Q3 2023 Southwest Airlines Co Earnings Call

Hello, everyone and welcome to the Southwest Airlines third quarter 2023 Conference call. My name is Jamie and I'll be moderating today's conference.

This call is being recorded and a replay will be available on southwest com in the Investor Relations section.

After today's prepared remarks, there will be an opportunity to ask questions to ask a question you May press Star and then one on your telephone keypad.

Draw your questions you May press star two.

At this time I'd like to turn the floor over to Mrs. Julie Landrum, Vice President of Investor Relations Ma'am.

Please go ahead.

Thank you so much and welcome everyone to our third quarter 2023 conference call.

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.

If I could have vice president and Chief Commercial Officer, Brian 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.

We also reference our non-GAAP results, which exclude special items that are called out are reconciled to GAAP results in our press release.

These refer to the disclosures in our press release from this morning and visit our Investor Relations website for more information.

I will turn it over to you.

Thanks, Julia and good morning, everyone before we jump into the financials I wanted to acknowledge that there have been a heart wrenching challenges around the world. The past several months and we've had natural disasters in the communities that we serve early this quarter I visited our team at Maui and witness firsthand the impact from the catastrophic wildfires on the island.

Thanks go out to all those who are suffering and we're really proud of the support we are providing including the volunteer efforts of our employees.

Now moving to the results operating revenues for the third quarter were just over $6 5 billion up nearly 5% from the same period last year and a third quarter record. Despite the recent uptick in fuel prices and other replace Terry pressures were again profitable with net income of $240 million, excluding special items revenue strength was driven by salt.

Leisure demand throughout the quarter and by managed business continuing to come in largely as expected and Ryan will share more details with you, but overall demand remains healthy.

As we close out this quarter and look ahead to the end of the year. We are very pleased with our accomplishments. We are running a great operation, reaching significant milestones complaining important initiatives and delivering great customer experience enhancements, we're making great progress on labor agreements, including yesterday's announcement of a tentative agreement with our incredible flight attendants.

The team will walk you through many of these accomplishments, but for now I want to talk to you about the immediate actions we are taking to adapt to the current demand environment and solidify our path to operational and financial excellence.

Our biggest milestone is completion of our network restoration plan in the fourth quarter of this year, reaching this milestone has obviously been a years long effort and has taken heroic coordination across the entire organization is just incredibly challenging and I am so appreciative of every single employee it truly was a whole company.

But.

With this behind US. However, we are set up really well to focus on optimizing our business.

That starts with free flowing the fleet order book to support orderly growth and to that end, we just announced a new order book with our partner Boeing yet another milestone.

This sets us up for orderly and measured growth and gives us flexibility to adapt in a dynamic environment and we have a lot of options as we move forward and we will plan anyway that allows us both the flexibility to move up or down and this order book combined with opportunities to retire dash seven hundreds and modernize our fleet sports that really well.

Finally, as we move into 2024, we are carefully evaluating the current macro environment and post pandemic travel behaviors to create the best possible plan for the company we.

We are now planning for a sequential quarter over quarter decline in nominal <unk> in the first quarter 2024.

This will result in capacity growth on a year over year basis of approximately 10% to 12% all of which is carryover from growth. This year note that this is a reduction from what we shared in July which was an expectation to grow approximately 14% to 16% on a year over year basis and.

Jamie: Hello everyone and welcome to the Southwest Airlines third quarter 2023 conference call. My name is Jamie and I'll be moderating today's conference. This call is being recorded and a replay will be available on Southwest.com and the investor relations section.

In the back half of 2024, we expect a nominal decline in seats relative to the same period in 2023, therefore, the full year.

Jamie: After today's prepared remarks, there will be an opportunity to ask questions to ask a question. You may press star and then one on your telephone keypads, but draw your questions. You may press star in two.

For the full year, our network plan will focus on absorbing current capacity maturing development markets and designing schedules for current travel patterns. This plan offers us the ability to redirect the teams that have worked so effectively to get a staff and restore to now focus on better optimizing the operation.

Julia Landrum: At this time, I'd like to turn the floor over to Mrs. Julia Landrum, Vice President of Investor Relations. Ma'am, please go ahead. Thank you so much and welcome everyone to our third quarter 2023 conference call. In just a moment, we will share our prepared remarks and then jump into Q&A.

We will be relentless in our focus to wring out inefficiencies drive productivity increased reliability and our goal to return margins to historic levels.

Julia Landrum: On the call with me today, we have our President 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.

We are still hard at work on both our 2024 and long term plans, but we are building them with a priority and a focus on generating value.

For employees value for our customers and of course value for our shareholders.

And with that I will turn the call over to Tammy.

Julia Landrum: 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. We also reference our non gap results, which exclude special items that are called out and reconciled to gap results in our press release. Please refer to the disclosures and our press release from this morning and visit our Investor Relations website for more information.

You, Bob and Hello, everyone first I'd like to extend another thanks to our wonderful employees for their continued hard work this year, especially in the challenging environment, Brian and Andrew will speak to our revenue trends and operational performance.

Right to cost be.

Beginning with our third quarter jet fuel price was $2.78 per gallon towards the higher end of our guidance as crude oil prices consistently rose throughout the quarter, peaking to nearly $100 per barrel in late September and rising refinery margins added further pressure to our third quarter fuel.

Bob Jordan: With that, Bob will turn it over to you. Well, thanks Julia and good morning everyone.

Bob Jordan: Before we jump into the financials, I wanted to acknowledge that there have been heart wrenching challenges around the world the past several months. And we've had natural disasters in the communities that we serve. Earlier this quarter, I visited our team in Maui and witnessed firsthand the impact from the catastrophic wildfires on the island. Our hearts go out to all those who are suffering and we're really proud of the support we are providing, including the volunteer efforts of our employees.

Moving into fourth quarter, we currently estimate our fuel price to be and then $2 90.

The $3 per gallon range, which includes an estimated 19 cents of hedging gains.

Now estimate our full year 2023 fuel price to be and then $2 85.

Bob Jordan: Moving to the results, operating revenues for the third quarter were just over 6.5 billion, up nearly 5% from the same period last year and a third quarter record. Despite the recent uptick and fuel prices and other inflationary pressures, we are again profitable with that income of 240 million excluding special items. Revenue strength was driven by solid, leisure demand throughout the quarter and by managed business continuing to come in largely as expected.

$2.95 per gallon range, including 14 cents with hedging gains.

The total fair market value of our fuel hedge portfolio for fourth quarter, three 2026, and $538 million, we added modestly to our fuel hedge position for 2026th during third quarter, we continue to be roughly 50% hedged in 2023 and.

Bob Jordan: And Ryan will share more details with you, but overall demand remains healthy. As we close out this quarter and look ahead to the end of the year, we are very pleased with our accomplishments. We are running a great operation, reaching significant milestones, completing important initiatives and delivering great customer experience enhancements. We're making great progress on labor agreements, including yesterday's announcement of a tentative agreement with our incredible flight attendance.

Our currently 55% hedged in 2024 in line with our goal to be roughly 50% hedged in each calendar year.

While we are not immune to rising oil prices I am grateful that our hedging positions relieve some of the additional pressure.

We continue to look for opportunities to build out our hedge positions for future years.

Bob Jordan: The team will walk you through many of these accomplishments, but for now, I want to talk to you about immediate actions we are taking to adapt to the current demand environment and solidify our path to operational and financial excellence. Perhaps the biggest milestone is completion of our network restoration plan in the fourth quarter of this year. Reaching the milestone has obviously been a years-long effort and has taken heroic coordination across the entire organization. It's just incredibly challenging and I am so appreciative of every single employee. It truly was a whole company accomplished.

Moving to non fuel costs, our third quarter year over year CASM ex increase of four 4% was right in line with our previous guidance range, driven primarily by higher labor rates for all employee work grid and the timing of planned maintenance expenses.

Looking ahead to fourth quarter, we currently estimate our CASM ex to decrease significantly year over year.

Bob Jordan: Management. With this behind this offer, we are set up really well to focus on optimizing our business. That starts with reflowing the Fleet Order Book to support Orally Growth. And to that end, we just announced a new Order Book with our partner Boeing, yet another milestone. This sets us up for Orally and measured growth and gives us flexibility to adapt in a dynamic environment. And we have a lot of options as we move forward. And we will plan any way that allows us both the flexibility to move up or down. And this order will combine with opportunities to retire, die 700 and modernize our fleet, sports that really well.

There is a lot of noise in the year over year comparison.

And the magnitude of the decrease is primarily due to impacts from elevated operating expenses and lower capacity levels in fourth quarter 2022, as a result of last year's operational disruption.

Our guidance range is inclusive of wage rate increases associated with the recently announced tentative agreement with our flight attendants.

You can find additional detail in this morning's press release.

Given inflationary pressures, particularly labor rate combined with moderating capacity growth, where you're expecting increased headwinds to our 2024 year over year cost.

Bob Jordan: Finally, as we move into 2024, we are carefully evaluating the current macro environment in post pandemic travel behaviors to create the best possible plan for the company. We are now planning for a sequential quarter over quarter decline in nominal asms in the first quarter 2024. This will result in capacity growth on a year-over-year basis of approximately 10 to 12 percent, all of which is carry-over from growth this year. Note that this is a reduction from what we shared in July, which was an expectation to grow approximately 14 to 16 percent on a year-over-year basis.

While we hit major milestones this year, our margins are not where they need to be and we intend to be relentless until we deliver.

We therefore plan to adapt our networking capacity plan to support both a reliable operation and improved returns on investments.

Given our company's commitment in history towards maintaining a competitive cost advantage our goal will always be to manage costs accordingly.

Bob Jordan: In the back half of 2024, we expect a nominal decline in seats relative to the same period in 2023. Therefore, the full year for the full year network plan will focus on absorbing current capacity, maturing development markets and designing schedules for current travel patterns. This plan offers us the ability to redirect the teams that have worked so effectively to get a staff and restored to now focus on better optimizing the operation.

Now turning to our fleet during the third quarter. We received a total of 18 dash eight deliveries and retired four dash seven hundreds ending the quarter with a fleet of 817 total aircraft.

And we just finalized a new order book with Boeing which funds our long term mid single digit growth plan and provides us the ability to phase out dash 700 fleet over time.

Bob Jordan: We will be relentless in our focus to ring out inefficiencies, drive productivity, increase reliability, and our goal to return margins to historic levels. We are still hard to work on both our 2024 and long-term plans, but we are building them with a priority and a focus on generating value. Value for employees, value for our customers, and of course, value for our shareholders.

But really it gives us just a lot of flexibility we provided full details on the new order book and this morning's release.

We now expect to receive 85 passion eight this year and plan to retire 41 dash seven hundreds. This leaves our net expected increase of 44 aircraft unchanged from our previous guidance.

Tammy Romo: And with that, I will turn the call over to Tammy. Thank you, Bob, and hello, everyone. First, I'd like to extend another thanks to our wonderful employees for their continued hard work this year, especially in challenging environment.

All of this into consideration our 2023 Capex outlook remains approximately $3 5 billion.

Looking to 2024 reiterating what Bob shared we are planning for capacity levels that better match. The current environment. We now expect 2024 capacity to be up 6% to 8% year over year.

Tammy Romo: Ryan and Andrew will speak to our revenue trends and operational performance, so I will jump right to cost. Beginning with fuels, our third quarter jet fuel price was $2.78 per gallon towards the higher end of our guidance as crude oil prices consistently rose throughout the quarter. Peaking to nearly $100 per barrel in late September, and rising refinery margins added further pressure to our third quarter fuel price. Moving into fourth quarter, we currently estimate our fuel price to be in the $2.90 to $3.00 per gallon range, which includes an estimated 19 cents of hedging gains.

With our new order book, we have the fleet flexibility, we need to organize the company around a disciplined financial plan.

<unk> that we can adjust up or down to adapt to the current environment.

We continue to expect our five year capital spending on average to be in line with our previous guidance of roughly $4 billion per year.

Lastly, our balance sheet remains strong we are the only U S airline with an investment grade rating by all three rating agencies.

Tammy Romo: We now estimate our full year 2023 fuel price to be in the $2.85 to $2.95 per gallon range, including 14 cents of hedging gains. The total fair market value of our fuel hedge portfolio for fourth quarter through 2026 is $538 million. We added modestly to our fuel hedge position for 2026 during third quarter. We continue to be roughly 50% hedged in 2023 and are currently 55% hedged in 2024 in line with our goal to be roughly 50% hedged in each calendar year.

We have 11 7 billion and cash and short term investments and we continue to be in a net cash position.

Year to date, we have returned more than 400 million to our shareholders through dividend payment and made debt repayments of nearly $80 million.

Closing out the year, we expect to pay a modest $7 million and scheduled debt repayments and continue to expect our 2023 interest income to more than offset 2023 interest expense.

Let me close by saying I am tremendously proud of our people and their hard work as we look ahead. It is imperative we remain focused on building our 2020 plans and beyond should provide a resolute path to prosperity for our company.

