Southwest Airlines' (LUV) CEO Gary Kelly on Q4 2017 Results - Earnings Call Transcript
Southwest Airlines Co. (NYSE:LUV) Q4 2017 Earnings Conference Call January 25, 2018 12:30 PM ET
Executives
Ryan Martinez - Managing Director of Investor Relations
Gary Kelly - Chairman of the Board, Chief Executive Officer
Tom Nealon - President
Mike Van de Ven - Chief Operating Officer
Tammy Romo - Executive Vice President, Chief Financial Officer
Laurie Barnett - Managing Director Communications & Outreach
Analysts
Jamie Baker - JPMorgan
Jack Atkins - Stephens
Hunter Keay - Wolfe Research
Duane Pfennigwerth - Evercore ISI
Savi Syth - Raymond James
Helane Becker - Cowen and Company
Brandon Oglenski - Barclays
Michael Linenberg - Deutsche Bank
Rajeev Lalwani - Morgan Stanley
Conor Shine - The Dallas Morning News
Dawn Gilbertson - Arizona Republic
Robert Silk - Travel Weekly
Operator
Welcome to the Southwest Airlines’ Fourth Quarter 2017 Conference Call. My name is Tom, and I will be moderating today's call. This call is being recorded, and a replay will be available on southwest.com in the Investor Relations section. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Managing Director of Investor Relations. Please go ahead, sir.
Ryan Martinez
Thank you, Tom. And welcome, everyone to our fourth quarter earnings call. Joining me today we have Gary Kelly, Chairman of the Board and CEO; Tom Nealon, President; Mike Van de Ven, Chief Operating Officer; Tammy Romo, Executive Vice President and CFO and other members of senior management.
Please note today’s call will include forward-looking statements. And because these statements are based on the Company’s current intent, expectations and projections, they are not guarantees of the future performance, and a variety of factors could cause actual results to differ materially. As this call will include references to non-GAAP results, which excludes special items, please reference this morning’s press release in the Investor Relations section of southwest.com for further information regarding forward-looking statements and reconciliations to non-GAAP results to GAAP results.
Gary will begin with an overview of our performance, followed by Tammy with a detailed review of our fourth quarter results and our current outlook. Following Tammy’s remarks, we will be available to answer questions.
And at this time, I’d like to turn the call over to Gary.
Gary Kelly
Thank you, Ryan. And thanks everybody for joining our fourth quarter 2017 earnings call. It was an excellent quarter all the way around, and I want to thank all of our 56,000 plus employees for an exceptional year and congratulate them on another very strong profit sharing for 2017 of $543 million and then as an addition to the $70 million tax reform bonus that we shared. After two years of modest unit revenue declines, we turned the corner in 2017, and that’s despite a very competitive industry environment. Unit revenues were up in the quarter 1.9% and just under 1% for the full year.
We’re currently estimating 1% to 2% unit revenue growth on strong load factors and bookings for first quarter 2018, and our goal is for positive unit revenue comparisons again for this year. Better revenue management tools and techniques, enabled by our new reservation system, will help mitigate any competitive pressures for this year. I expect those benefits from the new system to begin in second quarter.
Fuel prices are up over the last quarter and the futures prices become reality, we’ll see some cost pressure there. But the federal tax rate reduction more than offsets that pressure. And excluding fuel profit sharing and special items, our unit cost outlook for the year is excellent with a goal of moving unit cost down slightly.
Depending on fuel prices, our goal is to realize operating margin expansion for 2018. Given the tax reform, in addition to that, we would realize even greater net margin expansion. And both of those will drive stronger future cash flows. But it is worth of repeating that in addition to the margin expansion, we’ve reduced our federal income tax liability at the end of 2017 by $1.4 billion, and that cash flow benefit will go through in the future years in addition to the cash flow benefit from future margin expansion.
Our growth plans for 2018 are unchanged. We end the year with 750 aircraft, which recovers the classic fleet retirement in the end of -- or the third quarter last year, grows our fleet by 27 airplanes effectively over a 24 month period. So I’m simply measuring year-end 2016 to the year-end 2018.
Now, work is well underway to begin flying to Hawaii, so that is a focus for this year. And we announced this morning our intention to add Paine Field in Everett, Washington later this year and it will complement our presence of TTAC. Aside from the modest growth plans, our focus for 2018 will be on the basics. Unlike the past seven years, we have no major strategic initiatives that are landing in 2018, and that allows a more intense focus on running a greater line, offering outstanding customer service and controlling our cost. Capital spending will also be down this year. 2017 closed out on a very positive note. 2018 looks even better for all the reasons I just outlined.
And with that very quick overview, I’d like to turn it over to Tammy Romo, our Chief Financial Officer, to take us through the quarter.
Tammy Romo
Thank you, Gary and thank you all for joining us today. I want to first thank our employees for their hard work and congratulate them on another successful year, earning $543 million in profit sharing. 2017 was a year of many accomplishments and it ended with a strong fourth quarter performance. Fourth quarter net income was easily a record with profits of $1.9 billion or $3.19 per share. And as we announced in our 8-K filing earlier this month, we recorded a very large tax adjustment as a result of tax reform.
In reevaluating our deferred tax liabilities and assets to reflect a lower future tax rate, we reported a one-time non-cash tax benefit of $1.4 billion during the fourth quarter, which we called out as a special item. Excluding the tax reform adjustment and normal hedge accounting special items, fourth quarter net income was a strong $459 million or $0.77 per diluted share, up hitting ahead our first call consensus. We were proud to celebrate the passage of tax reform with our employees and a $1,000 bonus to each of them earlier this month. The employee bonus of $70 million was included in our non-GAAP results and impacted our earnings per share by $0.07.
With these strong returns and another year of strong operating cash flow in 2017, we were able to make prudent investments in our business, take care of our people and return significant value to our shareholders. We’re off to a great start this year. And in addition to covering more detail on our fourth quarter results, I will also provide an outlook for 2018.
Starting with revenue, we ended 2017 with record fourth quarter operating revenue of $5.3 billion, driven largely by record passenger revenue of $4.7 billion. Strong demand for low fares resulted in a fourth quarter record load factor of 85%. Passenger revenues yields were slightly year-over-year but improved sequentially from third quarter as expected. And demand was strong during Thanksgiving and December holiday period.
Flight revenue also performed well during the peak season, resulting in a 7.1% increase year-over-year. Our Rapid Rewards and EarlyBird revenues also were strong. In fact, our EarlyBird revenue for fourth quarter 2017 alone was approximately $100 million, which was our initial target for EarlyBird when we first called out the boarding option. Overall, we were pleased with our record fourth quarter operating revenue performance and outpaced our capacity growth to produce a RASM increase of 1.9% year-over-year, which was in line with our expectations. We were also pleased to achieve a goal of unit revenue growth for full year 2017, albeit modest considering the unprecedented national disasters in competitive industry environment during 2017.
