Q1 2023 SouthWest Airlines Co Earnings Call

Good day and welcome to the Southwest Airlines first quarter 2023 conference call.

Name is Chad and I will be moderating today's call.

Call is being recorded and a replay will be available on southwest Dot 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 Vice President of Investor Relations. Please go ahead Sir.

Thank you operator, and welcome everyone to our first quarter 2023 conference call.

And just a moment, we will share our prepared remarks, and then jump into Q&A.

On the call with me today, we have our president and CEO Bob Jordan.

Executive Vice President and CFO , Tammy Romo Executive Vice President and Chief Commercial Officer, Ryan Green and Chief operating Officer, Andrew Watterson.

A quick reminder, that we will make forward looking statements, which are based on our current expectation of future performance and our actual results could differ materially from expectations.

Also we will reference our non-GAAP results, which exclude special items that are called out and reconciled to our GAAP results in our press release. So please refer to the disclosures in our press release from this morning and visit our Investor Relations website for more information.

With that Bob I'll turn it over to you.

Thank you Ryan and thank you everyone for joining US. This morning are we incurred a first quarter net loss that was in line with our expectations driven by a $380 million pretax negative financial impact related to the December operational disruption roughly $325 million of that was from lower revenue in January and February much of that cancer.

Relations of holiday return trips, we saw a strong rebound in revenue trends in March resulting in record first quarter revenues. Despite the impact of the December disruption.

Travel demand remained strong thus far but we remain mindful of the uncertain economic environment, you have to be given all the headlines and trends we are seeing across many industries, we have tough year over year revenue comparisons here in the second quarter with last year's domestic revenue environment getting a boost boost from international closures taking that into <unk>.

Duration demand, particularly leisure continues to show strength as we head into the busy summer travel season, our cost outlook is higher this year due to a few moving parts as we were making additional investments in the operation based on our learnings from December I won't go through all of our key findings and work to shore up our winter preparedness, because we've done that a few time.

Now, but I am very proud of our people for the operation. They have delivered this year and for their relentless focus on executing our plan to fortify the operation in preparation for winter 2023.

Despite the near term cost pressures, we have not lost focus on our goal to effectively manage the real inflationary cost increases we are seeing and equally as important maintained our competitive cost position. As we look ahead. We currently expect solid profits here in Q2, we continue to expect solid profits for full year with the goal to grow full year margins in <unk>.

Oh, I see year over year as well as have our route network roughly restored by year end, we are reducing our full year 2023 growth plans due to a lower planning assumption for Boeing Max deliveries. This year. This relates to the recent news of further supply chain challenges of Boeing the outcome as a reduction to our 2023 capacity in.

Capex outlook and we are currently reevaluating, our hiring needs relative relative to our most recent expectation of higher more than 7000 net new employees. This year, we will be moderating our overall hiring plans as we get into the second half of 2023 in the meantime, we are most focused on revisions to our second half 2023.

Flight schedules to account for a fewer aircraft, which Andrew will cover in more detail.

I'm very proud of the progress, we're making on our customer experience enhancements. As a reminder, we are investing in three onboard initiatives enhanced Wi Fi in seat power and larger overhead beds in early March our first new aircrafts with hardware from our new Wi Fi provider Viasat entered revenue service by third quarter.

We expect all of our existing aircraft to be flying with upgraded Wi Fi <unk> hardware offering increased speed and reliability. So just great progress on that front, our new Max eight deliveries are coming into service with in seat power and larger overhead bins. So those are already entering service as well. We're also very focused on mobile.

And other enhancements on our technology roadmap to offer more self service options for our customers to give them more flexibility and ease during their journey.

Highlighting one of our stronghold markets southwest is the number one airline in Kansas City growing from six flights and 1982 to 75 twice a day and I'm proud to say that our servicing Kansas City is now fully restored the pre pandemic levels. We recently celebrated the opening of the new Kansas City Airport in February and we.

Serve as the chair of the Airport in Airlines Affairs Committee, we really appreciated the opportunity to partner with the airport to deliver a beautiful new terminal that will serve us and the community well for a very long period of time. It was a great partnership all the way around and it is a beautiful facility.

We continue to work hard on labor agreements for our people and we continue to make progress. We just reached a tentative agreement with tw by five O, which represents our meteorologists and I want to commend both negotiating committees for the spirit of cooperation that led to that agreement. We remain focused on negotiations with the union representing our ramp in Arps employee.

And mediation with unions, representing our pilots and flight attendants and remain committed to competitive market compensation packages for our people. We are very eager to get new contracts and have a significant amount of wage rate increases and have already been accrued and set aside and we look forward to rewarding those remaining groups soon.

In closing I am just so very proud of our people. They are the heart of southwest Airlines and they deliver day in and day out for each other and for our customers.

And despite the negative impacts in Q1, we believe we still have a solid plan for 2023, we are carefully managing the business in the near term and we continue to believe in our long term strategy and set of initiatives and with that I will turn it over to Tammy.

You, Bob and Hello, everyone.

Our first quarter loss.

And not have to start 2023, however, accordingly, not without notable accomplishment.

Our on time performance year to date through March with Bally.

Our operations team navigated to midstream and difficult weather conditions successfully with no material impact to our network performance and despite the negative revenue impact from December operational disruption.

We had record first quarter passenger revenue.

And record revenue.

We also ended the quarter with strong double digit margin or the month of March.

High fuel prices.

All of this was made possible by the drive and hardware incredible employee.

Ryan and Andrea will speak to our revenue and operations performance in outlet.

I will jump right in to our cost performance and outlook.

Beginning with.

Our first quarter jet fuel price was $3.19 per gallon, which was on the high end of our guidance range.

First quarter crude oil prices stayed within a reasonable range, while prices dipped to about 65 per barrel in mid March thanks, primarily hovered around $80 per barrel to that first quarter.

On other hand refining margins remained volatile during the first quarter after hitting a 10 year high last year.

Thankfully market prices have fallen over recently and particular crack spread which is a welcome relief.

We are a 51% hedged for second quarter and estimate our second quarter fuel price to be in the $2 45.

$2 55 per gallon range, which is roughly 69 cents lower than our first quarter fuel price.

That includes an estimated 13 cents of hedging gain which equates to a cost savings of roughly $70 million in second quarter alone.

We now estimate our full year 2023 fuel price to be in the $2 65.

To $2.70 per gallon range down a nickel from our previous guidance.

And still including 10 cents of hedging gains.

Of course this is a snapshot of our fuel guidance based on the April 19th forward curve and market oil prices and heating frac can be volatile, which is why we hedge.

We recently added to our 2024 fuel hedge portfolio and are now 51% hedged next year as well we began building our 2025 portfolio and are about 10% hedged.

The total fair market value of our fuel hedge portfolio for second quarter 2023 through 2025 is $419 million.

We will continue to see cost effective opportunities to expand our hedging portfolio with a continued goal to get to roughly 50% hedging protection.

Air.

Moving to non fuel costs, our first quarter year over year CASM ex increase of five 9% was in line with our guidance range.

As expected, we experienced inflationary cost pressures.

Primarily higher labor costs, including market wage rate accrual for all employee grade as well as increased technology spending and higher rates for our airport and benefit costs.

The remainder of the increase was primarily driven by operational disruption related expenses.

Looking ahead, we currently estimate our second quarter CASM ex to increase in the 5% to 8% range year over year, largely driven by general inflationary cost pressures that we expect to persist and theyre not unique to southwest.

In addition to higher labor rates, we continue to increase our market wage rate increases for the remaining open labor contract.

And as we further refine our multiyear maintenance planning we have additional maintenance expense. This year for our Dash 800 fleet as more engines come due for heavy maintenance and this is adding further pressure to our second quarter cost inflation.

For full year 2023, we now estimate CASM ex to decrease in the range of 2% to 4% year over year.