Tammy Romo: Group. While we are not immune to rising oil prices, I am grateful that our hedging positions relieve some of the additional pressure. We continue to look for prudent opportunities to build out our hedge positions for future years.

Our employees and our shareholders.

We have a history of that <unk>, we do not rest on our laurels and I am confident we have all the elements needed to bring about the success you should expect from southwest Airlines.

Tammy Romo: Moving to nodule costs, our third quarter year over year chasm x increase of 4.4% was right in line with our previous guidance range driven primarily by higher labor rates for all employee work groups and the timing of planned maintenance expenses. Looking ahead to fourth quarter, we currently estimate our chasm x to decrease significantly year over year. There is a lot of noise in the year over year comparisons and the magnitude of the decrease is primarily due to impacts from elevated operating expenses and lower capacity levels in fourth quarter 2022 as a result of last year's operational disruption. Our guidance range is inclusive of wage rate increases associated with the recently announced tentative agreement with our fly determinants.

And with that I will turn it over to Ryan.

Thank you Tammy I'm going to walk through a review of our third quarter revenue results provide context for our fourth quarter outlook and share some exciting commercial updates with you today.

For additional detail on our revenue performance. Please see this mornings earnings release.

Starting with third quarter demand continues to be healthy operating revenue was a third quarter record of just over $6 5 billion and on a year over year basis operating revenue was up nearly 5% and.

And thats on a tough compare period, given pent up domestic travel was still underway last year. When you compare revenue performance versus third quarter of 2019 operating revenue is up nearly 16% on 12% capacity growth also.

Also average fares were up two 6% year over year and are up over 7% over third quarter 2019.

Tammy Romo: You can find additional decals in this morning's press release. Given inflationary pressures, particularly labor rates, combined with moderated capacity growth, we are expecting increased headwinds to our 2024 year over year cost.

So while we have work to do to cover our unit cost challenges I am pleased we are moving in the right direction.

The nearly 5% operating revenue growth year over year on a capacity increase of 12, 5% had unit revenue or RASM declining six 8% for the third quarter of 2023.

Tammy Romo: While we hit major milestones this year, our margins are not where they need to be and we intend to be relentless until we deliver. We therefore plan to adapt our network and capacity plans to support but a reliable operation and improved return fund investments. Given our company's commitment and history towards maintaining a competitive cost advantage, our goal will always be to manage costs accordingly.

July 4th and Labor day travel came right in line with our expectations. However, our bookings for non peak August and September while stable came in at the lower end of our expectations. This performance aligns with false start dates for primary and secondary schools continuing to shift earlier and much of the country for example in our markets.

A third of schools, we're back in session by the second week of August which is nearly double what it was pre pandemic and nearly 95% of schools were back before the labor day weekend.

Tammy Romo: Now, turning to our fleet. During third quarter, we received a total of 18-8 deliveries and retired 4-700 ending the quarter with a fleet of 817 total aircraft. And we just finalized a new order book with Boeing which funds our long-term mid-single-digit growth plan and provides us the ability to phase out the dash 700 fleet over time. But really, it gives us just a lot of flexibility. We provided full details on the new order book in the 41-700.

We are planning for these back to school trends to continue as we work on our August 2024 capacity plans.

In addition, we had multiple records set from our ancillary products and our loyalty program. We had an all time best quarter for ancillary revenue with 24% year over year growth and rapid rewards set a third quarter record for revenue generated from the program New rapid rewards member acquisitions were a quarterly record.

And the number of engaged members grew 10% on a year over year basis.

Rapid rewards point redemptions were up 16% compared to the same period last year and retail spend on our co brand Chase credit card was also a third quarter record our.

Tammy Romo: This leaves our net expected increase of 44 aircraft unchanged from our previous guidance. Taking all this into consideration, our 2023 CAP-X outlook remains approximately 3.5 billion. Looking to 2024, reiterating what Bob shared, we are planning for capacity levels that better match the current environment. We now expect 2024 capacity to be up 6 to 8 percent year over year. With our new order book, we have the fleet flexibility we need to organize the company around a disciplined financial plan, one that we can adjust up our dam to adapt to the current environment.

Our customers love the benefits they get from the card as evidenced by our low cardholder attrition, which continues to be below pre pandemic levels.

Overall, we see a resilient consumer and high engagement with the southwest Airlines brand.

<unk> spending trends still favor services, particularly travel experiences and we expect that will continue.

Moving to the fourth quarter, we're seeing a continuation of healthy leisure booking demand and stable business travel patterns. As a result, we expect a nominal sequential increase in operating revenue, resulting in record fourth quarter revenue and passengers, which would bring us to three consecutive quarters of record operating revenue.

Tammy Romo: We continue to expect our five-year capital spending on average to be in line with our previous guidance of roughly $4 billion per year. Lastly, our ballot sheet remains strong. We are the only US airline with an investment grade rating by all three rating agencies. We have $11.7 billion in cash and short-term investment and we continue to be in a net cash position. Year to date, we have returned more than $400 million to our shareholders through dividend payments and made debt repayments of nearly $80 million.

October performance has been strong to date and bookings for the holidays as a whole are also strong.

RASM, however continues to be impacted by higher than seasonally normal capacity driven by our network restoration plan, a larger than normal investment in development markets and business travel that while improving its still below historical levels.

We also expect to close and leisure trends, we saw in non peak August and September will persist into the non holiday periods of the fourth quarter and our guidance range does contemplate potential challenges from this year's holiday placement, including the expectation that a portion of return travel will spill into January.

Tammy Romo: Closing out the year, we expect to pay a modest $7 million in scheduled debt repayment and continue to expect our 2023 interest income to more than offset 2023 interest success. Let me close by saying I am tremendously proud of our people and their hard work.

I am encouraged however that we have higher booked load factors for the December holiday period. This year than we had at the same point last year, which indicates to me we're not experiencing significant book away as a result of last year's operational disruption.

Tammy Romo: As we look ahead, it is imperative we remain focused on building our 2024 plans and beyond to provide a resolute path to prosperity for our company, our employees and our shareholders. We have a history that proves we do not rest on our goals and I'm confident we have all the elements needed to bring about the success you should expect from Southwest Airlines.

All in we expect RASM in the fourth quarter to finish down 9% to 11% on a year over year basis on capacity up approximately 21%.

Again, we are steadfastly committed to addressing RASM performance to ensure a revenue plan that is appropriate for the current demand and cost environment in the near term we are continuing to execute our strategy of fare sale campaigns to address low demand flights with meaningful advanced purchase requirements. This helps build load factor and sub <unk>.

Ryan Green: And with that, I will turn it over to Ryan. Thank you, Tammy. I'm going to walk through a review of our third quarter revenue results, provide context for our fourth quarter outlook and share some exciting commercial updates with you today.

<unk> capacity without impacting higher demand flights were diluting close in yield strength.

Ryan Green: For additional detail on our revenue performance, please see this morning's earnings release. Starting with third quarter, demand continues to be healthy, operating revenue was a third quarter record of just over $6.5 billion and on a year-over-year basis, operating revenue was up nearly 5%. And that's on a tough compare period given 10 tough domestic travel was still underway last year. When you compare revenue performance versus third quarter of 2019, operating revenue is up nearly 16% on 12% capacity growth.

Looking to 2024 as Bob mentioned, we will address RASM by moderating capacity to better match demand and optimizing our schedules to accommodate current travel behaviors.

Ryan Green: Also average fares were up 2.6% year-over-year and are up over 7% over third quarter 2019. So while we have work to do to cover our unit cost challenges, I am pleased we are moving in the right direction. The nearly 5% operating revenue growth year-over-year on a capacity increase of 12.5% had unit revenue or rather declining 6.8% for the third quarter of 2023. July 4th and Labor Day travel came right in line with our expectations.

Our current set of strategic initiatives, including GDS participation and the new revenue management system will also contribute incremental pretax profit to 2024 as they mature and hit their full run rates.

Finally, we're tireless and working to make customer experience on southwest Airlines, even better and drive even more loyalty from our customers earlier. This month, we announced several exciting updates and the first involves several enhancements to our award winning rapid rewards program.

We will add the ability for customers to combined rapid reward points with cash next spring, which increases the ubiquity of our loyalty currency and makes it easier to book additional flights on southwest Airlines. We also made it easier to reach our a list an alias preferred levels in 2024 and are looking to reward our customers for their loyalty and entice them to <unk>.

With us whenever they travel we have an imperative to win more customers and drive more travel from our most frequent travelers and these enhancements are designed to give them even more reasons to choose southwest Airlines.

Ryan Green: However, bookings for non peak August and September while stable came at the lower end of our expectations. This performance aligns with ball start dates for primary and secondary schools continuing to shift earlier in much of the country. For example, in our markets, a third of schools were back in session by the second week of August, which is nearly double what it was pre-pandemic and nearly 95% of schools were back before the Labor Day weekend.

We also launched a new product for our corporate customers last week that will help us continue to grow our market share in the managed travel space, our new products streamlines the process to book group travel for meetings incentives and conventions, which is one of the fastest growing segments in the managed travel space.

Ryan Green: We are planning for these back to school trends to continue as we work on our August 2024 capacity plans. In addition, we had multiple records set from our ancillary products and our loyalty program. We had an all-time best quarter for ancillary revenue with 24% year-over-year growth and rapid rewards set a third quarter record for revenue generated from the program. New rapid rewards member acquisitions were a quarterly record and the number of engaged members grew 10% on a year-over-year basis.

I'm very pleased with the response to the product so far.

As we already have millions of dollars in travel booked on the new tool in just the first few days.

Finally, we recently introduced customer bag tracking which gives our customers the ability to track their checked bag throughout their day of travel both at the airport and in flight. This improvement was one of the investments we accelerated following last december's disruption by providing additional transparency and information to customers about where their backs are during their travel journey.

We're elevating the travel experience and removing friction for our customers. This enhancement is an early release of our larger digital hospitality modernization plan.

Ryan Green: Cases. Rapid Awards point redemptions were up 16% compared to the same period last year, and retail spend on our co-brand Chase credit card was also a third quarter record. Our customers lost the benefits they get from the card, as evidenced by our low card holder attrition, which continues to be below pre pandemic levels. Overall, we see a resilient consumer and high engagement with the Southwest Airlines brand. Consumer spending trends still favor services.

So congratulations to the teams that worked so hard to bring these great enhancements in solutions to market for our customers.

Ultimately, we have to continue to win customers, while taking into account the challenges of higher cost inputs as we build both our long term commercial strategies and our near term revenue plans and we're committed to doing just that.

Ryan Green: Particularly travel experiences, and we expect that will continue. Moving to the fourth quarter, we're seeing a continuation of healthy leisure booking demand and stable business travel patterns. As a result, we expect a nominal sequential increase in operating revenue, resulting in record fourth quarter revenue and passengers, which would bring us to three consecutive quarters of record operating revenue. October performance has been strong today and bookings for the holidays of the whole are also strong.

With that I'll turn it over to Andrew.

Thank you Ryan and Hello, everyone I'm going to wrap up our prepared remarks with a brief overview of our operational performance.

An update on winter operations action plan and some additional details on our capacity and network plans for next year.

Before I dive into those details I want to commend both negotiated committees that work diligently on tentative agreement just reach with our flight attendants, which we.

We voted on by our employees seven this agreement offers industry, leading compensation increases and quality of life enhancements.

I am very pleased with our strong improvements in operational performance and very appreciative of our southwest Warriors.

Ryan Green: Rasm, however, continues to be impacted by higher than seasonally normal capacity driven by our network restoration plan, a larger than normal investment in development markets, and business travel that while improving is still below historical levels. We also expect the close in leisure trends we saw in non peak August and September will persist into the non holiday periods of the fourth quarter, and our guidance range does contemplate potential challenges from this year's holiday placement, including the expectation that a portion of return travel will spill into January.

We saw broad based improvements in our operating metrics, which are recognized by our customers through increased trip net promoter scores.

Early morning, originators turn compliance in turn differential completion factor that is handled by great long delayed rate and on time performance all showed substantial year over year improvement.

If not for longer than anticipated block times from congestion whether in runway construction our performance would have been even better.

All of this resulted in a net promoter score that is nearly four points higher than last year that.

Ryan Green: I am encouraged, however, that we have higher booked load factors for the December holiday period this year than we had at the same point last year, which indicates to me we're not experiencing significant book away as a result of last year's operational disruption. All in, we expect Rasm in the fourth quarter to finish down 9-11% on a year-over-year basis on capacity of approximately 21%. Again, we are steadfastly committed to addressing Rasm performance to ensure a revenue plan that is appropriate for the current demand and cost environment.

That is certainly driven by our proven reliability, but also our customer experience initiatives, including our improved Wi Fi.

We're excited about the solid trend in the right direction. It gives us lots of reasons to be optimistic about 2024.

And speaking of the right direction I'm excited to share an update on our winter preparedness.

The disruption we had last winter was really hard on our customers and our employees.

Weighed heavily on all of US here itself with airlines.