Looking ahead to first quarter 2018, passenger revenues appear stable and travel demand and bookings are solid. And as we expect, favorable year-over-year trends in first quarter 2018 freight and other revenue. Based on these trends and our current outlook, we expect first quarter 2018 RASM to increase in the 1% to 2% year-over-year. Later this quarter, we will issue an investor update. This 8-K will reflect in a typical guidance update, as well as potential changes to our guidance as a result of accounting changes based on the new accounting standards related to revenue recognition. We plan to utilize our investor updates on a quarterly basis as needed. And therefore, we will no longer report RASM guidance at our monthly traffic releases, beginning with the report of January traffic results early next month.
Turning to fuel, our fourth quarter 2017 economic fuel price per gallon was $2.09, fourth quarter's $2.09 per gallon included $0.19 of fuel hedging losses. However, our fuel hedging losses are behind us now and our hedge portfolio for 2018 and beyond provides us a nice protection against cash drop prices and energy prices without the forward exposure. And it enables us to make prudent adjustments to our business in a rising fuel price environment in order to maintain our financial goals and reduce our volatility and our earnings.
For 2018, we plan to early adopt an accounting standards update related to hedging where we will begin reporting fuel hedging premium expense with the fuel and oil expense above the line rather than within other gains and losses below the line on income statement. As such, we are providing our 2018 fuel price per gallon guidance, including fuel hedging premiums as shown in this morning's earnings release and we’ll recast prior periods later in the first quarter as part of our 8-K update.
Moving on now to our outlook, on fuel. Based on market prices and our hedging portfolio as of January 19th, for first quarter 2018, we expect our economic fuel price per gallon to be in the $2.10 to the $2.15 range, including approximately $34 million or $0.07 per gallon in fuel hedge premium, and an approximate $0.05 per gallon hedging gain. For full year 2018, we currently expect our economic fuel price per gallon to also be in the $2.10 to $2.15 range, including approximately $135 million or $0.06 per gallon in fuel hedge premium and $0.04 per gallon hedging gain.
At current market prices, our 2018 fuel hedge positions began to produce modest gains and about $65 per barrel Brent crude with more material hedge gains hitting in at our 75 per barrel range and higher.
Before I move to non-fuel cost, I want to spend a moment on fuel efficiency. As announced, we retired our remaining Classic fleet in third quarter 2017 and introduced a more fuel efficient 737 MAX 8 into our fleet in fourth quarter. As we’ve continued to modernize our fleet, we have seen the nice increase and available seat miles per gallon, improving 1.3% year-over-year in fourth quarter.
For 2018, we currently expect 2 to 3% improvement year-over-year in available seat miles per gallon. Excluding fuel, profit sharing and special items, our fourth quarter unit cost increased 4.6% year-over-year. Putting aside the year-end items for just a second, fourth quarter unit cost trends were in line with our original expectations as we saw expected increases in salary, wages and benefits, advertising spend and shifted from third quarter and incremental technology cost that included ramping up for ETOPS in preparation for Hawaii.
As disclosed in our January 2nd 8-K, we have 3.5 points of incremental cost pressure at year-end, primarily driven by the employee bonus. Based on current cost trends, we expect first quarter CASM, excluding fuel, special items and profit sharing, to increase in the half of point to 1.5% range year-over-year. The primary drivers of the year-over-year increase include inflationary increases in salary, wages and benefits, which include higher cost related to an extended operating day driven by our cost of retirement and our current fleet deficit.
We also expect increases in airport landing fees and rentals and maintenance. And then looking ahead to the full year 2018, we expect our CASM, excluding fuel, special items and profit sharing, to be in the range of flat to down 1% year-over-year, which is a very solid performance. For 2018, our largest year-over-year cost tailwind is approximately $200 million related to the Classic retirement and benefits, and depreciation, aircraft rentals and maintenance expense. We also have some offsetting headwinds in the areas of maintenance of our aging at our 700 fleet as well as airport costs.
While the benefits of the Classic retirements are easier to see in depreciation and aircraft rentals, we do have a 2018 and cost of year-over-year benefit within maintenance expense. However, this classic maintenance savings is more than offset by the increased maintenance of our aging -700 fleet.
I’ll just make a few comments on the balance sheet and our capital deployment. We ended 2017 with arguably the strongest balance sheet in our history, and we’re very proud of that. Our solid investment grade rating is intact and we are pleased with the upgrades for both Moody’s and S&P during the 2017, as well as the recent positive outlook revision by Fitch.
Our liquidity is strong with cash and short term investments of approximately $3.3 billion at year end. And during the fourth quarter, we issued $600 million in unsecured debt and among the tighter spreads and lowest yields in Southwest’s history. With this additional capital primarily to refinance existing debt, we continue to target leverage in the low to mid-30% range.
Free cash flow for 2017 was the strong $1.8 billion, driven by $3.9 billion in operating cash flow and capital expenditures of $2.1 billion. Our strong cash flow and financial position allow us to return $1.9 billion to our shareholders through share repurchases and dividend. Our 2017 CapEx of $2.1 billion came in below guidance, primarily due to the shift of approximately $115 million out in 2017 and into 2018 related to one MAX 8 delivery and several non-aircraft investments that were just the shift in the spend.
We are still expecting our 2018 CapEx to decrease versus 2017, and are currently estimating 2018 CapEx to be approximately $1.9 billion. Included in this total, we expect 2018 aircraft CapEx of approximately $1 billion and non-aircraft CapEx in the $900 million range, including the shifting I previously mentioned from 2017. We continue to effectively balance and manage our overall capital deployment and we remain focused on preserving our strong balance sheet and healthy cash flows, while returning significant value to our shareholders. And with the expected future tax savings from tax reform, we’ll continue to evaluate our investments in our company, our people and our shareholders, including the mix of share repurchase and dividend with an overarching goal to drive long-term value for our shareholders.
Moving onto fleet. Of course, fourth quarter was our first quarter flying are all Boeing, NGs and MAX aircraft on the heels of retiring the remaining Classic fleet, and actually fourth quarter was the first. And we ended 2017 with 706 aircrafts with the delivery of 19 aircrafts during fourth quarter. This is one fewer plane that expected with MAX delivery shifting into 2018. We currently have 13 MAX 8 aircrafts in our fleet. And as you saw in our January 2, 8K, we made some minor changes to our Boeing order book. We exercise 40 options for MAX 8 from orders to deliver in 2019 and 2020, deferred 23 and MAX 7 from orders to better align with our future -700 retirement and accelerated 23 MAX 8 from orders to 2021 to 2022 timeframe.