Paired with our previous guidance of down three five to five 5%.

Approximately one point of this year over year increase is due to lower capacity as a result of marine delivery delays and the remainder of the change in guidance is driven by the timing of maintenance expenses for our Dash 800 fleet.

A continuation of what we are experiencing here in second quarter.

As a reminder, our full year CASM ex guidance continues to include higher labor rates, including market wage rate accruals for the remaining open labor contract as well as the estimated tens of millions of dollars of additional investments, we expect to incur towards our operational resiliency.

Turning to our fleet, we received a total of 30 aircraft deliveries during the first quarter as expected.

Ending the quarter with 793 aircraft, which is a net of seven dash 700 retirement two more than previously planned as we shifted up.

A couple of retirements from the second half of this year.

Looking at the full year.

On the recent production issues at Boeing we feel it's prudent to have a more conservative planning assumption and are now planning around 70 dash eight aircraft deliveries in 2023 compared with our previous assumption of approximately 90 dash.

Eight deliveries as a result, we have lowered our full year 2023 capacity guidance by roughly 1.2 up 14%, 15% year over year, which impact our second half capacity assumption, mostly in fourth quarter.

As a reminder, we have a surplus of underutilized aircrafts in our fleet due to pilot hiring constrained therefore, the reduction in our delivery should not impact our summer flight schedule.

We continue to expect our second quarter capacity to be up 14% year over year.

Our planned deliveries continue to differ from our contractual order book.

In addition to the recent aircraft delivery delays, which are not reflected in our contractual order book, we continue to reflect 46 on deliver 2022 contractual aircraft deliveries as 2023 deliveries in the order book further outlined in our press release.

But to be very clear we are currently planning a published schedule around the delivery of 70 dash eight aircraft this year.

And we intend to solidify our order book with Boeing soon.

In regard to our current Capex outlook for this year, we now estimate to spend approximately $3 5 billion, reflecting our updated delivery assumption of 70 aircraft. This year.

Paired with our previous guidance of approximately $4 billion, which assumed roughly 90 aircraft deliveries.

Lastly, a quick note on our balance sheet, we ended first quarter with cash and short term investments of $11 7 billion. After paying 59 billion to retire debt and finance lease obligations in first quarter. We continue to expect a modest $85 million and scheduled debt repayments for full year 2023 include.

<unk> roughly $10 million of scheduled debt repayments here in second quarter.

We also paid $214 million in dividends in first quarter as our pre pandemic dividend is fully restored.

And based on our current expectations. We continue to expect 2023 interest income to more than offset 2023 interest expense.

We continue to be in a net cash position and we continue to be the only U S airline with an investment grade rating by all three rating agencies.

In closing this was not the first quarter performance, we have plan back at Investor Day, However, I am immensely proud of our people and their perseverance.

There is still work to be done to fully recover but we are currently forecasting a substantial improvement sequentially to the bottom line with solid profitability this quarter.

We're laser focused on managing ongoing inflationary cost increases.

Regaining better operating leverage and maintaining our competitive cost advantage.

We have not lost sight of our goal.

The warrior spirit of southwest airline and I'm eager to move forward along our path of success for many years to come.

And with that I will turn it over to Ryan.

Thank you Jamie I'll take a minute to expand on the commentary in our press release. This morning, and provide more color on our first quarter results and second quarter outlook or.

Our first quarter revenue trends remained steady and within expectations throughout the quarter with first quarter revenue growth of 21, 6% year over year. This was right at the midpoint of guidance going back to our January earnings call and as a reminder, we had two competing storylines in first quarter that played out as we anticipated.

First we incurred an estimated $325 million negative revenue impact that was isolated to January and February . This was the result of cancellations for return holiday travel and a slowdown in bookings following our operational disruptions in late December . We believe these negative revenue impacts have subsided and are now behind us we.

The reverse over the second half of the quarter and witnessed strong revenue trends throughout March as showed up in terms of overall demand rapid reward redemptions and yields.

So even with the negative revenue impact at the beginning of the quarter. We had record first quarter operating revenues of $5 7 billion and record first quarter RASM 15.

Managed business revenues also improved significantly throughout the quarter and by March were nearly restored to March 2019 levels, just shy of 100% that is tremendous progress and it feels like we're very close to full corporate revenue recovery of southwest our managed business revenues have trended ahead of the industry due to our revenue.

Initiatives in the corporate space and this is driving new corporate accounts, which of course opens up access to incremental new pools of corporate passengers.

And while the managed business recovery still has a consistent across traveler sector or size of accounts. We expect further sequential improvement in managed business revenues from first quarter to second quarter, how the demand comes in maybe a bit choppy with more volumes further out in the booking curve, but this doesn't seem to be unique in the industry.

Just on arc data.

Regardless, we expect to continue making market share gains in the managed business space as we gained another point of market share in first quarter, while we expect to grow passenger volume from our initiatives on very solid yields in.

In terms of the leisure booking curve. It has moved further out from what we saw last summer and fall and seems to have more or less normalized pre pandemic levels leisure demand and yields which are well above pre pandemic levels continue to be strong heading into summer and we're currently seeing the sequential improvement in operating revenue and <unk>.

<unk> that we would expect in the seasonally strong second quarter.

All in all the overall domestic revenue environment remains strong and our initiatives are performing in line with our expectations. So in short we're pleased with what we're currently seeing.

Our second quarter RASM guidance range of down 8% to 11% contains a four five point year over year headwind as a reminder, second quarter 2022 operating revenues included approximately $300 million of additional breakage revenue a higher than normal amount related to flight credits issued during the pandemic that were soon set to.

Expire as well as our later policy change to eliminate flight credit expiration dates.

Adjusting for this headwind our second quarter RASM guidance would be down around 5% and we're pleased with the core trends we're seeing.

This year over year headwind will not persist in second half of 2023.

We're also pleased with the performance of our rapid rewards program co brand credit card and all ancillary products in first quarter and we're expecting another strong year over year performance in second quarter.

We saw first quarter record of new rapid reward members added to the program and also had a first quarter record of ancillary revenue per passenger.

And finally, our portfolio of new cities, including Hawaii continue to mature.

I'm also proud to announce that we have completed the selection and rollout of our new revenue management system, which is the Amadeus network revenue management product.

Our implementation timing is slightly ahead of our previous timeline of mid 2023, and we're very pleased with the revenue results. We saw from Amadeus during the production pilot. We are encouraged about the future opportunity for incremental revenue, which really starts in earnest in third quarter.

As the new Amadeus product is now fully implemented and is currently managing all future booking and departure dates.

This is just an excellent job by our revenue management team to skillfully manage multiple revenue management systems as we recovered from the pandemic and which ultimately led to the selection I'm just very proud of the team.

In closing I want to mention that we have watched our brand metrics very closely since the disruption in our scores have improved significantly throughout the first quarter. We are very fortunate to have a loyal customer base at southwest that we do not take for granted and we will continue to communicate to them about our remediation plans and aim to consistently deliver the hospitality customer.

Service and operational reliability, they are accustomed to from us at southwest.

I'll turn it over to Andrew.

Thank you Ryan and Hello, everyone I'll provide some color on the operation before we jump into Q&A.

Following our event in late December I am proud of the quick rebound we had in early January and a strong operational performance that our employees delivered in Q1.

While Q1 was tough weather wise, our people did a tremendous job quickly recovering from irregular operations.

In the days following each event, we had no material hangover in our aircraft or crew networks, we've maintained solid operational metrics and completion factor. This.

As evidenced that our processes for irregular operations are solid and working as designed for.

For the quarter. We finished number two out of 10 airlines in on time performance.

Which reflects well on our people.

Most recently on April 18th we experienced a double firewall failure. The resulted in an unexpected loss of connection to some operational data.

While our technology teams worked quickly to resolve the issue that morning out of abundance of caution we temporarily ground stop the airline.

