Q1 2024 Southwest Airlines Co Earnings Call
Hello, everyone and welcome to the Southwest Airlines first quarter 2024 conference call.
Gary: Hello everyone, and welcome to the Southwest Airlines first quarter 2024 conference call. I'm Gary, and I'll be moderating today's call, which is being recorded. A replay will be available on Southwest.com in the Investor Relations section. After today's remarks, there is an opportunity to ask questions. To queue up for an opportunity to ask a question, press star, then 1.
I'm, Gary and I'll be moderating today's call, which is being recorded a replay will be available on southwest dot com in the Investor Relations section.
After today's remarks, there is an opportunity to ask questions to queue up for an opportunity to ask a question Press Star then one.
Gary: To withdraw your question, the command is star, then two. Now, Mrs. Julia Landrum, Vice President of Investor Relations, will begin the discussion. Please go ahead, Julia. Thank you so much.
To withdraw your question. The command is Star then two.
Julia: Now Mrs. Julian Landrum, Vice President of Investor Relations will begin the discussion. Please go ahead Julia.
Julia Landrum: Thank you so much hello, everyone and welcome to Southwest Airlines first quarter 2024 conference call in just a moment, we will share our prepared remarks, after which we will be happy to take your questions on the call with me today, we have our president and CEO Bob Jordan.
Julia Landrum: Hello, everyone, and welcome to Southwest Airlines' first quarter 2024 conference call. In just a moment, we will share our prepared remarks, after which we will be happy to take your questions. On the call with me today, we have our President and CEO, Bob Jordan, Executive Vice President and CFO, Tammy Romo, Executive Vice President and Chief Commercial Officer, Ryan Green, and Chief Operating Officer, Andrew Watterson.
Julia Landrum: Executive Vice President and CFO Tammy Romo.
Julia Landrum: Executive Vice President and Chief Commercial Officer, Brian Green, and Chief operating Officer, Andrew Watterson.
Julia Landrum: A quick reminder that we will make forward-looking statements, which are based on current expectations of future performance, and our actual results could differ materially from expectations. As we will reference our non-GAAP results, which exclude special items that are called out and reconciled to GAAP results in our presentation, please refer to the disclosures in our press release this morning. And visit our investor relations website for more information. Now, I'm pleased to turn the call over to you, Bob. Hey, thank you, Julia. Hello, everyone.
Julia Landrum: Quick reminder, that we will make forward looking statements, which are based on current expectations of future performance and our actual results could differ materially from expectations.
Julia Landrum: We will reference our non-GAAP results, which exclude special items that are called out and reconciled to GAAP results in our press release.
Julia Landrum: Please refer to the disclosures in our press release from this morning.
Julia Landrum: At our Investor Relations website for more information.
Julia Landrum: And now I'm pleased to turn the call over to you Bob.
Bob Jordan: Julia Hello, everyone and welcome to our first quarter call well, let me state right up front that I am disappointed with our first quarter performance. There are a lot of factors that will go into and there is a lot to cover including the latest following challenges.
Bob Jordan: And welcome to our first quarter call. Well, let me state right up front that I am disappointed with our first quarter performance. There are a lot of factors that I'll go into.
Bob Jordan: And there's a lot to cover, including the latest Boeing challenges. But more importantly, there are significant efforts and progress underway as we cannot, and we won't be satisfied until we are delivering the kind of returns you expect from Southwest Airlines. So before I go any further, I just want to sincerely thank our people for their extraordinary efforts as we work quickly to drive improvement. Turning to our performance, we achieved records for first-quarter operating revenues and passengers, continuing our streak of eight straight quarters of record top-line performance. We saw a nice acceleration in managed business revenues, up 25% nominally year-over-year.
Bob Jordan: More importantly, there are significant efforts and progress underway as we cannot and we won't be satisfied until we are delivering the kind of returns you expect from southwest Airlines.
Bob Jordan: So before I go any further I just want to sincerely. Thank our people for their extraordinary efforts as we work quickly to drive improvement.
Bob Jordan: Turning to our performance, we achieved records for first quarter operating revenues and passengers continuing our streak of eight straight quarters of record top line performance. We saw a nice acceleration in managed business revenues up 25% nominally year over year. We also continued our streak of solid operational performance.
Bob Jordan: We also continued our streak of solid operational performance. For a while now, we have been consistently running a great completion factor, averaging right around 99%. And we continue to improve in nearly all operational and customer metrics. I'm also proud of the progress we made on our open labor agreement.
Bob Jordan: While now we have been consistently running a great completion factor, averaging right around 99% and we continued to improve in nearly all operational and customer metrics. I'm also proud of the progress we made on our open labor agreements, it's been a long road and I want to recognize everyone involved for continuing to work through to the finish line.
Bob Jordan: It's been a long road, and I want to recognize everyone involved for continuing to work through to the finish line to reward our amazing employees for their contributions. Ryan will go into our revenue performance in more detail in a moment, and while our revenue trends were solid in the first quarter and are expected to be solid here again in the second quarter, we need to increase revenue production to offset cost inflation.
Bob Jordan: Lines reward our amazing employees for their contributions.
Bob Jordan: Ian will go into our revenue performance in more detail in a moment and while our revenue trends were solid in the first quarter and are expected to be solid here in the second quarter, we need to increase revenue production to offset cost inflation, the biggest opportunity to improve performance and profitability.
Bob Jordan: The biggest opportunity to improve performance and profitability with urgency is continued focus on network optimization and capacity. We opened 18 new cities during the pandemic and worked hard in 2023 to restore our network and fly our full fleet on the heels of the demand surge in 2022. While that boosted aircraft utilization, it added significant capacity and, combined with 2023 business travel coming in below projections, has resulted in a significant number of new markets under development and a material number of markets that are not performing at the level required in this higher cost environment.
Bob Jordan: Urgency as continued focused on network optimization and capacity, we opened 18, new cities during the pandemic and worked hard in 2023 to restore our network and fly our full fleet on the heels of the demand surge in 2022, while that boosted aircraft utilization it added significant capacity.
Bob Jordan: And when combined with 2023 business travel coming in below projections has resulted in a significant number of new markets under development any material number of markets that are not performing at the level required in this higher cost environment.
Bob Jordan: Network adjustments planned last fall are in place as of the March schedule, and they are proving to be largely on track. Those optimization efforts were primarily aimed to adjust for changing demand trends, including lower capacity on Tuesday and Wednesday, a reduction in short-haul business markets, and a material reduction in flights during shoulder periods of the day.
Bob Jordan: Network adjustments planned last fall are in place as of the March schedule and they are proving to be largely on track. Those optimization efforts were primarily aimed to adjust to a changing demand trends, including lower capacity on Tuesday, and Wednesday, a reduction in short haul business markets and a material reduction in flights during shoulder period.
Bob Jordan: Of the day, the changes are beneficial and they contributed to us exiting the first quarter with healthy margins for the month of March more is needed and we are continuing efforts to optimize the network and reduce the number of markets in development that aren't performing to more historic levels.
Bob Jordan: The changes are beneficial, and they contributed to us exiting the first quarter with healthy margins for the month of March. However, more is needed, and we are continuing efforts to optimize the network and reduce the number of markets in development that aren't performing at more historic levels. Along those lines, we have made the difficult decision to end service in four cities, Syracuse, New York; Houston Intercontinental, Cozumel, and Bellingham, Washington. That is never an easy decision.
Bob Jordan: Along those lines, we have made the difficult decision to eliminate service in four cities Syracuse, New York, Houston Intercontinental Cozumel, and Bellingham, Washington that is never an easy decision, we form bonds with the airports and the communities that we serve these are wonderful communities and we are very grateful for their <unk>.
Bob Jordan: We form bonds with the airports and the communities that we serve. These are wonderful communities, and we are very grateful for their support over the past several years. In addition, we are also restructuring several other stations. Most notably, we are reducing flights in Atlanta and Chicago O'Hare.
Bob Jordan: Port over the past several years. In addition, we are also restructuring several other stations most notably we are reducing place in Atlanta and Chicago O'hare.
Bob Jordan: While it's never our desire to exit a city or shrink service to a market, we are committed to our financial performance goals, and network and capacity actions will continue as a lever to improve overall financial performance. In addition to network optimization, we have a number of other efforts underway to increase revenue productivity, first, tuning our new revenue management system by better anticipating and optimizing demand and fares along the booking curve and unlocking additional capabilities that will further boost the contribution from the system.
Bob Jordan: While it's never our desire to exit the city or shrink service to a market. We are committed to our financial performance goals and network and capacity actions. We will continue as a lever to improve overall financial performance.
Bob Jordan: In addition to network optimization, we have a number of other efforts underway to increase revenue productivity first tuning our new revenue management system by better anticipating and optimizing demand in fares, along the booking curve and unlocking additional capabilities that will further boost the contribution from the system.
Bob Jordan: Second focusing on increasing passenger volume, including adding new attribute to our value proposition. We are working to ensure our current and future customers understand our terrific value proposition that includes a significant new brand campaign, which started last week highlighting our signature.
Bob Jordan: Second, focusing on increasing passenger volume, including adding new attributes to our value proposition. We are working to ensure our current and future customers understand our terrific value proposition. That includes a significant new brand campaign, which started last week, highlighting our signature customer-friendly policy. Separately, we are considering more transformational options and follow-on initiatives.
Bob Jordan: Customer friendly policies.
Bob Jordan: Separately, we are considering more transformational options and follow on initiatives that includes work previously underway to study customer preference around seating and our cabin.
Bob Jordan: That includes work previously underway to study customer preference around seating and our cabin. It's been several years since we last studied this in depth, and customer preferences and expectations change over time. We are also studying the operational and financial benefits of any potential change.
Bob Jordan: It's been several years since we last studied this in depth and customer preferences and expectations change over time. We are also studying the operational and financial benefits of any potential change.
Bob Jordan: We remain committed to our industry-best customer-friendly policy, but we are also committed to understanding and meeting customer expectations. We have transformed before, adding things like Wi-Fi, larger bins, and in-seat power, and we will continue to adapt as needed. It is too early to share the specifics of what we are exploring, but I want to be transparent and let you know that work is well underway.
Bob Jordan: We remain committed to our industry best customer friendly policies, but we are also committed to understanding and meeting customer expectations, we have transformed before adding things like Wi Fi larger bids in in seat power and we will continue to adapt as needed. It is too early to share the specific.
Bob Jordan: So what we are exploring but I want to be transparent and let you know that work is well underway.
Bob Jordan: Of course, the biggest change we have experienced is the news from Boeing on deliveries. The Boeing issues are a significant impact and we are taking quick action to re plan based on expected 2024, and 2025 delivery delays as I've said before wallets impactful I support Boeing taking the time to do.
Bob Jordan: Of course, the biggest change we have experienced is the news from Boeing on delivery. The Boeing issues have a significant impact, and we are taking quick action to replan based on expected 2024 and 2025 delivery delays. As I've said before, while it's impactful, I support Boeing taking the time to do the work to understand and fix the issue. A stronger Boeing company for the long term is good for Southwest Airlines. I visited Boeing in late March, and while there is much work to do, I am encouraged by the comprehensive approach that their leadership is taking. We will be back at Boeing this summer when they complete their plan, and I will be visiting Spirit Aerosystems as well.
Bob Jordan: The work to understand and fix the issues a stronger Boeing company for the long term is good for southwest Airlines I visit Boeing in late March and while there is much work to do I am encouraged by the comprehensive approach that their leadership is taking.
Bob Jordan: We'll be back at Boeing this summer when they complete their plan and I will be visiting spirit Aero systems as well.
Bob Jordan: I won't downplay the challenges from the Boeing issues. They are a big deal and contribute to changing capacity sets, redoing schedules, and forecasting now an accurate staffing level. All of that is costly. It pulls people away from their regular work, and it creates a significant financial drag.
Bob Jordan: Don't downplay the challenges from the Boeing issues. They are a big deal and contribute contribute to changing capacity set redoing schedules and forecasting now and accurate staffing levels.
Bob Jordan: All of that is costly it pulls people away from the regular work and it creates a significant financial drag that said it will deter from our work to improve our results. We will continue to control what we can control and work our plan as they take the time to become a better Boeing company.
Bob Jordan: That said, it won't deter us from our work to improve our results. We will continue to control what we can control and work our plan as they take the time to become a better Boeing. Boeing issues aside, we already had aggressive plans in place to further optimize the network to improve profitability, moderate capex and capacity to improve free cash flow and ROYC, and drive staffing and operational actions to improve efficiency. All of that work is now being accelerated.
Bob Jordan: Boeing issues aside we already had aggressive plans in place to further optimize the network to improve profitability moderate capex and capacity to improve free cash flow and ROIC and drive staffing and operational actions to improve efficiency all of that work is now being accelerated.
Bob Jordan: As we continue our focus on capital efficiency free cash flow generation and aggressively restoring our returns we will continue to moderate both capacity and capex until we do so managing our Capex is obviously key to improving free cash flow, which along with ROIC. We are laser focused on.
Bob Jordan: As we continue our focus on capital efficiency, free cash flow generation, and aggressively restoring our returns, we will continue to moderate both capacity and CapEx until we do so. Managing our CapEx is obviously key to improving free cash flow, which, along with ROIC, we are laser focused on. Our bias will remain to retire aircraft as planned, and any capacity growth that we have in the near term will come entirely from gauge and initiatives to drive aircraft utilization, including tightening turn time through process innovation and automation and introducing a modest level of red-eye flying.
Bob Jordan: Our bias will remain to retire aircraft as planned in any capacity growth that we have in the near term will come entirely from gauge and initiatives to drive aircraft utilization, including tightening turn time through process innovation and automation and introducing a modest level of redeye.
Bob Jordan: Fly both of those initiatives boost aircraft utilization and create capacity without aircraft Capex.
Bob Jordan: Both of those initiatives boost aircraft utilization and create capacity without aircraft capex. The initiative to reduce turn time is going well and is a first step. Twelve stations will see a five minute reduction in turn time in the November 2024 schedule, with further reductions in early 2025.
Bob Jordan: The initiative to reduce turn time is going well and as a first step 12 stations will see a five minute reduction in turn time and the November 2024 scheduled with further reductions in early 2025, we will share details on the full plan, which includes these and other planned strategic initiatives at our investor.
Bob Jordan: We will share details on the full plan, which includes these and other planned strategic initiatives at our Investor Day, now planned for September 26th, when I look forward to welcoming everyone here to Dallas. On our cost control efforts, note that we already had plans in place to end 2024 with headcount flat to down through efficiency efforts like deploying automation and Gen AI solutions for greater productivity in some customer support functions and driving organizational efficiency by combining like functions.
Speaker Change: Your day now planned for September 26, when I look forward to welcoming everyone here to Dallas.
Bob Jordan: On our cost control efforts note that we already had plans in place to end 2024 with head count flat to down through efficiency efforts like deploying automation and Jen AI solutions for greater productivity and some customer support functions and driving organizational efficiency by combining like.
Bob Jordan: Functions further capacity reductions in 2024, and 2025 create additional head count and efficiency challenges and we are moving quickly who addressed to address those through a combination of voluntary programs.
Bob Jordan: Further capacity reductions in 2024 and 2025 create additional headcount and efficiency challenges, and we are moving quickly to address those through a combination of voluntary programs. We have essentially frozen and stopped all hiring except for a limited number of critical positions and now expect to end 2024 with headcount down approximately 2000 as compared to the end of 2023. Headcount will be down again in 2025 through continued efficiency efforts.
Bob Jordan: We have essentially frozen and stopped all hiring except for a limited number of critical positions and now expect to end 2024 with head count down approximately 2000 as compared to the end of 2023.
Bob Jordan: Head count will be down again in 2025 through continued efficiency efforts.
Bob Jordan: We are already seeing the benefits of time off without pay programs and in fact, the participation in these programs generated higher than expected savings in March which was one of the factors that contributed to us, beating our first quarter CASM ex guidance.
Bob Jordan: We are already seeing the benefits of time off without pay programs, and in fact, the participation in these programs generated higher than expected savings in March, which was one of the factors that contributed to us beating our first quarter CASM-X guidance. Last quarter, we laid out a plan that included providing a line of sight to cover our cost of capital in 2024. We are admittedly materially off that plan, but much of the miss comes from external factors, including headwinds from increased market prices for fuel and impacts attributable to the most recent delays and Boeing deliveries. But we aren't accepting that as our fate and are taking swift action against what we can control.