We will have significant 737-700 NG retirements over the next 10 years to 15 years based on their age and this order book refresh, along with our remaining order book and option, which allow us to manage through those retirement in a measure way, while allowing flexibility for growth. Aircraft CapEx remains very manageable at approximately $1 billion per year on average for the next five years.
Our 2018 fleet and capacity plans have not change and we continue to expect to end the year with 750 total aircraft base of our current firm aircraft delivery schedules.
On the capacity front and in line with our previous expectations, we expect 2018 full year capacity to increase in the low 5% range year-over-year. And our third quarter 2017 of approximately 5,005 cancellations due to the national disasters, is driving roughly half of point of our full year 2018 ASM year-over-year growth. We expect or first half 2018 capacity to increase about 3% range year-over-year, as we firmed up our first half 2018 schedule. The next schedule will be published on February 15th, and that will go out through September 28th.
For second half 2018, we expect our capacity to increase in the low 7% with higher year-over-year growth in fourth quarter 2018 due to the impact of last year's Classic retirement. We remain excited about our 2018 growth opportunities and we have a prudent 2018 group growth plan that produces positive year-over-year RASM for us based on our current outlook.
So in closing, we had a really strong 2017 performance and 2018 is shaping up to be another solid year, which will also benefit significantly from tax reform. And as we start the year, we are well positioned for margin expansion, excluding special items. Our employees continue to deliver a reliable operation and product, and they have been proving that they are the best in the industry for the past 45 plus years. I was thrilled that we have recognized their hard work with the recent year-end tax reform bonuses, and I am very proud that they continue to be recognized for their world class hospitality. We have a bright future ahead of Southwest, and I am excited for our shareholders with the sustained momentum we have coming into 2018.
So with that, Tom, I think we are ready to take questions.
Question-and-Answer Session
Operator
Thank you [Operator Instructions]. We'll now begin with our first question from Jamie Baker with JPMorgan.
Jamie Baker
Gary, I still consider Southwest to be a point-to-point operator that just happens to have a few very large basis operations, that resemble hubs. And I am thinking this might be an outdated characterization. I am curious to the degree to which you currently schedule and revenue manage for connectivity over places like Baltimore, Nashville, Denver. How that's changed over time, particularly with the new res platform, and how you think it may evolve from here?
Gary Kelly
Jamie, I think your view of Southwest is accurate. Some of the statistics that I remember well from 1980's when I joined is that, and those days and a much lower load factor, about 80% of our O&Ds flew non-stop and then the other 20% were split pretty evenly between through traffic and connections. And in the 80s and the 90s and really probably for early 2000s, we did not intentionally schedule for the convenience of connections. Since 2009, we have had some percentage of our flights that will out -- we use the term internally intentionally connect. What is interesting is -- and when I started, the annual load factor was 58%. If you go back 20 years ago, my memory serves me right it was 66% now it’s 85%, 84%, 85%. So there has been a significant boost, but the non-stop versus connecting traffic hasn’t moved much at all, maybe 3 or 4 percentage points.
So the net result of that is we are carrying more connecting traffic. We’re carrying some of it more on purpose, if you will, as opposed by accident in the old days, but there is still a very -- a real serious focus on point-to-point non-stop that’s the way our network planners -- that's the philosophy and that is the strategy. I did want to use it is an opportunity though to complement them, because the load factors have gone up 20 points to 30 points over 20 year to 30 year time period. And it’s not because they have converted us to a hub and spoke operation where we’re more dominated by connecting traffic. It was a really accomplished by optimizing the flight schedule better and in some cases, spinning out some of the frequencies in our higher frequency markets, but not at the expense of the non-stop traffic.
Andrew Watterson, our EVP over Commercial is here with us and he may remember, I don’t remember off the top of my head exactly the percentage of what we think the relevant statistic would be that we intentionally connect in terms of capacity, but it’s obviously Jamie not the majority of our sales. And Andrew do you recall what that statistic is.
Andrew Watterson
I would call slightly above 20%.
Gary Kelly
And I think that was your specific question. But that hopefully the background helped a little bit as well.
Jamie Baker
Gary, thank you, that’s terrific. And for a follow up, the goal to maintain positive RASM for the year, you’re starting respectably at the 1% to 2% levels presumably the second quarter is no worse, probably better. But given that capacity surge and you’re in the second half your annual aspiration would seem to imply that you remain in positive territory in each of the four quarters. Assuming that that’s directionally accurate, what’s the driving factor that really gives you the confidence in second half positive RASM on at a higher base of year-on-year capacity? Is there anything specific?
Gary Kelly
I do think there are a couple of fundamental specifics. And first of all, your direction I believe is correct. Now, admittedly 1% to 2% outlook for the first quarter doesn’t give us a lot of cushion for things to go sideways. So I’ll admit that from the outset and that I think obviously applies even more quarters two, three, and four, we just don’t have as much visibility there. But when we get to the second half of the year, we should have a much better schedule. What I am real proud of quite frankly in the fourth quarter is that we achieved pretty healthy unit revenue gains with a not so great schedule, because what has happened is we have retired, Mike, 50 airplanes in the third quarter. The fleet shrunk. We tried to maintain a scheduled presence that wasn’t that different.
And you have to take into account seasonality dips that we would have scheduled anyway. But in order to generate roughly the same amount applies with fewer airplanes, we had to extend the day of the airplane. And 2 times of the day that are as profitable, quite frankly. So there is a fairly significant discount to have a flight operating at 9 pm as compared to operating at 6 pm.
So all that means is that we believe we’ll have a security schedule in place that will yield better by the time we hit to the second half of this year. So that’s point number one. And then point number two, notwithstanding the angst that I note yesterday and today about the industry, we’ve got a new revenue stream in effect that’s coming online this year that Tammy and our team is still pretty confident that will hit in the $200 million range. So that should pick up throughout the year.
And I think that those are both pretty significant points, and nobody ever knows what the weather is going to be. We can't really tell you what impact we’re going to have from competition or the economy. One, we would hope the tax reform is at least a floor on travel demand. We’re not doing anything overt to plan for a pickup in travel demand because of that, but obviously we’re hopeful that that will be a lift as well.
Operator
We’ll take our next question from Jack Atkins with Stephens.
Jack Atkins
Gary, just to start off, I have a couple of tax reform questions. But Tammy referred to this in prepared comments. We would love to get your take on as well. Southwest is really in this unique position among airlines, because you guys are the only airlines that will benefit immediately from the cash tax savings, as well as from new corporate tax rate. So I would love to get your thoughts for a moment. How are you all prioritizing this increased cash flow? We’ve already seen the special bonus to employees. But beyond that, are you all thinking about increased reinvestment in the business, or should we be thinking about a step up in capital returns to shareholders? Because it seems like your free cash flow could really step up quite a bit because of the tax reform here.
