Q3 2024 Southwest Airlines Co Earnings Call
Hello everyone and welcome to the Southwest Airlines 3rd quarter 2020-4 Conference Call. I'm Gary and I'll be moderating today's call which is being recorded. A replay will be available on Southwest.com in the Investor Relations section.
After today's remarks, there's an opportunity to ask questions.
Speaker Change: to queue up for an opportunity to ask a question, press star then one. 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: Thank you so much, hello everyone, and welcome to Southless Airlines 3rd Quarter 2020 Fort Ernene's Call. I'm joined today by our President CEO Bob Jordan.
Julia Landrum: Chief Operating Officer Andrew Watterson and Executive Vice President and CFO Tammy Romo.
Julia Landrum: Bob will start a soft by reviewing the key points from our Southwest, even better framework. Introduce last month at Investor Day. And cover how our third quarter results reflect initial progress against our plan.
Julia Landrum: He will then turn it over to Andrew to share a date on our revenue and our industry leading operational performance.
Julia Landrum: Tammy Romo, to discuss our cost performance, balance sheet, and capital allocations before turning it back over to Bob, who will provide a restatement on Elliott Investment Management.
Julia Landrum: after which we will move into Q&A. Ryan Green, EVP of Commercial Transformation, is also in the room with us today to support Q&A.
Julia Landrum: A correct reminder that we will make forward-looking statements which are based on current expectation of future performance and our actual results could differ materially from expectations.
Julia Landrum: Also, we will reference our non-gap results, which exclude special items that are called out and reconciled to gap results in our earnings press release.
Julia Landrum: Our press release with third quarter 2020-24 results and a supplemental presentation that includes additional details on the expected e-bit contributions of our planned initiatives. As well as the draft initiative scorecard, we're both issued this morning and are available on our Investory Relations website.
Julia Landrum: and now I'm pleased to turn the call over to you, Bob. Thanks Julia, thanks everyone for joining us today. As you know, we laid out our Southwest even better, transformational plan a few weeks ago to invest your day. It's a plan designed to deliver increased value for our shareholders and our customers.
Julia Landrum: and since then we've engaged with many of our shareholders and I truly appreciate the constructive feedback. The Medley just simple. Now that we have set out a clear path that's all about executing and that's exactly what the team and I will be discussing today.
Julia Landrum: But before turning to that, I want to recognize the widespread devastation caused by recent hurricanes and communities across the southeast. While we were able to quickly recover our operation, we know that for so many, it will take much longer.
Julia Landrum: We're leaning on our dance floor disaster response partners providing financial donations and offering complimentary travel to aid in the recovery efforts.
Julia Landrum: and our employee catastrophic assistance charity is currently assisting all the employees requesting support to ensure that they're cared for and receive immediate relief. A hearts are with our employees and our communities as they recover and rebuild.
Julia Landrum: Returning to the business, I'll start by re-ebring, reiterating the path we laid out in how our third quarter results reflect initial progress against our plan.
Julia Landrum: As we shared at Investor Day our plan is detailed, actionable and highly intentional.
Julia Landrum: We are fully committed to delivering the robust set of tactical and strategic initiatives we presented and restoring the potential prosperity that our plan supports.
Julia Landrum: and the Southwest and our shareholders expect. That includes a steady march to delivering ROIC of 15% or higher, well above our cost of capital in 2027, even without tailwinds from our fleet strategy.
Julia Landrum: As part of the plan we provided specific targets for capacity operating margin, ROIC, leverage and free cash flow in 2027.
Julia Landrum: While we have worked to do all actions to achieve those goals are well underway and progressing as planned. The T.W. and I are accountable for delivering on the plan results and being transparent regarding our progress.
Julia Landrum: So that end we included a scorecard and supplemental detail this morning that we were used to report on progress against initiative development and expect it to have results including updates on critical milestones and the status of meaningful value capture going forward.
Julia Landrum: We also included additional detail this morning on the composition of the initiative driven EBIT contributions and how that builds between now and 2027, including additional clarification on the contribution from our fleet strategy.
Julia Landrum: at the highest level are planned build as follows. Value of 2025 is driven by improving the base business, executing tactical inefficiency and initiatives, and building the capabilities to launch our strategic initiatives.
Julia Landrum: Values created in 2026 through strategic initiatives coming online with the most significant value being unlocked through the introduction of assigned and premium seating options.
Julia Landrum: Finally, value in 2027 is created by the Initiative for Polio hitting Run Rate, where initiatives aimed at the core operation or size that roughly 3.5 billion of cumulative incremental EBITDA contribution, and this includes full realization of the cost plan.
Julia Landrum: When you add the estimated benefit from the fleet strategy, you get a $4 billion of total incremental event that we shared in investor day.
Julia Landrum: Importantly, we do not view the fleet monetization strategy as part of our core business.
Julia Landrum: While the combination of a favorable secondary market and our attractive aircraft pricing provides a unique and lucrative opportunity. The most significantly reduced our aircraft cap-X and drive earnings accretion. We feel confident that we can achieve all of our 20-27 targets.
Julia Landrum: even without the benefit expected from our fleet monetization strategy.
Julia Landrum: Looking at the second half of 2024, we're encouraged by both positive results from our recent actions and by recent industry trends. We are highly confident in our ability to deliver on our plan.
Julia Landrum: In terms of tactical initiatives, everything is progressing in line with what is needed to hit our 2025 commitment.
Julia Landrum: We had third quarter record operating revenues of nearly 7 billion and a unit revenue increase of 2.8% compared to last year. The improvement in unit revenue reflects both the more constructive industry backdrop and a proof point of our effective execution.
Julia Landrum: and ProBets resulting from our revenue management actions are particularly encouraging. The team is focusing on improving yields on our best performing flights while achieving a non-deludive load strategy on our lower demand itineraries.
Speaker Change: Well, not yet in the run rate, we saw better than expected improvement in 3Q and we are pleased to see all months in 4Q tracking as expected.
Speaker Change: Our strategic initiative work is also progressing as planned. On the seating and cabin front, we are working actively with both regulatory agencies and vendor partners towards successful approval and certification of our new premium cabin configurations.
Speaker Change: That would allow aircraft representatives to begin early next year. We will start with our larger aircraft and the 700 will follow. We are planning to retrofit 50 to 100 aircraft per month, completing the work late next year.
Speaker Change: We're also announcing today that we have signed our first three direct lodging partners for our getaways by Southwest product as planned to launch mid next year and that includes Caesars Properties in Las Vegas.
Speaker Change: And finally we are narrowing the launch date of our previously announced partnership with Iceland there to the first quarter of 2025.
Speaker Change: Looking at cost and efficiency of initiatives, we continue to expect to end this year with Head Countdown 2000 as compared to year in 2023.
Speaker Change: and proof turn times that reflected into existing schedules starting in November and Red Eye Service will begin next February.
Speaker Change: We're also very proud of our industry leading domestic operational reliability. We had the best completion factor and on-time performance of any major airline this quarter and Andrew Wisher additional highlight shortly.
Speaker Change: regarding progress on our fleet, monetization strategy, we're already starting actively exploring the market are encouraged by what we are seeing.
Speaker Change: All that said, while our financial results are demonstrating improvement, I recognize that we still have a lot of work to do to fulfill our commitment to return to prosperity. We have a great plan and I'm confident in our ability to execute and deliver and we will be transparent about progress and results along the way.