Bob Jordan: Last quarter, we laid out a plan that included providing a line of sight to cover our cost of capital in 2024, we are admittedly materially off that plan much of the Miss comes from external factors, including headwinds from increased market prices for fuel and impacts attributable to the most recent delays in Boeing deliveries.
Bob Jordan: We aren't accepting that as our fate and are taking swift action against what we can control.
Bob Jordan: So theres a lot going on right now and we'll have a good grip and plan around areas of the business, where we can improve.
Bob Jordan: As a recap we are continued to be guided by our goal is to drive ROIC performance by.
Bob Jordan: Making additional network adjustments to specifically address underperforming markets and adjusting capacity.
Bob Jordan: So there's a lot going on right now, and we'll have a good grip and plan around areas of the business where we can improve. As a recap, we are continuing to be guided by our goals to drive ROIC performance by making Additional Network Adjustments to Specifically Address Underperforming Markets and Adjusting Capacities. Enhancing revenue performance in the intermediate term through marketing and revenue management efforts. Offsetting cost pressures with efficiency initiatives and programs to reduce headcount and lower discretionary spending.
Bob Jordan: Enhancing revenue performance in the intermediate term through marketing and revenue management efforts.
Bob Jordan: Offsetting cost pressures with with efficiency initiatives and programs to reduce head count and lower discretionary spending.
Bob Jordan: Curbing, our capacity plans and managing down capex and investing in initiatives that create capacity without capital investment and.
Bob Jordan: And finally by creating a new set of strategic initiatives to share with you at our Investor Day. This September.
Tammy Romo: Curving Our Capacity Plans, Managing Down CapEx, and Investing in Initiatives that Create Capacity Without Capital Investment. And finally, by creating a new set of strategic initiatives to share with you at our investor day this September, we will not tolerate underperformance of any kind, and everyone is committed to doing what it takes. I am truly blessed to lead a company with such passionate and dedicated employees, and I am confident that we can and will adjust as needed, as we have in the past, and work to hit our financial targets, which are not negotiable.
Bob Jordan: We will not tolerate underperformance of any kind and everyone is committed to doing what it takes I am truly blessed to lead a company with such passionate and dedicated employees and I am confident that we can and will adjust as needed as we have in the past and work to hit our financial targets, which are not.
Bob Jordan: <unk> so before I close I just wanted to say thank you again to our employees for all that they do every single day and with that I will turn it over to Tammy for more in depth review of our financial performance and outlook.
Tammy Romo: Thank you, Bob and Hello, everyone as Bob just covered this year, if not shaping up as we had initially planned.
Tammy Romo: We have never and will never accept underperformance.
Tammy Romo: So before I close, I just want to say thank you again to our employees for all that they do every single day. And with that, I will turn it over to Tammy for a more in-depth review of our financial performance and outlook. Thank you, Bob. And hello, everyone.
Tammy: A lot of things that contributed to our current position.
Tammy Romo: The impact of continued delivery delays from Boeing significant market driven inflationary pressure from the labor contract.
Tammy Romo: Followed on fuel prices.
Tammy: Dynamic customer travel patterns.
Tammy Romo: As Bob just covered, this year is not shaping up as we had initially planned. We have never and will never accept underperformance. There are a lot of things that contributed to our current position, the impact of continued delivery delays from Boeing, significant market-driven inflationary pressure from new labor contracts, volatile fuel prices, and dynamic customer travel patterns. Those are all very real reasons, but we will not use them as excuses.
Tammy: Those are all very well reasons, but we will not use them as excuses.
Tammy: Our focus is to control what we can control to take aggressive actions to adapt as required.
Tammy: Prudent financial return period.
Tammy: Bob mentioned and why Youre spirit of our employees.
Tammy: Barry will thing and it will be a key to our turnaround.
Bob Jordan: Before I dive in I want to thank our incredible employees for their resilience and perseverance and dedication as weak euro to tackle the challenge we have before us.
Tammy Romo: Instead, our focus is to control what we can control, to take aggressive actions, to adapt as required, and to produce financial returns, period. Bob mentioned the warrior spirit of our employees. It's a very real thing.
Bob Jordan: Brian and Andrew will speak to our revenue and operations performance in detail.
Speaker Change: I'll start with our cost performance before moving to fleet and balance sheet.
Tammy Romo: And it will be the key to our turnaround. So before I dive in, I want to thank our incredible employees for their resilience, their perseverance, and their dedication as we gear up to tackle the challenge we have before us. Ryan and Andrew will speak to our revenue and operations performance in detail, so I'll start with our cost performance before moving to fleet and balance. Overall, our unit cost, excluding special items, increased modestly, less than 1% year-over-year in the first quarter. Our first quarter average fuel price of $2.92 per gallon came in a bit below our guidance range.
Bob Jordan: Overall, our unit cost, excluding special items increased modestly less than 1% year over year and first quarter.
Bob Jordan: Our first quarter average fuel price of $2 92 per gallon came in a bit below our guidance range.
Bob Jordan: Market prices have been volatile and based on the April 18th market, we increased our full year fuel price guidance by roughly <unk> 15.
Bob Jordan: To a range of $2 70 to $2 80 per gallon.
Bob Jordan: And we're anticipating our second quarter fuel price.
Tammy Romo: Market prices have been volatile, and based on the April 18 market, we increased our full year fuel price guidance by roughly 15 cents to a range of $2.70 to $2.80 per gallon. And we're anticipating our second quarter fuel price to fall within that range as well. We are currently 55% hedged here for the second quarter and 58% hedged for the full year. We continue to prudently add to our fuel hedge position for 2026, now 26% hedged, and we are currently 47% hedged in 2025.
Bob Jordan: Within that range as well.
Bob Jordan: We are currently 55% hedged here in second quarter, and 58% hedged for the full year.
Bob Jordan: We continue to prudently add to our fuel hedge position for 2026, now 26% hedged and are currently 47% hedged in 2025.
Bob Jordan: Our treasury team continues to do a great job managing our program as we seek cost effective opportunities to expand our hedging portfolio with a continued goal to get to roughly 50% hedging protection in each calendar year.
Bob Jordan: The purpose of our hedge is to provide protection from spikes when we need it most over the past two years, we have benefited significantly from our hedge portfolio generating net settlement gains of $872 million and $145 million in 2022 and 2023, respectively.
Tammy Romo: Our Treasury team continues to do a great job managing our program as we seek cost-effective opportunities to expand our hedging portfolio with the continued goal to get to roughly 50% hedging protection in each calendar year. The purpose of our hedge is to provide protection from spikes when we need it most. Over the past two years, we have benefited significantly from our hedge portfolio, generating net settlement gains of $872 million and $145 million in 2022 and 2023, respectively.
Bob Jordan: For 2024, we are currently expecting only a very modest loss, but as Brent get above $90 a barrel our position would begin to materially kick in at obviously is helpful insurance to have in this volatile environment.
Bob Jordan: Moving to non fuel costs, our first quarter unit cost, excluding special items were up 5% year over year and first quarter of.
Tammy Romo: For 2024, we are currently expecting only a very modest loss, but as Brent gets above $90 a barrel, our position would begin to materially kick in. That obviously is helpful insurance to have in this volatile environment.
Bob Jordan: Of course that was primarily driven by pressure from new labor agreements.
Bob Jordan: An increase in planned maintenance associated with the dash eight hundreds coming off their engine honeymoon.
Tammy Romo: Moving to non-fuel cost, our first quarter unit cost excluding special items, was up 5% year over year in the first quarter. Of course, that was primarily driven by pressure from the new labor agreement and an increase in planned maintenance associated with the Dash 800s coming off their engine honeymoon. This was a point ahead of our previous expectations, primarily due to favorable airport settlements, but also from some early benefits from our cost control initiatives, like voluntary time off programs.
Bob Jordan: This was a point ahead of our previous expectations.
Bob Jordan: Generally from favorable airports settlement, but also from some early benefits from our cost control initiatives like voluntary time off programs.
Bob Jordan: I am very thankful to all the employees, who are pitching in to help reduce cost.
Bob Jordan: <unk> always been part of our culture and the contributions that our people are making across the company are a sign that our culture is alive and well.
Tammy Romo: I am very thankful to all the employees who are pitching in to help reduce costs. It's always been part of our culture, and the contributions that our people are making across the company are a sign that our culture is alive and well.
Bob Jordan: You at first quarter, we were reacting and adjusting to continuous information from Boeing on further aircraft delivery delays, causing some additional movement within our CASM ex guidance expectations.
Tammy Romo: Throughout the first quarter, we were reacting and adjusting to continuous information from Boeing on further aircraft delivery delays, causing some additional movement within our CASM-X guidance expectations as we quickly worked to revise our 2024 plan. While Boeing's challenges continue to significantly impact us, I am immensely proud of the way our team continues to handle such a dynamic situation, running multiple forecasting scenarios for critical decision support, including support in adjusting capacity and re-optimizing the network.
Bob Jordan: We quickly worked to revise our 2024 plans.
Bob Jordan: Boeing's challenges continue to significantly impact us I am immensely proud of the way our team continues to handle such a dynamic situation.
Bob Jordan: Multiple forecasting scenarios are critical decision support including support and adjusting capacity and re optimizing the network.
Bob Jordan: Looking to second quarter and full year 2024, we continue to expect similar cost pressures throughout the year, driven primarily by elevated labor cost and maintenance expenses.
Tammy Romo: Looking to second quarter and full year 2024, we continue to expect similar cost pressures throughout the year, driven primarily by elevated labor costs and maintenance expenses. We currently estimate our second quarter CHASM-X to increase in the range of 6.5% to 7.5% year-over-year and our full year CHASM-X to increase in the range of 7% to 8% year-over-year, higher from our previous full year CHASM-X guidance due to lower capacity plans in the second half of the year.
Bob Jordan: Currently estimate our second quarter CASM ex to increase in the range of six 5% to seven 5% year over year and our full year CASM ex to increase in the range of 7% to 8% year over year elevated from our previous full year CASM ex guidance due to.
Bob Jordan: Lower capacity plans in the second half of the year.
The estimated sequential change and nominal CASM ex from first to second quarter is largely in line with historical norm when adjusted for capacity levels.
Tammy Romo: The estimated sequential change in Nominal Chasm X from first to second quarter is largely in line with historical norms when adjusted for capacity levels; roughly five points of our full year chasm x guidance is attributable to elevated salaries, wages, and benefits expense, and roughly one point is due to elevated maintenance and materials expense. While we continue to expect pressure from maintenance costs this year, we have reworked our maintenance plans given our new delivery We are also planning more voluntary leave and time off programs to further reduce labor expenses and address current overstaffing.
Bob Jordan: Roughly five points of our full year CASM ex guidance is attributable to elevated salaries wages and benefits expense and roughly one point is due to elevated maintenance and materials expense. While we continue to expect pressure from maintenance cost. This year, we have.
Bob Jordan: Reworked our maintenance plans, given our new delivery expectation and we now expect a lower full year 2020 for maintenance expense compared with our previous expectations.
Bob Jordan: We are also planning more voluntary leave and time off programs to further reduce labor expenses and address current overstaffing.
Tammy Romo: Despite these added pressures, which are a direct result of the Boeing aircraft delivery delays, we are aggressively working to control costs, reduce inflationary pressures, and cut discretionary spending across all cost categories. I want to reiterate that we are far from satisfied with our current financial performance, and we will work relentlessly until we return to financial prosperity, with our North Star being ROIC well exceeding our cost of capital. We will go into a lot more detail on our plans at Investor Day in September of this year.
Bob Jordan: Despite these added pressures, which are a direct result of the Boeing aircraft delivery delays, we are aggressively working to control costs reduce inflationary pressures and cut discretionary spending across all cost categories.
I want to reiterate we are far from satisfied with our current financial performance and we will work relentlessly until we return to the financial prosperity with our North star being RMC, well exceeding our cost of capital.
Bob Jordan: We will go into a lot more detail on our plan at Investor Day in September of this year.
Bob Jordan: Now turning to our fleet, we have reacted quickly over the quarter to the updated Boeing delivery delays, we began the quarter with the expectation. We received 79 of our 85 contractual deliveries in 2024 that number dropped to an expected 46.
Tammy Romo: Now, turning to our fleet, we have reacted quickly over the quarter to the updated Boeing delivery delays. We began the quarter with the expectation we'd receive 79 of our 85 contractual deliveries in 2024. That number dropped to an expected 46-8 aircraft at the timing of our March 8K and has since been reduced even further to a conservatively planned 20-8 aircraft delivery.
Dash eight aircraft at the timing of our March 8-K, and has since reduced even further to a conservatively planned 20 dash eight aircraft deliveries. Thus far we have received five dash eight aircraft from Boeing during the first quarter and have retired three seven.
Tammy Romo: Thus far, we have received 5-8 aircraft from Boeing in the first quarter and have retired 3-700 aircraft from our fleet. To reduce distractions and impact to the business and hedge against further potential delivery delays, we will now plan to hold on to an additional 14-700 aircraft that were originally planned to retire this year, bringing our expected 2024 total retirements down to 35 aircraft, including 4-800 lease returns, compared with our previous expectation of 49 aircraft retirements.
Bob Jordan: <unk> hundred aircraft from our fleet.
Bob Jordan: To reduce distractions and impacts to the business and hedge against further potential delivery delays, we will now plan to hold onto an additional 14 Dash 700 aircrafts that were originally planned to retire this year, bringing our expected 2024 total retirement founded.
Bob Jordan: <unk> five aircrafts, including four dash eight hundreds lease returns compared with our previous expectation for 49 aircraft retirements.
Tammy Romo: While we remain committed to our fleet modernization, we feel it is prudent to retain some flexibility until we have better certainty around our aircraft deliveries and around the certification of the MAX-7. The updated Boeing delivery expectations have also impacted our capital expenditures and cash flow expectations for the year. As a result of the 20 expected aircraft deliveries, we currently expect our capital spending to be approximately $2.5 billion, well below our previous guidance of $3.5 to $4 billion.
Bob Jordan: We remain committed to our fleet modernization, we feel it is prudent to retain some flexibility until we have better certainty around our aircraft deliveries and around the certification of the Max Evan.
Bob Jordan: The updated Boeing delivery expectations has also impacted our capital expenditures and cash flow expectations for the year.
Bob Jordan: As a result of the 'twenty expected aircraft deliveries. We currently expect our capital spending to be approximately $2 5 billion well below our previous guidance of three $5 billion to $4 billion.
Tammy Romo: Keep in mind, our 2024 CAPEX guidance includes an estimate for progress payments based on our current contractual order book, and CAPEX estimates will be fluid until we finish working out our plans and aligning on updated expectations for actual 2025 deliveries, which we plan to share at our Investor Day this fall. A quick note on our capacity plans. The Boeing delivery delays did not impact our first quarter capacity, finishing up 11% year over year on a solid completion factor.
Bob Jordan: Keep in mind, our 2020 for Capex guidance includes an estimate for progress payments based on our current contractual order book and Capex estimates will be fluid until we finish working our plans and aligning on updated expectations for actual 2025 deliveries.
Bob Jordan: Which we plan to share at our Investor Day. This fall.
Bob Jordan: A quick note on our capacity plans the Boeing delivery delays did not impact our first quarter capacity, finishing up 11% year over year on solid completion factor.
Tammy Romo: Looking ahead, as we rework our capacity plans for the year, we now expect second quarter capacity to be up in the range of 8 to 9% year over year. The majority of the Boeing capacity cuts will occur over the second half of the year, with third quarter capacity expected to increase in the low single digits and fourth quarter capacity expected to decrease in the low to mid single digits.
Bob Jordan: <unk> ahead, as we rework our capacity plans for the year, we now expect second quarter capacity to be up in the range of 8% to 9% year over year.
Tammy Romo: The majority of the Boeing capacity cuts will occur over the second half of the year with third quarter capacity expected to increase in the low single digits and fourth quarter capacity expected to decrease in the low to mid single digits.
Tammy Romo: Placing our full year 2024 capacity up approximately 4% year over year. Looking beyond 2024, we plan to keep any future growth at or below macroeconomic growth trends until we reach our long-term financial goal to consistently achieve ROIC well above our cost of capital. As a reminder, our aircraft delivery and retirement expectations are subject to Boeing's production capability, and we will react as quickly as possible if any further adjustments are needed, with the focus on taking care of our customers and aligning with our financial goals.
Tammy Romo: Our full year 2024 capacity.
Bob Jordan: Only 4% all year over year.
Tammy Romo: Looking beyond 2024, we plan to keep any future growth at or below macroeconomic growth trend until we reach our long term financial goal to consistently achieve rois be well above our cost of capital.