Gary Kelly
I'll just offer unsolicited editorial comment it is about time that we level the playing field competitively on this matter, as well as comparing our industry to other sectors. And obviously, Jack, you are well-informed on that. But we’re very happy with that. It helps us lower our cost and we’re not going to squander these savings. It puts us in a much better competitive position.
So the priorities are -- I don’t know if they are equal. But clearly, we all want to use this as an opportunity to keep our overall cost structure below so that we can keep our fares low, drive strong load factors and to continue to support our growth plan. There's enough money available to us where we can think about investments in the business. And Tammy explained well what we did with our Boeing order, but we have two, in terms of putting additional capital to work in the business, we have two basic options. We can buy more airplanes and use them to grow the fleet or we can buy new airplanes and use them to replace older aircraft. And we have opportunities certainly in the latter that we'll be exploring aggressively.
The Boeing order is an example of that. So there may be more opportunities there in the future. I do want to be clear and say that we're not today thinking that we're going to increase our growth rate by buying more aircraft. If that happens, because circumstances support that, I think we'll all be very happy. But that is not what we're thinking today.
In terms of taking care of our -- so I've talked about customers, I've talked about investing in the business, in terms of taking care of our employees. We're 85% unionized. So labor -- I've read some, what I would call, uninformed comments in the media. All compensation has to be negotiated with covered employees. So that is a separate issue. And then finally, in terms of continuing to support our shareholders, it just puts us in a stronger position to continue doing what we've been doing, which is for the past -- I can't remember Brian how many years we've increased the dividend annually and we have obviously sustained a very healthy share repurchase program. And I think it is worth mentioning, last year was a rough year in terms of mother nature and in terms of some of the tragedies around the country and it's a source of an immense pride at Southwest that we're able to support our communities and I was very happy that we were in position where we could actually boost that support also.
Jack Atkins
Asking about tax reform from another angle though. One area that I think folks are under-appreciating is potential for boosting the economy in the relatively near term from tax reform, hitting folks’ pocket books sooner rather than later in addition to increase business confidence. So you said in your comments earlier, you're not prepared you're planning for increased travel demand. But as you think about how this progresses over the next several quarters as we go into the spring summer travel season, and as we get into the peak travel season into the fall. It just seems to me like there's a real opportunity here for a pickup in leisure travel in addition to business travel. And I would just love to get some more thoughts on that specific topic?
Gary Kelly
Well Jack, I agree with you. Again, I just don't want to give people the wrong impression about what we are committed to do today, but I realize there's angst among some about the growth rate of the industry. But I think a lot of people expect that GDP growth will accelerate. I think it'd be very logical to assume from that that you could see a boost in travel demand. Honestly, I think people should calm down and I think this could prove to be much to do about nothing.
Now, we’re growing this year and we’re planning to add new service to Hawaii. We’re going to open up Paine Field in Everett, Washington, and we’re a growth company we know how to do this. So we’ll want to manage our growth very carefully. The success for us is dependent upon keeping our cost low, so we can keep fairs low and we can attract new customers either by simulating or by moving them over to Southwest.
I think what you’re talking about is, I don’t if it’s a safety net, but it ought to provide some support for the current growth plans. And again, I just would reiterate that we haven’t changed our growth plan because of tax reform, but it should put us in a position where that is more of a realistic option in the future. It won’t happen for us in 2018, Andrew. I mean there is -- we have the potential to push our utilization somewhat, but not much and probably not. So I think any future growth thoughts, in my opinion, would be beyond 2018 in any event.
And I’ll just reiterate one more time what Tammy reported. In terms of exercising the Boeing orders has no impact to what our growth plans were or are for those years after 2018 as well. It’s simply firming up options that we had planned to exercise in any event and now we have the bright economics to go ahead and move forward and make that commitment.
Operator
We’ll take our next question from Hunter Keay with Wolfe Research.
Hunter Keay
Gary, I want to continue this talk of fleet process we’ve talked about a little bit in the call. What were -- would you consider a new fleet type if there was significant cockpit commonality and maybe just overall commonality with the 37, or did your experience with AirTran 717 totally sour you on that concept?
Gary Kelly
Hunter, no, it did not. But I just will repeat what I know you know, but the opportunity for us with 7117 versus 737 trade-off was an opportunity to replace a smaller airplane that was not common with a bigger airplane that it is common at the same cost. So it was a no brainer and that trade alone Tammy, as I recall, was worth couple of hundred million dollars a year. So that’s part of the earnings boost that we’re realizing over the past five years. But we could have done it. Now Mike never got to the point where we integrated that aircraft into Southwest Airlines. So every flight that it took after we acquired AirTran was on the AirTran operating certificate.
So we never realized what’s you’re asking. I think the time horizon is important in answering your question. I would assume that in a generation that we would be open minded to what you’re suggesting in terms of my opening comments about thinking about 2018 and what’s our focus, it’s focused very much on the basics, running a great operation, offering great customer service and managing our cost. It is not anything that we are thinking about for 2018, ‘19, ‘20, ’21, as far as I can see, there is no work underway here at all to think about a different airplane. I don’t believe we have optimized our fleet mix yet with the mix of 800/MAX 8 versus 700s. And of course we don’t have a MAX 7 yet. So I do think that there is an opportunity to continue up-gauging here for some time, and that also puts off any serious thought about adding a different fleet type, because we don’t have the, what we consider to be the optimal fleet yet anyway.
Boeing has other variations they’ve got the MAX 9. Right now, we don’t -- I don’t think that we have any interest in the airplane. There is a MAX 10 coming and then what's casually referred to in the media is the 797 or 757 replacement. Both the MAX 10 and this -- the idea of the 757 replacement or things that we’ll talk to Boeing about just make sure we understand what those airplanes do, what they don’t do, but there is no serious effort to bring them on board. And so finally, it would be a lot of work, I will to admit to you. It would be a lot of work for us to take that on, because we are hardwired to operate the 737. We certainly have better capabilities today than we did when we bought AirTran to take that work on, but it doesn't mean that it would still be free of cost or free of effort. And right now, we have immense opportunities to grow with the 737 MAX 8, MAX 7 that we’re very excited about and that will be our focus, I think for a long time.
Hunter Keay
And then just maybe a quick one. I appreciate the commentary on margin expansion. And just to be clear, that’s even with moving $157 million of option premium expense above the line, you are referring to EBIT margin when you talk about expanding margin this year. Is that correct?
