Q2 2024 Southwest Airlines Co Earnings Call

Hello, everyone, and welcome to the Southwest Airlines second 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.

Gary: Quarter 2024 Conference Call. I'm Gary, and I ll be moderating today's call, which is being recorded.

Gary: 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, then 1.

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.

Gary: To withdraw your question, the command is star, then two. Now, 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.

Now, Julia Landrum, Vice President of Investor Relations, will begin the discussion. Please go ahead, Julia.

Julia Landrum: Hello, everyone, and welcome to our second quarter 2024 earnings call. I am joined today by our President and CEO, Bob Jordan, Chief Operating Officer, Andrew Watterson, and Executive Vice President and CFO, Tammy Romo. I will get us started with an overview of the company's performance and strategy, and we'll also provide color on the strategic initiatives announced this morning. Andrew will provide an update on revenue, and Tammy will cover our costs and balance. Ryan Green, EVP of Commercial Transformation, is also in the room with us today, as well as other executives to support Q&A.

Julia Landrum: Thank you so much. Hello, everyone, and welcome to our second quarter 2024 earnings call. I am joined today by our President and CEO , Bob Jordan, Chief Operating Officer, Andrew Watterson, and Executive Vice President and CFO , Tammy Romo.

Speaker Change: Bob will get us started with an overview of the company performance and strategy, and will also provide color on the strategic initiatives announced this morning.

Speaker Change: Andrew will provide an update on the revenue and Tammy will cover our cost and balance sheet.

Speaker Change: Ryan Green, EVP of Commercial Transformation, is also in the room with us today, as well as other executives to support Q&A.

Julia Landrum: A quick reminder that we will make forward-looking statements that are based on our current expectations of future performance, and actual results could differ materially from expectations. Also, we will reference our non-GAAP results, which exclude special items that are called out and reconciled to GAAP results on our earnings presentation.

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

Speaker Change: Also, we will reference our non-GAAP results, which exclude special items that are called out and reconciled to GAAP results on our earnings press release.

Julia Landrum: Our press release with second quarter 2024 results and a separate press release announcing select strategic initiatives for both issues this morning and are available on our investor relations website. And with that, I'm pleased to turn the call over to you, Bob. Thank you, Julie.

Speaker Change: Our press release with second quarter 2024 results and a separate press release announcing select strategic initiatives were both issued this morning and are available on our investor relations website. And with that, I'm pleased to turn the call over to you, Bob.

Robert Jordan: And thanks, everyone, for joining us this morning. We have a lot to cover today, so let's jump right in.

Bob: Thank you, Julie. And thanks, everyone, for joining us this morning. We have a lot to cover today, so let's jump right in. In my comments today, I will touch briefly on our results for the quarter and then provide detail on the plans we announced earlier this morning to implement meaningful changes to our business.

Robert Jordan: In my comments today, I will touch briefly on our results for the quarter and then provide detail on the plans we announced earlier this morning to implement meaningful changes to our business and better position Southwest Airlines to produce higher returns in a more competitive, higher cost environment. As Julia mentioned, Andrew will provide details on our revenue performance, including the work underway to calibrate our revenue management system and processes. And Tammy will discuss our costs, CapEx, and balance. Starting with our overall results, they are not where we need them to be, and they are not reflective of what we are capable of delivering.

Speaker Change: and Better Positioned Southwest Airlines to produce higher returns in a more competitive, higher cost environment.

Speaker Change: As Julia mentioned, Andrew will provide details on our revenue performance, including the work underway to calibrate our revenue management system and processes, and Tammy will discuss our costs, CapEx, and balance sheet.

Speaker Change: Starting with our overall results, they are not where we need them to be and they are not reflective of what we are capable of delivering. We will cover where we fell short as well as our action plan in detail later on the call, but I'll hit on a few highlights first.

Robert Jordan: We will cover where we fell short as well as our action plan in detail later on in the call, but I'll hit on a few highlights first. Our frontline employees executed very well as we continued to improve in nearly every operating and customer metric. Once again, we ran a high-quality operation with a completion factor of 99.5% despite challenging weather.

Speaker Change: Our frontline employees executed very well as we continued to improve in nearly every operating and customer metric. Once again, we ran a high-quality operation with a completion factor of 99.5% despite challenging weather.

Robert Jordan: This was further evidenced by our performance following Hurricane Beryl earlier this month. We experienced an 8% cancel rate on July 8th as the storm moved through the Houston area, but we had only a 0.3% cancel rate the following day, as we recovered quickly with almost no operational hangover from the prior day. I am very proud of our team.

Speaker Change: This was further evidenced by our performance following Hurricane Beryl early.

Speaker Change: We experienced an 8% cancel rate on July 8th as the storm moved through the Houston area, but had only a 0.3% cancel rate the following day, as we recovered quickly with almost no operational hangover from the prior day.

Robert Jordan: Following the global technology outages, we were able to recover very quickly and experienced a near zero cancel rate. Investments made to advance core operations and modernize technology meant that we had redundancy in place for key systems that were experiencing issues. Time and time again, the purposeful investments we've made to improve our resilience and ability to recover from disruptions are demonstrating their value, and that investment will continue. Our exceptional customer service continues to improve as well, and was recently recognized by J.D.

Speaker Change: I am very proud of our team, and following the global technology outages, we were able to recover very quickly and experienced a near zero cancel rate.

Speaker Change: Investments made to advance core operations and modernize technology meant that we had redundancy in place for key systems that were experiencing issues.

Speaker Change: Time and time again, the purposeful investments we've made to improve our resilience and ability to recover from disruptions are demonstrating their value and that investment will continue.

Speaker Change: Our exceptional customer service continues to improve as well, and was recently recognized by J.D. Power, where we were awarded the Leading Economy Class Customer Satisfaction Distinction for the third consecutive year.

Robert Jordan: Power, where we were awarded the Leading Economy Class Customer Satisfaction Distinction for the third consecutive year. Reliable operational performance and customer service are and always will be cornerstones of our business model. Moving on to revenue performance, unit revenue for the quarter declined 3.8% year-over-year, primarily as a result of domestic capacity outpacing demand.

Speaker Change: Reliable operational performance and customer service are, and always will be, cornerstones of our business model.

Robert Jordan: The decline was also a result of Southwest-specific challenges as we fully mature our usage of a new O&D-based revenue management system. Andrew will go into more detail later, but, bottom line, we sold too many seats for the peak summer travel period too early in the booking curve. It's not unusual to have growing pains with these types of, but we are working quickly to action opportunities to drive performance improvement. We're also adding additional leadership expertise and support, including our plan to hire a chief revenue officer to focus on revenue management and price.

Speaker Change: Moving on to revenue performance, unit revenue for the quarter declined 3.8% year-over-year, primarily as a result of domestic capacity outpacing demand.

Speaker Change: The decline was also a result of Southwest-specific challenges as we fully mature our usage of a new O&D-based revenue management system.

Speaker Change: Andrew will go into more detail later, but bottom line, we sold too many seats for the peak summer travel period too early in the booking curve. It's not unusual to have growing pains with these types of systems.

Speaker Change: We are working quickly to action opportunities to drive performance improvement. We're also adding additional leadership expertise and support, including our plan to hire a Chief Revenue Officer to focus on revenue management and pricing.

Robert Jordan: We continue to have confidence that the new revenue management system will be a driver of long-term revenue improvement. The management team and I, with the support of our board, are completely aligned on the imperative to produce results and ultimately deliver returns ahead of our cost of capital. Doing so requires an evaluation of all opportunities and a willingness to change some longstanding Southwest policies while staying true to our values.

Speaker Change: We continue to have confidence that the new revenue management system will be a driver of long-term revenue improvement.

Speaker Change: The management team and I, with the support of our board, are completely aligned on the imperative to produce results and ultimately deliver returns ahead of our cost of capital.

Speaker Change: Doing so requires an evaluation of all opportunities and a willingness to evolve some long-standing Southwest policies while staying true to our values.

Robert Jordan: With that in mind, I'll discuss some of the changes we are making to further evolve Southwest Airlines. These are part of an ongoing strategic transformation of the business, and we will share more details during our investor day, where we will outline a comprehensive plan to deliver transformational commercial initiatives, improved operational efficiency, and capital allocation. As I shared back in April, our teams have been hard at work evaluating fundamental changes to our seating, cabin, and boarding procedures. It's clear that the open seating model that served us well for so many years is no longer optimal for today's customers. I want to stress that this decision was not made lightly.

Speaker Change: With that in mind, I'll discuss some of the changes we are making to further evolve Southwest Airlines.

Speaker Change: These are part of an ongoing strategic transformation of the business, and we will share more details during our Investor Day, where we will outline a comprehensive plan to deliver transformational commercial initiatives, improved operational efficiency, and capital allocation discipline.

Robert Jordan: We have been very thorough and deliberate in how we approached the question, conducting multiple sophisticated research studies over many months that evaluated customer preference and looked at different types of cabin layouts and seating methods. Our research shows that 80% of our customers prefer an assigned seat, and 86% of our potential customers prefer an assigned seat. Further, when a customer defectes from Southwest to one of our competitors, our open seating policy is cited as the number one reason why. The answer is clear. There is more demand for Southwest Airlines with an assigned seating model, and there is a significant ability to monetize the cabin more effectively with a premium seating option.

Speaker Change: As I shared back in April , our teams have been hard at work evaluating fundamental changes to our seating, cabin, and boarding procedures. It's clear that the open seating model that served us well for so many years is no longer optimal for today's customer.

Speaker Change: I want to stress that this decision was not made lightly. We have been very thorough and deliberate in how we approached the question, conducting multiple sophisticated research studies over many months that evaluated customer preference and looked at different types of cabin layouts and seating methods.

Speaker Change: Our research shows that 80% of our customers prefer an assigned seat, and 86% of our potential customers prefer an assigned seat.

Speaker Change: Further, when a customer defects from Southwest to one of our competitors, our open seating policy is cited as the number one reason why.

Speaker Change: The answer is clear. There is more demand for Southwest Airlines with an assigned seating model, and there is a significant ability to monetize the cabin more effectively with a premium seating option.

Robert Jordan: By extension, these changes are expected to drive significant value for our shareholders. We feel confident that the solution we are implementing will retain the positive elements of the Southwest Airlines experience and enable us to evolve in a manner that's consistent with what today's air traveler is seeking. While specific cabin layouts are still being finalized, we expect roughly one-third of seats across the fleet to offer extended legroom.

Speaker Change: By extension, these changes are expected to drive significant value for our shareholders. We feel confident that the solution we are implementing will retain the positive elements of the Southwest Airlines experience and enable us to evolve in a manner that's consistent with what today's air traveler is seeking.

Speaker Change: While specific cabin layouts are still being finalized, we expect roughly one-third of seats across the fleet to offer extended legroom. We are also designing a boarding process that retains the organized calm our customers enjoy today, but also complements an assigned seating model.

Robert Jordan: We're also designing a boarding process that retains the organized calm our customers enjoy today but also complements an assigned seating model. We've been studying this in depth to preserve our operational efficiency and how quickly we turn an aircraft. We've conducted both live boarding tests to understand passenger movement in a real-world environment and also more than 8 million digital simulations to test different boarding options. These digital boarding simulations include data from real flights, with real passenger manifests, to understand differences in boarding time stemming from passenger mix, things like families traveling together, customers who may need more time to board, experienced versus inexperienced travelers, and more. The data clearly indicates that any operational impacts are neutral or an enhancement to current performance.

Speaker Change: We've been studying this in-depth to preserve our operational efficiency and how quickly we turn an aircraft. We've conducted both live boarding tests to understand passenger movement in a real-world environment and also more than 8 million digital simulations to test different boarding options.

Speaker Change: These digital boarding simulations include data from real flights with real passenger manifests to understand differences in boarding time stemming from passenger mix.

Speaker Change: Things like families traveling together, customers who may need more time to board.

Speaker Change: Experienced vs. Inexperienced Travelers, and more. The data clearly indicates that any operational impacts are neutral or an enhancement to current performance.

Robert Jordan: We're also approaching this change in a capital efficient manner. New aircraft will be delivered with our improved RECARO seats beginning early next year. For existing aircraft where we must retrofit to a new configuration, we plan to use existing seats within our fleet to avoid a large capital expenditure. We're working quickly to realize the value of this new model as soon as possible.

Speaker Change: We are also approaching this change in a capital-efficient manner. New aircraft will be delivered with our improved Recaro seats beginning early next year. For existing aircraft where we must retrofit to a new configuration, we plan to use existing seats within our fleet to avoid a large capital expenditure.

Speaker Change: We're working quickly to realize the value of this new model as soon as possible.

Robert Jordan: New seat configurations require FAA certification, which typically takes several months, and only then can we begin the process of retrofitting the fleet. We therefore expect to make bookings available beginning next year. The aircraft downtime should be minimal to complete the cabin changes, but keep in mind that we have a fleet of roughly 800 aircraft to retrofit, and that will take time.

Speaker Change: New seat configurations require FAA certification, which typically takes several months.

Speaker Change: and only then can we begin the process of retrofitting the fleet. We therefore expect to make bookings available beginning next year. The aircraft downtime should be minimal to complete the cabin changes, but keep in mind that we have a fleet of roughly 800 aircraft to retrofit, and that will take time.

Robert Jordan: Changing from an open seating model to an assigned seating model will be a complex and transformational change that cuts across almost all aspects of the company and is one of several commercial initiatives currently underway to be detailed at our investor day. Given the significance of the changes, I've asked our Chief Commercial Officer, Ryan Green, to take on leadership of this initiative on a full-time basis. As EVP of Commercial Transformation, Ryan will lead this effort along with other commercial initiatives already underway.

Speaker Change: Changing from an open seating model to an assigned seating model will be a complex and transformational change that cuts across almost all aspects of the company.

Speaker Change: and is one of several commercial initiatives currently underway to be detailed at our Investor Day.

Ryan C. Green: Given the significance of the changes, I've asked our Chief Commercial Officer, Ryan Green, to take on leadership of this initiative on a full-time basis.

Speaker Change: As EVP of Commercial Transformation, Ryan will lead this effort along with other commercial initiatives already underway.

Robert Jordan: Ryan has led the work to this point and is steeped in knowledge regarding customer trends and has previously and successfully led efforts to transform our rapid rewards loyalty program and the digital customer experience. Ryan will report directly to me.

Speaker Change: Ryan has led the work to this point and is steeped in knowledge regarding customer trends and previously and successfully led efforts to transform our rapid rewards loyalty program and the digital customer experience. And Ryan will report directly to me.

Robert Jordan: Additionally, today we are publishing schedules that incorporate red-eye flying, which will phase in rapidly by summer 2025 and, combined with ongoing reductions in turn time through new technologies and procedures, will enable us to fund nearly all new capacity the next three years through initiatives rather than additional aircraft capex. These initiatives are part of a comprehensive strategic transformation and reflect a commitment and my personal commitment to deliver an implementing plan aimed at driving shareholder value and achieving ROIC well in excess of our cost of capital.

Speaker Change: Additionally, today we are publishing schedules that incorporate red-eye flying, which will phase in rapidly by summer 2025 and, combined with ongoing reductions in turn time through new technologies and procedures, will enable us to fund nearly all new capacity the next three years through initiatives

Speaker Change: rather than additional aircraft capex.

Speaker Change: These initiatives are part of a comprehensive strategic transformation and reflect a commitment, and my personal commitment, to deliver an implementing plan aimed at driving shareholder value and achieving ROIC well in excess of our cost of capital.

Robert Jordan: We will provide more details around the timing and value of these initiatives and other tactical and strategic initiatives when we gather for Investor Day in late September, but we wanted to keep you up to speed on some of the decisions that we've already made and the deliberate plans we have in place to implement them. And before I close, I want to again recognize all the efforts of our incredible employees. Thank you all for the excellence and the dedication that you bring to work every single day. And with that, I will turn it over to Andrew to provide a full update on our revenue, performance, and outlook. Thank you, Bob.

Speaker Change: We will provide more details around the timing and value of these initiatives and other tactical and strategic initiatives when we gather for Investor Day in late September , but we wanted to keep you up to speed on some of the decisions that we've made already and the deliberate plans we have in place to implement them.

Speaker Change: And before I close, I want to again recognize all the efforts from our incredible employees.

Speaker Change: Thank you all for the excellence and the dedication that you bring to work every single day. And with that, I will turn it over to Andrew to provide a full update on our revenue, performance, and outlook.

Andrew M. Watterson: I'm very excited about the strategic initiatives we have coming. I'm also very proud of our people for their continued focus on safety. Running a quality operation with the lowest year-to-date cancellation rate in the industry and our strong customer service performer. Moving to revenue performance, we have experienced challenges in managing demand across booking curves as we deploy efforts to address load factor underperformance. As a result, we experienced yields and, ultimately, revenue dilution from selling too many seats too early in the booking process.

Andrew: Thank you, Bob. I'm very excited about strategic initiatives we have coming. I am also very proud of our people for their continued focus on safety.

Andrew: Running a quality operation with the lowest year-to-date cancellation rate in the industry.

Speaker Change: and our strong customer service performance trends.

Andrew: Moving to revenue performance, we have experienced challenges in managing demand across booking curves as we deployed efforts to address load factor underperformance. As a result, we experienced yield and ultimately revenue dilution from selling too many seats too early in the booking curve.

Andrew M. Watterson: As you will likely recall, back in the spring of 2023, we transitioned to a new and modernized revenue management system that is fundamentally different from and superior to our prior system. The new system manages revenue on an origin and destination basis compared with our prior leg basis. The decision to implement this new system followed an extensive review of our options, including a comprehensive 18-month-long pilot to evaluate and test two new revenue management systems against our prior systems. What we directly observed during the testing period was that the system we selected consistently produced superior results.

Andrew: As you will likely recall, back in the spring of 2023, we transitioned to a new and modernized revenue management system.

Andrew: The system is fundamentally different from, and superior to, our prior system.

Andrew: The new system manages revenue on an origin and destination basis, compared with our prior leg-based system.

Andrew: The decision to implement this new system followed an extensive review of our options, including a comprehensive 18-month-long pilot to evaluate and test two new revenue management systems against our prior system.

Andrew: What we directly observed during the testing period was the system we selected consistently produced superior results.

Andrew M. Watterson: The goal is to maximize the revenue performance of our flights, especially our best flights, and the new system accomplishes just that by considering what customers are willing to pay at different phases of the booking curve, including taking note of the differentiation between business and leisure. However, adapting to a new system is not straightforward.

Andrew: The goal is to maximize the revenue performance of our flights, especially our best flights.

Andrew: And the new system accomplishes just that by considering what customers are willing to pay at different phases of the booking curve.

Andrew: including taking note of the differentiation between business and leisure customers.

Andrew M. Watterson: Add to that changing schedules from Boeing delivery shifts, and what we got was a complicated rollout. Regardless, what we estimate about two points of view over your head went into the third quarter from bookings already in place. We are taking decisive actions to re-accalibrate the. The estimated impact is already built in to our 3Q RASM outlet of flat to down 2% on a year-over-year basis. The outside experts that Bob mentioned are supporting our employees and getting the most out of the capabilities of this new system. The good news is that we have confidence in the superiority of the new system, as evidenced by the month-long A-B testing that we conducted.

Andrew: However, adapting to a new system is not straightforward.

Andrew: Add to that changing schedules from Boeing delivery shifts and what we got was a complicated rollout.

Andrew: Regardless, while we estimate about two points of year-over-year headwind to third quarter from bookings already in place.

Andrew: We are taking decisive actions to recalibrate the system.

Andrew: The estimated impact is already built into our 3Q RASM Outlook.

Andrew: of flat to down 2% on a year-over-year basis.

Bob: The outside experts that Bob mentioned are supporting our employees and getting the most out of the capabilities of this new system.

Bob: The good news is that we have confidence in the superiority of the new system, as evidenced by the month-long A-B testing that we conducted.

Andrew M. Watterson: As we gain expertise in optimizing the system, we expect to see a noticeable tailwind to performance, likely starting in September of this year. Adopting a new revenue management system is a once in a generation implementation, and we are committed to executing a successful turnaround in our revenue. In addition to the improvement we expect to see in our revenue management performance, our plan includes continued network optimization and capacity moderation, moving to the back half of the year.

