Q1 2025 Southwest Airlines Co Earnings Call
[music].
Hello, everyone and welcome to the Southwest Airlines first quarter 2025 conference call I'm, Jamie and I'll be moderating today's conference, which is being recorded.
A replay will be available on southwest com in the Investor Relations section.
After today's remarks, there will be an opportunity to ask questions to queue up for an opportunity to ask a question. Please press star one.
So all your questions and as Star and then two.
Speaker Change: Now Julie Atlanta, Vice President of Investor Relations will begin the discussion.
Please go ahead Julia.
Speaker Change: Thanks, Jamie Hello, everyone and welcome to the Southwest Airlines first quarter 2025 earnings call in just a moment, we will share our prepared remarks, after which we will move into Q&A.
Speaker Change: Joined today by our President and CEO and Vice Chairman of the board of Jordan.
Speaker Change: Chief operating officer, Andrew Watterson.
Speaker Change: And executive Vice President and CFO, Tom Doxey.
Speaker Change: A quick reminder, that we will make forward looking statements, which are based on our current expectation of future performance.
Speaker Change: Our 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 in our earnings press release.
Speaker Change: A press release with first quarter 2025 results and supplemental information, including our initiative highlights for both issued yesterday afternoon and are available on our Investor Relations website.
Bob: And now I'm pleased to turn the call over to you Bob.
Bob: Thank you Julia and thanks to everyone for joining us today before we get started I want to welcome Tom to his first southwest Airlines earnings call. We are very grateful to have you on the team my friend.
Bob: Last month, we announced a plan to transform our revenue strategy improve our cost performance and deliver meaningfully improved financial results on an accelerated timeline, regardless of the economic environment. We remain focused on executing our strategic plan, which is a unique opportunity to southwest and on controlling what we can control.
Bob: We are very encouraged by the results from the initiatives we implemented in the first quarter.
Bob: The name and highlight a few we amended our agreement with Chase, we implemented enhancements to our rapid rewards program, including introducing dynamic dynamic reward pricing and we launched the expedia with results exceeding our expectations. Thus far we also seamlessly implemented our turn time initially been more stations and we now.
Bob: Have removed five minutes of turn time from scheduled in 19 stations, while leading the industry in on time performance and importantly, we executed on unit costs on our overall cost reduction plan transfer.
Bob: Transformational change in the implementation of our initiatives will continue at a very rapid pace next month, we will begin offering a basic economy product and new fare structure supporting increased by up we'll start charging checked bag fees and reduce the exploration of flight credits. We also remain on track to begin selling premium.
Bob: And assigned seating in the third quarter of this year for flights in the first quarter of 2026.
Bob: In the first quarter the team did a fantastic job focusing on execution. Our operating revenue was a quarterly record at $6 4 billion as RASM increased three 5% an all time record yields despite industry weakness in domestic main cabin travel where we are currently more heavily weighted compared to our larger industry.
Bob: <unk> peers, we finished at the high end of our guidance range outperforming on a relative basis and underscoring the team's strong revenue execution and early returns from our revenue management distribution and network initiatives CASM.
Bob: CASM ex growth of four 6% was materially better than our original guidance of up seven to nine and well below our revised guidance of approximately six.
Bob: Of course, the big topic on everyone's mind right now is the macro economic environment as.
Bob: As we shared last month of the year started out very strong however that changed and we saw demand weakened as the quarter progressed, especially in leisure demand since that time, we've seen softer booking trends continue into the second quarter, which Andrew will cover in more detail here in just a moment.
Andrew Watterson: Amid the current macroeconomic uncertainty it is very difficult to confidently forecast given recent and shortlived trends given this environment. We are not reiterating our full year 2025, or a four year 2026, EBIT guys. However, we remain confident in and committed to.
Andrew Watterson: <unk> strong execution of our initiatives and we are reaffirming our targets at 1.8 billion full year 2025, and $4 3 billion for year 2026 incremental EBIT contribution from those initiatives.
Southwest we are uniquely positioned in the industry given the transformative initiatives, we have rolling out the rest of this year and enter 2026, which should provide a significant benefit relative to our peers.
Andrew Watterson: Cost discipline is important in any environment and an uncertain environment. It becomes Paramount I am very pleased that we are ahead of the game with our cost reduction plan. The cost work is going very well and we saw proof of that in our first quarter CASM ex performance.
Andrew Watterson: Those cost reduction targets are still in place and we continue to seek opportunities to further increase and accelerate savings.
Andrew Watterson: We also had an already moderated capacity planning plays with full year 2025 planned ASM growth of one 2%.
Andrew Watterson: With this growth driven entirely by our turn and route efficiency initiatives.
Andrew Watterson: Given the current macro economic environment, we are being proactive and further reducing capacity in the second half of the year. These incremental schedule reductions are in progress and we expect to reduce both third and fourth quarter published schedules by roughly a point and a half each bringing expected full year 2020.
Andrew Watterson: Five capacity down to roughly 1% year over year, we are making these changes quickly to capture as many cost savings as possible. We will continue to evaluate and modify as needed with a focus on margin accretive adjustments as we move through the rest of the year.
Andrew Watterson: As we manage through these challenging times, we will stay focused on our plan, but we'll also stay nimble, we have significant flexibility, including fleet flexibility and we benefit from the industry's strongest investment grade balance sheet with significant unencumbered assets. All of this helps us navigate the current environment, while continuing to a ballpark.
Andrew Watterson: Customers and create value for our shareholders.
Andrew Watterson: Before I turn it over to Andrew I wanted to say, thank you to our people for their dedication and resilience and for the World class hospitality, They deliver day in and day out our people set us apart and that cannot be duplicated.
Speaker Change: Thank you Bob and thanks to our people for their exceptional efforts, which enabled us to lead the industry in on time performance and the fewest extreme delays our best first quarter performance in both categories in four years.
Our first quarter completion factor of 98, 6% was our best in 12 years and.
Speaker Change: And despite some tough winter weather, we ranked number one in on time percentage or number two in completion factor on the day after a winter storms huge progress from several years ago.
Speaker Change: We've already covered our first quarter RASM performance, so I'll jump in with some color on second quarter RASM guide of flat to down 4% on capacity up in the range of 1% to 2% both on a year over year basis.
Speaker Change: Our guidance range contemplates the continuation of the current environment with the largest impact coming from lower leisure travel demand.
Speaker Change: Corporate travel excluding the small central government has also been softer but stable.
Speaker Change: The impact of southwest is mitigated by our initiatives, which are more targeted yields in the first half of this year well begin targeting load factor in the back half of this year as we work to close our RASM gap to the industry through improving network connectivity opportunities and marketing distribution initiatives.
Speaker Change: Several of our initiatives are already live and we're pleased with their performance.