Speaker Change: It's a really exciting time at Southwest. I want to take a moment to recognize all the efforts by our incredible employees. You are committed to making this plan a reality. Thank you for all your extraordinary dedication. Our continued transformation progress would not be possible without all of you. And with that, I will turn it over to Andrew.
Andrew: Thank you, Bob and thanks to all for joining us today.
Andrew: To start, I want to emphasize how proud I am of our talent to team and resilient operation to enable self-west to lead the industry with the best on-time performance and completion factor in a major domestic airline in the third quarter.
Andrew: We managed to achieve these health and results despite a quarter-filled with challenging weather, including four named hurricanes.
Andrew: Overall, our third quarter completion factor was 99.3%.
Andrew: even with critical parts right network impacted by storms.
Andrew: These weather challenges continued into the fourth quarter, most recently with Hurricane Milton.
Andrew: where our operating team's coordinating incredibly well and we're able to plan in ways that allow for proactive cancellations with minimal disruption.
Andrew: In the face of these events, we remain steadfastly focused on safely delivering strong operational performance.
Andrew: Prioritizing the well-being of our people and supporting impact communities.
Andrew: Turning now to revenue performance for the quarter. As Bob mentioned, the benefits from the tax roll initiatives we have implemented are flooded in the strength of both our nominal and unit revenue growth rates.
Andrew: and are aided by a more constructive supply demand environment.
Andrew: with self-bus contributing significantly to capacity rationalization.
Speaker Change: Bob, cover the improvements we are seeing from our review management action plan, which are evidence by the yield improvements from the work we did to recap rate our systems and processes to better optimize the booking curve for our highest man's life.
Speaker Change: Third quarter of managed business revenue also grew nicely.
Speaker Change: with double digit year of year improvement.
Speaker Change: This was driven largely by GDS bookings and the success of our investment in self-worth business.
Speaker Change: We're continuing to see an increase in unique customers, up 7% year of year.
Speaker Change: Deacrepentration of our existing accounts.
Speaker Change: with 76% of the new individual travelers won over the quarter coming from existing corporate accounts, and finally strong yield performance.
Speaker Change: We're serving more managed business customers than ever.
Speaker Change: but they continue to take fewer trips per year and therefore occupy fewer seats than they did pre-COVID.
Speaker Change: So we continue to see opportunities to grow our manch business and backfill those things with our customers.
Speaker Change: I thought we also continued to focus on initiatives aimed at closing the look factor gap. They include network changes and distribution and marketing initiatives.
Speaker Change: Starting with our network schedule, starting with our network schedules from August 4, are designed to recalibrate supply to the man. This includes a whiny capacity to demand a specific geographies and also to seize the whole day to man patterns.
Speaker Change: Looking to the fourth quarter, we have created multiple schedules to adjust down for lower periods, including the anticipated election trust, and then don't increase white activity to capitalize on peak holidays again.
Speaker Change: We have made changes, we are seeing positive results and we expect to see additional benefits from changes in our 2025 schedule
Speaker Change: We also continue to extend the reach of our distribution and a low-cost fashion by adding new meta search partners including Google Flight to kayak earlier this year and just this month, SkyScanor.
Speaker Change: These channels have introduced Southwest to new customers.
Speaker Change: and strengthen our presence in point to say, I will have traditionally been weaker.
Speaker Change: What can you head to the fourth quarter as a result of our actions?
Speaker Change: Capacence restrictions have you down approximately 4% year of year. We'll see it's a trip down about 8%.
Speaker Change: We anticipate seeing the benefits for initiatives and the capacity moderation as random and reflective positive in August and we continue to see sequential rising acceleration into the fourth quarter.
Speaker Change: With that, we expect fourth corner rather than the up and the range of 3.5 to 5.5% on a year of your basis.
Speaker Change: The range conflicts just under a half a point headwind for booking cancellations of Sophie with Hurricane Bolton earlier this month.
Speaker Change: In addition to these review initiatives, a key part of our strategic plan is reducing operating inefficiencies and increasing asset productivity.
Speaker Change: Deese efforts are clearly paying off. For example, we continue to have industry-leading turn time, if we want to do even better. To that end, we have a plan to reduce our minimum turn, the time when the plan is unproductive at the gate by five minutes by November 2025.
Speaker Change: As we previously shared, this initiative is well underway and the reductions already built in the next month's schedule for 12 hour stations.
Speaker Change: The Turn Initiative will make our currently more productive and create the equipment of 16 free aircraft at System White of Lutation.
Speaker Change: As more investments come in the dayday operation, we're confident that the Southwest turn will be a unique competitive differentiator.
Speaker Change: In addition to roofing turn times, the introduction of red-eye flight is another key component of increasing asset productivity and improving the connectivity and efficiency of the network.
Speaker Change: The June 2025 Base Schedule with 33 daily red eyes will be published next week on October 30.
Speaker Change: As a reminder, the Turn and Red I initiatives allow us to have modest Europe-Europe-Europe passing growth of one to two percent in 2025.
Speaker Change: and limit our planned aircraft capex exclusively for fleet modernization.
Speaker Change: To recap, we are focused on delivering on our tactical initiatives, to drive financial performance.
Speaker Change: and will continue to look for opportunities to optimize their network, advance their revenue management capabilities and strengthen our marketing distribution activities.
Speaker Change: Before I close, I want to express my gratitude to our people for their focus on safety and worse spirit.
Speaker Change: which allows us to drive industry-leading operational excellence and provide our renowned self-assistality.
Speaker Change: We cannot do it without them.
Speaker Change: With that, I'll turn it over Tammy to share updates in our financial performance.
Tammy Romo: Thank you, Andrew and hello everyone. As Bob mentioned, just a few weeks ago, we presented our plans to transform South West to make our company even better, including atlining how these plans will restore our financial prosperity and drive sustainable shareholder value.
Tammy Romo: or focus on moving swiftly and deliberately to execute our plan, controlling what we can and adapting as needed.
Tammy Romo: We have the right team of play, supportive iron credible people whose warrior spirit, hard work and continue focus will help us deliver these results.
Tammy Romo: I am so appreciative of each and every one of our amazing and dedicated employees.
Speaker Change: at Bob and Andrews spoke to the macro revenue and operational performance. I will start with our cost performance and then cover fleet, balance sheet and capital allocation at dates.
Speaker Change: Looking at our cost performance, overall, our third quarter of a cast of X, increased 11.6% year over year on the better end of expectations.
Speaker Change: For the fourth quarter, we expect continued cost pressure driven primarily by new labor contract and over staffing with additional pressure from the lower capacity, including over a half point of unexpected unit cost had went from flight cancellations associated with Hurricane Milton.
Speaker Change: We currently estimate our fourth quarter counts of X to increase in the range of 11% to 13% year over year.
Speaker Change: We are deliberately pursuing actions to mitigate cost inflation. Looking ahead, we are in a much more stable position. We have ratified all 12 of our labor contracts, creating better cost certainty over the next three years for our largest cost item.
Speaker Change: We've implemented and voluntary leave and time-walk programs that allow us to reduce our overstacking impact.
Speaker Change: In addition, we outlined a cost plan at Ambassador Day, aimed at enhancing cost efficiencies, which includes improving efficiencies and our ground operations and optimizing our operations around our new labor rules.
