Q2 2025 Southwest Airlines Co Earnings Call
Courted.
A replay will be available on southwest Dot com in the Investor Relations section.
After today's remarks, there is an opportunity to ask questions to queue up for an opportunity to ask a question Press Star then one to withdraw your question. The command is Star then two now Lauren yet from Investor Relations will begin the discussion. Please go ahead Lauren.
Thank you Hello, everyone and welcome to southwest Airlines' second quarter 2025 earnings call in just a moment, we will share our prepared remarks, after which we will move into Q&A I'm joined today by our President and CEO and Vice Chairman of the Board of Jordan, Chief Operating Officer, Andrew Watterson, and executive Vice President and CFO Tom <unk>.
Oxy a quick reminder, that we will make forward looking statements, which are based on our current expectations of future performance and our actual results could differ materially from expectations. Also we will reference our non-GAAP results, which exclude special items that are called out and are reconciled to GAAP results in our earnings press release, our press release with second quarter 2025.
Bob: Ive results and supplemental information for both issued yesterday afternoon and are available on our Investor Relations website, and now I am pleased to turn the call over to you Bob.
Gary: Airlines second quarter 2025 conference call.
Gary: 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.
Hello everyone and welcome to the Southwest Airlines second quarter 2025 conference call.
Bob: Thank you Lauren and thanks to everyone for joining us today southwest is on a transformational journey the largest in our history as we worked through all of our product and deliver increased value for shareholders and more choice for our customers. Our plan remains on track and I have high confidence in our transformational journey and the significant value they bring.
I'm Gary and I'll be moderating today's call, which is being recorded.
Gary: After today's remarks, there's an opportunity to ask questions. Queue up for an opportunity to ask a question. Press star, then one. To draw your question, the command is star, then two.
A replay will be available on southwest.com in the investor relations section.
After today's remarks, There's an opportunity to ask questions.
Bob: <unk> and that value accelerates this year and then more meaningfully in 2026. Additionally, I am happy to report that we are seeing signs of improvement in industry demand changes and enhancements are being implemented very rapidly in first quarter, we amended our agreement with chase, we implemented enhancements to our rapid rewards program and launched Expedia, which.
Lauren Yett: Now, Lauren Yett from Invest Relations will begin the discussion. Please go ahead, Lauren. Thank you.
to queue up for an opportunity to ask a question, press star, then 1 to withdraw your question, the command is star, then 2,
Warren.
Lauren Yett: Hello, everyone, and welcome to Southwest Airlines' second quarter 2025 earnings call. In just a moment, we will share our prepared remarks, after which we will move into Q&A.
Lauren Yett: I'm joined today by our President, CEO, and Vice Chairman of the Board, Bob Jordan, Chief Operating Officer, Andrew Watterson, and Executive Vice President and CFO, Tom Doxey. A quick reminder that we will make forward looking statements, which are based on our current expectation of future performance, and our actual results could differ materially from expectations. 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.
Bob: Continues to exceed our expectations, we began 24 hour operations with our first Red eye flights and we launched our partnership with Iceland Air <unk>.
Bob: We accelerated our cost reduction plan and continued to accelerate to execute very well on cost with broad based cost discipline across the company moving to the second quarter the pace and the quality of execution continued we began charging checked bag fees, we reintroduced the exploration of flight credits and implemented our basic economy.
Thank you. Hello everyone and welcome to Southwest Airlines second quarter 2025 earnings call in just a moment. We will share our prepared remarks after which we will move into Q&A. I'm joined today by our president CEO and vice chairman of the board. Bob Jordan Chief Operating Officer Andrew Watterson an Executive Vice President and CFO Tom doximity.
Lauren Yett: Our press release with second quarter 2025 results and supplemental information were both issued yesterday afternoon and are available on our investor relations website.
Bob: Product and enhanced fare structure, which lays the foundation for meaningful product differentiation when assigned and premium seating become available.
Bob Jordan: And now I am pleased to turn the call over to you, Bob. Thank you, Lauren, and thanks to everyone for joining us today. Southwest is on a transformational journey, the largest in our history, as we work to evolve our product and deliver increased value for shareholders and more choice for our customers. Our plan remains on track, and I have high confidence in our transformational journey and the significant value it brings. And that value accelerates this year and then more meaningfully in 2026. Additionally, I'm happy to report that we are seeing signs of improvement in industry demand.
Bob: Those changes were announced in March and successfully launched in less than 100 days.
Speaker Change: A quick reminder that we will make forward-looking statements, which are based on our current expectation of future performance and our actual results could differ materially from expectations. Also, we will reference our non-gaap results, which excludes special items that are called out, and reconciled to Gap results and our earnings press release. Our press release, was second quarter, 2025 results and supplemental information for both issued yesterday, afternoon and are available on our investor relations website. And now, I am pleased to turn the call over to you, Bob,
Bob: Just extremely proud of our operations commercial and technology teams for their work to support an exceptional operational rollout the revenue contribution from bag fees has exceeded our expectations. So far and we've experienced no negative impact to the operation. Additionally, during the quarter, we began retrofitting aircraft for extra legroom.
Bob: Seating was about a quarter of our fleet now modified moving onto the third quarter earlier. This week, we announced that we will begin selling assigned and premium seating on July 29 for flights beginning on January 27th We announced services St. Thomas which will begin operation early next year and just this morning, we announced new and <unk>.
Bob Jordan: Changes and enhancements are being implemented very rapidly. In first quarter, we amended our agreement with Chase. We implemented enhancements to our rapid rewards program and launched Expedia, which continues to exceed our expectations. We began 24-hour operations with our first red-eye flights, and we launched our partnership with Icelandair. We accelerated our cost reduction plan and continue to execute very well on cost with broad-based cost discipline across the company. Moving to the second quarter, the pace and the quality of execution continued. We began charging checked bag fees. We reintroduced the expiration of flight credits and implemented our basic economy product and enhanced fare structure, which lays the foundation for meaningful product differentiation when assigned and premium seating become available.
Bob: Thank you, Lauren, and thanks to everyone for joining us today. Southwest is on a transformational journey, the largest in our history, as we work to evolve our product and deliver increased value for shareholders. And more choice for our customers, our plan remains on track, and I have high confidence in our transformational journey and the significant value, it brings and that value accelerates this year and then more meaningfully in 2026. Additionally, I'm happy to report that we are seeing signs of improvement in Industry, demand.
Bob: Enhanced benefits to our co brand credit cards offer through Chase. These benefits line with our new product offering and are designed to incentivize increased spending with perks like more points for everyday spending on things like groceries gas and dining purchases and I'm pleased with the pace of the execution and we are not slowing down.
Changes in enhancements are being implemented. Very rapidly. In first quarter, we amended our agreement with Chase. We implemented enhancements to our rep Rewards program and launched Expedia which continues to exceed our expectations. We began 24-hour operations with our first Redeye flights and we launched our partnership with Iceland Air.
Bob: We accelerated our cost reduction plan and continued to to execute very well on cost with broad-based cost discipline across the company.
Bob: Our initiatives will continue to rollout and to ramp and we expect them to deliver a more meaningful contribution in the fourth quarter of this year and a much greater contribution in 2026. Once we began operating assigned and premium seating along with this year's enhancements and I want to reiterate that our current initiatives are not the end.
Bob Jordan: Those changes were announced in March and successfully launched in less than 100 days. I'm just extremely proud of our operations, commercial and technology teams for their work to support an exceptional operational rollout. The revenue contribution from bag fees has exceeded our expectations so far. And we we've experienced no negative impact to the operation. Additionally, during the quarter, we began retrofitting aircraft for extra legroom seating with about a quarter of our fleet now modified. Moving on to the third quarter earlier this week, we announced that we will begin selling assigned and premium seating on July 29th for flights beginning on January the 27th.
Bob: Moving to the second quarter, the pace and the quality of execution continued, we began charging checked bag fees, we reintroduced the expiration of flight credits and implemented. Our basic economy product and enhanced fare structure, which lays the foundation for Meaningful product, differentiation when assigned in premium seating become available,
Bob: And our product strategy and evolution.
Bob: As we've stated before we are committed to evolving further to meet the needs of our current and our future customers.
Bob: Those changes were announced in March and successfully launched in less than 100 days. I'm just extremely proud of our operations commercial and Technology teams for their work to support an exceptional operational role out.
Bob: Turning to the macro environment industry demand stabilized in the second quarter and while it's early our recent bookings show clear signs of improvement this improving demand environment, along with moderated capacity in the industry and the accelerating ramp up of the contribution from our southwest specific initiatives provide a constructive backdrop for the <unk>.
Bob: The revenue contribution from bag, fees has exceeded our expectations. So far, and we, we've experienced no negative impact to the operation.
Bob: additionally, during the quarter, we began retrofitting aircraft for extra legroom seating with about a quarter of our Fleet now modified
Bob: Second half of the year and into 2026.
Bob Jordan: We announced service to St. Thomas, which will begin operation early next year. And just this morning, we announced new and enhanced benefits to our co-brand credit cards offered through Chase. These benefits align with our new product offering and are designed to incentivize increased spending with perks like more points for everyday spending on things like groceries, gas, and dining purchases. And I'm pleased with the pace of the execution and we are not slowing down. Our initiatives will continue to roll up and to ramp, and we expect them to deliver a more meaningful contribution in the fourth quarter of this year and a much greater contribution in 2026.
Bob: We have provided an updated full year EBIT guide of $600 million to $800 million and a reconciliation to our previous guide of $1 7 billion. This includes nearly $8 billion drop from the precipitous decline in the macro environment, that's being felt by the industry net of some inflection back up.
Bob: The rest of the year and a $100 million decrease from higher fuel costs with our $1 8 billion portfolio of initiatives and relative domestic unit revenue outperformance continuing to drive incremental value for the year.
Bob Jordan: Once we began operating assigned and premium seating along with this year's enhancements. And I want to reiterate that our current initiatives are not the end point and our product strategy and evolution. As we've stated before, we are committed to evolving further to meet the needs of our current and our future. Turning to the macro environment, industry demand stabilized in second quarter, and while it's early, our recent bookings show clear signs of improvement. This improving demand environment, along with moderated capacity in the industry, and accelerating ramp up of the contribution from our Southwest specific initiatives, provides a constructive backdrop for the second half of the year and into 2026.
Bob: Our updated full year EBIT guidance still represents meaningful year over year improvement and we continue to expect significant EBIT expansion in 2026 as the value contribution from our slate of initiatives continues to accelerate on top of that given our over weighting to the domestic market, we would expect to be an outsized.
Bob: Moving on to the third quarter, earlier this week, we announced that we will begin selling a signed and premium seating on July 29th for flights. Beginning on January the 27th, we announced service to St, Thomas. Which will begin operation early next year. And just this morning, we announced new and enhanced benefits to our co-brand credit cards offered through Chase. These benefits aligned with our new product offering, and are designed to incentivize increased spending with perks, like more points, for everyday spending on things like groceries, gas, and dining purchases. And I'm pleased with the pace of the execution and we are not slowing down. Our initiatives will continue to roll up and to ramp and we expect them to deliver a more meaningful contribution in the fourth quarter of this year and a much greater contribution in 2026. Once we began operating a signed and premium seating along with this year's enhancements. And I want to reiterate that our current initiatives are not the endpoint and our product strategy and evolution.
As we've stated before, we are committed to evolving further to meet the needs of our current, and our future customers.
Bob: Free of any recovery in the domestic demand environment.
Bob: Our strong and efficient investment grade balance sheet continues to provide support and flexibility as well.
Bob: Underscoring the belief in our transformational plan strong management execution and the ability to deliver significant value for our shareholders. Our board of directors has authorized a new $2 billion share repurchase program expected to be completed over a period of up to two years, Tom will provide insight into our strong capital allocate.
Bob Jordan: We have provided an updated four-year EBIT guide of $600 million to $800 million and a reconciliation to our previous guide of $1.7 billion. This includes nearly a billion-dollar drop from the precipitous decline in the macro environment that's being felt by the industry, net of some inflection back up for the rest of the year, and a $100 million decrease from higher fuel costs, with our $1.8 billion portfolio of initiatives and relative domestic unit revenue outperformance continuing to drive incremental value for the year. Our updated four-year EBIT guide still represents meaningful year-over-year improvement, and we continue to expect significant EBIT expansion in 2026 as the value contribution from our slate of initiatives continues to accelerate.
Turning to the macro environment industry demands stabilized in second quarter. And while it's early, our recent booking show, clear signs of improvement, this improving demand environment along with moderated capacity in the industry and accelerating ramp up of the contribution from our Southwest specific. Initiatives provides a constructive backdrop for the second half of the year and into 2026.
Bob: <unk> framework, which balances a strong and durable investment grade balance sheet with the capacity for further share buybacks at what we believe are attractive levels.
Bob: I am very excited about the future that we're building here at southwest and we will continue executing on our plans with urgency and with purpose above all I want to recognize our incredible employees for their excellence and they're one of a kind hospitality as we all work together to deliver on our vision and with that Andrew I will.
Bob: We have provided an updated 4year evit guide of 600 to 800 million and a rick reconciliation to our previous guide of 1.7 billion. This includes nearly a billion dollar drop from the precipitous decline in the macro environment. That's being felt by the industry. Net of some inflection, back up for the rest of the year and a $100 million, decrease from higher fuel costs with our 1.8 billion, portfolio of initiatives and relative domestic unit Revenue, outperformance, continuing to drive incremental value for the year.
Andrew Watterson: Turn it over to you.
Andrew Watterson: Thanks, Bob I'll start by also recognizing our people continuing to run an excellent operation.
Andrew Watterson: I'm, especially proud that we led the industry in on time performance for the first half of this year we.
Bob Jordan: On top of that, given our over-weighting to the domestic market, we would expect to be an outsized beneficiary of any recovery in the domestic demand environment. Our strong and efficient investment-grade balance sheet continues to provide support and flexibility as well.
As the value contribution from our slate of initiatives continues to accelerate.
Andrew Watterson: We continue to have a strong completion factor cancelling fewer flights during irregular operations compared with our larger peers.
Andrew Watterson: And recovering very quickly with little or no hangover the days that follow on.
Bob: On top of that, given our overeating to the domestic Market. We would expect to be an outsized beneficiary of any recovery in the domestic demand environment.
Andrew Watterson: I commend our team for rising to the challenge during this transformational time.
Bob Jordan: Underscoring the belief in our transformational plan, strong management execution, and the ability to deliver significant value for our shareholders, our Board of Directors has authorized a new $2 billion share repurchase program expected to be completed over a period of up to two years. Tom will provide insight into our strong capital allocation framework, which balances a strong and durable investment grade balance sheet with the capacity for further share buybacks at what we believe are attractive levels.
Bob: Our strong and efficient investment grade balance sheet continues to provide support and flexibility as well.
Andrew Watterson: We reached a key milestone with the launch of our basic economy product and checked bag fees on May 28.
Andrew Watterson: Tremendous amount of work enabled out rollout, including training for our people on new policies and tools.
Andrew Watterson: The operational rollout was incredibly smooth.
Andrew Watterson: Implementing these changes in May was designed to set the foundation for our product differentiation.
Speaker Change: Head of beginning to sell assigned premium seating.
Speaker Change: Today, the incentives to buy up our primarily flexibility and free checked bags.
Bob Jordan: I'm very excited about the future that we're building here at Southwest, and we will continue executing on our plans with urgency and with purpose. Above all, I want to recognize our incredible employees for their excellence and their one-of-a-kind hospitality as we all work together to deliver on our vision.
Speaker Change: We began selling the assigned and premium seeing next week more enhancement and choices will exist, allowing for incremental product differentiation for customers.
Speaker Change: As we've previously shared we did not see a measurable customer impacts in the period between the announcement of these changes back in March and the implementation in late May.
Andrew Watterson: And with that, Andrew, I will turn it over to you. Thanks, Bob. I'll start by also recognizing our people for continuing to run an excellent operation. I'm especially proud that we led the industry in on-time performance for the first half of this year. We continue to have a strong completion factor, cancelling fewer flights during our regular operations compared with our larger peers. and recovering very quickly with little to no hangover the days that followed.
Speaker Change: The day before the changes were implemented we did see a modest pull forward in bookings.
Speaker Change: Underscoring, the belief and our transformational plan, strong management execution, and the ability to deliver significant value for our shareholders. Our board of directors has authorized a new 2 billion dollar. Share repurchase program expected to be completed. Over a period of up to 2 years. Tom will provide insight into our strong Capital allocation framework, which balances a strong and durable. Investment grade balance sheet, with the capacity for further, share BuyBacks at what we believe are attractive levels. I'm very excited about the future that we're building here at Southwest, and we will continue executing on our plans with urgency and with purpose above all, I want to recognize our incredible employees for their excellence and their 1 of a kind hospitality, as we all work together to deliver on our vision. And with that Andrew, I will turn it over to you.
Speaker Change: And in the days following May 28, we experienced a temporary decline in bookings.
Andrew: Thanks Bob. I'll start by also recognizing our people for continuing to run an excellent operation.
Speaker Change: Primarily in basic economy.
Speaker Change: Starting from day, one the team has worked continuously to optimize our approach to selling basic economy.
I'm especially proud that we led the industry and on-time performance for the first half of this year.
Speaker Change: So there has been an ongoing effort to optimize the product descriptions and the basic economy booking flow, which initially included barriers to bookings basically economy. The resulted in reductions in overall website conversion.
We continue to have a strong completion Factor canceling, fewer flights during a regular operations compared with our larger peers.