Speaker Change: We expanded distribution to online travel agencies with the launch of Expedia in February.
Speaker Change: Our current performance is ahead of expectations.
Speaker Change: We're seeing better than anticipated booking volumes in this channel similar to what we've seen in the meta search tools.
We're very encouraged by the expanded customer base provided by this channel as many of these customers are new to southwest or have not flown us in quite some time.
Speaker Change: We optimize our loyalty program to better align earn and burn rates and have seen no negative trend changes as a result, such as changes in either a credit card acquisitions or attrition. In fact, we had a record first quarter spend on our co brand credit card.
Speaker Change: We've received the necessary approvals and certifications for the Max eight and 737 800 aircraft retrofits and expect to begin retrofitting aircrafts next month.
Speaker Change: Our turn time reduction initiative, which Bob mentioned is now in place and 19 airports, including several of our Mega stations like Dallas and Nashville, reducing.
Speaker Change: Reducing turn time generates more flying from each aircraft, increasing our capital efficiency and unlike normal utilization increases, which typically extend the date earlier and later this does not increase the operating day. So it is favorable to RASM and CASM.
Speaker Change: And we launched Red eyes in February with Hawaii, Red Eyes launched just this month.
Speaker Change: Yeah.
Speaker Change: Our new initiatives launching next month include basic economy fly credit exploration and bag fees.
Speaker Change: After announcing these changes we saw no evidence of book away and real time data.
Speaker Change: We've executed the turn in Red eyes, with no adverse operational impact and feel confident we'll be able to introduce bag fees next month with minimal disruption.
Speaker Change: Significant planning is already underway and key areas of our operation.
Speaker Change: Including our gate and lobby experience customer care and baggage service.
Speaker Change: Our goal is to mitigate any potential impact to transaction times in the lobby as well as design of new processes to manage the increase in the expected checked bags.
Speaker Change: Checked bags, all while enabling our employees to continue to deliver incredible customer service.
Speaker Change: In addition, we are accelerating the installation of larger overhead bins and our aircraft.
Speaker Change: Yeah.
Speaker Change: Outside of the cost reduction plan, our largest initiatives at maturity, our premium and assigned seating.
Speaker Change: Fees and the loyalty program optimization.
Speaker Change: Slight credit exploration is also material estimated yield in excess of $100 million per year.
Speaker Change: In terms of the ramp the benefits from loyalty are expected to provide the largest lift to our 2025 EBIT.
Speaker Change: Only partially be reflected in the second quarter.
Speaker Change: We expect minimal contribution from ethylene basic economy bag fees and flight credit exploration in the second quarter, given they only apply to flights booked on or after May 28.
Speaker Change: The incremental revenues from these initiatives will meaningfully ramp in the third quarter and into the fourth quarter as we increasingly shift towards bookings made on or after may 28.
Speaker Change: We will continue to be urgent and deliberate in our execution.
Tom Doxey: With that I'll turn it over to Tom.
Tom Doxey: Thanks, Andrew and happy to be joining my first earnings call today with southwest has enjoyed getting to know our employees in break rooms, hangers and meeting rooms across our network and I've enjoyed being on the road meeting with the investment community as well.
Tom Doxey: Well, we have a lot of work ahead of us I'm encouraged and excited about the progress that we've made so far and I'm optimistic about our opportunities and where we are headed.
Starting with our non fuel costs first quarter CASM ex came in at four 6%, beating our previously adjusted guidance of approximately 6%.
Tom Doxey: This improvement was roughly split between a variety of smaller onetime items and a hyper focus on cost discipline across our entire organization.
Tom Doxey: For example, we reduced consulting and marketing expense and pulled back further on discretionary spend.
Tom Doxey: Looking ahead, we expect second quarter unit cost to increase in the three five to five 5% range.
Tom Doxey: We are pleased with the execution of our cost reduction plan, thus far and the entire organization's commitment to efficiency.
Tom Doxey: Moving to fuel market prices have been extremely volatile in response to the broader macro environment.
Tom Doxey: Overall, we have seen prices fall, which has helped to offset some of the softness we are seeing on the demand front.
Tom Doxey: We currently estimate our second quarter fuel cost per gallon to be in the $2 20 to $2 30 range.
Tom Doxey: We recently announced we have discontinued our fuel hedging program and have no plans to add to our portfolio.
Tom Doxey: We remain 45% hedged in second quarter, and 47% hedged for the full year with hedge positions in place into 2027.
Tom Doxey: We will be opportunistic and unwinding, our existing positions based on market conditions move.
Tom Doxey: Moving to fleet, while we are not updating our previous assumption of 38 737, Max eight deliveries. This year, we are increasingly optimistic about what we are seeing at Boeing and their ability to deliver.
Tom Doxey: As we shared in January we anticipate retiring roughly 50 aircrafts during 2025.
Tom Doxey: As a reminder, we will continue to opportunistically transact on aircrafts in our existing fleet based on actual aircraft deliveries market conditions and other factors as such we continue to expect 2025 gross capital spending to be in a range of two $5 billion to $3 billion.
Tom Doxey: Moving to our capital allocation strategy, we remain committed to investing smartly in our business, ensuring a strong and efficient investment grade balance sheet and returning value to shareholders.
Tom Doxey: In the second quarter, we will pay down $2 $6 billion of debt. This includes a $976 million prepayment of the first tranche of the payroll support program notes, which we actually paid last week.
Tom Doxey: And the payoff of our $1 6 billion convertible notes in cash on May one.
Tom Doxey: We will also continue to return value to shareholders. We have completed $1 billion of the previously authorized $2 $5 billion share repurchase authorization as.
Tom Doxey: As we announced last month, we intend to complete the remaining $1 5 billion or more than 10% of our current market cap under our share repurchase authorization by the end of July.
Bob: These decisions highlight our continued confidence in the execution of our plan and driving improved results with that I'll hand, it back over to Bob.
Bob: Well, thank you Tom and before we start Q&A I'd like to leave you with a few key points first we remain committed to an exceptional execution, regardless of the macro environment. We had strong execution in the first quarter initiative implementation cost discipline in our cost plan capacity planning and operational excellence.
Bob: We will take it and we will move on to do the same in the second quarter second we continue to deliver on our core business initiatives and are seeing positive results from our recently launched initiatives, including the optimized loyalty program, an amended chase agreement and the launch of Expedia.
Third we were evolving more than ever and we're moving quickly we remain confident that our initiatives, including the additional initiatives announced last month will provide material incremental EBIT in 2025, 2026 and beyond and finally, we are resilient and well positioned to manage through a dynamic environment with our cost.
Bob: Focus capacity discipline underscored by the additional reductions that we just announced our portfolio of southwest specific initiatives and as Tom just covered our investment grade balance sheet.
