revised aircraft spend for the next five years, as noted here on the chart.

Our aircraft CapEx for 2016, as I mentioned before, is approximately $1.3 billion, and we expect similar amount in 2017. From there again, we expect our aircraft CapEx to bend down significantly, as you can see, very easily here through 2020. So, now beyond 2020, we believe we have flexibility to keep our CapEx also at very manageable levels.

So, this supports our desire to keep overall capital spend manageable, especially during t he peak years here in 2016 and 2017, on the non-aircraft CapEx side that I just walked you through, and we'll walk you through in even more detail when we get to the panel discussion. So, in addition, our restructured order book did not change our plans to grow the fleet, no more than 2% on average from 2016 to 2018.

So, just one more time to make sure everybody has it, our 2016 CapEx remains at $2 billion. Our 2017 CapEx is currently expected to be slightly higher at $2.2 billion, which we expect will rep resent a peak and then will bend down from there. So, everybody got it?

Okay. We're going to keep going. So, I'm going to walk you through the changes in our order book. So, I'm going to next slide here. First, this slide illustrates our order book that we reported to you in April. The blue and gray bars represent Boeing firm orders and the yellow bars are firm commitments for pre -owned Boeing aircraft. In total, we had 328 firm commitments and pre-owned aircraft. We also had 209 options, which are noted b y the year at the bottom of the slide here.

So, now this slide shows our restructured order book with Boeing. You can see the details of the restructure in the bullets noted on this slide, but in summary, total firm orders only increased by two pre-owned aircraft to 330 and total options remain the same. So, the takeaway that I want to leave you here from the restructures is our deferral of 67 firm deliveries from 2019 through 2022 out to 2023 through 2025. This supports again our no more than 2% net fleet growth over the next three years, given that we will have no retirements until 2023, which is the first year we will have significant Boeing 737-700 retirements.

Based on this restructured order book and our plan to retire all of our Classics no later th an the third quarter of 2017, we expect to end this year with 723 aircraft, just over 700 aircraft in 2017 and then we'll be back up to

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 somewhere in the 7 30 and 750 range again depending on our option exercises in 2018, and you can see on the chart, the options at the bottom are 18 in 2018.

So we are very pleased with these changes to our order book because it supports our fleet modernization efforts, which we think is a big deal, and provide significant flexibility as we manage our strategic growth opport unities over the long term.

We have a balanced approach to our capital deployment and we remain focused on long -term value creation for our shareholders. We've put significant effort into our planning and we'll remain diligent in our efforts to ensure that we're deploying the capital that you've entrusted in us wisely.

As we continue to demonstrate, we are making prudent investments in our business, and we're returning significant value back to our shareholders through a combination of buyback and dividen d. As we announced just last month, our board authorized a $2 billion repurchase program. And as planned, we did execute a $500 million ASR at the end of May. So as a result, we have returned $1.3 billion to shareholders thus far in 2016, which is nearly what we returned for the full year last year. So, over the last five years, we've returned more than $5 billion in dividends and share repurchases.

While returning capital through buybacks and dividends might be new for many of our competitors, it is not n ew for Southwest Airlines and this visual illustrates that we're the only domestic carrier that has had consistent returns to shareholders every year for more than two decades. And while this chart only goes back to 1990, we had buybacks as far back as the 1980s. And we have paid consecutive quarterly dividends since 1976, which is unmatched in the U.S. airline industry.

So, let's keep moving forward on our wheel and we're going to jump into revenues for 2016. Our first quarter revenues were off to a great start with top-line revenue growth of more than 9%. Our industry leading unit revenues have been driven by strong demand for Southwest low fares, which has resulted in record load factors thus far this year.

Our bookings and current revenue trends suggest we'll grow our unit revenues in second quarter 2016 year-over- year less than 1%. Adjusted for stage and gauge, our unit revenue growth would be even higher. This is likely an industry -leading performance and quite strong in the current environment.

As we've said, we do anticipate more difficult comparisons when we get in the back half of the year relative to the first half of the year, and that again is primarily due to the lapse of the Chase benefit. This will make it a challenge to achieve unit revenue growth in the second half of the year, but overall, our revenue management team is executing exceptionally well in this weak revenue environment. We've invested in our people, our tools, processes, and in our revenue management department over the years, and they are doing a fabulous job. And we have even more revenue management opportunities ahead with our new reservation system as we'll cover in our panel just a little bit later.

Our investments in our network and brand promise have created tremendous c ustomer loyalty. At Southwest, we truly do have fans, and our people take great care of our customers. Our Transfarency approach in low fares puts us in a category of our own. Our Net Promoter Scores are up there with the likes of Google and Apple and Starbucks along with our ranking in Fortune's Most Admired Companies.

Our brand proposition of everyday, low fares, no fees, and flexible ticketing policy resonates with the leisure and our business customers. Managed corporate travel has experienced signific ant year-over-year passenger and revenue growth over the last five years as you can see on the screen.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

Our corporate sales continues to significantly outpace capacity growth, which is up 91% since 2010. And that's largely due to our focus in this area, coupled with our robust network. We've grown total revenues from companies in the Corporate Travel 100, or Fortune 1000, over the past five-year period, essentially doubling our business in one of the most competitive areas. So, this is really strong perform ance, and kudos our team.

We've been thrilled, as we've said, with the success of our Rapid Rewards program. This program has doubled in size in just five years, exceeding even our own expectations. The chart on the left shows our membership growth, the majority of which joined Southwest when they purchased their flight on Southwest.com.

The remarkable revenue growth and contribution illustrated in the chart on the right is attributable largely to the success of our Chase Rapid Rewards Visa Credit Card po rtfolio. So, since the launch, both the number of cardholders in the program and card portfolio spend has more than doubled. Overall, our frequent flyer program has been a significant contributor to our top line revenue growth.

Okay, I really like the slide, and I think it's really telling when it ties to revenues. We are the nation's largest domestic carrier in terms of passengers boarded. And we are the hometown carrier in many of the top metro areas that we serve as you're going to see on this chart. Normally, I won't read the chart to you, but I'm going to read this one.

So, in the L.A. Basin, we have a 30% market share; in Phoenix 41%; in the D.C. Baltimore area, we have 32%; in Denver, 35%, that's after only 10 years; in the Bay Area, we have 32%; in Las Vegas, we have 36%; and in Chicago, we have 27% with 265 departures today, pretty remarkable. And that just tells you how beloved our brand really is. And our focus on connecting people to what's important in their life has led to our strong market share contributing to our top line revenue growth.

Our robust network has also been a key contributor to our revenue growth. And we believe we have many, many exciting opportunities ahead. As we refer to often, we've identified close to 50 potential dots that we can add to this map with the range of our current fleet today. And the delivery of the MAX beginning next year is a key factor here with the fuel efficiency it will bring.

Most of these new cities are outside the continental U.S. However, it's im portant to note we still have untapped growth opportunities through depth in continuing to optimize our network. And Andrew will be talking to you more about that a little bit later. We are very excited to begin service to Long Beach earlier this month, an d thrilled to recently have received government approval to serve Cuba. For 2017 and 2018, we expect our year- over-year capacity growth to be less than this year, which again remains in the 5% to 6% range.

So, the last section of the wheel I'd like to cover today is to focus on – is our focus on controlling costs. Unit costs, excluding special items and fuel in 2015, were essentially flat with 2014. As ever, we remain diligent in our cost control efforts including fleet modernization. Based on current cost trends, we continue to expect our second quarter 2016, excluding fuel, profit sharing and special items, to increase approximately 2% year-over-year. And for the full year, we continue to expect the increase to be approximately 1% year-over-year, which again is largely due to the accelerated depreciation of our Classic fleet. And I'll just also note here that is based on our existing contracts with our labor groups.

Maintaining our low cost has been the foundation of Southwest since day one. At 45 years o ld, yes I'm 45 years too – just kidding, we still have a meaningful cost advantage and we've done it without filing bankruptcy and not on the backs of our employees. Our strategy hasn't changed. We are committed to our low fare brands while

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 maintaining our focus on hitting our financial targets. We wouldn't have low fares without low costs and we are going to keep our low costs.

Our low cost story can't be told without an acknowledgement of the significant benefit we received from our fleet modernization efforts as we illustrated here on the chart. So if you'll take a look at the chart on the left, we had a 104 -800s, 471 -700s, and 129 Classics at year-end 2015. And while the number of aircrafts in 2015 was very close to 2011, the number of seats per aircraft increased by 12% or 9%. This resulted in a 1.3 point decrease in CASM over the last five years, representing a cumulative cost savings of about $200 million in 2015. And these savings were, again, largely attributable to maintenance and fuel efficiency .

In addition to the fuel efficiency from fleet modernization, what you see listed on this chart are some just examples of fuel-saving initiatives over the past five years, and I won't read this one to you. Based on market prices as of June 20 and our current fuel hedge book, we expect our second quarter economic fuel price to be in the $1.80 to $1.85 per gallon range here in the second quarter. And our current projection for annual 2016 economic fuel price per gallon is in the $1.95 to $2 per gallon range .

So to recap everything that I've shared with you today, while the revenue environment remain soft, we're outperforming the industry with very exciting opportunities ahead. Our non-fuel cost inflation this year is modest with the majority of our 1% growth being driven by our accelerated Classic retirements. With the rise in oil prices, our estimated fuel cost per gallon have increased since our last guidance due to just rising fuel cost. But we're still estimated to decline from 2015.

Our cash flows remain very healthy and we continue to tightly manage our CapEx as evidenced by our $1.9 billion deferral of CapEx from our restructured order book. We've returned $1.3 billion thus far to our shareholders through buybacks and dividends, and we have $1.5 billion remaining on our current authorization. All in all, we are anticipating 2016 to be another year of strong margins and our goal remains to produce returns in line with 2015.

And now I'd love to turn it over to my good friend, Mr. Bob Jordan, who is an a ggie, but we'll excuse him for that, just throw that out there. And we'd like to go ahead and invite our panel speakers to come on up and join the fun at the table up here.

And with that, it's over to you, Bob...... Robert E. Jordan Chief Commercial Officer & Executive VP She always gets me about this aggie thing. I'm not sure about that. Can you all hear, okay? We had a little trouble on our side. Everybody, okay? All right. Well, thank you all again for being here. We really appreciate it and we are just really excited to be here to not just meet with you, but to celebrate our 45th birthday at Southwest Airlines.

It's my pleasure to introduce the panel, and they all asked me to be very nice to them, so we'll see. But you're going to hear from four of our leaders. And I don't know that you know all of them, so I want to take just a second and tell you a little bit about them.