Bob: As we gain expertise in optimizing the system, we expect to see a noticeable tailwind to performance.

Bob: likely starting in September of this year.

Bob: Adopting a new revenue management system is a once-in-a-generation implementation, and we are committed to executing a successful turnaround in our revenue performance.

Bob: In addition to the improvement we expect to see in our revenue management performance, our plan includes continued network optimization and capacity moderation moving into the back half of the year.

Andrew M. Watterson: Our summer, fall, and recently published winter-based schedules all include actions to target supply to demand across geographies and calendar periods, as well as schedule quality actions to facilitate demand capture. By fourth quarter, we expect less capacity oversupply, as well as improvements in our revenue. We are planning for capacity to decline 4% year-over-year and in fourth quarter.

Bob: Our summer, fall, and recently published winter-based schedules all include actions to target supply to demand across geographies and calendar periods.

Bob: as well as schedule quality actions to facilitate demand capture.

Bob: By fourth quarter, we expect less capacity oversupply, as well as improvements in our revenue management.

Bob: We are planning for our capacity to decline 4% year-over-year in fourth quarter.

Tammy Romo: With seats and trips down roughly 8%, and therefore we expect Ratham growth to be positive year-over-year by the fourth quarter. We will deliberately and urgently pursue tactical opportunities to improve financial performance, including calibrating our revenue management process and continuing our work to optimize our network. In addition, we also have a plan to capitalize on transformational opportunities to generate incremental revenue, some of which Bob shared with you. Before I close, I want to thank our people again for doing such an amazing job driving operational excellence and providing our legendary hospitality. I am so appreciative of their contributions. With that, I'll turn it over to him. Thank you, Andrew. And hello, everyone.

Bob: With seats and trips down roughly 8%, and therefore we expect rathom growth to be positive year-over-year by fourth quarter.

Bob: We will deliberately and urgently pursue tactical opportunities to improve financial performance, including calibrating our revenue management process and continuing our work to optimize our network.

Bob: Further, we also have a plan to capitalize on transformational opportunities to generate incremental revenue, some of which Bob's shared with you.

Bob: Before I close, I want to thank our people again for doing such an amazing job driving operational excellence and providing our legendary hospitality. I am so appreciative of their contributions.

Bob: With that, I'll turn it over to him.

Tammy Romo: As Bob mentioned, I will provide an update on our cost performance before turning to fleet and balance. Overall, our second quarter CASMX increased 6% year over year, and we continue to expect CASMX for full year 2024 to increase in the range of 7 to 8% on a year over year basis. The higher year-over-year CASM-X growth in the second half of this year is driven primarily by a continuation of market-driven labor cost pressure from our new contract, as well as from the moderation of year-over-year capacity growth.

Bob: Thank you, Andrew, and hello, everyone. As Bob mentioned, I will provide an update on our cost performance before turning to Fleet and Balance Sheet.

Speaker Change: Overall, our second quarter CASMX increased 6% year-over-year, and we continue to expect CASMX for full year 2024 to increase in the range of 7 to 8% on a year-over-year basis.

Speaker Change: The higher year-over-year CASM-X growth in the second half of this year is driven primarily by a continuation of market-driven labor cost pressure from our new contracts, as well as from the moderation of year-over-year capacity growth.

Tammy Romo: We are urgently and deliberately pursuing opportunities to mitigate cost pressures, including the drag from overstaffing related to previously reported Boeing delivery delays. As discussed on our first quarter earnings call, we have expanded our voluntary leave and time off programs to further reduce labor expenses and bring staffing levels in line with our current fleet. We have halted all critical hiring, and we continue to expect to end this year with the head count down roughly 2000 from year end 2023. And we continue to plan for headcount to be down again in 2025 as attrition levels exceed our controlled hiring levels. Our second quarter average fuel price of $2.76 per gallon was in line with our expectations.

Speaker Change: We are urgently and deliberately pursuing opportunities to mitigate cost pressures, including the drag from overstaffing related to previously reported Boeing delivery delays.

Speaker Change: As discussed on our first quarter earnings call, we have expanded our voluntary leave and time off programs to further reduce labor expenses and bring staffing levels in line with our current fleet.

Speaker Change: We have halted all the critical hiring and we continue to expect to end this year with head count down roughly 2,000 from year end 2023.

Speaker Change: And we continue to plan for headcount to be down again in 2025 as attrition levels exceed our controlled hiring levels.

Speaker Change: Our second quarter average fuel price of $2.76 per gallon was in line with our expectations.

Tammy Romo: Our hedge portfolio continues to provide protection against spikes in prices, and we are continuing to opportunistically add protection with no change to our target of a roughly 50% hedge position. Turning to our fleet, we prudently adjusted our 2024 delivery expectations prior to our April earnings report to mitigate Boeing delivery risk to our internal planning functions. Therefore, we continue to plan for 20-8 aircraft deliveries, 31-700 retirements, and 4-800 lease returns for the year.

Speaker Change: Our hedge portfolio continues to provide protection against spikes in prices and we are continuing to opportunistically add protection with no change to our target of a roughly 50% hedge position.

Speaker Change: Turning to our fleet, we prudently adjusted our 2024 delivery expectations prior to our April earnings report to mitigate Boeing delivery risk to our internal planning functions.

Speaker Change: We therefore continue to plan for 20-8 aircraft deliveries, 31-700 retirements, and 4-800 lease returns for the year.

Tammy Romo: We remain committed to our fleet modernization benefits, and our planned reduction in aircraft exceeds our planned delivery. We also remain committed to longer-term capacity discipline and ROYC production. We expect third-quarter capacity to increase approximately 2% and fourth-quarter capacity to decrease approximately 4%.

Speaker Change: We remain committed to our fleet modernization benefits, and our planned reduction in aircraft exceeds our planned delivery.

Speaker Change: We also remain committed to longer term capacity discipline and ROYC production. We expect third quarter capacity to increase approximately 2% and fourth quarter capacity to decrease approximately 4%.

Tammy Romo: Accordingly, our expectation for full year 2024 capacity continues to be up approximately 4% year over year. Looking beyond 2024, we remain committed to earning our right to grow and plan to keep any future growth at or below macroeconomic growth trends until we reach our long-term financial goal of returns on invested capital consistently in excess of our cost of capital. Our expected capital spending for 2024 is approximately $2.5 billion, which is in line with our prior guidance and well below our expectations of $3.5 to $4 billion at the beginning of the year.

Speaker Change: Accordingly, our expectation for full year 2024 capacity continues to be up approximately 4% year-over-year.

Speaker Change: Looking beyond 2024, we remain committed to earning our right to grow and plan to keep any future growth at or below macroeconomic growth trends until we reach our long-term financial goal of returns on invested capital consistently in excess of our cost of capital.

Unknown Executive: Our expected capital spending for 2024 is approximately 2.5 billion, which is in line with our prior guidance and well below our expectations of 3.5 to 4 billion at the beginning of the year. We are in ongoing discussions with Boeing regarding the financial impact of delivery delays, and as with past compensation, we expect any financial damages to be realized as a reduction in the cost basis of certain aircraft. Our balance sheet is obviously a critical competitive strength with an investment grade rating by all three rating agencies. We continue to be in a net cash position as we ended second quarter with cash and short-term investments of 10 billion versus 8 billion about standing debt.

Speaker Change: Our expected capital spending for 2024 is approximately $2.5 billion, which is in line with our prior guidance and well below our expectations of $3.5 to $4 billion at the beginning of the year.

Tammy Romo: We are in ongoing discussions with Boeing regarding the financial impact of delivery delays, and as with past compensation, we expect any financial damages to be realized as a reduction in the cost basis of certain aircraft. Our balance sheet is obviously a critical competitive strength, with an investment grade rating by all three rating agencies. We continue to be in a net cash position, as we ended the second quarter with cash and short-term investments of $10 billion versus $8 billion of outstanding debt. We expect a modest $29 million in scheduled debt repayments for the full year, and currently, 2024 interest income is still expected to more than offset 2024 interest expense.

Speaker Change: We are in ongoing discussions with Boeing regarding the financial impact of delivery delays. And as with past compensation, we expect any financial damages to be realized as a reduction in the cost basis of certain aircraft.

Speaker Change: Our balance sheet is obviously a critical competitive strength with an investment grade rating by all three rating agencies.

Speaker Change: We continue to be in a net cash position as we ended second quarter with cash and short-term investments of $10 billion versus $8 billion of outstanding debt.

Unknown Executive: We expect a modest 29 million in scheduled debt repayments for the full year, and currently, 2024 interest income is still expected to more than offset 2024 interest expense. Following the pandemic, we have maintained elevated liquidity levels primarily to fund fleet modernization efforts, labor contract ratification bonuses, debt service considerations, and to provide insurance against unforeseen business risk.

Speaker Change: We expect a modest $29 million in scheduled debt repayments for the full year, and currently, 2024 interest income is still expected to more than offset 2024 interest expense.

Tammy Romo: Following the pandemic, we have maintained elevated liquidity levels, primarily to fund fleet modernization efforts, labor contract ratification bonuses, debt service considerations, and to provide insurance against unforeseen business risk. With much of the uncertainty largely behind us, we intend to start normalizing our liquidity levels back towards pre-COVID levels, targeting minimum total liquidity, including our undrawn revolvers. Our long-term financial goals remain unchanged, maintaining a strong balance sheet, investment grade credit ratings, and ample liquidity.

Speaker Change: Following the pandemic, we have maintained elevated liquidity levels, primarily to fund fleet modernization efforts.

Speaker Change: , Labor Contract Ratification Bonuses, Debt Service Considerations, and to provide insurance against unforeseen business risk.

Unknown Executive: With much of the uncertainty largely behind us, we intend to start normalizing our liquidity levels back towards pre-COVID levels, targeting minimum total liquidity, including our undrawn revolver. Our long-term financial goals remain unchanged: maintain a strong balance sheet, investment-grade credit ratings, and ample liquidity; grow earnings margins and capital returns. We intend to pay off 2020 by debt maturity at least partially in cash and specifically plan to repay our refinance the first tranche of the payroll support program ones as the associated interest rates start to rent a higher for the industry beginning next year. We also remain committed to our legacy of healthy, shareholder returns.

Speaker Change: With much of the uncertainty largely behind us, we intend to start normalizing our liquidity levels back towards pre-COVID levels, targeting minimum total liquidity, including our undrawn revolver.

Speaker Change: Our long-term financial goals remain unchanged.

Speaker Change: Maintain a strong balance sheet, investment grade credit ratings, and ample liquidity.

Tammy Romo: Grow Earnings, Margins, and Capital Returns. If you move in, we intend to pay off the 2025 debt maturity, at least partially in cash, and specifically plan to repay or refinance the first tranche of the payroll support program loans as the associated interest rates start to ratchet higher for the industry beginning next year. We also remain committed to our legacy of healthy shareholder return, and we are proud of our history of returning capital to our shareholders. We have returned more than $13.5 billion through share repurchases and dividends since 2010, and we returned $215 million to shareholders through dividends in the first half of this year.

Speaker Change: Grow Earnings, Margins, and Capital Returns.

Speaker Change: If you move in, we intend to pay off 2025 debt maturities, at least partially in cash.

Speaker Change: and specifically plan to repay or refinance the first tranche of the Payroll Support Program loans as the associated interest rates start to ratchet higher for the industry beginning next year.

Speaker Change: We also remain committed to our legacy of healthy shareholder returns.

Unknown Executive: We are proud of our history of returning capital to our shareholders. We return more than 13.5 billion through share repurchases in dividends since 2010, and we return 215 million to shareholders through dividends in the first half of this year. We paid another dividend just a couple of weeks ago here in their quarter. We are actively reviewing our return of capital policies, and ultimately, our goal is to restore shareholder returns to historic levels.

Speaker Change: We are proud of our history of returning capital to our shareholders. We returned more than $13.5 billion through share repurchases and dividends since 2010, and we returned $215 million to shareholders through dividends in the first half of this year.

Tammy Romo: We paid another dividend just a couple of weeks ago here in the third quarter. We are actively reviewing our return of capital policies, and ultimately, our goal is to restore shareholder returns to historic levels. As I close, I want to reiterate that our financial performance is not reflective of what we can and must deliver.

Speaker Change: We paid another dividend just a couple of weeks ago here in third quarter.

Speaker Change: We are actively reviewing our return of capital policies, and ultimately, our goal is to restore shareholder returns to historic levels.

Unknown Executive: As I close, I want to reiterate that our financial performance is not reflective of what we can and must deliver. As shareholders, you expect us to lead the industry in financial performance, and we will be satisfied with nothing less. There are areas we need to improve, which we are owning and addressing as a management team. Despite these distractions, our employees remain steadfast in their dedication to the mission of the company and to providing our storied and world-class hospitality to our valued customers. I am both proud and grateful for our employees.

Speaker Change: As I close, I want to reiterate that our financial performance is not reflective of what we can and must deliver.

Tammy Romo: As shareholders, you expect us to lead the industry in financial performance, and we will be satisfied with nothing less. There are areas we need to improve, which we are owning and addressing as a management team. Despite these distractions, our employees remain steadfast in their dedication to the mission of the company and to providing our storied and world-class hospitality to our valued customers. I am both proud and grateful for our employees. I am excited about the plans we have in place to secure a bright future for Southwest and to share more about our tactical and strategic initiatives, as well as our capital allocation plan, at Investor Day in September.

Speaker Change: As shareholders, you expect us to lead the industry in financial performance.

Speaker Change: And we will be satisfied with nothing less.

Speaker Change: There are areas we need to improve which we are owning and addressing as a management team.

Unknown Executive: I am excited about the plans we have in place to secure a bright future for Southwest. And to share more about our practical and strategic initiatives, as well as our capital allocation plan and Investor Day in September. We remain fully committed to executing on a plan to restore returns on invested capital and excess of our cost of capital, as this remains our guiding financial principle.

Speaker Change: I am excited about the plans we have in place to secure a bright future for Southwest and to share more about our tactical and strategic initiatives, as well as our capital allocation plan at Investor Day in September .

Tammy Romo: We remain fully committed to executing on a plan to restore returns on invested capital in excess of our cost of capital, as this remains our guiding financial principle. And with that, I will turn it back over to you, Julia. Thank you, Tammy.

Speaker Change: We remain fully committed to executing on a plan to restore returns on invested capital in excess of our cost of capital, as this remains our guiding financial principle.

Unknown Executive: And with that, I will turn it back over to you, Julia.

Speaker Change: And with that, I will turn it back over to you, Julia.

Julia Landrum: Thank you, Tammy.

Julia Landrum: This completes our prepared remarks. We will now open the line for analyst questions. We would like to hear from as many of you as possible, so we ask that you please limit yourself to one question and a brief follow-up, if necessary.

Unknown Executive: This completes our prepared remarks. We will now open the line for analyst questions. We would like to get as many of you as possible. So we ask that you please limit yourself to one question, and a brief follow-up is necessary.

Unknown Executive: We will now take the first question. 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. If you are on a speaker phone today, please pick up your handset before pressing the keys.

Julia Landrum: We will now take the first question. Let's begin the question and answer session. Again, to ask a question, press star, then one.

Julia Landrum: To withdraw your interest, press star, then two. If you are on a speakerphone today, please pick up your handset before pressing the key. The first question comes from Brandon Oglenski with Barclays. Please go ahead.

Julia Landrum: If you are on a speakerphone today, please pick up your handset before pressing the keys.

Brandon Oglinski: The first question comes from Brandon Oglinski with Barclays.

Unknown Executive: Please go ahead.

Brandon Oglinski: Hey, good afternoon, and thanks for taking my question. Bob, we definitely appreciate the new product changes that you now today, like extra leg room, red eye flying, but I think you degrees. These have been offered, you know, for decades at your competitors. I guess can you give us insight into the timing of this, you know, why now and why wasn't this looked at maybe even just a few years ago when you did do like a cabin redesign?

Brandon Robert Oglenski: Hey, good afternoon, and thanks for taking my question. Bob, we definitely appreciate the new product changes that you announced today, like extra leg room and red-eye flying, but I think you'd agree these have been offered, you know, for decades by your competitors. So I guess, can you give us insight into the timing of this? You know, why now?

Julia Landrum: Hey, good afternoon and thanks for taking my question.

Julia Landrum: Bob, we definitely appreciate the new product changes that you announced today, like extra leg room, red-eye flying, but

Robert Jordan: And why wasn't this looked at maybe even just a few years ago when you did like a cabin redesign? Brandon, you know, I think a lot of things have changed. I mean, you have changing demand patterns. We have customer preference that is always changing. It changed to some extent also coming out of the pandemic. You can always debate that.

Speaker Change: I think you'd agree these have been offered, you know, for decades at your competitors. So I guess, can you give us insight into the timing of this? You know, why now? And why wasn't this with that maybe even just a few years ago, when you did do like a cabin redesign?

Bob: Yeah, Brandon, you know, I think a lot of things changed. I mean, you have changing demand patterns. You have customer preference that is always changing. It changes to some extent also coming out, you know, of the pandemic.

Speaker Change: Yeah, Brandon, you know, I

Brandon: I think a lot of things have changed. I mean, you have changing demand patterns. We have customer preference that is always changing. It changed to some extent also coming out, you know, of the pandemic. You can always debate, you know, when. At the end of the day, it's the right thing to do right now.

Bob: You can always debate, you know, when it's into the day is the right thing to do right now. Particularly as we over time have flown longer and you know, flights are more full. I think that is a large driver of this. You know, one of the things that's obvious is that if you have a longer flight, customers have a preference to know where they are sitting, just like they have a preference to have a seat back power.

Robert Jordan: You know, when it's at the end of the day, it's the right thing to do right now. Particularly as we, over time, have flown longer and flights are more full, I think that is a large driver of this. You know, one of the things that's obvious is if you have a longer flight, customers have a preference to know where they are sitting, just like they have a preference to have seatback power. You know, I was, I'll admit, a bit surprised.

Brandon: Particularly as we over time have flown longer and you know flights are more full I think that is a large driver of this.

Brandon: One of the things that's obvious is if you have a longer flight, customers have a preference to know where they are sitting, just like they have a preference to have seat back power.

Bob: And, you know, I was, I'll admit, a bit surprised. We did extensive research here, tens of thousands of customers surveyed, a lot of work, conjoined analysis to understand products, what customers prefer, what they're willing to pay for. And while I wasn't surprised that the preference ended up coming out for a sign seating and more premium options in the cabin, I was surprised at the level of the preference. You know, 80% in favor of a sign seating amongst our customers, 86% amongst those that fly other carriers. And then, of course, we reported it was the number one reason that customers, when they defect from Southwest Airlines, that they leave us.

Robert Jordan: We did extensive research here. Tens of thousands of customers surveyed, a lot of work, and conjoint analysis to understand products, what customers prefer, and what they're willing to pay for. And while I wasn't surprised that the preference ended up coming out for assigned seating and more premium options in the cabin, I was surprised at the level of the preference. You know, 80% in favor of assigned seating amongst our customers, 86% amongst those that fly other carriers.

Brandon: You know, I was, I'll admit, a bit surprised. We did extensive research here. Tens of thousands of customers.

Brandon: surveyed, a lot of work, conjoined analysis to understand products, what customers

Brandon: Joe Ach powder before expensive care. I think a lot of firms will certainly prefer what they're willing to pay for. And while I wasn't surprised that the preference ended up coming out for assigned seating and more premium options in the cabin, I was surprised at the level of the preference, you know, 80% in favor of assigned seating amongst our customers, 86%.

Robert Jordan: And then, of course, we reported that it was the number one reason that customers when they defect from Southwest Airlines leave us. So it's very clear that there's strong, strong demand. But, you know, you can always pick the time and the place.

Brandon: Amongst those that fly other carriers, and then, of course, we reported it was the number one reason that customers, when they defect from Southwest Airlines, that they leave us. So it's very clear that there's strong, strong demand.

Bob: So it's very clear that they're strong, strong demand.