Bob: So we are not slowing down we will keep evolving to meet the needs of our current and future customers improve our financial performance and create value for our shareholders I'm confident in our plan and confident in our execution and confident in our people, but before I pass it back to Julian to start Q&A I want to stop and acknowledged.
Speaker Change: And thank her this is her last earnings call as our head of Investor Relations.
Speaker Change: That's a tough job and Julia you have done a fantastic job and we will Miss you on these calls my friend and with that back to you.
Speaker Change: Thank you Bob this completes our prepared remarks, we will now open the line for analyst questions, we would like to get to as many of you as possible. We ask that you pay.
Speaker Change: These limit yourself to one question.
Speaker Change: We will now take the first question.
Speaker Change: Thank you Juliet again to ask a question. Please press star and then one to withdraw your interest please press star two.
Speaker Change: If you are on speakerphone today, we ask that you please pick up the hill about.
Speaker Change: Before pressing the keys.
Speaker Change: And our first question today comes from Ravi Shanker from Morgan Stanley. Please go ahead with your question.
Speaker Change: Thanks.
Speaker Change: So great to see no evidence of book away here based on your comments.
Speaker Change: But I believe you recently broadly pulled your customer base on your recent initiatives can you share kind of what feedback you got from that pool and kind of if youre confident that that book away. It kind of is not something thats what I marched later on the year. Thank you.
Speaker Change: I think Rob it's Andrew So I did see that there's a lot of press pick up I guess somebody a valid survey and tweeted out I would just say we are constantly surveying our customers whether it's how is your flight today. What do you think about this initiative and so we curate different panels to try to get different feedback on different policies different ideas and so there was none.
Speaker Change: In abnormal about that survey, we didn't do it just because we had the policy change we have been doing stuff like that all along and so this helps us understand the perceptions and how they evolve over time to different elements and those are surveys tell us kind of what we see overall, which is R. E. Mails. It there was in the beginning people wrote us and said Hey, I'm concerned about.
Speaker Change: This topic when we answer their questions. They kind of became they realize oh, if I'm an engaged customer southwest Airlines. These don't really apply to me.
Speaker Change: And then so they kind of changed their our their feelings about it we saw the same thing in surveys of sentiment evolved as people better understood what they would keep and Julia engage customers.
Speaker Change: Keep their benefits and get more when we go to assign seats and so the polling does show that those customers now fully internalized that difference from us maybe the headlines originally and so we see a fairly satisfied and engaged customer said as they wait for this next level of benefits that come out. So I think overall, we're pleased it has exceeded my.
Speaker Change: Tens of how well our best customers have migrated to this new world, we're going into with our assigned seats and extra leg room and such.
Speaker Change: Very helpful. Thank you.
Speaker Change: Our next question comes from Andrew <unk> from Bank of America. Please go ahead with your question.
Speaker Change: Hi, good afternoon, everyone.
My question is for Tom I'm getting a lot of.
Speaker Change: Client questions with regards to the balance sheet and liquidity given the buyback all the debt paydown in <unk> Capex I guess any color you can provide on how you think about liquidity targets right now in this environment just how we how we should think about.
Speaker Change: Minimal minimum cash right now thank you.
Andrew Watterson: Sure. Thanks, Andrew Yeah, we've been we've been targeting as you know around $4 billion or so in cash and as you look at the Paydowns.
Andrew Watterson: Paydowns that we've had and in addition to that the incremental $1 five that is the remainder of the previously announced $2 five.
Andrew Watterson: Share repurchase and that brings us down to right about that that Mark. In addition to that as you know we have significant unencumbered assets we've talked about.
Andrew Watterson: It was in our release, where we reiterated that 16 or $7 billion.
Andrew Watterson: In aircraft and then there are some additional unencumbered assets there.
Andrew Watterson: On the non aircraft side as well and so we look at all of that in totality and and then.
Andrew Watterson: One other thing that I would say in addition to that is the focus.
Andrew Watterson: Here and this isn't necessarily a balance sheet answer.
Andrew Watterson: But we are laser focused here on the.
Andrew Watterson: Incremental building of EBIT through the different initiatives that we have and are confident in those initiatives in both the rollout and magnitude of that.
Andrew Watterson: And of course that incremental EBIT is what ultimately gives you the optionality for your balance sheet. When you look at the framework.
Andrew Watterson: You know investing in the business, maintaining that strong and efficient balance sheet and then any potential.
Andrew Watterson: Return to shareholders that would result.
Speaker Change: Our next question comes from Catherine O'brien from Goldman Sachs. Please go ahead with your question Hey, Good afternoon, everyone. Thanks for the time.
Catherine O'brien: So I know, you're just spending the full year EBIT guidance, but youre, maintaining the EBIT initiative targets can you just walk us through what's giving you confidence in achieving this initiative targets and I really mean more on the revenue side realized cost ones are more fake or they're not sensitivities on some of these revenue initiatives to the macro like tomorrow for the core business or.
Catherine O'brien: Well, maybe you feel like you've baked in enough cushion back in March just any color there would be helpful. Thanks.
Catherine O'brien: Yes, Bob It's all day, we have a lot of confidence both in the portfolio of cost and revenue initiatives in terms of the timing. They are all on track and then the the financial benefit that we intend for them too.
Catherine O'brien: To.
Catherine O'brien: Play into the business.
Catherine O'brien: Of course, there are some sensitivities there some linkage to the to the base business of macro backdrop, but it's substantially smaller.
Catherine O'brien: The base business is off a lot we weren't we were off kind of roughly three points in the first quarter from what we thought back in January and in the second quarter. The base business has come off about six points, which is a substantial part of the top line.
Catherine O'brien: The revenue initiatives are targeted do you take something like bag fees for example.
Catherine O'brien: They they just fall out such a smaller rates of you lose.
Catherine O'brien: Six.
Catherine O'brien: 6% of bag fees as an example comes off its a much much smaller than a percent of the topline. So and we also feel like there are more inelastic. So while you could see some tied to the macro.
Catherine O'brien: It's a far smaller number so we have a lot of confidence both in the timing of the initiatives coming online and.
Catherine O'brien: And then the value.
Catherine O'brien: It is really hard to predict as everybody has been talking about today is the uncertainty and the booking trends in the macro economy. So while we've got a lot of confidence in 2025 on delivering on the $1 8 billion an initiative contribution.
Catherine O'brien: The ability to forecast with any reasonable level of certainty the base business offset to that is what is really tough.
Catherine O'brien: So that's really the reason we couldnt.
Affirmed the $1 7 billion for the year now.
Catherine O'brien: We're not taking a $1 seven off the table I want to make sure you understand that that is still the internal target you you'll get some inflection back of the trends here later in the year you get some additional help from fuel.
Catherine O'brien: We guided the initiatives.