It was a pretty quick fix but the southwest team and a little more than an hour, we lifted the ground stops or back safely operating twice.

Well this type of event drive slight delays across the network. We cancelled only 22 flights on April 18, we had no material impact on our operations. The following day.

Even with the delays that date, we ran 75% on time within an hour scheduled departure times at 95% within two hours, while we don't like those delays. This represents an admiral recovery by our people all things considered.

Regarding our operational disruption remediation plan, Bob covered that in detail at the JP Morgan Conference in mid March and that presentation is available on the Investor Relations website.

Since then we also provide greater detail on our micro site and build our customers with a readout of the key findings and remediation items, we want in place by winter 2023. Therefore.

Therefore, I am not going to walk through it again today I just want to reiterate we have a solid plan and our work is on track.

Turning to capacity or lower aircraft delivery expectations. This year is driving lower capacity expectations in second half 2023.

As a result, our full year 2023 capacity growth is now expected to be in the range of 14% to 15% year over year.

We are in the process of refining our published flight schedules post summer as we are reevaluating our flight schedule plans for our yet to be published November December flight schedules.

We expect to have those schedules published in the next month or so but our current estimates are that we will trim plant capacity from September through December .

Post summer travel period.

This now puts us roughly two points lower than our original capacity plan for this year.

With Q3, being one point lower than Q4 being six to seven points lower on a year over year basis.

Despite the lower capacity growth nearly all of the capacity growth is still going back into key southwest markets and adding market depth.

There was no material change in our capacity allocation approach this year.

And we continue to expect to have a route network roughly restored by end of this year.

I want to wrap up by commending the negotiating team of Tw 550 represents our meteorologists just reached a tentative agreement there'll be voted on by our employees.

We've now come to agreement with 9% to 12 work groups covered by collective bargaining agreements with.

We continue negotiations with the unions, representing our other work groups and we are eager to get these deals wrapped up so the remainder of our employees can be received began receiving the increased compensation, we are eager to pay them.

We continue to accrue market and competitive wage rates for our employees, which means our financial results and guidance already reflect the estimated races.

So with that I will turn it back over to Ryan Martinez.

Thank you Andrew we have analysts queued up for questions. So a quick reminder to please keep your questions to one and a follow up if needed operator. Please go ahead and begin our analyst Q&A.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone. So if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

And the first question will come from Duane <unk> from Evercore ISI. Please go ahead.

Hey, thanks.

Just on costs I totally appreciate you have a business to run and there's moving pieces.

But the slow drip of these CASM revisions has been painful for your investors and so my question is.

Do you feel like the Bandaid has finally being ripped off today.

And what are the circumstances that would cause you to raise your CASM expectations again this year.

Hey, Duane Yeah, I'll start and Tammy.

Ken cleanup here, but most of what you've seen our revisions I mean, theres real inflation out there some of it some of it is that a lot of it is continuing to revise.

For labor accruals as the market changes if you take our pilots for example, the best marker out there as delta in terms of rates and benefits and.

And so you can assume that were fully accrued for all open contracts to those rates, we've got a little more.

Inflation here that showed up around maintenance on our eight hundreds.

All of that is just timing, calling some some 24% 23 around engine visits for example.

It's hard to know on the inflation front.

But I think you can expect it for the most part we're pretty clean at this point.

The I don't expect I mean do they have the driver obviously would be if we had a further change in our capacity expectation for 2023, I don't expect that I think this move from 90 down to 70.

We will help us get a real clean view on our capacity said and therefore any impact on.

The one point impact on CASM for the year.

Now tell me what else would you add yes, no I think you've covered it.

Bob Yes.

Primary constant pressure and cost pressure is valuation and benefit.

That's clearly driven by inflationary pressures here, so certainly not unique to us.

And capacity.

It's going to have an impact on.

Our CASM X at the end of the day, but.

We.

Our second quarter costs here at least the profile should be.

Pretty fully loaded so to speak that said, we're always going to look for opportunities to improve.

We have our ongoing operations modernization plan.

We've incorporated that best we can.

And of course, as we move forward.

We have opportunities.

As we gain operating leverage with the network so.

And the question.

But when we have capacity changes that typically does drive some change in CASM X. So that that's the primary culprit here.

As we look at 2023, Duane I think dosing is helpful to us we've been we've been pretty forthcoming that were.

Special on the hiring front, we're hiring ahead to prepare for growth.

A lot of that this year coming in 'twenty four I think this.

This route.

Further revision with Boeing from 90 down to 70 is going to help us.

Go back through look at our hiring plans moderate our hiring plans.

At this point between the 46 aircrafts that were undelivered for last year now you've got an additional 20 that 66 weeks.

Those that are stacked up forward.

Not taking a 152 aircraft next year. So we have the opportunity to go back work with Boeing re flow of the order book I mean, we want all of the aircraft itself and the bulkier because you've got a good deal, but re flow. The order book in a way that is smooth. It is orderly growth and I think that will help us with.

Wring out of this.

This is pre hiring advanced hiring to prepare for growth as well and regain efficiencies as we move through the rest of the year.

I.

Those thoughts and then maybe just a quick follow up on breakage I Hope. This is the last quarter, we hear about it.

But given the dynamics in <unk>.

Do you think the June quarter will be your weakest year over year, RASM down RASM quarter, and what RASM outcome are you managing the back half of the year to thank you for taking the questions.

Yes, sure. Thanks Duane.

Obviously, we had a challenging comp.

<unk> tier and the second quarter, given breakage last year. So we do expect.

That can be the last quarter.

With that headwind.

Yes.

Side from that.

We also had I would say difficult compares here as you are aware Duane last year, the domestic revenue environment.

Very robust.

Benefited just not not specific to southwest, but just in general benefited from international closed serious last year, making comparisons here in the second quarter challenging, but as Brian covered very thoroughly in his remarks, we're seeing.

Demand strength here in the second quarter and.

At this point trends look strong.

Yes, the only thing I'll add there Duane is that.

It would be tough I think clearly the.

Financial headlines in the macro environment, we've got to be mindful of that and what's happening around this year, but so far we've seen no impact on air travel.

The revenue looks good here for the second quarter and what we can see it's probably tough to speculate beyond second quarter and into the second half of the year. We will just have to as we get kind of mid July timeframe and get a view into mid August and into the fall.

Have a better idea of how things are shaping up beyond the sequentially strong second quarter, but yes nothing.

Nothing but strong trends here as we look forward and out into the summer.

Okay. Thank you.

And the next question is from Scott Group from Wolfe Research. Please go ahead.

Hey, Thanks afternoon, So Andrew I wanted to follow up on the capacity cuts. When you were talking through the point of capacity you said, some maybe I misheard, but I thought you said a point out of Q3, and then six points or something out of Q4, I didn't really understand it and then more importantly, what does this mean for capacity.

Next year is there now.

More growth next year to catch up as there is less growth because we're just going to continue this how do I think about that.

Well I'll start off and then Tim and Bob can chime in but.

The impact to the.

Delivery book from the Boeing.

Boeing quality escape means that the effectively it's the kind of the fourth quarter will be short the aircrafts and therefore, those schedules will bear the brunt from September through December those schedules will be less than originally.

Projected so we will modify those schedules to make sure we reflect the lower aircraft Count September and October will be modest revisions to what was already published we actually published those schedules with some easily movable aircraft to hedge our bets in case something happens that'll be fairly clean and then we were about.

The published November December no, we're going to go back and redevelop November December where the lower aircraft count to reflect business. So that's what's going to drive.

The capacity lower during that period of time versus original plan.

And then for next year I think Bob touched that we've talked about before in the order book because these.

Aircraft, there were not delivered last year and not delivered this year.

You can't just assume they're bunching up and they're all come in one slug next year, because that would be looking for an orderly growth as Bob said, so as we refill that order book then we can look to how that what that means for 'twenty four 'twenty five.