Bob: Head, but you know, you can always pick the time and the place. I'm 100% forward focused. In other words, we've done the work to ensure that this is the right change. The change is right to do now.

Speaker Change: But, you know, you can always pick the time and the place. I'm 100% forward focused. In other words,

Robert Jordan: I'm 100% forward focused. In other words, We've done the work to ensure that this is the right change. The change is right to do now. We are not quite ready to share the timelines, other than that we plan on selling the new seating in 2025. And we'll share all of that at our investor day in September. But it's clearly the right thing to do for our customers, for our employees, and for our shareholders.

Speaker Change: We've done the work to ensure that this is the right change.

Bob: We are not quite ready to share the timelines, other than that we plan on selling the new seating in 2025. We'll share all of that at our Investor Day in September. But it's clearly the right thing to do for our customers, you know, for our employees, and for our shareholders.

Speaker Change: The change is right to do now. We are not quite ready to share the timelines, other than that we plan on selling.

Speaker Change: The new seating in 2025 and we'll share all of that at our Investor Day in September . But it's clearly the right thing to do for our customers, for our employees, and for our shareholders.

Brandon Oglinski: Well, I think your investors appreciate, you know, the effort here to make changes, but I think some of the public criticism being levied on the company and the board is that it's been such an insular culture.

Robert Jordan: Well, I think your investors appreciate, you know, the effort here to make changes, but I think some of the public criticism being levied on the company and the board is that it's been such an insular culture; these things couldn't even have been discussed years ago. I guess, what are you doing from that aspect? Are you looking to fill some of these executive positions externally? Yeah, I think hindsight is always a lot more perfect, you know. That, and so you can always look back and criticize the timing of a decision.

Speaker Change: Well, I think your investors appreciate, you know, the effort here to make changes, but I think some of the public criticism being levied.

Bob: These things couldn't even have been discussed years ago. So I guess, what are you doing from that aspect? Are you looking to fill some executive positions externally?

Speaker Change: I'm the company in the board, is that it's been such an insular culture, these things couldn't even have been discussed years ago. I guess, what are you doing from that aspect, are you looking to fill some of these executive positions, externally?

Bob: Yeah, I think you could always, you know, hindsight is always a lot more perfect, you know, and so you can always look back and criticize the timing of a decision. I'm just telling you that we're 100% focused on transformational change yourself with their lines driving forward and driving forward with pace. You heard us today announce not just the assigned seating and the cabin changes. You heard us announce a red eye flying, which is not something we are working on. It's something we have worked on, and it's in the schedules published today. We've been working aggressively on operational systems, which we can talk about, and that work on operational systems allowed us during the tech outage last week to have a, I believe it was a 99.8% completion factor on the day of the tech outage, and we had systems, critical systems to the operation, affected.

Speaker Change: Yeah, I think you could always, you know, hindsight is always a lot more perfect, you know.

Robert Jordan: I'm just telling you that we're 100% focused on transformational change here at Southwest Airlines, driving forward and driving forward with pace. You heard us today announce not just the assigned seating and the cabin changes, but red-eye flying, which is not something we are working on. It's something we have worked on, and it's in the schedules published today. We've been working aggressively on operational systems, which we can talk about, and that work on operational systems allowed us during the tech outage last week to have a 99.8% completion factor on the day of the tech outage.

Speaker Change: And so you can always look back and criticize the timing of a decision. I'm just telling you that.

Speaker Change: We're 100% focused on transformational change here at Southwest Airlines.

Speaker Change: driving forward and driving forward with pace. You heard us today announce

Speaker Change: Not just the assigned seating and the cabin changes, you heard us announce red-eye flying, which is not something we are working on, it's something we have worked on and it's in the schedules published.

Speaker Change: We've been working aggressively on operational systems, which we can talk about, and that work on operational systems allowed us, during the tech outage last week, to be able to work on operational systems. Thank you. Thank you.

Speaker Change: to have a, I believe it was a 99.8% completion factor on the day of the tech outage. And we had systems, critical systems to the operation affected.

Bob: So we are fully focused on transforming the company, driving forward, driving forward at pace and having a plan that addresses comprehensively delivering transformative commercial initiatives, improving our operational efficiency and addressing capital allocation discipline.

Robert Jordan: And we had systems, critical systems to the operation effectively. So, we are fully focused on transforming the company, driving forward at pace, and having a plan that comprehensively addresses delivering transformative commercial initiatives, improving our operational efficiency, and addressing capital allocation discipline. Thank you. You're welcome. The next question is from Jamie Baker with J.P. Morgan. Please go ahead. Hey, good afternoon, everybody on a sign.

Speaker Change: So

Speaker Change: We are fully focused on transforming the company, driving forward at pace, and having a plan that addresses comprehensively, delivering transformative commercial initiatives, improving our operational efficiency, and addressing capital allocation discipline.

Unknown Executive: You're welcome.

Jamie Baker: The next question is from Jamie Baker with JP Morgan.

Speaker Change: Thank you.

Speaker Change: You're welcome.

Unknown Executive: Please go ahead. Hey, good afternoon, everybody on assigned seating. Do you envision still being able to board an aircraft with just a single agent? Yeah, absolutely. That would be the intent out here. We're still working on product design and some of the specifics that we have a lot of line of sight to the layout of the cabin. We have a lot of line of sight right now to the product design. We're working on the boarding. One of the things that we get a lot of credit for today. Jamie is the calm and order of our board of our boarding.

Speaker Change: The next question is from Jamie Baker with JP Morgan. Please go ahead.

Jamie Nathaniel Baker: Do you imagine being still being able to board an aircraft with just a single agent? Yeah, absolutely. That would be the intent.

Jamie Nathaniel Baker: Hey, good afternoon everybody on the assigned seating. Do you envision still being able to board an aircraft with just a single agent?

Robert Jordan: You know, we're still working on product design and some of the specifics, so we have a lot of line of sight to the layout of the cabin. We have a lot of line of sight right now to the product design. We're working on boarding.

Speaker Change: Yeah, absolutely. That would be the intent. You know, we're still working on product design and some of the specifics.

Speaker Change: We have a lot of line-of-sight to the...

Speaker Change: The layout of the cabin, we have a lot of line of sight right now to the product design, we're working on the boarding. One of the things that we get a lot of credit for today, you know, Jamie, is the calm and order of our boarding. You know, we board in an ordinal manner, in order, and our customers, you know, that we survey really like that.

Bob: We board in an ordinal manner in order, and our customers that we serve are really like that. So there's a lot of focus on maintaining the boarding in a form that our customers love, but doing it in a manner that it pairs with assigned seating.

Speaker Change: So there's a lot of focus on maintaining the

Speaker Change: The boarding in a form that our customers love, but doing it in a manner that it pairs with assigned seating. And again, more to share, you know, at our Investor Day, but that would be the goal. And we want to do this whole thing the Southwest way.

Bob: And again, more to share at our Investor Day, but that would be the goal. And we want to do this whole thing the Southwest way. And we're known for obviously things that make sense, common sense, not adding complexity. So if you look at the cabin, again, we're not ready to share everything, but we'll have a, you know, again, a third of the seats are so across the fleet in this extended legroom. And there will be differentiation. It'll be different than the rest of the cabin, but it won't be a different seat and a curtain and meal and ovens.

Speaker Change: , and we're known for, obviously,

Speaker Change: , Jon Roderick, Dan aggressively wrote this book, so welcome back. Again, we're not ready to share everything, but we'll have a, you know, again, a third of the seats or so across.

Speaker Change: The fleet in this extended leg room.

Speaker Change: And there will be differentiation, it'll be different than the rest of the cabin, but it won't be a different seat, and a curtain, and meals, and ovens, and so we'll do this the Southwest way, and the same exact thing applies to boarding.

Robert Jordan: One of the things that we get a lot of credit for today, you know, Jamie, is the calm and order of our board of our boarding. We board in an ordinal manner in order, and our customers, you know, that we survey really like that. So there's a lot of focus on maintaining boarding in a form that our customers love, but doing it in a manner that pairs with assigned seating. Again, more to share, you know, at our investor day, but that would be the goal. And we want to do this whole thing the Southwest way. And we're known for, obviously, things that make sense, common sense, not adding complexity.

Bob: And so we'll do this the Southwest way, and the same exact thing applies to board.

Robert Jordan: So if you look at the cabin, again, we're not ready to share everything, but we'll have, you know, again, a third of the seats or so across the fleet with this extended leg room. And there will be differentiation. It'll be different than the rest of the cabin, but it won't be a different seat and a curtain and meals and ovens. And so we'll do this the Southwest way.

Unknown Executive: Perry, perfect thanks, and second, and I don't know if you've ever commented on this in the past, but from a Rapid Rewards perspective, how important is Hawaii?

Jamie Nathaniel Baker: And the same exact thing applies to boarding. Perfect. Thanks.

Speaker Change: Perfect, thanks. And second, and I don't know if you've ever commented on this in the past, but from a rapid rewards perspective, how important is Hawaii? Like, for example, could you disclose what percent of overall redemptions

Jamie Baker: Like, for example, could you disclose what percent of overall redemptions choose Hawaii? Something like that.

Jamie Baker: I'm just trying to model how important Hawaii is to, you know, getting credit cards into people's, you know, Walgreens and, you know, driving credit and credit, that kind of stuff. Thanks in advance.

Speaker Change: Choose Hawaii. Something like that. I'm just trying to model how important Hawaii is to, you know, getting credit cards into people's, you know, wallets and, you know, driving brand preference, that kind of stuff. Thanks in advance.

Jamie Nathaniel Baker: And second, and I don't know if you've ever commented on this in the past, but from a rapid rewards perspective, how important is Hawaii? Like, for example, could you disclose what percent of overall redemptions choose Hawaii? Something like that. I'm just trying to model how important Hawaii is to getting credit cards into people's, you know, wallets and, you know, driving brand preference, that kind of stuff. Thanks in advance. Yeah, Jamie, yeah, it's very important, particularly as you think about the West Coast and the franchise, but I'll let, you know, Andrew take a crack at the details here. Yeah, the, I can't recall it off the top of my head, Jamie, but it is high. It's not as high as Aruba.

Andrew Watterson: Jamie, yeah, it's very important, particularly as you think about the West Coast and the franchise, but I'll let Andrew take a crack at the details here. Yeah, I can't recall; it's also something that I do, but it is high. It's not a size of rubble; rubble is actually a highest redemption, and that goes for our East Coast customers who want a kind of, you know, aspirational vacation destination, and that allows them to be for that. And the West, we have a very business centric network in the West, with the leisure options being Vegas and, you know, Phoenix and season.

Speaker Change: Yeah, Jamie, yeah, it's very important, particularly as you think about the West Coast and the franchise, but I'll let, you know, Andrew take a crack at the details here. Yeah, the, I can't recall off the top of my head, Jamie, but it is high. It's not as high as Aruba. Aruba's actually our highest redemption, and that goes for kind of our East Coast customers.

Andrew M. Watterson: Aruba is actually our highest redemption. And that goes for kind of our East Coast customers who want a kind of, you know, aspirational vacation destination. And that allows us to redeem for that. In the West, we have a very business-centric network in the West, with leisure options being Vegas and, you know, Phoenix in season.

Andrew: who want a kind of a, you know, a aspirational.

Andrew: , and the West, we have a very business-centric network in the West.

Andrew M. Watterson: So Hawaii is important to our customer franchise in the Western US, who are closer geographically to Hawaii than, say, to Florida for their beach and warm weather destination. So it's important for that customer base, who is a repeat purchase customer base. So Wrapper Awards reflects someone who, you know, identifies their brand.

Andrew Watterson: So, Hawaii is important to our customer franchise in the Western US, who are closer geographically to Hawaii than, say, to Florida for their, their beach and warm weather or destination. So, it's important for that customer base, who is a repeat purchase customer base. So, rapper awards reflect someone who, you know, identifies their brand, and once in the credit cards, we have to have a multi-purpose travel network for them, and why is that for Western US customers. So, there, that's when the importance there.

Andrew: , with leisure options being Vegas and, you know, Phoenix and Seas, and so Hawaii is important to our customer franchise in the Western U.S. who are closer geographically to Hawaii than say to Florida for their beach and warm weather destinations. So it's important for that customer base who is a repeat purchase customer base. So Raptor Rewards reflects someone who, you know, identifies their brand and wants them in the credit card. So we have to have a multipurpose travel network for them, and Hawaii is that for our Western U.S. customers. So that's one of the importance there, and that's why we're spending so much time trying to mature it, doing so many adjustments to it to make sure it can fit profitably into our network, as well as give that kind of customer adhesion point of an aspirational vacation destination.

Andrew M. Watterson: And once on the credit card, so we have to have a multi-purpose travel network for them. And why is that for our Western US customers? So there, that's when the importance there is. And that's why I spend so much time trying to mature it, doing so many adjustments to it to make sure it can fit profitably into our network, as well as give that kind of customer adhesion point of aspirational vacation destination. That's good detail. Thanks very much. I would not have guessed the Aruba Nugget.

Unknown Executive: That's where I spend so much time trying to mature it, doing so many adjustments to it, to make sure it can sit profitably into our network, as well as give that kind of customer, he's in point of aspirational vacation destination. That's good detail. Thanks very much. I would not have guessed the Rubble nugget. That's a good one. Thanks.

Andrew: That's good detail. Thanks very much. I would not have guessed the Aruba nugget. That's a good one. Thanks. Thank you, Jamie.

Jamie Nathaniel Baker: That's a good one. Thanks. Thank you, Jamie. The next question is from Savi Sith with Raymond James. Please go ahead. Hey, good morning.

Savanthi Syth: The next question is from Saudi Sith with Raymond James. Please go ahead. Hey, good morning. Just on the O&D revenue management system, he kind of shared a lot of details. It seemed like, you know, you've had revenue management changes in the past that have kind of come up with some issues as well. But as curious, I think Bob, in your comment on CBC, you mentioned that you just sold too many seats with too low prices. And I don't know, Ryan, if you want to kind of talk about, you're seeing a lot of fair sales still out there.

Andrew: The next question is from Savi Sith with Raymond James. Please go ahead.

Savi Sith: Just on the nd Revenue Management System, you kind of shared a lot of details. It seems like, You know, you've had revenue management changes in the past that have kind of come up with some issues as well. But I was curious. I think, Bob, in your comment on CIBC, you mentioned that you just sold too many seats at too low prices. And I don't know, Ryan, if you want to kind of talk about, you see, you're seeing a lot of fair sales still out there.

Savi Sith: Hey, good morning. Just on the

Savi Sith: O&D Revenue Management System, you kind of shared a lot of details. It seems like

Savi Sith: You know, you've had revenue management changes in the past that have kind of come up with with some issues as well. But I was curious, I think, Bob, in your comment, comment on CIBC, you mentioned that you just sold too many seats at too low prices. And I don't know, Ryan, if you want to kind of talk about, you see, you're seeing a lot of fair sale still out there. And that doesn't seem to jive with realizing that you've sold too many seats, too many seats at too low prices. I was kind of curious if you could talk about, you know, the fair sale activity you're doing today and how we should interpret that.

Robert Jordan: And that doesn't seem to jive with realizing that you've sold too many seats, too many seats at too low prices. I was kind of curious if you could talk about, you know, the fair sale activity you're doing today and how we should interpret that. Yeah, maybe just talking about revenue management generally, O&D systems are, by nature, more complex. And it's not unusual that they take time to be tuned and adapted.

Savanthi Syth: And that doesn't seem to drive with realizing that you sold too many seats with too low prices.

Savanthi Syth: That was kind of curious if you could talk about, you know, the fair sales activity you're doing today and then how we should interpret this mess.

Ryan Green: Yeah, we're just talking about revenue management generally.

Ryan Green: The O&D systems are, by nature, more complex. And it's not unusual that they take time to be tuned and adapted, and also we've had, not making excuses, but we've also had a lot of annoys around the demand. With casual changes adapting to going delivery issues and it's not helpful, but clearly we sold too many seats early for the peak summer travel period. Which means you're going to take them in lower booking classes, and it also means when you get to the summer and you have those strong flights, you have fewer seats to sell. Later in the booking curve, which obviously comes in higher booking classes.

Ryan: Yeah, maybe just talking about revenue management generally, you know, the O&D systems are by nature more complex.

Andrew M. Watterson: And also, we're not making excuses, but we've also had a lot of noise around the demand for the demand with schedule changes, and adapting to Boeing delivery issues. And that's not helped, but clearly, we sold too many seats early for the peak summer travel period, which means you're going to take them in lower booking classes. And it also means when you get to the summer and you have those strong flights, you have fewer seats to sell later in the booking curve, which obviously comes in higher booking classes. So we've had a good diagnostic to understand what's happening.

Speaker Change: And it's not unusual that they take time to be tuned and adapted. And also we've had, not making excuses, but we've also had a lot of a noise around the demand with schedule changes, adapting to Boeing delivery issues, and that's not helped. But, clearly, we sold too many seats.

Speaker Change: early for the peak summer travel period.

Savi Sith: which means you're going to take them in lower booking classes. And it also means when you get to the summer and you have those strong flights, you have fewer seats to sell.

Ryan Green: So we've had a strong diagnostic to understand what's happening. We've had experts, third-party experts in to help. We have a strong action plan, and that action plan is being put into place.

Savi Sith: Later in the booking curve, which obviously comes in higher booking classes. So We've had a strong diagnostic to understand what's happening We've had experts third-party experts in to help we have a strong action plan and that action plan is being put into place

Andrew M. Watterson: We've had experts, third-party experts, in to help. We have a strong action plan, and that action plan is being put into place right now. We're also adding more expertise, senior leadership over the area simply because it is more complex. Maybe tearing that apart a little bit from the fare sale, it's also clear, and the RM system, it's also clear that, you know, there's simply more capacity on the domestic side than demand right now.

Ryan Green: Right now, we're also adding more expertise in your leadership over the area, simply because it is more complex.

Savi Sith: Right now, we're also adding more expertise, senior leadership over the area, simply because it is more complex.

Ryan Green: Maybe tearing that apart a little bit from the fair sale. It's also clear, and the RM system is also clear that there's simply more capacity than the domestic side than the man right now. And so that's got to be a piece of what you're talking about.

Andrew M. Watterson: And so, you know, that's got to be a piece of what you're talking about. I mean, for Southwest Airlines, we're taking, you know, actions for ourselves here. Capacity was up about eight points, I think, 6% in the second quarter. We're going to moderate that to 2% in the third. It'll actually be down roughly 4% in the fourth, and sort of underneath that, trips will actually be down about 8% in the fourth quarter.

Savi Sith: ...maybe tearing that apart a little bit from the fare sale, it's also clear, and the RM system, it's also clear that...

Speaker Change: You know, there's simply more capacity on the domestic side than demand right now.

Speaker Change: , and so, you know, that's got to be a piece of what you're talking about. I mean, for Southwest Airlines.

Ryan Green: For ourselves with airlines, we're taking actions for our self here. You know, capacity was up about 8. I think 6% in the second quarter. We're going to moderate that to 2% in the third. It'll actually be down roughly 4% in the fourth, and sort of underneath that, trips will actually be down about 8% in the fourth quarter. So we are working down capacity aggressively on our part here.

Speaker Change: We're taking, you know, actions for ourself here, you know, capacity was up about 8.6% in the second quarter. We're going to moderate that to 2% in the third.

Speaker Change: It'll actually be down roughly 4% in the fourth, and sort of underneath that, trips will actually be down about 8% in the fourth quarter.

Robert Jordan: So we are working down capacity aggressively, you know, on our part here. But yeah, yeah, and do you want to comment more specifically on RM? Yeah, I think I would say just in the fair sale context, Bob, that that can be a red herring we get often. We distribute directly to consumers, which means you always have to be out there pulling them to your website. And a promotional activity is the way that you do that.

Speaker Change: So, we are working down capacity aggressively, you know, on our part here.

Ryan Green: But yep, yeah, and you want to comment more specifically on RM. And I think I would say those are some of the fair sale bothers that can be a red herring. We get often we distribute directly to consumers, which means you always have to be out there pulling them to your website. And a promotional activity is the way that you do that. So the frequency of our sales does not hold a special meaning. It's a depth of a sale that would give you, in the case, is about any kind of promotional level of discounts we're giving.