Speaker Change: As we shared, we expect savings from the opportunities we've identified to ramp over the next three years and reach over 500 million in run rate cost savings in 2027.
Speaker Change: Distance and Strayes our commitment to driving efficiency and preserve our improved our relative cost performance.
Speaker Change: and again, benefits from the fleet monetization strategy would be incremental to these savings.
Speaker Change: Our third quarter fuel cost of $2.55 per gallon was in line with their expectations. And as we have seen, fuel prices come down recently.
Speaker Change: We now estimate fourth quarter fuel to be in the $2.25 to $2.35 per gallon range.
Speaker Change: Trying to our fleet, this is one of the key areas where we're seeing our prudent planning and ability to adapt really pay off.
Speaker Change: We came into the year expecting to receive 79 following aircraft deliveries.
Speaker Change: and March, Boeing informed us we would receive 46. After going through a detailed process we conservatively planned for 20 deliveries in April to reduce the risk of further operational impacts.
Speaker Change: As we close out the year, we have received 19 aircraft and expect to receive one more. Exactly in line with our internal expectations.
Speaker Change: and then third quarter we pull forward the retirement of six additional dash 724.
Speaker Change: Bringing our count for this year to 37-700 retirement and 4-800-laced returns for a total of 41 retirement.
Speaker Change: We shared our plans to opportunistically monetize the value of our fleet and order book at investor day.
Speaker Change: As a reminder, we are funding annual capacity growth of 1 to 2 percent over the next three years through our turn time, modernization, and red eyed wine. We've resolved an access to more aircraft that we need to fund our capacity plants.
Speaker Change: Therefore, the combination of a favorable secondary market, our attractive aircraft pricing, and the excess aircraft available in our order book provides this unique opportunity to reduce our aircraft capex and drive earnings accretion.
Speaker Change: We plan to capitalize on this opportunity through both cells and cell les facts.
Speaker Change: We will pursue our fleet monetization strategy with a focus on delivering a positive NPV across the portfolio of a cell-leaf back transaction.
Speaker Change: where actively exploring the market and our encouraged by what we're seeing. And again, we consider our free strategy as incremental to our core business.
Speaker Change: As such, we provided additional breakdown of the ebit contribution and our supplemental third quarter earnings materials available on our investor relations website.
Speaker Change: given the complexity of the transaction, the competitive nature of the market and the fluidity of new aircraft deliveries. We are going to limit the level of detail provided on feature transactions that we are planning.
Speaker Change: and of course we'll have to eat as we close deal.
Speaker Change: Regardless, our plan comfortably supports all of our 2027 investor-day financial targets without benefits from our fleet strategy.
Speaker Change: Ultimately, we remain committed to achieving our RLIC goals and in doing so have committed to longer-term capacity disciplines.
Speaker Change: With this discipline and the plans we have outlined, we believe we are well-positioned to achieve ROI state greater than or equal to 15% in 2027, which is well and excess of our wax.
Speaker Change: Our expected capital spending for this year is approximately 2.1 billion, which just under a billion is aircraft capex, excluding any impact from our fleet strategy.
Speaker Change: Obviously, there is a lot of uncertainty around future aircraft availability, given continued challenges at Boeing.
Speaker Change: We have taken this risk into consideration in our 2020-5 contingency planning.
Speaker Change: While planning and replanting, Romo and a challenge, our moderated to-passity plan reduces our need for new aircraft. And we have a lot of flexibility to make further adjustments with planned retirement.
Speaker Change: Following production is something we're watching closely and will defer providing more detail on tap-X and additional 2025 guidance until we have a better line of sight to an updated order book.
Speaker Change: Finally, our balance sheet remains a lasting competitive advantage, and we continue to be the only airline with an investment grade rating by all three rating agencies.
Speaker Change: We ended at their quarter and a net cash position with cash and short-term investment of 9.4 billion and I fully available revolving.
Speaker Change: Credit Line of $1 billion for total liquidity of $10.4 billion. Well, an excess of our $8 billion of outstanding debt.
Speaker Change: We remain committed to providing significant returns to our shareholders through dividends and share purchases. We have returned more than 13.7 billion through share repurchases and dividends since 2010, including 431 million in dividends to shareholders this year.
Speaker Change: As we announced that in Vester Day, our Board authorized a 2.5 billion share-reported program, which we expect to be significantly earning a creative.
Speaker Change: and as we announce this morning we will sing be launching an initial ASR under this authorization.
Speaker Change: So, as we wrap up, I want you to reiterate that we have a strong financial foundation and compelling plan to support our return to prosperity and strong shareholder return.
Speaker Change: We have a comprehensive and measurable plan that we expect will enable us to cover our wax in 2026 and achieve after tax RLIC of at least 15 percent in 2027.
Speaker Change: There is a significant body of work underway and we believe we are taking all the necessary steps to deliver.
Speaker Change: and with that, I will turn it back over to Bob. Thank you.
Bob: He thank you Tammy and before we go to Q&A I want to briefly address our recent settlement with Elliott last night
Bob: You know, the board has taken a lot of time to engage with shareholders and get feedback and take a significant step based on that feedback.
Bob: and there's been a lot of board refresh that had already begun and is ongoing and we're very pleased to have come to a collaborative resolution with Elliott.
Bob: You know, as we welcome our new member to our board, all of whom I had a chance.
Bob: to interview and talk to and get to know our focus remains on executing our plan and that's exactly what we're going to do. I can promise you it's all nice forward here, we work to set up South West for success for generations.
Speaker Change: to come and with that all pass it back to Julia to start our Q&A session.
Julia Landrum: Thank you Bob, this completes our prepared remarks. We will now transition to analyst questions. We'd like to get to as many of you as possible so we ask the please limit yourself to one question.
Julia Landrum: Gary, we are ready for the first question.
Gary: 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 were on a speaker phone today, please pick up your handset before pressing the keys.
Gary: The first question is from Stephen Trent with City, please go ahead.
Stephen Trent: Hi, yes, good afternoon everybody and thanks very much for taking my questions. I will just curious when we think about your chasm for 2025 and going forward.
Stephen Trent: How are you thinking about your goals with respect to sale leaseback gains in the event that you might not receive equipment at the pace that you're currently expecting. Thank you.
Stephen Trent: Thank you for the first time to say we obviously, as you just think about our unit costs.
Speaker Change: Generally today there are costs in there that are really one time step up. Things like labor, new labor agreements and you have costs and they're like the hurricane.
Speaker Change: that you are one time pressures that don't occur and you know, I just like the labor step-up, obviously we will laugh those.
Speaker Change: But there's a lot of work in our transformation plan that we put in front of you a few weeks ago a lot of that's around efficiency like the red eyes and pressing time out the turn, driving aircraft efficiency, and then there's cost plan.
Speaker Change: that were committed to fully realizing by 2027. And so looking at 25 and beyond, just going to, you're thinking about run rate.
Speaker Change: We're just not ready to guide you. There's a lot of uncertainty out there with Boeing, a particularly assault at the contract was not approved. And so it's just early to be able to guide to guide the year at this point. So I can see that something that we're very focused on. Tammy, if you want to add anything.
Tammy Romo: I'm not looking at my ad is just in regards to your question on the...
Tammy Romo: So, we back, you know, obviously we have flexibility there and those we would keep in our fleet for some period of time. So we continue to have opportunities there on the cell-leaf back front. And again, just a lot of flexibility to manage to the targets that we light out in the best of day.