We have a lot of price based on a 50 plus year history.

So preparing to prevent something like that from happening again was it is an imperative.

Ryan Green: In the near term, we are continuing to execute a strategy of fair sale campaigns to address low demand flights with meaningful advance purchase requirements. This helps build load factor and sub optimal capacity without impacting higher demand flights or diluting close in yield strength. Looking to 2024, as Bob mentioned, we will address Rasm by moderating capacity to better match demand and optimizing our schedules to accommodate current travel behaviors. Our current set of strategic initiatives, including GDS participation and the new revenue management system, will also contribute incremental pre-tax profits to 2024 as they mature and hit their full run rates.

Of course, the disruption was triggered by an unprecedented storm that simultaneously hit several of our most critical stations.

But there were many causes not just one that led to it as a result, our action plan is divided into three categories one.

In our operations.

Cross team collaboration.

And accelerating operational investments, which were already on our road map, including technology.

One thing that really impacted us with Elliot is a 25% of our crew our base of different Chicago.

When we are unable to maintain sufficient throughput during winter operations, we can't get our crew out to the network.

When this happens it puts great stress on our crew network, which is what happened with Elliot.

Ryan Green: Finally, we're tireless in working to make customer experience on Southwest Airlines even better and drive even more loyalty from our customers. Earlier this month, we announced several exciting updates and the first involves several enhancements to our award-winning rapid awards program. We will add the ability for customers to combine rapid award points with cash next spring, which increases the ubiquity of our loyalty currency and makes it easier to book additional flights on Southwest Airlines.

So a key part of our action plan is to have more robust winter operations. So we can be confident we can get our crews out in the network to operate through bad weather.

So we invested in key stations based on calculated throughput needed to maintain our crude network we've added de-ice pads.

The ice trucks increased like all storage and mixing stations.

Snow removal, Peter cards, and other equipment to operate safely and effectively and winter weather.

Ryan Green: We also made it easier to reach our A-list and A-list preferred levels in 2024 and are looking to reward our customers for their loyalty and entice them to apply with us whenever they travel. We have an imperative to win more customers and drive more travel from our most frequent travelers, and these enhancements are designed to give them even more reasons to choose Southwest Airlines. We also launched a new product for our corporate customers last week that will help us continue to grow our market share in the managed travel space.

We have been collecting the ICU summer school to make sure we have plenty of ramp agents trained and ready to go for dicey.

That's just a few examples of tangible things we have done.

We're now so much better prepared for these extreme weather events.

Moving to cross team collaboration we now have our network planning and network operations teams under the same organization, allowing them to work together to make the best decisions quickly.

We have formed a special operating group called the network disruption pod, the coordinate decision, making and our control center, where there are high risk disruption events and I've used this group for Vince This summer.

Ryan Green: Our new product streamlines the process to book group travel for meetings, incentives and conventions, which is one of the fastest growing segments in the managed travel space. Very pleased with the response to the product so far, as we already have millions of dollars in travel booked on the new tool in just the first few days. Finally, we recently introduced customer bag tracking, which gives our customers the ability to track their check bags throughout their day of travel, both at the airport and in flight.

Additionally, we have conducted multiple operations wide tabletop exercises of our Gulf War games involving winter weather scenarios to prepare our teams for the season.

And we've talked a lot already about the immediate monetization of an enhancement to our systems early on there was a misconception that technology problems caused an operational disruption.

Ryan Green: This improvement was one of the investments we accelerated following last December's disruption by providing additional transparency and information to customers about where their bags are during their travel journey. We're elevating the travel experience and removing friction for our customers. This enhancement is an early release of our larger digital hospitality modernization plan. So congratulations to the teams that work so hard to bring these great enhancements and solutions to market for our customers.

Was the opposite operational problems caused technology problems.

Since the disruption we've bolstered those systems with upgrades to address the specific issues, we experienced during winter storm Elliot.

We're also rolling out a proprietary new system that is unique in the industry.

The crew first approach, we're developing solutions to large scale irregular operations.

I share all that detail really those are just a few examples to demonstrate the level of action, we have taken were better than ever and feel confident as we go into the holiday winter holiday travel season.

Ryan Green: Ultimately, we have to continue to win customers while taking into account the challenges of higher cost inputs as we build both our long term commercial strategies and our near term revenue plans and we're committed to doing just that with that.

Finally, I'll wrap up by talking a little bit more about what we're doing with capacity and the network next year to ensure that we are on a path to operational and financial excellence.

Andrew Watterson: I'll turn it over to Andrew. Thank you, Ryan and hello everyone. I'm going to wrap up our very marks for the brief overview of our operational performance, an update on winter operations action plan and some additional details on our capacity and network plans for next year.

Going back to April we committed to orderly and measured growth.

Stable growth helps us regain efficiency absorb our hiring mature workforce and improve our operational performance.

Andrew Watterson: Before I dive into those details, I want to commend both negotiating committees that work diligently on the 10th agreement, just reach for their flight attendance, which should be voted on by employees soon. This agreement offers industry-leading compensation increases and quality of life enhancements. I'm very pleased with our strong improvements in operational performance and very appreciative of our selfless warriors. We sell broad-based improvements in our operating metrics, which are recognized by our customers to increase trip net promoter scores.

We also have to take in consideration demand levels and travel patterns as we determine our growth and build our network.

As we develop our 2024 capacity is that we are doing exactly that.

The past couple of years, we focus on growth through our store network and fully utilize our fleet.

Andrew Watterson: Our early morning originators turn compliance and turn differential completion factor, miss handle bag rate, long delay rate, and all type performance all showed substantial year of year improvement. If not for longer than anticipated block times from congestion, weather, and runway construction, our performance would have been even better. All of this resulted in a trip net promoter score that is nearly four points higher than last year. That is certainly driven by our proven reliability, but also our customer experience initiatives, including our improved Wi-Fi. We're excited about the solid trend in the right direction, because it's lots of reasons to be optimistic about 2024.

That combined with business travel trends and our investments in Hawaii, New cities has created challenges to our current unit revenue performance.

Therefore, as we look to 2024 were moderating our capacity, which will allow the growth to be absorbed.

And as we shared last quarter, we are taking actions to accelerate the maturation of our developing markets and to optimize our schedules to current travel patterns.

The most recent examples of today's announcement they were shifting the bulk of the international service in Fort Lauderdale to Orlando.

This will offer better connectivity and our domestic network via the nearly 140 daily departures that MTO.

We are fully committed to delivering on our plan that enables operational excellence improves operational efficiency.

And reiterate what Bob said at the beginning of the call that generates value for our employees customers shareholders.

Andrew Watterson: And speaking of the right direction, I'm excited to share an update on our winter preparedness. The disruption we had last winter was really hard on our customers and our employees. It weighed heavily on all of us here at Southwest Airlines. We have a lot of pride based on our 50 plus year history, so preparing to prevent something like that from happening again was, and is, an imperative. Of course, this option was triggered by an unprecedented storm that simultaneously hit several of our most critical stations. But there were many causes, not just one, that led to it.

And with that I'll turn it back over to Julia.

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.

Please go ahead and begin our analyst Q&A.

Ladies and gentlemen, we will now begin the question and answer session to ask a question you May Press Star and then one on your Touchtone telephone you.

We are using a speaker phone, we do ask that you. Please pickup your handset before pressing the keys to ensure the best sound quality.

Andrew Watterson: As a result, our action plan is divided into three categories. Winter operations, frost team collaboration. Foundation, and Accelerating Operational Investments, which were already on our road map, including technology. One thing that really impacted us with Elliott is that 25% of our crew are based in different Chicago. When we are unable to maintain sufficient throughput during winter operations, we can't get our crew out into the network. When this happens, it puts great stress on our crew network, which is what happened with Elliott.

To withdraw your question you May press Star two.

Once again that is star and then one to join the question queue.

Our first question comes from Savi <unk> from Raymond James. Please go ahead with your question.

Hey, Ed.

Good afternoon.

If I might on the 2024 plan you talked about inflationary kind of headwinds to unit costs.

And you historically don't necessarily Jeff's capacity once Kenneth schedules are loaded I was wondering if you could provide a little bit more color on how we should think about unit costs in 2024.

Andrew Watterson: So, a key part of our action plan is to have more robust winter operations so we can be confident that we can get our crews out in the network to operate through bad weather. So, we invest in key stations. Based on calculators throughput needed to maintain our crew network, we have added DI's pads, DI's trucks, increased glycol storage and mixing stations, increased snow removal, heater carts, and other equipment to operate safely and effectively in winter weather.

Is this going to be up year over year end.

With some of the kind of the bigger drivers.

Unit cost trends.

Savi, it's Bob Thanks for the question and I want to start just first.

Got it.

We are with the quarter I mean, the quarter was really solid.

Record operating revenues passengers rapid reward program revenues retail spend on the card new members in the program. So I mean, just really pleased with the quarter.

Andrew Watterson: We have been conducting DIH in summer school to make sure we have plenty of rampages trained and ready to go for DIC. That's just a few examples of tangible things we have done. We are now so much better prepared for these extreme weather events. Moving across team cooperation, we now have our network planning and network operations teams under the same organization, allowing them to work together to make the best decisions quickly.

And obviously another accomplishment was restoring the network and getting all of our aircraft flying So we do have higher sequential capacity and has higher capacity general than typical and.

As you know travel patterns are changing.

Andrew Watterson: We have formed a special operating group called the network disruption pod to coordinate decision-making in our control center when there are high risk disruption events and have used this group for events this summer. Additionally, we have conducted multiple operations wide tabletop exercises, often called war games, involving winter weather scenarios to prepare our teams for the season.

While it's still strong they are changing for leisure, but theyre also changing for business as well.

We're seeing gains but the.

That last 10 to 15 points of business recovery is a little bit stubborn here. So we are working on capacity.

Capacity don't Wanna be slaves to capacity here so.

Going in and we are reducing the first quarter.

Andrew Watterson: We have talked a lot already about the immediate modernization of and enhancement to our systems. Early on, there was a misconception that technology problems caused an operational disruption. It was the opposite. Operational problems caused technology problems. Since the disruption, we bolstered those systems with upgrades to address the specific issues we experienced during winter storm Elliott. We are also rolling out a proprietary new system that is unique in the industry. It takes a crew first approach when developing solutions to large scale irregular operations.

Older periods or just tougher January February.

We are.

We're not ready to talk about the whole 2024 plan, we're working on that right now very diligently, but the overall planning capacity for the year has come down to the six to eight range.

As essentially all carryover from the restored capacity into 2020 three is just carrying over into 2000.

Four.

But thats going to result in things like nominal seats in the back half of next year that will actually be down as compared to 2022. So I just wanted to set the.

Andrew Watterson: I share all that detail. I really do just a few examples to demonstrate the level of action we have taken. We are so better than ever and feel confident as we go into the winter holiday travel season.

So sort of the lay the groundwork for how we're thinking about capacity is all about.

Andrew Watterson: Finally, I will wrap up by talking a little bit more about what we are doing with capacity and the network next year to ensure that we are going to pass to operational and financial excellence. Going back to April, we committed to orderly and measured growth. Stable growth helps us regain efficiency, absorb our hiring, mature our workforce, and improve our operational performance. We also have to take a consideration to demand levels and travel patterns as we determine our growth and build our network.

Two things and it's about <unk>.

Turing and absorbing the capacity that we have restored in 'twenty three.

<unk> 24, Thats really how were thinking about capacity as you pulled out capacity that will create pressure obviously on cost. It always does we're still working on our plan we're.

We're going to work both sides of the equation and we're going to work.

Cost and the efficiency plan here, we've got a lot of opportunity to drive out efficiencies as we slow the growth and focus on.

Andrew Watterson: As we develop our 2024 capacity set, we are doing exactly that. In the past couple of years, we focus on growth to restore our network and fully utilize our fleet. That combined with business travel trends in our investments in Hawaii and new cities has created challenges to our current unit revenue performance. Therefore, as we look to 2024, we are moderating our capacity which will allow the growth to be absorbed. And as we shared last quarter, we are taking actions to accelerate the maturation of our developing markets and to optimize our schedules to current travel.

Pulling that.

Pulling down our hiring and.

Getting folks out of training all of those kinds of things, but we're going to work the revenue side as well, but yes just.

Admit that does put a little bit of pressure on our costs as we pulled down capacity always does Tim if you want to say.

Thank you.

You covered everything really well Bob.

So I'm going to give you.

Andrew Watterson: Patterns. The most recent examples, it's an announcement they were shifting the bulk of the international service in Fort Lauderdale to Orlando. This will offer better connectivity in our domestic network via the nearly 140 daily departures at MCO. We're fully committed to delivering on a plan that enables operational excellence, improves operational efficiency, and reedering what Bob said at the beginning of the call that generates value for employees, customers, and shareholders.

Maybe just a little more color on where we're seeing the.

Albion.

Cost pressures.

Clearly as we wrapped up.

A lot of agreements this year with our with our labor grid.

We have seen.