Robert Jordan: So the frequency of our sales does not hold a special meaning; it's the depth of the sale that would give you indications about any kind of promotional level of discounts we're giving. And in that situation, I don't think anything's really changed.

Andrew: I think I would say, in addition to the fair sale, Bob, that that can be a red herring we get often. We distribute directly to consumers, which means you always have to be out there pulling them to your website, and a promotional activity is the way that you do that. So the frequency of our sales

Andrew: [inaudible]

Ryan Green: And that situation, I don't think anything's really changed if you look at the current sales. So kind of you always expect us to be out there promoting the customer's recruitment website. That often has to have a number of attached to it to get them there. But that's the normal cost of business; it has been that way through your good times in battle. with the years.

Andrew M. Watterson: If you look at the current sales, so you always expect us to be out there promoting the customers who pull on my website. That often has to have a number attached to it to get them there. That's the normal course of business has been that way through good times and bad times. That's helpful clarification. And if I might on the I know there's a lot more information coming out on investor day, but I was curious about it for the changing of the seating on the plane.

Andrew M. Watterson: You know, once the FAA approves it, just how long is that process generally to kind of do a whole, you know, a large fleet like you were? Well, you've got two, yeah, you've got two, maybe three sides here, we, you, you got to finish up the design of the lobo or the layout, which we're very close to here. And then there's a month-long certification process.

Unknown Executive: That's helpful clarification.

Unknown Executive: And see if I might on the, you know, there's a lot more information coming out in yesterday, but I was curious on the, it's for the changing of the seating on the plane, you know, once the FAA approves it, just how long is that process generally to kind of doing a whole, you know, a large fleet like yours. Well, you got two, yeah, you've got two, maybe three sides here. You, you've got to finish up the design of the logo of the layout, which we're very close to here. And then that there's a month-long certification process.

Speaker Change: That's helpful clarification. And if I might on the, I know there's a lot more information coming at Investor Day, but I was curious on the it for the changing of the seating on the plane.

Speaker Change: Once the FAA approves it, just how long is that process generally to kind of doing a whole, you know, a large fleet like yours?

Savi Sith: So then, of course, we have, you know, roughly 800 aircraft. We're going to do this in a capital efficient way. We're going to utilize the new Recaro seat coming off the line with new aircraft beginning early next year or existing seats. But at 800 aircraft, it still takes a while to move all the way through the fleet, even if it's a relatively rapid modification. Obviously, it's a complex change.

Speaker Change: Well, you've got two, yeah, you've got two, maybe three sides here. You've got to finish up.

Speaker Change: The design of the LOPA or the layout, which we're very close to here. And then there's a month-long certification process. And then, of course, we have roughly 800 aircraft.

Unknown Executive: And then, of course, we have, you know, roughly 800 aircraft that need to be modified. And we're going to do this in a capital decision way; we don't, if we're going to utilize, obviously, the new Recarrow seat coming off the line with our aircraft beginning early next year or existing seats. But a day-to-earth aircraft still takes a while to move all the way through the fleet, even if it's a relatively rapid modification. Obviously, it's a complex change, so you have technology, process, training, and other work to be done. That'll, that'll be a pacing item as well.

Speaker Change: that need to be modified.

Speaker Change: We're going to do this in a capital-efficient way. We're going to utilize, obviously, the new Recaro seat coming off the line with new aircraft beginning early next year, or existing seats.

Speaker Change: But an 800 aircraft it still takes a while to move all the way through the fleet even if it's a relatively rapid

Robert Jordan: So you have technology, process, training, other work to be done that'll be a pacing item as well. But, and again, we'll be revealing the timelines in more detail in September. So the only tidbit we have out there right now is that our plan is to sell it in the new form, so in the assigned seating roles beginning in 2025, but more to come. It just has to be approved.

Speaker Change: Modification. Obviously, it's a complex change. So you have technology, process, training, other work to be done. That'll be a pacing item as well.

Unknown Executive: But, and again, we'll be revealing the timelines and more detail in September. So, you know, the only tip that we have out there right now is that our plan is to sell in the new form, so in the assigned seating world of beginning in 2025, but more to come. And again, the fleet, the mod is not complex. It just has to be approved. And then again, we have to move through 800 aircraft in the fleet.

Speaker Change: But, and again, we'll be revealing the timelines in more detail in September . So, you know, the only tidbit we have out there right now is that our plan is to sell in the new form. So in the assigned seating roles beginning in 2025.

Speaker Change: But more to come. And again, the fleet, the mod is not complex. It just has to be approved. And then again, we have to move through 800 aircraft in the fleet.

Savi Sith: And then again, we have to move through 800 aircraft in the fall. I'm one of those 80% of passengers who like to see the change, so I'm glad to see that. Thanks. Oh, you're welcome. Thank you. The next question is from Conor Cunningham with Milius Research. Please go ahead. Hi, everyone. Thank you.

Unknown Executive: I'm one of those 80% of passengers who like to see the change, so we'll have to see that. Thanks.

Speaker Change: I'm one of those 80% of passengers who like to see the change, so glad to see that. Thanks.

Unknown Executive: Oh, you won't, thank you.

Connor Cunningham: The next question is from Connor Cunningham with Millius Research. Please go ahead. Hi, everyone. Thank you. Maybe just stick it on the premium stuff. So, have you secured slots for the, from MMR perspective? And then you mentioned doing this on all 800 aircraft.

Speaker Change: You're welcome. Thank you.

Speaker Change: The next question is from Conor Cunningham with Milius Research. Please go ahead.

Conor T. Cunningham: So have you secured slots from an MRO perspective? And then you mentioned doing this on all 800 aircraft. I'm just curious why you're doing the 700s if we're talking about retiring those over the next 10 years?

Conor T. Cunningham: Hi, everyone. Thank you.

Conor T. Cunningham: Maybe just stick it on the premium stuff. So have you secured slots from an MRO perspective? And then you mentioned doing this on all 800.

Conor Cunningham: I'm just curious, and why you're doing the 700s if we're talking about retiring those of the next 10 years. And sorry for the extra question on top of this. Like, when you think about the layout, are you expecting the same amount of seats on each plane? I, you're not losing any seats by adding premium. Thank you.

Conor T. Cunningham: Aircraft. I'm just curious on why you're doing the 700s if we're talking about retiring those over the next 10 years. And sorry for the extra question on top of this. Like, when you think about the layout, are you expecting the same amount of seats on each plane? You're not losing any seats by adding premium. Thank you.

Robert Jordan: And sorry for the extra question on top of this. Like, when you think about the layout, are you? I'm expecting the same number of seats on each plane, i.e. You're not losing any seats by adding the Premium option. Thank you. We're still, and Ryan can add a lot of detail here, working on specific LOPAs and layouts. We want to do this in a Southwest way and be true to our values here.

Bob: We're still at A, Ryan can add a lot of detail here. We're still working on specific lobes and layouts. We want to do this in a Southwest way and be true to our value here. So, you know, in the same manner that our intent is not to change our customer-friendly policies and take anything away from you. We want to have, not just in the extra legroom section, but in the remainder of the cabin, we want to have an attractive pitch, so we're still working through that question. The 700s, you know, they're going to be in the fleet for, I believe, you know, for a while, for a long while here.

Ryan: We're still, and Ryan can add a lot of detail here, we're still working on specific LOPAs and layouts.

Speaker Change: We want to do this in a Southwest way and be true to our values here, so, you know, in the same manner that our intent is not to change our customer-friendly policies and take anything away from you.

Robert Jordan: So, you know, in the same manner that our intent is not to change our customer-friendly policies and take anything away from you, we want to have, not just in the extra legroom section but in the remainder of the cabin, we want to have an attractive pitch. So we're still working through that question. The 700s.

Ryan: We want to have, not just in the extra legroom section, but in the remainder of the cabin, we want to have an attractive pitch. So we're still working through that question. The 700's

Robert Jordan: You know, they're going to be in the fleet for, I believe, for a while, for a long while here, and so, And again, we're going to be sharing the detail on the math as well as just the financial benefit. But it's clear that, you know, a modification to the sevens you want, you want the extra legroom seat. In the 700s as well, it's sort of roughly the same, about a third. Our desire is to get this into a third of the seats across the entire fleet.

Ryan: You know, they're going to be in the fleet for, I believe, you know, for a while, for a long while here. And so

Bob: And so, again, we're going to be sharing the detail on the math as well, and just the financial benefit. But it's clear that, you know, a modification to the sevens; you want the extra legroom seat. Gates, in the 700s as well, it's sort of roughly the same about a third; you know, our desire to get this into a third of the seats across the entire fleet. And then just mechanically for our customers, it would make no sense to; you're just buying a flight. So it would make no sense to buy one flight, and there are a lot of extra leg room seats, and buy another flight, and simply because it's a different aircraft type, there are none, or very few.

Ryan: And again, we're going to be sharing the detail on the math as well as just the financial benefit. But it's clear that, you know, a modification to the sevens, you want the extra legroom seats.

Ryan: in the 700s as well, sort of roughly the same, about a third, you know, our desire is to get

Robert Jordan: And then just mechanically, for our customers, it would make no sense to, you're just buying a flight. So it would make no sense to buy one flight where there are a lot of extra legroom seats and buy another flight, and simply because it's a different aircraft type, there are none or very few.

Ryan: This into a third of the seats across the entire fleet and then just mechanically for our customers

Speaker Change: It would make no sense to, you're just buying a flight.

Speaker Change: So it would make no sense to buy one flight, and there are a lot of extra legroom seats, and buy another flight, and simply because it's a different aircraft type, there are none, none, or very few.

Robert Jordan: So we want to do this in a way that it makes sense to our customers and that extra legroom section is available on every single flight. Yeah, I think that's the most important part, Conor, is that when you start wrapping, you know, seating benefits, premium seating benefits, into your overall value proposition, whether you're selling it as an ancillary or an add-on, the customer, when they go on to buy their flight from Dallas to Denver, they don't know if we're going to operate it with a 700 or a, you know, a Max And you want a consistent value proposition across the board to serve the customers' needs.

Bob: So we want to do this in a way that it makes sense to our customers, and that extra leg room section is available on every single flight.

Speaker Change: We want to do this in a way that it makes sense to our customers, and that extra legroom section is available on every single flight.

Ryan Green: Yeah, I think that's the most important part, Conor, is that when you start wrapping, you know, seating benefits, premium seating benefits into your overall value proposition, whether you're selling it as an ancillary or a fair, the customer, when they go on to buy their flight from Dallas to Denver, they don't know if we're going to operate it with a 700 or a, you know, a Max Eight aircraft, and you want a consistent value proposition across the board to serve the customer's needs. So I think that's the most important piece of that equation to your question there.

Speaker Change: Yeah, I think that's the most important part, Conor, is that when you start wrapping

Conor: , you know, seating benefits, premium seating benefits into your overall value proposition, whether you're selling it as an ancillary or a fare. The customer, when they go on to buy their flight from Dallas to Denver, they don't know if we're going to operate it with a 700 or a, you know, a max-8 aircraft.

Conor: And you want a consistent value proposition across the board to serve the customer's needs. So I think that's the most important piece of that equation to your question there.

Conor T. Cunningham: So I think that's the most important piece of the puzzle of that equation to your question there. Okay, and then on the comment of growing at or below macro trends in 2025, I'm trying to understand why growth is even on the table right now, given what returns are at. In that same context, like you're talking about unit revenue down today, but then seats down 60% that inflects unit revenue positive. I just try to understand why we should then ramp back up in line with economic growth. And then, in the context of all that, can you just frame how you view the current demand environment in general? Thank you again. Yeah, Conor, you bet.

Connor Cunningham: Okay, and then on the comment of growing at or below macro trends in 2025, I'm trying to understand why growth is even on the table right now given what returns right. You know, in that same context, like you're talking about unit revenue down today, but then seats down 60% that inflicts unit revenue positive. You know, I just try to understand why we should then ramp back up to in line with the economic growth. And then, in the context of all that, can you just flame up how you view the current demand environment in general?

Speaker Change: Okay, and then on the comment of growing at or below macro trends in 2025.

Speaker Change: I'm trying to understand why growth is even on the table right now, given what returns are at, you know, in that same context, like you're talking about unit revenue down today, but then seats down 68% that inflects unit revenue positive.

Speaker Change: You know, I just try and understand why we should then ramp back up to in line with the economic growth and then in the context of all that, can you just frame up how you view the current demand environment in general? Thank you again.

Bob: Thank you again. Yeah, Connor, you bet. And we were still working on 2025. So I wouldn't take anything as an exact number, but you know, that was a commitment. Obviously, it was the next number of years. And obviously commitment until we are able to earn our cost capital here.

Robert Jordan: And we were still working on 2025. So I wouldn't take anything as an exact number, but you know, that was a commitment, obviously over the next number of years and obviously a commitment until we are able to earn our cost of capital here. So we've not necessarily picked a number necessarily for 2025, but we are going to be managing our capital expenditures aggressively. Tied to that, and we haven't talked about red-eye flying, but we're also announcing that today, which I'm really proud of, and our customers want it, but what it also does for us is it produces ASMs without having to buy extra aircraft.

Speaker Change: Yeah, Conor, you bet, and we

Speaker Change: We are still working on 2025.

Speaker Change: So, I wouldn't take anything as an exact number. That was a commitment. Obviously, it was the next.

Speaker Change: , and Dan Rodenberg. Thank you. I think we've got a number of years and obviously commitment until we are able to earn our cost of capital here. So we've not picked a number necessarily for 2025. But we're going to be managing, obviously, our capital expenditures aggressively.

Bob: So we've not picked a number necessarily for 2025, but we are going to be managing, obviously, our capital expenditures aggressively tied to that. And we haven't talked about the red-eye flying, but you know, we're also announcing that today, which I'm really proud of, and our customers want it. But what it also does for us is it produces ASMs without having to buy extra aircraft. I mean, the aircraft are available, obviously, overnight. That and the sophisticated technology and processes going into turn management. But that's allowing us to take time out the turn; the combination of those two things, the red eye flying, and then the turn compression will allow us to fund nearly all.

Speaker Change: Tied to that, and we haven't talked about the red-eye flying, but we're also announcing that today.

Speaker Change: which I'm really proud of, and our customers want it, but what it also does for us is it produces ASMs without having to buy extra aircraft. I mean, the aircraft are available, obviously, overnight.

Robert Jordan: I mean, the aircraft are available, obviously, overnight. That and the sophisticated technology and processes going into turn management that's allowing us to take time out of the turn, the combination of those two things, the red-eye flying, and then the turn compression will allow us to fund nearly all, if not all, capacity 25, 26, 27 through initiatives and not through buying incremental aircraft and spending incremental capex. Okay, that's helpful. Thank you, Conor.

Speaker Change: That and the sophisticated technology and processes going into turn management.

Speaker Change: That's allowing us to take time out of the turn, the combination of those two things.

Speaker Change: The red-eye flying, and then the turn compression will allow us to fund nearly all, if not all, capacity 25, 26, 27 through initiatives and not through buying incremental aircraft and spending incremental CapEx.

Bob: It's not all capacity 25, 26, 27 through initiatives and not through buying incremental aircraft and spending incremental catbacks.

Mike Linenberg: Thank you. The next question is from Mike Lindemberg with Deutsche Bank. Please go ahead. Oh, yeah. Hey, Bob, I know you had mentioned earlier you talked about sort of capacity domestically, you know, running a bit higher than demand and, you know, maybe what was driving the price weakness. But how much of it do you think may also be attributable to just that more price-sensitive consumer who may be pushing back? I mean, we are seeing that in other sectors. And I would think that, you know, you tend to carry a healthy amount of that type of segment.

Conor T. Cunningham: Thank you. The next question is from Michael Linenberg with Deutsche Bank. Please go ahead.

Speaker Change: Okay, that's helpful. Thank you. Okay, Conor, thank you.

Speaker Change: The next question is from Michael Linenberg with Deutsche Bank. Please go ahead.

Michael John Linenberg: Oh, yeah. Hey, Bob, I know you had mentioned earlier that you talked about sort of capacity domestically, you know, running a bit higher than demand and, you know, maybe what was driving the price weakness. But how much of it do you think may also be attributable to just that price-sensitive consumer who may be pushing back? I mean, we are seeing that in other sectors. And I would think that, you know, you tend to carry a healthy amount of that in that type of segment. Are you seeing it? Hey, Mike, Andrew. Oh, hey, Andrew.

Michael John Linenberg: Oh yeah, hey, um...

Michael John Linenberg: Bob, I know you had mentioned earlier, you talked about sort of capacity domestically, you know, running a bit higher than demand and, you know, maybe what was driving the

Michael John Linenberg: The price weakness.

Speaker Change: But how much of it do you think may also be attributable to just...

Speaker Change: that more price-sensitive consumer who may be pushing back. I mean, we are seeing that in other sectors, and I would think that, you know, you tend to carry a healthy amount of that type of segment. Are you seeing it?

Andrew Watterson: Are you seeing it?

Andrew Watterson: Hey, Mike Andrew. Hey Andrew, not. We're not seeing any specific thing regards to customer segments that are pulling back, so to speak. I think sometimes because we aspire to have low fares, people assume we're going for a lower fluent passenger, which is not the case. And so we want to have low fares and high quality, as I mentioned earlier. We have large parts of our network, which are very high business contribution, which implies a customer that's relatively more fluent. And so we're seeing, I think, business travel actually grow faster than capacity, both in Q1 and Q2.

Andrew M. Watterson: We're not seeing any specific things with regard to customer segments that are pulling back, so to speak. I think sometimes because we aspire to have low fares, people assume we're going for a less fluent passenger, which is not the case. And so we want to have low fares and high quality.

Speaker Change: Hey, Mike, Andrew. Oh, hey, Andrew.

Michael John Linenberg: We're not seeing any specific thing in regards to customer segments that are pulling back, so to speak.

Speaker Change: I think sometimes because we aspire to have low fares, people assume we're going for a lower fluent passenger, which is not the case.

Speaker Change: And so we want to have low fares and high quality. As I mentioned earlier, we have large parts of our network, which are very high business contribution, which implies a customer that's relatively more affluent. And so we're seeing, I think, business travel actually grow faster than capacity, both in Q1 and Q2. So you do see that part of the economy going well. It's just, I think there's some choppiness with regards to off-peak times. And how much leisure spending is going on there. That was a characteristic of COVID, where people would more frequently take off

Andrew M. Watterson: As I mentioned earlier, we have large parts of our network that have very high business contribution, which implies a customer that's relatively more fluent. And so we're seeing, I think, business travel actually grow faster than capacity, both in Q1 and Q2. So you do see that part of the economy going well. It's just I think there's some choppiness with regard to off-peak times and how much leisure spending is going on there. That was a characteristic of COVID where people would more frequently take off-peak trips for leisure reasons.

Andrew Watterson: So you do see that part of the kind of going well. It's just, I think there's some sharpiness with regards to off-peak times, and how much leisure spending is going on there. That was a characteristic of COVID, where people would more frequently take off time trips for leisure reasons, and there's less of that now.

Andrew Watterson: And so that does create this kind of periods of the year, whether there's more capacity than demand.

Speaker Change: time trips for leisure reasons. And there's less of that now. And so that does create this kind of period of the year when there's more capacity than demand.

Ryan Green: And Mike, just this is Ryan. Just to add a little bit of color to what Andrew said there. When you look at our customer base, demographically, and how that compares to our peers in the industry, it looks a lot more like our customer base looks a lot more like our legacy. And it does LCCs or ULCCs, the LCC or ULCC peer set, specifically when you talk about households with incomes in the $100,000 plus bracket and the $200,000 bracket that looks much closer to legacies than it does the LCC and ULCC peer set.

Andrew M. Watterson: And there's less of that now. And so that does create this kind of period of the year when there's more capacity than demand. Hey Mike, this is Ryan. Just to add a little bit of color to what Andrew said there, when you look at our customer base demographically and how that compares to our peers in the industry, it looks a lot more like our customer base looks a lot more like our legacy peers than it does LCCs or ULCCs, the LCC or ULCC peer set, specifically when you talk about households with incomes within the $100,000 plus bracket and the Oh, great, very helpful.