Speaker Change: Appreciate the time. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Saudi Sith with Raymond James, please go ahead.
Speaker Change: Hey, good afternoon everyone. I just want you to take a picture from the...
Saudi Sith: Revenue trend perspective, just what you're seeing on the managed corporate side, as well as kind of generally how the quarter is progressing, you know, given the noise, I know there's called out the Milton, the target Milton impact here, but just wondering if there's anything else.
Saudi Sith: in the quarter that we should consider that's going to be on the core.
Saudi Sith: Plus, we were charged specifically to manage business. We did see during the hurricane, there was a different manage business travel because...
Saudi Sith: and as you might imagine in that geography and so that did have a dipdown within about the back up after both workings went through, kind of returned to its previous run rate. So we don't see any kind of structural change and demand for business travel at this point time.
Saudi Sith: and then obviously, generally on revenues, obviously, travel demand and vocings are strong. You're in the Ford Quarter and the holidays.
Saudi Sith: A period of look strong as well. We're really pleased that you saw our Unit Revitator performance in the third. We saw the action that would be taken to revenue management and that worked.
Saudi Sith: and distribution marketing, we saw an acceleration in the trans across the quarter and that continues here into the fourth quarter. So a good tell when from the actions that are being taken, sound very pleased with that. More to come, but we're on track.
Saudi Sith: in terms of the performance out of those tactical actions that we need to hit what we told you concerning 2025 goals in Investute Day.
Speaker Change: I appreciate that and Tammy if I might follow up on the previous question when it comes to Sally's facts, you know given the bowing delirentities is the consideration that it includes like existing aircraft in the fleet that you could do, Sally's facts or how are you thinking about it?
Speaker Change: that didn't answer.
Speaker Change: and the production.
Tammy Romo: Yes, thank you. So I mean, no, that's exactly right. You know, obviously aircraft in our fleet are certainly eligible. So it would include existing aircraft in our fleet. So that's.
Tammy Romo: So again, we have a lot of flexibility, I believe when it comes to the cell leafs back. With regard to outright sales, obviously, we would pay suppose.
Tammy Romo: Based on that would be to inform by a Boeing and the delivery schedule. So we've got some work to do here, given the news that was out yesterday.
Tammy Romo: Thank you.
Speaker Change: The next question is from Dwayne Fennig, where does this ever core ISI? Please go ahead.
Dwayne Fennig: Hey, thanks, not to be the dead horse, but dumb
Speaker Change: Certainly appreciate for competitive reasons you might not want to.
Dwayne Fennig: Be that specific, but many investors left the investor day with the perception that fleet monetization over the three-year time horizon.
Dwayne Fennig: Only means sale lease back gains, is that how industrial should be viewing? Is that the right takeaway or is it more than that specifically on the new side?
Speaker Change: Yeah, Julia, now it would include potential sales and that's over the three-year period. And we'll just have to obviously consider the fluidity of the situation at Boeing. But just again, we have 694 aircraft in our orderbook and with our moderated capacity plans, we don't need that many airplanes.
Speaker Change: will manage accordingly based on
Speaker Change: Let's throw in our way with regard to the situation at Boeing, but certainly in the nearer term, we have opportunities.
Speaker Change: without consideration for cell leads back. So, we'll, as always, the world's constantly changing, but we, again, just have a lot of flexibility and we'll take the news that...
Speaker Change: that we all heard yesterday in the consideration as we fill it with a fire plan for next year.
Speaker Change: Yeah, we were clear by politics, that we were clear to the investor day that yeah, we were going to be working.
Speaker Change: we will be monetizing
Speaker Change: the value that is in the fleet order book and yeah that could be selling these backs could be direct sales we flexible on that front and obviously take it to a count where we are with the market looks like but I think we're open to whatever approach maximizes that value
Speaker Change: Thanks and certainly appreciate the uncertainty with respect to fleet next year, but can you give us any high-level shaping on cost trends, non-till cost trends, maybe first half?
Speaker Change: Second half is the...
Speaker Change: Down 1-3, I think, in the first quarter, is that new information or was that kind of your thinking at Ambassador Day? And it just put a ball on it. Like when do you expect, you're not revenue growth to exceed non-fuel cost growth? Thanks, thanks for taking the questions.
Speaker Change: and yeah, when you were referencing was our capacity, I believe our capacity guidance. We did not worry about that. Yeah, we didn't provide a Casem X.
Speaker Change: Guidance for next year and we'll come back given the moving parts here at our next earnings call and give more specific guidance.
Speaker Change: for next year, but our target's that we provided it in best today with regard to our operating march and follow that still, all of that still stands.
Speaker Change: Okay, thank you.
Speaker Change: and welcome.
Speaker Change: The next question is from Tom Fitzgerald with TD Cowan, please go ahead.
Tom Fitzgerald: Hi everyone, thanks very much for the time. Would you mind providing us an update with where things stand with your riveting management system? Is there a given you a tailwind now or what's the latest on that? Thanks.
Tom Fitzgerald: at Biggestom Sandroops.
Speaker Change: The, I would classify the system and processes and organizations together, it wasn't just one thing the combination of factors. And we put those into place in late due to, and if you recall, we had to work out today 2.3, and we ended up with just a 1.3, so that shows that we saw an inflection point in that we highlighted, I think it's best stated, August was a, particularly, inflection point where we saw that, particularly the last half of August.
Speaker Change: We've recovered our system, hired new people, put up place new processes, new tooling to support them, and that is driving yield growth on our strongest flights.
Speaker Change: which is the objective so we can see the intended actions are manifesting an actual outcome so it can be confidence that it is the working force.
Speaker Change: Thanks very much, that's really helpful, Andrew. And then any color, it seems like a standard go to least interim and fairs in Hawaii, have been picking up lately. Are you seeing any benefit from that? Thanks again for the time everyone.
Speaker Change: My pleasure, so you know, why we view the franchise, but knowing there's different parts to your franchise
Speaker Change: and we have seen results of our focused efforts that we mentioned in best today. We're seeing Raddom increase quite significantly above system Raddom, which is as you saw from our results also increasing. And that is both for Inter-Island and mainland to Hawaii. And so we're pleased with the progress. We have teams that are cost-functional teams that are organized to focus and drive this.
Speaker Change: and we're seeing the results of those efforts and those continuing and moving to New York to a new research business case.
Speaker Change: and you've got future actions coming next year around moderating, modestly moderating, inter-elevant capacity and then adding red eyes and...
Speaker Change: The next question is from Scott Group with Wolf Research. Please go ahead.
Speaker Change: Hey, thanks, good afternoon. So I apologize for turning this into a soundly spec call, but I am still a little confused because I think I heard something different at the analyst day than when I just heard. So maybe time may you just clarify, like, the 3% to 5% margin for next year.
Speaker Change: does that include or exclude any potential sale we spec, and then just separately on the cost site, I know we talk a lot about Kazum, but if I just looked...
Speaker Change: Two-three's got...
Speaker Change: and police down 1% and labor cost up 18% year over year. I know we've got new contracts, but I don't know that there are not much. Can you just help us understand why labor costs are up so much?
Speaker Change: Yes, so I'm your first question.
Speaker Change: on the Martin guidance that was provided in investor day.