More inflation than normal and labor.

And that's.

That's driven by the higher wage rates and we've been as you know occurring for those two.

Julia Landrum: And with that, I'll turn it back over to Julia.

Jamie: 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. Please go ahead and begin our analyst Q&A.

Throughout the year.

And then outside of Labor, where we will see some inflationary pressures in maintenance.

Our 800 fleet is coming off.

Jamie: Ladies and gentlemen, we will now begin the questionnaire and answer session. To ask a question, you may press star and then one on your touchstone telephones. You are using a speaker phone. We do ask that you please pick up your hands that before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Once again, that is star and then one to join the question queue.

The holiday.

So just wanted you to keep that in mind.

That wind down.

But we are very all of that said we are focused in on our 2024 plan.

We are going to work really hard here to drive efficiencies and certainly leverage our network opportunities.

Saudi Sith: Our first question comes from Saudi Sith from Raymond James. Please go ahead with your question. Hey, good afternoon. If I'm light on the 2024 plan, you talked about inflationary kind of headwinds to unit cost. And you historically don't necessarily adjust capacity once kind of schedule is loaded. I was wondering if you could provide a little bit more color on how we should think about unit cost in 2024. This is going to be up here over here and some of the bigger drivers of the unit cost range. Thanks for the question.

So a little premature to give you guidance for the year.

We're going to keep working really hard on our plan here.

To manage our.

Our CASM X cost going forward and we haven't backed off of our Investor day, what we shared with you at our 2022 Investor day.

Our longer term goal is to grow CASM ex and a low single digit range and that would be on mid single digit capacity growth.

That's all very helpful. I appreciate that maybe.

Bob Jordan: I want to start just first with just kind of where we are with the quarter. I mean, the quarter was really solid. I mean, record operating revenues, passengers, rapid roar program revenues, retail spend on the car, new members in the program. So I mean, just really pleased with the quarter. And obviously another accomplishment was restoring the network and getting all of our aircraft flying. So we do have higher sequential capacity and just higher capacity general than typical.

Kind of following up on that just on the fleet side.

I know you have a contractual fleet here.

Sure.

Joel to again take as many aircraft and then offset it with retirements or how should we think about the.

The aircraft deliveries next year and it may even maybe boeing's ability to to meet it.

Yes, sorry, Golar number one with our and we've been talking about re flowing our fleet order book with Boeing goal number one was to just get to orderly steady growth in the fleet plan I think if you look at your.

Bob Jordan: And as you know, travel patterns are changing for while it's still strong. They're changing for leisure. But they're also changing for business as the, you know, we're seeing gains, but that last 10 to 15 points of business recovery is a little bit stubborn here. So we are working on capacity. Don't want to be slaves to capacity here. So we're going in and we are reducing the first quarter. The shoulder periods are just tougher January, February.

Stacking of lock.

A lot of aircraft up that were delayed.

I think it pushed beyond even what you saw the plan.

Every expectation of $1 43, I think in 2024, which of course, we are not doing so I'm really happy Boeing has been a great partner, we've got a new fleet plan that takes us that is very orderly and it takes us through.

Bob Jordan: We are, we're not ready to talk about the whole 2024 plan. We're working on that right now very diligently, but the overall plan and capacity for the year has come down to the 6 to 8 range, which is essentially all carry over from the restoring capacity into 20 to 20. 3 just just carrying over into 24. But that's going to result in things like phenomenal seats in the back half of next year that will actually be down as compared to 2022.

1031.

At very attractive pricing and there is a lot of flexibility in the new order book. So we can flex up and we can flex down.

As you see demand trends.

Changing both ways.

Thinking about 2023, we've been talking about again, taking control of the order and delivery plan.

And planning to that our schedule as we plan to 70 Boeing it looks like we will now be able to take 85. This year from Boeing and we will just offset that directly with retirements, which of course is a.

Bob Jordan: So I just want to set the sort of the lay the groundwork for how we're thinking about capacity is all about two things. It's about maturing and absorbing the capacity that we have restored in 23 and 24. That's really how we're thinking about capacity. As you pull down capacity that that'll create pressure obviously on cost. It always does. We're still working on our plan. We're going to work both sides of the equation.

That's a solid financial trade.

And then our goal next year is too.

Take 85% of Tammy you want to add anything and you covered it all.

But again the new order is all about re flowing this so that the growth is orderly and steady and we have access to a lot of aircraft at attractive pricing and we have a lot of flexibility.

Very helpful. Thank you.

Bob Jordan: We're going to work the cost and the efficiency plan here. We've got a lot of opportunity to drive out efficiencies as we slow the growth and focus on pulling down, you know, pulling down our hiring and getting folks out of training all those kinds of things. But we're going to work the revenue side as well. But yeah, I said just with admit that it does put a little bit of pressure on our cost as we pull down capacity always does. Tammy, if you want to say anything. You've covered everything really well, Bob.

Youre welcome.

Our next question comes from Catherine O'brien from Goldman Sachs. Please go ahead with your question.

Hey, good morning, everyone. Thanks, so much for the time.

Maybe just a follow up on the cost question, if you don't mind.

Two things.

I know you're not prepared to talk about.

<unk> guidance on 2024 and totally appreciate that.

The growth plans of change, but I think last quarter. You said you were committed to driving costs down year over year doing just back at the table for that and then on the labor inflationary pressures you're talking about I know you've been accruing this year, so what's driving that incremental into.

Tammy Romo: I just, you know, saw me to give you maybe just a little more color on where we're seeing, you know, the obvious cost pressures. Clearly, as we've wrapped up a lot of agreements this year with our labor groups, we have seen more inflation than normal in labor. And, you know, that's driven by the higher wage rates. And we've been, as you know, occurring for those throughout the year. And then outside of all labor, we're, we'll see some inflationary pressures in maintenance as our 800 fleet is coming off the holiday.

Into next year is that just wage rate increases are higher than they used to be or or something else in the pay package. Thanks. So much.

Yes Katy.

And just to give you a little more help there.

It really boils down to.

Two factors one is we have moderated our capacity growth plans and and we.

We are continuing to see labor rate pressure.

And just to really take you maybe through our fourth quarter call.

<unk> profile.

To help you as you sort of model for first quarter.

Tammy Romo: So, just wanted you to keep that in mind as that wind down. But we are very, all that said, we are focused in on our 2024 plan. We are going to work really hard here to drive efficiencies and certainly leverage our network opportunities. So, a little premature to give you guidance for the year, but we're going to keep working really hard on our plan here to manage our, our, our, our Casam X cost going forward.

Excluded.

If you exclude the 15 point.

Year over year disruption related.

Pack to our fourth quarter CASM ex outlet.

It would actually be down one 4% year over year and as Bob mentioned earlier.

In terms of our cost profile, while we've had some structural cost increases here our cost.

Our cost.

Relative to the industry and the net and the legacy carriers and still very much intact.

<unk>.

Tammy Romo: And we have it backed off of our investor day. We'll be sure with you at our 2022 investor day, you know, our longer term goal is to grow Casam X and the load of single digit range. And that would be on the single digit capacity growth. That's all very helpful. I appreciate that.

If you move sequentially from fourth quarter.

The cost headwinds are spinning.

Mostly from overall inflation, namely labor cost that is our most significant inflationary factor.

So.

And despite the labor accruals, we have been recording.

Bob Jordan: Maybe kind of following up on that just on the fleet side. I know you have a contractual fleet here. Is your kind of goal to again take as many aircraft and then offset it with retirements? Or how should we think about the aircraft deliveries next year? And then it may even be Boeing's ability to meet it? Yeah, sorry, the goal number one with our, we've been talking about reflowing our fleet orderbook with Boeing.

<unk>.

We still expect year over year pressure next year from normal annual Stephens as scale increases as you would expect.

And then just beyond those labor cost pressures.

We anticipate continued year over year cost pressure.

The accelerated depreciation related to our fleet modernization efforts and already mentioned maintenance costs.

Again, the key reconciling item here is.

The fact that we've moderated our capacity plan.

Bob Jordan: Goal number one was to just get to orderly, steady growth in the fleet plan. I think if you look at, you know, we were stacking a lot, a lot of aircraft up that were delayed. And I think it pushed beyond even what you saw the plan, you know, delivery expectation of 143, I think in 2024, which of course we're not doing. So I'm really happy Boeing's been a great partner. We've got a new fleet plan that takes us, that is very orderly.

For next year, which does.

Put further pressure to our unit cost, but we are not done with our 2024 plan and we're not content with our cost outlook.

So we are rolling up our sleeves, and we're going to keep working on and proving that outlook.

So that hopefully gives you a little bit more color into kind of the cost and what is sticky.

Bob Jordan: It takes us through 2031 at very attractive pricing. And there is a lot of flexibility in the new order book. So we can flex up and we can flex down as you see demand trends changing both ways. Do you think about 2023? We've been talking about, again, taking control of the order and delivery plan and planning to that, and our schedules we plan to 70, Boeing looks like we will now be able to take 85 this year from Boeing.

And again, our focus now is on wringing out those costs and efficiency and driving for better productivity as we moderate our growth plans next year. So.

We're going to stay hard at work on managing our costs, we have a great track record in doing that.

<unk>.

Sure.

We are determined to manage our costs as we have for our 50 plus history.

And of course, you know for everybody.

Bob Jordan: And we'll just offset that directly with retirements, which of course is a, that's a solid financial trade. And then our goal next year is to take 85. I'm Tammy. Do you want to add anything? And you covered it all. But again, the new order is all about refloing this so that the growth is orderly and steady. And we have access to a lot of aircraft at attractive pricing. And we have a lot of flexibility. Very helpful. Thank you. You're welcome.

The labor cost increases.

That's a phenomenon that we're all seeing.

As we renegotiate contracts and some of the timing of different folks, but those are going to be cost, but I think you're going to see generally across the board. It always takes in there.

Coming in a lump and it always takes time to adapt to the higher cost structure.

And as you move across a period of time. The good thing is back to the network work, we're very committed to.

Katherine O'Brien: Our next question comes from Katherine O'Brien from Goldman Sachs. Please go ahead with your question. Hey, good morning, everyone. Thanks so much for the time. Maybe just to follow up on the cost question, if you don't mind, two things. You know, I know you're not prepared to talk about exact items on 2024 and totally appreciate that the growth plans have changed. But I think last quarter you said you were committed to drive and cost down year over year.

Taking network actually when we had already announced last quarter, a full restructuring of the network.

That is going to yield over $500 million in pretax profit contribution in 2024 beyond that now we're moderating the first quarter, we're moderating our full year again youre going to have seats in the back half of the year that are actually going to be down nominally.

Year over year and all of that is designed.

Katherine O'Brien: Are we just back at the at the wrong table for that? And then on the labor inflationary pressures you're talking about, I know you've been accruing this year. So what's driving that incremental into next year? Is that just, you know, weight reduction increases or higher than they used to be or something else in the pay package? Thanks so much. Yes, Katie. Just to give you a little more help there, it really boils down to two factors.

To match the demand to the network and match in the network to the demand, which should ultimately help revenue production help RASM production.

Thanks, so much for that.

You're welcome Bob maybe just my quick follow up.

We're going through another earning season, where there's quite a lot of focus on premium products. I guess is your view that those will still proved to be cyclical in the next downturn whenever that might be I guess really just interested in hearing how youre assessing demand for premium products and what data points can change your mind on your current product offering. Thanks, so much.

Katherine O'Brien: One is we have moderated our capacity growth plans and we are continuing to see labor rate pressure and just to really take you maybe through our fourth quarter cost profile to help you as you sort of model for first quarter. You know, if you exclude, if you exclude the 15-point year over year disruption related impact to our fourth quarter of Casamex outlook, we would actually be down one to four percent year over year.

Yeah, I'll start and Brian can get back clean up with with me here, but.

Yes.

I don't want to speak for others, and it's always hard to predict the future.

But yes, there is clearly a.

That outperformance and long haul international and premium right now like there was a <unk>.

Outperformance in domestic leisure at this time last year.

Typically.

<unk>.

Trends moderate they always have been in this business a very long time.

All things tend to sort of work their way back to a trend here we will see.

Katherine O'Brien: And as Bob mentioned earlier, you know, in terms of our cost profile, while we've had some structural cost increases here, our cost advantage relative to the industry and then the legacy carriers is still very much impact. But if you move us quickly from fourth quarter, the cost headwinds are stemming mostly from overall inflation, namely labor cost. That is our most significant inflationary factor. Group. So, and despite the labor accruals we've been recording, we still expect your over your pressure next year from normal annual step and scale increases as you would expect.

And if you think about southwest Airlines, we've got a tremendous coach product we've got.

Terrific seeding and great rapid rewards program and Wi Fi at all kinds of amenities or putting in power and larger overhead bins. We just announce backtracking. So we're obviously enhancing our product ourselves, which is a little different than premium, but certainly I think we have the most attractive coach product in.

