Southwest Airlines Company

Good morning and welcome to the Southwest Airlines first quarter 2020 conference call. My name is Chad and I will be moderating today's call. This call is being recorded and a replay will be available on southwest.com in the investor relations section. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir.

Thanks, Chad, and thank you all for joining us today. We're going to start out with prepared remarks from Gary Kelly, our Chairman and CEO, Mike Vandiven, Chief Operating Officer, Tom Nealon, our President, and Tammy Romo, Executive Vice President and CFO. And then, of course, we'll open it up for Q&A. A few quick disclaimers before we get started. We will make forward-looking statements in our remarks, which are based on our current expectations of future performance. And, of course, our actual results could differ from current expectations for a number of reasons. We called out special items in first quarter 2020, and we'll make reference to those results that compare to prior year gap results. Both of these topics are covered in our earnings release disclosures as well as on the IR website. Today we issued a press release announcing underwritten public offerings of our common stock and convertible notes. We cannot discuss those offerings on this call, and we won't be taking questions about them. We will, however, discuss our current liquidity position, cash burn, and related topics, and we'll take questions about those and other topics as always. So with that, we'll go ahead and get started, and I'll turn it over to Gary.

Thanks, Ryan, and good morning, everybody, and thanks for joining our first quarter 2020 earnings call. It's all about COVID-19 effects, of course. Our route system is over 95% domestic. We had a very strong January and February performance with solid unit revenue growth and better than expected cost performance. Earnings were higher in each month, year over year. Our operation was performing magnificently, and that's in terms of on-time performance and baggage handling. and our customer service scores were industry-leading. We saw no COVID-19 effects on bookings until the end of February, and the effects on bookings and cancellations and traffic beginning in March were unprecedented and, quite frankly, breathtaking. So here we are. One of Southwest's greatest and most enduring strengths is its preparedness, and we were prepared. On the heels of last year's outstanding performance and despite the max grounding and the excellent momentum that continued into January, February, we were in a very strong and healthy position when the coronavirus struck. We started the year in March with a surplus of liquidity, and that was by well over a billion dollars. We began this year with the smallest amount of debt to total capital in our history, only 24%. And on a $27 billion balance sheet, we had over $10 billion of unencumbered aircraft. While no one anticipated this economic catastrophe, we were prepared. And Mike, Tom, and Tammy will detail all the actions taken since March the 1st. But in summary, including spending cuts, schedule reductions, fuel price declines, and the elimination of shareholder returns, we've reduced our planned spending for 2020 by over $6 billion. Excluding working capital changes and proceeds from the payroll support program of the CARES Act, our cash burn for April is roughly $900 million, and that includes CapEx and debt service. Our goal will be to drive that lower in May and June through more aggressive schedule cuts and hopefully increasing revenues. The pure cash outflows or spending has been cut in half from pre-COVID levels. Our financial management philosophy has always been and will continue to be very conservative. It has served us well, and no one can match the track record of profitability or the financial position of Southwest Airlines. No one has served shareholders or bondholders better over the last 49 years. and we intend to continue that record. Cash in this environment is an asymmetrical risk. Not enough, that is a huge problem. Too much, we'll pay down debt or we'll buy available assets opportunistically. We're in a recession, and historically it has taken years, typically five or more, for business travel to recover. With some businesses issuing no travel orders, that has to be the expectation going forward that business travel will recover very slowly. Further, this recession has already put tens of millions of Americans out of work, and consumer sentiment has been severely damaged. That will also affect near-term travel demand expectations. And finally, for those who are willing and able to travel, the country needs to open back up so there's something for people to do when they get there. So I mention all of this to underscore the imperative of low cost in this environment because every traveler will demand a low fare. That's our business model, and we're America's strongest and most successful low fare carriers. We're working on a variety of things. Number one, strategic plans that are based on three basic recovery scenarios, and that's being led by our president, Tom Nealon. We're working on customer experience modifications at the airport and on the airplane to ensure that customers feel safe. We're working on our capital structure and liquidity needs to see us through this pandemic so that we emerge healthy and strong We're obviously working on the fleet, and that's being led by our Chief Operating Officer, Mike Vandeven. And then last, we're working on early retirement and other voluntary exit or reduced work programs for our employees. So before I pass to Mike, I want to thank all of our employees. This has been a crisis unprecedented in our history, but our people are battle-hardened. They are resilient. and they are fearless, and they have done a masterful job running the airline, serving our customers, and implementing myriad new procedures and protocols. And they are all vital to this company, and they are essential to our country, and they are my heroes. I'm very grateful to our employees, and I'm very grateful to our leaders for keeping Southwest strong. And with that, Mike, I'll hand it over to you, sir.