Speaker Change: Hey Mike, just, this is Ryan, just to...

Ryan: Just to add a little bit of color to what Andrew said there, when you look at our customer base demographically and how that compares to our

Ryan: mentioned hires peers in the industry. It looks a lot more like

Michael John Linenberg: Our customer base looks a lot more like our legacy peers.

Speaker Change: and it does LCCs or ULCCs.

Speaker Change: the LCC or ULCC peer set.

Speaker Change: Specifically, when you talk about households with incomes in the $100,000 plus bracket and the $200,000 bracket, that looks much closer to legacies than it does the LCC and ULCC peer set.

Mike Linenberg: Oh, great. Very helpful. And then just my last question. This may be for Tammy. When I look at your chasm guides for the year, which you were able to maintain, we come off the third quarter, and at the midpoint, we're looking at, call it 12% on a couple percent of capacity. When we get to the fourth quarter, we're up maybe high single digits, but now that's on a capacity reduction of about 4%, so sequentially there is a healthy improvement there. Is there something in 2023?

Michael John Linenberg: And then just my last question, this may be for Tammy, when I look at your chasm guide for the year, which you were able to maintain, we come off the third quarter, and you know, at the midpoint, you know, we're looking at, you know, call it 12% on, you know, a couple percent of capacity. When we get to the fourth quarter, you know, we're up maybe high single digits, but now that's on a capacity reduction of about 4%.

Tammy: Oh, great. Very helpful. And then just my last question. This may be for Tammy. When I look at your chasm guide for the year, which you were able to maintain,

Speaker Change: We come off the third quarter and, you know, at the midpoint, you know, we're looking at, you know, call it 12% on

Speaker Change: you know, a couple percent of capacity, when we get to the fourth quarter.

Speaker Change: We're up maybe high single digits, but now that's on a capacity reduction of about 4%. So, sequentially, there is a healthy improvement there. Is there something in 2023, I know there was a restatement, but is there...

Michael John Linenberg: So, sequentially, there's, there is a healthy improvement there. Is there anything in 2023? I know there was a restatement, but is there anything in their credits or one-timers that would allow you to see that sort of progression?

Tammy Romo: I know there was a restatement, but is there anything in their credits or one-timers that would allow you to see that sort of progression, or maybe we're just anniversary some of these, some of these various contracts and cost inflationary items. Thanks for taking my question. Yeah, no, absolutely, Mike. And no, you really isn't anything unusual to point out. We are anniversarying some of the contracts, so that is certainly contributing to that. And just to clarify on the CAVAX numbers for last year, I know we've had, I think, some questions coming in on that, just to make sure you all have the correct numbers.

Speaker Change: Anything in there, credits or one-timers that would allow you to see that sort of progression or maybe we're just anniversarying some of these various contracts and cost inflationary items. Thanks for taking my question.

Michael John Linenberg: Or maybe we're just anniversarying some of these various contracts and cost inflationary items? Thanks for taking my question. Yeah, no, absolutely, Mike.

Speaker Change: Yeah, no, absolutely, Mike. And no, you, there really isn't anything unusual to point out. We are anniversary some of the contracts. So that is certainly contributing to that. And

Speaker Change: Just to clarify on the CASMX numbers for last year. I know we've had, I think, some questions coming in on that. Just to make sure.

Tammy Romo: And no, you, there really isn't anything unusual to point out. We are on the anniversary of some of the contracts, so that is certainly contributing to that. And just, just to clarify, on the chasm X numbers for last year, and then we've had, I think, some questions coming in on that, just to make sure you all have the correct numbers. The specific numbers for the third quarter are 10.

Tammy Romo: The specific numbers for the third quarter is 10% 1067, and 4Q, it's 10.97 that's bringing the full year to 11.09. So just to make sure you've got all the right numbers in your model. But yeah, you've got it as mostly anniversary of the contract. Yeah, just to be, just to break it down, I'm sure you know this. I mean, I sort of am normal. If you look at our midpoint of our two, three guide. 12, you know, kind of normal with. Would be low fours. We've got close to five points of, you know, sort of abnormal labor pressure with the new contract.

Speaker Change: You all have the correct numbers. The specific numbers for the third quarter is 10...

Tammy Romo: 1067 and 4Q, it's 10.97 cents, bringing the full year to 11.09. So just to make sure you've got all the right numbers in your model. But yeah, you got it. It's mostly an anniversary, the contract. You know, I just want to just break it down, I'm sure you know this. Our sort of normal, if you look at our midpoint of our Q3 guide, 12, you know, our kind of normal would be low fours.

Speaker Change: 1067, and 4Q is 10.97 cents, bringing the full year to 11.09. So just to make sure you've got all the right numbers in your model. But yeah, you got it. It's mostly anniversary, the contract.

Speaker Change: Just to break it down, I'm sure you know this, if you look at our midpoint of our Q3 guide,

Speaker Change: 12, you know, kind of normal would, would be low fours.

Tammy Romo: We've got close to five points of, you know, sort of abnormal labor pressure with the new contract. So as you have, Tammy said, as you begin the anniversary, that is material. And then between Boeing's direct impacts and then Boeing overstaffing impacts, you've got about three points. So as that tails off, and the overstaffing begins to tail off, and we are mitigating a large number of those, we can talk about that later if you want. So as those extraordinary items come off, that's very helpful, or RU Anniversary though.

Speaker Change: We've got close to five.

Tammy: points of sort of abnormal labor pressure with the new contract. So as Tammy said, as you begin the anniversary, that is material. And then between Boeing Direct Impacts and then Boeing Overstaffing Impacts, you've got about three points.

Tammy Romo: So, as you get Tammy says, you begin to anniversary that is material. And then between Boeing direct impact packs and then Boeing over staffing impacts, you've got about three points. So as that tails off and the over staffing begins to tail off them. And we're mitigating a large number of that. We can talk about that later if you want. So, as those extraordinary items come off, it's very helpful. Or are you anniversary them?

Speaker Change: So, as that tails off and the overstaffing begins to tail off, and we are mitigating a large number of that, and we can talk about that later if you want. So, as those extraordinary items come off, that's very helpful. Or you anniversary them. Great. Thank you.

Unknown Executive: Great. Thank you.

Unknown Executive: You bet.

Duane Pfennigwerth: The next question is from Dwayne Fenigworth with Evercore ISI. Please go ahead. Hey, thanks for the time. Want to ask you about network changes versus product changes, things like sign seats. And in which area you think will be the. Bigger contributor to your lagging margins here. Do you see a path on margin improvement before these product enhancements come on board? Only reason I ask is there are some carriers out there that have. All the premium bells and whistles, but still have, you know, lagging margins, which suggests that premium and isolation is not a silver bullet.

Michael John Linenberg: Great. Thank you. The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Speaker Change: You bet.

Speaker Change: The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Duane Thomas Pfennigwerth: Hey, thanks for the time. Wanted to ask you about network changes versus product changes, things like assigned seats and which area you think will be the bigger contributor to your lagging margins here. Do you see a path to margin improvement before these product enhancements come on board? The only reason I ask is there are some carriers out there that have all the premium bells and whistles but still have, you know, lagging margins, which suggests that premium in isolation is not a silver bullet. So is there a network issue and a new markets issue that we can address first? Hey Duane, it's Andrew.

Duane Thomas Pfennigwerth: Hey, thanks for the time. I wanted to ask you about network changes versus product changes, things like assigned seats and which area you think will be the

Duane Thomas Pfennigwerth: Unknown Speaker, Unknown to your lagging margins here, do you see a path on margin improvement before these product enhancements come on board? Only reason I ask is there are some carriers out there that have

Speaker Change: All the premium bells and whistles, but still have, you know, lagging margins, which suggests that premium in isolation is not a silver bullet. So is there a network issue and a new markets issue that we can address first?

Bob: So is there a network issue and a new markets issue that we can address first?

Andrew Watterson: Hey, my name is Andrew.

Andrew M. Watterson: I would say there is obviously a lag between the implementation of the initiatives and so between now and then, we absolutely are aiming for having a margin of improvement. And I would actually put it on the back of three efforts, network changes, many of which we've put in, and we will keep putting more in. You saw some big ones in Q1, and there are still some good modest-sized ones throughout the year this year.

Andrew Watterson: I would say there is obviously a lag with the implementation of initiatives. So, between now and then, we absolutely are aiming towards having a margin improvement. I would actually put it on the back of three efforts. Network changes, many of which we put in and we will keep putting more in. You saw some big ones in Q1, and there's still some good monetized ones throughout the year this year. And then when the capacity is set, then on the shorter duration, we're focused on yield improvements. You saw through the discussion about revenue management system, both the raising the negative that you saw on Q2, but also getting more as a system.

Andrew: Hey Duane, it's Andrew. I would say there is obviously a lag with implementation of the initiatives, so between now and then we absolutely are aiming towards having a margin of improvement. I would actually put it on the back of three efforts, network changes,

Speaker Change: Many of which we've put in and and and we will keep putting more in You saw some big ones in q1 and there's still some good modest sized ones throughout the year this year and then Where the capacity is set then on a shorter duration. We're focused on Yield improvements you saw through the discussion about revenue management system both the erasing the negative That you saw in q2, but also getting more out of the system. It's a positive on top of eliminating the negative So that's one vector and then on the other is some we have a load gap

Andrew M. Watterson: And then when the capacity is set, then on a shorter duration, we're focused on yield improvements. You saw in the discussion about the revenue management system, both raising the negative that you saw in Q2, but also getting more out of the system. It's a positive on top of eliminating the negative. So that's one vector.

Andrew Watterson: It's a positive on top of limiting the negative. So that's one vector. And then on the other is some we have a load gap, and folks in the load gap in particular. You see efforts on our new advertising campaigns are entering the Google Flights and some of our customer acquisition activities help us to kind of broaden our customer base. It's down a little bit because we find that our roadwaters don't travel as much per person as they did in pre-pandemic. And so those efforts in the short and medium term will give a tailwind of load.

Andrew M. Watterson: And then on the other side, we have a load gap, and focusing on the load gap in particular, you see our efforts in our new advertising campaigns, our entry into Google Flights, and some of our customer acquisition activities help us to kind of broaden out our customer base. It's down a little bit because we find that our road warriors don't travel as much per person as they did pre-pandemic. And so those efforts in the short to medium term will give a tailwind of load. So those, you know, marketing activities, revenue management activities, and network changes, they're all three that we intend to work on between now and the Go Live initiative. I appreciate that.

Speaker Change: And folks in the load gap, in particular, you see efforts on our new advertising campaigns, our entry into Google Flights.

Speaker Change: , and some of our customer acquisition activities help us to kind of broaden out our customer base that's down a little bit because we find that our road warriors don't travel as much per person as they did pre-pandemic.

Andrew Watterson: So those marketing activities, revenue activities, and network changes are all three that we intend to work between now and the go live finishes. Appreciate that. We'll be watching for progress on that front.

Speaker Change: And so those efforts, in the short to medium term, will give a tailwind of load. So those, you know, marketing activities, regimen activities, and network changes are all three that we intend to work between now and the Go Live initiatives.

Duane Thomas Pfennigwerth: We'll be watching for progress on that front. And Bob, in the spirit of your comment about looking at all opportunities, I wanted to ask you about bags, and not from the traditional revenue perspective, but just from a Southwest take rate and cost per bag perspective. Do you have a feel for how much higher your bag take rate is versus the rest of the industry? How many more bags per flight do you carry, and what your estimate your cost per bag to be?

Bob: And Bob, in the spirit of your comment about looking at all opportunities. I wanted to ask you about bags and not from the traditional revenue perspective, but just from a Southwest take rate and cost per bag perspective. Do you have a feel for how much higher your bag take rate is versus the rest of the industry? How many more bags per flight you carry? And, and what is your estimate, your cost per bag to be? Yeah, we, we, I believe, just to get ready to question and check bags, I believe we carry about two X the industry standard, but then also you've got bags that come out of the cabin that also has an issue in terms of how you manage the operation.

Speaker Change: Appreciate that. We'll be watching for progress on that front. And Bob, in the spirit of your comment about looking at all opportunities,

Speaker Change: I wanted to ask you about bags, and not from the traditional revenue perspective, but just from a...

Speaker Change: Southwest take rate and cost per bag perspective. Do you have a feel for how much higher your bag take rate is versus the rest of the industry? How many more bags per flight you carry and what your estimate your cost per bag to be?

Robert Jordan: Yeah, we, we, I believe, just to get right to your question, in check bags, I believe we carry about two x the industry standard, but that also you've got bags that come out of the cabin, which also has an issue in terms of how you manage the operation. Just to be real clear on bags flying free as a policy, I mean we're not looking at this point to change that policy. Our industry-leading set of initiatives is a list of customer-friendly policies, and you know the list is a big part of what attracts people to Southwest Airlines. And after a fair end schedule, bags fly free is cited as the number one issue in terms of why customers choose Southwest.

Speaker Change: Yeah, we, we, I believe, just to get right to your question, in check bags, I believe we carry about 2x.

Speaker Change: The industry standard, but then also you've got bags that come out

Bob: Just to be real clear on bags life free as a policy. I mean, we're not looking at this point to change that policy. At our industry leaning set of initiatives is a customer friendly policies. And you know the list is a big part of what attracts people to Southwest Airlines. And after fair and schedule, bags life free is cited as the number one issue in terms of why customers choose Southwest.

Speaker Change: of the cabin that also has an issue in terms of how you manage the operation.

Speaker Change: Just to be real clear on bags fly free as a policy.

Speaker Change: I mean, we're not looking at this point to change that policy. Our industry leading set of

Speaker Change: is a, of customer friendly policies. And you know the list.

Speaker Change: is a big part of what attracts people to Southwest Airlines. And after a fair end schedule, bags fly free is cited as the number one issue in terms of why customers choose Southwest.

Bob: So it's not something under consideration right now as we rethink our products related to the seating in the cabin. And I would say also, Bob, that as far as the cost, there can be break points at certain volume scales and individual airports. But if you give any given flight, having one or less bags or ten or more or less bags doesn't actually change the cost profile to handle that as a number of people in equipment required to load and unload the aircraft. It's that in that range. So it's not a variable cost as far as the handling part.

Robert Jordan: So it's not something under consideration right now as we rethink our products related to the seating in the cabin. And I would also say, Bob, that as far as costs are concerned, there can be break points at certain volume scales in individual airports, but if you take any given flight, having one or less bags or 10 or more or less bags doesn't necessarily change the cost profile to handle that as the number of people and equipment required to load and unload the aircraft is static in that range.

Speaker Change: So it's not something under consideration right now as we rethink our products related to the seating in the cabin.

Speaker Change: And I would say also, Bob, that the

Bob: as far as the cost.

Bob: There can be breakpoints at certain volume scales in individual airports, but if you give any given flight, having one or less bags, or ten or more or less bags, doesn't necessarily change the cost profile to handle that, as the number of people and equipment required to load and unload the aircraft is static in that range. So there's not a variable cost as far as the handling part. Of course, the weight is variable with the fuel burn, but that would be the truth if it was in the cabin.

Robert Jordan: So there's not a variable cost as far as the handling part is concerned. Of course, the weight is variable with fuel burn, but that would be the truth if it was in the cabin instead of under the belly.

Bob: Of course, the weight is variable with the fuel burn, but that would be the truth. It was in the cabin set of the belly. Well, the thing you have to think about too is the bags. Just the bags move around.

Andrew M. Watterson: Well, and the thing you have to think about, too, is the bags move around. And so we're working to take, and we'll share a lot about this at our investor day, we're working through technology and processes to take time out of the turn because your free time there, and basically free aircraft just fall out because you're able to utilize the aircraft more effectively during the day. And we don't have a large issue today with cabin overhead bags that slow down the operation because the overheads are full, and they have to be checked and moved into the hull.

Speaker Change: Well, and the thing you have to think about, too, is the bags move around, and so we're working to take, and we'll share a lot about this at our Investor Day.

Bob: And so we're working to take, and we'll share a lot about this at our investor day. We're working through technology and processes to take time out of the turn because you free time there and air and basically free aircraft just fall out because you're able to utilize the aircraft more effectively during the day. And we don't have a large issue today with cabin overhead bags that are then slowing down the operation because the overheads are full and they have to be moved down into the check to move into the hole. So or into the bins.

Speaker Change: We are working through technology and processes to take time out of the turn because your free time there and basically free aircraft just fall out.

Speaker Change: because you're able to utilize the aircraft more effectively during the day.

Speaker Change: We don't have a large issue today with overhead bags that are then slowing down the operation because the overheads are full and they have to be checked and moved into the hull.

Andrew M. Watterson: So, or into the bins, and so you'll just move the issue around. I mean, I'm sure you've flown on others, and there's a massive last-minute checking of bags from the cabin down into the bin under the aircraft, and that costs you a lot of turn time, potentially, which then just burns aircraft time that could be used more effectively.

Bob: And so you'll just move the issue around. I mean, I'm sure you've flown on others, and there's a massive last minute checking of bags from the cabin down into the bin under the aircraft. And that costs you a lot of turn time potentially, which then just burns aircraft time that could be used or effectively. So it's a trade, and we do look at the trade. And just to add one other point on that, it's about twice as many check backs. We carry twice as many check bags as legacies, and it gets closer to three times more check bags than ULCC.

Speaker Change: , and so you'll just move the issue around.

Speaker Change: I'm sure you've flown on others, and there's a massive last-minute checking of bags from the cabin down into the bin under the aircraft, and that costs you a lot of turn time potentially, which then just burns aircraft time that could be used more effectively.

Robert Jordan: So it's a trade, and we do look at the trade. And just to add one other point on that, it's about twice as many check bags. We carry twice as many checked bags as Legacies, and it gets closer to three times more check bags than ULCC. So I think that that just points to the popularity of the policy and goes to indicate why one of the reasons why customers choose Southwest Airlines. I appreciate the thoughts.

Speaker Change: So it's a trade, and we do look at the trade.

Speaker Change: And just to add one other point on that, it's about twice as many check bags, we carry twice as many check bags as Legacies, and it gets closer to three times more check bags than ULCC. So I think that that just points to

Bob: So I think that's just points to the popularity of the policy and goes to indicate why one of the reasons why customers choose self with stair lines.

Speaker Change: The popularity of the policy goes to indicate one of the reasons why customers choose Southwest Airlines.

Unknown Executive: I appreciate the thoughts.

Unknown Executive: Thank you.

Scott Group: The next question is from Scott Group with Wolf Research. Please go ahead. Hey, thanks, afternoon. So I know you're going to quantify the changes in September, but just directionally, or should we be thinking hundreds of millions? Is there more any way to help us think about how much cat backs this requires? And then just more conceptually, like some of the legacies would say, hey, it's not just extra legroom that you need for it to truly be sort of premium. Like, are there other changes you're contemplating beyond just extra legroom? Yes, got you bad.

Scott H. Group: Thank you. The next question is from Scott Group with Wolf Research. Please go ahead. Hey, thanks for the afternoon.

Speaker Change: I appreciate the thoughts. Thank you.

Speaker Change: The next question is from Scott Group with Wolf Research. Please go ahead.

Robert Jordan: So I know you're going to quantify the changes in September, but just directionally, or should we be thinking hundreds of millions? Is it more of a way to help us think about how much CapEx this requires? And then just more conceptually, like, some of the legacies would say, hey, it's not just extra legroom that you need for it to truly be sort of premium. Like, are there other changes you're contemplating beyond just extra legroom? Yeah, Scott, you bet.

Scott H. Group: Hey, thanks afternoon. So I know you're going to quantify the changes in September , but just directionally, or should we be thinking hundreds of millions? Is it more?

Scott H. Group: Any way to help us think about how much CapEx this requires? And then just more conceptually, some of the legacies would say, hey, it's not just extra leg room that you need for it to truly be sort of premium. Are there other changes you're contemplating beyond just extra leg room?