Yes, I think the other thing just to point out is it maybe related is the.

You talked a lot about what's constraining the airline and right now that is.

Pilot hiring so we have aircraft effectively that we are not producing capacity out of today because the constrained as Jews pilots have laid a lot of a lot of carriers are dealing with this and that was going to true up.

Roughly at the end of the year.

Now with the order book dropping the deliveries this year dropping from 90% to 70.

That's the point at which the pilot constraint turns into an aircraft constrained as we'll definitely be earlier it'll be post summer late late third quarter early fourth quarter, but will flip to aircrafts constrained from pilot constrained.

<unk>.

We'll just take that into account as we again as we think about hiring and planning for this year and then planning again for next year, because we get a lot of the hiring.

As is planning for growth next year. So number one the the constraint will flip to aircraft constrained and then second we want again as Andrew said, we want orderly growth. We don't want to 152 aircraft next year, we want to grow we have a lot of opportunities, but we want that growth to be orderly and measured and as <unk>.

System as we can be year to year to year.

So hopefully that helps.

Thinking about <unk>.

<unk> next year and how that relates to the to the order book, we have work to do with Boeing obviously, the news is still pretty fresh about 10 days or so old we have work to do to with Boeing to just.

Think about how to re flow of the order book here and we will get through that and keep you informed as we do that.

Okay. Thank you and then just more near term question when I look at the second quarter RASM Guide.

If I add back the $325 million book away from that to Q1.

Probably has a pretty meaningful deceleration in rather than let me sort of like versus 2019 levels or maybe less of a sequential uptick in RASM and we typically see one <unk> any thoughts on why.

Why we're seeing that trend show.

Yes, Scott.

I think if you look here we've.

Looked at this a lot of different a lot of different ways.

And you think about what the guide and what revenue performance is looking like here as we go into the second quarter. The first quarter has got a lot of noise in there whether you've got omicron last year or you have got.

Our disruption this year.

And.

Also in addition to that there is a lot of.

International tailwind out there in the industry that while international is strong for US. We just obviously, we don't have as much exposure to that is some of our peers in the industry and so when.

When you isolate to the domestic performance and you go back to pre pandemic, whether youre looking at 2018, 2019, and kind of projecting that forward in terms of growth and revenue performance. When we look at fourth quarter no matter of really how you cut it fourth quarter second quarter first quarter to second quarter.

Pleased with how that.

Ends up what that comparison looks like and it looks to us like it's relatively in line with with what else is out there.

I think the other thing just to thank you guys.

I think I would add is we are seeing as Brian pointed out in his remarks were.

We're seeing strong business demand here.

We were.

Just right add restored in 2019.

Levels in March, which I think is a remarkable accomplishment and I think industry, leading in terms of our ability to get there that quickly is going to be choppy a little bit here in the second quarter, but we do expense expects sequential improvement from the first quarter to the second quarter in terms of in terms of business bookings in man.

<unk> business.

<unk>.

I'm just really proud of that we are on top of that you've got obviously.

The investments we've made in business GDS those are showing up we've got a Ryan can talk to this we've got.

We made our selection around a new revenue management system with Amadeus.

That selection earlier, then we talked about at Investor day.

That system is now managing all forward bookings all forward travel periods and we expect.

A good revenue results from the system as well so a lot of other positives that will come on here as you move forward across the year.

Thanks, guys I appreciate it.

Thanks Scott.

The next question is from Jamie Baker from Jpmorgan. Please go ahead.

Oh, hi, everybody.

Oh, Jamie.

Hey, how are you. So if we adjust for the January and February book away and then take the midpoint of your second quarter demand guide.

It looks like sequential revenue from the first to the second quarter is pretty much in line with ordinary pre COVID-19 seasonality. So so.

Takeaway that the.

The book away has fully ceased and the brand is intact.

Yes, I think.

I think that's a really good way to summarize how we're thinking about it as well just in terms of the sequential.

About the sequential trend there.

But yes.

We feel like the.

The revenue impact from the ops disruption.

Most of it was holiday return travel that obviously was canceled because of the outbound werent there and we had some book away. It feels like it was isolated to January and February March was really strong we had double digit margins in March very strong demand we have.

Ryan pointed out we had record.

Additions in terms of rapid reward members in the first quarter.

Yeah.

So theres a lot of evidence of strength as you look into the second quarter, we don't see any evidence of book away at this point the trends are strong now we have work to do let me just acknowledge that when you look at just.

We do a lot of brand surveys and as we look at.

All of that.

There is work to do across the year to continue to restore.

Some of our brand health is completely expected following what happened in December .

Numbers are improved tremendously from December through April here, we are seeing.

It moves up very very quickly.

But we need to run a reliable operation for our customers. We are doing that we were number two in the first quarter.

And had completion factors that were up two points year over year on time performance that I think was up three points.

<unk> over quarter.

We.

Our focus on delivering a wonderful product with great hospitality.

Fatality from our employees.

We need to execute but no. There is no evidence at this point that the book away as continuing trends are strong, but we do have work to do on the brand front.

Yes.

Yes.

The only thing I'd add on to that Jamie is that we have confidence in that because we have really good visibility not only we're watching the scores and confidence and trust in consideration for southwest for their next trip I'd like Bob said those scores have improved.

Dramatically over the first are significantly over the first the course of the first quarter here.

And when you look into the second quarter, we've got really good visibility about 75% of the quarter is booked at this point, we got 50% of June booked at this point.

And so all signs look really good and strong for for the for.

For the second quarter leisure demand is strong managed business is going to sequentially improve here what looks like in the second quarter from where we were in the first and.

Assuming we continue on our.

On plan here and what we're forecasting we're set to turned in another record revenue performance in the second quarter. So.

Like Bob said, we have work to do we just need to continue to execute and be the southwest airlines that customers.

Have grown to know know and love, but in terms of bookings.

No evidence of any sort of hangover.

That's kind of a good segue I guess into my next question. So from a passenger perspective, or let's say a new passengers that somebody thats just starting to fly right.

Stat.

Economic level or they are just entering the workforce whatever somebody that's not already loyal.

What's the value proposition for flying southwest These days I mean, I get it in a point to point.

For point to point operations, many instances, where youre going to be up only competitors are connecting flight. So that's a no brainer, but in truly competitive markets. If the price is equal and if a passenger isn't already wed to your brand or your credit card ecosystem.

Southwest due to attract that first time buyer.

I think the brand strengths that have been in place for.

For 52 years are still there you have we have a.

And even better we have a tremendous network.

Again far more.

Non stop direct flights, we have terrific service.

Time performance all of those things are improving as well we're continuing to work on the customer experience. We have new deliveries that are coming now with power on the aircraft we have larger the larger overhead bins, we have improved Wi Fi.

Our terrific employees and service and of course, we have <unk>.

Really good everyday low fares, so those brand strengths have not changed.

If you look at something like the.

The larger overhead bins.

And again, it's a small sample size, we have it on a relatively small number of aircraft at this point, but we're watching the data.

It is reducing.

Andrew check me, but and what we've seen so far it's reducing gate checked bags by 60% as a huge win for our customers.

It's a big win for us as well it certainly helps with costs.

Again, a modest amount of data, but it's reducing turn times as well on our aircraft, but back to your question I mean, the value proposition that has always existed for southwest Airlines.

For over 50 years is still true today when you look at.

One of the things we look at.

Constantly before the ops disruption and after his consideration where do we sit in the consideration set both for customers of southwest and customers that are for the first time, considering southwest Airlines and those numbers are really strong they dipped of course during the disruption, but they've come back quickly.

And.

<unk>.

Tells me that we don't have a hangover from the ops disruption but.

No.

Largely let's say the same exact thing to things that have made southwest airlines great.

Historically in my.