Tammy Romo
Yes, that’s correct, even with that.
Hunter Keay
And by the way, that [$115 million] is that about right, Tammy?
Tammy Romo
It’s actually 135ish for the year. And by the way, since you are asking about that, our goal would be to bring that down in 2019 and we’re budgeting somewhere in the $80 million range for that. So that will be a nice tailwind for us as we move to the 2019.
Operator
We’ll take our next question from Duane Pfennigwerth with Evercore ISI.
Duane Pfennigwerth
I wonder if you could -- I know you haven’t given guidance based on the new accounting standard. But maybe just high-level what you think the impacts would be to revenue growth, unit cost growth and margins in '18?
Tammy Romo
We are still looking at all that. So I really would rather wait and provide all that for you in the 8-K. We’re just in the middle of finalizing all those results. So if you could just be a little more patient for us, we’ll come back with a very robust report later this quarter.
Duane Pfennigwerth
And then just how are you thinking about the cash tax rate under the new regime?
Tammy Romo
Our tax rates have been more like the 20% range and we’ll -- I wouldn’t expect that to be any worst than that as we move forward. We're still working through some of the technicalities on the depreciation rule. By the time we get to later this year, we're expecting full 100% expensing in the year that we acquire the aircraft. So we're still working through a little bit of that to finalize it. But obviously, it will have a very meaningful impact on our cash taxes for the year and that we noted in the earnings release, we expect that to be in the hundreds of millions dollars a year and that both on a P&L perspective as well as on a cash basis, so it’s very significant.
Operator
We'll take our next question from Savi Syth with Raymond James.
Savi Syth
Just on the -- just a follow-up Tammy on the fuel hedge comments, and I am glad to hear that the target to bring the premium down. But curious with lot of these -- it doesn't seem like you're getting much of a asset here in 2018, even though fuel is going to run up. So I am guessing kept your traffic levels that you're pinning the hedges that are pretty high. Given that most of your competitors aren’t hedging either, I mean what's maybe a better question. How are you shifting your hedging strategy, because it doesn't seem to be necessarily paying off?
Tammy Romo
We just look at it differently, Savi. The hedging strategy is really insurance potential for us, in the event we see a spike in fuel prices as it'll start kicking and showing some nice gains here, and in fact already seeing that. But it's really designed to provide protection should be seen on anticipated sites and in the fuel prices. So we expect our premium budget every year, and that we've a goal of that, we would have very meaningful protection, should prices rise to more catastrophic levels. But in the meantime, we're actually seeing some nice gains here. And as you'll see another jump up as you get into even the $75 per barrel range. And Savi if you look at our sensitivity analysis that we normally provide, you'll see what I am referring to, but is really designed for us so that should prices rise, we have time to adjust the business to those higher input costs.
So we really think of a bit more as the insurance protections. Now going forward more tactically with the techniques that we're using going forward, we're mindful of the downside exposure in the way we have our hedges layered on. We do not have any downside risk or floor exposure, over -- well for our entire hedge book. So I think we are very well positioned.
Savi Syth
And just follow-up on that, the target is the $80 million, how do you achieve that?
Tammy Romo
Pardon me, Savi.
Savi Syth
How do you achieve the reductions to $80 million?
Tammy Romo
That we've been layering on our hedges and where we are -- by doing that, we’ve had opportunities to build what I would say a very nice hedge positions at very reasonable fuel premium level. So keep in mind we’ve been building up to deep levels and that’s the result of the price be up but the options that we put in place.
Gary Kelly
And Savi, I didn’t look back at the press release, but there is heavier weight in 2018. So 2019 is a really good hedge. It’s got a nice balance between how much money we’ve spent on it, the covers that we get and then the sensitivities that Tammy has provided in there. So it’s really a very clean hedge as is 2020, we’re off to a good start with that one. 2018 has a little swap in it as I recall Tammy because we had to go in and unwind some of the puts that were on. So there was little bit of penalty, if you will, in terms of the way that that year was built. But if part of your question is, do we think $135 million is a right number? No. Tammy and I both agree that that’s more money than we want to spend on the program, especially considering that our margins are handsome and that we have opportunities to grow the margins in addition to that. So there is -- we’re well under absorbed more risk with energy prices going up than we were going back to 2012-2013 when we had much tighter margins and a more ambitious transformation plan that was underway. So we have a different time. We have a different opportunity. And I think our folks have done a great job of taking full advantage of that.
Savi Syth
That’s all very helpful color, thank you. And just a quick one on the unit revenue, you mentioned that the demand -- so the demand was strong on the peak period. Just curious what you’re seeing in the off peak. And just wondering if industry just has a little too much supply in the off peak, and is there anything we can do about that as we continue to layer on supply?
Tammy Romo
Demand for us, Savi, through the first quarter as you can see from our load factor performance was very strong. We are generating record load factor performances. And of course the story there has been at lower yield. So we certainly win, we’re in off peak seasons. I think it’s fair to say we all have to work a little harder for that demand. But as you could see from our fourth quarter performance and based on the outlook that we provided you earlier in the call that we’re seeing very nice demand even in the off peak period.
Gary Kelly
Andrew, you can comment on this, if you would like. But the industry overtime has gotten better and better at varying capacity according to seasonality. And I think it’s probably fair to say that we were the late to that gain, because we were just hard wired to have a constant schedule throughout the year. But now I feel like we have fully caught up there. So you have some -- some of the competitors have a more pronounced peak and valley in terms of the scheduling than others, but the capabilities are there. And I’ll just again speak for Southwest. I think we do a pretty darn good job of matching that. Now we felt like going back to 2017 that we had one schedule that maybe it was a little bit too long and didn’t move into the seasonally softer period fasten now. And it was -- I don’t know that I would call it a mistake per se. But it is a change that we have already planned for 2018, as an example. So it's an iterative process. You learn as you go and school in school out the timing of holiday, all of these things are fairly complex inputs. But I agree with what Tammy said, we’re looking at a record loan factor, potentially here again in the first quarter. So the demand is there and even with seasonality.
Tammy Romo
One more comment just to add on to that, particularly with some of our new international market that does provide us opportunities and maybe do a little more seasonal flying than what we’ve done this 4Q. So our commercial folks do a fantastic job managing through those peak demand periods.
Gary Kelly
Yes. And what we don’t do is we don’t very much by day of week. And that is something that we have on our to-do list to get better at that. We do vary by day of week but not as much as we know we could. So that’s something that’s an opportunity for us respectively.
Operator
We will take our next question from Helane Becker with Cowen and Company.
Helane Becker
Gary, I have a question for you about Huston and Dallas specifically. With oil prices up $20 in the last five or six months, are you seeing better system traffic out of those two locations than perhaps elsewhere on the network?