Andrew Watterson: I commend our teams for rising to the challenge during this transformational We reached a key milestone with the launch of our basic economy products and check back fees on May 28. A tremendous amount of work enabled that rollout, including training for our people on new policies. The operational rollout was incredibly... Implementing these changes in May was designed to set the foundation for our product differentiation, ahead of beginning to sell assigned premiums. Today, the incentives to buy up are primarily flexibility and free check back.
Andrew: And recovering very quickly with little, to no hangover in the days that follow.
I commend our teams for rising to the challenge during this transformational time.
Speaker Change: We quickly refine the booking flow and product descriptions to reduce friction and bookings have returned to expected levels.
Andrew: You reach a key Milestone with the launch of our basic economy products and check back fees on May 28th.
Speaker Change: With promotional activity back filling gaps from this brief period of lower conversion.
Andrew: A tremendous amount of work enabled that roll out, including training for our people on new policies and tools.
Andrew: The operational rollout was incredibly smooth.
Speaker Change: This resulted in an impact of second quarter 2025 year over year RASM of nearly one half point.
Andrew: Definitely, these changes in May was designed to set the foundation for our product differentiation.
Speaker Change: We expect an impact of third quarter 'twenty 'twenty five year over year RASM of approximately one point.
Ahead of began to sell assigned and premium seating.
Speaker Change: Moving to checked bags well over half of our customers are now flying on bookings made beginning may 28.
Andrew Watterson: We begin selling the sign in premium seat next week. More enhancement and choices will exist, allowing for incremental product differentiation for As we've previously shared, we did not see a measurable customer impact in the period between the announcement of these changes back in March and the implementation in late May. The day before the changes were implemented, we did see a modest pull forward in bookings. And in the days following May 28th, we experienced a temporary decline in booking. primarily in basic economy. Starting from day one, the team has worked continuously to optimize our approach to selling basic economy.
Andrew: Today, the incentives to buy up are primarily flexibility and free check bags.
Speaker Change: We are encouraged to be seeing higher than anticipated take rates for paid bags.
Speaker Change: At this early stage, we're already trending at the higher end of the bag revenue per passenger rate of our larger peers, which is in excess of our estimates.
Andrew: We Begin selling, the signed and premium seating next week, more enhancements and choices will exist allowing for incremental product differentiation for customers.
Andrew: As we've previously shared, we did not see a measurable customer impact in the period between the announcement.
Speaker Change: We've seen a modest increase in gate checked bags as expected, but have experienced no negative impact to the operation.
Andrew: Of these changes back in March, and the implementation in late May.
The day before, the changes were implemented. We did see a modest pull forward in bookings.
Speaker Change: We prepared for this change by implementing new systems and processes, which has supported the exceptional operational rollout for.
In the days, following May 28th, we experienced a temporary decline in bookings.
Andrew: Primarily in basic economy.
Speaker Change: For example, we are using a machine learning tool that predicts the number of gate checked bags need for each flight, which enables our teams to act early and keep the operations running smoothly.
Andrew Watterson: There has been an ongoing effort to optimize the product descriptions and the basic economy booking flow, which initially included barriers to booking basic economy that resulted in reductions and overall website conversion. We quickly refined the booking flow and product descriptions to reduce friction, and bookings have returned to expected levels. with promotional activity backfilling gaps from this brief period of lower conversion. This resulted in an impact to second quarter 2025 year-over-year RASM of nearly one half point. and we expect an impact the third quarter 2025 year of your RASM of approximately one.
Andrew: Starting from day 1, the team has worked continuously to optimize our approach to selling basic economy.
Speaker Change: Overall, we're pleased with the product changes and look forward to the continued ramp up these initiatives according to our plan.
There's been an ongoing effort to optimize the product descriptions, and the basic economy booking flow, which initially included barriers to booking basic economy. The resulted in reductions in overall website conversion.
Speaker Change: We're excited to begin selling assigned in premiums.
Speaker Change: Tuesday, I look forward to operate these new products beginning January 27.
Andrew: We quickly refined the booking flow and product descriptions to reduce friction and bookings have returned to expected levels.
Speaker Change: As Bob mentioned, we've modified about a quarter of our fleet we have.
With promotional activity. Back filling gaps from this brief period of lower conversion.
Speaker Change: <unk> already started to monetize these retrofit aircrafts by notifying customers. So it will be on a flight with extra legroom seats.
Andrew: This resulted in an impact to second quarter 2025 year of your rasim of nearly 1 Half Point.
Speaker Change: And inviting them to take advantage of our existing upgraded boarding product.
Andrew Watterson: Moving to check bags. Well over half of our customers are now flying on bookings may beginning May 28. We're encouraged to be seen higher than anticipated take rates for paid back. At this early stage, we're already trending at the higher end of the bag revenue per passenger rate of our larger peers, which is in excess of our estimated. We've seen a modest increase in gate check bags, as expected, but have experienced no negative impact to the operation. We prepared for this change by implementing new systems and processes, which have supported the exceptional operational rollout. For example, we're using a machine learning tool that predicts the number of gate check bags needed for each flight, which enables our teams to act early and keep the operation running.
Andrew: And we expect an impact, a third quarter of 2025 year of your rasim of approximately 1 Point.
Speaker Change: We've been very pleased with our co brand agreement with Chase and we're excited about the new and enhanced benefits on our credit cards announced this morning, which align with our new product offering.
Andrew: Moving to check bags. Well over half of our customers are now. Flying on bookings, made beginning May 28th.
Speaker Change: Benefits include one free checked bag preflight seat selection and upgrades to extra legroom with any fair bundle as well as earlier boarding.
We're encouraged to be seen higher than anticipated. Take rates for paid bags.
Speaker Change: Even before these new products and card enhancements, we've seen increased sign ups with our existing card.
Andrew: At this early stage, we're already trending at the higher end of the bag Revenue per passenger rate of our larger peers, which is an excess of our estimates.
Speaker Change: Beginning in our August schedule, we're providing more connecting opportunities to drive load factors.
Andrew: We've seen a modest increase in Gate. Check bags as expected but have experienced no negative impact to the operation.
Speaker Change: We will still have the largest point to point network in the industry, but with additional connection options layered in driving improved network utility and more options for our customers.
Andrew: We prepared for this change by implementing new systems and processes which are supported the exceptional operational rollouts.
Speaker Change: The connection opportunities will vary by season day of week and time of day with less structure connectivity in peak times.
Andrew Watterson: Overall, we're pleased with the product changes and look forward to the continued ramp of these initiatives according to our plan.
Andrew: For example, we're using a machine learning tool that predicts the number of gate check bags need for each flight which enables our teams to act early and keep the operation running smoothly.
Speaker Change: We're expanding our networks and look forward to launching services St. Thomas early next year.
Andrew Watterson: We're excited to begin selling assigned premium seating on Tuesday and look forward to operating these new products beginning January 27. As Bob mentioned, we've modified about a quarter of our fleet, we've already started to monetize these retrofit aircraft. By notifying customers that we'll be on a flight with extra legroom seats. and inviting them to take advantage of our existing upgraded boarding product.
Overall, we're pleased with the product changes and look forward to the continued ramp of these initiatives, according to our plan.
Speaker Change: This is our first new destination to launch this 2021, and we expect to announce at least two more new destinations later this summer.
we're excited to begin selling, a signed and premium seating on 2 on Tuesday and look forward to operating these new products, beginning, January 27th,
Speaker Change: We recently announced our second airline partner, China Airlines and plan to launch operations with them early next year.
Andrew: As Bob mentioned, we've modified about a quarter of our Fleet. We've already started to monetize these retrofit, aircrafts
Speaker Change: We also announced three new gateways for Iceland Air partnership.
by notifying customers that will be on a flight with extra legroom seats.
Speaker Change: Pittsburgh, Orlando, Raleigh, Durham, bringing us to a total of six gateways.
Andrew Watterson: We've been very pleased with our co-brand agreement with Chase, and we're excited about the new and enhanced benefits on our credit cards announced this morning, which align with our new product offer. New benefits include one free check bag, pre-flight seat selection, and upgrades to extra legroom with any fare bundle, as well as earlier boarding. Even before these new products and card enhancements, we've seen increased signups with our existing cards.
Andrew: And inviting them to take advantage of our existing upgraded boarding product.
Speaker Change: We've made progress with <unk>.
Speaker Change: Ways by southwest product, which is planned to launch this quarter.
This morning which aligned with our new product offering.
Speaker Change: And through the combination of turn and Redeye initiatives, we have exceeded 2019 aircraft utilization levels while.
Speaker Change: While at the same time, improving the quality of our operation.
Andrew: New benefits include 1. Free check bag, pre-flight seat, selection and upgrades to extra leg room with any Fair bundle as well as earlier boarding.
Speaker Change: After a steady trend of deteriorating demand starting in the first quarter the macro environment stabilize at lower levels. During the second quarter and resulted in <unk> RASM down three 1% year over year.
Andrew: even before these new products, and card enhancements, we've seen increased signups with our existing card,
Andrew Watterson: Beginning in our August schedule, we're providing more connecting opportunities to drive load factors. We will still have the largest point-to-point network in the industry, but with additional connection options layered in, driving improved network utility and more options for our customers. The connection opportunities will vary by season, day of week, and time of day, with less structured connectivity in peak time.
Speaker Change: Including the nearly half point impact from the decline in bookings on our may 28th policy changes.
Andrew: Beginning in our August schedule, we're providing more connecting opportunities to drive load factors.
Speaker Change: I am pleased that we again outperformed our large industry peers on domestic unit revenue.
We will still have the largest point-to-point Network in the industry but with additional connection options layered in driving improved Network utility and more options for our customers.
Speaker Change: Our <unk> RASM guide of down 2% to up 2% year over year assumes a modest sequential improvement demand.
Andrew: The connection opportunities will vary by season day of week and time of day with less structure connectivity and peak times.
Andrew Watterson: We're expanding our network and look forward to launching service to St. Thomas early next year. This is our first new destination to launch since 2021, and we expect to announce at least two more new destinations later this summer.
Speaker Change: Includes roughly a point impact of the decline in bookings for our May 20th policy changed.
Andrew: We're expanding our networks, and look forward to launching service at St. Thomas, early next year.
Speaker Change: A one point headwind from lapping last year's cross like an incident and is partially mitigated by our initiatives continuing to ramp.
Andrew Watterson: We recently announced our second airline partner, China Airlines, and plan to launch operations with them early next year. We also announced three new gateways for our Icelandair partnership. Pittsburgh, Orlando and Raleigh-Durham, bringing us to a total of six gateways.
This is our first new destination to launch since 2021 and we expect to announce at least 2 more new destinations later this summer.
Speaker Change: Looking to <unk> RASM, we assumed further sequential improvement from third quarter, both from anticipated improvement domestic leisure travel trends and accelerating incremental revenue from our initiatives continuing to ramp.
We recently announced our second Airline partner, China Airlines
and plan to launch operations with them early next year.
We also announced 3 new gateways for our Iceland are partnership.
Speaker Change: We will provide more specific RASM guidance for the fourth quarter do our next earnings call.
Andrew Watterson: We've made progress with our getaways by Southwest product, which is planned to launch this quarter. And through the combination of TURN and Red Eye initiatives, we have exceeded 2019 aircraft utilization levels, while at the same time improving the quality of our operations. After a steady trend of deteriorating demand starting the first quarter, the macro environment stabilized at lower levels during the second quarter and resulted in 2Q RASM down 3.1% year-over-year. including the nearly half point impact from the decline in bookings on our May 28th policy. I'm pleased that we again outperformed our large industry peers on domestic unit revenue.
Andrew: Pittsburgh Orlando and Raleigh Durham bringing us to a total of 6 gateways.
Speaker Change: We remain committed to a reduced capacity plan for this year with full year capacity up just 1% year over year with trips down roughly 2% this year and the modest growth driven by our turned in red eye efficiency initiatives.
Andrew: We've made progress with our gate getaways by Southwest product which is planned to launch this quarter.
Andrew: And through the combination of turn and Redeye initiatives. We have exceeded, 2019, aircraft utilization levels.
Speaker Change: We've made tremendous progress and we're not slowing down with that I'll turn it over to Tom.
Andrew: While at the same time, improving the quality of our operation.
Speaker Change: Thanks, Andrew and Hello, everyone as you've heard from both Bob and Andrew We remain on track for our slate of initiatives. We are reiterating our incremental initiatives EBIT contribution targets of $1 $8 billion in 2025, and $4 $3 billion in 2026 of the one.
Andrew: After a steady trend of deteriorating demand starting the first quarter, the macro environment stabilized at lower levels during the second quarter and resulted to Q rasim down 3.1% year-over-year.
Andrew: In the nearly half Point impact from the decline in bookings while in our May 28th policy changes.
Andrew Watterson: Our 3Q RASM guide of down 2% to up 2% year over year assumes a modest sequential improvement demand. concludes roughly a point impact from the decline in bookings following our May 28th policy change. A one-point headwind from lapping last year's CrowdStrike incident and is partially mitigated by our initiatives continuing to ramp. Looking to 4Q RASM, we assume further sequential improvement from third quarter, both from anticipated improvement in domestic leisure travel trends and accelerating incremental revenue from our initiatives continuing to ramp.
Andrew: I'm pleased that we again outperformed our large industry peers on domestic unit Revenue.
Speaker Change: 8 billion initiative, even in 2025, we have successfully executed and met our planned expectations in both the first and second quarter of the year already realizing roughly one third of this year's expected value.
Our 3Q rasim guide of down, 2% up, 2% year-over-year assumes. A modest sequential Improvement demand.
Andrew: Includes roughly a point impact of the client in bookings following our May 28th policy change.
Speaker Change: We continue to expect the remaining two thirds of this year's EBIT contribution to be achieved in the back half of this year as the ramp of the initiatives continues to accelerate according to our product rollout and plan.
Andrew: a 1-point headwind from lapping last year's crowds like in incident and is partially mitigated by our initiatives continuing to ramp
Speaker Change: We feel confident in our ability to deliver against these targets and the southwest specific levers we have to mitigate the current industry demand environment.
Andrew Watterson: We'll provide more specific RASM guidance for the fourth quarter through our next earnings call. Remain committed to our reduced capacity plan for this year with full year capacity of just 1% year-over-year, which trips down roughly 2% this year, and the modest growth driven by our Turn and Red Eye Efficiency Initiative. We've made tremendous progress and we're not slowing down.
Andrew: Looking to 4 key rasim we assume further sequential improvement from the third quarter. Both from anticipating Improvement, domestic Leisure Travel Trends and accelerating incremental revenue from our initiatives continuing to ramp
Speaker Change: Wed like to provide more detail into some of the early successes that we're seeing from several of our initiatives first checked bags.
Andrew: We'll provide more specific rasim guidance for the fourth quarter during our next earnings call.
Speaker Change: As Andrew mentioned, we are already trending at the higher end of the bag revenue per passenger rate of our legacy peers.
Andrew: Remain committed to our reduced capacity, plan for this year with full year capacity, up to 1% year-over-year with trips down roughly 2% this year and the modest growth driven by our turn and Red Eye Efficiency initiatives.
Speaker Change: We currently estimate the checked bag fees will result in more than $350 million of EBIT for the full year 2025, which compares favorably to our initial estimates.
Tom Doxey: With that, I'll turn it over to Tom. Thanks, Andrew. And hello, everyone. As you've heard from both Bob and Andrew, we remain on track for our slate of initiatives. We continue to expect the remaining two-thirds of this year's EVIT contribution to be achieved in the back half of this year as the ramp of the initiatives continues to accelerate according to our product rollout and plan. We feel confident in our ability to deliver against these targets and the Southwest specific levers we have to mitigate the current industry demand environment.
Andrew: We've made tremendous progress and we're not slowing down.
Andrew: With that, I'll turn it over to Tom.
Speaker Change: And has a run rate of approximately $8 billion of EBIT had it been in place for the full year.
Speaker Change: Second we remain on track with our cost savings target of $370 million for 2025 based.
Speaker Change: Based on actions, we have taken to date, most notably the head count reductions in the first half of this year and the related salaries wages and benefits savings and additional cost savings that have been identified.
Tom: Thanks Andrew and hello everyone. As you've heard from both Bob and Andrew, we remain on track for our slate of initiatives. We are reiterating our incremental initiative Eve at contribution targets of 1.8 billion dollars in 2025 and 4.3 billion dollars in 2026 of the 1.8 billion initiative. Even in 2025, we have successfully executed and met our plan expectations.
Speaker Change: Leaders across our organization are highly engaged in our cost reduction plan and we are seeing cost discipline across the company.
In both the first and second quarter of the Year already realizing roughly 1/3 of this year's expected value.
Speaker Change: Third the evolution of our marketing and distribution strategy as Bob mentioned bookings through our new channels and exceeded our expectations in particular with Expedia, which now represents roughly 5% of our passenger volume and more than half of that 5% being customers that are net new to southwest.
We continue to expect the remaining 2/3 of this year's eve, contribution to be achieved in the back half of this year, as the ramp of the initiatives continues to accelerate, according to our product rollout and plan.
Tom Doxey: We'd like to provide more detail into some of the early successes that we are seeing from several of our initiatives. First, check bags. As Andrew mentioned, we are already trending at the higher end of the bag revenue per passenger rate of our legacy peers. We currently estimate the checked bag fees will result in more than $350 million of EBIT for the full year 2025, which compares favorably to our initial estimate. and has a run rate of approximately a billion dollars of EBIT had it been in place for the full year. Second, we remain on track with our cost savings target of $370 million for 2025, based on actions we have taken to date, most notably the headcount reductions in the first half of this year and the related salaries, wages, and benefits savings, and additional cost savings that have been identified.