Mind are only better today, and I think customers understand that and despite.

What happened in December and Bob said, many times, if that's not going to define us going forward and it doesn't when you look at our brand scores.

Customers, new and existing give us a whole lot of credit.

We're by far the most customer friendly and business friendly airline in terms of great service at a great price.

With the most rewarding frequent flyer program.

We win time and time again.

More seats are.

Redemption seats.

On southwest airlines than any of our competitors not even close so we're by far the most rewarding airline and when you look at our stable of customer friendly policies with bags fly free no change fees forever, regardless of the fare.

You fly and we're even making it more flexible with flight credits that don't expire.

I think the value proposition is only getting better and if you look Jamie.

Jamie.

Use case, you talked about.

New Flyer the entry level product is where we shine. So we have I would assume.

The highest quality economy product others offer basic economy or other types of.

Product, which is stripped down penalizing, whereas you fly US you are flying a regular economy, that's got ample legroom, 50% of our aircraft and our eight hundreds of Max's, which has 32 inch pitch. So you have much better physical product much better policies and procedures are people or joy to deal with rather.

Than the opposite so a new flyer will come aboard also go Oh Wow. This is great. This is so much better than the other airlines and Thats, whether they say well I'll fly them again, so our level of repeat purchases really high we don't disclose it but other airlines disclosed there is and we know that our repeat purchase is much higher so again without first experience and as they come back.

Got it thanks for the color everybody take care.

And the next question will come from Savi <unk> from Raymond James. Please go ahead.

Hey, good afternoon, everybody. This is Matt on for Savi.

If I could just follow up on Duane question earlier regarding the CASM ex guidance increases.

Can you elaborate on how much of these costs are fixed and expected to carry through to 2024 and also giving any capacity cuts are weighted sort of late in 2023, I think there is more of a variable cost component in helping to offset that so why is that not the case or any additional color there would be great. Thanks.

Yeah, sure, Matt and just.

Sharing a few thoughts.

Where.

Again.

First of all.

<unk>.

Cost pressures are not unique to.

Southwest.

But even with and inflationary pressures.

We are amending our CASM ex down this year and we still feel good about our competitive position so.

We've got the labor contracts.

We've got those accrued in our long term.

Reflected in our long term targets and we.

Our very focused.

On vending our costs down again in 2024.

Specific to your question.

We do have some onetime costs here this.

This year related to the operation.

Disruptions and that's probably in the $100 million to $150 million.

Range and that shouldn't repeat next year.

So Bob covered.

Very thoroughly.

What we need to focus on now is solidifying our fleet plan and our capacity plan for next year.

But as we look ahead driving our unit costs down.

Certainly our goal.

As we get further in our planning obviously.

We'll provide more guidance there.

As you think about two related to wear.

We are thinking about growth and where flights ago and we've been very.

Front that this year is about restoring the network.

And despite the reduction in aircraft deliveries, we will still get back to that.

Getting back to write at fully restored by the end of this year. So the revenues that come on are into more mature markets.

So.

It should contribute at a much faster rate as you think about 2024, where I was going with cost.

Related to that is it's our intent to really push as we talked about at Investor day push on operating leverage that is put the majority of our new capacity in flights into stations, where we have gaps during the day.

And so the costs are there we have people.

We're paying for data for band four.

The airport costs and put flights and two points in the day, where we know we know we have demand and we already have the cost and so those will come online.

That revenue comes online at a significantly lower cost profile. So that is the development of additional operating leverage really is the focus for 'twenty four and Andrew I would say Ryan I would say 25 growth as well.

That's very helpful. Thank you. Thank you both Bob and Tony.

And then so.

Andrew elaborate on one question that was asked earlier as well.

Some of the capacity plan.

At the Investor Day in December it seemed like it was not dependent on aircraft deliveries.

The initial guide provided then was.

With firm despite any delivery delays so.

What's what's the difference now is that based on the current environment and outlook feel they need to scale back or is there something else.

This is Andrew for the last year, we've had three elements that constrained our potential growth as we look to the back half of this year. They were flight instructors pilots and aircraft and so at the time, we spoke at the Investor Day is that moment of time, we were pilot constrained and knew that sometime towards the towards the back half of this year, we would flip from pilot constraints.

Two aircrafts.

Aircraft constrained and so we're on our pilot trajectory of hiring and training a number of pilots we forecast and so we knew that would flip over some time.

The end of the year with the Boeing reductions now pulls it forward. So kind of what changed is this reduction which is I think the second reduction we've made our assumptions for deliveries next year has pushed us from pilot to aircraft right now and that now is roughly the post summer period, which is why you'll see us adjusted schedules post summer through the end of the year.

Yes.

Okay. Thanks for the clarification, Andy I appreciate it a.

Pleasure.

And the next question will be from Helane Becker from TD Cowen. Please go ahead.

Thanks, very much operator, hi, everybody and thank you very much for the time just a few.

Follow up question on net promoter score is that something that you focus on can you share with us.

Looking now.

Now versus where it was maybe in January .

Yes, Helane its Ryan.

We took we measure net promoter score and focus on it on a weekly basis, if not on a daily basis.

And.

There is really.

We track actually two types of net promoter scores one is more at the brand overall and as a longer term measure and then the other is based on the customers' trip that they just took based on the trip you just took would you recommend southwest airlines.

And on the longer term brand measures, we've got trackers in place and like we've said some of those those scores have improved as we've gone through throughout the quarter here and Bob mentioned overall, we're going to have to continue to focus on those longer term measures and just continue to execute to.

C <unk>.

<unk>.

Our momentum on the on the brand net promoter score when it gets to the actual trip net promoter score, which is a little bit more.

Near term in terms of how are we performing today those scores have improved over the course of the first quarter.

Really is a function of how.

Well, we have been operating over the course of the first quarter. So we continue to operate well those those scores should continue to improve over time.

Yes.

As well in addition to the enhancements that we're making in the product.

And you see those show up in net promoter scores as an example on the aircraft that we have where we have improved and enhanced Wi Fi.

Investments are paying off net promoter scores are up the scores on the aircraft, where we have the larger overhead bins those net promoter scores on those aircraft.

We're also so as we make improvements and enhancements to the to the product and as we continue to execute.

Right reliably those scores should come up continue to come up over time.

Okay. That's really helpful. Thank you and just to follow up briefly on earlier today one of the.

The other airlines that reported talked about runway construction at Las Vegas, and the issues that they're experiencing in terms of delays and Bob you didn't mention that and yet you have a pretty big operation there sorry call. So I'm just kind of wondering how youre seeing how are you.

We're seeing those issues kind of around your network contribute to any any delays or destruction.

And all that.

Thank you so much for the question I'll, let Andrew weigh it in detail, but yes.

Yes, I didnt call it out specifically, because we have a large and complex network and of course.

Sure.

We work issues every single day so.

We've talked about Florida before.

Obviously, we're very aware of the issues that have been discussed.

<unk> that serve New York.

But yes, we're experiencing.

Issues in Vegas with the reduction in available.

Our runway capacity and we're working with the FAA and the ATC to deal with that.

But it's one component of things that happen every single day. It was noted absolutely impacting certain days, our on time performance, but Andy do you want to.

Detail. So there is a kind of longer term airfield.

Structured program in Las Vegas from now through.

In August they shut down they'll shut down of the north south to north cell phone ways one.

Left in 19 and.

Right and so they will shut those down.

The time and so when we were in a north or south flow that reduces capacity. So about 20% of the time when Windsor such that you provide primary than those two runways one of them being out or dues are.

The throughput rate, which means you'll have delays and cancellations to cover that 80% of time to this time of year, you don't rely on that configuration in which case you should be able to operate roughly.

All lines are scheduled this started up.

And we have been and more north flow than unusual if you will or north with an unusual and so there has the last few days there has been a spike in cancellations from the industry from ourselves and delays in Las Vegas, So that is a drag.