First up, we have Randy Sloan, he is our Senior VP and Chief Information Officer. And Randy came to Southwest four years ago from a long career at PepsiCo, and he traveled a lot there. And Randy tells me that over the course of the last 10 years working for Pepsi, he hit more than 50 countries and somehow turned out to be a top 1% reviewer on TripAdvisor. So that's a lot of reviews, Randy. But Randy's done a lot for Southwest in the short

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 period of time. He led the implementation of the international res system. And he's going to talk to you today about the implementation of our domestic res system, which I know everybody has a lot of qu estions about.

Next up is Mr. Andrew Watterson. Andrew? Andrew is a Senior VP, Network and Revenue, and Andrew's just a tremendous leader for our Network Planning and our Revenue Management groups. He's been here about three years and he came to us from Hawaiian Airlines. And know that is not a hint at the next destination for Southwest Airlines. He's going to talk to you about the commercial benefits of the new domestic res system, and he's going to talk to you a little bit about our network and our points of strength as well.

And I know we have a lot of analysts in the room. So for those of you that are familiar with the analytics tool for the industry called Diio, everybody familiar with that one? I can see a lot of people saying yes. Andrew is the number one user of Diio in the world. So that tells you a little bit about Andrew's personality, he's a great guy.

Out third panelist is [audio gap] (42:26) Mr. Mike Van de Ven, EVP and Chief Operating Officer. Mike. And Mike's been with Southwest for 23 years in a lot of different roles. He led Financial Planning, Internal Audit, he currently leads our ops teams. And Mike's going to talk to you about the strength of our operations, and then some opportunities that we have to continue to build on that foundation. And a little not well-known fact about Mike, Mike sold – other than the fact that went to UT, that's okay, Mike sold Kirby vacuums door-to-door during college, which I just cannot see. And I'm told that he still has one of the Kirbys at home, which I c an see because he is very frugal and I can see that he would've kept one for 23 years. But you still really have one at home? ...... Michael G. Van de Ven Chief Operating Officer & Executive Vice President [inaudible] (43:18) ...... Robert E. Jordan Chief Commercial Officer & Executive VP Good for you, man...... Michael G. Van de Ven Chief Operating Officer & Executive Vice President [inaudible] (43:19) ...... Robert E. Jordan Chief Commercial Officer & Executive VP He's still selling. So if any of you have an interest, see Mike after the panel.

And last but not least, we have Jeff Lamb, our EVP, Corporate Services. And Jeff has been with Southwest for 12 years. And he's responsible for hiring all the great people that do such a wonderful job every day. But Jeff also has airport affairs, technology, diversity, and inclusion and corporate facilities, and Jeff is going to talk to you today about the investments that we're making in our airport facilities and then some key investments in our non - airport facilities.

And I thought this was – a little tidbit about Jeff. This is something I have never heard before. Jeff went to the Cisco Junior College to play football and somehow ended up working in a factory that made stick horses. So I

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 assume there have to be factories that make stick horses because there are stick horses in the world. But, buddy, I just can't see you working in a stick horse factory.

So there you go, just a little bit about this wonderful leadership team. And with that, I am going to turn it over to you, Mr. Sloan. Thank you...... Randall E. Sloan Chief Information Officer & Senior Vice President Thank you, Bob. Good afternoon. As you heard from both Tammy and Gary, we are at the end of a five -year plan of strategic investment against many strategic imperatives. And, today, I'm going to talk to you a little bit, and give you a little more insight on the last of those, which is the modernization of our reservation system. We call that, One Res. So One Res essentially is the bringing together of multiple reservation system capabilities onto one common platform which will then allow us to launch new business capabilities.

We started this journey in 2012, when we chose Amadeus as a reservation systems partner and began the implementation on the Amadeus Altéa reservation system platform for international launch of the Southwest international business. We completed that pretty much flawlessly in July of 2014.

And since early 2015, we have been on the second step of that journey, which is to bring our almost 3 0-year-old SAAS Sabre, highly customized reservation system that we use for our domestic business to the reservation systems that we built to launch our international business. And again, we call that One Res.

So just a couple of facts, this is a fairly large endeavor on our part. We have over 1,400 resources engaged in this effort across every department at Southwest Airlines, as well as a large contingency of resources by the Amadeus partner themselves.

We will, when we are done, have significantly modified and integrated over 80 Southwest business solutions to the Altéa reservation systems suite. We will have changed over 500 business processes. And the step that is probably the most important is we will have trained 20,000 of our frontline employees to use these new business capabilities.

When we finish, we will have a modern reservation system that will allow us to adapt to the changes that are needed in our business and the changes that occur in this fast-paced industry in a lower-cost, faster-to-market way because it's an easily configurable solution. And most importantly, it will allow us the foundation to grow this business forward as our business dictates.

So, we chose Amadeus as our partner back in 2012. In 2014, we reevaluated the marketplace and we continued to choose Amadeus to move our domestic business, too. Why did we do that? We did that first because, first and foremost, their solution fit the business needs of Southwest Airlines. But as important, we were very impressed with the technical strength of the Altéa reservation system suite. And as important, we were very impressed with the technical strength and skill set of the Amadeus team themselves.

That's important to us because we know our business won't stand still and this industr y won't stand still. And we need a partner that can move and be agile with us. And they've so far proven to be that partner. I think many of you know, you probably follow Amadeus, the airline IT group and the company as a whole, they have successfully implemented over 100 reservation systems across the world. They've got a track record of proven implementations that are very successful. And we have our own track record of that because they were flawless in the execution of our international launch.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

They are the market leader. The estimate – if you were at the Amadeus Investor Day in London a few weeks ago, the estimate that I saw there is that they project to support airlines serving over 1 billion passengers by 2018. That's important to us because you need to be a market leader to keep pace with the industry to have the R&D capability to fund and move that product forward as we need it to.

I won't discuss our commercial terms publicly, but what I will say to you is that our commercial agreement is completely aligned and very consistent with our low cost, low fare brand, very important to us. But as important, the commercial agreement also gives us access to all of the products in the Amadeus Altéa reservations suite that we believe we will need to use to drive the business value that Andrew will actually get up and talk to you about in a moment.

And then, last and, in some ways, very, very important, and maybe most important, we have found Amadeus as a partner to have a very similar culture to the Southwest Airlines. They are fun-loving, but they have a fierce, fierce, warrior spirit. And they have proven that over the course of the last four years as they've stepped up to over – help us overcome the many obstacles that you always face in an effort of this size.

Let me back up here. So, our implementation approach is essentially designed to take Release 1 and Release 2 and move our domestic business to the foundational reservation systems platform. That will allow us then to layer on top of that new business capabilities that will drive the majority of the business value that Tammy mentioned earlier, and then that Andrew will provide more detail on.

Release 1 is – we call it the cell release. It is essentially the re-release that will allow us to publish and sell our schedule for the latter part of the first half of 2017 in the late 2016 of this year in the new reservation system. It includes scheduled publication, inventory management, and all customer-facing functionality. I'm happy to report that Release 1 is on track. It is essentially build to complete and we are in certification testing and that is progressing according to our plan.

Release 2, which will go live in the latter part of first half of 2017, is essentially all of the functions that are required during the day of operation, all of the functions that our frontline employees will use to check passengers and to board passengers, to handle baggage, and in case of the regular operations, re -accommodate our passengers. Release 2 is 50% build complete. Certification testing actually will start very soon. And together, those two releases will go in and be in by mid-2017. That will form the foundation and it will be essentially the move of our domestic business to our new reservation system platform.

Later in 2017, the good things start to happen. And the good things are we start to implement new business capabilities that Andrew will discuss and those new business capabilities will generate at least the business value that Tammy mentioned before. And then, obviously, we have made a significant investment in this new capability. So, when the program is done, we won't be done. Our business will move forward. This industry will move forward. And we have planned ongoing incremental releases for continuous improvement. That will be basically business capability that is prioritized based on the business value that it will drive for us.

We believe this approach will move our domestic business to this new platform in a manner that limits revenue loss, limits customer impact, and most importantly, is frontline employee friendly. And why do we believe that? Well, first of all, most efforts of this time – of this kind fell during large-scale data migration. Well, with this implementation approach, we don't have any large-scale data migration. We actually begin to use the new system with the new schedule.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 We're building a solution onto a solution that we actually use today. We use it for a portion of our business, our international business that has two or three advantages for us. The first is we can meter the technical implementation over time and we can meter the business process change over time. That allows our frontline employees to see and use the new capabilities we are delivering on a smaller portion of our b usiness.

It also helps simplify for our frontline employees the transition from the old systems to the new systems who will help them because essentially if they are doing their job for a passenger who is traveling on the day before, they're using the old system, and if they're working with that passenger who is traveling on the day after, they're working on the new system. So, it's a fairly simple execution process for our frontline.

But most importantly, we believe this is the right approach because this is the exact same approach that we used when we launched our international business. And as you all know, that execution was flawless and we stood that business up in record time and it has continued to progress in a very great fashion for us.

So, with that, I'm going to turn it over to my partner, Andrew, who's going to talk about the business capabilities that come with this great investment...... Andrew Watterson Senior Vice President, Network and Revenue, Southwest Airlines Co. Thank you, Randy. And thank you, Bob, for that introduction. I didn't – I knew I was a heavy user of Diio. I didn't realize it was that heavy. Part of it I like to think because I'm data driven. But part of it is my boss, Bob, is full of questions. So, I'm always turning the Diio to answer his questions.

So, as Randy said, I'm going to talk about the benefits of our new res system, I have one slide that will kind of give you an overview of that and the benefits, the capabilities that comes with it and the benefit and have a few s lides after that on our network. It will take you through how we at least think about our network.

So, I'll start off with the new reservation system. Since everyone is probably already looking at the numbers anyway, I'll start with the numbers and back in the capabilities. So, if you see at the bottom right, we expect the net benefit from R3, and you remember Randy sequencing there R1, R2, R3. At R3, we get those enhanced capabilities that will generate approximately $200 million EBIT benefit to the business.

And then, we have a series of identified capabilities to come after R3 that will lead up to a run rate of at least $500 million EBIT by 2020. So, now I'll go back to the top of the chart. And there's really five types of capability the new system gives us that drive these benefits. And they're represented by the five colors around this wheel. And I'll go through these – kind of each of those segments one by one to give you some color on the nature of the benefits to help you understand better how they drive the nature of the capabilities. So, you can understand how they drive the benefit.

So, the top left, you have the revenue enhancements. Those are things like O&D controls. You may be aware that we have an O&D revenue management system, origin and destination that is. That's implemented, that's generating benefit both for us, to get the full value, you need a new res system that can accept the O&D controls from the revenue management system. So, with Amadeus, we'll then have O&D controls and that wil l generate substantial benefit for the company.