We feel confident in our ability to deliver against these targets and the Southwest specific levers, we have to mitigate the current industry demand environment.
Speaker Change: These items together with other initiatives such as our loyalty program earn and burn changes our amended chase deal New credit card sign ups flight credit exploration network changes the creation of additional connection opportunities Red eye flying and more give us high confidence in our ability to achieve our target this year.
Tom: We'd like to provide more detail into some of the early successes that we are seeing from several of our initiatives.
Tom: First check bags.
Tom: As Andrew mentioned, we are already trending at the higher end of the bag, Revenue per passenger rate of our Legacy peers.
Speaker Change: And finally, our new basic economy product is now in place and sets the stage for the additional product differentiation that will come from the operation of seat assignments and extra legroom seats that will start in January.
Tom: We currently estimate the checked bag. Fees will result in more than 350 million of ebit for the full year 2025 which compares favorably to our initial estimates.
Tom: And has a run rate of approximately a billion dollars of evid had it been in place for the full year.
Speaker Change: We expect EBIT contribution to continue to increase into 2026 as our current year initiatives mature and as we launch new initiatives.
Tom: Second, we remain on track with our cost savings. Target of 370 million for 2025.
Speaker Change: We're pleased to have provided the full year 2025, EBIT guidance that Bob walked you through and we will remain focused on strong execution to drive meaningful EBIT expansion in 2026.
Tom Doxey: Leaders across our organization are highly engaged in our cost reduction plan, and we are seeing cost discipline across the company.
Tom: Based on actions, we have taken to date most notably, the headcount reductions in the first half of this year, and the related salaries wages and benefits savings and additional cost savings that have been identified.
Speaker Change: Turning to non fuel costs second quarter CASM ex came in at up four 7% near the midpoint of our guidance range and included a headwind of roughly half a point from a noncash mark to market adjustment for nonqualified deferred compensation plans, which was driven solely by the recent strong stock market performance I am.
Tom Doxey: Third, the evolution of our marketing and distribution strategy. As Bob mentioned, bookings through our new channels have exceeded our expectations, in particular with Expedia, which now represents roughly 5% of our passenger volume, and more than half of that 5% being customers that are net new to Southwest. These items, together with other initiatives, such as our loyalty program, Earn and Burn Transcription by Trans-Expert at Fiverr.com Our amended chase deal, new credit card sign-ups, flight credit expiration, network changes, the creation of additional connection opportunities, red-eye flying, and more give us high confidence in our ability to achieve our target this year.
Tom: Seeing cost discipline across the company.
Speaker Change: Pleased with our management of controllable cost items in second quarter.
Third, the evolution of our marketing and distribution strategy is Bob mentioned bookings. Through our new channels, have exceeded our expectations in particular with Expedia, which now represents roughly 5% of our passenger volume and more than half of that 5% being customers, that are net new to Southwest.
Speaker Change: We expect third quarter CASM ex to be in the range of up three five to five 5% sequentially in line with the second quarter, but on a lower capacity base in.
Speaker Change: And includes roughly half a point from aircraft retrofit costs to support our extra leg room seating, which launches in 2026 and roughly a point of year over year pressure from the timing of engine overhaul expenses in the quarter.
Tom Doxey: And finally, our new basic economy product is now in place and sets the stage for the additional product differentiation that will come from the operation of seat assignments and extra legroom seats that will start in January. We expect EBIT contribution to continue to increase into 2026 as our current year initiatives mature and as we launch new initiatives. We're pleased to have provided the full year 2025 EBIT guidance that Bob walked you through. And we'll remain focused on strong execution to drive meaningful EBIT expansion in 2020.
Tom: These items together with other initiatives such as our loyalty program earn and burn changes are amended Chase deal. New credit card signups Flight Credit expiration Network changes, the creation of additional connection opportunities. Redeye flying and more. Give us high confidence in our ability to achieve our Target this year.
Speaker Change: Fourth quarter CASM ex excluding the impact of book gains from fleet transactions in the fourth quarter of both years is expected to be in the low single digits. As a reminder, we had a large sale leaseback transaction that resulted in a $92 million book gain in the fourth quarter of 2024.
Tom: And finally, our new basic economy product is now in place and sets the stage for the additional product differentiation that will come from the operation of seat, assignments and extra legroom seats that will start in January.
Tom: We expect ebit contribution to continue to increase into 2026 as our current year, initiatives mature. And as we launch new initiatives,
Speaker Change: We also expect aircraft retrofit costs to drive up to a point of <unk> CASM ex pressure.
Speaker Change: We will provide more specific cost detail for the fourth quarter during our next earnings call.
Tom Doxey: Turning to non-fuel costs, second quarter CASMX came in at up 4.7% near the midpoint of our guidance range and included a headwind of roughly half a point from a non-cash mark-to-market adjustment for non-qualified deferred compensation plans, which was driven solely by the recent strong stock market performance. I am pleased with our management of controllable cost items in second quarter. We expect third quarter CASMX to be in the range of up 3.5 to 5.5% sequentially in line with the second quarter, but on a lower capacity. and includes roughly half a point from aircraft retrofit. to support our extra legroom seating, which launches in 2026, and roughly a point of year-over-year pressure from the timing of engine overhaul expenses in the.
Tom: we're pleased to have provided the full year 2025 ebit guidance. That Bob walked you through and will remain focused on strong execution to drive, meaningful ebit expansion in 2026.
Speaker Change: Overall, we are managing costs, very well and again I am very pleased with our overall cost management and cost reduction efforts, which create good momentum as we head into 2026.
Tom: Turning to non-fuel costs second quarter Chasm X came in at up 4.7% near the midpoint of our guidance range.
Speaker Change: Moving to fuel, we recently terminated our remaining hedge portfolio for cash proceeds of $40 million, which reduces our future premium expense through 2027. Further detail is included in yesterday's press release, we now have no active fuel derivative contracts and currently estimate third quarter fuel costs per <unk>.
And included a headwind of roughly half a point from a non-cash mark-to-market adjustment for non-qualified. Deferred compensation plans, which was driven solely by the recent strong stock market performance. I am pleased with our management of controllable cost items in second quarter.
Speaker Change: <unk> to be in the $2 40.
Tom: We expect third quarter Chasm X to be in the range of up, 3.5 to 5.5% sequentially in line with the second quarter, but on a lower capacity base.
Speaker Change: <unk> to $2 50 range.
Speaker Change: Turning to fleet, we've updated our 2025 aircraft delivery assumption from 38 to <unk> 47 deliveries this year as Boeing continues to ramp up production.
And includes roughly half a point from aircraft retrofit costs.
Tom Doxey: Fourth quarter CASMX, excluding the impact of book gains from fleet transactions in the fourth quarter of both years. is expected to be in the low single digits. As a reminder, we had a large sale-leaseback transaction that resulted in a $92 million book gain in the fourth quarter of 2024. We also expect aircraft retrofit costs to drive up to a point of 4Q chasm X pressure. We will provide more specific cost detail for the fourth quarter during our next earnings Overall, we are managing costs very well. And again, I am very pleased with our overall cost management and cost reduction efforts, which create good momentum as we head into 2020.
Tom: To support our extra leg room seating which launches in 2026 and roughly a point of year-over-year pressure from the timing of engine overhaul expenses in the quarter.
Speaker Change: We continue to be encouraged by the progress being made by Boeing and are pleased to have received 17 aircraft deliveries in the second quarter as.
Tom: Fourth quarter, cmx excluding the impact of book gains from Fleet transactions in the fourth quarter of both years.
Speaker Change: As we have previously communicated additional deliveries of new aircraft gives us increased fleet flexibility as Bob and Andrew stated were committed to keeping our full year capacity growth at up about 1% this year.
Is expected to be in the low single digits. As a reminder, we had a large sale lease back transaction that resulted in a 92 million book gain in the fourth quarter of 2024
Speaker Change: With these incremental deliveries, we now expect to retire roughly 55 aircrafts in 2025, an increase of about five from the previous estimate and this also includes five 737 800 aircraft that we expect to sell this year and just recently, we also executed agreements for the sale of eight 730 <unk>.
Tom: We also expect aircraft retrofit costs to drive up to a point of 4q kmx pressure.
Tom: We will provide more specific cost detail for the fourth quarter, during our next earnings call.
Tom Doxey: Moving to fuel, we recently terminated our remaining hedge portfolio for cash proceeds of $40 million, which reduces our future premium expense through 2027. Further detail is included in yesterday's press We now have no active fuel derivative contracts and currently estimate third quarter fuel cost per gallon to be in the $2.40 to $2.50 range.
Speaker Change: Seven 800 aircraft that will occur in the first half of 2026.
Overall, we are managing costs very well. And again, I am very pleased with our overall cost management and cost reduction efforts, which create good momentum, as we head into 2026.
Speaker Change: And we're in the process of negotiating additional sales transactions. We continue to expect 2025 capital spending to be in the range of two $5 billion to $3 billion, which includes the additional aircraft deliveries expected this year as well as the expected proceeds from aircraft sales.
Tom: Moving to fuel. We recently terminated our remaining hedge portfolio for cash, proceeds of $0 million
Speaker Change: Moving to the balance sheet, we repurchased the remaining $1 5 billion under the previously announced $2 $5 billion buyback.
Tom: Which reduces our future. Premium expense through 2027 further, details is included in yesterday's, press release. We now have no active fuel derivative contracts and currently estimate third quarter fuel costs per gallon to be in the $2.40.
Tom Doxey: Turning to fleet, we've updated our 2025 aircraft delivery assumption from 38 to 47 deliveries this year as Boeing continues to ramp up production. We continue to be encouraged by the progress being made by Boeing and are pleased to have received 17 aircraft deliveries in second quarter. As we have previously communicated, additional deliveries of new aircraft give us increased fleet flexibility. As Bob and Andrew stated, we're committed to keeping our full year capacity growth at up about 1% this year.
Tom: To $2.50 range.
Speaker Change: And expect final settlement of shares to complete by the end of this month.
Speaker Change: Pleased with the expected outcome of this program, having purchased shares at prices well below current levels.
Tom: Turning to Fleet, we've updated our 2025, aircraft delivery, assumption from 38 to 47, deliveries this year. As Boeing continues to ramp up production,
Speaker Change: Completion of this share repurchase authorization effectively offsets the dilution from our common stock offering in May 2020.
Tom: we continue to be encouraged by the progress being made by Boeing and are pleased to have received 17, aircraft deliveries, in second quarter,
Speaker Change: And yesterday, we announced that our board of directors has approved a new $2 billion share repurchase authorization, which we expect to be completed over a period of up to two years, demonstrating our continued optimism around our plan.
Tom: As we have previously, communicated additional deliveries of new aircraft. Give us increased Fleet flexibility as Bob. And Andrew stated were committed to keeping our full year capacity growth and up about 1% this year.
Speaker Change: I'd also like to provide more detail on the capital allocation framework that we will use as a guide as we move forward, which will support our continued commitment to a strong and efficient investment grade balance sheet.
Speaker Change: We will be shifting from a cash target to a liquidity target, which will be $4 5 billion.
Tom Doxey: We're in the process of negotiating additional sales transactions. We continue to expect 2025 capital spending to be in the range of $2.5 to $3 billion, which includes the additional aircraft deliveries expected this year, as well as the expected proceeds from aircraft sales. Moving to the balance sheet, we repurchased the remaining $1.5 billion under the previously announced $2.5 billion buyback. and expect final settlement of shares to complete by the end of this month. We're pleased with the expected outcome of this program, having purchased shares at prices well below current levels. Completion of this share repurchase authorization effectively offsets the dilution from our common stock offering in May 2020.
With these incremental deliveries. We now expect to retire roughly 55 aircraft in 2025, an increase of about 5 from the previous estimate. And this also includes 5 737, 800 aircraft that we expect to sell this year. And just recently, we also executed agreements for the sale of 8 737-800 aircraft that will our first half of 2026.
Speaker Change: Apprised of $3 billion in cash and an upsized revolver of $1 5 billion, which is an increase of $500 million from the previous revolver size.
Speaker Change: We completed the upsizing of the revolver earlier this week.
Speaker Change: This target provides appropriate liquidity levels to cover near term business needs with access to additional liquidity available through a significant amount of unencumbered assets, we will target a gross leverage range of one to two five times adjusted debt, meaning gross debt plus operating leases to adjusted EBITDA.
Tom: And we're in the process of negotiating. Additional sales transactions, we continue to expect 2025 Capital spending to be in the range of 2.5 to 3 billion which includes the additional aircraft deliveries expected this year as well as the expected proceeds from aircraft sales.
Moving to the balance sheet, we repurchased the remaining 1.5 billion under the previously announced 2.5 billion buyback.
And expect final settlement of shares to complete by the end of this month.
Speaker Change: <unk> <unk>.
Speaker Change: After paying off $2 $6 billion of debt for the prepayment of the first tranche of the payroll support program notes.
Tom: We're pleased with the expected outcome of this program having purchased shares at prices well, below current levels.
Speaker Change: And the payoff of our convertible notes we ended the quarter with leverage of two one times, we will prioritize our use of capital to one continue to invest in the business to reduce leverage and maintain balance sheet strength and three provide returns to shareholders through repurchases or dividends through free cash flow surplus cash.
Tom Doxey: And yesterday, we announced that our Board of Directors has approved a new $2 billion share repurchase authorization. , which we expect to be completed over a period of up to two years, demonstrating our continued optimism around our plan.
Tom: Completion of this share repurchase authorization, effectively, offsets the dilution from our common stock offering in May 2020.
Tom: And yesterday, we announced that our board of directors has approved a new 2 billion share repurchase authorization.
Tom Doxey: I'd also like to provide more detail on the capital allocation framework that we will use as a guide as we move forward, which will support our continued commitment to a strong and efficient investment grade balance sheet. We will be shifting from a cash target to a liquidity target, which will be $4.5 billion, comprised of $3 billion in cash and an upsized revolver of $1.5 billion, which is an increase of $500 million from the previous revolver size. We completed the upsizing of the revolver earlier this week. This target provides appropriate liquidity levels to cover near-term business needs with access to additional liquidity available through a significant amount of unencumbered assets.
Tom: Which we expect to be completed over a period of up to 2 years demonstrating, our continued optimism around our plan.
Speaker Change: Cash or surplus debt capacity and with that I'll hand, it back to Bob.
Bob: Thank you Tom before we move onto Q&A I want to leave you with a few key points first we are performing well on a relative basis and are encouraged with the recent signs of improvement in the demand environment. We continue to execute on our initiatives. We had an exceptional operational rollout of bags and basic and we are making rapid progress to sell and operate.
Tom: I'd also like to provide more detail on the capital allocation framework that we will use as a guide as we move forward, which will support our continued commitment to a strong and efficient investment grade balance sheet.
Tom: We will be shifting from a cash Target to a liquidity Target which will be 4.5 billion comprised of 3 billion in cash and an upsized revolver of 1.5 billion which is an increase of 500 million from the previous revolver size.
Bob: Assigned and premium seating, which will bring many of our initiatives together.
Tom: We completed the upsizing of the revolver earlier this week.
Bob: We are confident we have an appropriate capital allocation framework and guardrails in place to operate as efficiently as possible and maintain our relative balance sheet strength and position, which we view as a significant strategic advantage. Finally, we remain committed to the plan we have in place including successful.
Tom: This target provides appropriate. Liquidity levels to cover near-term business needs.
Tom Doxey: We will target a gross leverage range of 1 to 2.5 times adjusted debt, meaning gross debt plus operating to Adjusted EBITDA. After paying off $2.6 billion of debt for the prepayment of the first tranche of the payroll support program notes and the payoff of our convertible notes, we ended the quarter with leverage of 2.1 times.
Tom: With access to additional liquidity available through a significant amount of unencumbered assets.
Bob: Execution and implementation of our transformational initiatives. All of this is focused on controlling what we can control to not only deliver exceptional customer value and continued loyalty, but also restore the financial returns we are known for while maintaining our unique and differentiated culture with much more to come as we roll.
Tom: We will Target a gross. Leverage range of 1 to 2.5 times. Adjusted debt, meaning gross, debt, plus operating leases to adjusted Evar.
Tom Doxey: We will prioritize our use of capital to, one, continue to invest in the business, two, reduce leverage and maintain balance sheet strength, and three, provide returns to shareholders through repurchases or dividends through free cash flow, surplus cash, or surplus debt capacity.
Bob: Out further enhancements to our product offering and with that I'll pass it back to Lawrence to start our Q&A.
Lawrence: 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. So we ask that you. Please limit yourself to one question. We will now take the first question.
Bob Jordan: And with that, I'll hand it back to Bob. Thank you, Tom.
Bob Jordan: Before we move on to Q&A, I want to leave you with a few key points. First, we are performing well on a relative basis, and are encouraged with the recent signs of improvement in the demand environment. We continue to execute on our initiatives. We had an exceptional operational rollout of BAGS and BASIC, and we are making rapid progress to sell and operate a sign in premium seating, which will bring many of our initiatives together. Second, we are confident we have an appropriate capital allocation framework and guardrails in place to operate as efficiently as possible, and maintain our relative balance sheet strength and position, which we view as a significant strategic advantage.