It has been bigger than it was originally forecasted when the.

Construction plan was.

Was created which did sort of catch the industry I guess off Garden Center, who is so close and it's hard to adjust we've made some adjustments as a result over the last.

A couple of weeks, we've changed our minimum connect times at Las Vegas, We were looking at changing our December our crew bid to make sure that crude connections or lower we've changed how we set up our spares in Las Vegas to have.

Different how we use our spares, we've broken our through trips, which means the aircraft that kind of is supposed to continue through with passengers onboard that creates a bit more rigidity, we've taken those out as well. So we've made a lot of.

Changes to what we do.

We can do in the short term and then we're also working with the FAA regional FAA, Washington through how we can best collaborate.

The tolerances are for Crosswinds. So we could use a better configuration more of the time. So look as good collaboration there between the FAA and the airlines in that so it will be a drag through August if you have more north wins as expected, but it's a normal process for airports to have to rehabilitate the runways taxiways.

That's very helpful. Thanks, Andrew Thanks, everybody.

Pleasure.

And the next question is from Conor Cunningham from <unk> Research. Please go ahead.

Hi, everyone. Thank you for the time.

Just on the <unk>.

Adjustments youre, making for the full year I realized a lot of this is out of your control, but I think you mentioned that you are still on track for network restoration and if that's the case I'm just curious on where that capacity is actually coming out is it all new markets or have you just changed how you how you think about capacity deployment in general thanks.

So within restoration you have registration would be like what we flew before.

But thats, one bucket and say, okay, we want to restore our cities the level of activity and the rest of the network. They had before COVID-19. So that's when we say restoration when doing that we had the 18 new cities in Hawaii expansion, we did.

And we've modified that at the margin and Theres airports, where we currently operate and have had expenses with dates.

In infrastructure. So we've added more growth into there so is that third bucket so at Denver.

Our Phoenix, we had new gate, so were putting additional growth that they are above what they were in.

Pre COVID-19, so they're more than restored.

And so that kind of places, where we're growing above restoration, because we added additional infrastructure those will be less than they would have been if we had all these aircrafts are let's say there'll be Phoenix and Denver, but obviously those are examples.

Put in three buckets, the COVID-19 expansions of 18, new cities in Hawaii, the second bucket being restoring what we flew before and the third being this newer stuff in the cities, we already have a big customer base, that's where youll see the flex then so that we can simultaneously keep them COVID-19 stuff and restore network.

Okay. Okay. That's helpful and then.

As you think about 24, I'm, just trying to parse out like how the how the growth may play out for you next year. So how much of the growth in 'twenty four is dependent on Boeing and then what is southwest dependent and in the context of like a high single digit growth rate is the assumption going forward that a lot of these transitory costs are actually going on.

Wow, you to half CASM X decline next year I'm, just trying to level set where we're at in terms of all of that so I'm not asking for a number more directionally kind of how youre thinking about it. Thank you.

So on the growth there will be carryover, there's stuff that we will start in the back half of the year with aircrafts that are coming.

And that'll be a carryover growth into next year.

So that'll be quickly be able to calculate that but then the.

The additional growth next year, that's really dependent what Bob was talking about with <unk>. The aircraft for about 150 to mathematically that could come that.

It would be too much to adjust when an early growth and so that in addition to the carryover thats something thats yet to be determined but.

<unk> negotiated with Boeing of how the aircraft with fluent.

But just at the end of the day is I mean, we're going to work on a plan.

That allows us to achieve our objectives financial objectives, and our financial objectives as well so.

We're going to.

Thank all of the implants as usual and work with Boeing to come up with it.

Our fleet plan that allows for orderly growth, but just a reminder, we do have a lot of flexibility with the aircraft.

We are we have ongoing efforts chain.

Renew our fleet and there is value and our fleet modernization effort so well.

Well, we'll come up with the plan that that worked for for southwest as we solidify.

Our delivery schedule with Boeing.

And we're early obviously, it's really early to be talking about 2024, and it's early to be talking about the result of us to cut the discussion with Boeing because we're just now beginning to discussion because the impact is new.

I think the argument is couple of things as one.

Covid.

We all work can help with Covid within <unk>.

<unk> bounced up and down and up and so it doesn't help to move around so much up and down year to year year, because it's just it's hard to manage that lumpiness or choppiness.

With the <unk> seen our hiring numbers for <unk>.

Last year and the planned hiring numbers initially for this year.

That level of growth.

And tiring and advantage for the level of deliveries. We had originally planned it just adds cost because youre constantly.

Hiring ahead for anticipation of what's coming in the next year. So move into something that is much more predictable again, we want to grow we've got a lot of opportunities we want to grow we just won't that growth growth to be measured and orderly.

And working with Boeing to come to a point, where it's much more predictable year to year to years.

We re flow the order book I think it will be.

Very helpful and it'll be helpful. In terms of how we manage ourselves here. It will be helpful. In terms of how we plan and manage our costs.

Give us time.

Two.

Wring out inefficiencies again I was talking about.

The advanced hiring is just one example, an example to prepare for high levels of growth that will give us time to settle that out wring that out it will give us time to work on operating leverage where we can add capacity into places where we have gaps we can add that capacity at much lower cost. So I think.

Still good growth, but but but managed measured repeatable growth is much better for the company and that's the intent is to is to just take the plan re flow and be much more predictable and less choppy year to year to year.

I appreciate it thank you.

Thank you Connor.

And we have time for one more question, we will take our last question from David Vernon from Bernstein. Please go ahead.

Hey, good afternoon, guys. Thanks for fitting me in here Ryan can you talk a little bit about what kind of load factors embedded in the <unk> guide.

Seems like when looking across the other airlines running three or 400 basis points ahead of where southwest finished first quarter in load factor and maybe as a follow up to that.

And Andrew we're talking about in store in the network and getting back to where we were I mean, if the demand isn't there in load factors under pressure why wouldnt, we think that a little bit, especially if we're constrained to get our resources in and having difficult just kind of getting the operation up to that level. If there is a little bit of a sign of the demand weakness when we want to back away from some from that restoration plan a little bit.

Yes, so I'll take the the low factor question I think.

First quarter here, obviously, we had some we had.

<unk>.

That played a role here and all of that.

I think it has been widely talked about throughout earnings season here that the booking curve has moved.

Moving out a bit and we're more normalizing more or less normalizing to pre pandemic trends and so.

And Thats.

While there is more close in leisure strength today than there was pre pandemic. It is certainly less than what it was.

Kind of last summer and last fall and a lot of that became evident as we worked our way through the first quarter here and we had to.

Adjust our revenue management techniques to kind of.

<unk> for that.

And so when you look at there is stronger demand kind of 45 days.

And out there, but theres more volume there. The good news is that the fairs further out in the curve are healthy and we're getting a better mix of fares at that point in the curve than what we.

Then what we received what we were getting pre pandemic and so it's a it's a vantage for.

Always managing for volume and yield their yields are very strong which may have.

Have a downward pressure on loads and so youre just kind of managing both of those things together, but as you look into the second quarter.

Think loads and yields are strong.

And so that's.

Thats whats rolled up there into our guidance.

I would also add.

So the comp here if you think about this time last year, what we did as we were exiting COVID-19, we would republish our schedules because demand was so vacillatory and so what that means that you would sell sell sell and then your republish and you consolidate the customers already purchased onto a fewer number of flights, which kind of artificially pushes up your load factor.

That is a poor customer experience, we committed to stop doing that about a year ago and so we have not done that and so that that's going to make a load factor like for like more difficult. So.

Our competitors largely a continued that practice, but back to jamie's question about why people choose us we want a good customer experience that means not changing what we've already sold them.

Secondly, I would say that Ryan talked about they put in a new revenue management system.