We have improved fare flexibility. And we have ancillary controls. Ancillary controls, you can think of that as being able to revenue manage your ancillary products just as you revenue manage your seats today. And I should

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 note that the ones in black are the ones that are associated with R3 in that $200 million. And the ones in blue are the ones that will come after R3 to lead up to the 2020 run rate.

And then, you move on to schedule optimization. That will give us the ability to vary our schedule more. So, you may know today that we have six base schedules per year where we vary our capacity consistent with the point -to- point model. Within the base schedule, our variability is modest to best. With the new s ystem, we will be able to manage supply a little bit more granularly within a base period. It will also give us more days of inventory, meaning how far out we sell, redeyes, so we choose to fly them, and some improved connection times.

And you move down clockwise in the international growth. The new system will give us the ability to have interline and codeshare relationships with other airlines. Of course, this is subject to an agreement with our pilot group. And that's part of the ongoing labor discussio ns with them. The new system sells in foreign currency, which gives us enhanced capabilities when we're selling outside of our borders.

And it also gives us the New Distribution Capabilities. That's an IATA standard program that's recently launched that's called NDC for short, which is a standardized way of interacting with third-party channels and being able to sell your fullwears. And so, that – the new system will allow us to participate in that to the extent that we desire.

At the bottom, you have the foundational capabilities. And that's best expressed by Electronic Miscellaneous Documents or EMDs. If you're not familiar with that, that's a fairly recent last few years industry standard way of selling ancillaries. You can think of this as an e-ticket for ancillary items. In that way, you can – when you come up with a new idea for a product or service or bundle, you can very quickly market that and bring it to market and control it. And that's both associated with the ancillary controls that I had in th e top left there as well as Randy's discussion earlier about how this allows for more seamless and rapid go -to-market capabilities.

And the final chunk of the wheel there is the operational improvements. And these will foot to what Mike is going to talk about later and some of the technology development in the ops side for the new res system will be able to better manage IROPS or irregular operations where we can – in a more automated fashion, rebook customers in an optimized way, as well as to improve our standby capability.

So, all five of these in conjunction, we have identified plans for how these ramp up between now and 2020, and lead from that $200 million from early days in the R3 to the run rate in 2020. So I'll be available for Q&A at the panel along with Randy. I'm sure you'll have more questions to me on this, but that will wrap up my discussions of the res system.

And now, I'll talk to you about our network, which over the last 10 years is when we've built a national footprint. We're already kind of coast-to-coast a decade ago, but then we added in some more dots pre-buying AirTran. We added in some more dots in AirTran and then, today, we've built out a national footprint and started an international network.

Now people often focus on dots when they look in a network. However, that can be misleading. It doesn't tell the whole story, perhaps that's the fall of airlines from having dots in our in-flight magazine. But it's really how you connect the dots that really tells the story. And so, I'd like to take you through a series of slides to give you some insight of how we go about connecting the dots and what we're up to.

So, you may already know, as Tammy mentioned, that we're the largest domestic airline. We carry more people, domestic passengers than any other airline, which you may not realize is if you zoom in and look at just nonstop passengers, our lead is much greater. We carry a lot more nonstop passengers than any other airline and this is obviously because we're not funneling three-quarters of our passengers over a handful of hubs, but it generates an

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 impact, a natural consequence which is we have at least the larger list of large operations rather than a constrained set of mega hubs.

So, what I have here is a listing of cities, where each carrier has more than 60 flights per day and for us, 60 flights would be an Austin, Texas or an Orange County, California. And there's nothing necessarily magical about 60, but if we get something like a 60, it shows you have a meaningful presence in th at town, in that city, in that airport, that you're of consequence there, and proud of the surface which could seem like aviation trivia, which is I enjoy aviation trivia over some drinks, but really, this is something that gives a powerful business benefi t and that business benefit is a result in far more market-leading position than any other airline. So, if you take the top 50 travel markets in the U.S. and we measure that in terms of origin, destination, passengers, meaning going to and from that city, not just passing through. Southwest is number one in almost half of them and you may have seen in the press that in March, we're the number one airline in Pittsburgh for the first time. So, I expect by the end of this year, it'll be 25 out of 50 where Southwest is number one.

Now, this is not a market share place. This is not a go by market share at any cost. This is merely a consequence of our predominantly point-to-point network that has grown out as I've showed before in that logic trail.

However, now that you're there, it gives you a great benefit of the virtuous circle here because as you have passengers in each of those 24, soon to be 25, they buy you and they come back and they repurchase from you. As their travel purpose changes from business to leisure, either visiting friends or relatives, they come back again and again. And when they come back, they buy ancillary products from you in a much higher percentage rate. And then once they do that, they use your credit card more and more and the benefits we all know that generates.

And then, we offer a new route to them, they are very quick to adopt it. There's a virtuous circle here that really propels you when you have that position already, and that works in markets of all sizes.

Number 50, in case you're wondering, Providence, Rhode Island, we're number one there and that works. The LA Basin, the number two market in the U.S., we're number one and it works there. Right in the middle, 25, Austin, we're number one and it works there. So all kinds of sizes, this model is really scalable, big and small, and we've been building this for quite a while, but it really all came together as we got that national footprint and international destinations, they really had a virtuous circle built upon themselves.

And I'll illustrate that by going a little bit deeper on one of our cities, Baltimore. You can see over roughly nine - year period of time, in Baltimore, we went from big to bigger. Part of this was through acquisition, and part of this was through organic growth. And we're using once again O&D passengers, that's just travelling to and from, because that represents customers' choice, each one of those O&D is the customer choosing your airline versus another airline. And 2015 is the last date available for the DOT information, which we're basing this.

And so, a big position that got bigger by adding more and more relevant destinations. And what happens now with the 61% when you layer on additional growth opportunities is that you de -risk it. And so, if you look at what we've done in a little bit of 2015 and 2016, which were not necessarily represented in that pie chart, we've added a balanced portfolio of growth just as we've always done, of connecting dots of depths of new dots.

If you look at the blue, those are routes we did nothing. No capacity was needed, no capacity was added. That was the majority of routes. Yellow, depth, we add a frequency. As GDP grows, it generates demand for air travel, and as demand for air travel increases on your routes, eventually gets to the point we need new frequency, you plot one in and it works. And red, you connect dots and if you look at – one of those is San Jose, San Jose to BWI, un- served. Who would have known that the Silicon Valley was not connected to Washington DC?

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 And you might be asking, well, who is number one in San Jose? Southwest Airlines is number one in San Jose. And so when you're number one on one end, you're number one the other end, your chance of success is extremely high, especially when it's an un-served market. Sacramento, the capital of California, is not connected to the nation's capital on a year-round basis. Who would have thought? Who is number one in Sacramento, the 32nd largest air travel market? Southwest Airlines is number one.

And so, once again number one on both sides, we expect great things and pretty rapid maturity of that soon -to-be development market. And then the green dots, so everyone focus on the dots. People love dots, adding new dots brings lots of excitement, even though most of the action I've just described is not the new dots. But when you have a large engaged customer base as a result of this, when you add a new dot like we did in these green lines, customers embrace it. They fill that flight, they make it mature quickly.

And speaking on engaged customers, remember we bought some DC slots two -and-a-half years ago. We had a customer base right there on the DC area. So, those things, those matured very quickly, they're doing very nice because the customer base is already there, ready to use them.

Now, this is just one market over a slice of time, but you take this, you go to the other 23 that I didn't cover and what you end up seeing is a business model that has a very long list of opportunities that stretches way into the future. So, lots of opportunity for the business model of Southwest Airlines and also gives you a lot of diversification because of the Heartland is booming. We got focus cities there.

If it's not the Heartland, if it's the coast that is booming, we have focus cities there. So, with a point-to-point model, we can move the capacity to where the strength is, where the demand is without necessarily unwinding a hub. So, besides of the long list of opportunities, it gives you a natural diversification within the do mestic footprint.

So, what you see here, I think, is a pretty powerful stuff that if you just look at the dots I showed you to start with, you wouldn't have appreciated it, but we think is that's a wonderful competitive advantage, a great moat, and lots of relevance in the far future.

And with that, I'll turn it over to my friend, Mike, and be back with the Q&A. Thank you...... Michael G. Van de Ven Chief Operating Officer & Executive Vice President All righty. Well, every time I see that network model, it makes me really proud. We have such a strong depth and large breadth of our network. It's just a great competitive advantage. And I'm really proud of the operating team that we have because the bigger and bigger that network gets, the more complicated it is to run. And what we're trying to do in the operations is to provide more agility and more flexibility for the network guys to go do what they need to do, when they need to do it to help build our great company.

Southwest, we are the largest domestic operator in the U.S. So, on our operating certificate, we operate more domestic flights than any other carrier out there, 40% more – almost 40% more than the next guy. All the regional jets that you see in the codeshare agreement, they aren't operated by that carrier, they are operated under a separate operating certificate. So that, certainly, largeness adds a lot to the operating complexity.

As we continue to expand this as Andrew was talking about, that just adds more complexity. So we've added more seats per airplane. We've got higher loads. We've got more check bags. We've got longer operating days during our peak in terms of staffing our stations and less time with maintenance overnight. We've got more international

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 markets, we're higher – more congestion in some of airports that are more difficult to operate in like the San Francisco's and the Newark's, in the New York Area. And this expanding point-to-point network, it just increase – with all these increasing customer itineraries, makes our operation c hallenging to execute reliably. And so, that's what the focus for our operating team is over the next couple of years is to build more and more reliability and flexibility into our network.

If you go look at just – this has happened pretty quickly in terms of our operational complexity over the last five years. Our flight activity with the AirTran acquisition, our flight activity from 2013 to 2016, it's up about 16%. We've driven our system load factors up, which gives us a little bit more difficult time into recovering the operation and it shines a light on us needing better tools to be able to go do that.

Our enplanements are up almost 30% over that five-year period. So you can see our aircraft utilization is up and we're doing that – if you look at our fleet, we've got 111 800s at the end of the quarter, the first quarter. And so, while that's fantastic in terms of the seat mile efficiency and the revenue potential of the airplane, from an operational perspective, there are four flight attendants on everyone of those flights versus three on the 700 and, of course, we've got 119 Classics at the end of the third quarter that we're – excuse me, at the end of the first quarter that we will be retiring by September of 2017.

Through all of that though, I think our operational teams have done really well and my hat really does go off and you guys heard the names today, but Craig Drew, who runs our air operations, and Jack Smith, who runs our ground operations and maintenance department, and Greg Wells who's over our operational performance, they've done a really good job dealing with that complexity over the last several years.

We've been focused on our early morning originating performance. We know that if we start the day right, the day works very well and we've driven our performance up each year and that is 85% of our flight go exactly on time before. So, if it's one second late, two seconds late, 10 seconds late, it's not in that 85%.