Tom: After paying off 2.6 billion dollars of debt for the prepayment of the first tranche of the payroll Support Program notes and the payoff of our convertible notes, we ended the quarter with leverage of 2.1 times. We will prioritize our use of capital to 1 continue to invest in the business, 2, reduce leverage and maintain balance sheet strength and 3, provide returns to shareholders through repurchases or dividends through free. Cash flow Surplus cash or Surplus debt capacity and with that, I'll hand it back to Bob.
Speaker Change: Thank you Lauren again to ask a question Press Star then one to withdraw your interest press Star then two.
Speaker Change: If you're on a speakerphone today, please pickup your handset before pressing the keys. Our first question comes from Catherine O'brien with Goldman Sachs. Please go ahead.
Bob: Thank you Tom uh before we move on to Q&A, I want to leave you with a few key points. First we are performing well on a real day basis and are encouraged with the recent signs of improvement in the demand environment. We continue to execute on our initiatives. We had an exceptional operational role out of bags and basic and we are making rapid progress to sell and operate a sign in premium seating which will bring many of our initiatives together.
Catherine O'brien: Hey, good morning, Thanks, so much for the time.
Catherine O'brien: I just have a question on on how we should think about the EBIT initiatives ramping up over <unk> and <unk> are realized two thirds of the initiatives are coming back half of the year, but on my math. Your guide implies an EBIT loss in the third quarter, what's taken in conjunction with the first half means the majority of this year as expected EBIT will.
Bob Jordan: Finally, we remain committed to the plan we have in place, including successful execution and implementation of our transformational initiatives.
Bob: Second, we are confident, we have an appropriate Capital, allocation framework, and guardrails in place to operate as efficiently as possible, and maintain, our relative balance sheet strength and position which we view as a significant strategic advantage.
Bob Jordan: All of this is focused on controlling what we can control to not only deliver exceptional customer value and continued loyalty, but also restore the financial returns we are known for while maintaining our unique and differentiated culture, with much more to come as we roll out further enhancements to our product offering.
Catherine O'brien: We produced in the fourth quarter.
Speaker Change: Drives that four key versus thank you, Rob I'm, just trying to understand how much of it is ramping initiatives versus industry assumptions. Thanks.
Okay.
Speaker Change: Thanks for the question I'll give it a start and then pass it over to Andrew but you've got a combination of obviously.
Lauren Yett: And with that, I'll pass it back to Lauren to start our Q&A. Thank you, Bob.
Speaker Change: <unk> ramping up like bags.
Bob: Finally, we remain committed to the plan. We have in place, including successful, execution and implementation of our transformational initiatives, all of this is focused on controlling what we can control to not only deliver exceptional customer value and continued loyalty but also restore the financial returns. We are known for while maintaining our unique and differentiated culture with much more to come as we roll out further enhancements to our product offering
Speaker Change: We gave you an annualized number on bags.
Unknown Executive: This completes our prepared remarks.
Speaker Change: At $1 billion in EBIT and with both booking curve most of that's in place.
Lauren: And with that, I'll pass it back to Lauren to start our Q&A.
Lauren Yett: We will now open the line for analyst questions. We would like to get to as many of you as possible. So we ask that you please limit yourself to one question.
Lauren: Thank you. Bob this completes our prepared remarks, we will now open the line for analyst questions.
Speaker Change: In the fourth quarter, you would have a flight credits and rapid awards optimization in.
We would like to get to as many of you as possible.
Unknown Executive: We will now take the first question. Thank you, Lauren. Again, to ask a question, press star, then one. To withdraw your interest, press star, then two. If you are on a speakerphone today, please pick up your handset before pressing the keys.
Lauren: So, we ask that you please limit yourself to 1 question. We will now take the first question.
Speaker Change: A long long list of initiatives that ramp across that period. You also have some assumptions around the continued sequential improvement in the demand environment and I think split between kind of those two <unk> got about four points of improvement between the initiatives ramping and the assumptions around <unk>.
Speaker Change: Thank you. Lauren again to ask a question, press star, then 1 to withdraw, your interest, press star, then 2
Catherine O'brien: Our first question comes from Catherine O'Brien with Goldman Sachs. Please go ahead. Hey, good morning, team. Thanks so much for the time. I just had a question on how we should think about the EBIT initiatives ramping up over 3Q and 4Q. I realize two-thirds of the initiatives are coming back half of the year, but on my math, your guide implies an EBIT loss in the third quarter, which, taken in conjunction with the first half, means the majority of this year's expected EBIT will be produced in the fourth quarter. What drives that 4Q versus 3Q ramp?
Speaker Change: If you are on a speakerphone today, please pick up your handset before pressing the keys. Our first question comes from Katherine O'Brien with Goldman Sachs. Please go ahead.
Speaker Change: <unk> improvement, but.
Andrew Watterson: It's really that but Andrew yes.
Speaker Change: A little more detail.
Andrew Watterson: So flat RASM in Q3, the guide implies roughly a six point improvement in RASM. So I'll just focus on the revenue side. So although six two or are there kind of a lack of a negative. So we have the basic economy headwind in Q3 as well as the crowd strike compare Q3. So it leaves you with the four points of Bob referenced split between macro and initiatives through <unk>.
Catherine O'brien: I'm just trying to understand how much of it is ramping initiatives versus industry. Thanks for the question.
Katherine O'Brien: Hey, good morning team, thanks so much for the time. Um I just had a question on on how how we should think about the evident initiative, ramping up over 3 q and 4 q. I realized 2/3 of of the initiatives are coming back half of the year. But but on my math, your guide, implies an ebook loss in the third quarter, which taken in conjunction. With the first half means the majority of this year is expected, ebit will be produced in the fourth quarter.
Andrew Watterson: Compose the macro you have.
Andrew Watterson: The improved environment, we see right now so we like others, we see from June to July we saw improvement.
Katherine O'Brien: You know what what drives that for you versus 3Q ramp. I'm just trying to understand how much of it is ramping initiatives versus industry assumptions. Thanks,
Bob Jordan: I'll give it a start and then pass it over to Andrew, but you've got a combination of, obviously, initiatives ramping up like BAGS. We gave you an annualized number on BAGS, you know, at a billion dollars in EBIT. And with the booking curve, most of that's in place, you know, in the fourth quarter. You have flight credits and rapid rewards, optimization, and, you know, a long, long list of initiatives that ramp across that period. You also have some assumptions around the continued sequential improvement in the demand environment. And I think split between, you know, kind of those two, you've got about four points of improvement between the initiatives ramping and the assumptions around sequential improvement.
Andrew Watterson: And the macro environment and that means Q4. It is booking curve is much less exposed to weakness compared to Q3. So that's a tailwind that will that will persist even if nothing else improves and you also have the capacity.
Katherine O'Brien: But you've got a combination of obviously. Uh, initiatives. Ramping up like bags.
Speaker Change: Paucity coming out of the marketplace starting.
Speaker Change: Some are ramping through so a combination of already published capacity reductions the already seen macro improvement gives you a tailwind into into.
Speaker Change: Into Q4, and we see I think a strengthening trend so it could be more than that and then the initiative side.
Speaker Change: Tom and Bob both gave you the bag numbers and so those as you see ramp through the whole booking curve. All of Q3 was not exposed to bag fees, but essentially all of Q4 will be because of the nature of when the bookings take place and there's a few other things that are also an initiative bucket that also previously implemented and still in the booking curve.
Andrew Watterson: But it's really that.
Andrew Watterson: But Andrew, I'll give you a little more detail. Yes, sir. So flat RASM in Q3, the guide implies roughly a six-point improvement in RASM, so I'll just focus on the revenue side. So are those six points, too, or is it kind of a lack of a negative? So we have the basic economy headwind in Q3, as well as the CrowdStrike Compare Q3. So that leaves you with the four points of Bob referenced, split between macro and initiatives. If you decompose the macro, you have the improved environment we see right now. So we, like others, we see from June to July, we saw improvement in the macro environment.
Speaker Change: Third to earlier in the year. The earned burn change will be fully into Q4 than the flight credit explorations will be fully in there and so those initiatives together.
Speaker Change: Provide a sequential <unk> improvement as we kind of fully pickups in the booking curve, what's not in there, though was up basically economy, we're assuming it'll be kind of a flattish impact we assume that it'll be a positive impact in Q1, when we go to.
Speaker Change: Assigned seats that took more compelling buy up off of basic economy to choice. However should we.
Andrew Watterson: And that means Q4, its booking curve is much less exposed to weakness compared to Q3. So that's a tailwind that will persist even if nothing else improves. And you also have the capacity coming out of the marketplace starting post-summer, ramping through. So a combination of already-published capacity reductions, the already-seen macro improvement gives you tailwinds into Q4. And we see, I think, a strengthening trend, so it could be more than that. And on the initiative side, Tom and Bob both gave you the bag numbers. And so those, as you see, ramp through the whole booking curve.
Speaker Change: Succeed in making it a positive before then that's an additional tailwind as we go throughout second half Tom anything to add to that I think you said it well.
Speaker Change: Okay, Great and maybe just one follow up on the bag fees. So.
Speaker Change: Yes.
Speaker Change: Tracking ahead of plan is that just.
Speaker Change: A volume thing the rate Youre able to charge, how do we think about that and then on the other side. How are you tracking any potential book away from bag fees.
And the assumptions around sequential Improvement. But um, it's really that, but Andrew Huggy. Yeah, I think he's a little little more detail. Yes sir. The um, uh, so flat rasim and Q3 the guide implies roughly a 6 points, Improvement in rasim. So I'll just focus on the revenue side. So um, although 6 points 2 or the kind of the lack of a negative, so we have the basic economy headwind and Q3 as well as the crowd strike. Compare Q3 so that leaves you with a 4 Points above reference, split between macro and initiatives. If you decompose the macro, uh, you have the, the, um, the Improvement we see right now. So we like others, we see from June to July, we saw an improvement, uh, in the macro environment, and that means Q4 it's booking. Curve is much less exposed to weakness, compared to Q3. So that's a, that's a Tailwind that will, uh, that will possess even if nothing else improves. And you also have the, um, uh, capacity coming out of the marketplace starting, uh, post summer, ramping through. So a combination of already published capacity reductions the already seen uh macro Improvement.
Speaker Change: As customers were used to your fair, including a bag fee has there been any impact to <unk>.
Speaker Change: <unk> posted post-bag fee rollout like can you talk about book PRASM premium plus IP that is a loaded question I'm sorry. Please go for it wherever you are.
Andrew Watterson: All of Q3 was not exposed to bag fees, but essentially all of Q4 will be because of the nature of when the bookings take place. And then there's a few other things that are also in the initiative bucket that are also previously implemented and still in the booking curve compared to earlier in the year. The earned burn change will be fully in Q4. Then the flight credit expiration as well will be fully in there. And so those initiatives together provide a sequential three-Q to four-Q improvement as we fully pick this into the booking curve. What's not in there, though, is basic economy.
Speaker Change: No the the <unk>.
Speaker Change: Rollout of bag fees and.
Speaker Change: Basic economy, which came together along with some other things I'm just discuss stop and just say thank you to our folks I'm really pleased I mean from from sort of conception, an agreement we were going to do that to the implementation on 528 was I think 91 day. So just a terrific execution and then the execution and the launch itself.
Speaker Change: Gives you, uh, Tailwind into uh, uh, into Q4 and and, and we, we see, I think, uh, strengthening Trends. So it could be more than that. And then the initial side, you know, Tom and Bob both gave you the bag numbers and so those those as you see the ramp through the uh the whole booking curve, all of uh Q3 was not exposed to bag fees, but essentially all of Q4 will be because of the the nature of when the bookings take place and there's a few other things that are also in the initiative bucket that are also previously implemented and still in the uh in their booking curve compared
Speaker Change: We were well prepared to saw no operational impact where we're checking about a third less bags very few of those are turning into gate checked bags. So very prepared operationally so no impact there and then really no customer impact.
Andrew Watterson: We're assuming it'll be kind of a flattish impact. We assume that it'll be a positive impact in Q1 when we go to assigned seats. That's a more compelling buy-up of a basic economy to choice. However, should we succeed in making it a positive before then, that's an additional tailwind as we go throughout the second half.
Speaker Change: That we can detect.
Speaker Change: Certainly no book away, we did have a couple of week period, where we were tweaking really the digital flows of selling basic economy, but that was more about how we are selling it versus customers not buying so there is no.
Tom Doxey: Tom, anything to add to that? I think you said it well. Okay, great.
Speaker Change: Earlier in the year, the urn burn change will be fully in the uh Q4 uh, then the Flight Credit expiration as well. Uh, will be fully uh, in there. And so those initiatives together um, you know, provide a sequential 3 Q, to 4 q, uh, Improvement, as we can fully, because in the booking curve, what's not in there though, is basic economy. We're assuming it'll be kind of a flattish impact. We assume that it'll be a positive impact in q1 when we go to, um, assigned seats, that's a more compelling, buy up of basic economy to choice. However, you know, should we, uh, uh, succeed in making it a positive before? Then that's an additional Tailwind as we go throughout the second half. Tommy think to add to that. I think you said it. Well,
Catherine O'brien: Maybe just one follow up on the bag fees. So I guess, you know, you said that it's tracking ahead of plan. Is that just, you know, a volume thing, the rate you're able to charge? How do we think about that? And then on the other side, you know, how are you tracking any potential book away from bag fees? You know, as customers were used to your fare, including a bag fee, has there been any impact to sold fares post the post bag fee rollout? Like you talked about book prasm pre and post bag fee? That is a loaded question.
Speaker Change: Customer reaction to Tibet fees than what we put in on the 28th the outperformance really is.
Speaker Change: Because we've not modified our pricing it really is.
Speaker Change: We're checking more bags per passenger than expected thats really where the outperformance is we're sort of <unk>.
Speaker Change: Middle to above midpoint of the industry in terms of bags that are being.
Bob Jordan: I'm sorry. So please go with it. Whoever you want. And no, you know, the rollout of bag fees and basic economy, which came together along with some other things, I've just just got to stop and just say thank you to our folks. I'm really pleased. I mean, from from sort of conception and agreement, we were going to do that to the implementation on 528 was I think 91 days. So just a terrific execution. And then really no customer impact that we can detect. No, certainly no book away. We did have a couple of week period where we were tweaking really the digital flows of selling basic economy.
Speaker Change: Checked and paid for so thats really where the outperformance is and it's been incredibly stable from the day. We started 528, just calculating an annualized number through today, it's been sitting right on top of that $1 billion number the whole time, Andrew I would add to that Bob that if people were displeased with our offering and no longer have any for southwest airlines, they wouldnt come to our website.
Speaker Change: Okay, great. Maybe just 1 follow up on the bag fees. So um I guess you know you you said that it's tracking ahead of plan is that just you know, a volume thing, the rate you're able to charge how do we think about that and and then on the other side, you know, how are you tracking any potential book away from bag fees you know as as customers were used to your fare including a bag fee has there been any impact to sold fairs post. Be post bag fee, roll out like, can you talk about book, pasm pre and post? Bacc fee. That is a loaded question. I'm sorry. So please go wherever you want. Yeah, it is and and no, no, you know, the, the roll out of bag fees and, uh, basic economy which came together along with some other things. I'm just, just got to stop and just say thank you to our folks. I'm really pleased, I mean, from from sort of conception and agreement, we were going to do that to the implementation on 5:28 was, I think
Speaker Change: And we actually saw no change in website traffic kind of pre to post 528, we did see.
Speaker Change: 91 days. So just a terrific execution and then the execution and the launch itself,
Speaker Change: We went through the booking flow lower conversion all the basic economy fare and in particular that was from.
Speaker Change: 528 through June 15th that.
Speaker Change: Is that couple week period of times, we saw that reduced conversion rate as people who are booking basic economy.
Speaker Change: Kind of.
Speaker Change: It was concentrated in further out Dvds, where people's travel plans are less certain.
Andrew Watterson: But that was more about how we were selling it versus, you know, customers not buying. So there's no customer reaction to bag fees and what we put in on the 28th. The outperformance really is because we've not modified our pricing. It really is we're checking more bags per passenger than expected. That's really where the outperformance is. We're sort of middle to above, you know, midpoint of the industry in terms of bags that are being checked and paid for. I'd add to that, Bob, that if people were displeased with our offering and no longer had an affinity for Southwest Airlines, they wouldn't come to our website.
Speaker Change: Combined with the kind of increased restrictions on the product that comes from Wanna get away with moving to basic economy, and so the teams were able to modify language booking flow and such on the website ecommerce and digital marketing teams and to that conversion rate and then came back up. So in 2015, we were back to regular business. If you will know there was a cold period of <unk>.
Speaker Change: Location, we had to backfill the mist bookings if you will and so we had a heightened promotional activity after that to kind of backfill those myths bookings and then on.
Speaker Change: In addition to that unrelated to our promotional activity at the end of June simply look to US like June 28, we saw this kind of macro step off that happened. It was a further tailwind to our bookings. So overall it was kind of a brief period of dislocation related to conversion and related specifically to basic economy conversion really focused on further ltvs.
Speaker Change: Uh, we were well prepared just saw no operational impact where we're checking about a third less bags. Very few of those are turning into gate check bags, so very prepared operationally. So no impact there and then really no customer impact that that that we can detect and, you know, no, no, certainly no book Away. We did have the couple of week period, where we were tweaking really the digital flows of selling basic economy, but that was more about how we were selling it versus, you know, customers not buying. So, you know, there's no, uh, customer reaction to, uh, to bag fees. And what we put in on the, on the 28th, the outperformance really is, uh, because we've not modified our pricing. It really is, uh, we're, we're checking more bags per, uh, passenger than expected. That's really where the outperformance is. We're, we're sort of, uh, middle to above, you know, midpoint of the industry in terms of of bags that are being, uh, checked and paid for. So, that's really where the outperformance is and it's been incredibly stable from the, you know, the
Speaker Change: Day. We started 528 just calculating an annualized number through today. It's been sitting right on top of that billion dollar number the whole time.