Catherine O'brien: In March and kind of a baseline level the initiatives outperform and there is absolutely a shot at hitting that $1 seven or some combination of all those things.
Catherine O'brien: So we're not taking it off the table. It's just the uncertainty in the in the demand base business side, just made it impossible to reaffirm that one seven.
Catherine O'brien: Okay helpful. Thank you.
Catherine O'brien: Youre welcome.
Speaker Change: Our next question comes from David Vernon from Bernstein. Please go ahead with your question.
David Vernon: Hey, Thanks for taking the time guys.
David Vernon: A question for you on the just the load factor in the passenger count.
David Vernon: In relation to this idea that we're not seeing any sort of book away or any sort of unique impacts from some of the initiatives on the demand base. It looks like you guys are running.
Lower from a from a demand destruction standpoint relative to peers on a year over year basis.
David Vernon: Yeah.
David Vernon: How do you think about it.
David Vernon: Explaining that sort of gap and then when you think about that load factor running 74 ish what are your sort of expectations as we kind of get through the rest of the year.
Andrew Watterson: Hey, Andrew.
You'd kind of decompose the quarter January was down like two points in load factor and then further in March were down five five points. So as you can see the it was really a tale of two quarters as that weakness macro weakness started in quarter.
Speaker Change: And when you have that kind of demand discontinuity you have to be very careful about how you price I think in your business they call it catching a falling knife in our business, which we're very careful not to try to close and discount because you could end up worse off and so I think you'll see that in our yield numbers, which were quite robust and so we maintain that in the quarter and we saw very very strong close in revenue performed.
Speaker Change: In March and again in April however, at the same time, we had previously been not participating in a lot of discounting, especially like 120 plus days before departure.
Speaker Change: Because we had low capacity growth. So it would be wise not to kind of to be very prudent with your discounts further out.
Speaker Change: When we saw about macro environment.
Speaker Change: Environment kind of unfold in the quarter in Jan and February we peeled off those kind of provisions if you will and participate further out in the booking curve, which is not necessarily a dangerous to have that kind of just kind of generally volume and you can see that in April now our year over year load factor improved at least two points from March to April and that it was only a partial.
Speaker Change: Booking curve effect from that kind of renewed further out discounting. So we expect that kind of normalize that kind of macro shock to normalize over the booking curve as we get more of the routine of discount further out to make up for the kind of demand Salt Lake city on the consumer side because on the business side, it's been a very stable.
Speaker Change: Government, both state and local and federal are managed business is up and so those are generally higher yielding customers, who would be very careful about how you price in an environment, where you have consumer weakness what kind of business strength and so that's why we chose that approach which.
Speaker Change: Alright, that's helpful and then I guess if you.
Speaker Change: Thinking about kind of maintaining that kind of discipline on the pricing side, which I think many investors would.
Speaker Change: We'd be very comfortable with this.
Speaker Change: That's fair.
Speaker Change: The terms youre proposing making it in the back half of the year seemed a little bit light in relation to kind of what we're seeing in the in the results that I'm just wondering how youre thinking about that the capacity question as you get closer to the back half of the year.
Speaker Change: So it's a reasonable question to ask especially looking externally.
Speaker Change: You've heard people talk about off peak, that's been in a post COVID-19 issue and you've heard it really blossom at this quarter and so what that is is that you have less travel and the off peak times because business travel was down and the nature of business travel has changed and so as a result of his time of day day of week time of year you have <unk>.
Speaker Change: Less demand and you know that our gauge is up 7% post pandemic. Some of those trough. Then you don't have you can't fill your aircraft that shows up in lower load factor and the peak time of day day of week time of year that you really like to have that 7% mortgage and you can't fill up and as you see we get high yield so.
Speaker Change: A world in which demand has grown peaks are higher values are lower you would expect to see net lower load factor from us and higher yields is exactly what you see in our results. We're very strongly pushing the yields in those peaks and really having difficulty with the off peak. If you just reduce capacity you are both takeaway the goodness from the peak in <unk> and <unk>.
Speaker Change: You don't get as much benefit from the valley now we were conscious that we need to fill back up our load factors in our plan and so what do we need to do for the off peak as well.
Speaker Change: We can do a little bit of stimulation because of basic economy coming we will be able to offer maybe different types of leisure discounts that will not undermine or create business by down because business travelers or not.
Speaker Change: Really blocked from buying business our basic economy.
Speaker Change: And we see from them from our competitors flow or connectivity as a way to aggregate little bits of demand in the off peak to fill up your flight and so starting in August we have a lot of connectivity search activity for the off peak period, we expect that to yield us more flow for that the off peak load factor additional.
Speaker Change: Italy, we've previously changed the network to reduce capacity in underperforming areas and put it into higher performing areas and then actually just started this month in April. So all these things together, we think is a good plan to achieve our investor day, our promises of closing our yield gap to our competitors as well as closing the load factor accomplish to ourselves pre to post pandemic.
Speaker Change: Alright, thanks for the time.
Speaker Change: Our next.
Speaker Change: Comes from Jamie Baker from Jpmorgan. Please go ahead with your question.
Speaker Change: Hi, everybody so.
Speaker Change: Here's what I am trying to reconcile.
Speaker Change: Well before Elliot you had various initiatives that were obviously intended to be accretive.
Speaker Change: But margins were still declining which would imply.
Speaker Change: Assuming the initiatives worked it would imply that sort of the core southwest was under pressure.
Speaker Change: So when we think about the goals that you laid out this past March.
Speaker Change: We're talking about today.
Speaker Change: Do you simply steady state.
Speaker Change: We're sort of pre initiative assumptions and then layer on the initiatives on top of that and call that the guide because it feels that that might be the way that youre doing it whereas I think the more conservative.
Speaker Change: <unk> would be if the core actually is slipping.
Speaker Change: And the initiatives in on top of some sort of reduction in the base of earnings if that makes sense.
Speaker Change: Yes.
Speaker Change: I think it does I think.
Speaker Change: Yes, you are.
Andrew Watterson: Youre always Andrew can talk to this too I mean, you you need initiatives everything you single year to continue to drive revenue production in RASM and that's just the way. The business works you are constantly adding initiatives on top of the base business to produce.
Andrew Watterson: Gains at the end of the day the.
Andrew Watterson: Particularly coming out of Covid with the change in demand the change in the cost structure with new labor contracts.
Andrew Watterson: The stack of initiatives prior to what we talked about in the fall and then again in March which is insufficient to drive appropriate margins at southwest Airlines, certainly industry leading margins.
Andrew Watterson: We just had too many revenue streams as an example that we're just left on the table that other airlines have.
Andrew Watterson: We have in place and we just don't have a place in southwest and it was impossible to hit the inappropriate returns without.