So, we're really trying to focus on the minutes. Minutes matter in the business. When we do that and we focus on the minutes and we make sure that we had a good networks and operational discussion about the schedules we put out, we can run a really reliable operation. You can see how our system on-time performance dipped down in 2014. Frankly, we didn't have a schedule that was easy to operate. We should fix that in 2015 and 2016, and I feel like we are operating as well as we ever have.

When we do that, our mishandled bag rates dropped. That 2.9 mishandled bags per 1,000 custo mers is basically, if you look at it on the inverse side, that means 99.7% or 99.8% of our bags arrive as scheduled and we do all of those things together. You have a good on-time operation, a good bag handling, and you have the Southwest Airline hospitality.

Our net promoter scores are very good; they're as high as they've ever been with 72%. And the great thing is it can get better from where it is and that's what I'm really excited about and wanted to spend just a second to talk to you all a little bit about it. There are some key focus areas and on the fleet modernization, Tammy talked a little bit about the Classics from a CapEx spend and kind of how we're going to retire those. I wanted to go in a little bit more detail. For us, the Classics are a very – they are drag on our system in terms of an operational capability.

So, if you look at the chart on the upper left is our system on-time performance by aircraft type and you could see that the Classics are at 81%, so they drag the system down. And they drag it down for a couple of reasons. First of all, on the percentage available time in use, they're in scheduled – out of service for a scheduled maintenance and out of service for unscheduled maintenance more than the rest of the fleet. So, there is a b enefit to retiring them. On the block hit rate, they fly slower than the rest of the fleet.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

So, as we're trying to go make a network and we're trying to schedule time flying between the cities, it's an average and we know that the Classics are always going to fly slower than the 700s and the 800s. And so, we've got 119 of them to retire between now and the end of the third quarter of 2017.

There are other benefits we get by having the Classics out of the fleet. They're not RNP-capable, so they don't have all the precision flying capabilities that the rest of our fleet has. There's no Wi-Fi in the airplane. They have smaller bins, so we end up having to check bags as people are carrying bags on. They have EFIS cockpits instead of PFD/ND display and that's additional training time that we wouldn't otherwise have because of that. And they don't have any auto-throttles and so we don't get the same fuel burn performance on the Classics as we do. So, there's a lot of value in terms of operational improvements and an operational enhancements for the Classics to be retiring.

As we retire them, the great thing is we're replacing them with these 800s and other airplanes coming in and the interiors of those airplanes are fantastic. So, we just rolled out this new Hear t Interior. We've got two or three – I can't remember, Greg, if it's two or three. Four? All right. So, we have four of these airplanes now in operation. And so these are the new seats in the airplane, they're a little bit wider. They're the widest narrow -body seat in the marketplace. And so we can actually – because of the seating frames, we can get the seats up closer to the windows and we've got about a half-inch width in the seat. The seats are lighter. They're 200 to 300 pounds lighter than the existing interior that we have in the airplane. We've got adjustable headrest. We've got lower profile armrest, better back support. It's a very, very comfortable product, and I'm really excited about rolling that out into the operation. So, all of the 800s that we get coming forward will have this interior in it.

There are a variety of other technology enhancements that we're trying to get in place over the next several years that will give us better agility and better information to recover the operation and plan the operation, and I know there are enhancements from the operation by doing that. And I wanted to just talk to you guys about a couple of them today. One of the categories just thinking about how we can improve our customer service and Randy and both Andrew talked a little bit about the new reservation system that will be nice as new reservation system is going to give us an opportunity to bulk re-accommodate customers when we have a flight cancellation or a significant delay, and it will also give us the foundation to push that information out to our customers electronically, which is very, very difficult to do from an operational perspective in our environment today.

We have another really neat product and it's called The Baker, and I'm just going to show you a little bit about The Baker. We have a lot of our dispatchers, when things go wrong in the system, they are working to try to recover the system and try to figure out how do I repair along weather delay or a weather incident or air traffic contro l shutdown or a long mechanical, how do I repair this system in a way that minimizes the impact to our customers, minimizes the impact to our crews, and our stations, what's the best solution, and we really didn't have any tools out there before The Baker to do that very well.

And so, we had a group of dispatchers that had been working on this for a couple of years, and one of the key guys was a guy by the name of Mike Baker. And he passed away a couple of years ago, and we decided to name the product after him, and he would be very proud of us. So, this is a little chart that shows you what the impact for our operations – the impact that Baker has on our operations.

And so, we went over the last several years and took big storms in the winter season, so Hercules, Thor, Jonas, Olympia, Petros, and we looked at ourselves before The Baker, how we've recovered, how the operation worked and after the Baker, and the red line is Southwest Airlines. And so, you can see down in the Hercules period of time, we were 29% on-time to that period, December 30 through January 5 without the Baker. Even in the next

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 year, when we tried to add tools to help us recover, process to help us recover faster, we were still down to 60% on-time in the Thor.

And if you go back to the far right and you can see where we have The Baker in place, we're at 7 4%, 7 3% on time, the valleys are not nearly as low, the length of time it takes to respond is not nearly as long. And the great thing about The Baker tool is its key optimization criteria is how do we get the customers to where they need to be with the fewest amount of disruptions. It was just a fantastic tribute to Mike and by the way, that technology has won awards as the best innovative technology of the year. So, that's really, really neat and that was all internally developed.

So, we have other technology initiatives going on like that in various areas of the business. We've got technology that was surrounding or replacing our infrastructure and improving our productivity. So we have technology, we're going to put in a new maintenance system. It'll give us new inventory management, new maintenance planning. It'll give us a platform to be electronic in the maintenance world. We have got staffing tools that we are building where we can take our staffing, and for every schedule change, optimize the staffing at every airport based on that schedule change and do that more centrally.

So, today we do that, but we do that very decentralized and some of our stations are a lot better at it than others and I know there is benefit there. We're working on more tools for our employees. The best thing – the thing that our employees need more than anything else is real-time information of what's going on at their finger tips, so they can deal with our customer's anxiety. And so, we've got a lot of different self-service tools out there for our customers. We also have electronic devices that we've got on our bag transfer agents, with our flight attendants and with our pilots as we're starting to rollout more mobility out to our employees.

And then lastly, we've got a variety of projects that are about simulating the flight schedule. I showed you earlier that couple of years ago, we had a difficult first quarter with our on-time performance, because we have a schedule that we just – we couldn't operate that well, so that's the purpose of this flight schedule simulation tool.

We have great network tools to talk to us about the revenue generation of the schedule, where we're going to build tools that allow us to simulate the operational environment and, with that, help us understand what kind of a gating we need, what kind of staffing we need, we've got tools in there to help us improve our cargo revenue management, we have tools that are going to assess airplane health and help us proactively build that into our maintenance programs.

So, I'm very excited about all of those things. But when they all come together and we're working on these over the next couple of years. When they all come together, we're go ing to have some of the best operational platforms out there. We're going to have an industry-leading fleet efficiency. We'll have a network, any kind of network that Andrew wants to create and he wants to create a lot of them, let me tell you, that we'll be able to staff based on those needs. We'll have improved cargo revenue. We're going to have real-time information to our employees. All of that is going to come together with a better customer experience at a lower cost and we believe that our net benefits over – will be over $100 million EBT run rate by 2020.

So, I'm really excited about the opportunities and I think that at least operationally for Southwest Airlines, the best is yet to come. With that, I'm going to turn it over to Jeff because he's going to need to build us some facilities...... Arthur Jeffery Lamb Executive Vice President-Corporate Services

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Thanks, Mike. So, if you're a hockey fan, you know that part of the game is anticipating where the puck is going to be and try to be there. That's what our airport affairs and facilities employees do in working with our operations and commercial teams to prepare our capacity and our facilities in the future.

I'm going to cover several projects, enabling projects that are multi-year efforts, over $1 billion in total. And some of those are similar to what you've seen in the past, where we completed Love Field in Dallas in 2014 and opened the Houston international concourse in 2015. As a matter of fact, some of you commented already at the last Investor Day, during our new TOPS building, our Training and Operational Support building, where we house our new NOC, Network Operations Center, it was opened also in 2014.

So part of our efforts to reduce cost and improve our work environment was to remodel our headquarters to allow for a more dense workforce, but also more standardized and today, functionality -friendly workforce. So we've moved managers out of offices. We standardized the workstation size, reduced the overall square feet per employee by over 30%, created some wonderful culture centers, and that's been very successful in helping us eliminate the need to build more structures like I'm going to talk about soon.

So, I think we added almost 500 people to our headquarters facility without having to c onstruct new office space for them. And again, we're going to talk about the risk reduction that we have about building hardened facilities and the picture you see there with the blue light is our network center. It is hardened to withstand an F3 tornado, 200-mile-per-hour winds. It's been highly effective in helping Mike and the operations increased their reliability.

So, we do have a major construction project in Dallas, we call the building Wings, set to open the office space in first quarter of 2018. You can see there on the schematic, where it would be located right across the driveway from our current Training and Operational Support building, and across the street from the headquarters.

This new building will have capacity for 18 flight simulators. I think when we open it and install, there'd be 14. Presently, we have a need for and are installing 12, so we have 10 and we've got two that we're in the process of installing today. So, we'll go from 12 to 14 with the capacity to grow to 18 within our ha rdened facility, as well as room to expand beyond that in the future if we need to. We will need to take delivery as this ends earlier than the building would be complete, so we plan to have that ready by May of next year, so that we can take delivery and begin the certification process.

Fort Lauderdale, as we mentioned several times already today, we're on track and on budget for a new concourse, 5 Gate International with FIS. And we're also doing quite a bit in the way of modernizing the terminal, the connector, as well as now going back into the existing terminal and expanding the – improving the customer experience in our hold rooms, restrooms, concessions, as well as all the adjacent needs to expand capacity around processing our customers there with ticketing, baggage claim, and security checkpoint.

We also have a similar body of work going on in LA to what we did in Dallas, a total modernization of the terminal there. It's larger dollars, over $500 million. It's set to be completed in 2018, second quarter of 2018. We're in the process of basically taking the gate out of service and expanding it and changing the hold rooms allowing all the gates to be 800-compliant, which is happening.

We're about 50% through with the work. We had some major milestones completed with the opening of our west ticketing lobby I hear this February and baggage claim as well. So another fabulous project and I have to say that just based on the amount of work that we do is we have great people in our construction management department within Southwest, they do this a lot, and typical estimates from the industry is that we will save 25% to 50% of the cost over a one-off airport project. So, it helps us both keep our costs low as well as improve the customer experience and meet the needs of the operations and the network.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

And of course, along with the expansion of the -800s within the fleet in our network, we have to keep up on the hangar front as well, and certainly, at some of the cities that Andrew went through where we hav e a large presence are a big part of that. So, we have planned years out in advance where we're going to need additional capacity for our hangars as well.