Andrew Watterson: And we actually saw no change in website traffic kind of pre and post 528. We did see, as we went through the booking flow, lower conversion on the basic economy fare. And in particular, that was from 528 through June 15th. That couple week period of time, we saw that reduced conversion rate as people who were booking basic economy kind of the, it was concentrated in further out DVDs where people's travel plans are less certain, combined with the kind of increased restrictions on the product that comes from wanting to get away with moving to basic economy.
Speaker Change: And the impact that we've talked about a half a point in <unk> and the full point and <unk> just to be very clear on Andrew's comments.
Speaker Change: Those are bookings for flights or bookings that occurred during that temporary time period immediately following that Andrew just outline or should have occurred or would have occurred for flight that would have been flown in second quarter and third quarter. So the one point that is.
Speaker Change: The impact for <unk> is not about a continuation of that dislocation.
Speaker Change: It's from that period of when the bookings should have occurred for flights that would have been flown in <unk>. So that is behind us excellent clarification.
Andrew Watterson: And so the teams were able to modify language, booking flow, and such on the website, a combination of digital and marketing teams. And so that conversion rate then came back up. So in 6-15, we were back to regular business, if you will. Now, there was a couple period of dislocation. We had to backfill the missed bookings, if you will. And so we had an heightened promotional activity after that to kind of backfill those missed bookings. And then in addition to that, unrelated to our promotional activity, at the end of June, like simply look to us, like June 28th, we saw this kind of macro step up that happened.
Speaker Change: Thanks for the time.
Speaker Change: Your next question is from Jamie Baker with Jpmorgan. Please go ahead.
Jamie Baker: Hey, good afternoon everybody.
Speaker Change: Building on.
Speaker Change: On the EBIT math, Youre guiding $1 8 billion of incremental EBIT, but $600 million of total even at the low end.
Speaker Change: Teams were able to modify language booking flow uh and such on on the website combination of digital marketing teams and so that conversion rate then came back up. So in 615, uh, we were back to regular business if you will. Now, there was a CO period of dislocation, we had to backfill the missed bookings, if you will and so we had an heightened promotional activity, after that, to kind of backfill, those missed bookings. And then on, uh, and then addition to that,
Speaker Change: Obviously that implies that one 2 billion.
Speaker Change: Your core may have weekend and.
Andrew Watterson: It was a further tailwind to our booking. So overall, it was kind of a brief period of dislocation related to conversion and related specifically to basic economy conversion, really focused on further out DVDs. And the impact that we've talked about, the half point in 2Q and the full point in 3Q, just to be very clear on Andrew's comments. Those are bookings for flights or bookings that occurred during that temporary time period immediately following that Andrew just outlined or should have occurred or would have occurred for flights that would have been flown in second quarter and third quarter.
Bob: Bob I know you cited the macro you could see the basic economy has gotten off to.
Bob: The challenging start however, you want to put it but does the macro plus basic economy.
Bob: The entire $1 2 billion decline or apparent decline in your core or.
Speaker Change: Uh, on related to our promotional activity. At the end of June like specifically look to us like June 28th, we saw this kind of macro step up that happened. It was a further Tailwind to our booking. So, overall, it was kind of a brief period of dislocation related to conversion and related specifically to basic economy, conversion really focused on further out, DVDs. And, and, and the impact that we've talked about the half a point in 2q, and the full point in 3Q just to be very clear on, on Andrew's comments,
Bob: Or could there be some other contributing factors.
Jamie Baker: Hey, Jamie. Thank you know I think it's fully explained so okay. Yes. The the one point is theres a.
Andrew Watterson: So the one point that is the impact for 3Q is not about a continuation of that dislocation. It's it's from that period of when the booking should have occurred for flights that would have been flown in 3Q. So that that is behind us. Excellent clarification.
Jamie Baker: Alaska has a lot of moving parts in math in here, but the one so we reiterated the one eight contribution from the initiatives.
Jamie Baker: Those like the bags are all performing very well they are on track from a timing perspective. They are on track from a financial perspective and in fact, when you hear us talking about the impact of this temporary.
Speaker Change: those are bookings for flights or bookings, that occurred during that temporary, uh, time period. Immediately following that Andrew, just outlined or should have occurred or, or would have occurred, uh, for a flight that would have been flown in second quarter and third quarter. So, the 1 point that, that, uh, is the impact for 3Q, is not about a continuation of that dislocation. Uh, it it's, it's from that period of when the booking should have occurred for flights. That would have been flown in 3Q, so that that is behind us. Excellent clarification.
Jamie Baker: The next question is from Jamie Baker with JP Morgan. Please go ahead. Hey, good afternoon, everybody. So building on this, on the EBIT map, you're guiding 1.8 billion of incremental EBIT, but 600 million of total EBIT at the low end. So, you know, obviously, that implies that, you know, 1.2 billion of, you know, your core may have weakened. And, you know, Bob, I know, you cited the macro, you could see the basic economy got off to, you know, challenging start, however you want to put it. But does the macro plus basic economy explain the entire 1.2 billion decline, or apparent decline in your core?
Thanks for the time.
Jamie Baker: Conversion of basic period, the half point in the Q2 and the full point in Q3.
Speaker Change: The next question is from Jamie Baker with JP Morgan. Please go ahead.
Jamie Baker: We're capturing that in reiterating the $1 8 billion.
Jamie Baker: So in other words.
Jamie Baker: Making up for that and other initiatives as part of the one eight to reiterating the one eight its there so.
Jamie Baker: Hey, good afternoon, everybody. So building on this uh, on the ebit map. You're guiding to 1.8 billion of incremental ebit, but 600 million of total either the low end.
Jamie Baker: The.
Jamie Baker: The offset from the $1 seven guided for the year to the current midpoint.
Jamie Baker: Seven so it's a $1 billion it's really.
Jamie Baker: Fuels up a bit and then it really is it's the macro and we and we've talked about macro impact of 5% to 6%.
Jamie Baker: Basically all of our competitors have talked about a macro impact in the 5% to 6% range and if you adjust and we all know that started kind of call. It February one.
Jamie Baker: So, you know, obviously that implies that, you know, 1.2 billion of, you know, your core may have weakened and, you know, Bob I know you cited the macro, you could see the basic economy. Got off to, you know, challenging start however you want to put it, but does the macro Plus
Jamie Baker: Or should or could there be some other contributing factors?
Jamie Baker: And then step down in March stepped down in April and if you think about booking curves and kind of do the math, you'll come to the $1 billion and especially as you think about a modest sequential improvement into the third more sequential in before and so not trying to get to the wonky on you, but if you if you take that and then you.
Bob Jordan: Hey, Jamie, thank you. No, I think it's fully explained. So okay, yeah, the the one point and there's a there's a lot of a lot of moving parts in math in here, but the one so we re we reiterated the 1.8 contribution from the initiative. And it's like the bags. They're all performing very well. They're on track from a timing perspective. They're on track from a financial perspective. And in fact, when you hear us talking about the impact of this temporary conversion of basic period, the half point in Q2 and the full point in Q3, we're capturing that and reiterating the $1.8 billion.
Jamie Baker: basic economy, explain the entire 1.2 billion decline for a parent decline in your core or should, or could there be some other contributing factors?
Hey Jamie. Thank you know, I I I think it's fully explained. So, okay. Yeah, the the 1 point and there's, and there's a, there's a lot, a lot of moving Parts in math in here, but the 1. So we re we reiterated the 1.8 contribution from the initiatives.
Jamie Baker: <unk>.
Jamie Baker: Kind of pro forma that impact on first second third and fourth you get you get the macro impact of $1 billion. So it is completely that 5% to 6% macro impact not some other thing occurring in the base business Alright got it and then a quick one for Tom.
Jamie Baker: And those that, you know, it's like the bags, they're all performing very well, they're on track from a timing perspective, they're on track from a financial perspective. And in fact, when you hear us talking about the impact of this temporary,
Jamie Baker: So in other words, making up for in other initiatives is part of the 1.8. So reiterating the 1.8, it's there. So the offset from the 1.7 guided for the year to the current midpoint 7, so it's $1 billion. It's really fuels up a bit. And then it really is it's the macro. And we've talked about macro impact of 5% to 6%. Basically, all of our competitors have talked about a macro impact in the 5% to 6%. And if you just and we all know that started kind of, you know, call it February 1. And and then step down in March, step down in April.
Jamie Baker: Has it down to its targeted level got it.
Jamie Baker: uh, conversion of basic period, the half point in the Q2 and the full point in Q3. We're capturing that and reiterating the 1.8 billion.
Jamie Baker: The new repurchase plan.
Jamie Baker: Capex looks to us like southwest.
Jamie Baker: Mike.
Jamie Baker: I need to raise debt if thats. The case should we be thinking unsecured public bonds are aircrafts that thanks in advance.
Jamie Baker: I think there is an opportunity if we decide if we decided to go that route I think there is an opportunity for us to do either and again. This is where the balance sheet strength comes in we saw an issuance from one of our competitors a couple of months back that was really well received in the market.
Jamie Baker: Maybe even just taking a step back from that.
Jamie Baker: We're very <unk>.
Jamie Baker: Deliberate about the time period with which.
Jamie Baker: Uh, so, in other words, um, making up for that, in, in other initiatives, is, is part of the 1.8. So, reiterating the 1.8? It's there. So, the, the, um, the offset from the, uh, 17 for the year to the current midpoint, uh, 7. So, it's a billion dollars. It's really, uh, you know, fuels up a bit and then it really is. It's the macro and, you know, we and we've talked about macro impact of 5 to 6%, uh, you know, basically all of our competitors have talked about a macro impact in the 5 to 6% range and if you just and and we all know that started kind of, you know, call it February 1.
Jamie Baker: We're rolling out. This this next round of share repurchases. We over the next couple of years have a lot of incremental EBIT.
Bob Jordan: And if you think about booking curves and kind of do the math, you'll come to the billion dollars. And especially as you think about a modest sequential approval into the third, more sequential into fourth. So not trying to get too wonky on you. But if you if you take that and then you kind of pro forma that impact on first, second, third and fourth, you get you get the macro impact of a billion. So it is completely that 5% to 6% macro impact, not some other thing occurring in the base. Got it.
Jamie Baker: Generation that we're expecting based on these initiatives as they roll in.
Jamie Baker: And as that occurs that gives us that flexibility that we have or that we would want to.
Jamie Baker: To use that free cash flow that comes from the business that excess debt.
Jamie Baker: Our surplus capacity that would be there within the framework that we've communicated today, but it's about doing that in conjunction with the improvements in the base business and if that means that we raise some debt or refinance some debt as it matures.
Jamie Baker: And and then step down in March step down in April. And if you think about booking curves and kind of do the math, you you'll come to the billion dollars and especially as you think about a modest sequential Improvement in the third more sequential into 4. It's so not trying to get too wonky on you but if you if you take that and then you uh um kind of proforma that impact on first second, third and fourth you you get you get the macro impact of a billion. So it's it's it's
Jamie Baker: Completely that 5 to 6% macro impact.
Tom Doxey: And then a quick one for Tom. So you know, cash is down to its targeted level, you've got the you know, the new repurchase plan, you've got CapEx, it looks to us like Southwest might need to raise debt. If that's the case, should we be picking unsecured public bonds or aircraft debt? Thanks in advance. I think there's an opportunity, if we decide to go that route, I think there's an opportunity for us to do either. Again, this is where the balance sheet strength comes in. We saw an issuance from one of our competitors a couple of months back that was really well received in the market.
Jamie Baker: Not some other thing in the base business.
Jamie Baker: We will do that.
Jamie Baker: Thank you very much.
Jamie Baker: Thank you Jamie.
Speaker Change: The next question is from Michael Lindenberg with Deutsche Bank. Please go ahead.
Speaker Change: All right, got it. And then a quick 1 for Tom. So, you know, cash is down to its targeted level. You've got the, you know, the new repurchase plan, you've got capex. It, it looks to us like Southwest might need to raise that if that's the case. Should we be taking unsecured public bonds or aircraft debt? Thanks in advance.
Hillary: Hi, This is hillary calling in for Mike.
Hillary: Quick question on other revenue that line was lower despite the slide.
Hillary: Boston more accrual our noncash revenue.
Hillary: That's in that line.
Tom Doxey: Maybe even just taking a step back from that. We were very deliberate about the time period with which we're rolling out this next round of Sherry purchases. We, over the next couple of years, have a lot of incremental EBIT generation that we're expecting based on these initiatives as they roll in. And as that occurs, that gives us that flexibility that we have or that we would want to use that free cash flow that comes from the business, that excess debt or surplus debt capacity that would be there within the framework that we've communicated today. But it's about doing that in conjunction with the improvements in the base business.
Hillary: Yes, I would say that our loyalty program hasnt been doing.
Hillary: Well as we'd like in recent times.
Hillary: That is also the subject of our car enhanced card portfolio issued today.
Speaker Change: deliberate about the time period with which
Hillary: So which goes hand in hand with the product changes. We've made so we fully expect that line item to improve starting in Q3 as we come out with a new card portfolio with new benefits benefits include a <unk>.
Hillary: Any benefit which is not common in the industry as well as the bag benefit which is common and improved bonus points on dining gas and groceries, which will increase kind of the.
Hillary: Debit active rate, how often one uses <unk> card.
Hillary: Okay, we'll move to the top of the wallet and these things are part of the new agreement with Chase and that will drive increased us acquisitions as well as increased spending per cardholder and so we fully expect that then to show up into Q3 and beyond Thats. One initiatives are referenced earlier in answering <unk> question.
Tom Doxey: And if that means that we raise some debt or refinance some debt as it matures, we'll do that.
Uh, we're rolling out this this next round of cherry purchases. Uh, we over the next couple of years, have a lot of, uh, incremental ebit, uh, generation that we're expecting based on these initiatives as as they roll in. Um, and, and as that occurs, that gives us that flexibility that we have, uh, or that that we would want to, uh, to, to use that free cash flow that comes from the business that excess debt, uh, uh, or Surplus, debt capacity, that would be there within the framework that we've communicated today. But it's it's about doing that in conjunction with the improvements in the base business. And if that means that that, you know, we we raise some debt or refinance, some debt as it comes, is it matures? You know, we'll we'll we'll do that.
Unknown Executive: Thank you very much. Thank you, Jeremy.
Speaker Change: Thank you very much.
Hillary Linenberg: The next question is from Michael Linenberg with Deutsche Bank. Please go ahead. Hi, this is Hillary calling in for Mike. I have a quick question on other revenue. That line was lower despite the start of, you know, back season late May, you know, was there any accounting or non tax revenue recognition changes impacting that line or any impact from royalty changes? Thanks. Yeah, I'd say that our loyalty program hasn't been doing as well as we'd like in recent times. That is also the subject of our enhanced card portfolio issue today, which goes hand in hand with the product changes we've made.
Jamie Baker: Thank you, Jamie.
Hillary: And we made announcements today about additional benefits in the chase card really seeding benefits in <unk>.
The next question is from Michael linenberg with Deutsche Bank. Please go ahead.
Hillary: And even before that.
Hillary: When we began to talk about the <unk> benefit in the car, we have seen a meaningful step up.
Hillary: An increase in sign ups for the co brand card and I expect that to accelerate with the announcements today around the <unk> benefits that come with the card and it's sort of 528, so people knew about it.
Hi. This is Hillary calling, in for Mike. Um, I just have a quick question on other Revenue that line was lowered despite the start of, you know, vaccines. And they may, you know, were there any accounting or non-cash Revenue recognition changes impacting that line or any impacts on loyalty changes,
Jamie Baker: Thanks.
Hillary: After we announced it in March but really we saw the behavior change that they went live.
Hillary: Sorry about that.
Hillary: Thank you.
Hillary: Regarding a full panel.
Hillary: Pizza delivery assumptions for 47, aircrafts I'm pretty happy with.
Tom Doxey: So we fully expect that line item to improve starting Q3 as we come out with a new card portfolio with new benefits. The benefits include a seating benefit, which is not common in the industry, as well as a bag benefit, which is common, and improved bonus points on dining, gas, and groceries, which will increase kind of the debit active rate of how often one uses one's card, aka it'll move to the top of the wallet. And these things are part of the new agreement with Chase, and that will drive increased acquisitions, as well as increased spending per cardholder.
Yeah, I'd say that uh our loyalty program hasn't been doing uh as well as we'd like in recent times. Um, that is also though the subject of our car, enhanced card portfolio and issue today. Um and so which goes hand in hand with the product changes we've made. So we fully expect
Hillary: That number is subject to increase again, depending on.
Hillary: <unk> ramped up production I guess.
Speaker Change: Good afternoon all.
Hillary: Talk about what your full control.
Hillary: Sure its probably better question for Boeing next Tuesday.
Hillary: We're seeing I think we've seen good stability at a Boeing they ramp to rate 38 on the 737 production and they've done a good job holding that.
Hillary: Next step would be I think rate 42.
Tom Doxey: And so we fully expect that then to show up into Q3 and beyond. That's one of the initiatives I referenced earlier in answering Katie's question. And we made an announcement today about additional benefits in the Chase card, really seating benefits. But even before that, when we began to talk about the bag benefit in the card, we've seen a meaningful step up in the increase in signups for the co-brand card. And I expect that to accelerate with the announcements today around the seating benefits that come with the card. It started on 5-28. So people knew about it after we announced it in March, but really, we saw the behavior change the day it went live.