Gary Kelly
Well, Midland is the one that’s so easy to see plus or minus and it’s really strong. I will say after this really tumultuous time in the energy markets over the past three to four years, we just haven't suffered in our energy markets like you’re remembering decades ago. So it has been interesting. And of course you’ve also seen the U.S. oil and gas activity has a collapse. They managed their way pretty effectively to $50 crude oil. So I don’t -- Andrew, I don’t think that we’ve seen a very significant variation there.
I think what you see in a more pronounced way is where there's just a lot of competitive activity, and that of course is out in the west. And Texas is an entity and Houston Dallas specifically both look very strong. And again, I don’t know that I would attribute that to a change in the last quarter of oil prices up 10 bucks a barrel, I don’t think that that activity is fluctuated all that much.
Andrew Watterson
Over the long horizon both states have become much more economically diversified -- and even Houston itself with how it's been with Southside of town with significant medical industry in the Southside town continues with the economy.
Helane Becker
And then just a question on Hawaii. Tammy you made a comment in your prepared remarks about bit of a headwind with ETOPS qualifications et cetera for this year. I mean is that given how big the airline is and the comments that you guys just made about more diversification. Is that just de minimis cost or will we actually see that in the numbers?
Tammy Romo
Helane, it's de minis, yes and I was referring to -- that was just the investment for to get started in Hawaii and the spend related to ETOPS. So I just want to be clear. We're on track with respect to ETOPS. So it's all green at least at this point with respect to our plans to start service to Hawaii. And yes, the spins related to that is really is that significant.
Gary Kelly
I was just going to give an update on the when, that while I agree with Tammy that we're on track with our work plan, we're just now -- that means that we're at the point where we've submitted to the FAA an application. And now the work begins with the FAA, if you will, although we've been partnering very well with them on the application up to this point.
So we don't have any further update today on when we might be publishing and when we might be flying. Our goal is to do both this year but I think we're all very confident that we'll at least be selling by the end of this year. But there's really no more information to offer other than we were at least on track but are all work plan to this point.
Operator
We'll take our next question from Brandon Oglenski with Barclays.
Brandon Oglenski
Tammy, I just want to come back to the comment about margins. When you say margins that’s including the hedge gains and losses year-on-year, right?
Tammy Romo
That's right. To be very clear, yes.
Brandon Oglenski
So if we were to back out the hedge loss last year the hedge gains this year then we’re probably going to be flat to down on margins, right?
Tammy Romo
Are you talking 20….
Brandon Oglenski
Right, well that's for us to do, I know you haven't guided for that. So I guess my question is with your RASM guidance for the first quarter. When do we start to realize the benefits from the reservation system? And can you talk through what those are again. Because I know we had some negative impacts on the implementation in 3Q and 4Q. I think you guys said on your last call that it should have been out of the run rate of revenue by now. So can you give us an update on how we should see that progress through the year?
Tammy Romo
Sure, I'd be happy to. We don't have exact numbers to give you there, but certainly directionally, the impact here in first quarter we're not expecting that to be significant at all. And then as we move into the second quarter, we should start seeing some benefits but we’ll just be picking up some theme there. And then really the bulk of the benefit will be in the second half of the year.
So I am hesitant to throw out any numbers, because we're in the middle of all of this. But by the second quarter, we're hopefully ramping up to something more in the $50 million plus range and then with the bulk of the benefit again coming in the second half.
Gary Kelly
Let me clarify here your margin question though. The guidance that Tammy offered up and then I offered up is just CASM, excluding all the items would be flat to down, number one. Number two, then -- so it excludes fuel. So then number two, we told you that we’re at a positive revenue outlook for the first quarter, and that’s our goal for the year.
So that margin expansion is coming without fuel. So we’re fuel -- and I was careful to mention that fuel prices, it was excluding fuel prices. So you’ll have to factor fuel prices. And on a hedge basis then to determine the operating margin effect of that. But based on futures prices right now, we would have margin expansion.
Brandon Oglenski
And I understand that and I guess that would be my follow up question. I mean it’s been a tough two days for airline stocks here. What I’m insinuating is that if we back out the hedges like if we just took you to market rates on fuel, it’s pretty tough to get margins up if not even down this year. And that’s the case for a lot of airlines…
Gary Kelly
No, that’s not what I said. I said without fuel, our margins would be up. So I think in other words as keeping fuel constant or however you want to think about it, our margins would be up. CASM ex-fuel right now is -- our guidance that we gave you is flat to down and RASM, the goal is positive. That means margin expansion without fuel.
Brandon Oglenski
Maybe that’s on apples-to-apples here, but the input cost underlying all this right has gone up a lot. So I think what investors are looking for is and I don’t want you to comment about other airlines, obviously, but what are expectations for how does the industry adapt to an underlying higher cost structure. And when should we start to see that. Because if I go through the -- your capacity growth is about the same as you’ve been effectively guiding you not for maybe the past three or four quarters. But obviously the underlying cost of business has come up a lot. So what should be the proper investor expectations for when we start to see some adaptations here, what is fundamentally a higher cost structure now?
Gary Kelly
I understand. So obviously we’re not in line with the rest of the industry. We have a better outlook than they do, superior margins, superior returns. And what they will do, I can’t tell you. So I don’t know. What we’re going to do is what we’ve shared with you we think we have a very superb position and outlook for this year. And again I’m very excited about the prospects for 2018. We should see operating margin expansion, given the current outlook for fuel prices, and then it will be even easier for us because of the tax reform to see even better net margin expansion.
Operator
We’ll take our next question from Michael Linenberg with Deutsche Bank.
Michael Linenberg
Tammy, two questions, one is just on the CapEx for the year. When you indicate your aircraft CapEx would be eight, back down to…
Tammy Romo
Michael, you’re breaking up a little bit there. Would you mind trying that again?
Michael Linenberg
I was asking about CapEx. And I think you’re guiding to $1.9 billion. And I think you indicated today that the aircraft piece is $1 billion. When we go back to January, when you had your 8-K, I think you indicated that it was a little bit less -- it was going to less than $1 billion. So maybe there is some rounding there. So when I look at the non-aircraft piece, knowing that you did push I think $115 million into '18. It still seems like that that’s a pretty high non-aircraft piece. Normally, I think you’re in that $500 million $600 million range when you don’t have big projects underway. So I was just curious what's driving that, call it $900 million, $900 million plus of non-aircraft CapEx?