And with that, I'm going to turn it back to Marcy, and I think she's going to give you break...... Marcy Brand Managing Director-Investor Relations Thank you, Jeff, and thank you to all our panel speakers. We are now going to take a quick break. For our webcast listeners, you will hear music until we return for our question-and-answer session with all of our speakers. As a reminder, again as I mentioned, all of the slides that you have seen today are now available for you in the back at the registration table.

We'll see you in 10 minutes.

[Break] (01:29:00-1:47:29) ......

QUESTION AND ANSWER SECTION

Tammy Romo Chief Financial Officer & Executive Vice President A Welcome back, everyone. We're now delighted to answer any questions that you might have, and Marcy and I think we have someone else, Laura's – they've got microphones. And so, if you'll just raise your hand and say your name for the webcast, so they'll hand you a microphone. So let's get started...... Mike J. Linenberg Deutsche Bank Securities, Inc. Q Okay. I'm Mike Linenberg here with Deutsche Bank. Just two questions I guess, one for Tammy and then one for Andrew. Tammy, when we think about how much of your free cash flow that you've paid out to shareholders over the last year or so, it seems like it's up against the 100% or even above a 100%. And when we think about going forward, based on where your leverage is today, do you feel like that your balance sheet is at the right place and, therefore, we'll continue to see very high percentages of cash being returned to shareholders, or is there a goal to get to a higher rating? And I ask that sort of in the context to the fact that, I think back, I don't know if it was 10 years or 15 years, you used to have a – at least I think an A minus rating and you're not there yet. So are we looking to get to higher levels there or do you sort of feel like that the balance sheet is where it needs to be? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Y eah. Thanks, Mike. Actually, very happy with where our balance sheet is, and I actually think we deserve a higher rating based on a very strong balance sheet where it is today. But we are comfortable with where our leverage is, we're managing in that kind of low-to-mid 30% range, including all of our off-balance-sheet leases and that feels like that's a pretty good range for us to be.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 So as we look forward, we have very manageable capital spending. We've spent a lot of time focused on our order book over the last, call it, couple of years. We've, of course, had to fund the sublease of the Boeing 7 17 aircraft. Remember we – when you go back to the AirTran acquisition, we didn't bring the Boeing 7 17s over. We've also been using the used aircraft for our Classic fleet.

So I just mention that because we've been working really hard to manage our capital spend. So you just can't get all of that done all at once. So we are in very – we're in great shape with respect to our capital spend, so again very helpful for the balance sheet and cash flow. So I think our balance sheet is pretty pristine.

In terms of our goals to deliver back to the shareholder, we absolutely want to continue with our very disciplined capital deployment strategy, and I'll just let the last couple of years, as you've pointed out, speak for itself, but that's – we want to continue to have that healthy cash flow and that is our outlook for the year. And I'll just remind you as well, we did authorize $2 billion back last month at our shareholder meeting and we've already kicked off a $500 million ASR and we did that last month as well. So we're in great shape there...... Gary C. Kelly Chairman, President & Chief Executive Officer A And, Tammy, if I could just pile on for Mike, your memory's very good, everybody in the room may not know this though. If you look at our credit statistics, the credit rating is one thing, but the credit statistics that they do have control over, I don't know that our credit statistics have ever been stronger than they are today. So those we do care about, we're very happy with where we are in terms of fixed charge ratios and liquidity and on and on and on. The ratings have changed and I think everybody in the room knows that, but our credit ratings (sic) [credit statistics] relative to the time that we were an A -, which I remember well, are far stronger today. And of course, the company's competitive position is dramatically strengthened today compared to what it was 25 years ago. So that we do – we're happy with where we are there and I agree with Tammy. I think that we do deserve a higher credit rating, but main thing that we're focused on is managing our credit statistics...... Tammy Romo Chief Financial Officer & Executive Vice President A Thanks, Gary. And, Andrew, you have the second question...... Andrew George Didora Bank of America Merrill Lynch Q Y eah. And to just – when I sort of look at your network today and I think there was a slide up there, something like 3,500 or 3,600 flights a day. And yet if we look at the numbers of flights that you operate that are transcon, maybe it's 0.5%, even if you look at near transcon, maybe it's 1% to 2%, you're on track this year I think to carry 155 million people. And I'm just curious why Southwest has not been a bigger player in the transcon market, I mean, is it just optimally given the size of your airplane, sort of medium haul, or should we anticipate that maybe as you roll up the new system, that we will see more transcon and even longer haul flights in the Southwest system? Just your thoughts on that. Thank you...... Andrew Watterson Senior Vice President, Network and Revenue, Southwest Airlines Co. A My pleasure. There's no philosophy behind that. It's a consequence of the marketplace decision. So the places where I discussed where we're the hometown carrier, where we have a large customer base, we look at where those people want to fly. Both in terms of the government statistics but also because we distribute directly, we

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 understand what people are searching for and they come to our website and put in city pairs and they do research and even when they don't buy. So looking at where the customers want t o fly leads us to put the plane.

And even though transcon looms large in many people's minds, it is not such a large percentage of the overall air transport market and the cities where we're the hometown carrier that we need to put substantial numbers of transcons in there. And so we do where necessary, Los Angeles to BWI we got, that's a long one, Oakland to BWI, that's a long one. And so we have a few of those long ones, they make sense, but really the marketplace – our customer base hasn't demanded that of us. So that's why they're under-represented so to speak...... Gary C. Kelly Chairman, President & Chief Executive Officer A And, Mike, on that one too, I would just – and you know this as well, 15 years ago, we were very much oriented towards short-haul. We've changed a lot over the ensuing 15 years or much better prepared to serve longer haul markets. So I think that you could also interpret that we're still evolving and we have a vast number of route opportunities and they just have to be prioritized. But I for one think that we do have a lot of long-haul opportunities available to us that we haven't necessarily taken advantage of in the past, and so that's sort of in the development stage...... Matt Roberts Raymond James & Associates, Inc. Q Hi, Matt Roberts with Raymond James here filling in for Savi. I have one question on capacity plan. It seems like in 2015 and 2016, Southwest and the industry as of a whole based their capacity growth targets on all sales of modestly higher GDP forecast than what actually transpired. Then to be fair, fuel drifted lower than probably anyone was expecting, but in today's environment with the higher fuel price potentially going higher, do you feel the need to be more cautious today in that GDP estimate to base your 2017 gr owth plans around? Thanks for taking the question...... Tammy Romo Chief Financial Officer & Executive Vice President A I'll start and, Gary or Bob or Andrew, feel welcome to chime in. But, yes, if you step back to our growth over the last year or so, we have grown more than GDP, but that was really due to the unique opportunities that Southwest had to grow, particularly in Dallas Love Field and, of course, we have begun serving internationally.

So we had investments in Houston to begin our international expansion there. And so we would acknowledge that our capacity was a little heavy. But the reason for that was we did have unique investments that made sense for Southwest. We had obviously been waiting for the repeal of the Wright Amendment for a long tim e. And so we were delighted to put that growth into Dallas Love Field. We have 18 of the 20 gates at Dallas Love Field and all those markets are performing extremely well. So we're delighted with that.

Now, as we look forward into 2017, we do expect our A SM growth to bend down from here year-over-year. So we are working on our schedule for next year. I'll just point back to the charts I showed you earlier. We've been restructuring our order book really to just align with our fleet growth needs and that we've got pegged at roughly 2% on average between 2016 and 2018. Just keep in mind, it's a little bit – it's a little bit choppy because we're going to dip down and then dip back up simply because of the retirement of the Classics, which will be by third quarter of 2017. So, yes, so we will be bending down that growth going forward. Gary or Andrew, anything you all would like to add? Thank you for your question......

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Dan J. McKenzie The Buckingham Research Group, Inc. Q Hey. Good afternoon. Dan McKenzie here from Buckingham. I'll just would like...... Tammy Romo Chief Financial Officer & Executive Vice President A Hey, Dan. I was looking for you...... Dan J. McKenzie The Buckingham Research Group, Inc. Q So, a question on segmentation. What we're hearing from some of your peers is by segmenting a little bit more aggressively, you can get potentially $1 billion in revenue improvement. Southwest has gone down the path of segmentation in the past Business Select. Question really is, would Southwest be willing to evolve to the model that we're seeing from others and that is a get what you pay for model, meaning would Southwest be willing to segment somewhat more aggressively, at least from a revenue perspective? I'll just give you an example, the Wanna Get Away fare, is it really right for someone who pays $69 to spend another $10 and jump to the front of the queue to get on the plane first...... Gary C. Kelly Chairman, President & Chief Executive Officer A Well, let me jump in. I think, the answer is a theoretical, but hopefully responsive. I think the answer is yes, in the sense that we want to be open-minded, we want to be innovative, we want to continue to evolve, understand what our competitors are doing and how we compare, understand what customers are willing to – what customers' expectations are and how we're meeting those.

I'll be a little mechanical in my answer and say that, to me, the first step is to do what Mr. Sloan described, which is we need to get to one reservation system that has vastly improved capabilities for us, that will put us in a more practical position to truly evaluate the kind of question that you raise. I don't know that we would literally do what you said, but absolutely, as we get more capabilities, I think we want to think through how we mig ht take advantage of that.

Now, I will quickly add – and Bob Jordan may certainly want to chime in here – we want to protect our brand. Our brand is really good. And so, we don't want to begin to pull threads that cause the whole thing to unravel. And many of you, of course, are Southwest customers out there and offer up your own testimonials. So, we have a wonderful collection of attributes that sum up to a wonderful whole, so we'll want to be careful about that.

We have no thought of charging for bags. I realize that wasn't necessarily what you were pointing out, but I'll just use that as an example. We'll have capabilities in the future that would allow us to assign seats. Right now, we don't have any thought that that's anything that we want to do. But yeah, I think in theory, absolutely, we'll want to consider that. The forecast that you see pretty much assume the brand that we've got with the kinds of additional business values that Andrew outlined. So, to the extent that you all think and then we are convinced that there are other things that we could do to drive more value, then that would be added value, but we can do a lot of good things without tinkering with the brand...... Tammy Romo Chief Financial Officer & Executive Vice President A

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Y eah. I was just wanted to add one thing to that, Dan. So, when you think about the benefits that Andrew went over with you, we are really focused, as Gary said, on turning our reservation system on next year. That is a big deal and we're going to be very focused on that. And then, we'll start rolling in those benefits towards the end of next year, and then we'll ramp up in 2018 to that $200 million figure that Andrew did, and then ultimately to $500 million by 2020.