Hillary: And we're again seeing good quality. So so I think everything that we see out of Boeing is heading the right direction now the production in our deliveries are still well well well behind our contractual plan and what we actually need but the point is we're seeing them move up not down which is good. So yeah. We changed we moved our assumptions up from 38 to 40.
Katherine O'Brien: That, uh, line item to improve starting in Q3, as we come out with a, uh, uh, a new card portfolio with with new benefits, the benefits include a a seating benefit, which is not, uh, common in the industry, as well as a bag benefit, which is common and improved, uh, a bonus points on, uh, dining, uh, gas and groceries, which will increase kind of the the debit active rate, and how often 1 uses 1's card. Um, AKA you know, move to the top of the wallet and these things are part of the new agreement with Chase, and that will drive increased, uh, Acquisitions as well as increase spending per card holder. And so we fully expect that then to show up uh, into uh, into Q3 and Beyond, that's 1 of the initiatives, I referenced earlier uh in answering Katie's question.
Hillary: Seven.
Hillary: Our retirements are fixed at roughly 55% this year, so as we get incremental aircraft deliveries from Boeing beyond what we expected in our plan.
Hillary: We have a lot of flexibility in terms of what we can do with those replacing older aircraft.
Hillary: Got these sales into the market right now of dash eight hundreds so.
Unknown Executive: Got it. That's helpful. Thank you.
Speaker Change: And and, you know, we made announcements today about additional benefits in the Chase card, really seating benefits. And but even before that, uh, when we began to talk about the bag benefit in the car, we we've seen a meaningful step up in the, an increase, in signups for the co-brand card. And I, I expect that to accelerate with the announcements today, around the seating benefits that come with the car and it started on 528. So people knew about it. Um, after we announced it in March but really, we saw the behavior change the the day, it went live.
Unknown Executive: And then just regarding your fleet planning, you know, you increased your delivery assumptions to 47 aircraft from 38 previously. Is that number subject to increase again, you know, depending on, you know, Boeing's, you know, ramp up introduction, I guess, you know, during the rest of the year? And, you know, if you just talk about what you're seeing from Boeing, you know, as it relates to your fleet planning. You know, we're still expecting that sometime for us, you know, sometime, maybe first half of 2026, which would put entry into service for us at earliest late in 26.
Speaker Change: Yes, but I think net net.
Hillary: The.
Speaker Change: What we're seeing out of Boeing is positive improvement. There is no you didnt ask but theres no real new news on the Dash seven certification.
Hillary: We're still expecting that some time for us.
Hillary: Some time, maybe first half of 2026, which would put entry into service for us at earliest late in 'twenty six.
Speaker Change: Got it. Got it. That's helpful. Thank you. And then just regarding your free planning, you know, you increase your delivery, assumptions to 47 aircraft from 38. Previously is that number subject to increase again, you know, depending on, you know, going, you know, ramp up in production, I guess, you know, during the rest of the year and um, you know, if you just talk about what you're seeing from Boeing, you know, as it relates to your full planning. Sure. And, you know, probably better questions for Boeing.
Hillary: But theres really no new news on that certification at this point.
Hillary: And with the increase in deliveries coming from Boeing as you know.
Hillary: Not changing our capacity plans right and you saw in the release that we talked about an incremental five aircrafts, which gets to the 55, Bob referenced that we'll be selling later this year and then an additional eight aircraft that will be selling at the beginning of next year. This gives us the.
Hillary: The confidence to be able to execute those sorts of sales as we start to see these deliveries come in with a higher frequency.
Hillary: Got it. Thank you that's helpful. Thank you very much.
Hillary: Thank you.
Speaker Change: The next question is from Scott Group with Wolfe Research. Please go ahead.
Speaker Change: Hey, Thanks afternoon.
Speaker Change: Just have one really really quick one and then just a bigger picture question Sir.
Speaker Change: Or am I looking at this right that you are implying closer like 4% capacity growth in the fourth quarter.
Speaker Change: Yes.
Speaker Change: The fourth quarter of last year was kind of abnormally low because of fleet shortages. So it was down lower if you look at it sequentially from Q3 to Q4, we're about point Hi <unk>.
Speaker Change: But no, we're seeing, uh, I think we're seeing good stability out of Boeing. They, they ramp to rate 38 on the 7377 production and they've done a good job holding that, you know, uh Next Step would be, I think rate, 42. So, and we're getting seeing good quality. So. So I think everything that we see out of Boeing is heading the right direction. Now, the production and our deliveries are still, well, be well, well, well behind our contractual plan and what we actually need, but the point is, we're seeing them move up, not down, which is good. So, yeah. We we changed. We moved our assumptions up from 38 to 407, uh, our, our retirements are fixed at roughly 55 this year. So, as we get incremental, aircraft or deliveries from Boeing beyond what we expected in our plan, uh, we have a lot of flexibility in terms of what we can do with those replacing older aircraft. Uh, you know, we've got these sales into the market right now of of -800. So, uh, it, you know, yeah, but but I think net net, the the uh,
Speaker Change: um,
Speaker Change: That's because.
Speaker Change: Q2 to Q3 is about three points low.
Speaker Change: We are modulating our capacity versus peak off peak, which creates a kind of like slightly abnormal sequential.
Unknown Executive: But there's really no new news on that certification. Got it. Thank you. That's helpful. Thank you very much. Thank you.
Speaker Change: Changes in particularly we wanted to reduce exposure to August September, but keep exposure to the strong parts of Q4, which was in October November and December.
Speaker Change: I'll have good peak periods in them and so as we're talking about 1% growth. We promise, we're putting that in places where it gives us the most return on our capital.
Speaker Change: Right.
Speaker Change: Yes, My bigger picture question, as you and others seem to be counting on a much better Q4 this year.
Speaker Change: Last year. Uh, this gives us the, uh, the, the confidence to be able to execute those sorts of sales as we start to see these deliveries come in with a higher frequency.
Speaker Change: Your capacity is accelerating in Q4, we hear from American theyre going to be accelerating a little bit in Q4.
Speaker Change: Got it. Thank you. That's helpful. Thank you very much.
Scott Group: The next question is from Scott Group with Wolf Research. Please go ahead. Hey, thanks afternoon. I just have one really, really quick one. And then just a bigger picture question. So is your am I looking at this right that you're implying closer to like 4% capacity growth in the fourth quarter? Yeah, the the fourth quarter of last year was kind of abnormally low because of fleet shortages. So it was down lower. If you look at sequentially from Q3 to Q4, we're about a point high. But that's because Q2 to Q3 is about three points low.
Speaker Change: Thank you.
Speaker Change: Is that.
The next question is from Scott group with wolf research. Please go ahead.
Speaker Change: Or are we at risk of where capacity is picking up in Q4, but we're counting on RASM to get meaningfully better in Q4.
Speaker Change: I think it's a.
Speaker Change: A comp issue not necessarily what the micro bear so right now what we see in the bookings.
Speaker Change: Hey, thanks afternoon. Um, I just have 1, really, really quick 1 and then just a bigger picture question. So, does your am I looking at this, right? That you're implying close to like 4% capacity growth in the fourth quarter?
Speaker Change: We like what we see we've already modified October by the way November December has not been modified and our promise reductions to get to our 1% and so October is not 100% firm, but it's the one that had the reduction that we promised at Q1 earnings yes. It was going to say what youre not seeing final schedules just yet.
Scott Group: We are modulating that capacity versus peak off peak, which creates a kind of like slightly abnormal sequential changes. And particularly, we wanted to reduce exposure to August, September, but keep exposure to the strong parts of Q4, which was in October, November and December. They all have good peak periods in them. And so as we're taking that 1% growth we promised, we're putting that in places where it gives us the most return on our capital.
Speaker Change: And yes, we're going to end the full year capacity up one seats.
Speaker Change: Got it.
Speaker Change: Roughly down 1% to five trips down too so yes, I mean.
Speaker Change: It's all a very constructive backdrop in terms of capacity.
Speaker Change: On top of what we all hope is a continued inflection in domestic demand here, yes, because our seats in Q4 can you be up like 0.7%. So what we need to sell is not actually a big herculean lift because we introduced read items on longer haul and utilization.
Scott Group: I mean, I guess my bigger picture question is you and others, you know, seem to be counting on a much better Q4 this year. And your capacity is accelerating in Q4. We heard from American, they're going to be accelerating a little bit in Q4, like Is that, are we at risk of capacities picking up in Q4, but we're counting on RASM to get meaningfully better in I think it's a, you know, a comp issue, not necessarily what the market will bear. So right now what we see in the bookings, we'd like we see, we've only modified October, by the way, November, December has not been modified in our promise reduction to get to our 1%.
Yeah, the uh, um, the fourth quarter of last year was kind of abnormally low, uh, because of Fleet shortages. So it was down lower. If you look at sequentially from Q3 to Q4, we're about a point High. Uh, but that's because, uh, uh, Q2 to Q3 is about 3 points, low? Um, we are, uh, modulating that capacity versus Peak off peak, which creates a kind of like slightly abnormal sequential, uh, changes and and particularly we, we wanted to reduce exposure to August September, uh, but keep exposure to the strong parts of Q4 which was, uh, an October November and December. Uh, they all have good Peak periods in them. And so as we're taking that 1% growth, we promised we're putting that in places where it gives us the most return on our Capitol.
Speaker Change: Right. I mean I I guess my my bigger picture question is you and others you know, seem to be counting on a much better Q4 this year.
Speaker Change: Same thing is bigger.
Speaker Change: Of lift to sell all of the capacity is much more modest than that.
And your capacity is accelerating in Q4. We heard from American, they're going to be accelerating a little bit in Q4.
Speaker Change: Thank you I appreciate it thank you Sir.
Speaker Change: The next question is from Savi <unk> with Raymond James. Please go ahead.
Speaker Change: Hey, good afternoon.
Speaker Change: Like is that are we at risk of we're capacities picking up in Q4 but we're counting on razem to get meaningfully better in Q4.
Speaker Change: I'm just curious on the aircraft sales to follow up on there just how do you plan on handling that in terms of kind of cash flow and P&L.
Speaker Change: Yes, so the aircraft sales will flow in and you've got the book side of it but you've also got the cash proceeds side of it. These are largely aircrafts. They are fully paid for and so as we as we sell these aircraft of course the market continues to be very strong for used aircrafts in light of the values.
Scott Group: And so October is not 100% firm, but it's the one that had the reduction that we promised at Q1 . Yeah, I was gonna say, you're not seeing final schedules just yet. And, and yeah, we're gonna end the full year capacity of one seat. I think I've got you. Roughly down one to five trips down two. So yeah, I mean, it's all a very constructive backdrop in terms of capacity, especially on top of what we all hope is a continued inflection in domestic demand here. Yeah, because our seats in Q4 are going to be up like 0.7%.
Speaker Change: For the aircraft is any engine values.
Speaker Change: And so that becomes from a cash flow standpoint, basically flowing through kind of fully accretive to us.
Speaker Change: I think it's, it's a, uh, um, you know, a comp issue not necessarily what the Marco bear. So, right now what we see in the bookings, um, we we, like what we see, we've only modified October by the way. November December has not been modified in our, our promise, reductions to get to our our 1%. And so October is not 100% firm, but it's the 1 that had the reduction uh, that we promised uh, at q1 earnings. Yeah, I was going to say you're not seeing final schedules just yet and and yeah, we're going to end the full year capacity up 1 seat. I think, oh, I've got
Speaker Change: And Theres book gains that are there as well and maybe one thing to clarify we continue to guide without any book gains in any of our any of our guidance. So that number that we gave you for the full year does not include any gains from sale. So we'll continue to do that as well.
Scott Group: So what we need to sell is not actually a big Herculean lift. Because we introduced red eyes in some longer haul and utilization, the ASM seems bigger, but the kind of lift to sell our capacity is much more modest. makes sense. Thank you. Appreciate it. Thank you, sir.
Speaker Change: The bookings are are less than the cash that will come to the business just with the net book values that are still on the aircraft.
Speaker Change: Roughly down 1 to 5 down to. So yeah, I mean um it's all a very constructive backdrop in in terms of capacity uh especially on top of what we all hope is a continued inflection in domestic demand here. Yeah, because I've seen in Q4 and it'll be up like 0.7%. So what we need to sell is not actually a big Herculean, lift because we introduced red eyes in some longer haul and and utilization. Uh, the Asm
Speaker Change: Seems bigger, but the kind of lift to sell. The our capacity is much more modest than that.
Speaker Change: Okay, and then maybe I can ask on the on the recovery side.
Savi Syth: The next question is from Savi Sith with Raymond James. Please go ahead. Hey, good afternoon. I'm curious on the aircraft sales, just to follow up on there, just how you plan on handling that in terms of kind of cash flow and P&L? Yeah, so the the aircraft sales will flow in and you've got the the book side of it, but you've also got the cash proceeds side of it. These, these are largely aircraft that are fully paid for. And so as we as we sell these aircraft, of course, the market continues to be very strong for used aircraft, a lot of the values in for the aircraft is in the engine value.
Speaker Change: Makes sense. Thank you. Appreciate it. Thank you, sir.
Speaker Change: Seeing demand is that kind of leisure is that corporate and could you give me a little bit of color on what you saw corporate due in <unk> and how it's progressing.
The next question is from Savvi Sith with Raymond James, please go ahead.
Speaker Change: Certainly I'll start with the corporate which we saw in Q2 may was the worst and so then June was better than May and July better than June and August is off to a strong start you know it's kind of like a go for corporate so good inflection in Q2 for corporate and then also leisure. It was the same thing we saw.
Savvi Sith: Hey, good afternoon. Um, I was curious on the um, aircraft sales just to follow up on there. Just how you plan on handling that in terms of kind of cash flow and pnl.
Speaker Change: Leisure customers really come alive, there just before the fourth of July holiday.
Speaker Change: Just generally but I would say again.
Tom Doxey: And so, you know, that becomes from a cash flow standpoint, basically flowing through kind of fully accretive to us. And, you know, there's book gains that are there as well. And maybe one thing to clarify, we continue to guide without any book gains in any of our guides. So that number that we gave you for the full year does not include any gains from sale. So we'll continue to do that as well. You know, the book gains are less, then the cash that will come to the business just with the net book values that are still on the aircraft.
Savvi Sith: Um, yeah. So the, the aircraft sales will flow in and you you've got the the book side of it, but you've also got the cash proceeds side of it. These These are largely aircrafts that are fully paid for. And so, as we as we sell these aircrafts, of course, the market continues to be very strong for used aircraft. A lot of the values, uh, in in for the aircraft is in is in the engine value.
Speaker Change: It's four or five weeks of trend its always hard to tell but what I think what feels really different and just overall.
Speaker Change: Is that it was just tough to get volume.
Speaker Change: Do you could you could get yield close and on the flights that we knew were very strong, but even with promotions. It was tough to get volume going going back several months and we're starting to see the volume return.
Speaker Change: And that I think that's a strong sign that it is a broad based recovery again short period of time.
Speaker Change: But to me Thats very encouraging.
Speaker Change: That's helpful color. Thank you.
Savi Syth: Thanks.
Bob Jordan: And then maybe I can ask on the on the recovery side, you're seeing demand, is that kind of leisure? Is that corporate? And could you give a little bit of color on, you know, what you saw corporate do in 2Q and how it's progressing? Certainly, I'll start with the corporate, which we saw in Q2, May was the worst. And so then June was better than May. July is better than June. And August is off to a strong start, you know, it's kind of further on the book and go for corporate. So good inflection in Q2 for corporate, and then also leisure.
Savvi Sith: Uh, and so, you know, that that becomes from a cash flow standpoint, uh, basically flowing through, you know, kind of fully accretive to us. Um, and and, you know, there's there's book gains that are there as well, and and maybe 1 thing to clarify, we continue to guide without any book gains in in, in any of our in any of our guys. So that number that we gave you for the full year does not include any gains from sale. So we'll continue to do that as well. Um, you know, the, the book gains are are less than than the cash that will come to the business, just with the netbook values that are still on the aircraft.
Speaker Change: The next question is from Dan Mckenzie with Seaport Global Please go ahead.
Speaker Change: Hey, Thanks for the time you guys a.
Speaker Change: Couple of questions here on revenue segmentation first what percent of the tickets today are clearing at.
Thanks. Um and and then maybe I can ask on the on the recovery side uh you're seeing demand is that kind of leisure is that corporate? And could you give a little bit of color on you know what you saw corporate do in 2q and and how it's progressing
Speaker Change: Ultra low cost carrier fare.
Speaker Change: What would you expect it to look like in 2026 once assigned seats are offered.
Speaker Change: I, just don't have that down to top of my head I apologize.
Speaker Change: We are.
Speaker Change: Scene.
Bob Jordan: It was the same thing we saw leisure customers really come alive there just before the Fourth of July holiday. And I think just generally, but I was saying, again, you know, it's four or five weeks of trend, it's always hard to tell. But what I think what feels really different is just overall, is that it was just tough to get volume. I mean, you know, you could get yield close in on the flights that we knew were very strong. But even with promotions, it was tough to get volume going back several months. And we're starting to see the volume return.
Speaker Change: A reduction in basic economy fares sold versus Wanna get away, if you will buy up and a choice and so we like the momentum of people are deciding to voluntarily by up.