Bob Jordan: As a reminder, our aircraft delivery and retirement expectations are subject to boeing's production capability and we will react as quickly as possible. If any further adjustments are needed with a focus on taking care of our customers and aligning with our financial goal.
Tammy Romo: Lastly, I am immensely grateful for our balance sheet strength. As we move through another challenging year, we ended the quarter with 10.5 billion in cash and short-term investments, with a nearly 1 billion reduction from the prior quarter, driven by the payout of labor agreement ratification bonuses, which are one-time in nature. In addition, we returned $215 million to our shareholders through the payment of dividends and paid $8 million to retire debt and finance lease obligations.
Bob Jordan: Lastly, I am immensely grateful for our balance sheet strength as we move through another challenging year.
Tammy Romo: Ended the quarter with $10 5 billion in cash and short term investments with a nearly 1 billion reduction from the prior quarter driven by the payout of a late labor agreement ratification bonuses, which are onetime in nature.
Bob Jordan: In addition, we returned $215 million to our shareholders through the payment of dividend and paid $8 million to retire debt and finance lease obligations.
Tammy Romo: Finally, and most notably, I am proud to report we remain the only U.S. airline with an investment grade rating by all three rating agencies. Both Moody's and Fitch affirmed our rating during the first quarter, and S&P reviewed and left our rating unchanged.
Bob Jordan: Finally, and most notably I am proud to report we remain the only U S airline with an investment grade rating.
Bob Jordan: All three rating agencies, both Moody's and Fitch affirmed our rating during the first quarter and S&P reviewed and left our rating unchanged.
Tammy Romo: As ever, maintaining an investment grade balance sheet is our utmost priority. As I close, I want to reiterate that we are not starting the year as we had hoped, and that is undeniably disappointing. However, throughout my years at this wonderful company, I have come to know that a better Southwest is often formed on the heels of adversity. I agree with Bob. That is all because of the fighting and warrior spirit of our people. And with that, I will turn it over to Ryan. Thank you, Tammy.
Bob Jordan: As ever maintaining an investment grade balance sheet is our utmost priority.
Speaker Change: As I close I want to reiterate that we are not starting the year as we had hoped and that is undeniably disappointing. However throughout my years at this wonderful company I have come to know that a better southwest is often formed on the heels of adversity.
Speaker Change: I agree with Bob that is all because of the fight and warrior spirit of our people.
Speaker Change: And with that I will turn it over to Ryan.
Ryan: Thank you Tammy as Bob mentioned I am going to provide you with details on our first quarter revenue performance and base trends.
Ryan C. Green: As Bob mentioned, I'm going to provide you with details on our first quarter revenue performance and base trends. I'll also share an outlook for the second quarter and full year along with what we are assuming in the guides. And most importantly, I will give you some color on the additional actions we are taking to further improve our revenue performance. Starting with the first quarter, unit revenue finished roughly flat on 11% capacity growth, both on a year-over-year basis.
Ryan: Also share an outlook for the second quarter and full year, along with what we're assuming in the guidance and most importantly, I will give you some color on the additional actions we are taking to further improve our revenue performance starting with first quarter unit revenue finished roughly flat at 11% capacity growth both on a year over year basis, the variance to our original.
Ryan C. Green: The variance to our original guidance is driven by a balance of higher-than-expected completion factor, close-in leisure volumes that came in below our expectations in the month of March, and underperformance in select development markets. Development Markets as a Portfolio did not meet maturation expectations, but the story isn't the same for all markets. Several development markets outperformed expectations, particularly Florida Beach. But a few markets weighed down the portfolio.
Ryan C. Green: <unk> guidance is driven by a balance of higher than expected completion factor close end leisure volumes that came in below our expectations in the month of March and underperformance in select development markets.
Ryan: Development markets as a portfolio did not meet the maturation expectations, but the story isn't the same for all markets several development markets outperformed expectations, particularly Florida beach destinations, but a few markets weighed down the portfolio.
Ryan C. Green: As Bob shared, we have made the difficult decision to address underperforming stations with closures effective August 4th and also to restructure and reduce capacity in other underperforming markets, which are included in our updated June schedule. Despite coming in below our expectations, the first quarter had strong demand, setting numerous records, including record first-quarter operating revenue, ancillary revenue, passenger revenue, and record first-quarter passengers carried. And we also added a quarterly record number of new Rapid Reward members to the program.
Ryan: As Bob shared we have made the difficult decision to address underperforming stations with closures effective August 4th and also to restructure and reduce capacity and other underperforming markets, which are included in our updated June schedule.
Ryan: Despite coming in below our expectations first quarter had strong demand setting numerous records, including record first quarter operating revenue ancillary revenue passenger revenue and record first quarter passengers carried and we also added a quarterly record number of new rapid reward members into the program.
Ryan C. Green: In addition to these records, we were also really pleased to see the continued incremental benefits from our investments in managed business, as first quarter managed business revenue grew 25% year over year and was roughly flat to 2019 levels. We continue to pick up market share year over year as we perform in line with, or above, the rest of the end. Finally, from a geographical perspective, we saw the strongest year-over-year improvements coming from the West Coast and the Northeast, regions where demand has been slower to return post-COVID.
Ryan: In addition to these records. We were also really pleased to see the continued incremental benefits from our investments in managed business as first quarter managed business revenue grew 25% year over year and was roughly flat to 2019 levels. We continue to pick up market share year over year as we perform in line in line with or above the rest.
Bob Jordan: The industry.
Bob Jordan: Finally from a geographical perspective, we saw the strongest year over year improvements coming from the West coast and the northeast regions, where demand has been slower to return post COVID-19.
Ryan C. Green: I also want to stress that we had a better-than-historically-normal sequential trend in nominal unit revenue. We are seeing improvement in revenue productivity and demand. Nominal RASM in the first quarter came in flat to the fourth quarter, despite the first quarter historically being seasonally softer than the fourth quarter. And this is particularly true in a post-COVID environment where peaks and troughs are magnified. To illustrate this point, consider 2018, the most recent year in which Easter fell on the last weekend of March.
Bob Jordan: I also want to stress that we had a better than historically normal sequential trend in nominal unit revenue, we are seeing improvement in revenue productivity and demand nominal RASM in the first quarter came in flat to fourth quarter. Despite first quarter, historically being seasonally softer fourth quarter and this is particularly true in a post COVID-19 environment.
Bob Jordan: We're peaks and troughs are magnified to.
Bob Jordan: To illustrate this point consider 2018, the most recent year in which Easter fell on the last weekend of March nominal RASM declined sequentially five points. So even in a seasonally challenged quarter sequential performance was much better than our best holiday comparison. The most significant driver of this sequential improvement was our network.
Ryan C. Green: Nominal RASM declined sequentially by, so even in the seasonally challenged quarter, the sequential performance was much better than our best holiday comparison. The most significant driver of this sequential improvement was our network optimization efforts, but we also saw benefits from our other revenue initiatives, especially managed business investments. Looking to the second quarter, we expect our ninth consecutive quarter of record revenue performance. In fact, we expect an all-time quarterly record for operating revenue. Second quarter 2024 RASM, after being calibrated for recent booking trends, is now expected to decrease in the range of 1.5% to 3.5% year-over-year.
Bob Jordan: Optimization efforts, but we also saw a benefit from our other revenue initiatives, especially managed business investments.
Ryan C. Green: Looking to second quarter, we expect our ninth consecutive quarter of record revenue performance. In fact, we expect an all time quarterly record for operating revenue.
Bob Jordan: Second quarter 2020 for RASM after being calibrated for recent booking trends is now expected to decrease in the range of one 5% to three 5% year over year.
Bob Jordan: The year over year comparison includes a little over one point of headwind for holiday holiday timing, both from outbound Easter shifting to the first quarter and for more outbound fourth of July travel shifting to third quarter.
Ryan C. Green: The year-over-year comparison includes a little over a point of headwind for holiday timing, both from outbound Easter shifting to the first quarter and from more outbound Fourth of July travel shifting to the third quarter. On a nominal sequential basis, this also implies another quarter of better than seasonally normal RASM improvement. Looking beyond the second quarter, network planning teams are still reworking schedules in the back half of the year to accommodate Boeing delivery delays.
Bob Jordan: On a nominal sequential basis. This also implies another quarter of better than seasonally normal RASM improvement.
Bob Jordan: Looking beyond the second quarter network planning teams are still reworking schedules in the back half of the year to accommodate Boeing delivery delays.
Bob Jordan: After adjusting expectations for both current booking trends and for Boeing delivery delays. We are forecasting 2020 for operating revenue growth to approach high single digits on a year over year basis. This expected revenue growth implies healthy RASM growth in the back half of the year driven by revenue initiatives as well as a reduction in year over year trips.
Ryan C. Green: After adjusting expectations for both current booking trends and for Boeing delivery delays, we are forecasting 2024 operating revenue growth to approach high single digits on a year over year basis. This expected revenue growth implies healthy RASM growth in the back half of the year, driven by revenue initiatives, as well as a reduction in year-over-year trips. While our development market maturation efforts are off track, which I'll discuss in a moment, our other revenue initiatives are expected to continue to drive value over the balance of the year.
Bob Jordan: While our development market maturation efforts are off track, which I'll discuss in a moment. Our other revenue initiatives are expected to continue to drive value over the balance of the year.
Bob Jordan: In fact network optimization benefits contributed roughly $100 million in incremental revenue in March alone primarily from reductions to shoulder flying early morning, and late evening flights and short off line for.
Bob Jordan: For full year, the incremental year over year pretax profits from our strategic initiatives is now estimated to be between one and $1 5 billion.
Ryan C. Green: In fact, network optimization benefits contributed roughly $100 million in incremental revenue in March alone, primarily from reductions to shoulder flying, early morning and late evening flights, and short-haul flying. For full year, the incremental year-over-year pre-tax profits from our strategic initiatives are now estimated to be between $1 and $1.5 billion after being updated for first quarter actual performance, development market adjustments, and capacity changes in the back half of the year. The vast majority of the initiatives delivering value in 2024 will continue to be revenue-related.
Ryan C. Green: After being updated for first quarter actual performance development market adjustments and capacity changes in the back half of the year the.
Bob Jordan: The vast majority of the initiatives delivering value in 2024 continue to be revenue related.
Bob Jordan: So while we are encouraged to see strong demand for our brand and solid sequential improvement. It is short of our goals and as Bob and Tammy shared it's simply not enough given the escalation of market driven inflationary cost pressures. Therefore, we are taking actions to generate both immediate and longer term revenue enhancements.
Bob Jordan: We have stood up cross functional teams to focus on things like accelerating the maturation of development markets further boost the value being delivered by our relatively new revenue management system and rollout new products and highlight our superior value proposition with our new brand campaign.
Ryan C. Green: So, while we are encouraged to see strong demand for our brand and solid sequential improvement, it is short of our goals, and, as Bob and Tammy shared, it's simply not enough given the escalation of market-driven inflationary cost pressure. Therefore, we are taking actions to generate both immediate and longer-term revenue enhancement. We have set up cross-functional teams to focus on things like accelerating the maturation of development markets, further boosting the value being delivered by our relatively new revenue management system, and rolling out new products andhighlighting our superior value proposition with our new brand campaign.
Bob Jordan: We also have a larger team that is finalizing a more significant set of strategic initiatives and they're tasked with delivering transformational streams of revenue productivity.
Bob Jordan: Of course, we will have more to share on this topic at Investor day as.
Bob Jordan: As we build our plans, we will focus on leveraging our strengths, including those of our network, which while it has optimization opportunities remains incredibly relevant and well positioned based on size and population migration trends. We continue to hold the top position in 22 of the largest 50 domestic markets and we are by far.
Ryan C. Green: The market leader in that regard.
Bob Jordan: Also we are well positioned for the future as population and GDP growth trends are forecast to be strongest in the southern and mountain west regions of the country regions, where we have significant leadership.
Ryan C. Green: We also have a larger team that is finalizing a more significant set of strategic initiatives, and they're tasked with delivering transformational streams of revenue productivity. Of course, we'll have more to share on this topic at Invest. As we build our plans, we will focus on leveraging our strengths, including those of our network, which, while it has optimization opportunities, remains incredibly relevant and well positioned based on size and population migration. We continue to hold the top position in 22 of the largest 50 domestic markets, and we are by far the market leader in that regard.
Ryan C. Green: We will also lean into the customer experience, we deliver year to date, our trip net promoter score is up over five points year over year and finally, we continue to enhance our award winning rapid rewards program.
Bob Jordan: Just this week, we began rolling out the ability to book and pay with part cash and part rapid rewards points, which I expect to be very popular with our customers.
Speaker Change: So in closing.
Speaker Change: We have a large and relevant network, a strong demand environment and a loyal and highly engaged customer base. We also have the best people, whom I want to sincerely. Thank and we are committed to being aggressive and innovative as we adapt adjust and evolve to meet the preferences of our customers and to unlock the revenue productivity required.
Ryan C. Green: Also, we're well positioned for the future as population and GDP growth trends are forecast to be strongest in the southern and mountain west regions of the country, regions where we have significant leadership. We also lean into the customer experience we deliver year to date. Our TripNet promoter score is up over five points year over year. And finally, we continue to enhance our award-winning rapid rewards program. Just this week, we began rolling out the ability to book and pay with part cash and part Rapid Rewards points, which I expect to be very popular with our customers. So, in closing,
Speaker Change: To meet our financial imperatives.
Speaker Change: With that I'll turn it over to you Andrew.
Andrew: Thank you Bryan and Hello, everyone.
Andrew: I'd like to start out by thanking our incredible southwest employees for continuing to deliver a strong operational performance.
Andrew: We produced a solid first quarter completion factor of 98, 5%, our highest first quarter performance over the past five years we.
Andrew: We delivered year over year improvement in early morning, originators turn compliance and term differential.
Andrew: And Mishandle bag rate and again saw a year over year improvement in net triple net promoter score as Ryan mentioned.
Ryan C. Green: We have a large and relevant network, a strong demand environment, and a loyal and highly engaged customer base. We also have the best people, whom I want to sincerely thank, and we are committed to being aggressive and innovative as we adapt, adjust, and evolve to meet the preferences of our customers and to unlock the revenue productivity required to meet our financial imperative. With that, I'll turn it over to you, Andrew. Thank you, Ryan. And hello everyone.
Andrew: Our on time performance declined slightly year over year, largely due to winter weather challenges and delays driven by ATC programs. However, I'm pleased to report that we improved year over year on time performance for the month of March.
Andrew: I am proud of the hard work and investments made to bolster our winter preparedness and modernize operation and I'm encouraged to see these efforts pay off and our operational performance.
Andrew: Picking up with voluntary left off I want to stress that we remain focused on wringing out operational efficiencies increasing asset productivity.
Andrew M. Watterson: I'd like to start off by thanking our incredible Southwest employees for continuing to deliver a strong operational performance. We produced a solid first quarter completion factor of 98.5%, our highest first quarter performance in the past five years. We delivered year-over-year improvement in early morning originators, turn compliance, and turn differential, and mishandled back rate, and again saw a year-over-year improvement in our trip net promoter score, as Ryan mentioned. However, our on-time performance declined slightly year-over-year, largely due to weather challenges and delays driven by ATC programs.
Andrew: And creating operating leverage by reducing structural costs.
Andrew: Our southwest turn initiative, which Bob shared is tracking ahead of schedule.
Andrew: Critical opponent of these efforts.
Andrew: One of the key elements includes eliminating the need for printing on every flight, reducing the number of employee trips up and down the jet bridge are recovering faster during our regular operations.
Andrew: We reached an important milestone in this multi year effort just last week with the launch of electronic flight folders, which modernized several of our flight planning processes by digitizing documents used by our pilots dispatchers and all stages.
Andrew: We also continue to make progress on monetizing the airport experience and that initiative is also coming together faster than originally planned.
Andrew M. Watterson: However, I'm pleased to report that we improved year-over-year on-time performance for the month of March. I'm proud of the hard work and investments made to bolster our winter preparedness and modernize our operation, and I'm encouraged to see these efforts pay off in our operational performance. Picking up where Bob and Tammy left off, I want to stress that we remain focused on wringing out operational inefficiencies. Increasing asset productivity and creating operating leverage by reducing structural costs
Andrew: Our efforts for improving the lobby customer experience are on track to provide improvement the staffing standards ahead of the original schedule.
Andrew M. Watterson: We are working on updated schedules and look forward to sharing those with you as well.