And it's been managing things for a while I would not necessarily assume that.

The load factor would have been the right choice so to say for the RASM.

Performance and so it may make different decisions.

Decisions with regards to load factor compared to our old system, and therefore that element, maybe a little different and the third element is we fly to different aircraft sizes.

The 700, <unk> 800, and we've been taking eight hundreds because it does not.

Then delivered yet and so that will in many markets or submarkets, meaning we have too big of an aircraft.

The current level, if you will as we get our network completely restored you can fill those extra seats with extra connections, but due to the extra connections you need that restoration. So a short haul today may not be as full because there is no opportunity to connect to our longer haul that was there before so as.

Network, it's restored that will help close some of that load factor cap on those shorter flights that are missing connectivity.

Yes, I'll just put a finer point on that relative to the revenue management system or our legacy system. The one that we just moved away from was a load factor bias system admittedly and the new system makes better trade offs in terms of yield and load and so.

That'll be playing out here as we as we kind of move forward.

Okay, Dave I'll assume you done there.

Thanks, everybody for joining that wraps up the analyst portion of our call today.

And I will turn it back over to the operator.

Thank you and ladies and gentlemen, we will now begin with our media portion of today's call I'd like to first introduce Ms. Linda Rutherford, Chief Administration and Communications Officer.

Thank you Chad and I'd like to welcome members of the media to our call today.

Can go ahead and get started with the Q&A portion if you will give them instructions for <unk>.

Certainly to ask a question you May Press Star then one on your Touchtone phone.

You're using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

And at this time, we will pause momentarily to assemble that roster.

Yes.

Thank you and the <unk>.

First question will come from Alexandra scores from the Dallas morning News. Please go ahead.

Alright, Thank you for taking my question.

Wondering we talked a little bit a lot about growth in demand over this call I'm wondering if you could talk in relation to how thats affecting airfares and and how youre looking at that going into the summer travel season.

Yes.

Got it.

Yields I think in general this is a this is a high yield.

Environment.

And I think airfares are strong.

But if you look at airfares.

Going back to pre pandemic or or even earlier than that and look at them on an adjusted basis adjusting for inflation airfares in the industry are actually down.

And so.

Thank you.

Both of those things are at play here when we look at kind of how demand is coming in.

Here into the second quarter and beyond we are taking more volume further out in the booking curve and of course those fairs further out in the booking curve lower nominally.

Then taking a lot of volume close in where the fares are higher anomaly.

Nominally.

It's really about getting a good mix of fairs across the entire booking curve, which is what's really driving our yield story here as we go forward. The other thing too is we're driving.

A higher average fare by offering customers things that they are happy to pay for so an example of that is our Wanna get away plus fair that we introduced last year.

That fair has a bundle of benefits that customers are choosing to pay for it adds additional flexibility into.

In terms of transferability flexibility during the day of travel.

And the more customers choose to buy things that are that they value.

That drives fares overall higher without us kind of going in and filing.

Higher fares across the board.

Thank you Brian as you.

I'm just looking for the fact that my memory is in the first quarter bears were up roughly 5%.

<unk> I think is the number I've got in my head, but.

This is not a direct.

Correlation in person, but you but.

Costs are up materially we talked a lot about just regular inflation you see it every day everywhere.

A lot of labor and wage inflation, we've talked a lot about our costs and accruing for labor contracts, we're happy to pay our people we want to pay our people great, but there is real wage and supply chain and other inflation.

Year over year first quarter 'twenty to the first quarter.

23, our operating revenues were up 21, 6%, which is awesome on 10% capacity, but fuel was up 54%. So just the other the flip side of affairs is the.

You raise fares to manage your cost and there are real cost increases there. So I just wanted to point that out as well.

Thank you and the next question will come from Alison Sider from the Wall Street Journal. Please go ahead.

Hey, thanks, so much.

I think from Boeing on this latest delivery issue I guess, how has your experience been dealing with Boeing on this one it seemed kind of it's not the first time, you've dealt with and if you will.

Like this.

Just curious to know with Boeing at their communication their ability to deliver those things have improved.

Yes.

There've been a number of things obviously.

The World is.

With supply chain issues and continues to deal with supply chain issues. All companies have and Boeing is not immune from that we have had a number of items.

Again this is the latest.

Boeing has been proactive so Boeing was early in working with its suppliers multiple tiers down to shore up supply chain issues.

They have been in front.

Of the planning, obviously, we produce schedules far in advance.

So modifying those is difficult.

Close and it's difficult on our customers.

We've been able to work with Boeing on this one two for the most part isolate.

The changes to future schedules, we talked about primarily this is affecting the fourth quarter. So that's very helpful compared to something that would affect next month's or the month. After so our work with <unk>.

The cooperation with Boeing has been really good.

Boeing's been forthcoming and transparent about the impacts and what it's going to take to correct. The issues. Obviously all of this is difficult.

We don't want interruptions to plan delivery schedules and we will continue to work with Boeing on on that as well, but they have a Boeing is a great partner.

The Max aircraft as a great aircraft, we want our aircraft.

But nobody we.

Work very proactively with us on.

Yes.

Issues, we've seen before and on this issue as well.

And I guess turning to the state of near misses or runway incursions last couple of months across the industry given that there doesn't seem to be a real clear single cause a single common denominator in all of these incidents does that what is that.

Are there things that you can do where you have been doing to kind of try and address those or prevent future incidents sort of given that they're not they haven't all been the same.

Yes.

Aviation safety has gotten so good that you don't really see repeat occurrences and so therefore the approach CFA took a well back because if everyone developed safety management systems and so that says you will have safety procedures policies and regulations you adhere to so you maintain safety by being compliant to those rules regulations and standards.

<unk>.

Our approach then for safety is through compliance and so we have a safety day actually going on right now safety week underground operations will be above the wing them globally in the next week and so we will continue.

All of the activities outlined.

As our way of making sure that we are safe. We are also participating when the Fas forums.

Runway incursion right.

Yes.

It looks to be not necessarily up but the close.

Severity or potential severity does look to be up so it is worthy of attention from the FAA and worthy of attention from us and so the last thing we want to do is everyone do kind of go off on their own direction. We think it's best if we follow and participate in the Faa's lead of how the aerospace overall becomes more safe and so they have a blue ribbon panel they've just announced.

To help lead this effort, we will participate with enthusiasm on that and do our part to make this even safer.

And thank you. The next question will be from Dawn Gilbertson from the Wall Street Journal. Please go ahead.

Hi, Good afternoon I think this question is for Brian .

Youre, saying as are other airlines are not seeing any signs of demand weakness, but but as youre looking at summer travel bookings so far.

Anything any trend in.

In the bookings that might indicate that people are choosing different destinations.

Prices are high hotel prices are high car rentals that Airbnb is a high and anything you can share there that maybe some destinations that you are like well why why are the bookings so strong there.

I'd appreciate any color you might have on that thank you.

Yeah, Hey, Dan.

I think it's really what you would expect.

In terms of where customers want to go this summer international is.

Demand is smoking hot for international destinations I mean, obviously we.

Participate in that to a lesser degree than what some of our competitors do but international is really strong and then.

It's really the typical summer destinations that you would expect Florida.

<unk>.

Into the southwest Hawaii mainland.

Our Hawaii franchise is performing very well, so theres no real.

Huge surprises in the data when you kind of doubleclick as to where customers want to go it's kind of per normal.

And the flip of that there isn't anything that is sticking out as weak.

I think.

Customers just want to travel.

It's not as strong as 22, when you really saw this cope revenge travel will come back on especially on the leisure side, but the demand is very strong.

And it's strong across the board.

Yes.

I wish I could give you a surprise.

Yes, something like that.

Hang on to but we don't have one so what about indications I know that that's.

One thing that the company, but are you seeing a shift to vacation packages more or even on your own website.