Tammy Romo
The non-aircraft CapEx, we’re seeing -- actually our technology CapEx, we’re expecting that to be down a little bit due to the completion of the One Res. And we’re seeing a little higher mix of our technology spend hitting OpEx. So that’s impacting that. Where we’re seeing the increase is really more in facilities. And we have some plans related to some of our hangers that’s impacting that and some investments relating to our pilots training facility, so that’s up a little bit. So we’re seeing our technology down little bit, but that’s being offset by an increase in facility. So those are the major drivers there.
Michael Linenberg
So those are the big ones. And then just on the unit cost guide to be up flat to down, and I know last quarter you said you felt confident about flat. And since then, the only thing that I can think that has changed is that we had the fourth quarter bump up in '17 on the employee cost, and I think that was like 3.5 points. Is that the primary difference between the guidance today versus where we were a quarter ago? Or there are couple other things that maybe you are hoping to drive a better CASM outlook?
Tammy Romo
You really nailed it, Mike. There is really nothing significant from the last update that we provided. But as you already noted, we did have higher expense due to the employee tax reform benefit. So that made our comps a little bit easier but we have to rebound that still really -- I think our comps outlook for this year is very solid. And as ever, we are very focused on our cost and we’ll continue to be very diligent there in our cost control efforts. But that’s the primary driver from our previous guidance.
Operator
And we have time for one more question. We’ll take our last question from Rajeev Lalwani with Morgan Stanley.
Rajeev Lalwani
Gary, a question for you. You’ve obviously seen the announcement by United, and they seem to be pushing little more aggressively in some important markets to you. Is that something that investors should be concerned about? Or do you think that maybe they are looking at a different type of passenger than you are focused on, and so there shouldn’t be much of an impact?
Gary Kelly
Well, admittedly anytime flights are added or flights are subtracted from a market, there is an impact. So I wouldn’t want to ever – try to put one past to you. It’s just not truthful to say that. So adding capacity will definitely dilute some traffic. But I think back to the future there with Jaime's opening question, we focus on nonstop, low fare traffic, and a high cost legacy airline does not. And there are many, many historic examples where we might have a share of seeds in a market, but a significantly higher share of traffic in that market. And again it's because they don't want to fill up their segments with low fare customers at the expense of choking off the higher fare opportunities that they have with the connecting passenger through their hub.
In your life time, we've gone from being a very small player in Texas to the largest airline in the country, fundamentally based on what I just described. It is a cost advantage that translates to a fare advantage and we generate a dramatic number of customers, over 130 million for last year. And Tom I think that's the second largest in the world.
So the markets that I recall that they spiked out, we have a very significant presence in. In one case we have a different airport and I would argue an airport advantage. So will it impact us? Yes. Will it harm Southwest Airlines? It's bold talk. But we should always be humble and always respectful of our competitors and we are in this case. But I think we have all the tools we need to continue to perform well in every market that were impacted.
And I just will remind you that 10 years ago we were barely starting in Denver, and 12 years later, we're the number one airline in terms of the number of passengers in Denver. So I kind of rest my case. In this case, you’ve got legacy carriers who were not prepared, went bankrupt, shrunk, they shed cost and are using that as a strategy and now an opportunity when times are better to try to reclaim some that they lost and gave up. And that will be very, very hard battle for them.
Rajeev Lalwani
And then just another quick one for you, just maybe for Tammy. You talked about just dollars from tax reform, et cetera. Should we take that to mean that the capital -- the CapEx number that you put out for this year, maybe the floor and maybe we should look to -- for that number to either move up or stay where it is going forward?
Tammy Romo
Well, we will -- it's not going to -- I guess, it wouldn’t go down from here, we'll start there. But we’ve given you all of our plans at least so far. And just pointing back to what Gary walked you through earlier, any opportunities on the capital side would probably be more along the lines of fleet in terms of opportunities to continue to renew our fleet. But right now, you have a order book and we are at very manageable level, but outside of making the fleet and essential opportunities there to modernize and invest in the business, in that way. But for 2018, there's really -- I think that would be our big opportunity and we'll explore that. But again, I don’t know if it would have a meaningful impact on here on 2018.
Operator
That concludes the analyst portion of the call today. Thank you for joining. Ladies and gentlemen, we’ll now begin our media portion of today’s call. I first like to introduce Ms. Laurie Barnett, Managing Director of Communications and Outreach.
Laurie Barnett
Thank you, Tom. I’d like to welcome members of the media to our call today. Before we begin taking questions, Tom would you please give instructions on how everyone should queue up for question.
Operator
Yes, ma’am [Operator Instructions]. We’ll now begin with our first question from Mary Schlangenstein with Bloomberg News.
Mary Schlangenstein
Gary, you referred to uses of the tax savings. You said -- noted that compensation with your unionized employees is something that would have be negotiated. So what you’re saying is that that you would not do a mid contract pay increase for your employees using some of that savings?
Gary Kelly
Well, I didn’t say that. But in other words, we can. If the two parties want to negotiate, we can negotiate it anytime. I just pointing out the obvious which is, unilaterally we’re not going to wage or increase wages across the board because we can’t by federal law, so all that has to be negotiated.
Mary Schlangenstein
But you wouldn’t rule out the possibility that you could do either open negotiation to do some side agreement to a contract on increasing pay before the next contract is negotiated?
Gary Kelly
I don’t see that anything is different in 2018 than ever. So we have contracts in place. They take quite an effort to negotiate. We have several contracts that are up for amendment this year, so that will obviously be the priority. So I’m not suggesting, Mary, that I think all of a sudden we are or our unions would want to do that. I’m just pointing out that if the two sides agree, we can always do that. And our outlook is what we’ve reported and any long-term commitments we make will always be with an eye towards just trying to be prepared for the unexpected. And I think there were several questions earlier today about fuel cost increases. And I was interviewed earlier this morning about my concerns on the outlook.
And it’s those kinds of things that I am mostly focused and concerned about, in other words fuel -- oil price increases and the impact that that would have. So while we have seen significant reductions in our taxes, there were always other challenges that we have out there in all those things would have to be factored into the any long term commitments that we would ever take.
Mary Schlangenstein
And just if I could clarify one thing you said. You made a comment from the 7379, and I didn’t catch what you said. Did you say you might be interested in that aircraft?
Gary Kelly
I said that as it stands today, we don’t have any interest in adding that aircraft to our fleet. That doesn’t mean that we won't change our mind at some point. But the net of a long answer was we love the 737 MAX 8. We’re working with Boeing on 737 MAX 7. I'm sure that that will be a wonderful aircraft when it’s ready. And that is our focus and we’re not working on anything else when it comes to the fleet, just those two.
Operator
We will take our next question from Conor Shine with The Dallas Morning News.