Robert Jordan: And again, yeah, we're going to share a lot more in September. But maybe just to put a ballpark figure out there, our ancillary products today around boarding, like early bird upgraded boarding, generate just, you know, just shy of a billion dollars for us. And the opportunity in the assigned seating and extra legroom world is substantially north of that. So I'm not going to give you a range, but just maybe it gives you a little direction.

Bob: And again, yeah, we're going to share a lot more in September. But just maybe just to put a ballpark figure out there, ancillary products today around boarding, like early bird upgraded boarding, generate just, you know, just shy of a billion dollars for us, and the opportunity and the assigned seating and extra legroom world is substantially north of that. So, so I'm not going to give you a range, but just maybe give you a little directional.

Scott H. Group: Yeah, Scott, you bet. And again, yeah, we're going to share a lot more in September , but just maybe just to put a ballpark figure out there, our

Scott H. Group: Ancillary products today around boarding, like earlybird, upgrade boarding generate just, just shy of a billion dollars for us and the opportunity in the assigned seating and extra-legroom world is substantially north of that.

Scott H. Group: So,

Scott H. Group: So, I'm not going to give you a range, but just maybe it gives you a little directional...

Robert Jordan: And also, hopefully, you know, giving you the stat that roughly a third of the seats in our fleet will be in the extra legroom configuration can give you, you know, kind of a ballpark there as well. There's very little CapEx to invest because we're not buying a whole different seat configuration, that kind of thing. So it's mostly about adjusting the cabin more than it is about buying a lot of stuff to change the cabin. We already have a new seat coming from Recaro that customers really like. We're already working on some of the other components of the cabin anyway, so there's actually very little incremental capex related to this change.

Bob: And also, hopefully, you know, to give you the stat that roughly a third of the seats in our fleet will be in the extra legroom configuration can give you a kind of a ballpark there. As well, there's very little cat backs to invest because we were not buying a whole different seat configuration, that kind of thing. So it's mostly about adjusting the cabin more than it is, buying a lot of stuff to change the cabin. We already have a new seat coming from Makaro that customers really like. We're already working on some of the other components of the cabin anyway.

Scott H. Group: And also, hopefully, you know, giving you the stat that roughly a third of the seats in our fleet will be in the extra legroom configuration can give you a, you know, kind of a ballpark there.

Scott H. Group: as well. There's very little CapEx to invest because we're not

Scott H. Group: Buying a whole different seat configuration, that kind of thing. So it's mostly about adjusting the cabin more than it is buying a lot of stuff to change the cabin.

Scott H. Group: We already have a new seat coming from Recaro that customers really like. We're already working on some of the other components of the cabin anyway, so there's actually very little incremental capex related.

Bob: So there's actually very little incremental cat backs related to this change.

Scott H. Group: Now, maybe on your last point, we're still defining the product and exactly the detail around what we want to attach to extra leg room. But again, just to be clear, we're not looking at first class, where you really have a huge differentiation and, therefore, you really have a huge differentiation in cost. We really took a revenue per square foot view of a way to solve for this. You have so many feet in the cabin that you can deal with, and maximizing that revenue per square foot is how we attack the problem. That's helpful.

Bob: Now, maybe on your last point, we're still defining the products and exactly the detail around what we want to attach to extra legroom. But again, just to be clear, we're not looking at first class where you really have a huge differentiation, and therefore you really have a huge differentiation in cost. We really took a revenue per square foot view of a way to solve for this. You have so many feet in the cabin that you can deal with, and maximizing that revenue per square foot is how we attack the problem. That's helpful.

Scott H. Group: Now maybe on your last point, we're still defining the products and exactly the detail around what we want to attach to extra leg room.

Scott H. Group: But again, just to be clear, we're not looking at first class, where you really have a huge differentiation and therefore you really have a huge differentiation in cost.

Scott H. Group: We really took a, you know, revenue per square foot view of a way to solve for this. You know, you have so many feet in the cabin that you can deal with and maximizing that revenue per square foot is how we attack the problem.

Robert Jordan: And just to clarify, when you talk about substantially north of a billion, do we is that a gross number net number meaning, in theory, we'll lose like the early boarding ancillary that we have today? I would say, That's an incremental, so it's an incremental. In other words, obviously, hurdle one, you know, if those products are generating, you know, shy of a billion dollars, whatever we do has to clear that as a hurdle.

Bob: And just to clarify, when you talk about substantially north of the billion, is that a gross number net number meaning in theory will lose like the early boarding and failure that we have today, I would assume. That's an incremental. So incremental to, in other words, obviously hurdle one, if those products are generating shy of a billion, whatever we do has to clear that as a hurdle. And so anything that we talk about will be the net change.

Speaker Change: That's helpful. And just just to clarify, when you talk about substantially north of a billion, do we, is that a, I'm trying to, is that a gross number or net number, meaning in theory, we'll lose like the early boarding ancillary that we have today, I would assume.

Speaker Change: That's an incremental, so incremental two.

Speaker Change: In other words, obviously hurdle one, if those products are generating shy of a billion, whatever we do has to clear that as a hurdle.

Robert Jordan: And so anything that we talk about will be the net change. But again, we're just not ready to share that in detail. But no, we wouldn't be making the change if, number one, it wasn't what our customers wanted. Number two, it wasn't what our employees wanted.

Speaker Change: And so anything that we talk about will be the net change. But again, we're just not ready to share that in detail.

Bob: But again, we're just not ready to share that in detail. But no, we wouldn't be making the change. If number one, it wasn't what our customers wanted. Number two, it wasn't what our employees wanted. And number three, it wasn't significantly beneficial financially for our shareholders.

Robert Jordan: And number three, it wasn't, you know, significantly beneficial financially for our shareholders. Thank you, guys. Thank you. The next question is from Sheila Kahyaoglu with Jeffries. Please go ahead.

Speaker Change: But no, we wouldn't be making the change if number one, it wasn't what our customers wanted. Number two, it wasn't what our employees wanted. And number three, it wasn't, you know, significantly beneficial financially for our shareholders.

Unknown Executive: Thank you, guys.

Unknown Executive: Thank you.

Sheila Kahyaoglu: The next question is from Sheila Kahyaoglu with Jeffries. Please go ahead. Great. Thank you, guys.

Speaker Change: Thank you guys.

Speaker Change: Thank you.

Speaker Change: The next question is from Sheila Kahyaoglu with Jefferies. Please go ahead.

Sheila Karin Kahyaoglu: Great. Thank you, guys. I want to maybe ask about 2025 growth in a little different way. When you look at the contractual order book, it has 70 aircraft getting delivered, plus ASMs from the red eye aircraft. So how should we think about that in the context of at or below GDP growth? Are we getting to the point maybe where fleet growth needs to be net neutral? Do you accelerate retirement?

Sheila Kahyaoglu: I want to maybe ask about 2025 growth in a little different way. When you look at the contractual order book, it has 70 aircraft getting delivered plus an offense from the red eye aircraft. So how should we think about that in the context of at or below GDP growth? Are we getting to the point maybe worth week growth needs to be not neutral? Do you accelerate retirement? How do we think about that?

Sheila Karin Kahyaoglu: Great. Thank you guys. I wanted to maybe ask about 2025 growth in a little different way. When you look at the contractual order book, it has 70 aircraft getting delivered, plus ASMs from the red-eye aircraft. So how should we think about that in the context of at or below GDP growth?

Speaker Change: Are we getting to the point maybe where week growth needs to be net neutral? Do you accelerate retirement? How do we think about that?

Bob: Yes, hi Sheila. Yeah, we have a lot of flexibility with our order book from Boeing. We're not ready yet to lay out all of our plans. We'll do that out at Investor Day. But we have ample flexibility to reflow the order book to ultimately meet our needs. It will balance all of that, you know, clearly given all of our objectives and including CapEx in and also our initiative to renew the fleet.

Tammy Romo: How do we think about that? Yes, hi, Sheila. Yeah, we have a lot of flexibility with our order book from Boeing. We're not ready yet to lay out all of our plans. We'll do that at Investor Day. But we have ample flexibility to reflow the order book to ultimately meet our needs.

Speaker Change: Yes. Hi, Sheila. Yeah, we have a lot of flexibility with our order book from Boeing. We're not ready yet to lay out all of our plans. We'll do that out at Investor Day, but we have ample flexibility.

Speaker Change: to reflow the order book to ultimately meet our needs. And we'll balance all of that, you know, clearly given all of our objectives, including CapEx spend and also our initiative to renew the fleet.

Sheila Karin Kahyaoglu: And we'll balance all of that, you know, clearly, given all of our objectives, including CapEx spend and also our initiative to renew the fleet. So we'll lay out all those details for you at Investor Day. And obviously, we're still working with Boeing on, you know, settling up against the issues that we've seen here with delayed deliveries and those delayed deliveries., and Dan H.

Bob: So we'll lay out all those details for you and Investor Day. And obviously we're still working with Boeing on, you know, settling up against the issues that we've seen here with delayed deliveries, and the looks of those delayed deliveries against plan continue into 2025. So again, more to share later on that as well.

Speaker Change: So we'll lay out all those details for you at Investor Day.

Speaker Change: And obviously, we're still working with Boeing on, you know, settling up against the issues that we've seen here with delayed deliveries and, you know, those delayed deliveries.

Speaker Change: Against Plan, continuing to 2025. So again, more to share later on that as well. Okay. And then maybe one on cost of follow-up item. With the red-eye flying, how do we think about additional headcount required for that or any cost impact?

Andrew Watterson: Okay, and then maybe want on cost of all of item with the red eye flying. How do we think about additional headcount required for that or any cost impact? Yeah, so actually let's, Andrew, the incrementality is quite low on this. So it's just fuel incrementality, but the nature of this is the aircraft apart the west while it's still the operating day for those airports and then arrives in the east during their operating day. So you're staffed on both ends. So it doesn't require your ground operations. We have a situation when we have ample pilots right now.

Andrew M. Watterson: .. .. .. .. .. .. Yeah, so, Sheila, it's Andrew.

Speaker Change: Yeah, so, Sheila, it's Andrew.

Andrew: The incrementality is quite low on this. Obviously, this is fuel incrementality, but the nature of this is the aircraft depart the west.

Andrew: while it's still the operating day for those airports.

Speaker Change: and then arrives in the east during their operating day. So you're staffed on both ends, so it doesn't require your ground operations.

Andrew Watterson: And so we were does not require us to hire additional pilots to be able to operate the red eye. So it's a way to kind of get more flying out of the current employee base and the current asset base for next year.

Speaker Change: We have a situation where we have ample pilots right now, and so it does not require us to hire additional pilots to be able to operate the Red Eye. So it's a way to kind of get more flying out of the current employee base and the current asset base for next year.

Unknown Executive: And Sheila was our final analyst question. Thank you.

Speaker Change: Thank you.

Speaker Change: And Sheila was our final analyst question.

Unknown Executive: That wraps up the analyst portion of today's call. I appreciate everyone joining, and have a great day.

Speaker Change: Thank you. That wraps up the analyst portion of today's call. I appreciate everyone joining and have a great day.

Whitney Eichinger: Ladies and gentlemen, we now transition to our media portion of today's call. Ms. Whitney, I can hear Chief Communications Officer leads us off. Please go ahead, Whitney. Thanks, Gary. Welcome to the media on our call today. Before we begin taking your questions, Gary, can you remind everyone and share instructions on how to queue up for a question? To queue up for an opportunity to ask a question, press star, then one. To withdraw your question, the command is star then two. If you're on a speakerphone, please pick up before pressing the keys.

Speaker Change: Ladies and gentlemen, we now transition to our media portion of today's call. Ms. Whitney Eichinger, Chief Communications Officer, leads us off. Please go ahead, Whitney.

Sheila Karin Kahyaoglu: The incrementality is quite low on this. Obviously, it's fuel incrementality, but the nature of this is the aircraft departs the West while it's still the operating day for those airports and then arrives in the East during their operating day. So you're staffed on both ends, so it doesn't require your ground operations. We have a situation where we have ample pilots right now, and so it does not require us to hire additional pilots to be able to operate the red eye.

Whitney Eichinger: Thanks Gary. Welcome to the media on our call today. Before we begin taking your questions, Gary, can you remind everyone and share instructions on how to queue up for a question?

Sheila Karin Kahyaoglu: So it's a way to kind of get more flying out of the current employee base and the current asset base for next. Thank you. And Sheila was our final analyst question. Thank you. That wraps up the analyst portion of today's call. I appreciate everyone joining us, and have a great day.

Gary: To queue up for an opportunity to ask a question, press star, then 1. To withdraw your question, the command is star, then 2. If you're on a speakerphone, please pick up before pressing the keys. We'll pause for a moment and then start answering your questions.

Whitney Eichinger: Ladies and gentlemen, we now transition to our media portion of today's call. Ms. Whitney Eichinger, Chief Communications Officer, will lead us off. Please go ahead, Whitney.

Whitney Eichinger: Thanks, Gary. Welcome to the media on our call today. Before we begin taking your questions, Gary, can you remind everyone 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.

Alexandra Skores: We'll pause for a moment and then start answering your questions. Our first question is from Alexandra Skores with the Dallas Morning News. Please go ahead. Hi, can you all hear me? We can't, Ali. Hi.

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. Our first question is from Alexandra Skores with the Dallas Morning News. Please go ahead. Hi, can you all hear me?

Speaker Change #102: Our first question is from Alexandra Skores with the Dallas Morning News. Please go ahead.

Alexandra Skores: We can't, Ali. Hi. Yeah, this feels like a very historic step for Southwest. I wanted to ask, are we entering a new era? Is this a step toward a new era for the company? And how is Southwest going to kind of differentiate itself from other major air carriers? Because you know, that's kind of been the history of Southwest.

Alexandra Skores: Hi, can you all hear me?

Bob: Yeah, I, I, I, this feels like a very historic that for Southwest, um, in regards to the changes in policy today. Um, I wanted to ask, are we entering a new era? Is this a step towards a new era for the company? Um, and how is Southwest going to kind of differentiate itself from other major area carriers? Cause, you know, that kind of been the history of Southwest. So, um, I'm wondering if you can kind of speak to that. You know, we have, um, we, we do it thoughtfully and carefully, but we've always been willing to adapt and change your Southwest to the time that I've been here.

Alec: We can, Alec.

Alexandra Skores: Hi. Yeah, it feels like a very historic step for Southwest with regard to the

Alexandra Skores: President, Southwest Airlines Co. I wanted to ask, are we entering a new era? Is this a step towards a new era for the company? And how is Southwest going to kind of differentiate itself from other major air carriers? Because, you know, that's kind of been the history of Southwest. So I'm wondering if you can kind of speak to that.

Robert Jordan: So I'm wondering if you can kind of speak to that. You know, we have, we do it thoughtfully and carefully, but we've always been willing to adapt and change here at Southwest in the time that I've been here. And you know, we always kind of joke about the plastic boarding passes, but we've made a lot of changes. I will tell you that I do, and I think our team does view this as a strategic transformation of the company.

Speaker Change #104: You know, we have, we do it thoughtfully and carefully, but we've always been willing to adapt and change here at Southwest in the time that I've been here.

Bob: And, um, you know, we all kind of get about the plastic boarding passes, but we've made a lot of change. I, I will tell you, I do, and I think our team does view this as a strategic transformation of the company. We are, we are making, as we talked about, we've made significant and continuing investments in our operational capabilities. Uh, and you see it's showing up. I mean, we've taken 60 million pieces of paper a year out of the cockpit. The turn is going completely paperless on, on iPad. If you're flying out of Dallas and Baltimore and other stations, you'll see big ramp information displays up that are managing the turn and much, much more, and the investment in core technology there is allowing us to operate really well.

Speaker Change #105: We always kid about the plastic boarding passes, but we've made a lot of change. I will tell you, I do, and I think our team does view this as a strategic transformation of the company.

Robert Jordan: We are making, as we've talked about, we've made significant and continuing investments in our operational capability, and you see it showing up. I mean, we've taken 60 million pieces of paper a year out of the cockpit. The next step is going completely paperless on iPads.

Speaker Change #105: We are making, as we've talked about, we've made significant and continuing investments in our operational capabilities.

Speaker Change #105: , and you see it showing up. I mean, we've taken 60 million pieces of paper a year out of the cockpit. The turn is going completely paperless on iPads. If you're flying out of Dallas and Baltimore and other stations, you'll see big ramp information displays up that are managing the turn.

Robert Jordan: If you're flying out of Dallas and Baltimore and other stations, you'll see big ramp information displays that are managing the turn and much, much more. And the investment in core technology there is allowing us to operate really well. You know, I talked about it earlier, but we had an 8% cancel rate when the hurricane came through Houston and almost no cancels the following day. So the ability to recover, and you saw that when the global tech outage hit last week, and we ran basically a normal day.

Speaker Change #105: , and much, much more, and the investment in core technology there.

Bob: You know, I talked about it earlier, but we had an 8% cancel rate when the hurricane came through Houston, and almost no cancel the following day. So the ability to recover, and you saw that when the global tech outage hit last week, and we ran basically a normal day. So those investments in the operation are more than tactical. They're really, they're really transformational investments to change the way we operate our resilience and reliability. And the same thing is going on in the commercial space. We are announcing the seeding and the cabin changes today, but it's been a purposeful build that goes back two years to begin to add power and larger bins and Wi-Fi.

Speaker Change #105: is allowing us to operate really well. You know, I talked about it earlier, but we had an 8% cancel rate when the hurricane came through Houston and almost no cancels the following day. So the ability to recover, and you saw that when the...

Speaker Change #105: Global Tech Outage hit last week and we ran basically a normal day.

Robert Jordan: So those investments in the operation are more than tactical. They're really transformational investments that change the way we operate, our resilience, and reliability. And the same thing is going on in the commercial space. We are announcing the seating and the cabin changes today, but it's been a purposeful build that goes back two years to begin to add power and larger bins and Wi-Fi, and we're reworking the cabin, and you have upgraded and different, more modern uniforms coming to our crews. Our digital approach is significantly different. If you just go back, maybe even 18 months.

Speaker Change #105: We are announcing the seating and the cabin changes today, but it's been a purposeful build that goes back two years to begin to add power and larger bins and Wi-Fi. And we're reworking the cabin, and you have upgraded in different, more modern uniforms coming to our crews.

Bob: And we're reworking the cabin, and you have upgraded in different, more modern uniforms coming to our crews. The, our digital approach is significantly different. If you just go back, maybe even 18 months. Today you can track your bags, and you can do same that managers, same they stand by, and there's much, much more to come. So, on the digital front. So we do see this as a fundamental transformation of Southwest Airlines to meet our customers' needs, to be more efficient, and to add capabilities. All that said, we're not going to change the core of what we stand for here.

Speaker Change #105: Our digital approach is significantly different. If you just go back maybe even 18 months.

Robert Jordan: Today, you can track your bags, and you can manage your same-day standby, and there's much, much more to come on the digital front. So, we do see this as a fundamental transformation of Southwest Airlines to meet our customers' needs, to be more efficient, and to add capabilities. But all that said, we're not going to change the core of what we stand for here.

Speaker Change #105: Today, you can track your bags, and you can manage your same-day standby, and there's much, much more to come on the digital front.

Speaker Change #105: So, we do see this as a fundamental transformation of Southwest Airlines to meet our customers' needs, to be more efficient.

Speaker Change #105: All that said, we're not going to change the core of what we stand for here, true hospitality, the best employees in the industry.

Bob: True hospitality, the best employees in the industry. Customer policies; they make sense of being transparent with our customers. So we're going to adhere to the things that make Southwest the Southwest you love.

Robert Jordan: True hospitality, the best employees in the industry. Customer policies that make sense, being transparent with our customers. So we're going to adhere to the things that make Southwest the Southwest you love, but we're going to make this an even better Southwest airline. About how family boarding might be implemented with this new policy? No, I mean, we and Ryan can talk about this.

Speaker Change #105: Customer policies that make sense, being transparent with our customers. So, we're going to adhere to the things that make Southwest the Southwest you love, but we're going to make this an even better Southwest Airlines.

Bob: But we're going to make this an even better Southwest Airlines.