Speaker Change: We provided your range below end of that range would be without the fleet monetization strategy and the high end of that range contemplates our fleet strategy. So that is, and which is why we provided.
Speaker Change: Provided you arrange so you can think of it more or less with or without the fleets strategy.
Speaker Change: So, hopefully that clarifies that and then with regard to the cost pressures, we...
Speaker Change: Looking ahead, I guess as a starting point, we would expect for next year just our normal inflationary cost pressure to continue and keep in mind and an important.
Speaker Change: input into all of that is our moderated capacity growth. So as we've already shared, we will be moderating our capacity growth next year.
Speaker Change: and then we'll also have a cost associated with the investment and the launch of our assigned meeting and premium seating initiatives.
Speaker Change: but off setting, we'll re-rely saving from our cost plan. So again, we'll provide more insight into all of that on our next earnings call. And...
Speaker Change: but the inflation cost obviously was much more significant and as Bob said we'll be laughing some of the abnormal labor cost pressures, but there is just normal.
Speaker Change: and Slajnary Cost Pressure's faked into our labor contracts. And that includes also some work world changes as well.
Speaker Change: that is all factored into again the guidance that we gave you for next year for an operating margin in the 3 to 5% range.
Speaker Change: Okay, thank you guys for sharing it.
Speaker Change: The next question is from Jamie Baker, which AP Morgan, please go ahead.
Jamie Baker: Oh hey there everybody's gots question was the same as mine so we should interpret today's three to five percent margin as essentially a guidance lift versus last month since a fleet of initiatives are now separate correct.
Speaker Change: Now, if there's no change here in what we said at a Vester Day, Jamie is, it's X, you know, the 3%, the 3% is X fleet on operating margin and the 5% would include fleet.
Speaker Change: Jamie for each year there was a page in there that we had an operating margin range and we had an ROIC range and the way to think about that is one is without fleet and base business and one is with fleet.
Speaker Change: and then I think for 2027, you know, we said that the ROI C greater than or equal to 15% would be exceeded with end with L-flave.
Speaker Change: So yeah, the ranges were intended to provide you with and without fleet number. And then I think we also clarified that the fleet contribution was roughly 500 million a year.
Speaker Change: Okay, so the change in tone Bob in your prepared remarks and in the answers on this topic
Speaker Change: What drove that? Was that something maybe Elliot pushed for? Was it just sort of trying to clear up misperceptions and I'm just just curious, you know, and all for what's not just called out as a special item, you know? On the fleet? Yeah. Yeah.
Speaker Change: No, no, no, no, no, nothing, I, in fact, I thought we were cleared in Vester Day about the, you know, the whitham without
Speaker Change: and then on the scorecard, you grab scorecard that we presented today.
Speaker Change: and it even more clarity around the decomposition but that also the whistom without fleet and then the fleet of composition across the year. So no, that doesn't do with no connection to Ellie at all now in subsequent.
Speaker Change: After a Vester Day, as you would have guessed, we did a lot of shareholder engagement discussions.
Speaker Change: One of the items was, hey, you know, little more clarity on the EBITDAC in 27 and some of the things you just talked about, which is why we added that into the presentation that was filed this morning.
Speaker Change: and then for my second topic, just quickly on loyalty, it seems to me that with the Lopa changes and the plans to better monetize the cabin, that there could be room for a more premium credit card than I guess two consumer cards that you offer through Chase right now. I'm just wondering, like mechanically how does that work? Are you that free to potentially...
Speaker Change: Offer a third card if you choose to, or does that require reopening the contract, you know, stuff like that. Just just wondering about those mechanics and whether there's maybe a loyalty benefit on top of the cabinet and stuff that you've already announced. Thanks in advance.
Speaker Change: Well, I'll let Ryan take the details, but I think what we said in a best-tour day was that there is a lot of opportunity inside everything we announce. Things like the seating changes, the airline partnerships.
Speaker Change: Getaways all that to further monetize the car, the relationship with Chase.
Speaker Change: and there's just work to do there and generally what could be, you know, a tailwind there with continuing to monetize the chase, relation chip.
Speaker Change: was not included in the numbers that we gave you at Investor Nation. So it's on top of that, there's work to do there, but just the mechanics of how you get there, obviously it's a negotiation I'll let.
Speaker Change: and Ryan Talk about that. Yeah, Jamie. We can't do, we could not just create a card on our own, absent shades. They have to underwrite it. We have to come to agreement on what the associate benefits with the card, with the new card product.
Speaker Change: is, and what the economics around that is.
Speaker Change: We do those things.
Speaker Change: from Time to Time, and we have to, there are boarding benefits associated with our cards today that will, the longer be relevant and an exciting, and premium seating world. And so discussions which, so just how we're going to evolve the product structure.
Speaker Change: to account for NSI and seating, and pre-seeding world are currently underway. It doesn't take a reopening of the entire contract. We can make amendments to the contract, but yeah, that's a conversation between us and Chase.
Speaker Change: That's very helpful. Thanks everybody. Take care.
Speaker Change: The next question is from Dan McKenzie with C-Port Global Securities. Please go ahead.
Dan Mckenzie: Oh, hey, thanks guys. Bob, I know it's really early and I know your focus is the current plan but when you are interviewing the board editions, I'm curious if the new members have begun to affect your thought process initially.
Dan Mckenzie: and if there are any ideas shared that you're contemplating and I guess how the current strategic initiatives are being received.
Bob: You know, Dan, I, I, I'll make you a little broader answer just to just kind of clarify all this and we, um
Bob: The board has been undergoing a lot of refresh that was on that was going on before Elliot and then obviously that's accelerated
Bob: and we announced the six off and then with Gary Seben.
Bob: and then we've been looking to fill those and we feel one of those with peace out with Pierre.
Bob: and then the five from Elliott and just to make sure you know that I had a chance to interview their slate.
Bob: and I'm talking to those folks extensively about their views of Southwest.
Bob: What they bring to the board, what they bring to Southwest Airlines, and I can tell you that they're all committed to serving Southwest and looking forward to be part of our board at Surring our shareholders.
Bob: The obviously we've added a number of airline experts.
Bob: both through Southwest and then with what was announced last night. So we've added, you know, we've had the ball for D'Aro and now Greg Suretsky and David Kush.
Bob: and they all bring a wealth of airline experience.
Bob: and what I like is that they bring a variety of experience. And so you've got folks that have started airlines have worked obviously at ULCC's, low cost.
Bob: something closer to a legacy and so and have had a lot of different types of service. Not arguing that we're going to do any of those things as South West Airlines, but they will certainly help.
Bob: Stretch our thinking, obviously there'll be another plan after this plan. We're always evolving.
Bob: So I have their input will be welcome and I think constructive in terms of how we think about Southwest 5 and 10 and 15 years from now. At the same time, I can assure you they all have genuine respect for Southwest or history or culture.
Bob: and are all looking forward to working together.
Speaker Change: Congrats on putting that behind you. Tammy, thanks for the comment around the fleet, monetization strategy and apologies for going back to this end. But is the primary driver of the best situation?
Speaker Change: The New Year's Eve,
Speaker Change: What the big drivers are to that afternoon or that range.
Tammy: Yes, the big driver of course would be the gain that we would report. Again, we have very attractive pricing on our aircraft and on our existing fleet, of course, that would be reflected in the netbook value. So the primary driver there would be the gains on the monetization of that strategy, particularly for the potential aircraft failed.