Katherine O'Brien: And then just beyond those labor cost pressures, we anticipate continued your over your cost pressure by the accelerated depreciation related to our fleet, modernization efforts. And already mentioned maintenance costs. So again, the key reconciling item here is the fact that we've moderated our capacity plans for next year, which does put further pressure to our unit costs. But we are not done with our 2024 plan and we're not content with our cost outlook.

The industry.

Maybe attached to that we're always looking at what our customers are.

Our preferences are and what they are telling us and while we studied that and if over time.

Those preferences change we will take a look at what that means for southwest Airlines, Brian Yes, the only thing I would add is.

Historically premium revenue has been one of the more cyclical items.

In the in the industry overall so.

Recovery from the pandemic has been a little bit.

Different than other periods. So we're watching it we're watching it closely if we if there is some shift in consumer demand here that we need to take note of and evolve the product.

We will but I think you've got to be very careful with that and study that very closely given the cyclical nature of historical historically of premium revenue.

But just like we have over our 50 year history, we listened to customers we understand how.

Katherine O'Brien: So we are rolling up our sleeves and we're going to keep working on and proving that outlook. So that hopefully gives you a little bit more color into, you know, kind of a cost and what is sticky. And again, our focus now is on ringing our costs and efficiently and driving for better productivity as we moderate our growth plans next year. So we're going to stay hard at work on managing our cost.

What they are demanding and preferences, how those change and we've evolved our product over time, and we'll continue to do that.

As we go forward as we need to.

Thank you very much.

Our next question comes from Duane <unk> from Evercore ISI. Please go ahead with your question.

Okay. Thanks.

Probably a question that's been asked.

Katherine O'Brien: We have a great track record in doing that. And we're determined to manage our costs as we have for our 50 plus history. And of course, you know, for everybody, I mean, the labor cost increases are made. That's the phenomenon we are all seeing as we already negotiate contracts and some of the time you different photo for folks, but those are going to be costs that I think you're going to see generally across the board.

A handful of times over the last few years I understand the plan is to get margins.

Up over time over the long run, but is there a specific plan to get margins up in 2024.

We hear a lot of pushback from investors about your unit revenue kind of exit rate.

And I think folks were kind of extrapolating that into the future and they are having a hard time seeing that path in 2024, So what does that path look like.

Katherine O'Brien: It always takes and they're coming in a lump and it always takes time to adapt to the higher cost structure. And as you move across a period of time, the good thing is back to the network work. We are very committed to taking network action. We had already announced last quarter a full restructure of the network that is going to yield over $500 million in pre-tax profit contribution in 2024. Beyond that now, we're moderating the first quarter, we're moderating the full year.

And what will be required to get margins up next year and is that explicitly a plant.

Yes, Duane obviously.

That is absolutely the plan to improve margins.

24, and we're committed to getting back to our long term outperformance.

And operating margin.

We were talking about adapting to these new cost level that will take time, but.

But we're moving quickly that is a big piece of adapting the network and matching.

Katherine O'Brien: Again, you're going to have seats in the back half of the year that are actually going to be now nominally year over year. And all of that is designed to match the demand to the network and match the network to the demand, which should ultimately help revenue production, help browser production. Thanks so much for that really helpful. You're welcome.

Customer demand.

And these new demand trends to the network that we put out for our customers both business and leisure we have a lot of opportunity to wring out costs and efficiency through operating leverage through new tools.

Through managing our head count we've got a lot of folks that are.

Locked up in training as an example, as we slow our hiring and slower growth here that will come out in terms of costs. We have a lot of cost plays that we can.

Bob Jordan: Maybe just my follow-up. You know, we're going through another earnings season where there's quite a lot of focus on premium products. I guess is your view that those will still prove to be cyclical in the next downturn, whatever that might be? I guess really just interested in hearing how you're assessing demand for premium products and what data points could change your mind on your current product offering. Thanks so much. Yeah, I'll start and Ryan can back clean up with me here, but you know, it's the I don't want to speak for others, and it's always hard to predict the future.

We can make we're still working on our 2024 plans, but yes, I can assure you that our return.

Our growth in 2024, and then a return to industry, leading margins and the margins that our shareholders expect.

Absolutely a commitment.

Jamie if you want to add anything Tammy and no and I thought that was very well said, but.

Again, we know we have work to do.

And we're fully committed to delivering on our 2024 plan.

Bob Jordan: But yeah, there's clearly an outperformance in long haul international and premium right now, like there was an outperformance in domestic leisure, you know, this time last year. Typically, you know, the trends moderate, they always have been in this business a very long time, and all things tend to sort of work their way back to a trend here. We'll see. And if you think about Southwest Airlines, we've got a tremendous coach product.

At.

Enable.

Our operational excellence.

We're going to drive operational efficiency.

<unk>.

As Bob said earlier work both sides of the equation so.

So stay tuned as we work through that we'll be back with more details and I will just do you want to remind you.

As we've already shared.

Bob Jordan: We've got terrific seating and great repertoire, which program and Wi-Fi and all kinds of amenities were putting in power. And larger over head bends, we just announced backtracking, so we're obviously enhancing our product ourselves, which is a little different than premium, but certainly think we have the most attractive coach product in the industry. Maybe attached to that, you know, we're always looking at what our customers are preferences are and what they're telling us, and we'll always study that.

Est.

Estimated benefit of our network optimization efforts.

Along with the continued maturation of our development markets.

We are still working on our plan and as we've shared we do expect that can exceed 500 million in incremental year over year pretax profits next year, but.

Clearly more work ahead and we will.

We're hard at work for you.

Thanks, Ed I appreciate those direct answers, but maybe just to throw out an alternative if you. If you can't get your margins going in the right direction next year, if it's more like 25 or 26.

Bob Jordan: And if, over time, those preferences change, we'll take a look at what that means for Southwest Airlines. Yeah, the only thing I would add is historically premium revenue has been one of the more cyclical items in the industry overall. So the recovery from the pandemic has been a little bit different than other periods. So we're watching it closely. If there is some shift in consumer demand here that we need to take note of and evolve the product we will.

What might you consider strategically.

Put on the table that hasnt been on the table before so if we think about things like seat assignments basic economy black bags fly free.

Historically those have been sacrosanct.

There'll be more of an urgency to.

More aggressively take a look at the product and the service offering.

Can't get there next year.

Yes.

Again.

We're working on our 2024 plan, so we're not ready to lay all that out.

The last set of.

Initiatives that we took you through several years ago. The one to $1 5 billion in EBIT. This year are paying off and we will have our next set.

Bob Jordan: But I think you want to be very careful with that and study that very closely given the cyclical nature historically, a premium revenue, but just like we have over our 50-year history, we listen to customers, we understand how what they're demanding and preferences, how those change and we've evolved our product over time and we'll continue to do that as we go forward as we need to. Thank you very much.

Some of those I think.

You will make perfect sense, we have the ability to.

Put flights into places, where we can drive.

The operating leverage, though those flight and flight activity has come on at lower CASM rates, we have some areas, where we can continue to really push the generation of revenue outside the cabin, obviously that centers around the rapid rewards program development and other areas we have.

Duane Sendingworth: Our next question comes from Dwayne Sendingworth from Evercore ISI. Please go ahead with your questions. Hey, thanks. Probably a question that's been asked a handful of times over the last few years. Understand the plan is to get margins up over time over the long run. But is there a specific plan to get margins up in 2024? We hear a lot of pushback from investors about your unit revenue kind of exit rate and I think folks are kind of extrapolating that into the future and they're having a hard time seeing that path in 2024.

Opportunities in terms of how we fly the aircraft and where we can drive up utilization and generate additional ASM.

Without having to take on capital costs of new aircraft.

Just not we're just not ready to share the whole plan with you just tried to convey that we're hard at work and there is a lot on the table.

To your specific question about things in the cabin or boarding.

Yes.

I would go back to what Ryan said, which is we're going to follow the lead of our customers and of our customers ultimately tell us that that is what they want and that is what we will do we're not ready to obviously not ready to say that today.

Duane Sendingworth: So what does that path look like and what will be required to get margins up next year and is that explicitly a plan? Yeah, Dwayne, obviously, that is absolutely the plan to improve margins in 2024 and we're committed to getting back to our long-term outperformance and operating margin. We're talking about adapting to these new cost levels that will take time but we're moving quickly. That is a big piece of adapting the network and matching customer demand and these new demand trends to the network that we put out for our customers, both business and leisure.

But our customers will dictate.

What is important to them and whether thats in there.

And attribute of the product or things that are around boarding in the cabin. So again don't read too much into that but just to understand that that is something that we're constantly taking a look at.

I appreciate that I guess over the years you deserve the benefit of the doubt when you're when you're printing industry leading margins.

And saying, we're going to go with what our customers want but if but if you are a lagging margins. It may it may require a harder look but I. Appreciate you taking the questions. Thank you.

Yes, I would just add I understand and just we will be.

Duane Sendingworth: We have a lot of opportunity to ring out costs and efficiency through operating leverage, through new tools, through managing our headcount. We've got a lot of folks that are locked up in training as an example. As we slow our hiring and slower growth here, that will come out in terms of cost. We have a lot of cost plays that we can make. We're still working on our 2024 plans, but yes, I can assure you that a return growth in 2024 and that a return to industry living margins and the margins that our shareholders expect is absolutely a commitment.

Absolutely relentless and meeting our goals that includes driving out efficiency and productivity that includes improving the revenue side of the equation and that includes driving ourselves back to industry, leading margins you have my commitment.

Thank you Bob.

Thank you.

Our next question comes from Mike Lindenberg from Deutsche Bank. Please go ahead with your question.

Yeah, Hey, good afternoon, or two here I guess first one Andrew if I cut you.

Correctly, you had indicated that you are moving.

Tammy Romo: Tammy, I don't know if you want anything, Tammy. I thought that was very well said, but again, we know we have work to do and we're fully committed to delivering on a 2024 plan that enables our operational excellence. We're going to drive operational efficiency and as Bob said earlier, work both sides of the equation. So stay tuned as we work through that.

Moving up your international service from Fort Lauderdale to Orlando.

I think what's been one of your original international gateways, what were the factors that that drove.

You can move up I mean, I know you have a <unk>.

Pilot domicile, if in Orlando, but it is a smaller local market that seems to be a pretty meaningful move.

Thanks, Mike I appreciate the question.

As we mentioned earlier we were.

We have re looked at our network and moved our capacity around so it's both the amount of capacity in the nature of the capacity. We did both of those moves first we kind of we're doing the nature or the reconfiguration that Tim you referenced earlier.

Tammy Romo: We'll be back with more details. And I just do want to remind you, you know, as we've already shared the estimated benefit of our network optimization efforts along with the continued maturation of our development markets. We're still working on our plan, but as we've shared, we do expect that to exceed 500 million incremental year over year pretext profits next year. But clearly, we'll work ahead and we're hard at work for you.

Orlando, we do have a lot more north bound flights. If you will the international destinations, even though the loom large in our mind. They actually are modest sized markets that require a decent amount of connectivity.

To fill them up and so Orlando being a little bit further north and having more.

Flights for southwest Airlines North of Orlando allows us to have the good covenant the local plus a flow. So a lot of the international destinations were to take our customer base.

Duane Sendingworth: Thanks, and I appreciate those direct answers, but maybe just to throw out an alternative, if you can't get your margins going in the right direction next year, if it's more like 25 or 26, what might you consider strategically or put on the table that hasn't been on the table before? So if we think about things like seed assignments, basic economy, bags of life free, historically those have been sacrosanct. I mean, would there be more of an urgency to, you know, more aggressively take a look at the product and the service offering if you can't get there next year?

Here on on vacation, because we are repeat purchase business and so we want our network in any given location to offer chances to fly for business to go to Orlando to go to go to Vegas to go see Grandma to go on vacation in the up to the beach and so sometimes that's nonstop, sometimes it's connecting and for a lot of the international.

So it requires us to offer that as a connection for some of our kind of further northern cities. So the Orlando the combination of the local market plus allowed us to access a big customer bases in the on the upper Midwest and northeast makes it more network sense given scarce capacity. If you will so net net that made sense and it also as you mentioned a crew based in Orlando.

Duane Sendingworth: Yeah, I mean, again, we're working on our 2024 plans, so we're not ready to lay all that out. You know, the last set of initiatives that we took you through several years ago, the 1 to 1.5 billion in eve of this year are paying off and we'll have a next set. Some of those, I think, will make perfect sense. We have the ability to put flights into places where we can drive obviously operating leverage so those flight and flight activities come on at lower.

Also makes the.

The cost of serve that all go down because youre not staging crews down to Fort Lauderdale. So.

Work on both sides of the equation as Bob said revenue and costs. It made more sense for international anchor in the southeast to be Orlando Andrew.

Andrew just to sort of follow up on that like a year and a half ago two years ago. When you guys talked about some of your initiatives one of the one of the focuses are longer term was to increase your connectivity is this a bit of a trial run in sort of focusing on this one market and.