Bob: Thank you for that pause. And my second question, you know, just for some of the Dallas passengers too, I've been noticing, have been pretty vocal about concerns about, you know, how this will be implemented. And I know you're not sharing specifics, but one that they are rather interested in is, you know, family boarding. And, you know, that's like a prime reason why folks come into Love Field and have vocalized that to me. So, can you share anything about how family boarding might be implemented with this new policy? No, I mean, we're and Ryan can talk about this first deal in, you know, there are, as you can, I would expect, there are a thousand details to be worked through.

Speaker Change #106: Thank you for that Bob. And my second question, you know, just for some of the Dallas passengers too, I've been noticing have been pretty vocal about concerns about, you know, how this will be implemented. And I know you're not sharing specifics, but one that they are

Speaker Change #107: , and I think the other thing I'm rather interested in is, you know, family boarding. And, you know, that's like a prime reason why folks come into Love Field and have vocalized that to me. Can you share anything about how family boarding might be implemented with this new policy?

Robert Jordan: We're still in, you know, there are, as you could, would expect, there are 1000 details to be worked through. But if you just think about that as a family, especially if you're on a long-haul flight, and the uncertainty in today's world, the uncertainty of whether we are going to be able to sit together is a huge question, and it comes up as a stress point for families that we carry.

Speaker Change #108: No, I mean, and Ryan can talk about this. We're still in, you know, there are, as you could, I would expect, there are a thousand details to be worked through, but if you just think about that as a family, especially if you're on a long-haul flight,

Bob: But if you just think about that as a family, especially if you're on a long-haul flight. And the uncertainty in today's world, you know, the uncertainty of, are we going to be able to sit together is a huge question, and it comes up as a stress point for families that we carry. And so in the new world, in a science eating world, you'd have an assurance that you're going to sit together because you have a science seat that takes that stress away. And if you want to sit together in an extra leg room section, even better.

Ryan: And the uncertainty in today's world, you know, the uncertainty of are we going to be able to sit together is a huge question, and it comes up as a stress point for families that we carry.

Robert Jordan: And so in the new world, in an assigned seating world, you'd have an assurance that you're going to sit together because you have assigned seats that take that stress away. And if you want to sit together in an extra legroom section, even better.

Ryan: And so in the new world, in an assigned seating world, you'd have an assurance that you're going to sit together because you have assigned seats that take that stress away.

Ryan Green: And so, I think for as we survey a lot of what the changes are accomplishing or actually taking stress out of the boarding process and the seating process because most of the stress comes from, where am I going to sit? Not just am I going to get a good seat, but where am I going to sit? Am I going to sit close to the folks that I want to, for example. So moving to a science eating takes all of that stress out of the process. The goals we talked about earlier is to marry the things that folks love about our boarding with that a science eating change.

Robert Jordan: I think for a lot of what the changes are accomplishing, they're actually taking stress out of the boarding process and the seating process because most of the stress comes from, "where am I going to sit?". Not just am I going to get, quote, a good seat, but where am I going to sit?

Ryan: As we've surveyed, a lot of what the changes are accomplishing are actually taking stress

Ryan: Out of the boarding process and the seating process because most of the stress comes from where am I going to see it sit?

Ryan: Not just am I going to get, quote, a good seat, but where am I going to sit? Am I going to sit, you know, close to the folks that I want to, for example? So moving to assigned seating takes all of that stress out of the process.

Robert Jordan: Am I going to sit, you know, close to the folks that I want to, for example? So moving to assigned seating takes all of that stress out of the process. The goals we talked about earlier are to marry the things that folks love about our boarding with that assigned seating change, but Ryan, I don't know if you want to add anything. No, yeah, I think moving. There are friction points in the current customer experience that come along with open seating that we've had to adapt to by creating, you know, things like our family boarding section today.

Ryan: The goals we talked about earlier is to marry the things that folks love about our boarding with that assigned seating change. But Ryan, I don't know if you want to add anything. No, yeah, I think moving – there are friction points in the current customer experience that come along with open –

Ryan Green: But Ryan, I don't know if you want anything.

Ryan Green: No, yeah, I think moving there are friction points in the current customer experience that come along with open seating that we've had to adapt to by creating things like our family boarding section today. You know, just to give a little insight into that almost 60% of customers are checked in within the first 30 seconds of the 24-hour check-in window opening. And that goes up to about 75% of customers checked in within the first hour. So if you're a busy family and you don't hit the check-in window right on the nose, that causes anxiety. And so, like Bob mentioned, this is one of those; this is a way to solve a lot of those friction points that the current open seating process has introduced and, you know, just causes more anxiety than we want.

Ryan: [inaudible]

Robert Jordan: You know, just to give you a little insight into that, almost 60% of customers are checked in within the first 30 seconds of the 24 hour check-in window opening. And that goes up to about 75% of customers checked in within the first hour.

Ryan: To give a little insight into that, almost 60% of customers are checked in within the first 30 seconds.

Ryan C. Green: So if you're a busy family, and you don't hit the check-in window right on the nose, that causes anxiety, and so. Like Bob mentioned, this is a way to solve a lot of those friction points that the current open seating process has introduced and just causes more anxiety than we want. So I think families, at the end of the day, are going to love the change. And for employees, I mean, this should be what our employees end up doing. On the aircraft, if there is an issue, you know, family board's late, there aren't seats together, the open seats together, our flight attendants end up having to manage that situation or police that situation.

Ryan: of the 24 hour check in window opening. And that goes up to about 75% of customers checked in within the first hour. So if you're a busy family, and you don't hit the check in window right on the nose, that causes anxiety. And so

Ryan: Like Bob mentioned, this is a way to solve a lot of those friction points that the current open seating process has introduced.

Ryan Green: So I think families at the end of the day are going to love the change. And for employees, I mean, our employees end up on the aircraft if there is an issue. You know, family boards late; there aren't seats together. The open seats together are flight attendants end up having to manage that situation or police that situation. And if you're customers that you're in the last boarding group and the flight is full, you get on board. And it's tough to see the open seats. So you have what we call spinners. People going up and down the aisle, spinning and looking for the open seat because it's hard to see since the aircraft is full.

Bob: So I think families, at the end of the day, are going to love the change.

Bob: And for our employees, I mean, this should be, if our employees end up...

Speaker Change #109: On the aircraft, if there is an issue, you know, family board's late, there aren't seats together.

Speaker Change #110: The Open Seats Together, our flight attendants end up having to manage that situation or police that situation.

Ryan C. Green: And if you're a customer who's in the last boarding group and the flight is full, you get on board, and it's tough to see the open seat. So you have what we call spinners, people going up and down the aisle, spinning and looking for the open seat because it's hard to see since the aircraft is full.

Speaker Change #111: And if you're customers that you're in the last boarding group and the flight is full, you get on board and it's tough to see the open seat. So you have what we call spinners, people going up and down the aisle, spinning and looking for the open seat because it's hard to see since the aircraft is full.

Ryan Green: So that's obviously stressful, and the assigned seating change basically eliminates all of that.

Robert Jordan: So that's obviously stressful, and the assigned seating change basically eliminates all of that. Great, thank you. Thank you. The next question is from Rajesh Singh with Reuters. Please go ahead.

Speaker Change #111: So that's obviously stressful and the assigned seating change basically eliminates all of that.

Unknown Executive: Thank you.

Rajesh Singh: The next question is from Rajesh Singh with Reuters. Please go ahead. Bob, tell me for a while and update on your discussion with the Elliott Management. Do you expect to compromise with them? They're threatening a proxy fight. I can't speak for Elliott. We're speculating on what Elliott may or may not do. But so far, they've not shown any willingness to engage in any meaningful conversations with us. Most of that has been public personal attacks on leadership and the board. So, like any shareholder, we would love to engage and hear their feedback. But so far, there's been no willingness on their part to do that.

Speaker Change #111: Great. Thank you. Thank you.

Speaker Change #111: The next question is from Rajesh Singh with Reuters. Please go ahead.

Unknown Attendee: Hi Bob, can you provide an update on your discussions with Aliex management? And do you expect a compromise with them? They're threatening a proxy fight. Yeah, I guess I can't speak for Elliot. You know, we're speculating on what Elliot may or may not do. But so far, they've not shown any willingness to engage in any meaningful conversations with us.

Unknown Attendee: Hi, Bob, can you provide an update on your discussions with Alias Management and do you expect a compromise with them? They are threatening a proxy site.

Speaker Change #113: Yeah, I guess I can't speak for Elliott. You know, we're speculating on what Elliott may or may not do. But so far, they've not shown any willingness to engage in any meaningful conversations with us.

Robert Jordan: You know, most of that has been, you know, public personal attacks on leadership and the board. So, like any shareholder, we would love to engage and hear their feedback, but so far, there's been no willingness, on their part, to do that. So for our part here as a leadership team, we're focused 100% on moving the company forward on the plans that some of which we laid out today and on transforming this company and hitting our desired financial return.

Speaker Change #114: You know, most of that has been, you know, public personal attacks on leadership and the board.

Speaker Change #114: So like any shareholder, you know, we would love to engage and hear their feedback, but so far there's been no willingness.

Bob: So for our part here as a leadership team, we're focused 100% on moving the company forward on the plans that some of which we laid out today and on transforming this company and hitting our desired financial returns.

Speaker Change #114: You know on their part to do that So for our part here as a leadership team, we're focused a hundred percent on moving the company forward On the plans that some of which we laid out today and on transforming this company and hitting our desired financial returns

Bob: Well, my second question is that about premium seating. How do I mean calculation that how much of them will require what kind of boost will provide to your revenue and earnings next year? Yeah, I think we'll have more to share on the overall value opportunity of the premium seating and assigned seating initiative at Investor Day this fall. On the cost side of the equation, we're doing it in a very capital-efficient way. We're using existing existing seats. So there's a very little capital outlay here. And then on the revenue side, we'll have a value to share here later in the fall.

Robert Jordan: My second question is that about premium seating. Have you done any calculations about how much of an investment it will require and what kind of boost it will provide to your revenue and earnings next year? Yeah, I think we'll have more to share on the overall value opportunity of the premium seating and assigned seating initiative at Investor Day this fall. On the cost side of the equation, we're doing it in a very capital efficient way. We're using existing seats, so there's very little capital outlay here. And then, on the revenue side, we'll have value to share later in the fall. Thank you very much.

Speaker Change #115: My second question is about premium seating. Have you done any calculation about how much of an investment it will require and what kind of boost it will provide to your revenue and earnings next year?

Speaker Change #116: Yeah, I think we'll have more to share on the overall value opportunity of the premium seating and assigned seating initiative at Investor Day this fall. On the cost side of the equation, we're doing it in a very capital efficient way. We're using existing

Speaker Change #116: existing seats. So there's a very little capital outlay here. And then on the revenue side, we'll have a value to share here later in the fall.

Unknown Executive: Thank you more months.

David Coneg: The next question is from David Coneg with the Associated Press. Please go ahead. Yeah, hi.

Ryan C. Green: The next question is from David Koenig with the Associated Press. Please go ahead. Yeah, hi. Actually, Alexandra asked some of my questions, but just as a follow-up, I'm curious, how much did, in regard to the open seating demise here, how much did the current gaming of the system factor in your decision? Hey Dave, you know, we haven't called it the device of open seating. It is a shift to assigned seating. But anyways, I would say that it didn't factor in terms of the analysis.

Speaker Change #117: Thank you very much.

Speaker Change #117: The next question is from David Koenig with the Associated Press. Please go ahead.

David Coneg: Actually, I was asked some of my questions, but just as a follow-up, I'm curious how much did, in regard to the open seating demise here, how much did the current gaming of the system factor in your decision? Hey Dave, you know, we haven't called it the demise of open seating. It is a shift to a seating, but anyways, I would say that it didn't factor in terms of the analysis. So this is all about trying to make the right decision and making it not in emotion, but in data. So we, as Ryan, can talk about just extensive surveying of our customers or non-customers to understand their preferences.

David Koenig: Yeah hi, actually Alexandra asked some of my questions but just as follow-up I'm curious how much did, in regard to the open seating demise here, how much did the current gaming of the system factor in your decision?

David Koenig: So this was all about trying to make the right decision and making it not based on emotion but on data. So we, as Ryan can talk about, did extensive surveying of our customers, our non-customers, to understand their preferences. And then also to understand things like if you have status on Southwest today, you're on the preferred list. What benefits do you value, and what would be attached to your status in the assigned seating and extra legroom world, for example?

Speaker Change #121: Hey Dave, you know, we haven't called it the device, but it is a

Dave: It's a shift to sun seating, but anyways.

Speaker Change #119: I would say that it didn't factor in terms of the analysis. So this was all about trying to make the right decision and making it not in a motion but in data.

David Koenig: So we, as Ryan can talk about, just extensive surveying of our customers, our non-customers, to understand their preferences.

Bob: And then also to understand things like if you have status on Southwest today, you know, you're a list preferred. What benefits? How do you value benefits, and what would be attached to your status in the assigned seating and extra legroom world, for example? So just a ton of effort there and then a ton of effort to understand the operational impacts, if any, because we certainly don't want assigned seating to turn the aircraft slower, which everything that we worked on proved that it will not. So it was really about the change itself. We do know for our employees in particular, you know, managing the boarding process, as you described, can be stressful, and it can be for some of our customers.

Ryan: And then also, to understand things like if you have status on Southwest today, you know you're a list preferred, what benefits

Ryan: How do you value benefits and what would be attached to your status in the assigned seating and extra legroom world, for example?

Robert Jordan: Just a ton of effort there and then a ton of effort to understand the operational impacts, if any. Because we certainly don't want assigned seating to make the aircraft slower, which everything that we worked on proved that it will not. So, it was really about the change itself. We do know this for our employees, in particular. Managing the boarding process, as you described, can be stressful. And it can be for some of our customers.

Ryan: Just a ton of effort there, and then a ton of effort to understand the operational impacts, if any, because we certainly don't want assigned seating to turn the aircraft slower, which everything that we worked on proved that it will not.

Speaker Change #122: So it was really about the change itself. We do know for our employees in particular, you know, managing the boarding process, as you described, can be stressful.

Robert Jordan: So while that wasn't a direct Item that we studied, I think it could be that that is an indirect benefit that we, Okay, and I think you kind of inferred from your earlier remarks, Bob, that you were surprised by the degree to which people wanted to see assigned seating. And I don't know what your history is, you know, what baseline polling you had or surveys.

Bob: So, while that wasn't a direct item that we studied, I think it could be that that is an indirect benefit that we see.

Speaker Change #122: and it can be for some of our customers. So while that wasn't a direct.

Speaker Change #122: Item that we studied, I think it could be that that is an indirect benefit that we see.

Robert Jordan: Is that something that happened very recently? And is it because of, you know, encouraging more passengers to pay extra to move up in the line? You know, what was the timing there?

Bob: And I think you kind of I inferred from your earlier remarks, Bob, that you were surprised by the degree to which people wanted to see the assigned seating, and I don't know what your history, you know, what baseline polling you had or surveys. Is that something that happened very recently, and is it because of the encouraging more passengers to pay extra to move up in the line? What was the timing there? Yeah, I think, you know, customers' preferences shift over time, and I think, you know, it's been clear. I think their preferences shift over time, and their travel patterns and travel behavior shift over time.

Speaker Change #122: Okay.

Speaker Change #122: And I think you kind of, I inferred from your earlier remarks, Bob, that you were surprised by the degree to which people wanted to see assigned seating. And I don't know what your history, you know, what baseline polling you had or surveys.

Bob: Is that something that happened very recently, and is it because of, you know, the encouraging more passengers to pay extra to move up in the line? You know, what was the timing there?

Robert Jordan: Yeah, I think, you know, customers' preferences shift over time. And I think, you know, it's been clear. I think their preferences shift over time, and their travel patterns and travel behavior shift over time. You know, customers are just taking fewer short-haul trips today. They're flying longer.

Robert Jordan: And when they fly longer, the importance of an assigned seat goes up. We've talked a lot about our desire and initiatives to grow market share with business travelers in the Managed Business Space, and their preference is for an assigned seat versus an open seat. , you know, that goes into it. And then when you look at premium, you know, premium, it just you can see it with in the airline industry ourselves; premium product growth has outpaced the growth in main cabin revenue for some time now. And then, in other parts of the economy, consumers are just reducing non-essential retail purchases and spending that on experiences.

Bob: Yeah, I think, you know,

Bob: I think customers' preferences shift over time. And I think, you know, it's been clear. I think their preferences...

Bob: Shipped over time and their travel patterns and travel behavior shift over time

Bob: You know, customers are just taking fewer short-haul trips today. They're flying longer, and when they fly longer, the importance of an assigned seat goes up. We've talked a lot about our desire and initiatives to grow market share with corporate business travelers and the managed business space, and their preference is for an assigned seat versus an open seat. So I think that, you know, that that goes into it. And then when you look at premium, you know, premium, just you can see it within the airline industry, ourselves, premium product growth has outpaced the growth in main cabin revenue for some time here, and then in other parts of the economy, consumers are just reducing non-essential retail purchases and spending that on experiences.

Bob: You know, customers are just taking fewer short haul trips today. They're flying longer and when they fly longer, the importance of an assigned seat goes up.

Bob: We've talked a lot about our desire and initiatives to grow market share with

Bob: corporate business travelers in the managed business space. And their preference is for an assigned seat versus an open seat. And so I think that.

Bob: You know that that goes into it and then when you look at premium

Bob: You know, premium, it just, you can see it.

Bob: with in the airline industry ourselves, premium product.

Speaker Change #123: Growth has outpaced the growth in main cabin revenue for some time here. And then in other parts of the economy, consumers are just reducing nonessential retail purchases and spending that on experiences. So it's a combination of.

Bob: So it's a combination of travel patterns, changing and customer preferences, changing over time that we're adapting to here.

Robert Jordan: So it's a combination of travel patterns changing and customer preferences changing over time that we're adapting to here. Okay, thanks. The next question is from Lori Aratani with the Washington Post. Please go ahead. Hi, thank you for pulling me out of the queue.

Speaker Change #123: Travel patterns changing and customer preferences changing over time that we're adapting to here.

Bob: Thanks.

Laurie Arthani: The next question is from Laurie Arthani with The Washington Post. Please go ahead. Hi. Thank you for pulling me out of the queue. Sort of building on what David asked and what you just said, Bob, customers are fickle, right? And their their preferences change. So are you worried that, you know, this is what everyone wants? Now, a few years back, you know, the legacies were moving to basic economy, right? Because that that was the hot concept. Do you worry that you're going to make this change? And then a couple years from now, people are going to want something different.

Speaker Change #124: Okay, thanks.

Speaker Change #124: The next question is from Lori Aratani with the Washington Post. Please go ahead.

Lori Aratani: Building on what David asked and what you just said, Bob, customers are fickle, right? And their preferences change. So are you worried that, you know, this is what everyone wants now? A few years ago, you know, the legacies were moving to the basic economy, right? Because that was the hot concept.

Lori Aratani: Hi. Thank you for pulling me out of the queue. Sort of building on what David asked and what you just said, Bob, customers are fickle, right? And their preferences change. So are you worried that, you know, this is what everyone wants now? A few years back, you know, the legacies were moving to basic economy, right? Because that was the hot concept. Do you worry that you're going to make this change and then a couple years from now, people are going to want something different?

Bob: All right. No, I don't think I said customers are fickle. Just kidding, but no, I'm kidding. I'm kidding whether you, I mean preferences do change over time, and they change sometimes over long periods of time. And just more philosophically, you can have beliefs. We as a company can have beliefs and hold onto them. But if you don't understand in data what is happening with your customers, they can move away from you. So you've got to be willing to challenge everything. Everything that's not fundamental to you as an airline. But we do; we have periodically surveyed, assigned seating.

Robert Jordan: Do you worry that you're going to make this change, and then a couple years from now, people are going to want something different? Hey, Laurie.

Robert Jordan: No, I don't think I said customers are fickle. Just kidding. But no, sorry about that. No, no, I'm kidding.

Bob: Hey Lori, no, I don't think I said customers are fickle. I'm just kidding. But no. Okay, sorry about that. They have changing ideas. I'm kidding. I'm kidding with you. I mean preferences do change over time and they change sometimes over long

Robert Jordan: I'm kidding. I'm kidding with you. I mean, preferences do change over time.