Andrew M. Watterson: I'd also like to highlight a new application called Sky path. We recently implemented have led for pilots dispatchers to provide better awareness of turbulence of Lightpath.
Andrew M. Watterson: This industry, leading system uses iPad sensors, GPS data from pilot's electronic flight bags to the turbulence of real time aggregating.
Andrew: Aggregating and sharing data from across from users across several airlines in North America.
Andrew M. Watterson: Our Southwest Turn Initiative, which Bob shared is tracking ahead of schedule, is a critical component of these efforts. One of the key elements is eliminating the need for printing on every flight, reducing the number of employee trips up and down the jet bridge. Recovering Faster During a Regular Operation
Andrew: Our teams worked cross functionally to accelerate the launch of this app for the spring season, we tend to see more turbulence across the network.
Andrew: That's another tool we can use to support employees with additional information for decision, making improve the onboarding experience for customers and reduce operational risk.
Andrew M. Watterson: We reached an important milestone in this multi-year effort just last week with the launch of electronic flight folders, which modernized some of our flight planning processes by digitizing documents used by our pilots, dispatchers, and officers. We also continue to make progress on modernizing the airport, and that initiative is also coming together faster than originally planned. Our efforts to improve the lobby customer experience are on track to provide improvements to staffing standards ahead of the original schedule.
Andrew: We look forward to sharing more of these and expanded set of multi year initiative based efforts in Investor day in September.
Andrew: Finally, I'd like to close by congratulating all of our employees, who reached agreements on new contracts over the past year or a little bit more than a year plus each contract requires a significant amount of work and as always we remain committed to rewarding our deserving employees.
Andrew: That I will turn it back over to Julia.
Julia Landrum: Great. Thanks, Andrew that completes our prepared remarks, we will now open the line for analyst questions to allow for as many conference possible. We ask that you limit yourself to one question and a brief follow up if needed.
Andrew M. Watterson: We're working on updated schedules and look forward to sharing those with you as well. I'd also like to highlight a new application called SkyPath we recently implemented for our pilots and dispatchers to provide better awareness of turbulence along a flight path. This industry-leading system uses iPad sensors and GPS data from pilots' electronic flight bags to detect turbulence in real time, aggregating and sharing data from users across several airlines in North America.
Julia Landrum: We'll now take the first question.
Julia Landrum: Let's begin the question and answer session again to ask a question Press Star then one to withdraw your interest press Star then two.
Julia Landrum: If you were on speakerphone today, please pickup your handset before pressing the keys.
Andrew M. Watterson: Our first question today comes from Michael Lindenberg with Deutsche Bank. Please go ahead.
Michael John Linenberg: Oh, yes.
Michael John Linenberg: Good morning, everyone.
Speaker Change: Yes, Jamie I just wanted on the bonuses to the to the employees incurred in the March quarter. Just can you remind us that number again I thought I heard it and then.
Andrew M. Watterson: Our teams are working cross-functionally to accelerate the launch of this app for the spring season, when we tend to see more turbulence across the network. And it's another tool we can use to support employees with additional information for decision making, to improve the onboard experience for customers and reduce operational risk. We look forward to sharing more of these and expanding the set of multi-year initiative-based efforts at investor day in September.
Michael John Linenberg: Is it just we're going to see another piece in the second quarter with the approval of the flight attendant contract by the way congratulations.
Michael John Linenberg: Another piece in the second and then is that it for the year. If you could just remind me of the of those numbers.
Speaker Change: Yes, Hi, Mike.
Speaker Change: Okay.
Andrew M. Watterson: First of all we are.
Andrew M. Watterson: Are thrilled to have an agreement with a wonderful flight attendant.
Speaker Change: And at the end of the quarter, we had roughly 625 million accrued.
Andrew M. Watterson: Finally, I'd like to close by congratulating all of our employees who reached agreements on new contracts over the past year or so plus. Each contract requires a significant amount of work, and as always, we remain committed to rewarding our deserving employees. With that, I'll turn it back over to Julia.
Speaker Change: For <unk>.
Speaker Change: Labour agreement.
Speaker Change: That we expect to pay out.
Andrew M. Watterson: For the remainder of this year.
Speaker Change: Okay great.
Speaker Change: And then just my second question.
Speaker Change: Ryan I recently.
Julia Landrum: So can you give some presentation to talk about.
Julia Landrum: That completes our prepared remarks. We will now open the line for analyst questions. To allow for as many calls as possible, we ask that you limit yourself to one question and a brief follow-up, if needed. We will now take the first question. Again, to ask a question, press star, then one.
Speaker Change: <unk> Red eye flying coming to southwest Airlines and I think you said, it's about a two year timeframe I am just curious what is what are the gating issues. What are the things that need to get done to be able to actually implement them because it does seem like a pretty long time, but I do realize it is something new for southwest. Thanks for taking my question.
Julia Landrum: To withdraw your interest, press star, then two. If you are on speakerphone today, please pick up your handset before pressing the key. Our first question today comes from Michael Linenberg with Deutsche Bank. Please go ahead. Oh, yeah. Hey, good morning, everyone. I guess, Tammy, I just want to on the bonuses to the employees incurred in the March quarter. Can you remind us that number again? I thought you I had heard it.
Tammy Romo: Yeah, Hey, Mike.
Julia Landrum: The.
Speaker Change: We can move technology timelines around by re prioritizing things here and there and so.
Speaker Change: Some of the gating their crew scheduling.
Speaker Change: Changes that need to be made.
Michael John Linenberg: From a redeye standpoint, theres some <unk>.
Michael John Linenberg: <unk> that need to be made with some of our operational systems.
Michael John Linenberg: And we can choose how fast or.
Julia Landrum: How fast do those things and what what elements go before or after them. So the two year was a rough estimate we can go faster than that if we choose if we choose to do so but it's just kind of a myriad of technology related items, yes, it's Andrew I'll add on that so.
Michael John Linenberg: And then is it just we're going to see another piece in the second quarter with the approval of the flight attendant contract? By the way, congratulations. But another piece in the second.
Michael John Linenberg: And then is that it for the year? If you can just remind me of all those numbers, yes. Hey, Mike.
Michael John Linenberg: So.
Andrew: Kind of bigger issues slowed us down was so our contracts are reserved periods, we had to reserve periods.
Tammy Romo: Thanks for the question. First of all, we are thrilled to have an agreement with our wonderful flight attendants. And at the end of the quarter, we had roughly $625 million in accrued for labor agreements that we expect to pay out for the remainder of this year.
Andrew: The pilots in particular and didn't allow for good coverage of Red eyes, and so with the new contract. We will eventually go to three reserve periods and allow us to better have reserve pilots on standby shouldn't be a problem. So we didn't want to have those.
Tammy Romo: Okay, great. And then just my second question. Ryan, I, you know, recently, I've seen you, you know, give some presentations and talk about red eyes and red eye flying coming to Southwest Airlines. And I think you said it's about a two-year timeframe. I'm just curious, what are the gating issues? What are the things that need to get done to be able to actually implement them?
Andrew: The largest scale those.
Michael John Linenberg: Flight unexposed or exposed rather to no reserves. So the new contracts allow us the flexibility to have X reserve periods and that makes us much more comfortable proceeding.
Michael John Linenberg: This is Bob you didn't ask this but on the why maybe you don't just the timing, but obviously, we've known for a long time, our customers want Red eye flying.
Bob Jordan: It's a <unk>.
Bob Jordan: Little bit limited in scope, but there are red eye flights that are very desirable for our customers and so we wanted to do this.
Ryan C. Green: Because it does seem like a pretty long time, but I do realize it is something new for Southwest. Thanks for taking my question. Yeah, hey, Mike, you know, we can move technology timelines around by reprioritizing things here and there.
Bob Jordan: It also allows us to add.
Bob Jordan: Capacity just like this turn work where you can add the capacity and there is no capex related you are just you are just using the aircraft and higher utilization. So thats something we wanted to do obviously and then in a period here where we are.
Ryan C. Green: And so, you know, some of the gating, there are crew scheduling changes that need to be made from a red eye standpoint, there's some changes that need to be made with some of our operational systems. And we can choose how fast or how slow to do those things, and what elements go before or after them.
Bob Jordan: Staff, because we were shooting for a higher fleet number.
Bob Jordan: Any incremental flying like that that makes sense, obviously, it alleviates at least a piece of that that overstaffing with our pilot. So I just wanted to give a little background on the why in addition to the the how long.
Speaker Change: Great. Thanks very helpful everyone.
Ryan C. Green: So the two years was a rough estimate; we can go faster than that if we choose, if we choose to do so, but it's just kind of a myriad of technology-related items, unexposed or exposed rather with no reserve. So the new contracts allow us the flexibility to have extra reserve periods, and that makes us much more comfortable proceeding. Bob, you didn't ask this, but on the why, maybe, not just the timing, but obviously, we've known for a long time that our customers want red-eye flying.
Ryan C. Green: Yeah.
Speaker Change: The next question is from David Vernon with Bernstein. Please go ahead.
Speaker Change: Hey, Thanks for taking the question so Barbara Ryan I think last quarter.
David Scott Vernon: We were talking about premium on the call and you guys had made the comment that that this is something that cyclical. It comes up it goes down people put too much too many premium products in the cabin and then they have to take them away and the balance in the downcycle.
Speaker Change: Is the work that you're doing now in terms of looking at the product assigned at this shift could be something more permanent can you guys. Just help us understand how your view of the market may be changing a little bit the precipitating this sort of more strategic review.
Speaker Change: You bet and thanks for the question I think maybe I'll just start a little wider which as you know we are always studying what our customer preferences are and if they are changing over time and we're committed to meeting them Thats over time, we've added things like Wi Fi and now we're adding.
Ryan C. Green: It's a little bit limited in scope, but there are red-eye flights that are very desirable for our customers, and so we wanted to do this. It also allows us to add capacity, just like this turn work, where you can add the capacity, and there's no CapEx related. You are just using the aircraft at higher utilization, so that's something we want to do, obviously. And then, in the period here where we are overstaffed because we were shooting for a higher fleet number, any incremental flying like that that makes sense, obviously, it alleviates at least a piece of that overstaffing with our pilots. So that's going to give you a little background on the why in addition to the how long. Thanks. Very helpful, everyone. The next question is from David Vernon with Bernstein. Please go ahead.
Speaker Change: <unk> power, we've added larger overhead bins, and so were committed to meeting our customers' preferences and just to be transparent we've been seriously studying this.
Speaker Change: Question around onboard seeing at our cabin for a while.
Speaker Change: And.
Bob Jordan: To get at what you just said, which is an understanding of what customer expectations are today.
David Scott Vernon: Proud of our product today, and our customers love it but it was designed at a time when load factors were lower and.
David Scott Vernon: And higher load factors do change the way.
Bob Jordan: Preferences work the operation works and also our customer we know the customer expectations change over time. So there is no decision.
David Scott Vernon: Hey, thanks for taking the question. So Bob or Ryan, I think last quarter we were talking about premium on the call, and you guys had made the comment that this is something that's cyclical, it comes up, it goes down, people put too many too many premium products in the cabin, and then they have to take them away in the down cycle. Is the work that you're doing now in terms of looking at the product a sign that this shift could be something more permanent? Can you guys just help us understand how your view of the market may be changing a little bit that's precipitating this sort of more strategic review? You bet!
Speaker Change: Nothing to report other than we are seriously looking at this but.
Bob Jordan: Early indications both for our customers and for southwest.
Speaker Change: Pretty darn interesting.
Speaker Change: So I'll just leave it there and more to follow.
Speaker Change: Okay I appreciate that and maybe just as a follow up on the same topic.
Speaker Change: Is this if you were to go down this path, obviously theres going to be cost of the cabin, but technologically from our passenger service system and all that kind of stuff like how complicated might that be to kind of think about doing things like seat assignments or or segregated. The cabinets. Some harder way is that is that a big technological challenge or is that something you guys already.
Bob Jordan: And thanks for the question. I think maybe I'll just start a little wider, which is, you know, we are always studying what our customer preferences are and if they're changing. That's why over time, we've added things like, you know, Wi-Fi, and now we're adding seat power, and we've added larger overhead bins. And so we're committed to meeting our customers' preferences. And just to be transparent, we've been seriously studying this question around onboard seating in our cabin for a while.
Bob Jordan: The capability to do but just arent doing.
Speaker Change: Well, we just don't.
Speaker Change: I know.
Speaker Change: I want to get into details because a lot of those we don't have again, we're looking at customer preference obviously.
Speaker Change: How would you do it technically how long would it take.
Speaker Change: What impact if any would it have on the operation obviously, what's the financial impact all of those things.
Bob Jordan: Beyond the customer preference go into how you make your decision so again I'll just say.
Speaker Change: We're looking at this very seriously and more to come and we look forward to sharing.
Bob Jordan: And to get at what you just said, which is an understanding of what customer expectations are today. You know, I'm proud of our product today, and our customers love it. But it was designed at a time when load factors were lower, and higher load factors do change the way preferences work, the operation works.
Bob Jordan: Where we are at our Investor day on September 26.
Speaker Change: Above our PSS is the industry standard all of it is tool, which also works in those environments. So.
Bob Jordan: The underlying system is not.
Speaker Change: Prohibited from doing that that's right.
Speaker Change: Alright, thanks for that and thanks for taking my questions you bet.
Speaker Change: The next question is from Duane <unk> with Evercore ISI. Please go ahead.
Bob Jordan: And also, our customers, you know; customer expectations change over time. So there's no decision, you know; there's nothing to report, other than we are seriously looking at this. But, you know, early indications, both for our customers and for Southwest, look pretty darn interesting. So I'll just leave it there, with more to follow. I appreciate that. And maybe just as a follow-up on the same topic, you know, if you were to go down this path, obviously, there's going to be a cost for the cabin.
Duane: Hey, thanks.
Bob Jordan: Just geographically can you speak to how much.
Duane: Differentiation Youre seeing in unit revenue trends, you have a pretty broad based domestic network.
Duane: Could you just comment on like relative strength versus relative weakness geographically across the country.
Speaker Change: Hey, Duane.
Duane: I think there is that there is definitely regional performance.
Speaker Change: I mentioned in the prepared remarks that.
Bob Jordan: The West Coast did well, particularly intra cow inter Cal RASM and margins are up double digits year over year.
Bob Jordan: But technologically, from a passenger service system, and all that kind of stuff, like, how complicated might that be to kind of think about doing things like seat assignments, or, or segregating the cabin in some harder ways that pose a big technological challenge?
Duane: Phoenix is doing in Phoenix is doing really well Vegas is doing really well of course Vegas had some assistance there with the Super Bowl being there in February and the first quarter, but all of those markets performing very very well the northeast performed well in Florida, There's been a lot of talk about Florida, Florida, we have above system average RASM.
Duane: <unk> and.
Duane: In Florida, it's come under pressure with some of the capacity growth there, but still RASM is above system averages in Florida. So theyre.
Bob Jordan: Or is that something you guys already have the capability to do but just aren't doing? Well, I don't want to get into details because a lot of those we don't have. Again, we're looking at customer preference. Obviously, how would you do it technically? How long would it take?
Duane: <unk> strength.
Duane: Ross the network of course, we've got some weaknesses in the development markets, which we've talked about and we've got plans underway.
Duane: To address with the station closures that we've talked about and then we've restructured some of those.
Bob Jordan: What impact, if any, would it have on the operation? Obviously, what's the financial impact? All of those things, beyond customer preference, go into how you make your decision. So again, I'll just say we're looking at this very seriously, with more to come. And we look forward to sharing where we are at our investor day on September 26th. And I'd add, Bob, our PSS is the Industry Standard Amadeus Tool, which obviously works in those environments. So the underlying system is not prohibitive to doing that. That's right.
Duane: Development markets and some of the schedules that we've had to republish here as a result of the Boeing delivery delays.
Duane: But yes there is.
Duane: As as always with a network there, it's a portfolio and you've got markets that performed better than others. We're focused on making some improvements in those developed markets.
Speaker Change: Okay I appreciate the thoughts and then just on your capacity exit rate.
Bob Jordan: Was it down low singles low to mid singles by the fourth quarter.
Speaker Change: Should we be thinking about early 2025.
David Scott Vernon: Alright, thanks for that. Thanks for taking the question. The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Speaker Change: And are we still in a dynamic where.
Speaker Change: Seats are down more than <unk>. So in other words I think that was.
Duane Thomas Pfennigwerth: Hey, thanks. Just geographically, can you speak to how much differentiation you're seeing in unit revenue trends? You have a pretty broad-based domestic network. Could you just comment on, like, relative strength versus relative weakness geographically across the country? Yeah, hey, Duane.