Duane Sendingworth: For Casam rates, we have some areas where we can continue to really push the generation of revenue outside the cabin. Obviously that centers around the rapid rewards program development and other areas we have opportunities in terms of how we fly, the aircraft where we can drive up utilization and generate additional ASMs without having to take on capital costs. I'm just not, we're just not ready to share the whole plan with you.

If it succeeds that that type of connectivity you will look at applying.

Applying that to other gateway cities is that is that sort of the plan here.

No I think this is during Covid, we had a kind of when demand was way down and we have bigger aircraft. We don't have a lot of <unk>, we had to use more than usual connectivity to fill our aircraft and because we can when post COVID-19. We went back to our normal which is about between 25% to 30% of our customers are architected itinerary, that's been fairly stable, but they are.

Great in certain areas they help us fill up the early and late parts of the day. They also.

Duane Sendingworth: I'm just trying to convey that we're hard at work and there is a lot on the table to your specific question about things in the cabin or boarding. I would go back to what Ryan said, which is we are going to follow the lead of our customers. Our customers ultimately tell us that that is what they want and that is what we will do. We're not ready to, obviously not ready to say that today, but our customers will dictate what is important to them, whether that's an attribute of the product or things that are around boarding in the cabin.

Help us support certain geography, so going to Hawaii.

We have certain gateways, there that allow us to access our customers inland access Hawaii. The same thing for for international a combination of Baltimore plus now Orlando helps you access international from parts of our network. So connectivity has always been the icing not the cake.

But we have a very intangible how we use it okay very good and then just the second one to Ryan when I think about the $500 million pre tax benefits coming from various revenue initiatives.

Duane Sendingworth: Yeah, don't read too much into that, but just understand that that is something that we are constantly taking a look at. Yeah, I appreciate that. I guess over the years, you deserve the benefit of the doubt when you're printing industry leading margins and saying we're going to go with what our customers want, but if you have lagging margins, it may require a harder look. But I appreciate you taking the questions.

As I look at loyalty and ancillary they were both records in the quarter.

Can you give us a sense of maybe where ancillary is per passenger today, where it's been historically where does that go.

And any sort of rough numbers on remuneration from from loyalty, maybe the size of that program.

Thanks for taking my question.

Yes, no problem.

Bob Jordan: Thank you. Yeah, I would just add to understand and just we will be absolutely relentless in meeting our goals. That includes driving out efficiency and productivity that includes improving the revenue side of the equation and that includes driving ourselves back to industry leading margins. You have my commitment.

Ancillary and loyalty, where both we had we had several records in the third quarter and I expect I expect good performance here as we look forward into the fourth quarter.

Slurry revenue is significantly outpacing our passenger growth largely on the back of our upgraded boarding benefit we've been able to increase prices there and hold on to take rates.

Bob Jordan: Thank you, Bob. Thank you.

Early bird as well as a strong performer.

Mike Lindenberg: Our next question comes from Mike Lindenberg from Deutsche Bank. Please go ahead with your questions. Oh, yeah, hey, I'm good afternoon. I'm two here. I guess first one to Andrew, if I clutch you. Correctly, you had indicated that you were moving up your international service in Fort Lauderdale to Orlando. I mean, Fort Lauderdale I think has been one of your original international gateways. What were the factors that drove you to move up?

We've been able to increase price raise our prices on early bird as well as some of our other ancillary.

Products that went into effect in August we raised prices on excess bag fees pet fees things like that so ancillary absolutely is a standout and I think I'm expecting it to continue to exceed passenger growth in the fourth quarter loyalty overall as you as I'm sure you're following it.

Mike Lindenberg: I mean, I didn't have a pilot down the south in Orlando, but it is a smaller local market that seems to be a pretty meaningful move. Thanks, Michael. I appreciate the question. We, as we mentioned earlier, we were, we have re-looked at our network and moved our capacity around. So it's both the amount of capacity and the nature of the capacity. We did both those moves. First, we kind of were doing the nature with our re-configuration of the Tammy reference earlier.

It's a very.

It's a key part of our strategy going forward rapid rewards is the most preferred loyalty program in the industry on lots of them.

Lots of different measures, primarily because customers.

We're able to actually use the points that they're earning.

So that's driving.

Mike Lindenberg: And for Orlando, we do have a lot more northbound flights, if you will. The international destinations, even though they loom large in our mind, they actually are modest sized markets that require decent amount of connectivity to fill them up. And so Orlando being a little bit further north and having more flights for Southwest Airlines north of Orlando allows us to have the good complement of the local plus the flow. So a lot of the international destinations were to take our customer base here on vacation.

Spend on the card third quarter spend on the card was a record and we expect to continue growing the program over time.

Also made some additional changes to rapid rewards.

Earlier this month that I think is also going to continue to drive engagement from our customers and it's all about making it easier to get value out of the program for customers, we see when customers make a redemption after that redemption. They fly us more they spend more on their card. It just drives further engagement with southwest Airlines.

Mike Lindenberg: Because we are a repeat purchased business. And so we want our network in any given location to offer, you know, chances to fly for business, to go to Orlando, to go to Vegas, you know, to go to see Grandma, to go on vacation in the beach. And so sometimes that's non-stop, sometimes that's connecting. And for a lot of the international, it requires us to offer that as a connection for some of our kind of further northern cities.

And so doing things like adding the ability to combine cash in points, that's all about making it easier to use rapid reward points, which will then in turn to provide value back to southwest same thing with lowering the tier requirements for Atlas and Atlas preferred where kind of bucking the industry trend there are competitors.

Mike Lindenberg: So the Orlando, the combination of the local market plus allowance to access our big customer bases on the upper Midwest and Northeast makes a more network sense given, you know, scarce capacity, if you will. So net net that made sense. And then also, as you mentioned, the crew base in Orlando also makes the cost to serve that go down because you're not staging crews in down to Fort Lauderdale. So we're from both sides of the equation as Bob said, revenue and costs.

We're making it harder to access benefits, we're making it easier and again there is value to the consumer there, but there's also value back to southwest customer.

Customers stretch to reach a list a list preferred companion pass they fly more they spend more on their card as they get close to that and so bringing those thresholds and closer.

It makes it better for the customer, but it also drives value back to southwest so.

Mike Lindenberg: It made more sense for our international anchor in the southeast to be Orlando. Andrew, just to sort of follow up on that, like a year and a half ago, two years ago, when you guys talked about some of your initiatives, one of the focuses of longer term was to increase your connectivity. Is this a bit of a trial run in, you know, sort of focusing on this one market and, you know, if it succeeds, you know, that type of connectivity, you look at, you know, applying that to other gateway cities.

We will continue to invest in rapid rewards in the program and ancillary overall and I think we will we.

We should expect to see continued growth.

Thanks.

And ladies and gentlemen, we have time for one more question, we'll take our last question from Helane Becker from TD Cowen. Please go ahead with your question.

Alright, thanks, very much operator, hi, everybody and thank you for the time, just a couple of questions to follow up.

Mike Lindenberg: Is that sort of the plan here? No, I think this is during COVID, we had a kind of, when demand was way down and we have big aircraft, we don't have a lot of RJs. We had to use more than usual connectivity to fill our aircraft. And it has become a post cover. We remember back to our normal, which is felt between 25 and 30% of our customers are connected in January.

With the changes in rapid rewards and making it easier to earn stock what you would call status isn't that kind of amounting to fare cuts across the board.

Amounting to fare cuts across the board.

Yeah, I mean, if it makes it easier for me to redeem my points.

Mike Lindenberg: That's been fairly stable, but they're concentrating certain areas. They help us fill up the, you know, the early and late parts of the day. They also help us support certain geographies. So going to Hawaii, we have certain gateways there to allow us to access our customers inland access Hawaii. The same thing for international combination of Baltimore plus Nowerlando helps you access international from parts of our network. So connectivity has always been the icing, not the cake, but we were very intentional about how we use it.

Don't you wind up selling fewer revenue seats.

So the way that we have the way that we've designed the loyalty program and the value exchange from the customer and the number of rapid reward points that it takes too.

Redeem.

We are we're indifferent whether or not the customer is flying for us on rapid reward points or paying cash.

<unk>.

So we've taken that equation.

Kind of off the table.

Mike Lindenberg: Okay, very good. And then just the second one to Ryan, when I think about the 500 million pretext benefits coming from various revenue initiatives. As I look at loyalty and ancillary, they were both records in the quarter. Can you give us a sense of maybe, you know, where ancillary is per passenger today, you know, where it's been historically, where does that go? And any sort of rough numbers on just remuneration from loyalty, maybe the size of that program.

The change here really is.

Post pandemic.

Mike Lindenberg: Thanks for taking my questions. Yeah, no problem. Yeah, Ancillary and Loyalty were both. We had we had several records in the third quarter and I expect I expect good performance here as we look forward into the fourth quarter. Ancillary revenue is significantly outpacing our passenger growth largely on the back of our upgraded boarding benefit. We've been able to increase prices there and hold on to take rates. Early bird as well as is a strong performer.

The same number of customers are traveling for business today than what they were before and then leisure customers are actually up.

The difference in what the GAAP and managed travel is is that the.

Individuals are flying a bit less frequently.

So what are changed to make the thresholds easier to achieve is really just capitalizing on that fact, bringing the threshold in earlier and as I was just explaining we will get benefit from that too because more customers will be able to stretch for a list and AOS preferred which drives value back to us.

Got it Okay. That's really helpful. And then the other question I had for my follow up was.

I think at one point, you've guided to them.

One to $1 $5 billion in EBIT contribution in 2023.

Mike Lindenberg: We've been able to increase price rate or prices on on early bird as well as some of our other Ancillary products that went into effect in August. We raised prices on excess bag fees, pet fees, things like that. So Ancillary absolutely is a standout and I think I'm expecting it to continue to exceed passenger growth in the fourth quarter. Loyalty overall as you as I'm sure you're you're following it it's a very key part of our strategy going forward rapid rewards is the most preferred loyalty program in the industry on lots of lots of different measures primarily because customers are able to actually use the points that they're earning.

Yes.

I feel like that might be.

Is that I guess is that an easier comp because of Elliott last year that youll be able to achieve that.

Helane.

Delivering on the initiatives and obviously that includes things like our fleet modernization.

Our investments in GDS.

Our new revenue management system.

Et cetera, and even what just but in terms of the initiatives those are driving and those are tracking in line with what we've shared with you and then we're continuing to invest as Ryan took you through and those investments tend to drive more engagement from our customers. It makes them more and more loyal so.

Mike Lindenberg: And so you know that's driving spend on the card third quarter spend on the card was a record and you know we expect to continue growing the program. Over time you know we also made some additional changes to rapid awards here earlier this month that I think is also going to continue to drive engagement from our customers and it's all about making it easier to get value out of the program for customers.

The initiatives that we've shared with you.

<unk> driving incremental value and and.

We're continually continuing to track in line with.

With what we've shared with you. So so those are actually.

Delivering now that said, we're not we've already shared with you.

Mike Lindenberg: We see when customers make a redemption after that redemption they fly us more they spend more on their card it just drives further engagement with Southwest Airlines. And so doing things like adding the ability to combine cash and points that's all about making it easier to use rapid award points which will then in turn provide value back to Southwest. Same thing with lowering the tier requirements for a list and a list preferred we're kind of bucking the industry trend there are competitors are making it harder to access benefits we're making it easier.

We're not satisfied.

With where we stand now going into 2024, but as we shared.

Not ready to lay it all out for you today, but we are working on our 2020 plan.

We will certainly fill in more of the answers. So that you can kind of see how it all weaves together here so stay tune more to come there.

Really helpful. Thank you Tammy Thank you Helane.

Mike Lindenberg: And again there's value to the consumer there but there's also value back to Southwest customers stretch to reach a list a list preferred companion path they fly more they spend more on their card as they get close to that and so bringing those thresholds in closer makes it better for the customer but it also drives value back to Southwest. So we'll continue to invest in in rapid awards in the program and ancillary overall and I think we should expect to see continued growth. Thanks.

Okay that concludes the analyst portion of our call I appreciate everyone, joining and have a great day.

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 Jamie I'd like to welcome members of the media to our call today.

Before we begin taking questions Jamie we just give them instructions on how everyone can queue up.

Ryan Green: And ladies and gentlemen we have time for one more question we'll take our last question from Hale and backer from TD Cowan please go ahead with your question. Thanks very much operator hi everybody and thank you for the time just a couple of questions to follow up with the changes in rapid rewards and making it easier to earn that what you would call status isn't that kind of amounting to fair cuts across the board.

And once again, if you would like to ask a question. Please press star and then one you are using a speaker phone. Once again, we please ask that you use your handset before pressing the keys to ensure the best sound quality.

Ryan Green: Amounting to fair cuts across the board. Yeah, I mean, if it makes it easier for me to redeem my points, I mean, don't you wind up selling fewer revenue seats? So the way that we have, the way that we've designed the loyalty program and the value exchange from the customer and the number of rapid award points that it takes to redeem, we are, you know, we're indifferent whether or not the customer is flying for us on rapid award points or paying cash, you know, so we've taken that equation kind of off the table.