The Fourth of July holiday.
We do have bags now with it so at the margin it would give you an incentive to sell a slightly lower fare.
Speaker Change: We follow a bag would come with it.
Savvi Sith: And I think just generally we're but I, I was saying again, you know, it it's it's 4 or 5 weeks of trend. It's always hard to tell. But what I think, what feels really different is just overall.
Speaker Change: But it really doesn't change our pricing strategy at the moment.
Speaker Change: And really we want to use as the segment customers into those who are.
Savvi Sith: Is that it was just tough to get volume. I mean we you know, we we could you could get yield close in on the flights that we knew were very strong.
Speaker Change: Flexible in their travel and those who are not flexible in travel those are not flexible give them different options to buy up quality enhancements to their to the fare product.
Bob Jordan: And that I think that's a strong sign that it's a broad based recovery, again, short period of time. But to me, that's very encouraging.
Speaker Change: And I think it's more about giving you a reason.
Savvi Sith: But, uh, even with promotions, it was tough to get volume going, going back, several months, and we're starting to see the volume return, uh, and that I think that's a strong sign that it's a broad-based recovery. Again, short period, of time,
Unknown Executive: That's helpful, Conor.
Speaker Change: To buy up and especially when we have the seeding benefits and you'll see this again next week when we start selling.
Savvi Sith: Uh, but that to me, that's very encouraging.
Dan Mckenzie: Thank you. The next question is from Dan McKenzie with Seaport Global. Please go ahead. Oh, hey, thanks for the time, you guys. A couple of questions here on revenue segmentation. First, what percent of tickets today are clearing at, you know, an ultra low cost carrier fare? And, and what would you expect it to look like in 2026 once assigned seats are offered?
Speaker Change: That's helpful call. Thank you.
Speaker Change: The new products with the seating benefit give you a reason to buy it because in addition to other flexibility and other things in there you've got to see the benefit of seeing map and extra legroom access that goes with the product it's more about.
The next question is from Dan, McKenzie, with C Port Global. Please go ahead.
Speaker Change: Letting you buy up to get the thing Thats important to you Andrew said, it but just to give you a little more color I mean, we havent, giving you exact numbers, but the vast majority of our seats before were sold in and want to get away.
Unknown Executive: I actually don't have that down off the top of my head, I apologize. We are seeing kind of a reduction in basic economy fares sold versus want to get away if you will buy up in a choice. And so we like the momentum of people deciding to voluntarily buy up. We do have bags now with it, so at the margin, it would give you incentive to sell a slightly lower fare if you thought a bag would come with it. But it really doesn't change our pricing strategy at the moment. And really we want to use this to segment customers into those who are flexible in their travel and those who are not flexible in their travel.
Dan Mckenzie: Oh hey. Thanks for the time you guys. Um, a couple of questions here on Revenue segmentation first what percent of the tickets today are clearing at, you know, an ultra low cost carrier fair. And and what would you expect it to look like in 2026 once assigned seats are offered
Speaker Change: And there was a limited number of seats sold in that next column Wanna get away plus and today and again, obviously, it's very early after just weeks roughly half of seats are being half of passengers in seats are being sold in that lowest now called basic economy bucket. So that does give you some ins.
Speaker Change: Um, you know, I, I just don't have that down off the top of my head, I I apologize. Uh, we, we are, um, seeing, um, uh, kind of a reduction in basic economy, fare sold versus want to get away if you will buy up in a choice and so we like the momentum of people, uh, deciding to, uh, voluntarily buy up. Um, we do have bags now with it, so at the margin, it would give you incentive to, you know.
Speaker Change: <unk> of the level of mix change, we're already seeing and buyer, we're seeing and I expect that to continue because the reasons to buy with the CD benefits should drive even more but we're already seeing that.
Unknown Executive: And those who are not flexible, it gives them different options to buy up quality enhancements to their fare product. Yeah, and I think it's more about giving you a reason to buy up and especially when we have the seating benefits and you'll see this again next week when we start selling the new products with the seating benefit, give you a reason to buy up because in addition to other flexibility and other things in there, you've got a seating benefit or seating map and extra legroom access that goes with the product. It's more about letting you buy up to get the thing that's important to you.
Speaker Change: The vast majority become more like half of them yes.
Speaker Change: Second question here going back to the script that current initiatives are not the end point of the strategy evolution.
Speaker Change: Is still a slightly lower fare and if you if you thought a bag would come with it. Uh, but it really doesn't change our our pricing strategy at the moment. Um, uh, and, and really, we want to use this a segment, uh, customers into those who are, uh, uh, flexible in their travel and those who are not flexible to travel, and those are not flexible. Give them different options to buy up, uh, quality enhancements to their, uh, to their Fair product. Yeah. And I I think it's more about giving you a reason.
Speaker Change: I know the focus is on the fleet side I know the focus on the Max seven but is there any interest in the next 10 aircraft once approved and potentially a further segmentation of our premium demand.
Speaker Change: to buy up and it's especially when we have the seating benefits and and you'll see this again next week when we start selling, uh, the
Speaker Change: Yes, I think and again not trying to be coy.
Speaker Change: I've hinted at things, we could be doing and you know what those could be because there's only a limited number of things you can do so it's either more that we can do to segment. The existing cabins, we have which would be more premium as an example, and things could come along with that I've, even mentioned things like lounges.
Speaker Change: The new products with the seating benefit, give you a reason to buy up because in addition to other flexibility and other things in there you you've got a seating benefit or seating map and extra legroom access that goes with the product. It's more about
Unknown Executive: And Andrew said it, but just to give you a little more color, I mean, we haven't given you exact numbers, but the vast majority of our seats before were sold in want to get away. And there was a limited number of seats sold in that next column, want to get away plus. And today, and again, obviously it's very early after just weeks, you know, roughly half of seats are being half of passengers and seats are being sold in that lowest now called basic economy bucket. So that does give you some indication of the level of mixed change we're already seeing and buy up we're seeing.
Letting you buy up to get, you know, the thing that's important to you and Andrew said it, but just to give you a little more color. I mean that we we haven't given you exact numbers but the vast majority of our seats before were sold and got and want to get away.
Speaker Change: And then beyond that you've got network expansion, so being able to fly to places that our customers want to go we cannot serve with the current aircraft and so the point rather than to say, we've got specific plans to do all those things the point is to say that.
Speaker Change: We're going to follow the customer.
Speaker Change: <unk>.
Unknown Executive: And I expect that to continue because the reasons to buy up with the seating benefits should drive even more, but we're already seeing that, you know, that vast majority become more like half. Yeah.
Speaker Change: Worked very hard to give you reasons not to split your wallet today yet today.
Speaker Change: And there was a limited, uh, number of seats sold in that next column, want to get away plus. And today, uh, and again, obviously it's very early after just weeks, you know, roughly half of seats are being half a passengers and seats are being sold in that lowest, uh, now called basic economy bucket. So, that does give you some indication of the level of of mixed change. We're already seeing and buy a
Speaker Change: People Love Southwest Airlines, but today, you got to split your wallet.
Speaker Change: Even cities where were strong because we can offer you some of the things that you want, especially long haul international is just one example.
Speaker Change: We're seeing and I expect that to continue because the reasons to buy up with the seating benefits should drive even more, but we're already seeing that, you know, uh, that, that vast majority become more like half.
Bob Jordan: Second question here, going back to the script that current initiatives are not the end point of the strategy evolution. I know the focus is on the fleet side. I know the focus is on the MAX 7, but is there any interest in the MAX 10 aircraft once approved and potentially a further segmentation of premium demand? Yeah, I think, again, not trying to be coy, I've hinted at things we could be doing. And you know what those could be, because there's only a limited number of things you could do. So it's either more than we can do to segment the existing cabins we have, which would be more premium, as an example.
Speaker Change: So this is a point on the journey, which we are incredibly focused on not in it but not the endpoint.
Speaker Change: I'll take just one quick one minute detour I'm, just really pleased with the execution at this point on the journey. If you go back just over the last.
Yeah um the second question here, going back to the script that current initiatives are not the endpoint of the strategy Evolution. Um I know the focus is you know on on the fleet side I know the focus is on the Mac 7. But is there any interest in the max 10 aircraft once approved and potentially a further segmentation of of Premium demand
Speaker Change: Even five months.
Speaker Change: We've got a new Chase agreement, we've got a enhancements to rapid rewards we launched Expedia, we started red eyes. We've added partners, we accelerated our cost plan from $1 70.
Bob Jordan: And things could come along with that. I've even mentioned things like lounges. And then beyond that, you've got network expansion. So being able to fly to places that our customers want to go to, we cannot serve with the current aircraft. And so the point rather than to say we've got specific plans to do all those things, the point is to say that we're going to follow the customer. And work very hard to give you reasons not to split your wallet. Today, people love Southwest Airlines, but today you've got to split your wallet in even cities where we're strong because we can't offer you some of the things that you want, especially Long Haul International is just one example.
Speaker Change: Yeah, I I think and again I'm not trying to be koi. I I I I've hinted at things we could be doing and and you know what, those could be because there's only limited number of things you could do. So it's either more that we can do the segment, the existing cabins we had which would be more premium as an example.
Speaker Change: To $3 70 for the year, we've launched bag fees basic economy.
Speaker Change: Reintroduce flight credits.
Speaker Change: And now we're selling assign seats and extra leg room next week. So I mean, just an incredible list in five months and Theres a lot more to come this year and my point is beyond that we're not stopping we're going to continue to understand how we keep serving our customers in meeting their needs and it's one.
Speaker Change: And things could come along with that. I've even mentioned things like lounges, um, and then beyond that you've got Network expansion. So being able to fly to places that are customers want to go, we cannot serve with the current aircraft and so the point rather than to say we've got specific plans that do all those things. The point is to say that uh, we're going to follow the customer and uh,
Speaker Change: Are those more to come we're focused on the current transition and transformation, but this is not the endpoint.
Speaker Change: Work, very hard to give you reasons, not to split your wallet today. You have today
Speaker Change: Thanks, so much that's perfect.
Speaker Change: Thank you.
Andrew Watterson: The next question is from Andrew <unk> with Bank of America. Please go ahead.
Bob Jordan: So this is a point on the journey, which we're incredibly focused on, but not the end point.
Speaker Change: Hey, good afternoon, everyone.
Speaker Change: Most of my questions have been asked and answered already but just just one for Tom and just on the new liquidity and balance sheet targets. When we look at them versus kind of where southwest was pre pandemic. They both seem a little bit more aggressive here.
Uh, people love Southwest Airlines but today you've got the split, your wallet in uh, even cities where we're strong because we can't offer you. Some of the things that you want, especially Long Haul. International is just 1 example. So this, this is a point on the journey.
Bob Jordan: And I'll take just one quick one minute detour. I'm just really pleased, you know, with the execution of this point on the journey. If you go back just over the last, you know, even five months, I mean, we've, we've, we've got a new chase agreement. We've got a enhancements to rapid awards, we launched Expedia, we started red eyes, we've added partners, we accelerated our cost plan from 170 to 370 for the year, we've launched bag fees, basic economy, reintroduce flight credits. And now we're selling a sign-in seats and extra legroom next week. So, I mean, just an incredible list in five months.
Speaker Change: Which we're incredibly focused on, you know, not but not the end point.
Speaker Change: And uh I'll take just 1 quick 1 minute detour. I'm just
Speaker Change: I guess.
Speaker Change: How did you get comfortable with these new targets, particularly in a much more difficult macro and at a time when youre going through a pretty significant brand brand revamp just just curious how you thought about that thank you.
Speaker Change: Thanks for the question Andrew our balance sheet is a big differentiator for us yet to my knowledge. There are three investment grade airlines in the world.
Speaker Change: If you go back, just over the last, you know, even 5 months, I mean, we've we've we've got a new Chase agreement. We've got a enhancements to Rapid Rewards. We launched Expedia, we started red eyes, we've added Partners, we accelerated. Our cost plan from 170, uh, to 370 for the year. We launched bag fees basic economy.
Speaker Change: And there's a lot of benefits that come along with that and Thats something that we need to protect as we as we move forward.
Speaker Change: Reintroduced flight credits.
Speaker Change: As you as you look at the various.
Bob Jordan: And there's a lot more to come this year. And my point is beyond that, we're not stopping. We're going to continue to understand how we keep serving our customers and meeting their needs. And, you know, it's one of those more to come. We're focused on the current transition and transformation. But this is not the end point.
Speaker Change: The various metrics whether it's.
Speaker Change: Debt to EBITDA ratio.
Speaker Change: Cash levels those sorts of things, we want to set a framework that sets us strongly in that investment grade and we feel like what we're seeing here does that now.
Speaker Change: We want to have a strong and efficient balance sheet as well and so youll continue to see us work within that.
Unknown Executive: Thanks so much, that's perfect. Thank you.
Speaker Change: Uh, and now we're selling, uh, assigned in seats and extra leg room next week. So, I mean, just an incredible list in 5 months, and there's a lot more to come this year, and my point is beyond that we're not stopping. We're going to continue to understand how we keep serving our customers and meeting their needs. And uh, you know, it's 1 of those more to come. We're focused on the current transition and transformation but uh this is not the end point.
Speaker Change: Thanks so much, that's perfect.
Andrew Didora: The next question is from Andrew Didora with Bank of America. Please go ahead. Hey, good afternoon, everyone. Most of my questions have been asked and answered already. But just just one for Tom.
Speaker Change: Work within that framework.
Speaker Change: Thank you.
Speaker Change: And as we continue to improve the business through all of the things that we've talked about today I mean unlisted Bob just went through is a really impressive list and.
Andrew Dora: The next question is from Andrew Dora with Bank of America. Please go ahead.
Tom Doxey: And just on the new liquidity and balance sheet targets, you know, when we look at them versus kind of where Southwest was pre pandemic, they both seem a little bit more aggressive here. I guess, you know, how did you get comfortable with these new targets, you know, particularly in a much more difficult macro and at a time when you're you're going through a pretty significant brand revamp, just just curious how you thought about that. Thank you. Yeah. Thanks for the question, Andrew. Our balance sheet is a big differentiator for us. And to my knowledge, there are three investment grade airlines in the world.
Speaker Change: So I think that unless a 100 100 gains we're rolling these different things out and they will ramp up as the year goes on and into next year. They create additional free cash flow for us. It gives us the ability to also return capital to shareholders, but we thought it was important that as we are sort of on the front end of this journey that we've been talking about today.
Hey, good afternoon, everyone. Um, most of my questions have been asked and answered already, but just just 1 uh, for for Tom and just on on the new liquidity and balance sheet targets. You know, when we look at them versus kind of where Southwest was pre-pandemic. They both seem a little bit more aggressive here. Um, I guess, you know, how did you get comfortable with these new targets? You know, particularly in a much more difficult macro and at a time when you
Speaker Change: <unk> that we put a framework there so that.
Speaker Change: So that our investors understand that.
Speaker Change: <unk> that we want to work in as we move forward.
Speaker Change: Understood. Thanks for the thoughts.
Tom Doxey: And, you know, there's a lot of benefits that come along with that. And that's something that we need to protect as we as we move forward. And, you know, as you as you look at the various, you know, the various metrics, whether it's a debt to EBITDA ratio, you know, cash levels, those sorts of things, we want to set a framework that sets us strongly in that investment grade. And we feel like what we're seeing here does that. Now, we want to have a strong and efficient balance sheet as well. And so you'll continue to see us work within that work within that framework.
Speaker Change: The next question is from Tom <unk> with UBS. Please go ahead.
Speaker Change: Yes, good afternoon.
Speaker Change: Wanted to ask you how you think about load factor.
Speaker Change: Load factor down I think a little over 400 basis points year over year.
Speaker Change: A relatively low level compared to other industry.
Speaker Change: Other network players the big players in the industry is that something that you say, okay. This is kind of a.
Speaker Change: Now, while we're optimizing on at the moment.
Tom Doxey: And as we continue to improve the business through all of the things that we've talked about today, I mean, that list that Bob just went through is a really impressive list. And to think that in less than 100 100 days, we're rolling these different things out, and they will ramp up as the year goes on and into next year, they create additional free cash flow for us, that gives us the ability to also return capital to shareholders. But we thought it was important that as we are sort of on the front end of this journey that we've been talking about today, that we put a framework there so that so that our investors understand the guardrails that we want to work in as we move forward.
Speaker Change: We're optimizing our bag fees and other things and that will come back eventually or is that something that.
Speaker Change: Is that just.
Speaker Change: Improving supply demand driven netted improve or does that actually affect how much you grow capacity in the future just wanted to get some thoughts around that because it.
You're, you're going through a pretty significant brand brand revamp. Just, just curious, how you thought about that. Thank you. Yeah, thanks for the question. Andrew our, our our balance sheet is a big differentiator for us, you know, to my knowledge, there are 3 investment grade airlines in the world. Um, and, and, you know, there's a lot of benefits that come along with that and that's something that we need to protect as we as we move forward. Uh, and, you know, as you as you look at the various, um, you know, the various metrics whether it's a, a, a debt to evade, our ratio, you know, cash levels, those sorts of things, we want to set a framework that sets us strongly in that investment grade. And and we feel like what we're seeing here does that now, uh, we want to have a strong and efficient balance sheet as well. And so you'll continue to see us work within that, uh, work within that framework. Um, and and as we continue to improve the business through all of the things that we've talked about today. I mean, that list of Bob just went through, is a really impressive list and to
Speaker Change: The.
Speaker Change: A number of positive things happening, but that seems like that.
Speaker Change: A meaningful drag in terms of the.