Andrew Watterson: Acknowledging that so what you've seen is this move to a set of initiatives that meets consumers, where they are they want assigned seating they want access to premium and extra leg room.
Andrew Watterson: And then adding.
Andrew Watterson: Our revenue initiatives that will be very accretive to the business like bag fees and fly credit exploration.
Andrew Watterson: We'll continue to add initiatives not ready to obviously report anything today, we will continue to add initiatives that move towards the type of products that our customers and future customers want and will continue to add initiatives.
Andrew Watterson: Around.
Andrew Watterson: Expansion.
Andrew Watterson: Geographic expansion adds to the network those kinds of things, but I'm not sure if im answering your question by the U.
Andrew Watterson: So we found ourselves at a point where the.
Andrew Watterson: The stack of initiatives prior, especially with the changes coming out of Covid or just insufficient.
Andrew Watterson: Level of returns that we need to southwest Airlines.
Speaker Change: Okay I appreciate the color Bob.
Speaker Change: Andrew Good I'd say on top of that Jamie I think we've pretty much admitted to the value proposition. We had was not generating revenue right. It right. So we did then with the latest set of both Investor day, and what we announced at your conference. We have admitted that we are going to a different value proposition, we have a more segmented offering where customers can pay more to get more and that would leave.
Speaker Change: To the revenue production will be sufficient to return it back to previous levels of prosperity and so that is and that's the same as the old model wasn't working and I know, we've pivoted to this new set and whatever.
Speaker Change: I've said this before what I really like our I mean nobody likes.
Speaker Change: Where we are with economic backdrop in this weakness that is severely showed up in the last.
Speaker Change: 90 days, but the majority of the levers certainly the revenue levers that we have.
Speaker Change: Attacked.
Speaker Change: In particular.
Speaker Change: The March and beyond said, a really unique to southwest airlines that are in place for other other airlines today. So we have a unique set of.
Speaker Change: Revenue production that can come online for southwest against this week backdrop that is not available to others. The second thing is there is a strong cost very very very strong cost discipline.
Speaker Change: Southwest right now.
Speaker Change: We had an original first quarter guide of eight we came in and re guided at six and we came in at 4.6 and it's across the board reductions inefficiency in the company. We're seeing performance in every department across the company on the cost front.
Speaker Change: And that will continue so.
Speaker Change: We have unique levers that to me are just not available to others, which will absolutely drive relative performance.
Speaker Change: Gentlemen, thank you both.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Sheila <unk> from Jefferies. Please go ahead with your question.
Speaker Change: Good morning, guys. Thank you Julia.
Speaker Change: Maybe just to expand upon some of the questions could you talk about bobber Amgen whoever would like the expansion into mediums like Google flights and Expedia and Harry Yes, you're experiencing there relative to volumes ultimately shake out compared to that.
Speaker Change: Quite comfortable as we here at American talk about earlier today mentioned that dispatch discretionary consumer.
Speaker Change: Could often stuck in those channels is not surprising.
Speaker Change: And in that area.
Speaker Change: Oh sure Andrew I'll start off and see if I answer it in a button chime in here and so yes. The Expedia I think has ramped up faster than say Google flights did.
Speaker Change: So we're pleased with that.
Speaker Change: <unk> represents.
Probably between 45% of our.
Speaker Change: Book to customers for <unk>.
Speaker Change: The recent months when went live it was.
Speaker Change: Our customer base it is.
Speaker Change: Majority, we have not seen before or have.
Speaker Change: I have not seen a long time and so therefore, its you know a new source of customers for us.
Speaker Change: As one might expect with our indirect distribution is particularly helpful. In places, where we don't have a strong point of sale.
Speaker Change: A big city, where we're quite strong and in San Diego, So we get lots of people come to our website there but we're.
Speaker Change: Very underweight, let's call it in Boston, and New York and so it helps us there so.
Speaker Change: He kind of indirect distribution is kind of servicing its inherent need which is to generate new customers would not otherwise come to your business.
Speaker Change: And it comes a very very cost effective manner. So we're quite pleased with that Google flights is of a similar nature of the distribution doesn't go through say the GDS. It has come straight to our website. So it gives us additional opportunity to merchandise. So we're happy about that but both the meta searches, Google kayak and <unk> and <unk>.
Speaker Change: Skyscanner and Expedia are really good partners, we don't it's not an either or we like introducing that into our portfolio distribution in.
Speaker Change: Our plan to expand it it makes sense over time.
Speaker Change: Andrew maybe just another one then if I can follow up with you on you mentioned that initiative target yields in the first half end loaded in the second half how realistic is it that southwestern it unless it is bulk of that normal relationship that you can trade off one way or the other.
Speaker Change: I think what's kind of going back to my earlier discussion you just sort of a peak off peak that you've heard probably a lot of other lines to talk about the peak you have chances for yield. So the peak time demand exceeds supply and so you must take those opportunities to drive yield and so that is what we're doing you can see by <unk>.
Speaker Change: Our results and that's kind of what we promised at Investor Day, we were getting.
Speaker Change: Frankly, more traction than I expected.
Speaker Change: The load factor doesn't come from getting more volume during the peak because we're already full during the peak our problem is our empty seats or not the good times a day the good days of week or good times a year. It's the off peak. So how do we get more customers more bottoms in seats. If you will in the off peak and so some of that will be we will use the basic economy tactic when it.
Speaker Change: Comes online here, but a lot of it will be connectivity and so its taking people going from Albany to Tucson, where there's never going to be a nonstop over perhaps connect through our network and so designing connectivity to facilitate these small bits of demand.
Speaker Change: This small bits of demand enough and you helped fill your aircrafts. So are our competitors weren't big hub and spokes into this naturally but for us. It's something that is kind of like a addition to our normal for point to point model. So we're going to focus that kind of connectivity in these off peak times of day of week of year to drive the load factors.
Speaker Change: Two distinct things. So they are not doing that trade off of yield versus loads youre talking about.
Speaker Change: Just to add to that.
Speaker Change: It added a whole level nonetheless.
Speaker Change: Another layer of sophistication to be able to manage this way you have to understand where that where each flight. It's ultimately going to land in terms of it of helpful. It's going to be because it's going to be managed to different ways can be managed for yield, whereas it can be managed for load and the new revenue management system that we put in.
Speaker Change: Last year is designed to push yield and manage yields on those full flight and you can see it when we had record all time yield in the first quarter not record first quarter yields but record all time yields in the first quarter.
Speaker Change: And.
Speaker Change: And now it's about building load on those flights that are not in.
Speaker Change: Projected to go out for the change in the rapid rewards program and dynamic allocation on the birds eye will help as well because it's very similar you do you want to be able to manage up on the flights where those seats are very scarce because of flight is going to be full and then you wanted to be able to manage.