Your all your questions you May press star two.

Yes.

Sure.

And our first question today comes from Alexandria scores from the Dallas morning News. Please go ahead with your question.

Hi.

For taking my question.

I wanted to ask obviously the flight attendants.

Their tentative agreement yesterday.

And pilots were picketing at headquarters today.

So I kind of wanted to ask a little bit about <unk>.

I know that the NMB has meetings scheduled with y'all throughout November and what can you give us a sense of when a pilot scale may come.

And what the timeframe might look like on that.

Ryan Green: The change here really is, you know, post pandemic, the same number of customers are traveling for business today than what they were before and then leisure customers are actually up. The difference and what the gap in managed travel is is that those individuals are flying a bit less frequently. And so what are changed to make the thresholds easier to achieve is really just capitalizing on that fact, bringing the threshold in earlier. And as I was just explaining, we'll get benefit from that too because more customers will be able to stretch for a list and as preferred, which drives value back off. Got it.

Well, Andrew I just wanted to answer your question I promise, but I just wanted to say a grateful.

We are that we have a tentative agreement with our awesome flight attendants.

There is still more work to do the Union is working on materials and training and then so they can get the information out.

Our flight attendants here quickly so that they can then vote, but I am just real pleased with the milestone obviously, we we've had a really good 12 months I think that's our eighth agreement in 12 months and we are committed to finishing up the others.

Our swap agreement.

Our swap and negotiations.

Our continuing progress I believe Andrew we're meeting every week.

Helane Becker: Okay, that's really helpful. And then the other question I had for my follow up was, I think at one point you guided to one to one and a half billion dollars in EBIT contribution in 2023. But I feel like that might be, is that, I guess, is that an easier call because of Elliott last year that you'll be able to achieve that? Helena, we're delivering on the initiatives and obviously that includes things like our fleet modernization, our investments in GDS, you know, our new revenue management system, you know, et cetera.

<unk>.

But obviously, we've got to get it over the finish line.

Dan I think I've been really encouraged over the last couple of months with the both the pace and quality of negotiation. We're meeting every week.

Sometimes thats with the mediators and sometimes thats without the mediators and so we've made we've also had enhanced leadership negotiation from both sides.

His leadership President negotiations for both sides and that's worked out really well.

There have been quite active in so.

We have to have both sides agree to get to a deal. So no one side can predict when it's going to finish but we've made substantial progress with a small but difficult list of things related to closeout and I have confidence in our achievements and the swap of negotiating committee to be able to do that in a timely fashion the mediator.

Helane Becker: And even what just, but in terms of the initiative, those are driving and those are tracking in line with what we've shared with you. And then we're continuing to invest as Ryan took you through and those investments just drive more engagement from our customers that makes them more and more loyal. So the initiatives that we've shared with you are driving incremental value and, you know, we're continuing to track in line with what we've shared with you.

It has.

Barring no government shutdown.

More data for us throughout the rest of this month and next month.

And I also would say that we're also negotiations with our ramp Union tw.

555.

And so I hope to be engaged with them here in next couple of weeks for next step. There. So we think that that would then be the last deal for us to close out.

That was yes that was my second question with Tw 555, I understand they reached.

An agreement, but it doesn't seem like there was a ratification announcement. So I'm wondering if you all can give an update there.

Helane Becker: So those are actually delivering now. That said, we're not, we've already shared with you were, you know, we're not satisfied with where we stand now going into 2024. But as we've shared, you know, we're just not ready to lay it all out for you today, but we are working on our 2024 plan and, you know, we'll certainly fill in more of the answers so that you can kind of see how it all we've together here.

A month or so ago I can't recall exactly Bob but do we have.

They voted that went down their union.

As most of you do follow up with a survey to understand where the.

One workers the members.

Not likely proposed agreement based on that feedback the union will develop a slate of changes we will do that on our side as well and then we will get back together in early November to talk about next steps with them for the next round, we're not in mediation with them we have I.

Helane Becker: So stay tuned and more to come there. That's really helpful. Thank you, Tammy. Thank you, Elaine.

I think very productive negotiations without media mediators with the 555% and we expect that to continue.

Jamie: Okay, that concludes the analyst portion of our call. I appreciate everyone joining and have a great day.

Great. Thank you.

Thank you.

Our next question comes from Leslie Joseph from CNBC. Please go ahead with your question.

Linda Rutherford: Ladies and gentlemen, we will now begin with our media portion of today's call. I'd like to first introduce Miss Linda Rutherford, Chief Administration and Communications Officer. Thank you, Jamie. I'd like to welcome members of the media to our call today. Before we begin taking questions, Jamie, we just give them instructions on how everyone can queue up. And once again, if you would like to ask a question, please press star and then one, you are using a speaker phone. Once again, we please ask that you use your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two.

Hi, everyone just curious about your discounting strategy.

Beer sales frequently but it seems like the fares are pretty low currently could you kind of put that into context with previous their sales and how that compares and how youre thinking about the fourth quarter.

Hey, Leslie.

Do we are finishing up restoration here and so we do have more seats to fill.

I would characterize our promotional activity as being slightly more than normal.

It's definitely not a tectonic shift from.

How how promotional we have been historically, but there is a little bit more.

When we have been promotion we have as we have.

Alexandra Skores: And our first question today comes from Alexandria Scores from the Dallas Morning News. Please go ahead with your question. Hi, thank you all for taking my question. I wanted to ask, obviously, the flight attendant reached their tentative agreement yesterday. And pilots were picketing at headquarters today. So I kind of wanted to ask a little bit about. I know that the NNB has meeting scheduled with y'all throughout November. What can you give us a sense of when a pilot's field may come and what the timeframe might look like on that.

Put those fare sales out there.

We use some fairly sophisticated.

Tactics and strategies to be very surgical in where we drive the demand.

Oftentimes those sale fares well always those sale fares are available when we have.

Distressed inventory to sell and we keep the higher demand flights.

The promotion is not applicable on the higher demand flight. So it allows us to drive load without diluting.

Yields I'm.

Im just also point out too.

Alexandra Skores: Well, Alexandria, I just want to answer a question I promise, but I just wanted to say a grateful we all are that we have a tentative agreement with our awesome flight attendants. There's still more work to do. The union is working on materials and training and then so they can get the information out to our flight attendants here quickly so that they can then vote. But I'm just real pleased with the milestone.

Relative to.

Your comment on really low fares out there the fares are average fare in the third quarter was up two 6%. So if we were being with we were having to overly discount you would expect average fares to be up so I think the strategy overall is working.

As designed we have got a lot of seats to bill where we are.

Selling our distressed inventory through discounting and protecting our higher yield flights.

Alexandra Skores: Obviously, we we've had a really good 12 months. I think that's our eighth agreement in 12 months. And we are committed to finishing up the others. Our swap agreement is our swap negotiations are continuing. There's progress. I believe Andrew were meeting every week. And but obviously we better get it over the finish line. What would you like, Dan? I think I've been really encouraged over the last couple months with the both the pace and quality negotiation meeting every week.

And are there any specific routes or regions, where you are seeing you are having to discount more or even times of the week or month.

The recent months.

Yes, it's less about it's less about the markets and different.

Different geographies and more about travel patterns today, Tuesdays and Wednesdays are tougher shoulder periods of the day are tougher and so that inventory is a little that's where a lot of the the discounting is actually happening where.

Alexandra Skores: Sometimes that's with the mediators and sometimes that's without the mediators. And so we've made we've also enhanced leadership negotiation from both sides and leadership president negotiations from both sides, and that's worked out really well. Our mediators have been quite active. And so, you know, we have to have both sides agreed to get to a deal so no one side can predict when it's going to finish. But we've we've made substantial progress with a small, but you know, difficult list of things related to close out and I have confidence in our team and and the swap negotiation committee to be able to do that in a timely fashion.

<unk> to those travel patterns and trends as we move forward here with our network optimization, starting after the first of the year to reduce some shoulder flying reduce.

Further reduce some Tuesday Wednesday flying to help address that.

But it's more that than it is particular geographies.

Thank you.

Our next question comes from Mary <unk> from Bloomberg News. Please go ahead with your question.

Alexandra Skores: The mediator has, you know, barring no government shutdown, you know, more dates for us throughout the rest of this month and next month. And I also would say that we're also negotiations with our ramp unit, TW555. And so hope to be engaged with them here next couple of weeks for next up there. So that would then be the last deal for us to close out.

Hi, Thank you very much I was going to ask a question about how you are adjusting capacity.

Help with the reshaping of the business travel and the way it hasn't come back as you expected.

You may have just answered that question, but I wanted to see if you could put a little bit more specifics out there.

Those adjustments days of weeks times of day cutting frequencies things like that.

Alexandra Skores: So that was my second question was TW555, I understand they reached an agreement, but it doesn't seem like there was a ratification announcement, I'm wondering if you all can give an update there. Oh, that was a month or so ago, I can't recall exactly Bob, but they voted that one down, their union as most unions do follow up with a survey to understand where the frontline workers, the members did not like the proposed agreement, based on that feedback, the union will develop a slate of changes, we will do that on our side as well, and then we'll get back together in early, early to mid November to talk about next steps with them for next round, we're not in mediation with them, we have, you know, I think very productive negotiations without mediators with the 555 and we expect that continue. Thank you. Thank you all. Thank you.

Yes, Mary I'll talk and then Andrew.

Andrew Ryan can finish it.

Obviously, correct me, but yes that really is why we are making.

Both the network adjustment optimization that we had already announced.

That is in the first quarter that's worth.

Over $500 million in op profit next year and then this new set of capacity adjustments both in the first quarter and then throughout.

2024 in the Nonpeak periods, it's really about the.

Shoulder periods in the Nonpeak periods being more shoulder than before so for example.

Some of that was back filled by business travel, which again business travel.

Is rising for us.

Just steady it's just not fully recovered to pre pandemic.

Levels, but as an example, this reduction in January and February of 2020 for next quarter that is really all that is as much about matching new business travel demand trends and patterns as it is anything so that carries through 2024, but.

Leslie Joseph: Our next question comes from Leslie Joseph from CNBC, so you go ahead with your question. Hi everyone, I'm just curious about your discounting strategy, I have fair sales frequently, but it seems like the fairs are pretty low currently, could you kind of put that into context with previous fair sales and how that compares and how you're thinking about the fourth quarter. Yeah, hey Leslie, you know, we do, we are finishing up restoration here and so we do have more seats to fill.

You heard Bob <unk>, Andrew say.

Overall business travel is down maybe 10 or 15% versus 2019, so it's not like a guardrail to guardrail move it's just more.

A modest recalibration of our network. So is geared less a little bit less towards business, a little bit more towards leisure or mix of leisure business.

Leslie Joseph: I would characterize our promotional activity as being slightly more than normal. It's definitely not a tectonic shift from, you know, how, how promotional we have been historically, but there is a little bit more. When we have been promoted, we have, as we have put those fair sales out there, we use some fairly sophisticated tactics and strategies to be very surgical and where we drive the demand. So oftentimes those sale fairs, well, always, those sale fairs are available when we have distressed inventory to sell and we keep the higher demand flights, the promotion is not applicable on the higher demand flights, so it allows us to drive load without deluding yields.

As a Wednesday, which historically has been a more business travel heavy day will be much lower versus kind of Monday Thursday Friday. So that was one big part of it and also if you look at certain cities. When you look at the room combination. Some some routes would have predominant business travel on it and.

So we've replaced those routes in those cities wanted to have a kind of either pure leisure or mix of leisure and business. So it's really a modest adjustment of the.

The portfolio of routes as well as they kind of Tuesday Wednesday a reduction.

And overall capacity.

Okay, great. Thank you very much.

Thank you.

Our next question comes from David Slotnick from TPG. Please go ahead with your question.

Alright. Thanks for the question I was wondering if could just expand a little bit on the lower than expected close in bookings increasing.

Leslie Joseph: Yeah, I would, I'm just also point out to relative to, you know, your comment on really low fairs out there, the fairs, our average fair in the third quarter was up to 0.6%. So if we were being, if we were having to overly discount, you wouldn't expect average fairs to be up. So I think the strategy overall is working as designed, we've got a lot of seats to fill, we're, we're selling our distressed inventory through discounting and protecting our higher yield flights.

Do you think this is a lengthening of the booking curve again sort of a return to the pre pandemic booking trends or is this a one off that maybe has something to do with the print enrollment.

Hey, David.

I would just characterize it as we are moving back towards more pre pandemic norms of course managed business travel remains down.

Relative to pre pandemic.

Levels, it's the baseline and managed business is.

Slow and steady recovery and we're picking up market share.

Leslie Joseph: And are there any specific routes or regions where you're seeing you're having to discount more or even times of the week or months or recent months? Yeah, it's less about, it's less about the markets and different, you know, different geographies and more about travel patterns today, Tuesdays and Wednesdays are tougher shoulder periods of the day are tougher and so that inventory is a little, that's where a lot of the discounting is actually happening.