Duane: By several points, maybe five points or so that seats were trailing ASM is that still the dynamic in the fourth quarter. Thanks for taking the questions.
Speaker Change: Yes, Thank you and again I'll just remind you that we are.
Speaker Change: This is all very fluid.
Speaker Change: We work with Boeing on there.
Speaker Change: On their delivery estimates and obviously 25 is more fluid the 'twenty four.
Ryan C. Green: You know, I think there is definitely regional performance. You know, I mentioned in the prepared remarks that the West Coast did well, particularly Intracal. You know, Intracal, RASM, and margins are up double digits year over year. Phoenix is doing, Phoenix is doing really well.
Ryan C. Green: And also we are choosing how work so as we get to.
Ryan C. Green: Some indication from Boeing we're choosing how.
Speaker Change: How we're going to plan, which may be different because we don't want to have to go through this re planning.
Ryan C. Green: Vegas is doing really well. Of course, Vegas had some assistance there with the Super Bowl being there in February in the first quarter, but all those markets are performing very, very well. But, yeah, you know, as always with the network, it's a portfolio, and you've got markets that perform better than others. We're focused on making some improvements in those development markets. Okay, I appreciate the thoughts. And then just on your capacity exit rate. What was it down low singles, low to mid singles by the fourth quarter?
Speaker Change: The schedules over and over and over because it's very very disruptive. So it's early to give you a signal.
Speaker Change: On 25, but that said I just would point out again that.
Speaker Change: Any capacity is going to come through.
Speaker Change: Either gauge or initiative based.
Speaker Change: Again, like the turn time work or Red eye flying.
Speaker Change: And.
Speaker Change: Sure.
Speaker Change: So again, it's too early but I think youre thinking directionally correctly I'll, just I'll just stop there and Tammy you want to add something.
Duane Thomas Pfennigwerth: How should we be thinking about early 2025? And are we still in a dynamic where, you know, seats are down more than ASMs? In other words, I think that was, you know, by several points, maybe five points or so, that seats were trailing ASMs. Is that still the dynamic in the fourth quarter?
Duane Thomas Pfennigwerth: The only thing I just might.
Tammy Romo: Reiterate and we'll we'll look to align our capacity growth for 2025.
Duane Thomas Pfennigwerth: With demand so we've got a little bit of time here and obviously.
Duane Thomas Pfennigwerth: Thanks for taking the question. Yeah, Duane, thank you. And again, I'll just remind you that this is all very fluid as we work with Boeing on their delivery estimates. And, you know, obviously, 25 is more fluid than 24.
Speaker Change: One thing I'd point out is we do have.
Tammy Romo: Fleet flexibility.
Tammy Romo: By design.
Tammy Romo: We'll continue to evaluate that and then just at a higher level again, we do plan to.
Bob Jordan: And also, we are choosing how to work. So as we get a, you know, some indication from Boeing, we're choosing, [inaudible] Any capacity is going to come through either Gage or initiative-based additions, again, like the turntime work or red-eye flying. So again, it's too early, but I think you're, you're, you're thinking directionally correctly. I'll just, I'll just stop there. And Tammy, unless you want to add something?
Tammy Romo: To grow below macro economic growth trends.
Tammy Romo: Until we.
Tammy Romo: Until we get our financial.
Tammy Romo: Going.
Tammy Romo: In the right direction to achieve our goal and maybe the other thing to add too just the disconnect from Boeing is.
Tammy Romo: The work on the network.
Tammy Romo: Our work to moderate.
Tammy Romo: Differently moderate our capacity isn't just Boeing I mean, we this is something we need to do we need to manage ourselves manage our appetite to continue to.
Tammy Romo: Mature the network continue as Brian said to work on the part of the network that is underperforming.
Tammy Romo: I know the only thing I just might reiterate is, you know, we'll, we'll, we'll look to align our capacity growth for 2025 with demand. So we've got a little bit of time here. And obviously, one thing I'd point out is that we do have fleet flexibility by design. So we'll continue to evaluate that. And then just at a higher level, you know, again, we do plan to grow below macroeconomic growth trends until we, until we get our financial growth going in the right direction to achieve our goal.
Tammy Romo: And moderate our capacity until we are hitting our financial targets, obviously moderating your capacity.
Tammy Romo: Vantage is down Capex managing down Capex is critical to free cash flow. It all helps us achieve our ROIC targets. So I don't want to lay this at the feet.
Tammy Romo: The capacity discipline and the network adjustments or Boeing we are doing those things because we need to do those things to restore our financial.
Tammy Romo: Our progress against our financial targets and we will absolutely continue on that path until we get there and they can take the sources of growth of Bob talked about in the network restructure that does imply that a central tendency is four seats to trail ASM and for trips to trail seat right. That's enough of a consequence of those actions.
Bob Jordan: And maybe the other thing to add to just disconnecting from Boeing is that the work on the network, the work to moderate, you know, significantly moderate our capacity, isn't just bowing. I mean, this is something we need to do.
Speaker Change: Okay I appreciate the thoughts from the team. Thank you.
Bob Jordan: The next question is from Jamie Baker with Jpmorgan. Please go ahead.
Bob Jordan: We need to manage ourselves, manage our appetite, continue to mature the network, continue, as Ryan said, to work on the part of the network that is underperforming, and moderate our capacity until we are hitting our financial targets. Obviously, moderating your capacity manages down CapEx, and managing down CapEx is critical to free cash flow. It all helps us achieve our ROIC targets, so I don't want to lay this at the feet of capacity, discipline, and network adjustments.
Jamie Nathaniel Baker: Oh, yes.
Speaker Change: Excuse me good afternoon, so Jamie how should we be thinking about operating cash flow for the rest of the year I mean, we've got the retro component in there with the flight attendants.
Tammy Romo: Presumably.
Bob Jordan: Our demand outlook suggests some pressure on the air traffic liability and then related I guess somewhat to that the dividend consumes what 450, a year $450 million of cash any idea of how the board is thinking about that in light of some of the challenges that you articulated today.
Bob Jordan: We are doing those things because we need to do those things to restore our financial, progress against our financial targets, and we will absolutely continue on that path until we get there. I think you take the sources of growth that Bob talked about, the network restructure, that does imply that our central tendency is for seats to trail ASMs and for trips to trail seats. That's a natural consequence of those actions.
Speaker Change: Yes, Jamie.
Jamie: We're focused on as Bob said on.
Speaker Change: Generating free cash flow.
Bob Jordan: That way we're working.
Tammy Romo: Two <unk>.
Tammy Romo: We store.
Bob Jordan: Our financial returns.
Tammy Romo: This year, we're very focused on.
Tammy Romo: What we can't control.
Duane Thomas Pfennigwerth: Okay, I appreciate the thoughts from the team. Thank you. The next question is from Jamie Baker with JP Morgan. Please go ahead. Unknown Speaker Oh yeah, hey, good afternoon.
Tammy Romo: And we are working on.
Tammy Romo: Lowering our Capex, that's already come down quite a bit as we've already shared.
Tammy Romo: And just in terms of.
Jamie Nathaniel Baker: So Tammy, how should we be thinking about operating cash flow for the rest of the year? I mean, we've got the retro component in there with the flight attendants. But you know, presumably, a weaker demand outlook suggests some pressure on the air traffic liability. And then, related, I guess, somewhat to that, the dividend consumes what 450 million a year of cash.
Tammy Romo: The liquidity targets that we have established with our board. We do have a minimum cash target of $6 billion, which of course is that on top of our revolver.
Tammy Romo: So we're really we're really working to manage obviously.
Our operating cash flows.
Tammy Romo: And very focused on that as we've taken you through in our remarks.
Tammy Romo: Any idea how the board is thinking about that in light of some of the challenges that you articulate today? Yeah, Jamie, we're focused, as Bob said, on generating free cash flow. You know, ultimately, we're working to restore our financial returns. So this year, we're very focused on what we can't control. And we are working on lowering our CapEx; that's already come down quite a bit, as we've already shared. And just in terms of the liquidity targets that we have established with our board, we do have a minimum cash target of $6 billion, which, of course, is on top of our revolver.
Tammy Romo: Yes.
Tammy Romo: So working to balance that.
Tammy Romo: With our capital spending.
Tammy Romo: So we.
Ryan Green: Yes.
Tammy Romo: We are happy that we have our dividend.
Ryan C. Green: <unk> stated.
Tammy Romo: No.
Ryan C. Green: No plans at least at this point with the board.
Speaker Change: But obviously, we will continue to have those discussions.
Tammy Romo: As we move throughout the year and again.
Tammy Romo: Jamie too.
Tammy Romo: Our goal as ever is to maintain our investment grade balance sheet.
Tammy Romo: And work towards our long term leverage goal.
Tammy Romo: Which is in the.
Tammy Romo: Low to mid 30% range, obviously, we're sitting higher than that now.
Tammy Romo: So we're really, we're really working to manage, you know, obviously, our operating cash flows and very focused on that, as we've taken you through in our remarks, and also working to balance that with our capital spending. So we, you know, we are happy that we have our dividends reinstated. So, you know, no plans, at least at this point, with the board, but obviously, we'll continue to have those discussions as we move throughout the year.
Tammy Romo: But we we have our eye on that as well.
Tammy Romo: Okay. Thanks for that Tammy and then Bob So question. When you report earnings does management, then breakup and host.
Tammy Romo: Hall throughout the company.
Bob Jordan: Reason I ask is that some airlines some companies do that I honestly don't know southwest but.
Bob Jordan: I have to wonder I mean, it's the tone with the frontline.
Tammy Romo: And again, Jamie, too, we, you know, our goal, as ever, is to maintain our investment grade balance sheet and work towards our long-term leverage goal, which is in the low to mid 30% range. Obviously, we're sitting higher than that now.
Tammy Romo: Somber as it is on this call.
Speaker Change: I guess, it's hard to answer, but if I was in Baltimore right now chatting up employees did they get what's going on right now and just how grim. This guide is and the reason I ask is that clients are asking me. If today's messaging is just reserved for wall Street or if this is truly <unk>.
Tammy Romo: But we have our eye on that goal, as well. Okay, thanks for that, Tammy. And then Bob, a question: when you report earnings, does management then break up and host, you know, town halls throughout the company? The reason I ask is that, you know, some airlines, some companies do that. I honestly don't know about Southwest. But I have to wonder, is the tone with the front line as somber as it is on this call? I mean, I guess it's hard to answer. But, you know, if I were in Baltimore right now chatting up employees, would they understand what's going on right now? And just how grim this guide is?
Bob Jordan: All hands on deck call for change much like what Richard Anderson delivered a delta in 2012, which in fairness did represent a real turn for that franchise and your thoughts.
Speaker Change: Yes, Jay because there's a lot there's a lot in your question. So let me let me just start with.
Speaker Change: We.
Speaker Change: Just to balance things out our financial returns.
Speaker Change: Returns are nowhere close to what we need and what we want them to be period, and we will be relentless until we achieve those.
Jamie Nathaniel Baker: And the reason I ask is that clients are asking me if today's messaging is just, you know, reserved for Wall Street, or if this is truly an all hands on deck call for change, much like what Richard Anderson delivered at Delta in 2012, which, in fairness, did represent a real turn for that franchise. Any thoughts? Yeah, there's a lot in your question. So let me let me just start with, We Just to balance things out, our financial returns are nowhere close to what we need and what we want them to be, period. And we will be relentless until we achieve those. The company, so that that is absolute.
Speaker Change: The company so that that is absolutely the company is not grim in other words, we have.
Jamie Nathaniel Baker: Significant demand for our product we have awesome employees, we have.
Speaker Change: Real improvement in our operational performance and reliability, we have the best completion factor in five years, we have some of our highest NPS scores ever on and on and on so the company has.
Speaker Change: A pile of just absolute attributes that our customers love, So I would sort of separate to Graham in terms of our financial returns, which I agree and the company's ground now your second question is.
Speaker Change: Is that does everybody know that and are we aligned absolutely.
Bob Jordan: The company is not grim. In other words, we have significant demand for our product. We have awesome employees, we have real improvement in our operational performance reliability, we have the best completion factor, you know, in five years, we have some of our highest NPS scores ever, on and on and on. So the company has a pile of just absolute attributes.
Speaker Change: We had a special all senior leader meeting Tuesday, as an example, before this to walk through exactly what we need to be doing how to be thinking what to be doing around the plan how to be executing.
Bob Jordan: I have multiple times per year meeting with every leader this company from Supervisors on out Thats 4000 people, where I can talk directly to them about what we need to be doing the messaging may be slightly different in other words, the messaging for them, maybe how they need to think about cost how they need to be.
Bob Jordan: That our customers love. So I would sort of separate the grim in terms of our financial returns, which I agree, and the company is grim. Now your second question is, is that do everybody know that? And are we aligned?
Bob Jordan: Absolutely. We had a special all-senior leader meeting on Tuesday as an example before this to walk through exactly what we need to be doing, how we should be thinking, what we should be doing around the plan, how we should be executing. I have meetings multiple times per year with every leader at this company, from supervisors on up. That's 4,000 people where I can talk directly to them about what we need to be doing.
Speaker Change: Getting about winning and capturing and retaining customers, but absolutely there is alignment top to bottom and focus we have a.
Speaker Change: Solid plan.
Speaker Change: With solid actions that we are all committed to and it's comprehensive.
Speaker Change: And it all drives before towards restoring our financial returns and hitting our ROIC targets.
Bob Jordan: The messaging may be slightly different. In other words, the messaging for them may be how they need to think about cost, how they need to be thinking about winning and capturing and retaining customers. But absolutely, there is alignment top to bottom and focus.
Speaker Change: We're committed to continued network adjustments to specifically address underperforming markets are committed to adjusting our capacity and manage managing down capex. As we just talked about were created we're committed to creating capacity through initiatives like the turn reduction in the red eye flying because that creates capacity without spending a dollar.
Bob Jordan: We have a Solid Plan with solid actions that we are all committed to, and it's comprehensive. And it all drives towards restoring our financial returns and hitting our ROIC targets. We are committed to continued network adjustments to specifically address underperforming markets.
Speaker Change: On aircraft.
Committed to enhancing our revenue performance in our demand through tuning our RM system.
Bob Jordan: We're committed to adjusting our capacity and managing down capex, as we just talked about. We're committed to creating capacity through initiatives, like the turn reduction and red-eye flying, because that creates capacity without spending a dollar on aircraft. We're committed to enhancing our revenue performance and our demand through tuning our RM system and the major marketing efforts that Ryan has underway to drive demand and loyalty. We're committed to offsetting our cost pressures through efficiency efforts and programs to reduce headcount.
Speaker Change: And major marketing efforts.
Speaker Change: Ryan has underway to drive demand and loyalty are committed to offsetting our cost pressures through efficiency efforts and programs to reduce head count we're going to be down 2000. This year down further next year and were down close to another 800 right now on top of that through these two these voluntary time off program.
Bob Jordan: <unk> and we're committed to a set of new strategic initiatives I've hinted at boarding and seating in the cabin and we're going to share those with you at Investor Day.
Jamie Nathaniel Baker: We're going to be down 2,000 this year, down further next year, and we're down close to another 800 right now, on top of that, through these voluntary time-off programs. And we're committed to a set of new strategic initiatives. I've hinted at boarding and seating and the cabin, and we're going to share those with you at Investor Day. Bob, thank you very much for that answer. I appreciate it greatly. Take
Speaker Change: Bob Thank you very much for that answer I appreciate it greatly.
Bob Jordan: You're welcome.
Jamie Nathaniel Baker: There's time for one more question it will come from Savi <unk> with Raymond James. Please go ahead.
Speaker Change: Hey, guys good morning.
Savi: If I might just on the business revenue.
Savi: This was a good performance, yes, I'm curious what your.
Jamie Nathaniel Baker: <unk> outlook is reflecting in terms of expectations and what youre seeing there.
Unknown Attendee: You're welcome. There's time for one more question. It will come from Savi Sith with Raymond James. Please go ahead. Hey, good morning.
Savi: Thanks, Amit, Yes managed business was up very healthy in the first quarter up 25% and reached a significant milestone in getting back to flat to 2019 levels. So we were really pleased with that that was driven by the double digit increase in.
Ryan C. Green: If I might, just on the business revenue, you know, that was a good performance here. I was curious what your 2Q outlook is reflecting in terms of expectations and what you're seeing there. Hey, Savi.