Speaker Change: Okay, thanks for that, appreciate it.
Speaker Change: Good night. Excuse me. The next question is from Connor Cunningham with Millious Research. Please go ahead.
Speaker Change: Everyone, thank you. I'm the one billion dollar EBIT build you call that for 25.
Speaker Change: I believe most of that's relevant, but could you just talk about what percentage is already enacted? You just show a ongoing...
Speaker Change: Network Optimization and I know you're doing marketing now in Revenue Management. But if you could just like talk about where we're at in terms of percentages of that party in the network today. Thank you.
Speaker Change: is that the network changes or the overall revenue progression. So yeah, the ones you have 1 billion of be a bit.
Speaker Change: coming from network optimization, marketing, and so on. What is already in the market? I know you made a lot of adjustments to your network in general and you're doing marketing, and so on. But if you could just level set up on what's already been put out there. I'll just add a little bit more.
Speaker Change: Andrew, come behind with details. Obviously, you've got three things. You've got the revenue management.
Speaker Change: Changes that were enacted primarily to take effect in August you had network changes that are ongoing. These are another set that comes into play next year where things like Atlanta.
Speaker Change: and then you got the distribution and marketing efforts and changes, things like Sky's Canada that just went active and the ones that are in place today primarily revenue managed but are the contributor to why we're seeing.
Speaker Change: the Acceleration and the Unerevity Trends across the third quarter and that so far is continuing into the fourth quarter.
Speaker Change: So you take all that together, what is in place so far, which is again, some network primarily revenue management, we're on track for what we need to see in terms of improvement to hit that 1 billion in 2025.
Speaker Change: That's a little different than your question. I can't quantify, but the main point is that we're on track.
Speaker Change: in terms of a bill to hit that 1 billion in 2025. You're right, but I'll think they're decomposed. We have not much and when it's stuff like that, but as far as the actions lead to that value.
Speaker Change: the Network, I have mentioned earlier we publish next week through the summer so what you'll see then will be reflection of the network changes largely in place then.
Speaker Change: Then you have the Reburement Management and Marketing Activities which you have the first couple waves of those are already being implemented and you're seeing them ramp up in their benefits. There are further actions to come and both Reburement Management pricing and the marketing distribution for us to drive further value to get to that tactical initiative to business case that you'll see reflected in 2025. So I would say that a lot of the actions.
Speaker Change: are done in underway in the market, but the value would ramp up as we progress the next year.
Speaker Change: Got it, that's all for the moment.
Speaker Change: and maybe back to the hide-coun.
Speaker Change: Question that Scott was talking about.
Speaker Change: I know you're offering paid time off to some employees and you're working through headcount general through natural attrition. Has there been any internal debate though around being more aggressive with tech? Whether it's early retirement or so on, raise a while I ask your buying back stock, you feel comfortable with the outlook.
Speaker Change: has a lot more focus on trying to get heads out that aren't as much as it is productive.
Speaker Change: as they're going to be given your expectations around Cassica. Thank you.
Speaker Change: Thank you, just a level set on where we are, that's all I've done to our commitment was to be down
Speaker Change: you know 2000
Speaker Change: Headcount this year compared to last year, you know, even on modest growth and we're on track to do that.
Speaker Change: We have another kind of invisible, we have another close to 2000 that are effectively out through the short term leave programs, you know, a day a week a month kind of thing So they show up as an FTE but there's no cost because they're effectively on short term leave, we're basically just time off without pay
Speaker Change: and then we're committed to being down again next year.
Speaker Change: Now, your question is, are we willing to go farther? And as part of the Cos project, in addition to sort of your typical...
Speaker Change: Supply chain efforts, pickups, you know, parts, all the kinds of things that you know, efficiencies will be working hard on overhead.
Speaker Change: and we work our way through that which we are just now starting.
Speaker Change: I'm not predicting anything but we've done it before.
Speaker Change: We do offer tools around things like earlier. We just need to first see the numbers understand where we are and then look at what tools it takes to hit the target. So we'll have a lot more for you as we progress our way to the cost initiative.
Speaker Change: but just start with we are committed to hitting the cost initiative, you've committed to being more efficient.
Speaker Change: across the company through overhand, you know, corporate overhead and we use the techniques that we need to get there.
Speaker Change: I think Bob sometimes people do a FTE time to salary equals a cost which is appropriate for a white color workforce but for an hourly workforce it misses the fact that there's hours in there so if you were to look at their groundoffs
Speaker Change: and Public Daddy say FTE's per trip of about 22% versus pre-pandemic. Book of the hours we paid, it's up 14%. So you see a big gap between the hours we're paying out and the head count.
Speaker Change: Now that residual 14% is still something we need to work on, but you could take roughly half of that and say that is that is staffing. We needed pre-candemic that we didn't have and we saw we were going to start with LA if we needed to have that. So that is in there and the portion of that which is like we need the airline industry as a economy in general, we're less productive efficient than we used to be.
Speaker Change: So the works we have going for, whether it's the turn, red eyes, standards, we're putting in place lots of other tools, we're going to work down that kind of inefficiency that's come in post-pandemic. And then also work back that extra headcount, the needs of the extra headcount that we saw that we needed because of the winter ops demands.
Speaker Change: and so the over-safety portion has been mitigated by the reduced hours that illustrated earlier, but the remaining hours are needed for the operation we have.
Speaker Change: yet there's still a need to get more efficient. And so we need to get more efficient is the next step and our journey not necessarily less people since we've got the hours down with regards to this particular workgroup. And many of the workgroups are the film or dynamic. The one workgroup that does not have that dynamic is our pilots as we've discussed previously. However, and so this year we are paying minimums, meaning there's times when we don't need as many pilots as we have. Not every month, but another month this year.
Speaker Change: We add redize next year, that will then start to eat into that period of pain, minimums because that will be incremental flying for which we don't need incremental pilot. So it's a journey, but you can't just do the FTE's time, salary, math, until a potential savings, you have to really work through the hours.
Speaker Change: This is an hourly workforce, except for the overhead, which Bob mentioned.
Speaker Change: Appreciate the detail.
Speaker Change: Just one final just note that might be helpful just on the
Speaker Change: What's embedded in terms of the net overstaffing impact as I shared I believe at investor day
Speaker Change: We expect that to be roughly $120 million this year, and as Andrew took you through, the impact is primarily coming from our pilot work group. And just to demonstrate how we're continuing to work that down, for the fourth quarter that impact is expected to be less than $20 million, again, with that impact coming primarily from the pilots.
Speaker Change: initiative next year to continue to rein in the impact from overstaffing.
Speaker Change: A lot of details. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Chris Stathopoulos with SIG. Please go ahead.
Chris Stathopoulos: Thank you, good afternoon everyone. Bob, keep it to one question, three parts here though, and it's really about capacity. I want to take it back to your opening remarks when you talk about tactics and strategy. So as we think about, you know, the network for 25,
Chris Stathopoulos: Could you speak to the composition, so stage, gates, departures, and then also
Chris Stathopoulos: where you see the opportunities, where you're focusing on, I guess, and, you know, within those markets, is that going to be more about frequencies and connectivity? And then part B, so the 1 to 2% guide for next year, it's not a wide range, it's a point, but all the moving pieces.