Speaker Change: For load factor on those flights are going to have open seats and discount those from our rapid rewards perspective, So I am very pleased with the performance, especially on the yield side and that will attack the load side.
Speaker Change: Thank you.
Speaker Change: Thanks Sheila.
Speaker Change: Our next question comes from Conor Cunningham from Melius Research. Please go ahead with your question.
Conor Cunningham: Hi, everyone. Thank you.
Conor Cunningham: I wanted to go back to Jamie's question around the initiatives. It seems like Youre approaching like did the list of instruments from a gross standpoint, rather than in that so it would suggest that you would need to continue to add to the list to keep improving so.
Conor Cunningham: When you do survey work.
Speaker Change: Are the customers asking for now are they asking for free Wi Fi at this point given all the changes in the industry and then Tom if you could just.
Speaker Change: Talk a little bit about the cost structure from an outsider's perspective like as you've been there now for Oh.
Speaker Change: Only a couple of them I guess a couple of months.
Speaker Change: Can you just talk about what you see as low hanging fruit outside of the initiatives that you've already been you're already working on thank you.
Tom Doxey: Yes. This is Tom I'll start so first the way that we're looking at the initiatives I think we've tried to be pretty clear with this.
Tom Doxey: We feel like we've been conservative in the way that we that we've done these are not gross estimates.
Tom Doxey: These are these are net of the impact that we felt that would be there. So it's a really important distinction from the first part of your question I.
Andrew Watterson: I'll jump to the last and then I'll turn it over to Andrew He can he can revisit the second part of it.
Tom Doxey: What what I.
Andrew Watterson: If you look at the first quarter performance for CASM ex.
Tom Doxey: What.
Tom Doxey: For me is great is that it's not any one thing sometimes you'll get a question on the call, but what was it that drove it well. It was that we had some engine overhauls shifted from here to here. This one big thing that happened.
Tom Doxey: Our answer today to that is that the that it's happening everywhere.
Tom Doxey: All throughout the company and that's great. It's a bunch of things happening in every department and we've got leaders across this company that are bought in.
Tom Doxey: Southwest is used to winning.
Tom Doxey: And winning is fun.
Tom Doxey: And we've got a team that's all rowing in the same direction, because we want to win.
And that's a really exciting thing and so I'm seeing a bot in set of leaders that are all rowing in the same direction and looking to be creative and spend smartly right. It's.
Tom Doxey: Having good cost control it doesn't just mean.
Tom Doxey: Cut cut cut what it means is that you spend in ways that are smart for the business, where you invest in the product in the right way.
Tom Doxey: And you invest in our people and the right way and you get really efficient about the way that you do it so I've been really pleased with what I've seen so far.
Tom Doxey: Yeah I'd say.
Tom Doxey: Bob.
Tom Doxey: Earlier about kind of what we're doing in the future you always have to have initiatives and working to the future. I think is a good kind of hint towards what we have now this new offering which we like the pathway there on that there'll be additional things we add to it so the value proposition we offer our customers will only strengthen as we go throughout the year and into next year, we have nothing to outlined today or there will be.
Tom Doxey: Things coming about how we strengthen that attractiveness of southwest airlines to the customers who want to be engaged with us and we have an extraordinarily large customer set very loyal customers are very loyal they've been with us for years, all across the country and so they want more from southwest Airlines that are willing to pay more for more and so we will see.
Tom Doxey: We do offer them more.
Tom Doxey: Successfully.
Speaker Change: Can I just follow up on that do you need to see things in the current initiatives set.
Speaker Change: Before you can launch new ones like is it that you want to make sure that premiums working the way. It is before you do additional stuff and then could you just talk about maybe like the loyalty component like you mentioned a lot of changes or people signing up for credit cards now.
Speaker Change: To offset some of the potential book like I know that you're not seeing it but if it did happen in the future. Thank you sorry about that.
Speaker Change: No worries.
Speaker Change: So we definitely always have to have this list of initiatives, we don't need to see how extra legroom was bookings we know the path that we're going down we know we're going to offer is really that we're not ready to talk about right now, but we do have a pipeline you always have to have a pipeline with your customers you can never let it go stale. So we do have.
Speaker Change: Things that we know.
Speaker Change: It's coming we've taken a kind of bundled one size fits all product we added upper.
Speaker Change: Buy up opportunities with extra legroom assigned seats, we added kind of a base product with basic economy. There are more features coming more destinations that are coming.
Speaker Change: And so the loyalty program is cell free Unfortunately that we have a new agreement with chase, which is which is very strong we have a new card card offers will be coming out very shortly and so that portfolio of customers, who voted with their wallets as we engage with southwest Airlines.
Speaker Change: Immense opportunities to keep offering them more to grow the.
Speaker Change: That base of customers, especially in the cities, where we have a.
Speaker Change: Our lead if you will and customer share and so all of this is I think normal course of business, we're not waiting for any one thing that the cake. If you will it's more of a premeditate path around that Bob talked about.
Speaker Change: I appreciate it thank you.
Speaker Change: Our next question comes from Tom Fitzgerald from TD Cowen. Please go ahead with your question.
Tom Fitzgerald: Hi, Thanks, so much for the time.
Speaker Change: Quick ones first just.
Speaker Change: I.
Speaker Change: I apologize if I missed this earlier, but it looked like at Investor Day, you had talked about having 68 extra legroom seats on the Max eights and the eight hundreds.
Speaker Change: But now it looks like it's only 46 is that correct.
So what changed.
Speaker Change: Yes, So we did change from the Investor day layout and so as we look at.
Speaker Change: The whole kind of Calvin how best to monetize it.
Speaker Change: Behind the behind the exit row extra legroom was obviously going to be.
Speaker Change: Not as attractive as in the front of the.
Speaker Change: Exit rows, so we decided to concentrate more extra legroom in front of the exit row to make them more attractive and to reinforce our price point for them and the ones that were formerly extra leg room behind the exit will throw those into a form of preferred seats, but they will have a little bit extra can have and have a little bit extra legroom and so it kind of a zero sum space in the tube we move.
Speaker Change: The 30 twos in the $35 31 to a configuration that has less ALR, but we think gives us better revenue monetization opportunities in the end because the overall are in goal was to maximize revenue per square foot often the LUPA.
Speaker Change: What we showed at Investor day was.
Speaker Change: A very strong hypothesis.
Speaker Change: Of what we would do as we continue to do work and move through the design of the aircrafts in the layout.
Andrew Watterson: And to Andrew's point, we found that there is a there was a better way to maximize revenue per square foot and the aircraft with it which is the whole <unk>.
Speaker Change: I'm here now.
Speaker Change: All of that again.
Speaker Change: It is well underway I'm very excited that we're going to begin those aircraft retrofits. Your next week on the 30th.