Ryan C. Green: <unk> unique travelers traveling under a contract and the managed business space.
Ryan C. Green: Yeah, managed business was up very healthy in the first quarter, up 25%, and it reached a significant milestone in getting back to the flat level in 2019. So we were really pleased with that. That was driven by a double-digit increase in unique travelers traveling under a contract in the managed business space. So that just means we're penetrating deeper into accounts, we're growing the number of companies under accounts, and we're continuing to pick up market share there.
Unknown Attendee: Just means work penetrating deeper into accounts, we're growing the number of companies under.
Savi: And we continue to pick up market share there.
Ryan C. Green: As we look forward, we expect the performance to continue and to accelerate the sequential performance in the second quarter to be better than the first.
Savi: And it's kind of it's across the board of our top 15 industries 11 of those had double digit growth year over year. So.
Savi: The performance is widespread and we expect it to continue and to help our revenue performance as we go forward.
Ryan C. Green: As we look forward, we expect the performance to continue and accelerate the sequential performance in the second quarter to be better than the first. And it's kind of, it's across the board. Of our top 15 industries, 11 of those had double-digit growth year over year.
Speaker Change: That's helpful. If I might just ask just a question related to Capex and just given your current outlet.
Speaker Change: Tell me on kind of free cash flow generation here and kind of looking forward a little bit whats realistic.
Speaker Change: Yes, Hi, Savi.
Ryan C. Green: So the performance is widespread, and we expect it to continue and to help our revenue performance as we go forward. That's helpful. If I might just ask just a question related to CapEx and just given your current outflow, thoughts on Tammy on kind of free cash flow generation here and kind of looking forward a little bit, you know, what's realistic? Yes. Hi, Savi.
Speaker Change: As we said were.
Tammy Romo: We're expecting Capex this year and $2 5 billion and that includes about $1 billion in aircraft.
Speaker Change: And.
Speaker Change: We are working through our plans for next year.
Speaker Change: So it's a bit early to give you guidance for next year, obviously working we're working through that actively now so we'll update you.
Tammy Romo: As we said, we're expecting CapEx this year at $2.5 billion, and that includes about $1 billion in aircraft spend. We are working through our plans for next year, so it's a bit early to give you guidance for next year. Obviously, we're working through that actively now, so we'll update you on our cap spending plans as part of our comprehensive update in September during Investor Day. Is the view that kind of free cash flow generation important and possible, or how are you thinking about kind of translating that CAPEX into what we're going through? We are absolutely working with the view to generate free cash flow. We, so that will obviously be part of the equation as we pull together a plan for next year. I appreciate it.
Speaker Change: On our cap spending plans.
Tammy Romo: As part of our comprehensive update.
Speaker Change: September at our Investor day.
Tammy Romo: Is the view that kind of previous free cash flow generation important and possible or how you're thinking about kind of translating that capex in Q2.
Tammy Romo: Sure.
Speaker Change: We are absolutely working with the view to generate free cash flow.
Tammy Romo: So that will obviously be part of the equation as we pull together a plan.
Speaker Change: For next year.
Tammy Romo: I appreciate it thank you.
Speaker Change: Okay that wraps up the analyst portion of today's call I appreciate everyone, joining and have a great day.
Tammy Romo: Ladies and gentlemen, we will now transition to our media portion of today's call Ms. Whitney <unk> Chief Communications Officer leads US off. Please go ahead Whitney.
Unknown Attendee: Thank you. Okay, that wraps up the analyst portion of today's call. I appreciate everyone joining us, and have a great day.
Gary: Ladies and gentlemen, we will now transition to our media portion of today's call. Ms. Whitney Eichinger, Chief Communications Officer, will lead us off. Please go ahead, Whitney.
Speaker Change: Thanks, Gary welcome to the media on our call today before we begin taking your questions Gary could you remind us and Sharon instructions on how to queue up for a question.
Whitney Eichinger: Thanks, Gary. Welcome to the media on our call today. Before we begin taking your questions, Gary, could you remind us and share instructions on how to queue up for a question? To queue up for an opportunity to ask a question, press star, then 1.
Whitney: To queue up for an opportunity to ask a question Press Star then one to withdraw your question. The command is Star then two.
Whitney Eichinger: If you're on a speaker phone please pick up before pressing the keys, we will pause for a moment and then started to answering your questions.
Gary: To withdraw your question, the command is star, then two. If you're on a speakerphone, please pick up before pressing the key. We'll pause for a moment and then start answering your questions. And the first question comes from Alexandria Skores with the Dallas Morning News. Please go ahead.
Gary: Yeah.
Gary: And the first question comes from Alexandra scores with the Dallas morning News. Please go ahead.
Whitney: Yeah.
Speaker Change: Okay.
Speaker Change: Hello.
Alexandra Skores: Hello. Hello. Can you hear me?
Speaker Change: Hello.
Alexandra: Can you all hear me okay perfect.
Unknown Speaker: Okay, perfect. Um, I am wondering if we could hone in on the four airports that were announced today that would be cut, and same with Atlanta and Chicago that are being reduced in flights. And could you talk a little bit about the decision for those specific airports to be chosen? Well, you know, it's never I'll just start with this.
Unknown Speaker: I am wondering if we could hone in on the four airports that were announced today that.
Alexandra: Would be kite and seamless Atlanta in Chicago that are already being reduced in flight.
Unknown Speaker: Could you talk a little bit about the decision to for those specific airports to be chosen.
Unknown Speaker: Well.
Unknown Speaker: It's never I'll, just start with its never.
Bob Jordan: It's never an easy decision to close, you know, you know, a station or to materially reduce, you know, flights in a station. We love our airports, we serve our communities. And so it's always difficult. But again, I'll just go back to we have portions of the network, a higher-than-normal portion of the network that's just not performing to the level that we need for a variety of reasons. And so we need to hit our financial returns, and we will.
Speaker Change: <unk> decision to close.
Bob Jordan: Our station or to materially reduce your flights and the station.
Bob Jordan: We love our airports, we serve our communities and so it's always difficult, but again I'll just go back to we have portions of the network.
Bob Jordan: A higher than normal portion of the network Thats, just not performing to the level that we need and.
Bob Jordan: For a variety.
Alexandra: Variety of reasons, and so we need to hit our financial returns and we will and so you have to make the tough decisions to continue.
Bob Jordan: And so you have to make the tough decision to continue working down the level of markets that aren't performing. So it was really that, as we looked at it, as we looked at our network, it really relates to the areas that just don't have a path to the level of financial performance that we need. That's really the, you know, the basis for the decision. I'll Ryan if you want to add anything else or ask Andrew.
Bob Jordan: Working down the level of markets that arent performing performing so it was really that it just as we looked at it was we look at our network it really relates to.
Ryan: The areas that are just don't have a path to the level of financial performance that we need that's really the.
Ryan: The basis for the decision.
Speaker Change: Brian do you want to add anything else or Andrew.
Ryan C. Green: No, you covered that, I think. Thank you. And my second question: what kind of communication has been given to the employees at the airport? We have a very, as you would expect, we take care of our employees, we take care of our partners, and we have a very rich communication plan that, you know, to go in the right order to make sure we communicate with folks, it's done with compassion.
Ryan: No you covered it I think.
Speaker Change: Thank you.
Speaker Change: And my second question, what kind of communications have been given to the employees at those airports.
Speaker Change: We have a very as you would expect.
Ryan C. Green: We take care of our employees, we take care of our partners and we have a very rich communication plan.
Speaker Change: That.
Ryan C. Green: To go in the right order to make sure we communicate with folks that's done with compassion.
Ryan C. Green: Our employees will be offered jobs, you know, in other cities. And so they have a lot of options. But no, we handled all this, as you would expect Southwest Airlines to handle it. Yeah, we staged senior leaders there last night.
Ryan C. Green: Our employees will be offered jobs in other cities and so.
Ryan C. Green: They have they have a lot of options, but no. We handled all of this as you would expect southwest airlines to handle we staged.
Ryan C. Green: Senior leaders there last night, so the very early morning hours for our people. Our leaders were there to explain the wise to the employees as well as to the airports and then also to go through within the different options that will have for moving as the seniority based system with our unions and so how that will work for them and so they've gone through that.
Andrew M. Watterson: So in the very early morning hours, our people, our leaders were there to explain the whys to the employees, as well as to the airports. And then also to go through with them the different options they'll have for moving as a seniority-based system with our unions, and so how that will all work for them. And so they've gone through that, you know, there's obviously a range of emotions; people chose to relocate there.
Speaker Change: Obviously a range of emotions.
Speaker Change: People chose to relocate there so they will have some natural.
Andrew M. Watterson: And so they'll have some natural disappointment in the short term. But these people have long careers at Southwest Airlines, and our ground employees tend to move around a decent amount anyway. So we expect most of them to take advantage of not all of the opportunities to relocate to other stations. Got it. So that every employee that's impacted is going to be offered some sort of job. Yes, they will remain employed should they choose to do so.
Andrew M. Watterson: Disappointment, the short term, but these people have long careers and southwest airlines that are grown employees tend to move around a decent amount anyway. So we expect.
Speaker Change: Most of them to take advantage of all of the opportunities to relocate to other stations.
Andrew M. Watterson: Got it so that every employee that's impacted is going to be offering some sort of job.
Andrew M. Watterson: Yes.
Andrew M. Watterson: Will remain employed should they choose to do so.
Mary Schlangenstein: President, Thank you. The next question is from Mary Schlangenstein with Bloomberg News. Please go ahead.
Speaker Change: Got it thank you.
Mary Schlangenstein: The next question is from Mary Schlangen seen with Bloomberg News. Please go ahead.
Ryan C. Green: I appreciate it. I wanted to see if you could talk about the extent of the reductions in O'Hare and Atlanta. They're about We took about half of O'Hare down from about 30 something flights to about 15, 18 flights depending on the season, day of week, and so it's about a 50% reduction issue in Atlanta. I came up with it off the top of my head, Ryan. It was, Ina M. We have been restoring Atlanta over the course of the post-pandemic. We could never quite get back to the level of performance we needed, the scale we needed.
Mary Schlangenstein: I appreciate it I wanted to think you could talk about the extent of the reduction in O'hare and Atlanta.
Mary Schlangenstein: They are about where it took about half of O'hare down off about 30 something flights.
Ryan C. Green: <unk> hundred 18 flights a day on the season day of week.
Ryan C. Green: About 30% of production is in Atlanta.
Ryan C. Green: Top of my head Ryan It was 30% I want to say.
Ryan C. Green: It's about a third yes, it's unfortunate.
Ryan C. Green: We had been restoring Atlanta.
Ryan Green: Over the course of post pandemic, but we can never quite get back to the level of performance we needed the scale, we needed and so if they reduce back down to.
Andrew M. Watterson: And so it's been reduced back down to a level you saw just shortly coming out of the pandemic. So there is still substantial activity there; it's just not as big as it was before. And if you could also address the impact of the new refund policies that were announced by the DOT yesterday, whether that's going to be, you know, a financial problem for Southwest or not, and if you expect to have any trouble complying with those new rules. Hey Mary, it's Ryan.
Andrew M. Watterson: To a level. So just shortly come out of the pandemic and so there's still substantial activity. There is just not as big as it was before.
Andrew M. Watterson: Great. If you could also address the impact of the new refund policies that were announced by the BLT yesterday.
That's going to be financial.
Ryan: Problem for southwest.
If you.
Ryan: Do you have any trouble complying with those new rules.
Ryan: Barry It's Ryan.
Ryan C. Green: Well, it's new, as you know; it was just issued yesterday. So we're digesting exactly what all of that means. But based on our reading, so far, I don't expect that it's going to have a significant impact. Of course, you know, we already have the most customer-friendly policies in the industry. So we're best positioned to comply with any of these new regulations out of the gate. And, you know, today, if there's a long delay or a cancellation, customers can receive a refund from Southwest.
Mary Schlangenstein: Well, it's new as you know, it's just issued yesterday, so we're digesting exactly what.
Ryan C. Green: All of that means but based on our read.
Ryan C. Green: So far.
Ryan C. Green: I don't expect that it's going to be a significant impact of course, you know we already have the most customer friendly policies and the industry. So we're best positioned to comply with any of these new regulations out of the gate.
Ryan C. Green: And.
Ryan C. Green: Today, if there is a long delay or cancellation customers can receive a refund from southwest So theres no real change there.
Ryan C. Green: So there's no real change there, from our standpoint. And then, of course, unique in the industry, flight credits don't expire with Southwest if you have to cancel your flight for any reason. But, in general, we're proud to be unique among airlines in having these customer-friendly policies.
Speaker Change: From our standpoint, and then of course unique in the industry flight credits don't expire with southwest.
Ryan C. Green: If you have to cancel your flight for any any reason, but.
Ryan C. Green: In general we're proud to be unique among airlines and having these customer friendly policies no bag fees no change fees flight credits don't expire, we don't nickel and dime customers, but.
Alison Sider: No bag fees, no change fees, flight credits don't expire, you know; we don't nickel and dime customers. But, you know, those are our choices without government intervention, and it shows the marketplace works as consumers want different choices in who they fly with. So, you know, again, I just point to the fact that we have the most customer-friendly policies in the industry, and I just don't see a tremendous amount of impact on Southwest from these. Thank you. The next question is from Alison Sider with the Wall Street Journal. Please go ahead. Hey, thank you so much.
Alison Sider: These are those are choices without government intervention and it shows the marketplace works.
Alison Sider: As consumers want different choices and who they fly so.
Alison Sider: Sure.
Speaker Change: Again, I'd just point to the fact that we have the most customer friendly policies and industry and I, just don't see a tremendous amount of impact to southwest from these.
Alison Sider: Okay. Thank you.
Alison Sider: The next question is from Alison Sider with Wall Street Journal. Please go ahead.
Alison Sider: Hey, Thank you so much.
Ryan C. Green: Um, I know the overall demand environment remains very strong, but I am curious if you're seeing any indications of booking away or traveler nervousness about Boeing or air safety more broadly. Kelly, we'll just give you a little overview, and then, obviously, Ryan can jump in. This is something that we look at. So we study, we survey to understand our customers' views and whether anything that's going on impacts their view of Southwest or the industry generally.
Alison Sider: I noticed that the overall demand environment remains very strong, but I am curious if youre seeing any indications of book away or traveler nervousness about Boeing or air safety more broadly.
Kelly: We I'll just give you a little overview and then obviously ran can jump in.
Kelly: Hi, This is something that we look at so we study we survey to understand.
Ryan C. Green: Our customers views and weather.
Ryan C. Green: The thing Thats going on impacts their view of southwest or the industry generally.
Ryan C. Green: That's not perfect, but we don't see any indication that this is having an impact on bookings or demand. That's not perfect. You know, I think logic would tell you there could be something there, but certainly, we don't see anything material.
Kelly: That's not perfect, but we don't see any and we don't see an indication there.
Ryan C. Green: This is having an impact on bookings or demand it's not perfect.
Ryan C. Green: I think logic would tell you there could be something there, but certainly we don't see anything.
Ryan C. Green: Material right.
Ryan C. Green: Yeah, the only other thing that I would add is that, you know, we certainly are surveying on the front end to see how top of mind it is for consumers when they're making a booking. And then we also look at cancellations and ask customers once they cancel a flight, what their reasons for cancellations were, and safety concerns, or, you know, a Boeing aircraft as a result of that on the cancellation side is 1% of our cancellations. So it's a very, very small number.
Ryan C. Green: Yes.
Ryan C. Green: The other thing that I would add is that.
Ryan C. Green: We certainly are serving on the front end to see how top of mind. It is for consumers when they are making a booking and then we also look at cancellations and ask customers once they cancel a flight what their reasons for cancellations were.
Ryan C. Green: And safety concerns.
Speaker Change: Boeing aircraft as a result of that on the cancellation side is 1% of our cancellation. So it's a very very small number.
Ryan C. Green: Not material, I don't think, to the overall picture. And the four cities, the four markets that you're exiting, are those cities that you think would have been more successful if you had the MAX 7 in your fleet or had it coming soon? Now, I think the markets themselves were just performing at a level where we needed to make the tough choice to remove them from the network. I don't think that a smaller aircraft would have had a material difference in those markets. The next question is from Dawn Gilbertson with the Wall Street Journal. Please go ahead.
Speaker Change: Not material I don't think.
Dawn Gilbertson: <unk> to the overall picture.
Ryan C. Green: Interesting.
Dawn Gilbertson: The four cities.