And I mention that again because – and Gary said this at the very beginning, we are hopeful that those are conservative estimates. When you think beyond 2020, we really – we do have a lot of new capabilities that we just haven't had in the past. So as we're rolling out our new reservation system, we wa nt to be able – we want to be thoughtful and measured about that because it is a big deal and you want to turn on to see what you're doing. And so, we need to – we will make sure that we roll that out and have that plan in a very measured fashion. So, I ju st wanted to add that and tie back to Andrew's remarks...... Robert E. Jordan Chief Commercial Officer & Executive VP A Dan, let me just chime in. Sorry to give you a three-part answer from everybody, but I think it's important because I think a couple of things. I don't want to speak for a competition, but you're seeing everybody talk about the segmentation. I think it's an aspiration, which is not a delivery, right. So, yeah, I think they have yet to prove some of the numbers you talked about too. We talk to our customers all that time qualitatively and quantitatively and do research and we have lots and lots of evidence, and that our approach, no bag fees, no change fees, Transfarency is a winner.

So, a move to something different as a model, whether that's a segmented product or an overall model change is a loser. And so we want to be very, very careful because we – our brand scores are higher than they've ever been. Our customer loyalty is higher than it's ever been. So, we want to be very careful about tinkering with the brand. Where we really see a lot of upside is what Andrew talked about, so we gain momentum and build more of these loved cities, the Nashvilles, the Austins, for example. And customer engagement goes up as we build the network and then the penetration of the Rapid Rewards card goes up and then the spend on the card goes up and it's a real virtuous cycle that really enhances the customer value and certainly the value to us.

The last thing I would say too is – but we are open to the capabilities that come along with Lone Star. So example only, as you mentioned, is it really fair for somebody, Wanna Get Away fare, paying $10 can go to the front of the line, which they really can't. So, they're not going to go ahead of Business Select, but they can buy EarlyBird.

So, one of the capabilities, and I think Andrew mentioned this, would be the ability to revenue manage our ancillary. So, you got a product that you don't have to buy. It's an option for our customer like EarlyBird. Could you revenue manage EarlyBird? Potentially, you could. Y ou could think about different price points sort of along the booking curve or along the fare structure. And that's an example only, but I see a lot more potential there as we gain Lone Star capabilities than I do necessarily really tinkering with the things that are so foundational to the brand like no bag fees, no change fees...... Dan J. McKenzie The Buckingham Research Group, Inc. Q [inaudible] (02:04:05) ...... Robert E. Jordan Chief Commercial Officer & Executive VP A I'm sorry. Y eah, One Res.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Dan J. McKenzie The Buckingham Research Group, Inc. Q Understood. Thanks for the comprehensive answer. Can I ask a second question or shall we – okay. Second question, just circling back to the choppy fleet schedule with the fleet dropping next year and then jumping back up in 2018, suggest that the capacity – the growth potentially could be a little bit choppy. I'm just wondering if you could clarify return on invested capital. I know this year you wanted to equal last year. How should we think about that as you look in the context of a capacity backdrop that might move around somewhat? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Y eah. I'm not ready to give a specific target on return on invested capital next year. We're actually still working on our schedule for 2017 other than to say, of course, we've demonstrated that we're very focused on well exceeding our cost of capital and that will be our focus as we look ahead. So, next year on the schedule, just – again, I know we went through a lot, but we're dropping down because we are retiring our Classic fleet.

So, as a reminder, there are about 50 aircraft that will come out of our schedule all at the same day, and Mike and his ops team are really good at that. They had practice with the 717s. So, they know exactly how to do that. And so, it's a very clear visual. We'll stop flying the Classics one day and then we'll start the MAX the next day. And so, then the deliveries that we walked you through will be ramping backup to where we were.

So, we're in good shape. We'll have to manage through that period, of course, and again Andrew and his team are experts at doing that. So, we're – we will, of course, as always manage to our financial targets. As we'v e always said, our goal is to grow unit revenues, and we are not prepared to give any specific guidance for next year on that obviously. The revenue environment has been very interesting lately. So, it's always tough to give guidance that far out, but beyond that, I think we'll continue to control our cost and then, obviously, we'll – based on where fuel prices are in the futures market, it feels like we can manage that very nicely...... Jamie N. Baker JPMorgan Securities LLC Q Hey, good afternoon. Jamie Baker with JPMorgan. Gary, I respect the desire to protect the brand, but other companies presumably feel just as strong about their brand, but they still manage to experiment. For example, I'm assuming you've never had a Chicken McGriddle because you'd have to go to one of just a dozen obscure McDonald's in Ohio, just to give an example.

So, my question is this, why don't you charge a bag fee between Baltimore and Nashville, where you face no nonstop competition and presumably the stage is such – the stage and length is such that people aren't going to take a connection over Southwest and simultaneously charge a bag fee between Philadelphia and Orlando, where you face at least two of the nonstop competitors that I can take think of.

Largely, for your own benefit because if you ran that experiment and proved once and for all, think about how much better your life would be, never having to have me or Hunter ask you this question ever again. What would be harm to the brand of doing your own Chicken McGriddle experiment? ...... Gary C. Kelly Chairman, President & Chief Executive Officer A Jamie, I kind of like you asking me that question every year because I know the answer to it, which is really good. And I've never heard of Chicken McGriddle. So, well, I like your idea in terms of experimenting and we do that. So,

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 without giving you a specific answer on your specific proposal, I think that is exactly the way we would love to approach – we're going to evolve. We will make changes. There's no doubt about that, eithe r to Dan's question or to yours and there – to the extent that there are opportunities to test that in a laboratory environment that we absolutely do that and I think we're pretty good at that...... Jamie N. Baker JPMorgan Securities LLC Q Second question for Tammy, United earlier this week disclosed that there was a step-up in their revised MileagePlus agreement with Chase. I was unaware of that when they first announced that new agreement. Is that standard practice? You talked about tougher comps in the second half, but is there some other date down the road when you're going to get another bump from Chase in this case? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Y eah. Our – the growth that I was referring to on our Chase really is just the growth in the membership and the growth of the program. So we're lapsing the benefit year-over-year here on July 1, and the economics I can't obviously go into because all of those are confidential, but very happy with the economics of the program and we would expect our Rapid Rewards revenues to continue to grow, but primarily due to the growth of the program.

And I think all of that plays into the strength of our network as well. So, as we're adding each one of those dots and our customers here in the U.S., they love to go take a vacation on the beach that we would expect as we grow our network and continue to add dots that we'll also grow the membership there. So, I can't really divulge our economics, but we're in good shape there...... Joseph DeNardi Stifel, Nicolaus & Co., Inc. Q Thanks. Joe DeNardi from Stifel. Tammy, over here. Sorry for another question on capacity, but when you look at next year, is the right way to think about capacity growth in 2017 and 2018, the change in the fleet plus a point or two or three from stage and gauge that would point to flattish growth next year? And is the message that capacity growth in 2017 and 2018, both years are below 5% to 6% or on average, the growth rate is below 5% to 6%? ...... Tammy Romo Chief Financial Officer & Executive Vice President A That's a good question. So, for the full year, our growth rate would be below the 5% to 6% year -over-year. And I think analytically, you're thinking through it exactly right. We'll have our fleet growth and then we'll have – there'll be some growth in our gauge, of course, just given what I've already walked you through, but we just haven't finalized exactly what that is for the year. But, yes, it would – we would start out higher and then it would trail from there, all else equal. So, it'd be higher in the first quarter and will trail from that point, simply because of what we've invested here in 2016. Does that help? ...... Joseph DeNardi Stifel, Nicolaus & Co., Inc. Q Y eah, that does. And then, on the decision to defer the MAX, can you just explain the rationale behind that? Are the economics of that aircrafts not as compelling with few where it is or did Boeing come to you and say, we can put those elsewhere? ......

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Tammy Romo Chief Financial Officer & Executive Vice President A It has nothing to do with the MAX. The MAX is a fabulous airplane and we're going to get it in 2017. It really is shell of number of aircraft. So just keep in mind that we have been working now for quite some time to adjust our order book for the retirement of the Classics. So we've added a lot of used aircraft to our fleet order book to backfill for those used aircraft. So it has really nothing to do with the MAX. We're just – we've had to accelerate some of our deliveries into the period. We were accelerating the retirement, and now we're just simply restructuring our order book to align with our growth plan, which here over the next three years is that 2% on average number that I gave you...... Gary C. Kelly Chairman, President & Chief Executive Officer A And just to make sure I'm clear on understanding your question. We'll put the MAX into service, Mike, as soon as we get the Classics retired. So that is our issue as we don't have a path to being able to operate both aircraft with the current training protocol that we have. So what we want is for every pilot to be able to fly every airplane and that is the issue. So the Classics, that's the reason the Classics are being retired early. They can be justified financially. So the MAX will come sometime next year, Mike, and he'll have work to do to get it ready for service and then it will go into service as soon as the Classics are retired, roughly October 1 of 2017. So we'll have 27 MAX or 7 37-8s by the end of 2018...... Tammy Romo Chief Financial Officer & Executive Vice President A 2018...... Gary C. Kelly Chairman, President & Chief Executive Officer A So, now what we're doing is because we don't have retirements occurring in 2018, 2019, 2020, 2021, we'd no longer need that number of deliveries, and they're being pushed out. And they happen to be 737-8s, but we'll get 7 37-8s in 2017, 2018 and then we'll get 7 37-7s in 2019...... Tammy Romo Chief Financial Officer & Executive Vice President A In 2019, that's right...... Gary C. Kelly Chairman, President & Chief Executive Officer A And you'll have a schedule that shows all that...... Helane Becker Cowen & Co. LLC Q It's Helane Becker with Cowen and Company. I mean, Tammy, can you just clarify what you said about unit revenue for the second quarter because during your prepared remarks, the stock took a pretty big hit, as you talked about updated guidance. So I'm just trying to make sure I understand exactly where you're coming out for the second quarter? ......