Robert Jordan: And they change sometimes over long periods of time. And, just more philosophically, you can have beliefs.

Bob: of time. And just more philosophically,

Robert Jordan: We as a company can have beliefs and hold on to them, but if you don't understand in data what is happening with your customers, they can move away from you, so you've got to be willing to challenge everything that's not fundamental to you as an airline. But we have periodically surveyed assigned seating. This is by far the deepest analysis we have ever done, and it has moved towards assigned seating over decades.

Bob: You can have beliefs. We as a company can have beliefs.

Bob: and hold on to them. But if you don't understand in data what is happening with your customers.

Bob: They can move away from you, so you've got to be willing to challenge everything that's not fundamental to you as an airline.

Bob: We have periodically surveyed assigned seating. This is by far the deepest analysis we have ever done.

Bob: This was by far the deepest analysis we have ever done. And it has moved towards assigned seating over decades. I think the last time we looked at it, which was actually several years ago, the preference was more 50-50. But you've got a different generate. What we're trying to point at too is it's very clear that as different generations emerge and spend more on travel, their preferences are potentially very different than the prior generation. I mean, not making a value call at all, but you've got to aim because you're always working. You've got to aim at the customer that you're going to see in five years and ten years.

Bob: and it has moved towards assigned seating over decades. You know, I think the last time we looked at it, which was, you know, years, many, actually several years ago, the preference was more 50-50.

Robert Jordan: You know, I think the last time we looked at it, which was, you know, years, many, actually, several years ago, that preference was more 50-50. www.larryweaver.com The End Thank you for watching. If you enjoyed the video, please be sure to subscribe to our channel and give us a thumbs up if you haven't already. And don't forget to leave us a comment below and tell us what We love hearing from you! See you next time!

Robert Jordan: But the, you know, you've got a different generation, you know, you've got what we're trying to point out is, it's very clear that as different generations emerge and spend more on travel, their preferences are potentially very different than the prior generation. I mean, not making a value call at all, but you've got to aim Because you're always working, you've got to aim for the customer that you're going to see in five years and 10 years.

Speaker Change #126: Thank you. That was interesting.

Speaker Change #127: As different generations emerge and spend more on travel, their preferences are potentially very different than the prior generation. I'm not making a value call at all, but you've got to aim.

Speaker Change #127: Because you're always working, you've got to aim at the customer that you're going to see in five years and ten years.

Bob: So I don't worry that the. This is what I love about the way we're implementing this. We're not doing anything way out on the friend to remove and do an assigned seating. We're moving to extra leg room. And we're doing it in a way that is consistent with Southwest Airlines, which is we're doing it in a very efficient way. And we're not putting in seats with, you know, that have doors and seats in massage you or something like that. We're doing things that make sense for Southwest. So I'm comfortable that we're moving towards the customer and that those customer desires will not shift on us.

Robert Jordan: So I don't worry about the fact that this is what I love about the way we're implementing this; we're not doing anything way out on the fringe. We're moving to assigned seating, we're moving to extra legroom. And we're doing it in a way that is consistent with Southwest Airlines, which is we're doing it in a very efficient way, and we're not putting in seats with, you know, that have, you know, that have doors and seats that massage you or something like that.

Speaker Change #127: So I don't worry that the, in fact, this is what I love about the way we're implementing this. We're not doing anything way out on the fringe. We're moving to assigned seating, we're moving to extra legroom, and we're doing it in a way that is...

Speaker Change #127: consistent with Southwest Airlines, which is we're doing it in a very efficient way.

Speaker Change #127: and we're not putting, you know, we're not putting in seats with, you know, that have, you know, that have doors and seats that massage you or something like that. We're doing things that make sense for Southwest. So I'm comfortable that we're moving towards the customer and that those customer desires will not shift on us.

Ryan C. Green: We're doing things that make sense for Southwest. So I'm comfortable that we're moving towards the customer and that those customer desires will not shift on us. Can I sneak one more in because we have readers that are, of course, very engaged in this? Do you guys have worked out yet what this is going to mean for ALIS, the folks that have ALIS status? That's part of what we are hard at work finalizing.

Unknown Executive: Okay.

Unknown Executive: Can I sneak one more in because we have readers that are, of course, very engaged in this.

Speaker Change #128: Okay, can I sneak one more in because we have readers that are, of course, very engaged in this. Do you guys, have you worked out yet what this is going to mean for ALIS, the folks that have ALIS status?

Bob: Do you guys have you worked out yet what this is going to mean for ALFs, the folks that have ALF status? That's part of what we are hard at work, finalizing. Now, I think it's safe to assume that just like our current ALFs' preferred customers, there is a boarding benefit associated with their status level. I think it's safe to assume that there will be a seating benefit, you know, seating benefits that are associated with it. But the exact nature of that and the details there are things that we're defining at, you know, as we speak.

Ryan C. Green: Now, I think it's safe to assume that just like our current A-list and A-list preferred customers, there is a boarding benefit associated with their status level. I think it's safe to assume that there will be a seating benefit, you know, seating benefits that are associated with it.

Speaker Change #129: That's part of what we are hard at work finalizing now. I think it's safe to assume that just like our current A-list, A-list preferred customers, there is a boarding benefit associated with

Ryan C. Green: But the exact nature of that and the details there are things that we're defining, you know, as we speak. Great. Thank you so much.

Speaker Change #129: There's status level. I think it's safe to assume that there will be a seating benefit, you know, seating benefits that are associated with it. But the exact nature of that and the details there are are things that we're defining, you know,

Unknown Executive: Great.

Unknown Executive: Thank you so much.

Alison Sider: Thank you, Lori. The next question is from Alison Sider with the Wall Street Journal. Please go ahead. Hi, thanks so much.

Unknown Executive: Thank you.

Speaker Change #129: as we speak. Great, thank you so much. Thank you, Lori.

Alison Sider: The next question is from Alison Sider with the Wall Street Journal. Please go ahead. Hi, thank you so much. I just wanted to ask safety-related questions. You know, obviously the FAA review is just starting or hasn't yet started. But, you know, as you, you know, internally look at some of the incidents that you've had recently. Are there any common scenes that are emerging? Are there any lessons learned or changes that you're thinking about implementing to training or procedures?

Andrew M. Watterson: I just wanted to ask safety-related questions. Obviously, the FAA review is just starting or hasn't yet started, but as you internally look at some of the incidents that you've had recently, are there any common themes that are emerging? Are there any lessons learned or changes that you're thinking about implementing to training or procedures? Yeah, now I'll let, obviously, Andrew talk in detail, but I did want to take some time before our call ends just to reiterate that there's nothing more important than safety, period. You know, we have had recent issues, and we take them very seriously.

Speaker Change #130: The next question is from Alison Sider with the Wall Street Journal. Please go ahead.

Alison Sider: Hi, thank you so much. I just wanted to ask...

Alison Sider: a safety related question.

Speaker Change #132: Obviously the FAA review is just starting or hasn't yet started, but as you internally look at some of the incidents that you've had recently, are there any common themes that are emerging? Are there any lessons learned or changes that you're thinking about implementing to training or procedures?

Robert Jordan: Andrew can talk about it, but we've got a team focused on understanding what happened and how we can improve. I did speak to FAA Administrator Whitaker earlier this week to reinforce our commitment, my personal commitment to safety, and our support and really appreciation for the work that the FAA is doing. So I just want to preface anything we say about the issues with the fact that there is nothing more important than safety, and we fully support the FAA. Bob, I'll add to that.

Bob: I'll let Andrew talk in detail, but I did want to take some time before our call ends just to reiterate that there's nothing more than important than safety, period. We have had recent issues; we've taken very seriously. Andrew could talk about it, but we've got a team focused on understanding what happened and how we can improve. I did speak to FAA Administrator Whitaker earlier this week to reinforce our commitment, my personal commitment to safety and our support and really appreciation for the work that the FAA is doing. So I just want to preface anything we say about the issues with the fact that there is nothing more important than safety, and we fully support the FAA.

Speaker Change #132: I'll let, obviously, Andrew talk in detail, but I did want to take some time before, you know, our call ends just to

Andrew: Just to reiterate that there's nothing more important than safety, period.

Andrew: You know, we have had recent issues. We take them very seriously.

Speaker Change #133: Andrew can talk about it, but we've got a team focused on understanding what happened and how we can improve. I did speak to FAA Administrator Whitaker earlier this week to reinforce, you know, our commitment, my personal commitment to safety and our support and really appreciation for the work that the FAA is doing.

Speaker Change #133: I just want to preface anything we say about the issues with the fact that there is nothing more important than safety and we fully support the FAA.

Andrew M. Watterson: It's not just the words we say safety is a priority; it's in our actions as well. So our efforts started actually in April. We noticed some things that caught our eye that merited further involvement from us. So within the construct of our safety management system, we engaged our flight safety personnel within the company with the representatives from our pilots union, their safety committee, as well as the FAA and our certificate management office to set up a joint team to do some joint analysis and investigation of what are the root cause drivers and what are the actions we can take in the short term and the medium term.

Andrew Watterson: Robert, I don't know that. It's not just words; we say safety is a priority in our actions as well. So our efforts started actually in April. We know some things that caught our eye. We married it further involvement from us. So within the construct of our safety management system, we engage our flight safety personnel within the company, with the representatives from our pilot union, their safety committee, as well as the FAA and our Certificate Management Office to set up a joint team to do some joint analysis and investigation of what are root cause drivers and what are actions we can take in this short term in the medium.

Speaker Change #134: Bob, I'll add on to that. It's not just the words we say safety is a priority. It's in our actions as well. So our efforts started actually in April . We noticed some things that caught our eye that we merited further involvement from us. So within the construct of our safety management system, we engaged

Speaker Change #134: our flight safety personnel within the company.

Speaker Change #134: with the representatives from our pilots union, their safety committee, as well as the FAA and our certificate management office to set up a joint team to do some joint analysis and investigation of what are root cause drivers and what are actions we can take in the short term and the medium term.

Andrew M. Watterson: Some of the short-term actions were about enhanced communication and transparency because aviation safety today is based upon that kind of transparency and collaboration. So that actually led to us communicating proactively to our personnel about what's going on, which then, of course, led to these things getting out in the press and getting more media coverage. So there's a little bit of self-reinforcing there.

Andrew Watterson: Some of the short term actions was about a hands communication transparency because aviation safety today is based upon that kind of transparency and collaboration. So that actually led to us communicating practically to our personnel about what's going on, which then, of course, led to these things getting out in the press and getting more media. So there's a little bit of self-reinforcing there, but we clearly saw issues, and we clearly see things that we need to work on. So we have then, since that time, as we've dug into it, increased our focus and tempo on it.

Andrew M. Watterson: But we clearly saw issues. We clearly saw things that we needed to work on. So we have since that time, as we've dug into it, increased our focus and tempo on it, and the FAA has now increased theirs as well.

Andrew Watterson: And the FAA now has increased theirs as well. So this is a carrier, a certificate holder evaluation process. It's something that every airline goes through roughly every five years. But it can be kind of invoked all cycle. The FAA has already done that with one other airline this year. Now they're doing it with us. They can either do a kind of broad-based review or kind of audit or focus. They've chosen here as a focus effort for us. And so we expect that to begin here in the coming weeks and be a finite duration. However, the other work we've already started will continue.

Speaker Change #134: and Dan. Thank you. Thank you.

Speaker Change #135: Certificate Holder Evaluation Process. It's something that every airline goes through, roughly every five years, but it can be kind of invoked off-cycle. The FAA has already done that with one other airline this year. Now they're doing it with us. They can either do a kind of broad-based review or kind of audit or focus. They've chosen here as a focus effort for us, and so we expect that to begin here in the coming weeks and be a finite duration. However, the other work we've already started will continue. That process shouldn't kind of always be ongoing, and so both sides can flex in additional resources from inside companies, inside organizations, as well as outside. So this is a multilayer approach to safety, and I think it makes us better, but also it gives the FAA

Andrew M. Watterson: So this is a carrier certificate holder evaluation process. It's something that every airline goes through roughly every five years, but it can be kind of invoked off cycle.

Andrew M. Watterson: The FAA has already done that with one other airline this year, and now they're doing it with us. They can either do a kind of broad-based review or kind of audit or focus. They've chosen this as a focus effort for us. And so we expect that to begin here in the coming weeks and be for a finite duration. However, the other work we've already started will continue. That process shouldn't kind of always be ongoing, and so both sides can pull in additional resources from inside companies, inside organizations, as well as outside.

Andrew Watterson: That process shouldn't kind of always be ongoing. And so we can both sides can flex in additional resources from inside companies, inside organizations, as well as outside. So this is a multilater approach to safety. I think it makes us better, but also it gives the FAA more visibility to bring back into the rest of the aviation system and vice versa, because a lot of the topics we see other airlines see and vice versa.

Andrew M. Watterson: So this is a multilayer approach to safety. I think it makes us better, but it also gives the FAA more visibility to bring back into the rest of the aviation system and vice versa, because a lot of the topics we see other airlines do, and vice versa. So we're super happy to have this kind of great relationship and joint investigation. And I know a couple of the incidents seem to have involved less experienced first officers or people new in their seats. Is there anything that you're looking at specifically to address that issue?

Speaker Change #135: [inaudible]

Andrew Watterson: So we're super happy to have this kind of great relationship and 20 investigations. And I know a couple of the incidents, you know, seems to have involved, you know, for less experience, first officer or people knew in their seats. Is that is there anything that you're looking at specifically to address that issue? No, I would say that what we're looking at, and you've seen probably some internal communications, is human factors, so it's not the experience or airmanship necessarily of any individual. It's the what's called kind of generically in the industry cockpit resource management, the how you interact between the pilot flying the pilot monitoring.

Speaker Change #135: And I know a couple of the incidents, you know, seem to have involved, you know,

Speaker Change #135: for less experienced first officers or people new in their seats.

Speaker Change #136: Is there anything that you're looking at specifically to address that issue?

Andrew M. Watterson: No, I would say that what we're looking at, and you've seen prior to our internal communications, is human factors, so it's not the experience or airmanship necessarily of any individual; it's the, what's called, kind of generically in the industry, cockpit resource management, the way you interact between the pilot flying and the pilot monitoring. There's, you know, insights to be gained there, and I think that's what we We've brought in external help, the FAA is bringing in external help, and, you know, they've told us they've seen some other things elsewhere that have been helpful to us, so this is more about that dynamic than it is about any specific demographic. Thank you. The next question is from Mary Schlangenstein with Bloomberg News. Please go ahead.

Speaker Change #138: No, I would say that what we're looking at, and you've seen probably some internal communications, is human factors. So it's not the experience or airmanship, necessarily, of any individual. It's the, what's called kind of generically in the industry, cockpit resource management, the how you interact between the pilot flying and the pilot monitoring. There's, you know, insights to be gained there. And I think that's what we're focused on. We've brought in external help. The FAA is bringing external help. You know, they've told us they've seen some other things elsewhere that would be helpful to us.

Andrew Watterson: There's insights to be to begin there. I think that's what we're focused on. We've brought in external help; the FAA's great external help. And they've told us they've seen some other things elsewhere that have to be helpful to us. So this is more about that dynamic than is about any specific demographic.

Speaker Change #136: This is more about that dynamic than it is about any specific demographic.

Mary Schlangenstein: Thank you.

Mary Schlangenstein: The next question is from Mary Schlangenstein with Bloomberg News. Please go ahead. Hi, I just wanted to follow up on that. Andrew, what did you see back in April that triggered the Southwest Review? Was it some of the specific incidents that have been reported, or was it something else? And then the second question is, if this is a focused investigation from the FAA or focused review, is that focused solely on pilot training and just focus on pilot or what is the focus? There is a focus on flight operations and flight training, but there's a couple of items as well that will be finalized as they start up.

Speaker Change #136: Thank you.

Speaker Change #136: The next question is from Mary Schlangenstein with Bloomberg News. Please go ahead.

Mary Schlangenstein: Hi, I just wanted to follow up on that. Andrew, what did you see back in April that triggered the Southwest Review? Was it some of the specific incidents that have been reported, or was it something else? And then the second question is, if this is a focused investigation from the FAA or a focused review, is that focus solely on pilot training? And, you know, does it just all focus on pilots, or what is the focus? There is a focus on flight operations and flight training, but there are a couple of other items as well that will be finalized as they start up. So it's not everything; it's a handful of items.

Mary Schlangenstein: Hi, I just wanted to follow up on that. Andrew, what did you see back in April that triggered the Southwest Review? Was it some of the specific

Mary Schlangenstein: Incidents that have been reported or was it something else and then the second question is if this is a focused investigation from the FAA or focused review is that focus solely on pilot training and You know, does it just all focus on pilots or what is the focus?

Speaker Change #139: There is a focus on flight operations and flight training, but there's a couple of items as well that will be finalized as they start up. So it's not everything, it's a handful of items.

Andrew Watterson: So it's not everything. It's a handful of items. And with regards to the what color eyes, we had two flights of particular in April that had some similarities that caught our color eyes and let us start the start this process. So that was just one too many, if you will, and that's when we started up a staff, really literally within days of us seeing that we started the joint exercise with the FAA and our pilots again. Can you be more specific on what the similarities were? What problem did you see? Well, I won't go into too much detail.

Andrew M. Watterson: And with regard to what caught our eye, we had two flights in particular in April that had some similarities that caught our eye and led us to start this process. So that was just one too many, if you will, and that's when we started up ASAP. Really, literally within days of us seeing that, we started that joint exercise with the FAA and our pilots. Can you be more specific on what the similarities were?

Speaker Change #140: And with regards to what caught our eyes, we had two flights in particular in April that had some similarities that caught our eye and led us to start this process.

Speaker Change #140: You know, just one too many, if you will, and that's when we started up ASAP. Really, literally within days of us seeing that, we started that joint exercise with the FAA and our pilots union.

Andrew M. Watterson: What problem did you see? Well, I won't go into too much detail. I mentioned aviation safety is based on transparency and collaboration, and part of that is voluntary disclosure. So we incentivize individual actors within the air aviation safety system to self-disclose things that they see that they did in exchange for anonymity from that. And so I'm not at liberty to go into exactly what it is there, but you can see where the programs we've launched are, you can see where the FAA has launched, and how these things all fit together.

Speaker Change #141: Can you be more specific on what the similarities were? What problem did you see?

Andrew Watterson: I mentioned aviation safety is based on transparency and collaboration, and part of voluntary disclosure. So, since individual actors within the aviation safety system to self-disclose things that they saw that they did in exchange for anonymity from that. And so I will not liberty into going to exactly what it is there, but you can see where the programs we've launched because you have the FAA is launched and how these things all fit together. Thank you.

Speaker Change #142: Well, I won't go into too much detail. I mentioned aviation safety is based on transparency and collaboration, and part of that is voluntary disclosure. So it incents individual actors within the air aviation safety system to self-disclose things that they saw that they did in exchange for anonymity from that. So I'm not at liberty to go into exactly what it is there, but you can see where the programs we've launched, you can see where the FAA has launched and how these things all fit together.

Unknown Executive: This concludes our question and answer session for media.

Andrew M. Watterson: Thank you. This concludes our question and answer session for the media, so back to Whitney now for some closing thoughts. Thanks, everyone. If you 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. Unknown Speaker. The conference has concluded. Thank you all for attending. We'll meet again here next quarter.

Speaker Change #142: Thank you.

Whitney Eichinger: So back to Whitney now for some closing thoughts. Thanks everyone. If you have any further questions or communications, group is standing by. Their contact information, along with today's news release, are all available at SWAmedia.com.

Speaker Change #142: This concludes our question and answer session for media. So back to Whitney now for some closing thoughts.

Whitney Eichinger: Thanks everyone. If you have any further questions, our communications group is standing by. Their contact information along with today's news release are all available at SWAMedia.com.

Unknown Executive: The conference has concluded. Thank you all for attending.

Speaker Change #143: Thanks. The Cut.

Unknown Executive: We'll meet again here next quarter. E.