Dawn Gilbertson: Markets that you're exiting are those cities that you think would have been more successful. If you had the Max seven and your fleet or had it coming soon.
Ryan C. Green: Okay.
Dawn Gilbertson: And I think the.
Speaker Change: The markets themselves were just performing at a level that.
Dawn Gilbertson: We needed to make the tough choice to.
Dawn Gilbertson: Remove them from the network.
Dawn Gilbertson: Don't think that a smaller aircraft would've had a material difference on those markets.
Dawn Gilbertson: Hi, Thanks.
Ryan C. Green: The next question is from Dawn Gilbertson with the Wall Street Journal. Please go ahead.
Dawn Gilbertson: Hi, thanks very much for taking my call. Um, Bob, about six months ago, you know, you were asked, as you always are about, you know, the premium question, open seating versus assigned seating. And you mentioned that you always do that, you know. You always study customer preferences. And if something changes, you'll adapt, as you said today. But here's what you said, then you said, "There's nothing underway, there's no story here, there's nothing going on."
Dawn Gilbertson: Alright, thanks, very much for taking my call.
Dawn Gilbertson: Bob about six months ago, you were asked as you always are about the premium question to open seating versus assigned seating and you mentioned as you always do that you always set of customer preferences, and if something changes you'll adapt as you said today, but here's what you said then you said theres nothing underway, there's no story here.
Dawn Gilbertson: Underway. So can you help us understand what has dramatically changed in the past six months on that particular front and also related to that is there any financially significant change to boarding or seating you can do without finding seats.
Bob Jordan: So can you help us understand what has dramatically changed in the past six months on that particular front? And also, related to that, is there any financially significant change to boarding or seating you can make without assigning seats? Thank you so much for your time.
Speaker Change: Thank you so much for the time.
Bob Jordan: You bet, Dawn. Thank you. I think the difference is, what you said, this is something that we look at sort of on the surface pretty regularly, but in terms of a very deep dive, understanding customer preference, and uh, what we might do, that's something we do uh, less frequently. So the answer was different six months ago because the work has really accelerated. It's work that we've done since then. And, you know, there's a So it made it just generally and according to customer preference. So it made sense in terms of timing to study that.
Speaker Change: You bet. Thank you I think the it's what you said is the difference is.
Bob Jordan: We this is something that we look at sort of on the surface pretty regularly but in terms of a very deep dive understanding customer preference.
Bob Jordan: And what we might do that's something we do less frequently so.
Bob Jordan: So the answer was different six months ago because of the work has really accelerated its work that we've done since then.
Bob Jordan: <unk>.
There's a lot of discussion out there.
Bob Jordan: About.
Bob Jordan: Just cabin and premium in all kinds of things. So it made it just generally in customer preference. So it makes sense.
Bob Jordan: In terms of timing to study that again, we always wanted to understand what our customers want and desire.
Bob Jordan: Again, we always want to understand what our customers want and desire. And so, again, I'll just, again, tell you that we are very seriously studying this, and we're pretty deep in that study, and again, nothing to reveal today, except that, You know, there are some interesting indications in terms of what this could mean to us and what it could mean to our customers. Again, that's nothing to reveal.
Bob Jordan: And so again I'll just I'll just tell you that we are very seriously studying this and we're pretty deep in that study and again nothing to reveal today.
Bob Jordan: Except that.
Bob Jordan: <unk>.
Bob Jordan: There are some there are some interesting indications in terms of what this could mean to us and what it can mean to our customers again nothing to reveal.
Bob Jordan: On your question about, you know, are there other things you could do with boarding in particular? Our boarding process, and we changed it, actually, it's over, I think it's over a decade ago at this point, is very well received by our customers because it's very organized and, you know, the way you line up. We have worked hard to monetize that and give our customers choice. You have you. We give you a choice around how you think about your boarding position, and that's more important to some customers than others, but we've got that, we've got business select, and we have an upgraded boarding at the gate product.
Bob Jordan: On your question about.
Bob Jordan: Are there other things you could do in boarding in particular.
Bob Jordan: Our boarding process we changed.
Bob Jordan: It's over I think it's.
Bob Jordan: For a decade ago at this point is very well received by our customers because it's very organized.
Bob Jordan: And the way you lineup, we have worked hard to monetize that and give our customers choice you had you.
Bob Jordan:
Bob Jordan: We gave you a choice around how you think about your boarding position and that's more important to some customers than others, but we've got that we've got business select we have.
Speaker Change: Upgraded boarding at the gate product I will admit it is hard for me Ryan.
Bob Jordan: I will admit, it is hard for me, Ryan might want to jump in here, it's hard for me to think of how we can really, from a financial perspective or customer desire perspective, really push that even further. I think the products that we've added really attack what our customers want. So it shouldn't be just blunt.
Bob Jordan: And here, it's hard for me to think of how we can really.
Bob Jordan: From a financial perspective or customer desire perspective, really pushed that push that even further I think the products that we've added.
Unknown Attendee: Attack, what our customers want so it shouldn't be just blunt. It's it is hard to think about how to implement more products related to boarding.
Bob Jordan: It is hard to think about how to implement more products related to board agency. Yeah, I would agree with that on the incremental products. But what we are doing, and what we can continue to do, is to get better at how we price those products and drive incremental yield from those ancillary products. In total, our ancillary revenue in the first quarter was up 18% year over year, so well in excess of our O&D passenger growth.
Bob Jordan: Yes, I would agree with that on the on the incremental products.
Bob Jordan: What we are doing and what we can continue to do is to get better at how we price those products and drive incremental yield from those ancillary products in total our ancillary revenue in the first quarter was up 18% year over year, so well in excess of our OMD passenger growth. So we continue to push.
Ryan C. Green: So we continue to push for revenue on our ancillary products, particularly the boarding products. But in terms of adding incremental products, it's tough to imagine how that would fit into the current boarding process. But if I can follow up then, my question was about you talking about transformational changes here, and you're hinting at boarding and seating. So, can you do, what kinds of things can you do, if anything, that doesn't involve assigning seats?
Ryan C. Green: On optimizing for revenue there on the on our ancillary products particular, the boarding products, but.
Speaker Change: And in terms of adding incremental products.
Ryan C. Green: It's tough to imagine how that would fit into the current boarding process.
Speaker Change: If I can follow up then my question was about Youre talking about transformational changes here and you're hinting at boarding and seating so.
Ryan C. Green: Can you do what kinds of things can you do if anything that doesn't involve signing seats.
Dawn Gilbertson: Because to me, that would be transformational for Southwest. Like what? Can you give us, I know you're not gonna go into any detail till investor day, but what specifically is going to be different? Because just, you know, I think the price of upgraded boarding and early bird is obviously not going to meet your financial goals, as you just said. Thanks very much.
Speaker Change: To me that would be transformational for southwest like what can you give us I know you are not going go into any detail till investor day, but what specifically is going to be different because just I think the price of upgraded boarding and early bird.
Dawn Gilbertson: Obviously not going to meet your financial goals as you just said thank you very much.
Speaker Change: Now you're I know, you're I think you're exactly right, which is that's why you want to look at all of these things.
Bob Jordan: No, I think you're exactly right, which is why you want to look at all these things. And we're just not ready to tell you exactly what we're studying, and we're not ready to tell you then how that could, if we decide to go forward, turn into a different product design and a plan. But yeah, just conceptually, where you're going is the reason we're looking at this is because, over time, customer preferences change. They have changed over my whole three, you know, six years here at Southwest Airlines. And we have changed a lot.
Bob Jordan: And we're just not ready to tell you.
Bob Jordan: Exactly what we're studying and we're not ready to tell you then how that could if we decided to go forward turn into a different product design and our plan.
Bob Jordan: But.
Bob Jordan: But just conceptually that where you're going is the reason we're looking at this is.
Bob Jordan: Sure.
Bob Jordan: We know over time customer preferences change they have my whole 36 years yourself was to airlines and we've changed a lot we've changed our boarding we've changed our.
Bob Jordan: We've changed our boarding, we've changed the product that we offer on board. We have added loyalty programs and modified those. So we are constantly changing to meet customers' demands. So it's critical to understand three things. Number one, what do your customers want? And that's really what we're studying right now.
Bob Jordan: The product that we offer on board.
Bob Jordan: We added loyalty programs and modify those so we are constantly changing to meet customer demand. So it's critical to understand three things number one what do your customers want.
Bob Jordan: And that's really what we're studying right now.
Bob Jordan: 2, what does that do to the way you operate the airline? Because, obviously, a bedrock of the company is operating very efficiently, having a quick operation, great turn times, being efficient, and so making sure that whatever you might wanna do fits. , and then obviously, the third piece is whether or not it is financially beneficial, you know, back to hitting our financial goals. A piece of this is, as Ryan mentioned, continuing to drive progress against our financial aspirations and goals and hitting our RIC and margin goals.
Bob Jordan: Two.
Bob Jordan: What does that do to the way you operate the airline because we are obviously.
Bob Jordan: <unk> the company is operating very efficiently having.
Bob Jordan: A quick operation, Great turn times being efficient and so making sure that whatever you might want to do <unk> fits in.
Bob Jordan: With that and then obviously the third piece is is it.
Bob Jordan: Is it financially beneficial.
Bob Jordan: Back to hitting our financial goals.
Bob Jordan: A piece of this is as Ryan mentioned continuing to drive <unk>.
Bob Jordan: Progress against our financial aspirations and goals and hitting our IC and margin goals. So all those three things have to work together and we're just not ready to share details today, but we will be as we move across the summer and head to our Investor day in September.
Bob Jordan: So all those three things have to work together. We're just not ready to share details today, but we will as we move across the summer and head to our investor day in September. No, thank you.
Speaker Change: Thanks, Doug.
Speaker Change: Thank you.
David Koenig: The next question is from David Koenig with the Associated Press. Please go ahead. Thanks very much.
Bob Jordan: The next question is from David Koenig with the associated press. Please go ahead.
David Koenig: Thanks, very much well I was going to ask you about the transformational options proceeding but.
Bob Jordan: Well, I was going to ask about the transformational options proceeding, but I think you've probably said all you're going to say on that, Bob. I would if you could go into a little bit of explanation on the 2000 headcount reduction. And first of all, I'd like to know how many jobs you think will be eliminated by the closure of those four airports and any drawdown at O'Hare and Atlanta and elsewhere. And then, secondly, are you saying that you can get to 2000 fewer jobs this year just through attrition and leaving? You know, can you rule out furlough? David, no, thank you.
Speaker Change: I think you've probably said all youre going to say on that Bob.
Bob Jordan: Sure.
Bob Jordan: If I if you could go into a little bit of an explanation on the 2000 head count reduction.
Bob Jordan: First of all I would like to know how many jobs you think will be.
Bob Jordan: <unk> eliminated by the closure of those four airports and any drawdown.
Speaker Change: O'hare and Atlanta and elsewhere.
Bob Jordan: And then secondly are you, saying that you can get to 2000 fewer jobs. This year just through attrition and then leaves can you rule out furloughs.
David Koenig: David Thank you and.
Bob Jordan: And yeah, no, thanks for allowing me the ability to clarify that. We have a line of sight on the 2000 budget that does not include furloughs or anything like that that we don't want to put on the table. And then it also does not include a headcount that is effectively just sort of out of the workforce in terms of not being paid because they are on, they are on voluntary unpaid leave. So it doesn't even count that.
Bob Jordan: Thanks for allowing me the ability to clarify that we have line of sight on the 2000 and that does not include furloughs or anything like that that we don't want to put on the table and then it also does not include our head.
Bob Jordan: Head count that are effectively.
Bob Jordan: Sort of out of the workforce in terms of not being paid because they are on they are on voluntary unpaid leave so it doesn't even count that so this is really through attrition and some cases reassigning folks out of the work that does need to be done.
Andrew M. Watterson: So this is really through attrition, in some cases, reassigning folks to other work that does need to be done. But it is also coming through pretty sophisticated initiatives. We have initiatives underway to use Gen AI to automate the way we handle some of our customer support functions, generate responses, and decide what to do with a customer request. We have other significant continuous improvement in automation going on, you know, in other parts of the company, and we plan to accelerate that. So, not furloughs.
Andrew M. Watterson: But it is also coming through.
Andrew M. Watterson: So pretty sophisticated initiatives, we have initiatives underway to use gen AI to automate the way we handle cut some of our customer support functions generate responses decide what to do with a customer request.
Andrew M. Watterson: Other significant.
Andrew M. Watterson: Continuous improvement and automation going on.
Andrew M. Watterson: In other parts of the company and we plan to accelerate that so.
Andrew M. Watterson: Not furloughs.
Andrew M. Watterson: It is primarily through planned attrition that we know we have a line of sight to. So, and again, the line of sight to the 2000. The folks that are effectively out of the workforce because they're not being paid, and they're on voluntary time off programs, that's on top of the 2,000. Okay, and how many of the 2000 do you think will be pilots? I don't think we can give you a breakdown by work group, David.
Andrew M. Watterson: It is primarily through planned attrition that we know we have a line of sight to sow and.
Andrew M. Watterson: And again the line of sight to the 2000.
Andrew M. Watterson: The folks that are effectively.
Andrew M. Watterson: Out of the workforce.
Andrew M. Watterson: We're not they're not being paid their own voluntary time off programs. So that's on top of the 2000.
Andrew M. Watterson: Okay, and how many of the 2000 do you think will be pilots.
David Koenig: Yes, I don't think we can give a breakdown by work group.
Andrew M. Watterson: David.
Andrew M. Watterson: There'll be some, there'll be back office, i.e., people that work at headquarters, and some that'll be frontline. We have, you know, there's natural attrition that goes along throughout the company, whether one reaches retirement age or one decides to go find a different job. You have that natural attrition; we have a good history on that.
Andrew M. Watterson: There'll be some there'll be.
Andrew M. Watterson: Back office.
Andrew M. Watterson: People that work at headquarters sudden there'll be frontline, we have there's natural attrition that goes wrong throughout the company with a one reaches retirement age or one of the sites go find a different job you have that natural we have a good history of that so we can model out what that's going to look like and which ones, we need to backfill, which ones do not need to backfill and thats, how we get to these projections, it's not a any kind of reduction in force.
Andrew M. Watterson: So we can model out what that's gonna look like and which ones we need to backfill, and which ones do not need to backfill. And that's how we get to these projections. It's not any kind of reduction in force or elimination of people currently employed.
Andrew M. Watterson: Or eliminated peoples currently employed it's more when physicians become available not back filling them.
Leslie Josephs: It's more when positions become available, not backfill. Okay. All right.
Speaker Change: Okay Alright. Thank you. Thank you.
Ryan C. Green: Thank you. The next question is from Leslie Joseph with CNBC. Please go ahead. Hi, everyone.
Leslie Josephs: The next question is from Leslie Josephs with CNBC. Please go ahead.
Leslie Josephs: Hi, everyone. Thanks for taking my question just knowing what you know now from these customer surveys about potential seeding changes are you thinking that it could be like.
Leslie Josephs: Thanks for taking my question. Just knowing what you know now from these customer surveys about potential seating changes, are you thinking that it could be like a big front seat or a bigger front seat type product? Or do you think that at some point, there will be a curtain on a Southwest Airlines plane? And secondly, are you ruling out baggage fees entirely? Is that still the case, or is that something that's on the table for you as you're looking at revenue initiatives?
Leslie Josephs: Big front seat or bigger front seat type products, where you think that at some point there'll be a curtain on the southwest air lines clean.
Leslie Josephs: And secondly are you ruling out baggage fees entirely is that still or is that something that's on the table for you as you're looking at revenue initiatives and then on the 1% of bookings that were canceled because of concerns about air safety, how many people.
Leslie Josephs: And then on the 1% of bookings that were canceled because of concerns about air safety, how many people are 1%? And how does that compare with after the Max crashes when the plane came back? Hey, Leslie; I'll try and take all of those.
Speaker Change: 1% and how does that compare with after the Max crashes of the plane came back.
Speaker Change: Hey, Leslie I'll try and take I'll try and take all of those.
Ryan C. Green: The first one on what we're learning from customer research, I think just stay tuned there. We'll have more to share on what we're learning and how that factors into what we may do different, if anything at all. I will say, though, that Southwest Airlines will stay true, no matter what we do, to the brand and who we are and how we approach customers. And, you know, I think things like curtains and things like that are a bit far fetched from who Southwest Airlines is.
Leslie Josephs: The first one what we're learning from customer research I think just stay tuned there will have we will have more to share on what we're learning and how that factors into.
Ryan C. Green: What we may do differently, if anything at all I will say, though that southwest Airlines is.