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Tammy Romo Chief Financial Officer & Executive Vice President A Y es. Thank you, Helane. I appreciate that. Yes. The comment that we made on unit revenue for the second quarter is that we would expect our unit revenue to grow less than 1%. We had given – our guidance previously was that we would expect our unit revenue to grow modestly, and now we're just providing you with what that narrowing the range now that we're getting into at the end of the quarter. But our expectation is that we would have modest unit revenue growth and that we're defining that now for little better now that we're through the quarter, almost through the quarter, of less than 1% year-over-year. Does that help? ...... Helane Becker Cowen & Co. LLC Q Y eah, I think so. I think so. That's good information. Thanks...... Tammy Romo Chief Financial Officer & Executive Vice President A Y eah. Thank you...... Helane Becker Cowen & Co. LLC Q And then just a question maybe for Gary, I know at one point you had said that we would know when you were getting ready for service to Hawaii because it would take about a year to get ETOPS certification and so on so is there – can you update us on where that stands and maybe within the context of your still to be negotiated labor agreement, is that all on the table or do you have to have a new labor agreement before you could get ready for Hawaii and are all the new aircraft coming in ETOPS equipped? Thanks. I know there's more than one question in there. Thank you...... Gary C. Kelly Chairman, President & Chief Executive Officer A Y eah. And I'll get some helpers on some of your questions. Now, we're ready in terms of our contracts to serve Hawaii. We have work to do in terms of technology and FAA certification before we would be ready and that's what you would know. That would be public and we couldn't keep that a se cret. So, that's what I meant and that is all still true. So, you don't know of any of that work, so that means it's at least a year away.

It then has to fit in with the, in terms of our own internal work construction, which is primarily under Randy, in that priority. And then it needs to fit with Andrew in terms of its priority with all the other competing opportunities that we have. So, it is very important to us. It is very much on the list. I will admit to you that it is easier for us to connect some of the dots that Andrew was describing than it is now to create the capability to serve Hawaii. It's easier for us to go to Mexico. It's easier for us to go to Caribbean. So, all of that factors in and we don't have a time certain to share at this point.

And in terms of, Mike, whether all the equipment is coming ETOPS capable? Clearly, the 737 -8 is the better equipment to serve Hawaii with, and we'll be in a position again, Joe, back to your question. We'll have the MAX capability that we'll want for service to Hawaii whenever that time comes...... J. Yates Credit Suisse Securities (USA) LLC (Broker) Q

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Tammy, back to your comments on the RASM trajectory for the second half of the year, and you mentioned that it would be tough to see positive growth. We obviously know that the credit card anniversaries in Q3. But is there anything that you can offer to clarify the underlying trends in PRASM? Comps obviously ease. Your growth is slowing. Would you expect to see sequential improvement in the year-over-year change in the underlying PRASM? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Yes, Julie. We would – based on the trends so far, we would expect a sequential improvement. And just as a reminder, and I know you know this very well, the – to have a positive unit revenue outlook for the second quarter relative to the industry is quite positive. We would expect in the second quarter that we would continue to outperform the industry.

What's really different in our outlook for the second half is, as you pointed out, the lapse of the Chase agreement. And that's effective July 1. But as you all know here, the yield environment has been soft. And that hasn't changed. So, there are a lot of low fares out there. But we wrote the book there. And we are g oing to continue to be competitive in that low fare environment.

But really nothing more in what I said than that. But again, just – so, just acknowledging that our comparisons are going to be more difficult in the second half which does make it more challenging to have positive unit revenue comparison...... J. Yates Credit Suisse Securities (USA) LLC (Broker) Q Okay. And then the second question on the other revenue line, ignoring the Chase piece of it, thinking about your core ancillary that you've seen some pretty good growth there over the last couple of quarters. And I believe you had a price increase on one of your products. How is that going? And how should we think about the growth in the other line, excluding the Chase agreement? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Y eah. So, once we lapse the year-over-year benefit of Chase, the PRASM and RASM relationship should move back more in line to what we've seen historically. So – and we'll walk you through that as we go here in the second half. Part of the challenge here between a RASM versus PRASM has just – has also been tied to the accounting of that program, which has really nothing to do with the economics.

So, with the new accounting of that, which we adopted July 1 of last year, just as a reminder, the portion of our Rapid Reward revenue that gets recorded into other is based – is related to our marketing – the marketing aspect of that program as opposed to a passenger flight. So, we'll, of course, guide you through tha t here in the second half of the year. But I would expect those to go more in line with what we've normally seen historically. It won't be perfect, but we'll move in that direction...... Darryl Genovesi UBS Securities LLC Q Hi. Darryl Genovesi from UBS. Maybe I'll start with – I'll just flip back Joe's question a little differently perhaps and maybe I would ask Mike. In terms of the strain on the fleet in the peak summer season, do you think there's any room to take utilization rates – daily utilization rates higher from where you'll be this summer?

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Michael G. Van de Ven Chief Operating Officer & Executive Vice President A Y es. So, I think higher than where we are in the summer – summer is usually our peak utilization. And across the industry, that's where most of the flight activity is in. So, generally, there's not a lot of need to take the utilization higher in periods outside of the summer time just because of the demand drop -down. But we can operate at those summer utilization periods. We've done it for the last couple of summers and we can navigate through that if we need to...... Darryl Genovesi UBS Securities LLC Q Well, I guess the reason I ask is because Tammy laid out a fleet forecast for the next few years and we can get a sense of what your fleet will do. But If I'm thinking now forward to perhaps the net summer season, is there a reason to think that the capacity growth in, say, the summer of 2017 would exceed the fleet growth? ...... Michael G. Van de Ven Chief Operating Officer & Executive Vice President A No, I don't think so...... Darryl Genovesi UBS Securities LLC Q Okay. Thanks. And then – I guess, Gary...... Gary C. Kelly Chairman, President & Chief Executive Officer A If I could just interject right quick though, I think it was back to Joe's question. The utilization – by inference, the utilization outside of the summertime is less...... Darryl Genovesi UBS Securities LLC Q All right...... Gary C. Kelly Chairman, President & Chief Executive Officer A So there is the opportunity as we're managing through the retirement next fourth quarter of the Classics to boost the utilization in 2017 compared to what we would be contemplating here in 2016. Now, Tammy has mentioned several times we haven't made all those decisions yet. But that is at least an alte rnative for us. But I don't see that we have a lot of wiggle room in terms of boosting utilization during our peak periods. We're running pretty flat out...... Darryl Genovesi UBS Securities LLC Q Okay...... Michael G. Van de Ven Chief Operating Officer & Executive Vice President A

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 And we just have some natural limiters with respect to that. We've got maintenance requirements, we try to get done at night. And then, we also have crew staffing and we make plans based on what those utilizations are when the schedules come out, make sure that we're staffed for that also...... Darryl Genovesi UBS Securities LLC Q Great. Thank you. And then, Gary, I think in your 2014 Investor Day, you had set us a time that you are going to try to target cost-neutral labor contract. I didn't believe you at the time, but it does seem like over the last couple of years, you have accomplished that in a couple of cases. I'm just wondering if you still think that's the realistic outlook for those labor contracts that you still need to address? ...... Gary C. Kelly Chairman, President & Chief Executive Officer A I think that to clarify what I intended to communicate, that was appropriate for that time. So you look at the financial performance that Tammy flashed up there for 2011, 2012, and even 2013, which was pretty good, but still wasn't quite where we wanted it to be. And that's what we needed to do for that time period. I wouldn't extrapolate – I would ask you all not to extrapolate my comment into perpetuity because I do believe over ti me that, yes, we will absolutely see inflation in our salaries, wages, and benefits. So that's the way I'd like to answer that question, if that's okay...... Q

Can you give us an update on your future plans for in-flight connectivity? Will you be upgrading your Wi-Fi, and will your future focus remain primarily on passengers, or would also look to have enhanced crew and aircraft connectivity? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Bob, do you want to take that one? ...... Robert E. Jordan Chief Commercial Officer & Executive VP A What's that? ...... Gary C. Kelly Chairman, President & Chief Executive Officer A I Y eah...... Robert E. Jordan Chief Commercial Officer & Executive VP A Absolutely. We were exploring the market right now. We hav e an RFP out there. I wouldn't read anymore into that other than we constantly – with a lot of things, we constantly look at what's available in the market just to make sure we retest and understand them. I mean, we're perfectly happy with Row 44 and our GEE investment and our partnership. But we do continue to survey. Our intent is to stay with our IFE approach. I mean, our customers love the free TV, they love our pricing on Wi-Fi.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Our Wi-Fi product, I would say, is competitive in the current environment as usage rates go up. And there's a stronger desire for faster Wi-Fi. That's one of the things that we're looking at with our partners. And so I think you'll continue to see us look at ways to improve Wi-Fi over time, but we don't have any changes planned to sort of restructure the way we think about in-flight entertainment overall. A couple of the products, movies, the on-board texting, those have lower take rates as you would expect. So we are constantly focused on really the TV, the free TV offering and then the Wi-Fi offering...... Michael G. Van de Ven Chief Operating Officer & Executive Vice President A I would just also jump in there that just internally for us, there was a lot of opportunities for airplane connectivity, aircraft health management systems that help us feed into our maintenance programs, we'll have our pilots and our flight attendants with personal electronic devices that can have information. And so the ability to communicate to scheduling, to communicate to customers, to communicate to the maintenance department, and to lay a groundwork where we can have more paperless transactions I think will improve a lot of efficiency we have in the operations. So we're looking forward to that...... Duane Pfennigwerth Evercore Group LLC Q Hey. Duane Pfennigwerth, Evercore ISI. Thanks. I wanted to come back to the concept of ancillaries. And if you could tell us, are there any new products at all assumed in that $500 million benefit by 2020? And maybe you could opine it. I don't know that we need to beat the dead horse at back. I think, Gary, you've been abundantly clear on that over the years. And you've put up some strong revenue results to support your side of the case, but are there services or products that are more philosophically aligned with the brand that you see? I'm a little bit surprised to hear you say that assigned seating isn't – have you looked at Ryanair's success with allocated seating in Europe? Any additional detail on new ancillary products behind that $500 million? ...... Gary C. Kelly Chairman, President & Chief Executive Officer A Yeah, the assumption – the $500 million that Andrew presented through 2020 does not have anything different other than essentially the same current product you have at Southwest Airlines. I think the point that we've been trying to make actually over the last couple of years that we recognize that after 30 years, we're going to have an up-to-date reservation system that will have much more robust capabilities for us to more tactically contemplate making changes to our business model.

And at that point in time, and we've said this – at that point, not trying to pin us down to a year, but after we get to Release 2 and maybe even after Release 3, it might be a good time for us to sit back, reflect, see what's a vailable to us that we could change and see if it works for us. And I think we would contemplate that in the way the Jamie was describing. We'll do customer research, which Bob continues to do continually and especially in an intense way every other year, understanding what customers want and we may want to experiment with some things.

So it's just premature, Duane, for us to spend a lot of effort on that now, and we're busy. So there we are really busy working on with a single priority of simply replacing our reservation system technology, it is all consuming and it needs to be done well. Then, we can get to the good stuff, but not until we get that up and running. So there's a very laser-like focus, which this company is good at.