Anything you've noticed in the appetite for vacation packages.

Yes, actually on vacation that vacation businesses is doing well.

And.

I think that over time, we've actually got a lot of opportunity in the vacations.

Space relative to where our network sits.

And kind.

Kind of.

How we participate in that that market today, we participate in a large part through vacations with travel agencies and I think over time, there is an opportunity to do more.

Merchandize vacation packages to the hundreds of millions of customers that are on our digital platforms everyday but.

Back to your original question on kind of are there new patterns in terms of destinations that are.

Emerging from a vacation standpoint.

Ken Kun is very strong Hawaii is strong.

But those are those are places that customers like to go in the summer.

Thanks very much.

And the next question is from Leslie Joseph from CNBC. Please go ahead.

Hi, everyone on the moderation of hiring for this year is that mostly pilots flight attendants or any other.

Groups and you know by how many how many jobs you're going to change your target and then just broadly.

Strategy are you ruling out ever having a differentiated product in the cabin, neither like a larger seed or extra leg room or or something like that just drove up revenue in the future.

Those are two very different questions.

So.

The hiring I would just tell you again, we're we're really early in this process with Boeing to understand the impacts.

Specifically.

And we pick the 70 <unk> in terms of planning our deliveries for 2023, but in terms of understanding exactly where are they and then.

A lot of your hiring again as in advance so we need to understand what 2024 looks like I just wanted to acknowledge today that it's a significant enough change to the delivery schedule and then therefore the capacity as well that we are going to go back through our hiring plans and they will be moderated.

I can't tell you exactly where that is obviously because we were pilot constrained for the year and now we are still likely pilot constrained through call. It early fourth quarter is my best guess.

It's the group that we probably continued depressed to keep the hiring on at least in the near term here too we flipped to aircraft constrained, but no I don't have any specifics other than just acknowledging that.

As the capacity is coming down we're going to go back and look at our head count needs. I mean, it's prudent to do that it's the right thing to do for cost. It's the right thing to do for efficiency, we're known for our efficiency and we will go back and do that and we'll do that quickly.

What was your second question premium premium premium I forgot my apologies.

Yes.

We are always I think we've talked about things like assigned seating before us just as an example that we we periodically.

We regularly study are in survey our customers to understand what's important to them.

Or do they want in our products.

That includes potential changes and so we.

We periodically do deeper studies on things like assigned seating.

And so far historically, that's always told us that our customers love our product and you've seen as you have seen us add things now like power and then the larger bins and enhancing Wi Fi and that comes from our customer is telling us thats what they want.

Now flip it to what work is underway I will just tell you. There is a need there is no work underway to think about assigned seating to think about premium in the cabin doesn't mean, we won't.

Do that at some point, we are working we do work.

Regularly on things like ancillary so the.

Upgraded boarding product.

We.

A few quarters ago now allow you to buy on the.

Mobile device and it's worked really really well those are enhancements that we're looking at and continue to look at service to our customers, but no. There's no work underway around.

Premium cabin assigned seating those kinds of things.

Our customers love our product, it's all about being reliable it's all about.

Providing terrific service and hospitality, it's all about putting into place the things that we've already committed to like power larger burns enhanced Wi Fi.

Continuing to push on digital self service.

And then really bring out efficiency here, we've grown quickly we've added a lot of people and we want to work very hard to regain our efficiency.

Margins and ROIC returns year over year.

Get back.

Some cases to.

Work towards the goals that we laid out at Investor day, but no. There's no work underway in the premium side.

Thank you.

Thank you.

The next question is from Holden willing from Dallas Business Journal. Please go ahead.

Hey, Thanks for taking my question guys.

Believe it was that that's good day, where you guys said that you'd added like more than 8000, new corporate accounts last year I'm. Just wondering as you continue to see the managed business travel recovery in the first quarter. How many more accounts you were able to add during that period.

Can point to any specific factors as to why you think business travel is continuing to recover for you guys. Thanks.

Yes, I think largely the reason the vantage business continues to recover for us is because of the initiatives that we have.

But we've put in place.

I think if you look at managed business.

Travel.

Sitting here today, and kind of where it sits structurally relative to kind of where it's been historically there is a couple of things that play that have reduced managed travel kind of for the industry. The first of those is health or health scares of traveling and I think that is well behind us.

And I think any tailwind from that just are unrealistic at this point and so then the other structural component.

Think has kind of depressed managed business travel for the industry not for us necessarily but for the industry is.

Some of these.

Just the way consumers.

Work today.

Their home versus office patterns versus remote and some of the digital tools and I think that kind of is what it is at this point there may be marginal improvements in different parts of the country, but it's largely is what it is.

And when you look at who is how that manifests itself is that the.

The unique number of travelers who are traveling.

For corporate travel or actually it's restored to where it was.

Pre pandemic, what's down is the frequency of those travelers and so and that's that is.

Largely or I guess, it's disproportionately impacts global and national accounts and so we are after back filling that volume by going out and acquiring new mid market small and medium business accounts and back opening up access to new pools of corporate travelers and.

Thats what were seeing I think in March.

<unk> had a record number of mid market accounts active for US I think if you look at April .

May have another record here in April .

And so we're going to be after the market share gain we're going out to win new accounts open up access to new pools of travelers. We gained a point of market share in the manage travel space over the last quarter.

So that's where we'll be focused going forward and that's where the sales team is focused in our efforts seem to be paying off well. We put we put a lot of emphasis on building the team over years now, adding technology like <unk> access and it's.

It will pay off over time.

Ryan I think Thats the reason you've seen us.

Restore nearly restore ourselves in March you to pre pandemic first airline to do that and run a check me, but I think we've had nine of our 10 best managed business booking days in the last two weeks in our history since April and the month of April Yes. The month of April . So we're just so youre seeing that strength is.

Continuing and I do think it is because of our investments and winning share.

And we're focused on removing continuing to remove friction and being easier to do business with in the managed travel space.

And there is some trends across the industry where.

Others are making it harder to do business in the managed travel space and so I think that.

You couple that couple all of this that we've just been talking about with.

Our business friendly network business friendly policies.

Industry, leading frequent flyer program I like our chances going forward.

So thank you guys.

And ladies and gentlemen, we have time for one more question and we'll take our last question from David Slotnick from TPG. Please go ahead.

Hey, guys. Thanks for the question.

I was just wondering.

Are your competitors talked about with the current.

Domestic environment, especially with added flexibility for airlines about it.

Been taking a new look at their overbooking policies, where they overbook too.

What levels that could effect.

Wonder if that was something that southwest is doing well, especially considering the one that got away plus spares.

Kathy.

Recognize what patterns.

Yeah, David I'm not sure that I caught all of the question. There you were breaking up a bit but I think the question was others are maybe changing their overbooking policies and kind of what are we doing in that regard.

We do not overbook, our aircraft we haven't over book.

Have not done any of that since 2017, so we're going on five or six years here of not overbooking. It does happen occasionally when we have to downgrades in aircraft for an aircraft with more seats to fewer seats.

Or for rate restricted things like that we may have an oversell that we have to deal with but those are.

Few and far between and so we're not going forward, we're not looking at deals.

<unk> with any sort of.

Materialise Asian rates or any change in the booking curve by changing our overbooking policy.

And we're going the other way I mean, we're adding.

Standing firm on the things that our customers want yes, we're not overbooking, it's a bad experience for our customer that's why we stopped it.

We've added of travel credits that never expire just like a rapid rewards points that never expires. So we out related to the customer here.

Okay. Thanks.

David Thank you.

And this concludes our question and answer session I would like to turn the conference back over to MS. Rutherford for any closing remarks.

Thanks, Chad and we appreciate you all joining us today. If you all have any follow up questions. Our communications team is standing by a tier one for 794, seven or you can visit our media website at Www Dot SWA media Dot com. Thanks, so much for your time today.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

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