Ryan C. Green: We will stay true no matter, what we do to the brand and who we are and how we approach customers.
Ryan C. Green: And.
Ryan C. Green: I think things like curtains and things like that are a bit far afield from south.
Ryan C. Green: Southwest Airlines is.
Ryan C. Green: On your bag fee question, no, we are not considering bag fees. The reason we're not considering bag fees is that people choose Southwest Airlines because we don't have bag fees. If you go look at the most recent J.D.
Ryan C. Green: On your bag fee question no. We are not considering bag fees. The reason, we're not considering back. These is because people choose southwest airlines, because we don't have bag fees.
Ryan C. Green: Look.
Ryan C. Green: J D power. The most recent J D power survey, which obviously it has an independent syndicated.
Ryan C. Green: Power survey, which is obviously an independent syndicated piece of research that's well-respected in the industry, over 60% of customers say that they choose Southwest Airlines as one of their top reasons because of bag fees. Companies love to have differentiation in their product that drives customer preference and drives customer choice. Our next closest competitor on that measure is Alaska at 19.
Ryan C. Green: Piece of research, that's well respected in the industry over 60% of customers say that they choose southwest Airlines is one of their top reasons because of bag fees.
Ryan C. Green: <unk>.
Ryan C. Green: Companies love to have differentiation in their product that drives customer preference and drives customer choice.
Ryan C. Green: Our next closest competitor on that measure is Alaska 19, So we get three times the preference.
Ryan C. Green: So we get three times the preference in terms of bag fees relative to our competition. So that's why bag fees are not on the table for consideration. On the 1% of cancellations, it's a very small number. We don't have, our overall cancellation rate is a very small number, so 1% of that is a very, very small number, so it's not material. Yeah, and I just want to clarify, emphasizing that, Leslie, it's not 1% of our bookings that got canceled because of this; all of those people who canceled.
Ryan C. Green: In terms of bag fees relative to our competition.
Ryan C. Green: That's why bag fees are not on the table for consideration on.
Ryan C. Green: On the 1% of cancellations, it's a very small number we don't that are overall cancellation rate is a very small numbers of 1% of that is a very very small number. So it is not material.
Ryan C. Green: Cliff emphasizing that Leslie is that 1% of our bookings it got canceled because of all of those people, who canceled and so yesterday, 0.4% of people canceled.
Ryan C. Green: And so yesterday, 0.4% of people canceled, and 1% of that 0.4% said it was safety concerns. So it's a very small number of an extraordinarily small number that did that, which is why Ryan would say it's immaterial or even just incomprehensible. And how does that compare with when the MAX came back in 2020 after the crashes? That was also quite small.
Ryan C. Green: 1% of that 0.4% said it was safety concerns. So it's a very small number of an extraordinarily small number that did that which is why Brian was immaterial evens inconsequential.
Ryan C. Green: And how does that compare with what the Max came back in.
Ryan C. Green: 2020 after the crisis.
Ryan C. Green: That was also quite small I mean, we also track people who look at what the aircraft type is on the website and those really didn't see any movement of consequence in there and so it seems like this is not something that customers investigating steady great deal.
Leslie Josephs: I mean, we've also tracked people who look at what the aircraft type is on the website, and they really didn't see any movement of consequence there. And so it seems like this is not something that customers investigate any great deal. You know, in the very early days of the MAX grounding, there was some heightened interest in that when the MAX came back, it was we prepared as if it would be a thing of interest, and it was not a thing of interest.
Leslie Josephs: With the very early days of the Max grounding there were some interest heightened interest in that and when the Max came back. It was we prepared as if it would be think of interest and it was not a thing of interest and currently our customers are acting as if it's all things of interest as well so.
Leslie Josephs: And currently, customers are acting as if it's not a thing of interest as well. So I think that even though Boeing's having individual controls of the company, customers are trusting at least Southwest Airlines and that we will operate our aircraft safely. Thank you. Pleasure. The next question is from Rajesh Singh with Reuters. Please go ahead. Hi, Bob.
Unknown Executive: I think that even though boeing's, having individual controllers. The company customers are trusting elite southwest Airlines that we will operate our aircraft safely.
Unknown Executive: Thank you.
Leslie Josephs: Pleasure.
Unknown Executive: The next question is from Rajeev <unk> with Reuters. Please go ahead.
Unknown Executive: Hi, Bob.
Unknown Executive: All the additional voluntary unpaid time off programs that you're considering, do those include pilots as well? So, thanks, Ryan. This is Andrew.
Leslie Josephs: Although.
Unknown Executive: One.
Unknown Executive: Final programs, but we are considering does that include the <unk>.
Unknown Executive: Well.
Unknown Executive: So thanks, Rod, it's Andrew and so what we're doing right now will be spoken off as a voluntary time off has roughly been with our.
Andrew M. Watterson: And so, what we're doing right now that we've spoken of is the voluntary time off. It has mostly been with our ground operations, flight attendants, and some of our call center people. They've taken advantage of that for flexibility in their programs. We do not have anything with our pilots at the moment.
Andrew M. Watterson: Our ground operations of flight attendants, and some of our call Center people.
Andrew M. Watterson: <unk> taken advantage of that for flexibility in their programs, we do not have anything with our pilots at the moment.
Andrew M. Watterson: A provision of our contract requires us to consult with them, and we will certainly do that before we do anything with regard to our pilots. Thank you for your question. Bob, you said that you were encouraged by Boeing's approach. Can you please share some specific examples and colors that make you feel encouraged about their approach?
Andrew M. Watterson: Our provision of our contract requires us to consult with them we will certainly.
Bob Jordan: Do that before we do anything with regards to our pilots.
Speaker Change: Thank you for your question.
Andrew M. Watterson: Bob You said that you often caused by Boeing approach.
Speaker Change: Thank you Sir.
Andrew M. Watterson: <unk>.
Andrew M. Watterson: Andrew, again, I'll take that, because I was up there with Bob on our visit, and so, really, we were impressed by how Boeing's putting quality ahead of short-term profit, so to speak. So, an example was, they have many sections in their factory. There are like 10 stations they go through during construction.
Speaker Change: But what about make you feel about the approach.
Speaker Change: Andrew again ill take that because there was Bob in our visit and so really we're impressed by how Boeing is putting.
Andrew M. Watterson: Kind of quality ahead of short term profit so to speak. So that example was they have many courses in their factory. There's like 10 stations. They go through the construction they know well anything to progress past eight three that has traveled work and so that creates gaps in their factory, which then leads to obviously a plane is not sold to deliver that month. So the fact that we're taking is very.
Andrew M. Watterson: They don't allow anything to progress past day three that has already traveled work, and so that creates gaps in their factory, which then leads to, obviously, a plane that is not sold and delivered that month. So, the fact they're taking this very strong approach to bringing quality out in the early stages of the production process from their suppliers is a much different approach and, frankly, is one that puts safety ahead of profitability in the short-term, but it's also in their long-term interest.
Andrew M. Watterson: Strong approach to bringing quality out in the early stages of the production process from their suppliers is a much different approach and frankly is one of the puts safety had a profitability in the short term Brazil within their long term interest. So we were very impressed by that kind of not just changed awards, but quite change of actions.
Andrew M. Watterson: So, we were very impressed by that kind of, not just change of words, but change of action. Unknown Speaker Yeah, you want to you want to you want to you want to see the tone at the top be appropriate, which is and understanding that again, I can't speak for Boeing, I'm just thinking about how we view this. But a tone that recognizes that this is a big issue, and it's bigger than a quality escape.
Speaker Change: You wanted to you on it.
Andrew M. Watterson: You want to see the tone at the top be appropriate which is.
Andrew M. Watterson: And then understanding that and again I can't speak for Boeing I'm, just thinking about how we view this.
Andrew M. Watterson: Atone that recognizes that this is this is a big issue.
Andrew M. Watterson: And it's bigger than a quality escape in it to some extent it is a cultural issue and so they need to attack it very broadly and that is the way that.
Speaker Change: Our view when we visit with them and that is the way that they appear to be tackling that as Andrew said it appears to be showing up in their actions.
Bob Jordan: And to some extent, it is a cultural issue. And so they need to attack it very broadly. And that is the way that they, you know, our view when we visit with them, that is the way that they appear to be tackling that, as Andrew said, it appears to be showing up in their actions. Now, at the end of the day, they have to deliver, but no, no, we are encouraged by what we're. And have you increased your inspectors at the Boeing sites following the last incident?
Bob Jordan: Now at the end of the day.
Bob Jordan: You have to deliver and.
Bob Jordan: No no.
Bob Jordan: We are encouraged by what we're seeing.
Bob Jordan: How are you.
Bob Jordan: Yeah.
Bob Jordan: The Boeing side.
Bob Jordan: Following the Lafayette incident.
Speaker Change: Thank you for the question in 2022, we increased from having just a representative which what other airlines have to having a team of A&P certify mechanics on process on site to inspect our aircraft as they go through the production process. I believe there is north of 85 inspection points that they look at all between.
Bob Jordan: Thank you for the question. In 2022, we increased from having just a representative, which other airlines have, to having a team of A&P certified mechanics on process, on site, to inspect our aircraft as they go through the production process. I believe there are north of 85 inspection points that they look at between entering the factory and exiting the factory.
Bob Jordan: Entering the factory exiting the factory so.
Bob Jordan: That is way, we assure day to day that our quality of our aircraft is.
Bob Jordan: <unk> maintained we definitely have the engagement executive level, Bob talked about where we are.
Bob Jordan: Also see good results. So overall, our heightened attention to Boeing and the quality of the aircraft. They manufacture has been going on for a while we think it is bearing fruit.
Andrew M. Watterson: And so that is where we assure day-to-day that the quality of our aircraft is maintained. Additionally, we have the engagement executive level that Bob talked about, where we also see good results. So overall, our heightened attention to Boeing and the quality of the aircraft they manufacture has been going on for a while, and we think it's bearing fruit. The next question is from David Slotnick with TPG. Please go ahead. Hi, good afternoon.
Andrew M. Watterson: The next question is from David Slotnick with TPG. Please go ahead.
David Slotnick: Hi, good afternoon. Thanks for the question.
David Slotnick: And going back to the transformation.
David Slotnick: You said that youre looking at changing customer preferences, and I'm sort of just wondering what perspective, you're taking on that like are you looking at this as something where.
David Slotnick: Because of those preferences customers are choosing to book other airlines that were southwest or are you looking at this.
David Slotnick: Thanks for the question. And going back to the transformation, you said that you're looking at changing customer preferences. And I'm sort of just wondering what perspective you're taking on that. Like, are you looking at this as something where, because of those preferences, customers are choosing to book other airlines over Southwest? Or are you looking at this as maybe a place where Southwest is missing an opportunity to earn revenue on premiums or upsells like your rivals do from existing passengers? Ryan can give you much more detail. But I think you want to know all those things.
David Slotnick: Maybe a place where southwest as missing an opportunity.
David Slotnick: Revenue on premiums or upset with what your rivals are.
David Slotnick: Some passengers.
David Slotnick: Ryan can give you much more detail, but I think you want to know all of those things you want to know.
David Slotnick: Why do you why do customers book southwest what do they expect to southwest.
David Slotnick: You want to know why do they book others.
David Slotnick: And not southwest Airlines, you want to know if.
David Slotnick: If they have preferences for other things within our product that we don't offer today, how do they how do you think about pricing those kinds of things and how it affects there.
Bob Jordan: You want to know why customers book Southwest? What do they expect of Southwest? Would you like to know why they book others and not Southwest Airlines? Would you like to know if they have preferences for other things within our product that we don't offer today? How do they, how do you think about pricing those kinds of things and how it affects their desire to book Southwest Airlines? But no, you, you want to need to know all those things.
Bob Jordan: Their desire to book Southwest Airlines, but you want and need to know all of those things and again. Additionally in addition to the customer preference you need to know what does it do for the operation and how we.
Bob Jordan: How are we how quickly, especially we turn our aircraft and we're studying that as well Brian I think you hit it I think you've hit at all clearly.
Bob Jordan: And again, additionally, in addition to the customer preference, you need to know what it does for the operation and how we, you know, how quickly, especially we turn our aircraft, and we're studying that as well. Ryan, I think you hit it. I think you hit it all.
Bob Jordan: Any sort of transformational change youre going to have a very robust.
Speaker Change: <unk> scientific Barry.
Bob Jordan: Sophisticated statistical models and research methodologies to test all of those things that Bob walked through that's what.
Ryan C. Green: Clearly, with any sort of transformational change, you're going to have very robust, highly scientific, very sophisticated statistical models and research methodologies to test all of those things that Bob walked through. And I mean, back to the question before, just considering the share of their revenue that your rivals are earning from upsells and from premium, you know, do you think you can really rule out something like a curtain in the cabin?
Ryan C. Green: Anybody would expect of a company like southwest and that's the rigor at which we're approaching studying this issue.
Ryan C. Green: And back to the question before just considering.
Ryan C. Green: The share of their revenue that your rivals are earning from Upsells from premium.
Ryan C. Green: Do you think you can really rule out something like a curtain in the cabin.
Ryan C. Green: Look, we're going to study customer, like, like we've said, we're going to study customer preferences. But there's strong demand today for Southwest Airlines and the brand that we put in the product that we put in the marketplace. Today, it has worked for us for, you know, over 50 years, and customers understand well who we are and what we bring to the marketplace. We're not going to try to be somebody that we're not, and so we'll study, we'll study it all.
Ryan C. Green: Yes.
Ryan C. Green: Look we're going to study customer like we've said, we're going to study customer preferences, but there is strong demand today for southwest Airlines and the brand that we put.
Ryan C. Green: And the product that we put in the marketplace today. It has worked for us for.
Ryan C. Green: Over 50 years and customers understand well.
Ryan C. Green: Who we are and what we bring to the marketplace, we're not going to try to be somebody that were not.
Ryan C. Green: And so.
Ryan C. Green: We will study will study at all but.
Ryan C. Green: But, you know, we're, at the end of the day, we're going to remain true to who Southwest Airlines is. I think you also have to look at the revenue per square foot you get in the cabin. And so it can seem like you might want to have a fancy product, but if it doesn't generate revenue off of that square foot you have in the cabin, then it's necessarily not worth it.
Ryan C. Green: At the end of the day, we're going to remain true to who southwest Airlines is I think you also have to look at the revenue per square foot and you're getting the cabin and so it can be seemed like you wanted to have a.
Ryan C. Green: Fancy product, but if it doesn't generate revenue off of that square footage you have in the cabin.
Ryan C. Green: Then it's necessarily not worth it so we take a strong eye to the revenue.
Ryan C. Green: So we take a strong eye to the revenue that any of our products would generate as we evaluate them, And I think the other short answer is, we're not ready to go into detail. We have work to do here, obviously, to continue to finish up our work. And then if there are things we do want to change, understand how we would do it in a Southwest way.
Ryan C. Green: Any of our products will generate as we evaluate this.
Ryan C. Green: And I think the I know we've said this probably 20 times on the call today.
Ryan C. Green: <unk>.
Ryan C. Green: I think the other short answer is we're not ready to go into detail. We have work to do year, obviously to continue to finish up our work and then if there are things we do want to change understand how we would do it in the southwest way and.
Ryan C. Green: So we will be back with detail when we're ready.
Bob Jordan: And so we will, we will be back with detail when we're ready. And if there is something that we're going to change, we're aiming to do that at our Investor Day, which is planned in September. And we'll obviously share a lot more of that.
Ryan C. Green: And if there is something that we're going to change we're aiming to do that at our Investor day, which is planned in September and we will share obviously a lot more of that.
Speaker Change: Thank you.
Speaker Change: Thank you.
Bob Jordan: This concludes our question and answer session for media so back over to Whitney now for some closing thoughts.
Whitney Eichinger: Thank you, Thank you. This concludes our question and answer session for the media, so back over to Whitney now for some closing thoughts. Thanks to everyone who joined us today. If you guys have any further questions, our communications group is standing by. Their contact information, along with today's news release, is all available at SWAMedia.com. The conference has concluded. Thank you all for attending. We'll meet again here next quarter. ,,,,,
Speaker Change: Thanks to everyone, who joined US today, if you guys have any further questions. Our communications group is standing by their contact information along with today's news release are all available in S. W. E media Dot com.
Whitney Eichinger: The conference has concluded. Thank you all for attending we'll meet again here next quarter.
Whitney Eichinger: Yeah.
Whitney Eichinger: [music].
Whitney Eichinger: Yeah.