Number two, and, this is, I'll say in advance, this is not a criticism of our operations group, but our commercial business model is ahead of operations and it's not a knock on commercial either because quite frankly, it's easier to change some of the commercial offerings than it is to rewire our airline and actually operate differently. And we

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 know that and as both Mike and Tammy have described, there is a significant amount of work that is queued up for the next several years in operations as well.

So I think it would be a – it's almost like asking us, are you considering flying transoceanic with a different airplane? Maybe one of these days, we want to look at that. But we have immediate and pressing priorities that are much, much more important. So we'll get to that and look at that someday and, indeed, we'll look at what other airlines have experienced.

And we will absolutely want our leaders and all of our people to be open-minded and innovative, just again understanding that we think we've got a really great brand and we want to – I just want to be clear in my messaging with you all that we've got a really good thing here and we need to be really thoughtful about how we tinker with it.

And right now, as I see it, it is working spectacularly well. And I know, with the work t hat's underway, we'll be able to perform even better. So I'm very, very enthused about that. And then, to the extent that we want to re -energize and re-innovate, I think that's all fantastic too. But I don't see any glaring issues at all with the product t hat we have right now. I am absolutely delighted with where we are...... Duane Pfennigwerth Evercore Group LLC Q Thanks for that. And then, Tammy, just a quick second question, can you update us on the magnitude of the hedge losses in 2017 as we stand today? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Sure. We are – trying to remember the exact numbers, it's probably about 750 in the mark-to-market give or take. And with, of course, the majority of that being this year. So our hedge loss has been down next year. And then, of course, when we get to 2018, we have no losses in 2018...... Hunter K. Keay Wolfe Research LLC Q Hi. Thanks. It's Hunter Keay, Wolfe Research. [indiscernible] (02:33:00) a couple of questions. Now that we have some Wright Amendment flying under the belt, have you guys quantified how many passengers that are on your Wright Amendment routes are already existing loyal Southwest customers that are waiting for you to add those routes versus share gains in that market?

I'm sure you probably are able to track that. Can you maybe give us a high level order of magnitude? And if not, if you want to quantify it, can you tell us if it was sort of more than you've expected it would be in terms of the share gain in that market versus just some sort of unnatural share that you didn't have because of the restrictions on the Wright Amendment? ...... Gary C. Kelly Chairman, President & Chief Executive Officer A I'll give Bob a minute to think. I mean what we do know – I don't know. I will admit to you I don't know that exactly off the top of my head. What we do know is that we've increased our flight activity by 50%, and have filled those flights up. Bob, we've have also increased our seats more than that. I don't know that number off the top of

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 my head, but I can't imagine that that's all existing customers that we had. So, there has to be some fairly significant increase in new customers. But I don't know off the top of my head. Bob, do you? ...... Robert E. Jordan Chief Commercial Officer & Executive VP A Well, yeah, it's a – Dallas is a wonderful story. So we're seeing gains basically everywhere. So, we're seeing – we added a tremendous number of seats obviously. And what we're seeing gains and existing customers who are just now giving us more trips, more share of wallet than they – they just couldn't give us that share because we didn't fly the route. Or we didn't have a convenient schedule for instance. So, we're getting that.

We're also seeing a high number of new customers that we did not see before. We're seeing a further penetration of Rapid Rewards. Even though it's a very mature market, interestingly, we're seeing a further penetration of Rapid Rewards membership in Dallas, even though again, it's one of our oldest markets – or is our oldest market. And then last, we're seeing a continued penetration of the Rapid Rewards card. So, basically, it's a story of increases across all customer fronts at this point. So it's just – things in Dallas are just really humming for us...... Andrew Watterson Senior Vice President, Network and Revenue, Southwest Airlines Co. A And I would add on to that that we focus on Dallas, but if you think where those lines go, they're going to many of those 24 places where the hometown I talked about. And they overweigh that as far as the capacity goes. So, the people coming to Dallas are by and large our current customers in those out cities. And then, within Dallas, you have that subdivision between existing – expanding share of wallet and new customers. So the share of wallet over-index with the new customers just because the out-markets is all about share of wallet and the in-market, meaning Dallas, is split between the two. But we don't share the exact split up...... Hunter K. Keay Wolfe Research LLC Q All right...... Marcy Brand Managing Director-Investor Relations A We are going to take our final question here in the back from Mr. Derchin...... Michael Wayne Derchin CRT Capital Group LLC Q Hi. Congratulations on the 45 years and particularly 43 years of consecutive profits. And I'm thinking back that you've done it with early 1970s technology, and now you're going to be going into the new world of technology is very exciting. In that regard, I was on a business trip recently and – booked by my corporate travel agent. And then on a leg, I actually flew [indiscernible] (02:36:26) not knowing that you were flying that route and – because you were not in the GDS system. I just wondering as part of your effort longer term are you looking at GDS as part of your distribution system? ...... Tammy Romo Chief Financial Officer & Executive Vice President A Bob, you want to take that one? ......

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 Andrew Watterson Senior Vice President, Network and Revenue, Southwest Airlines Co. A Well, we do participate in third-party distribution channels today, but we participate in a very modest way because we prefer people to come to us. And so, in many situations, if you would use your company's self-booking tool, it saves the company money, but also you'll find that our direct connect is heavily present in those direct booking tools.

So as more and more companies have self-booking tools, our product is displayed very attractively compared to our competitors. When you're talking to a live person, when it's labor involved, sometimes the agent is not looking for the Southwest flight. As diligently perhaps they should and you get the situation like you described...... Robert E. Jordan Chief Commercial Officer & Executive VP A Y eah. And the only thing I – the other thing I would add is that's exactly right, Andrew. We don't have any plans underway to change our GDS strategy, our distribution strategy. We are very happy with our direct distribution strategy. As was pointed out in the presentations today that we've seen a really strong growth in corporate travel, and that's a number of things. I think it's expanding route network. We can offer very attractive flight schedules and fares.

But it's also we have – over the last five to eight years, we've begun to engage some corporate booking tools. We have added some internal booking tools. So, as we make things more convenient for our corporate – our managed corporate travel partners, I think that's a part of the increase as well. So, I don't think you'll see us have any shift or dramatic shifts in our GDS strategy. We are continuing to examine our sort of strategies within that around things like corporate booking tools which have been successful for us...... Tammy Romo Chief Financial Officer & Executive Vice President Okay. Well, that ends the Q&A session, and thank you for all of the great questions. So, I am going to turn it over – I'm going to turn it over to Gary for a few concluding remarks. And again, it's been great seeing you everyone...... Gary C. Kelly Chairman, President & Chief Executive Officer Okay. Well, thank you. I'll be very brief. But the – just to recap very briefly, the revenue environment is still challenging. I don't know that we have a whole lot new to report today and we still obviously are pleased that we are outperforming the industry. And again, to confirm Tammy's guidance, we'll still be up modestly, and we're defining modestly no more than 1%.

We are pleased that fuel prices are still low. That's our assumption for the rest of this year, and hopefully into next year, although we are beginning to see some prediction that crude oil may move up more than where we are at current levels. But nonetheless, that's still a very favorable environment for us.

We've got capital spending that is peaking here in this 2015, 2016, 2017 time period. And it looks like 2017 will be the peak year. Some of that's being driven a bit by some of our facilities projects. But because we've been able to accelerate retirements, we were not able to accelerate Boeing deliveries to fund those. So, we wen t to the used market. Now, we don't need all of those Boeing deliveries so that they have been deferred. So, that's what's going on there.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016 We're very excited about the MAX. I actually would acknowledge that I've gotten a couple of questions from folks about whether the MAX is still as attractive because energy prices have declined. Absolutely, the MAX is very, very attractive and we're very much looking forward to doing that – to launching it. It brings a host of benefits for us, including not just the fuel burn improvement, but enhanced performance. So, we're very much looking forward to that.

Tammy covered the shareholder value report, which I know you all know anyway, but very pleased with the strong margins and our ability to continue to reward shareho lders. We have underway still very significant future value drivers with our ongoing fleet modernization. The network growth looks – which looks extremely attractive to us, covered the new reservation system today. And then on top of that, our operations h ave a number of initiatives underway, which will also drive some value. All told, that's about a $600 million EBIT improvement by 2020.

So, we are pleased to be at this point. And now, we've come a long way in a short period of time. Appreciate all the support that we have from all of you, and especially traveling here to the New Y ork Stock Exchange here to help us celebrate our 25th – our 45th anniversary. And I noted that you said 45 – you're really 35, right...... Tammy Romo Chief Financial Officer & Executive Vice President That's right, Gary...... Gary C. Kelly Chairman, President & Chief Executive Officer So, thank you all very much for coming, and appreciate you being here. Now, I'll turn it back over to Marcy...... Marcy Brand Managing Director-Investor Relations Thank you. And again, I'd like to thank all of our webcast listeners that have joined us today. This concludes the webcast.

Southwest Airlines Co. (LUV) Corrected Transcript Investor Day 23-Jun-2016

Disclaimer The information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data. As such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any information provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such informatio n. This information is not intended to be used as the primary basis of investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. This report is published solely for information purposes, and is not to be construed as financial or other advice or as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Any information ex pressed herein on this date is subject to change without notice. Any opinions or assertions contained in this i nformation do not represent the opinions or beliefs of FactSet CallStreet, LLC. FactSet CallStreet, LLC, or one or more of its employees, including the writer of this report, may have a position in any of the securities discussed herein.

THE INFORMATION PROVIDED TO YOU HEREUNDER IS PROVIDED "AS IS," AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, FactSet CallStreet, LLC AND ITS LICENSORS, BUSINESS ASSOCIATES AND SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE SAME, EXPRESS, IMPLIED AND STATUTORY , INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, AND NON-INFRINGEMENT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER FACTSET CALLSTREET, LLC NOR ITS OFFICERS, MEMBERS, DIRECTORS, PARTNE RS, AFFILIATES, BUSINESS ASSOCIATES, LICENSORS OR SUPPLIERS WILL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS OR REVENUES, GOODWILL, WORK STOPPAGE, SECURITY BREACHES, VIRUSES, COMPUTER FAILURE OR MALFUNCTION, USE, DATA OR OTHER INTANGIBLE LOSSES OR COMMERCIAL DAMAGES, EVEN IF ANY OF SUCH PARTIES IS ADVISED OF THE POSSIBILITY OF SUCH LOSS ES, ARISING UNDER OR IN CONNECTION WITH THE INFORMATION PROVIDED HEREIN OR ANY OTHER SUBJECT MATTER HEREOF.

The contents and appearance of this report are Copyrighted FactSet CallStreet, LLC 2016 CallStreet and FactSet CallStreet, LLC are trademarks and service marks of FactSet CallStreet, LLC. All other trademarks mentioned are trademarks of their respective companies. All rights reserved.