Conor Shine
I am just looking for a little bit of help to understand exactly how these tax changes are going to play out over a little bit longer term. I know you guys reported that the $1.4 billion been realized from 2017. Is that of the similar magnitude you guys are expecting in 2018, 2019? Was that a one-time thing because of just the timing of these changes? How much you expected this to reduce? How much you guys pay in federal taxes, going forward?
Gary Kelly
So Conor, it’s a very quick background. The tax return doesn’t match our financial statements, so there’s just different rules. So there is a tax liability on our books at a 35% tax rate that was related to all the years leading up to 2017. And we would have to pay that $1.4 billion based on the tax returns in the future. So since taxes are now at 21%, that’s what's driving -- it's simply reducing that liability from 35% to 21%. And the cash amount for that would flow out over years in the future.
That is not a proxy for what we would save each year now prospectively. And I would just put in the -- Tammy had hundreds of millions hits, it depends on what our earnings are for 2018. But if the earnings are close to what they were in 2017 is half of billion dollars. So it’s a big amount of money and I think our investors all do the arithmetic and understand that very well. But it’s that order of magnitude.
Operator
We’ll take our next question from Dawn Gilbertson with Arizona Republic.
Dawn Gilbertson
Two questions, first for Tammy. You mentioned that EarlyBird revenue totaled $100 million in the fourth quarter. And I don’t remember your exact words, but you said that just to put that in perspective that was your initial target. Do you mean that’s what you thought you would get annually from EarlyBird when it was introduced several years ago?
Tammy Romo
Yes, going back when I’ve said. The point I was making there is that it’s been very successful. It’s in high demand by our customers. But yes, we at this point, was as we achieved $100 million in one quarter, which we rolled it out was our target for the full year.
Dawn Gilbertson
Is this the first time that’s hit $100 million a quarter?
Tammy Romo
That’s been -- yes, this is -- which is kind of popped out to me…
Gary Kelly
Yes, it was. Now Dawn in fairness, we’re a bigger airline today than when we launched in 2009. But still I mean it's definitely well exceeded our expectations.
Dawn Gilbertson
What about -- what's the total figure for the year on EarlyBird, Tammy?
Tammy Romo
For the full year, I will pull that for you real quick. But it would be roughly -- if you'll hang on, we'll get back and report back.
Dawn Gilbertson
And the other question related to that is, I mean any plans, you went from 12.50 -- I can’t remember what started that, but I know then 12.50 and then 15. Is that likely to stay at 15 or given the success, might that be due for an increase?
Gary Kelly
Well, we have to have some secrets. We're trying to keep our costs under control. We're trying to keep our fares low. So I think we've got a good opportunity to hold firm here at least for the meantime.
Dawn Gilbertson
And then the other question Gary for you as it relates to Hawaii. And then I know you said from the very start, there was no guarantee you were going to start flying this year. But just in reading between the lines of what you just said briefly, it sounds to me like the chance are you're going to fly there this year sound very, very slim? Is that…
Gary Kelly
No, I didn't intend that at all. So I think our goal has been from the offset to be flying by the end of the year. We didn't necessarily share all of that with you, but that was our goal. It’s not -- achieving that goal is not totally within our control. I think what is actually encouraging is that in terms of the work that we do control, we are right on target. And Mike we're what six months into this, and I guess three months after our announcement. So we are well underway. I think there's a chance that we can be flying by the end of the year and that will be our goal. I think what we're much more confident in saying is that we'll be at least selling by the end of the year. But I don't think that we're less likely to be flying than we have been. If anything, we maybe more likely just because we know now what we've been able to get done over the past six months.
Dawn Gilbertson
Where would you put the chances of flying this year at?
Gary Kelly
I can't -- I don't know how to do that. Because again, we're working with the federal government, and now we'll be dependent upon their timetable and then they may come up with work that we may be underestimated. So I just don't know that there's any way to handicap that. But what I'm told our team is in the grand scheme of things, whether we're flying late this year or early next year, it won't matter over the next generation. I think mainly we want to do this work; we want to do it; we want to do it well; we want to watch when everything is all lined up. And if we get it done, and we’re up and flying by the end of this year, I'll be happy. I think everybody will be. If we don't, it won't be the end of the world.
Dawn Gilbertson
When is the next schedule extension after February 15th?
Gary Kelly
Roughly 60 days later.
Dawn Gilbertson
Will that…
Gary Kelly
I would call that April 15th.
Dawn Gilbertson
Will that fix you through the end of the year?
Gary Kelly
No, probably takes into November, I would guess.
Operator
And we have time for one more question. We take that question from Robert Silk with Travel Weekly.
Robert Silk
Gary, can you talk to me about the fixed appeal of Paine Field. Is there anything other than just the fact that Sea Tac is constrained, or does that bring more to the table than that?
Gary Kelly
I do think it brings more to the table. It’s attractive from a handful of aspects. So one is we’re really good at applying to alternative airports. And if you have low cost and low fares, it helps people become aware of that option. And so it is bringing something new in that sense, so I’m forgetting the Sea Tac for a second. And the second thing is there is a significant pool of customers north of the city that just ground traffic constraints are such that if they have more convenient flight option, I think that they will take that. And we’ve seen that benefit again throughout our 46 year history, if we can provide a more convenient airport, and I think that sort of hit several criteria. This airport is going to be by definition a lot smaller, and I think for customers. And there is -- if there is -- that’s a more pleasurable experience in some ways. You don’t have as many flight options, which is drawback sometimes but really small airport.
But all those things I think are very meaningful. But you hit on it on the point also, which is Sea Tac for us, we’re constrained and we do want to increase our presence in the Seattle Metro area, and this is a really good opportunity for us to do that. And then finally there is only five daily departures left with what the airport has planned for in terms of real estate, I think they’ve got two gates. So if we don’t move on this, we may likely lose the opportunity. And we’ll certainly be able to accommodate five more round trips with our capacity plans. So I’m excited about it. It’s something that two years ago really wasn’t on our radar. And I think it will be a nice opportunity and a real plus for our customers than the Seattle Metro area.
Robert Silk
Just one quick follow up. The five left for the five year taking, or is it those five plus five more?
Gary Kelly
My understanding is that this takes the airport to 24 daily departures and that is the capacity that they have built. So it’s not a governmental constraint, it is just the practical capacity of the terminal.
Operator
And at this time, I’d like to turn the call back to Ms. Laurie Barnett for any additional or closing remarks.
Laurie Barnett
Thank you, Tom. I’m going to turn it back to Tammy to provide that answer regarding EarlyBird.
Tammy Romo
Yes. Dawn, it was just that $400 million for the full year.
Gary Kelly
That’s convenient.
Laurie Barnett
Excellent. Well members of the media, if you have any other questions, our communications group is standing by at 214-792-4847. Thank you.
Operator
And that concludes today's call. Thank you for joining.
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