Speaker Change: So the whole this entire initiative is moving along really well, but all along the way you continue to discover things that have refined what we showed you at Investor day, but I'm very pleased with the progress.
Speaker Change: Yes.
Speaker Change: By the way is that.
Speaker Change: The modest relatively simple.
Speaker Change: Now we have a lot of airplanes to modify.
Speaker Change: But to the extent that we find that we want to make a change here or there.
Speaker Change: The ability to do that is very different than some of the more complicated modifications that you see.
Happening around the industry.
Speaker Change: Okay. That's really helpful. And then as a follow up just to kind of piggyback on some of the questions that Jamie and Connor of asked one of your competitors talks a lot about being the brand loyal airline.
Speaker Change: In a specific market and I'm, just thinking about markets, where youre really dominate in St. Louis or Nashville versus some of the more competitive markets like a denver or Chicago.
Speaker Change: And initiatives that you might need.
Speaker Change: The brand loyal airline in some of those more competitive markets again and I'm. Just wondering you talked a little about the ended a little bit this a month ago at Jpmorgan, but.
Speaker Change: Other initiatives, where you're thinking of where your head is that right now your latest thinking on maybe fleet initiatives, whether it's trying to get scope relief.
Speaker Change: Rollout rj's or partner with a regional airline or.
Speaker Change: Wide bodies to be able to offer more of an international product, but just love to think about.
How youre thinking if theres been any change in your thinking or any updates in the time of on that because if you think about southwest and in the 2030 is it seems like a lot of these decisions you'd have to start putting in place now.
Speaker Change: You really get the airline humming, where you'd like it to be thanks again for the time.
Speaker Change: Yes, yes, yes, it's interesting.
Speaker Change: The phrase brand loyal airline nobody has a stronger domestic air.
Speaker Change: Network and southwest Airlines, Nobody has more domestic customers and southwest Airlines nobody has more loyal customers and those points of strength when he has higher NPS scores.
Speaker Change: So however, you define brand loyal customers southwest Airlines as the winter and we're going to continue to grow more and more points of strength and of course, we're going to continue to constantly understand what our customers want that's why we're moving to assigned seating. That's why we're adding extra leg room will continue to move to our customers' needs and meet.
Speaker Change: Their needs and nobody is going to our hospitality out operate are out loyal brand loyal southwest Airlines.
Speaker Change: Our next question comes from Duane <unk> from Evercore ISI. Please go ahead with your question.
Duane: Hey, Thanks, good afternoon.
Andrew you mentioned.
Speaker Change: You did any way manage business is up.
Speaker Change: Can you talk through the trends you saw through March and April.
Speaker Change: One of your peers talked about a slowdown it sort of turned negative on volume, but has picked back up more recently to kind of low singles.
Speaker Change: Any any green shoots you're seeing yet on that front.
Speaker Change: I would say what I said.
Speaker Change: Especially if you took out the government both state local and federal which did seem a market slowdown starting in January.
Speaker Change: Rest of it is up.
Speaker Change: And and stable within that you always have geographies or industries that are plus or minus.
Speaker Change: One quarter to the other <unk>.
Speaker Change: <unk> technology banking were up.
Speaker Change: This quarter.
Speaker Change: Manufacturing and health care were down a little bit and so the I would consider those just the normal vagaries of our industry is moving up and down on the same with geography. So.
Speaker Change: What's kind of different about this environment is if you have kind of any kind of macro weakness user shows up a business first.
Speaker Change: And business travel is highly correlated with corporate earnings corporate earnings have held up business travel has held up.
Speaker Change: And so we're pleased with that it's the customers' discretionary travel that is really the crux of the slow down and so like others report on that so nothing new there.
Speaker Change: Steady as she goes with the managed business travel is certainly welcome.
Speaker Change: Thanks, and then just just on premium it's come up a couple of other questions.
Speaker Change: Questions, but is it still is the target still one third of your seats. When do you expect that to go live in and by that I mean, like which quarter would we actually start to see the contribution.
Speaker Change: And then how big of a RASM tailwind does that represent going from effectively no premium to 130 years seats.
Speaker Change: Yes.
Speaker Change: And so part of the ultimately the benefits within our Investor day number, which I'll just refer you back to that but the people.
Speaker Change: People say premium, but Duane I would think about it as four zones, which we can monetize in the aircraft. So we're going from.
Speaker Change: Find your own seat with early border upgraded boarding to assign seats and we will have kind of a.
Speaker Change: Preferred behind the exit row, we will have extra leg room will have preferred in front of the exit row. So and then you'll have the kind of standard at the very back. So we have multiple zones for which there'll be different price points. The standard will be a free for certain fare products and so this is really more than premium for my mind gives us opportunities for discrete levels of <unk>.
Speaker Change: So up through.
Speaker Change: Through fair product or ancillary for people to pay more for more which is either space or our position in the aircraft for a particular price and so customers have responded well to the ideas. Obviously your peers do it so that I think that gives us more opportunity to monetize the cabin and it's part of this kind of segmented offering I talked about as we move away from a one size fits all.
Speaker Change: And we talk about the elements of the segmentation, but having having.
Speaker Change: Having basic economy, and the ability to be able to buy up from that is a really big deal right. We've talked about the fact that we we sell a lot of our inventory in the lowest of the four categories today, which is which is wanted to get away and in many cases, we're pricing against a basic economy fare.
At a competitor and the offering of that basic economy is something much less than what we're offering and Wanna get away.
Speaker Change: So that's something that we're fixing as part of this and then everything that Andrew described whether its bags whether its seats.
Speaker Change: All of these things layer on top of that to be able to provide that value, but that sort of the underlying foundation that allows us to function and you asked about timing so yet again.
Speaker Change: Selling.
Speaker Change: The neuroscience eating extra leg room in the third quarter of this year for operation in the first quarter of next year. So it's really a 2026 contribution I do think you have a chance to see some contribution in 'twenty five because.
Speaker Change: We will have retrofitted more and more aircrafts before you get to that first quarter date, and so if you buy early bird today in that world you'll have access by boarding early too what is basically the extra legroom seats that are already in the reconfigured aircraft. So I think there's a chance that you see.
Speaker Change: Some additional upsell in terms of products that we sell today simply because you now have access to that better seating.
Speaker Change: So I think in two way to model between basic.
Speaker Change: A buyer to a kind of more.
Speaker Change: First level standard, which gives you some seating a buyout to preferred a biotech extra legroom and so we've got those four buy up opportunities today, which really don't exist. So so that's the power of this change.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Savi <unk> from Raymond James. Please go ahead with your question.
Savi: Good afternoon.
Speaker Change: Hello.
Speaker Change: David's question earlier on on the load factor I'm curious you know you are getting Max and.