With our initiatives in the in the managed business space.

And so we feel we feel good about that.

But when you turn to the leisure piece of this there is still more close in leisure today than there was pre pandemic, but it is not at the level of what we saw earlier this year at the end of last year. So I think it's more of a.

Leslie Joseph: We're adapting to those travel patterns and trends as we move forward here with our network optimization, starting after the first of the year to reduce some shoulder flying, reduce, further reduce some Tuesday, Wednesday flying to help address that. But it's more that than it is particular geographies.

Reversing of trends here back to back too.

Back to norms as kind of.

Return to office trends and things like that also begin to change here a bit.

I called it out in my prepared remarks, but specifically in the third quarter. There is other things that.

Have impacted close end leisure the school challenge the school calendar changes are pretty significant.

Mary Schlangenstein: Thank you. Our next question comes from Mary Schlangenstein from Bloomberg News.

In August specifically.

And <unk>.

Third in our markets a third of schools, we're back in session.

Mary Schlangenstein: Please go ahead with your question. Hi, thank you very much. I was going to ask a question about how you are adjusting capacity to help with the reshaping of the business travel and the way it hasn't come back as you expected. And Ryan may have just answered that question, but I wanted to see if you could put a little bit more specifics out there. On those adjustments, days of weeks, times of days, cutting frequency, things like that.

The second week of August that's double what it was pre pandemic.

And anybody that has kids you usually don't travel.

The week before your kids go back to school, so that kind of wipes almost all of.

August out there for a third of travel in our market. So there's some things moving around in the macro environment, that's impacting it but I think just generally characterizing.

Mary Schlangenstein: Yeah, Mary, I'll talk. And then Andrew and Ryan can finish it obviously correct me. But yeah, that really is why we are making the both the network adjustment optimization that we had already announced that is in the first quarter that's worth, you know, over 500 million in profit next year. And then this new set of capacity adjustments, both on the first quarter and then throughout 2024 in the non peak period is really about the shoulder period to the non peak periods being more shoulder than before.

We're kind of reverting back to norms and David at the risk of being redundant, which I probably am all of these things are about tweaking the the network in the business for new new demand trends and behaviors that.

Are caused by things like business being just just below and not fully recovered.

New trends coming out of the pandemic there is not about <unk>.

As a demand problem so again.

Southwest, we're seeing again with record operating.

Mary Schlangenstein: So for example, some of that was backfilled by business travel, which again, business travel is rising for us. It's just steady. It's just not fully recovered to pre pandemic levels. But as an example, this reduction in January and February of 2024 next quarter, that is really all, that's as much about matching new business travel demand trends and patterns as it is anything. So that carries through 2024. Yeah, you heard Bob Meredith Andrews say that, you know, overall business travel is down made 10 to 15% versus 2019.

Revenues record passengers record.

<unk> rewards participation in revenues record retail spend on our card record new members on and on and on and we're expecting record operating revenue revenues in passengers again in the fourth quarter.

So it's not as if we're not generating demand southwest is generating.

Strong demand, it's about getting that aligned more precisely with the new travel patterns and also just absorbing the rapid growth that we saw because we restored our network here in the back half of the year and that just drove sequentially more seats more capacity than normal and now <unk>.

Mary Schlangenstein: So it's not like a guard real, the guard real move. It's just more a modest recalibration on network. So it is geared less, a little bit less towards business, a little bit more towards leisure or mix leisure business. Tuesday, Wednesday, which historically has been a more business travel heavy day will be much lower versus kind of Monday, Thursday, Friday. So that was one big part of it. And also, if you look at certain cities, the look at the root combination, some, some roots would have predominantly business travel on it.

Mary Schlangenstein: And so we've replaced those roots in those cities, one to have a kind of either pure leisure or mix of leisure and business. So it's really a modest adjustment of the portfolio of roots as well as a kind of Tuesday, Wednesday reduction and overall capacity.

Time to mature that absorb that which is really why we're stepping down to slowing our growth rate in 24. So that we can take the time to do that but I just want to point out to me that a lot of this is while there is work to do a lot of this is tweaking and adjusting to the new trends, it's not about we have a demand problem.

David Swatnik: Okay, great. Thank you very much. Thank you.

Got it thanks I appreciate the answer and then.

Just following up you excluded the holidays, specifically when you mentioned this during your prepared remarks, what's the booking curve looking like for that where do you think we are in the curve sort of right now.

Yes holiday.

Today bookings are strong.

I made the comment earlier that if you look at where we sit today versus last year at this point in the curve for the December holiday periods specifically.

Our next question comes from David Swatnik from TPG, please go ahead with your question. Hi, thanks for the question. I was wondering if you could just expand a little bit on the lower than expected close in bookings. Do you think this is a lengthening that the booking curve again sort of a return to the pre pandemic booking trends, or is this the one off that maybe has something to do with the present moment?

Looked ahead, which I think is a vote of confidence in the customers.

Our beyond our operational disruption and we're not suffering any sort of demand weakness for the December holiday period.

And.

I would just characterize the Thanksgiving period.

As strong as well, we've got a lot of capacity here over the.

Thanks. Hi, David. You know, I've just characterized it as we are moving back towards more pre pandemic norms. Of course, manage business travel remains down relative to pre pandemic levels. It's the baseline in manage business is, you know, kind of slow and steady recovery and we're picking up market share with our initiatives in the manage business space. And so we feel we feel good about that. But when you turn to the leisure piece of this, there is still more close in leisure today than there was pre pandemic, but it is not at the level of what we saw earlier this year at the end of last year.

In the fourth quarter that will that will have to absorb but I am pleased with how the holidays are booking.

So I think it's more of a reversing of trends here back to back to norms as kind of, you know, return to office trends and things like that also begin to change here a bit. You know, I called it out my prepared remarks, but it's specifically in the third quarter. There's other things that would have impacted close in leisure. The school challenge, the school calendar changes are pretty significant in August specifically.

Great. Thanks very much.

Thank you.

And our next question comes from is a follow up for Mary Lincoln Stein from Bloomberg News. Please go ahead with your question.

Thanks I appreciate the extra question I wanted to ask in the <unk>.

To book, the New order book that you laid out today.

Taking.

Additional aircrafts over 200 additional aircraft over that timeframe and I wanted to see if you could comment on why you decided to do that now.

Because it hasn't been that long since you placed an order for Max's.

Yes.

Yeah, I'll start and then Tammy can add on but I think it's really about a couple of things again.

The delivery Boeing is a great partner, we've all suffered supply chain and other issues. So the delivery challenges have just pushed a lot of aircraft forward and we just want to make sure. We got back through its clean all of that up and let's get back to where we the order book reflects poorly.

<unk>.

Appropriate growth. So that's why you see a.

And, you know, a third in our markets, a third of schools were back in session, the second week of August, that's double what it was pre pandemic. And, you know, anybody that has kids, you usually don't travel the week before your kids go back to school. So that kind of wipes almost all of August out there for a third of travel in our market. So there's some things moving around in the macro environment that's impacting it, but I think just generally characterizing, we're kind of reverting back to norms.

A pretty normal sort of 80 to $85 90 number a year to year to year to year that was number one let's just cleaned all of this up number two the aircraft.

New aircraft market is tight.

And we wanted to ensure that we have access to aircraft into the future.

And we've done that through 2031, we want to make sure that we locked in.

Very attractive pricing, which we have with Boeing again is a great partner and we've accomplished that and then last.

And David, the risk of being redundant, which I probably am, all of these things are about tweaking the network and the business for new demand trends and behaviors that are caused by things like business being just just below and not fully recovered or new trends coming out of the pandemic. There is not about, there is a demand problem. So again, you know, we would we Southwest we're seeing again with record operating revenues, record passengers, record, record, record rewards, participation of revenues, record retail spend on our car, record new members on and on and on and we're expecting record operating revenue, revenues and passengers again in the fourth quarter.

Again sort of.

There's been more variability in.

The.

Our industry that.

I think I've ever seen and so.

Or that you just need to make sure you've got plenty of flexibility and Thats flex up and Thats flex down and if you look at the level of options and other things we have.

Plenty of opportunity to move those annual numbers up and down as.

As demand dictates. So it was really it was as much about sort of.

Taking the uncertainty.

Out of the future, but also walking up access to those aircraft at attractive pricing Tammy.

You hit it off all that yes, we're very we're very thrilled.

We have ramped up our discussion discussions with Boeing.

Everything Bob covered.

And.

So it's not as if we're not generating demand Southwest is generating a strong demand. It's about getting that aligned more precisely with the new travel patterns and also just absorbing the rapid growth that we saw because we restored our network here in the back half of the year and that just drove sequentially more seats more capacity than normal. And now it's time to mature that absorb that, which is really why we are we're stepping down is slowing our growth rate in 24 so that we can take the time to do that.

Certainly one of our key initiatives just to add on is our fleet modernization effort.

Again, we believe this order book.

Quarterly growth plan.

And our fleet modernization initiatives.

Provide cigna.

Significant flexibility for us and.

Also.

It gives us a great path to retire our dash 700 fleet.

For the coming years.

We are just thrilled to have a cost effective order book that meets our needs going forward.

But I just want to point out to me that a lot this is while there's work to do a lot of this is tweaking and adjusting to the new trends. It's not about we have a demand problem. Got it. Thanks. Appreciate the answer. And then just following up you excluded the holiday specifically when you mentioned this during your prepared remarks. What's the booking curve looking like for that? Where do you think we are in the curve sort of right now?

Great. Thank you very much.

Mary.

And ladies and gentlemen, this will conclude our question and answer session I'd like to turn the floor back over to Mrs. Rutherford for any closing remarks. Thank you all for being with us.

Members of the media if you have any follow up questions. You can obviously reach out to our communications team Q1 for 790 4847 or on our media website and SWA media Dot com. Thanks, so much for joining us.

Yeah, holiday, you know, holiday bookings are strong. I made the comment earlier that if you look at where we sit today versus last year at this point in the curve for the December holiday periods specifically, we're booked ahead, which I think is a vote of confidence is that customers are beyond our operational disruption. And we're not suffering any sort of demand weakness for the December holiday period. And you know, I would just characterize the Thanksgiving period as strong as well.

Ladies and gentlemen, the conference has now concluded we thank you for attending today's presentation. You may now disconnect your lines.

[music].

We've got a lot of capacity here over the in the fourth quarter that will that will have to absorb, but I'm pleased with how the holidays are booking. Great. Thanks very much. Thank you. And our next question comes from is a follow up from Mary. It's time from Bloomberg news. Thank you for your question. Thanks. I appreciate the extra question. I wanted to ask in the the order book, the new order book that you laid out today, you're taking an additional aircraft over 200 additional aircraft over that time frame.

And I wanted to see you would comment on why you decided to do that now because it hasn't been that long since you placed an order for Max. Yeah, Mary, I'll start and Tammy can add on, but I think it's really about a couple of things. Again, we the delivery Boeing is a great partner and we've all suffered supply chain and other issues. So the delivery challenges have just pushed a lot of aircraft forward and we just want to make sure we got back to clean all that up.

Okay.

Yes.

[music].

Yes.

And let's get back to where we the order book reflects poorly. Appropriate Grow, so that's why you see a pretty normal sort of 80, 85, 90 number year to year to year to year. That was number one. Let's just clean all this up. Number two, the aircraft, the new aircraft market is tight and we want to ensure that we have access to aircraft into the future. And we've done that through 2031.

[music].

We want to make sure that we locked in very attractive pricing, which we have with Boeing. Again, that's a great partner. And we've accomplished that. And then last, again, sort of, there's been more variability in the our industry that I think I've ever seen. And so because of that, you just need to make sure you've got plenty of flexibility and that's flexed up and that's flexed down. And if you look at the level of options and other things, we have plenty of opportunity to move those annual numbers.

Yes.

[music].

The first up and down is as as demand dictates. So it was really it was as much about sort of taking the uncertainty out of the future, but also locking up access to those aircraft that attracted pricing on Tammy. You hit it all, but yeah, we're very we're very thrilled to have wrapped up our discussion discussions with Boeing. It's everything Bob covered. And, you know, certainly one of our key initiatives just to add on is our fleet modernization effort.

So, you know, again, that we believe this order book supports our orderly growth plan. And our fleet modernization initiative provides significant flexibility for us. And also, you know, gives us a great path to retire I dash 700 fleet, you know, over the coming years. So we are just thrilled to have a cost effective order book that, you know, means our needs going forward. Great. Thank you very much. Thank you, Mary. And ladies and gentlemen, this will conclude our question and answer session.

Yeah.

I'd like to turn the floor back over to Mrs. Rutherford for any closing remarks. Thank you all for being with us. Members of the media, if you have any follow-up questions, you can obviously reach out to our communications team. 2-1-4-7-9-2-484-7 or on our media website and SWAmedia.com. Thanks so much for joining us. Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines. . H.O.C.

[music].

Yes.

Okay.

[music].

Yes.

[music].

Okay.

[music].