Chris Stathopoulos: particularly as they relate to the revenue side. Why isn't 1% a better way to think about this? Again, all things considered with the plan out there and how dynamic the marketplace is. Thank you.
Speaker Change: You bet and
Speaker Change: just this capacity and what that kind of decomposing that generally
Speaker Change: Maybe a couple things. I'm sorry to be redundant, but you know, the capacity that is being created is being created through initiatives.
Speaker Change: just making sure that that's clear. It's coming from red eyes in the turn, compression that creates a significant amount of aircraft without having to apply aircraft CAPEX.
Speaker Change: The modest capacity that we do have is being created without spending money to buy those aircraft.
Speaker Change: on the decomposition of the network, and Andrew can add a lot more here.
Speaker Change: We're basically
Speaker Change: pulling capacity from areas that may be struggling a bit. You saw the changes we announced to Atlanta, Chicago, O'Hare, we closed a few cities and then being generally redeployed in points of strength like the Nashvilles and Austins.
Speaker Change: Those kinds of things and it's a it's a little bit of everything. Sometimes it's a new route. Sometimes it's frequency on a route Andrew I think generally
Speaker Change: The stage is continuing to rise Just generally as maybe a Maybe a little rule of thumb, you know Especially with business travel continuing to not be all the way back and put some pressure on short haul but
Speaker Change: The thing we're going to do is we're going to continue to apply capacity and points of strength and where we see the demand on the
Speaker Change: narrow range between the one and the two yeah that that's really really tight I'm not sure I understand the question on why why one versus two
Speaker Change: But it's really a modest amount, and that already creates, obviously, unit cost pressure to be growing at that small of a rate.
Speaker Change: and anything below that, you know, exacerbates that, but we're just committed to a lower capacity number until we earn our cost of capital, exceed our cost of capital, and hit the targets that we've talked to you about. Now, the wild card, obviously, for 25 is what about Boeing?
Speaker Change: I'm proud of our folks. They planned really effectively for 24. We planned for a strike.
Speaker Change: We created our own number of 20 deliveries and it's going to come in right on top of that and 25 If the strike goes much longer, there'll be an impact. We have a lot of flexibility in the fleet We'll have to deal with that and adapt
Speaker Change: But the strike goes a long time. It's going to make it hard. I'll just admit it's going to make it hard to hit those, you know, a higher end certainly of that capacity number because you're just not getting the deliveries.
Speaker Change: So, a lot of this is really up in the air until we know more about Boeing, when the strike ends, when they get back online, and when they hit their rate.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: So I just would say that, you know, 25, we just owe you an answer there as we know more about Boeing. And then just on decomposition, Andrew. Yeah, we already see this year that our stage inflected upward. It was pushing mid-single digits. And as we go into next year, you can see what's already published, that our trips are going to be down year-over-year, but our actual gauge of our aircraft is up about 1%, and those months are already published.
Speaker Change: and you start to get to the lower single digits for stage increase. So the stage and gauge...
Speaker Change: will drive ASMs on reduced frequency and so you can, you know, infer by that these are going to be not short-haul business markets necessarily, but a kind of mixed business leisure and that more medium, what we call medium haul distance, which is, you know, around about thousand miles on average is what you can
Speaker Change: and expect to see for all the new stuff.
Speaker Change: Thanks for watching!
Speaker Change: Okay, great. Thank you.
Chris Stathopoulos: Thank you, Chris.
Speaker Change: Okay, that wraps up the analyst portion of today's call. I appreciate everyone joining and hope you all have a great day.
Speaker Change: Thank you for watching!
Speaker Change: Ladies and gentlemen, we now transition to our media portion of today's call.
Speaker Change: Ms. Whitney Eichinger, 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 please share instructions on how to queue up for a question?
Gary Seben: To queue up for an opportunity to ask questions, please 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.
Gary Seben: Thank you for watching!
Gary Seben: Thank you for watching!
Speaker Change: The first question is from Robert Silk with Travel Weekly. Please go ahead.
Robert Silk: Oh yeah, hi, thanks for taking my question. Probably a question for Ryan, the Getaway product, have you decided yet if you'll work, if you're going to only sell direct, or will you also be selling through travel agencies? And the second part of that question is, you all noted Steve Thursday as a partner, he said there were two others, are you able to say what the other two are?
Speaker Change: Sure, yeah. Getaways, as you know, will launch mid-next year and today we announced...
Speaker Change: Partnerships, three direct lodging partnerships, Caesars Entertainment in Las Vegas, and then Sandos and Playa in Cancun in the Caribbean are the three direct lodging partners.
Speaker Change: We also, you know, we have...
Speaker Change: Access to hotel inventory outside of direct lodging partners as well. We announced our bed bank partner.
Speaker Change: today, hotel beds as well.
Speaker Change: And there are a couple other announcements out there on some technology that we're using to package the
Speaker Change: put the packages together.
Speaker Change: A lot of announcements today, making really good progress towards our launch mid-next year.
Speaker Change: As it relates to how we're going to go to market there, primarily it'll be direct from our website. We have the largest airline website in the United States. We carry a lot of
Speaker Change: customers to these large leisure markets that have the highest share of packages. So we've already got, we already have customers on our website that we can monetize these packages to.
Speaker Change: You know, does that mean that we won't sell through travel agents at all? That answer, you know, the answer there is no. But the primary the primary source of that will be our own direct distribution.
Speaker Change: Thank you.
Speaker Change: okay so you may still work through you are still going to have is it going to be select agencies or will there be a general
Speaker Change: General, reach out to agencies.
Speaker Change: Yeah, well we're working through our go-to-market plans on that so there's nothing to share specifically on that today but I think you should just think about it generally as primarily a direct distribution on our own through our own channels.
Speaker Change #100: Thank you.
Speaker Change #101: The next question is from Rajesh Singh with Reuters. Please go ahead.
Rajesh Singh: Hi Bob, I have two questions, one on Boeing and second one on Elliott. When does Boeing start impacting your growth plans?
Speaker Change #103: Well, on Boeing, I think we just, you know, we just don't know. I mean, we're already, like we talked about, we were expecting near 80 aircraft this year. We're going to take 20, so we're far off of our plan.
Speaker Change #103: We will no doubt be far off of our contractual plan next year You know the fact that we've lowered our capacity Appetite to one to two percent is certainly helpful. Have we if we've been at something higher we'd have a much more difficult issue
Speaker Change #103: We do have a lot of flexibility in our fleet plan because of that, because we just need a smaller number of aircraft to fulfill the growth, and the growth is coming through initiatives anyway. But at the end of the day, we need a good Boeing.
Speaker Change #103: and a strong Boeing and we need a Boeing that is on track in terms of its rate and on track and in terms of its delivering its aircraft to Southwest Airlines.
Speaker Change #103: So we can tolerate you know a bit of an interruption here with the strike because we planned for it But if the strike goes much further obviously we'll have to decide
Speaker Change #103: Howie
Speaker Change #103: We adjust our fleet next year or, you know, adjust our appetite in our schedule. So, a lot more to come there, obviously, in terms of Boeing clearing up what's happening, and then second, once we know that, we can deal with what we can do to mitigate the impact.
Speaker Change #103: But no, it's an issue for sure.
Speaker Change #104: Some people are calling it more of a truce than a peace deal. Do you foresee it being disruptive going forward for your turndown strategy?
Speaker Change #105: We'll first...