Speaker Change: And retiring seven hundreds and they're not getting the Max seven but you've also talked to that maybe in the future not needing as many of the smaller gauge aircraft like what kind of an impact is just not having that kind of a gauge of aircrafts do you want.
Speaker Change: Having an army of load factor or is that not not a driver here.
Speaker Change: I think today I'll, let Andrew really give you more detailed information I don't know that I don't think that its a factor today, we're not so out of balance in terms of the.
Speaker Change: Number of aircraft.
Speaker Change: The 175, it really comes to play more today in terms of where we have.
Speaker Change: Potentially restricted operations like Chicago Midway as an example, with the length of the runway.
Speaker Change: Obviously, if this goes on and on and on and they're not at Boeing is not delivering the Max seven and that smaller aircraft that becomes more of an issue, but we're really nowhere close to that.
Speaker Change: Our load factor on the big claim it's the same as I look back on the small plane and so.
Speaker Change: We really appreciate having the more seats in the prime time, where you need it.
Speaker Change: So we're really able to make use of that extra seating when you have excess demand and it really gives us a good return.
Speaker Change: It's just when it off peak you have that many more seats that are empty. The trip cost does it really vary that much between a max seven and a Max eight and.
Speaker Change: And so carrying around 10 empty seats or excuse me.
Speaker Change: 25 extra seats is not going to be.
Speaker Change: Not that much different whereas you could sell those on a peak day of peak time of year. So right now we're pleased with the Max eight where there are certain situations, where we want them back seven so versus pre pandemic. The percentage that we think we need has gone down it's not zero, but it is much smaller than it used to be.
Speaker Change: That's helpful and if I might follow up on <unk> question on on corporate what's the size of that kind of government exposure and and and I know some of your competitors have reduced the dedicated seats into those areas like how have you been able to kind of offset some of that weakness or is that kind of a continuing drag here.
Speaker Change: It's a modest percentage I can't remember them off the top of my head what sticks in my head was you take out.
Speaker Change: Our government and were up 4% and managed business.
Speaker Change: So I just can't remember what it was I think the government by my memory is the government exposure and whether you count state.
Speaker Change: It's sort of in the 2% range and maybe actually a little bit less so while it's awful lot the percent of the business that it represents is very small.
Speaker Change: Wonderful thank you.
Speaker Change: Alright with that we're going to wrap up our analyst portion of today's call I appreciate everyone joining and hope you all have a great day.
Speaker Change: Ladies and gentlemen, we know we will transition to our media portion of today's call.
Speaker Change: Yes.
Speaker Change: Thank you Keith Communications Officer, Lisa. Please go ahead Whitney.
Speaker Change: Thanks, Jamie welcome kind of media on our call today before we begin taking your questions. Jamie could you. Please share instructions on how to queue up for a question.
Speaker Change: Queue up for an opportunity to ask a question. Please press star and one so with.
Speaker Change: Draw your questions. The command is starting to.
Speaker Change: If youre on a speaker phone, we do ask you. Please pickup your handset before pressing the keys.
Speaker Change: Pause for a novel hormone.
Speaker Change: More questions.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: And our first question today comes from.
Speaker Change: Alison Sider from Wall Street Journal. Please go ahead with your question.
Alison Sider: Oh, hi, thanks, so much.
Alison Sider: <unk> been a lot of talk among some of your competitors have even earlier today about o'hare.
Alison Sider: And ramping up there and I was just curious kind of what you guys see as their future at O'hare.
Alison Sider: It was not uncommon for us to be in multiple airports and a multi airport geography and use those though there was a multi airport geographies, we have an anchor.
Alison Sider: Store, if you will and that is midway for us and so O'hare is designed to complement what we have in midway for a fairly large customer base, we have in the city of Chicago and so we're pleased.
Alison Sider: Chicago Department Aviation can accommodate both airports.
Alison Sider: So we tend to be in both airports and served the Chicago and the best of our ability.
Alison Sider: Got it but you don't see it as a sort of a major growth airport.
Alison Sider: Yes.
Alison Sider: Low growth this year index. So right now we're pleased with what we have and and and Chicago, We our growth. This year is more focused on.
Alison Sider: Nashville, Phoenix and Sacramento.
Alison Sider: Some in Orlando and so each year, we have kind of a growth vector and it is in those I just mentioned this year and for future years, those who haven't yet been decided but Chicago has got a strong customer base for us and having a good diversified customer base around the country that allows us to move our capacity when one part of the country's booming in.
Alison Sider: Once buffet, we can move our aircraft and vice versa. So that allows us to them.
Alison Sider: We have good diversity and so we're pleased with what we have in Chicago and in the rest of our network.
Alison Sider: Thanks.
Speaker Change: Our next question comes from Larry <unk> from.
Alison Sider: Bloomberg News. Please go ahead with your question.
Speaker Change: I wanted to ask as consumers view southwest is becoming more and more like every other airline I'm wondering in the promotions that youre working on going forward what is it going to be some of the the hard assets. The product assets that you can point to that differentiate you in the future not things like hospitality.
Speaker Change: <unk> friendly employees, but what are some of the hard assets that you can point to that would be a reason for somebody to fly southwest versus one of your competitors.
Mary: Annual Mary I mean to start with.
There's a lot we have a network that is far different than our competitors rather than having a few strong hubs that we.
Mary: And then connect the vast majority of the traffic through we are we are <unk>.
Mary: A large in dozens of cities and therefore have the most nonstops.
Mary: And the domestic network so our schedule is far superior.
Mary: To our competitors, we're running a terrific operation we were number one in the Wall Street Journal rankings in the first quarter and that's what taking time out of the turn and we're still running the top operation.
Mary: And the industry. Yeah. You you said you kind of said it but for hospitality hospitality is a huge piece of this.
Mary: Our people and the service that they deliver and the way.
Mary: They treat our customers is a huge difference the vast majority of.
Mary: The notes and complements that I get from our customers is all about.
Mary: The way one of our employees made them feel went out of their way to help them with something.
Mary: I think thats a huge piece of this and that's what leads to.
Mary: The industry best NPS scores and in fact, the NPS scores.
Mary: In the aircraft during travel with our flight attendants thats, the highest scoring part of the journey. So I don't think you can dismiss that and then as we move along we will continue to add.
Mary: The attributes like adding different seating and added the extra leg room.
Mary: There are a lot of product attributes that we're looking at not ready to announce different things today, but we'll continue to add those along the way as well but.
Mary: I think our list of Differentiators is very law.
Speaker Change: Okay. Thank you.
Mary: Thank you Mary.
Whitney: And ladies and gentlemen, this concludes our question and answer session for media so back over to Whitney now for closing comment.
Speaker Change: 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 SWA media Dot com.
Speaker Change: The conference has now concluded. Thank you all for attending we'll meet again here next quarter you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yes.