Speaker Change #105: I just remind you that
Speaker Change #105: The board has been in an ongoing, long-planned, refreshed,
Speaker Change #105: refreshment period here. We've added a lot of new members. We had already announced that we would have six step off and then Gary
Speaker Change #105: So that's seven, and we did accelerate that to November 1st as part of the agreement. We had announced seven were coming off, and we had plans to, if we couldn't get an agreement with LA, continue to march through filling those seats, which is what you saw with us adding Pierre.
Speaker Change #105: So, it's basically seven off, six on with Pierre, so the board is still shrinking.
Speaker Change #105: I think that the main thing is that it is a portion of the board. It's a portion of the board. It is not control. It's not control of the company, not control of the board. It's a subset. And then really our focus has been on interviewing these folks and understanding.
Speaker Change #105: what they bring to the board, who they are, what their personalities are like, how well they'll get along with our current board members and assimilate. Because at the end of the day, you want great board members to support Southwest Airlines and our shareholders and our plans.
Speaker Change #105: And again, I had a chance to interview their five that we took.
Speaker Change #105: and I think we've got some great board members here. They bring a wealth of experience.
Speaker Change #105: and they'll be additive to our board. So whether they came from Elliott or another route, we're just looking for good board members. If you just go down the list, again, Greg Sretsky, a lot of airline experience, WestJet, Alaska, Cush,
Speaker Change #105: experience with Virgin America and others, Sarah Feinberg, Governmental Affairs, FAA background, Dave Grissom, President Marriott, a lot of retail, Patty Watson, a CIO at NCR, brings a lot of technology experience which we can use, and then Pierre Breber who we
Speaker Change #105: who we have sourced ourselves, a retired CFO at Chevron, brings both a financial background and brings an oil and gas background. So all of those folks, I think, will serve our board, bring expertise, and serve our shareholders well.
Speaker Change #106: Thanks a lot, Bob. Absolutely, sir.
Speaker Change #107: The next question is from Leslie Joseph with CNBC. Please go ahead.
Speaker Change #107: and many more. Thank you for joining us. I'm Robert Jordan.
Leslie Joseph: Hi everyone, thanks for taking my question. Just curious, on the MAC-7, knowing what we know now,
Leslie Joseph: When do you reasonably expect that to fly for Southwest?
Leslie Joseph: And then secondly, this is a little existential, but Boeing is looking at, you know, it's...
Leslie Joseph: what it would look like in five years, slimming down and all its changes. How do you, you're making a lot of changes at Southwest, how do you see the airline in five years time and 10 years time and do you think it'll look a lot more like some of the legacy carriers and how do you expect to stand out? Thanks.
Speaker Change #109: The change we have, you know, our engineers have confidence in the technical changes that are proposed. The FAA will ultimately decide if it's sufficient, and once that is sufficient, then they have to then finish the rest of the work.
Speaker Change #109: the certification activities, which to us look almost all but done. And then after that we'll need at least a...
Speaker Change #109: a six month lag between that and us putting in revenue service because obviously we have to then bring it into our certificate, get our manuals updated and approved by the FAA and such and you obviously can't rush those type of things.
Speaker Change #109: So, therefore, our plan for next year does not include the MAC-7, but our plan for the following year could. You know, given that the Boeing's delivery foibles over the last few years, we don't lock down that plan with regards to their delivery.
Speaker Change #109: type of gauge they deliver to us at this point in time. But as we get closer and we do see the certification and we can in earnest put in the details in our 2026 plan, we would then perhaps integrate that into our flying schedule.
Speaker Change #110: And Leslie, just on the maybe the longer-term Boeing longer, you know much longer term Southwest Airlines I'll tell you we've got a great order book in place with Boeing that goes through 2031 Access to a lot of aircraft at very attractive pricing. So we've got really good protection there
Speaker Change #110: kind of no matter what we want to do with that. We've talked a lot about monetizing, the opportunity to monetize the fleet, but we have access, again, the main thing is we have access to a lot of aircraft at terrific pricing, and we need Boeing to, you know, to fix the issues and deliver those aircraft. As you think about
Speaker Change #111: further than that. Maybe that's where you're going. Number one for Southwest Airlines, we're focused on delivering the transformational plan that we just laid out a few weeks ago.
Speaker Change #111: signed seating, an extra legroom, and partnerships.
Speaker Change #111: and Getaways by Southwest and so much more. And our focus is delivering all those initiatives and hitting the targets that we laid out.
Speaker Change #111: As any company, there's always a strategy mode out there. You're always thinking about, what about five years from now? What about 10 years from now?
Speaker Change #111: you know we're just not ready to talk about any of that. One thing you know for sure is the Southwest that you see in ten years won't look like the Southwest that you see today because you're always evolving.
Speaker Change #111: and that could include all kinds of things, which is, yeah, I'd just be speculating. The main thing is we've got a great order book with Boeing. It takes us well into the future, to 2031, and we're fully focused on executing the plan that's in front of us.
Speaker Change #112: Okay, thank you. And then you mentioned earlier, Bob, that if the strike goes on much longer, you're going to have to revisit the fleet plan. What is much longer? Is it for the end of the year? Is it a couple more weeks? What is that cutoff?
Speaker Change #113: It's probably an inexact answer. We planned for a strike roughly, I think, Andrew, in the five-ish weeks kind of range, kind of where we are.
Speaker Change #113: because I believe historically that's been a typical strike for Boeing so we planned for that and you know the amount of adjustment it obviously fluctuates a lot based on how long this goes.
Speaker Change #113: So it's just really hard to speculate. If the strike goes a lot further, again, we'll look at our fleet opportunities in terms of what we can do and maintain capacity sets at some point. It becomes difficult to do that, and you think about having to adjust schedules that are way out in the future. We don't want to do that because it's disruptive to our customers.
Speaker Change #113: So it's all total speculation at this point.
Speaker Change #113: And what I'm most proud of is that our folks planned for the strike, and they planned appropriately. We're getting exactly the number of aircraft this year that we planned on. And you've got to control what you can control, and we've planned on a...
Speaker Change #113: Moderated number in 25 as well kind of compared to what the original expectation was
Speaker Change #113: I think we just have to see where we are. Again, we have options to manage this within our fleet.
Speaker Change #113: But at some point, you'd have to moderate the capacity and schedules. We're just not there yet. It's less about the duration, per se, than the ramp-up afterwards. The longer it goes on, the more it could trickle back into supply chain and cause delays there. So any manufacturing process, airlines, aircraft, or whatever, if you shut down, the longer you shut down, the longer it takes.
Speaker Change #113: to ramp back up, and it's not often one-for-one. So it's really understanding how long that ramp-up will be. It'll be the pace, and we can speculate now and plan for it, but ultimately Boeing will have to master that and communicate it to their customers.
Speaker Change #113: Yeah, you've seen that Boeing has furloughs or plans and now the suppliers have furloughs and all that has to be restarted once they have a contract in place.
Speaker Change #114: Thanks for watching!
Speaker Change #114: Thank you.
Speaker Change #114: Thank you for joining us.
Speaker Change #115: This concludes our question and answer session for media, so back over 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.
Whitney Eichinger: Thank you for watching!
Speaker Change #117: The conference has concluded. Thank you all for attending. We'll meet again here next quarter. You may now disconnect.
Speaker Change #117: Thank you for watching!