Speaker Change: Pressure on load factor.
Speaker Change: Yes, no there's a lot in there and I'll, let Andrew chime in as well, but the.
Andrew Watterson: Our load factor change year over year.
Andrew Watterson: We're sort of roughly what we saw from our competitors, but we started at a base where you are right we have a gap.
Andrew Watterson: <unk>.
Andrew Watterson: And it's.
Andrew Watterson: And it's a gap that we are squarely in our focus to close we have in the first half of the year, we really focused on targeting yields to get the improvement youre seeing that but.
Tom Doxey: Understood. Thanks for the thoughts.
Tom Watowicz: The next question is from Tom Watowicz with UBS. Please go ahead. Yeah, good afternoon. I wanted to ask you how you think about load factor. You know, load factor down, I think a little over 400 basis points year over year.
Andrew Dora: To think that in less than 100 100 days. We're rolling these different things out and they will ramp up as the year goes on and into next year, they create additional free cash flow for us. That gives us the ability to also return Capital to shareholders. But we we thought it was important that as we are sort of on the front end of this journey that we've been talking about today that we put a framework there. So, the the, um, so that our investors understand, uh, the guard rails that we want to work in as we
Andrew Dora: Move forward.
Speaker Change: Understood, thanks for the thoughts.
The next question is from Tom wits with UBS. Please go ahead.
Andrew Watterson: Really targeting load factor is the objective here in the back half of the year beginning next month, we would have.
Tom Doxey: And it's, you know, I think relatively low level compared to other, you know, industry, you know, other network players, the big players in the industry, is that something that you say, okay, this is kind of, you know, not what we're optimizing on at the moment, you know, we're optimizing on bag fees and other things, and that will come back eventually? Or is that something that, you know, is that just improving supply demand driven that it improved? Or does that actually affect how much you grow capacity in the future? Just want to get some thoughts around that.
Andrew Watterson: Whole series of network changes that are intended to drive extra connectivity because especially at the beginning the early in the later part of the days, that's where you see the load factor gap showing up and connectivity.
Andrew Watterson: It will really assist that I think are points. The number of if you want to call them, we call them intentional connections will be kind of banking to offer connecting opportunities Andrew I think it's up 40%.
Andrew Watterson: Year over year, beginning in August and it is solely intended to create itineraries that help fill that load factor gap, but.
Bob Jordan: Because it's, you know, it does, you have a number of positive things happening. But that seems like that's a meaningful drag in terms of the pressure on load factor. Yeah, Tom, no, yeah, there's a lot in there.
Andrew Watterson: But yes, do you want to add anything Andrew but no. It is it is absolutely in focus and we've.
Andrew Watterson: And we've been saying for almost a year now that the first half of this year we were focused.
Uh yeah, good afternoon. Um, wanted to ask you how you think about load Factor um did you know load tracker down? I think a little over 400 basis points year-over-year and it's uh, you know, I think relatively low level compared to uh, other, you know, industry, uh, you know, other network players, the big players in the industry. Is that something that you say, okay, this is kind of a, you know, not what we're optimizing on at the moment, you know, we're optimizing on bag fees and other things and that will come back eventually, or is that something that, you know, is that just improving Supply, demand driven that it improves or or does that actually affect how much you grow capacity in the future, just want to get some thoughts around that because it, you know, it does that you have a number of positive things happening. But that seems like that's a, a meaningful drag in terms of the, uh, pressure on low tractor.
Andrew Watterson: On yield primarily through getting more money off of our best flights, we have the ability to move your yields and then the second half would be focus on load factor both of the potential connecting opportunities Bob talked about the connectivity as well as the introduction of basic economy.
Andrew Watterson: And I'll let Andrew chime in as well. But the yeah, our low factor change year over year was sort of roughly what we saw from our competitors. But we started at a base where you're right, we have a gap. And, and, and, and it's a gap that we are squarely in our focus to close. We have been, you know, the first half of the year, we really focused on targeting yields, to get the improvement, you're seeing that but really targeting low factor is the objective here in the back half of the year, beginning next month, we have a whole series of network changes that are intended to drive extra connectivity, because especially at the beginning, the early and the later part of the day, that's where you see the low factor gap showing up.
Andrew Dora: Yeah, Tom know. Yeah there's a lot in there and I'll let Andrew chime in as well but the um,
Speaker Change: Uh, yeah, our our low Factor change year-over-year. Uh, was was sort of roughly, what we saw from our competitors, but we started at a base where you're right, we have a gap.
Andrew Watterson: And our district distribution channels, the Tom hit on those are things that give us more volume the top of the funnel. If you will and those are working so right. Now August is only down 0.5 load factor points year over year.
Andrew Watterson: And last August itself was up if I'm not mistaken one or two points of the August before that so.
Andrew Watterson: During this period of macro weakness.
Andrew Watterson: We focused on not unduly discounting and I think the year over year RASM performance compared to others. So that was a wise choice to go for yield and not necessarily try to chase a falling knife, but now as we were taking the volumes available we're pushing out load factor.
Andrew Watterson: And connectivity will really assist that I think our points, the number of if you want to call them, we call them intentional connections, but kind of banking to offer connecting opportunities. Andrew, I think it's up 40% year over year beginning in August, and it is solely intended to create itineraries that help fill that low factor gap. But yeah, if you want to add anything, Andrew, but no, it is absolutely in focus. So right now, August is only down 0.5 load factor points year over year. And last August itself was up, if I'm not mistaken, at one or two points in August before that.
Speaker Change: And um and and uh and it's a gap that we are squarely in our Focus to close. We have been, you know, the first half of the year we were really focused on targeting yields uh to get the Improvement, you're seeing that. But uh really targeting low factor is the the objective here in the back half of the Year beginning. Next month, we have a, a whole series of network changes that are intended to drive extra connectivity because especially at the beginning, the early and the later part of the day, that's where you see the low Factor Gap showing up.
Andrew Watterson: Up one thing to kind of keep in mind, it's a load factor reduction is not a sign of of customers moving away.
Andrew Watterson: So we're taking maxing set of Max Sevens are seats per trip was up about 7% of pre to post pandemic the underlying trend and then.
Andrew Watterson: But our customers per trip was only up 1% so customers were up slightly insufficient use to fill the extra seats.
Andrew Watterson: These efforts we talked about.
Andrew Watterson: Opportunities to fill those seats, which is a potential tailwind for us we have been moving capacity peak off peak.
Andrew Watterson: You could say well Andrew Youre seats per trip were up 7% due some reductions on your fill out your routes and our trips per non stop market are actually down 10% kind of pre to post pandemic. So we are moving capacity around to try to address the supply demand imbalance, but as Bob mentioned, it's mostly time of day and we have these <unk>.
Andrew Watterson: Actions, we're taking to try to solve that and August is a good encouraging first month.
Really assist that I think our points uh, the number of of, uh, if you want to call them we call them intentional connections, but kind of banking to offer connecting opportunities. Andrew. I think it's up 40%, uh year-over-year beginning in August. And it it is solely intended uh to create itineraries that help fill that load Factor Gap, uh, but yeah, if you want to add anything Andrew, but no, it is, it is absolutely in focus and the, the uh, we've been saying for almost a year. Now that the first half of this year, we would focus on yield primarily through, uh, getting more money off of our best flights. We have the ability to move your yields and then, uh, the second half would be focused on load Factor. Both with the intentional, connecting opportunities Bob talked about the connectivity as well as the introduction of basic economy. Uh, those in, in our district distribution channels, that that Tom hit on those are things that give us more, uh, volume at the top of the funnel, if you will and, um, those, um, are working. So it right now, August is only down. 0.5, load Factor points year-over-year. Um,
Andrew Watterson: So during this period of macro weakness, we focused on not unduly discounting, and I think that our year over year RASM performance compared to others showed that was a wise choice to go for yield and not necessarily try to chase a falling knife.
Andrew Watterson: We're seeing traction on load factor.
Andrew Watterson: Okay.
Andrew Watterson: Follow up on that.
Andrew Watterson: It sounds like you.
Andrew Watterson: Your initiative there may be a key connecting.
Andrew Watterson: Connecting clients and everything and that's kind of the key driver of it.
Andrew Watterson: Not necessarily just kind of an improving demand or is it maybe both of those together are helping you in August.
Andrew Watterson: Well it is.
Andrew Watterson: The connections.
Andrew Watterson: Opportunities, we do have a lot more connecting itineraries. Therefore are connecting composition is up.
Speaker Change: And last August itself was up, if I'm not mistaken at 1 or 2 points in the August before that. So, uh, during this period of macro weakness, uh, we focused on not unduly discounting, and I think that our year of your Verizon performance compared to others showed that was a wise choice to go for yield and not necessarily try to chase a falling knife. Uh, but now, as we rotate in the volumes available, we are pushing that load Factor. Uh, uh, back up, 1 thing to kind of, keep in mind, is the load Factor reduction is not a sign of of customers.
Andrew Watterson: In August.
Andrew Watterson: So that's a check we do see that basically economy does allow us to have a sharper price point to certain areas and that flows to stimulate without fear of diluting corporate demand.
Andrew Watterson: And the distribution agreements that we referenced earlier are giving us additional net new customers. So all of those things come together to allow us to take.
Andrew Watterson: Take advantage of the additional seats per trip, we get from taking Max eight instead of Max Sevens well.
Andrew Watterson: You look at the changes yes.
Andrew Watterson: This is all intended to drive financial performance.
Andrew Watterson: And Thats and Thats both yield.
Andrew Watterson: And as managing costs and is and as it is bringing new customers to southwest Airlines, that's the whole basis of the transformational plan is.
Andrew Watterson: Giving our customers, what they want and getting them more and more reasons to fly southwest Airlines. If you just took the launch.
Andrew Watterson: So, okay, just to follow up on that, we, it sounds like Your initiatives, there may be a key, you know, in the connecting flights and everything, and that's kind of the key driver. It's not necessarily just kind of improving demand, or is it maybe both of those together are helping you in August? Well, it is the connections, the connection opportunities, we do have a lot more connected itineraries, therefore our connecting composition is up in August. So that's a check. We do see that basic economy does allow us to have a sharper price point to certain areas.
Speaker Change: Moving away, it's that uh, as we're taking Max 8, instead of Max 7s, our our seats per trip is up about 7%, uh, pre- to post pandemic, uh, the underlying Trend and then uh, uh but our customers per trip is only up 1%. So customers are up with slightly insufficient use the uh, to fill the extra seats. But uh, these efforts we talked about are I uh, opportunities to fill those seats which is a, a potential Tailwind for us. You know, we have been moving capacity, um, Peak off peak because our, you know, you could say well Andrew your, your seats per share for up to 7%, do some reductions on your on your, you know, send out your roots and our, our trips per non-stop Market are actually down, 10% kind of free to post pandemic. So we are moving capacity around to try to address this Supply demand imbalance. But as Bob mentioned, it's mostly time of day and we have these uh um actions. We're taking to try to solve that and August is a good encouraging uh first month uh where we're seeing traction on load Factor.
Andrew Watterson: Of assigned seating and extra leg room, which we began flying late January next year.
Speaker Change: So okay, just to to follow up on that. We I it sounds like
Andrew Watterson: We know that.
Andrew Watterson: The more than 80% of our customers want assigned seating.
Andrew Watterson: 85% of those who don't fly us on assigned seating gets the number one reason open seating is the number one reason people leave us and open seating is the number one reason that customers who won't fly southwest southwest.
Speaker Change: Your initiatives are maybe a key you know and they can connecting flights and everything and that that's kind of the key driver. It's not necessarily just kind of improving demand or is it? Maybe both of those together are helping you in August.
So all of those barriers would tell you it's very logical that youll have.
Andrew Watterson: Share shift youll have customers coming your way because they'll know southwest airlines in the consideration set because we have assigned seating so.
Bob Jordan: And that allows us to stimulate without fear of diluting corporate demand. And the distribution agreements that we referenced earlier are giving us additional net new customers. So all those things come together to allow us to, you know, take advantage of the additional seats per trip we get from taking MAX 8 instead of MAX 7. Well, and you look at the changes, yeah, the this is all intended to drive financial performance. And that's then that's both yield, and it's managing costs, and it is it is bringing new customers to Southwest Airlines. That's that's the whole basis of the transformational plan is for giving our customers what they want, giving them more and more reasons to fly Southwest Airlines.
Andrew Watterson: All of these things together the intentional connections and then the initiatives over time work.
Andrew Watterson: Do a lot to restore that load factor gap and Thats. A good reminder of our initiative value for Syn <unk> and extra legroom did not include a share shift from people all of a sudden being willing to fly southwest since we have assigned Cds, that's an unquantified upside we would show up as load factor as well so lots of opportunity here to get incremental EBIT from fill those seats.
Speaker Change: Well it it it is uh the connections. The connection opportunities, we do have a lot more connected itineraries there for our connecting composition is up uh in August. Uh so that's a check. Uh, we do see that uh, basic economy. Uh, it does allow us to have a sharper price point to certain areas and that flows to stimulate without fear of uh, diluting corporate demand and uh, the distribution uh agreements that we referenced earlier are giving us additional net new customers. So all those things come together to allow us to, you know, make take advantage of the additional seats per trip. We get uh from taking Max 8 instead of Max 7s.
Speaker Change: Well and you look at the changes. Yeah the the um this is all intended to drive financial performance.
Speaker Change: Uh and that's and that's both yield.
Andrew Watterson: Yes.
Andrew Watterson: That's great.
And its managing costs and then is and is is bringing new customers to Southwest Airlines. That's that's the whole basis of the transformational plan is
Andrew Watterson: My pleasure. Thank you.
Speaker Change: So at the analyst portion of today's call. We appreciate everyone joining.
Bob Jordan: If you just took the launch of assigned seating and extra legroom, which we begin flying late January next year, you know, we know that the, you know, more than 80% of our customers want assigned seating. 85% of those who don't fly us want assigned seating. It's the number one reason, open seating is the number one reason people leave us, and open seating is the number one reason that customers who won't fly Southwest won't fly Southwest. So all those barriers would tell you it's very logical that you'll have a share shift. You'll have customers coming your way because they'll now put Southwest Airlines in the consideration set because we have assigned seating.
Andrew Watterson: Yes.
Andrew Watterson: Yeah.
Speaker Change: Ladies and gentlemen, we now transition to our media portion of today's call Ms. Whitney Eichinger, Chief Communications Officer leads US off. Please go ahead Whitney.
Speaker Change: Giving our customers what they want, getting them more and more reasons to Fly Southwest Airlines. If you just took the launch of a sign seating, an extra leg room which we begin flying. Uh, late January next year. You know we know that the the you know, more than 80% of our customers want to sign seating.
Speaker Change: Thanks, Gary welcome to the media on our call today before we begin taking your questions. Jay would you. Please share instructions on how to queue up for question.
Speaker Change: To queue up for an opportunity to ask a question Press Star then one.
Uh 85% of those who don't fly us want to sign seating. It's the number 1 reason, open seating is the number 1. Reason people leave us and open seating is the number 1 reason that customers who won't Fly Southwest won't Fly Southwest.
Speaker Change: To withdraw your question. The command is Star then two.
Speaker Change: If you're on a speaker phone please pick up before pressing the keys will pause for a moment and then start answering your questions.
Bob Jordan: So I think all these things together, the intentional connections and then the initiatives over time work do a lot to restore that load factor gap. And that's a good reminder, Bob, that our initiative value for assigned seat and extra legroom did not include a share shift from people all of a sudden being willing to fly Southwest since we have assigned seating. So that's an unquantified upside. We would show up as load factor as well. So lots of opportunity here to get incremental EBIT from on those seats.
Speaker Change: And the first question comes from Alison Sider with the Wall Street Journal. Please go ahead.
Alison Sider: Hi, Thanks, so much.
Alison Sider: Wanted to ask I know, it's not decided or a done deal, but as you think about potential for lounges.
Alison Sider: What might that look like or what sorts of things that have to happen or how could that play out just sort of curious how youre thinking about that at this point.
Speaker Change: Opportunity here to get incremental, ebit from filling those seats.
Unknown Executive: Great, thanks for the time. Thank you. My pleasure. Thank you.
Bob: Hey, Ali it's Bob.
Speaker Change: That represent the animals.
Unknown Executive: That wraps up the analyst portion of today's call. We appreciate everyone joining.
Bob: We were running the risk of getting over my skis, which I, which we.
Bob: We are a bit because.
Speaker Change: Thank you, my pleasure. Thank you that wraps up. The analyst portion of today's call, we appreciate everyone joining
Bob: I've used that as any I've used that premium long haul as examples not not decisions, we certainly not made any kind of decision.
Whitney Eichinger: Ladies and gentlemen, we now transition to our media portion of today's call.
Whitney Eichinger: Ms. Whitney Eichinger, Chief Communications Officer, leads us off. Please go ahead, Whitney. Thanks, Gary.
Bob: So I can't answer your question because.
Bob: There's just not that work here the whole point again is that.
Gary: Welcome to the media on our call today. Before we begin taking your questions, Gary, would you please share instructions on how to queue up for a question? To queue up for an opportunity to ask a question, press star then 1. To withdraw your question, the command is star, then two. 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.
Ladies and Gentlemen, We Now transition to our media portion of, today's call, Miss Whitney Iker Chief Communications officer leads us off. Please go ahead. Whitney,
Bob:
Bob: We're just not going to be caught short of what our customers want in other words, many many things that I've talked about it again, if you use those examples they take a long time to implement decide and implement if youre going to fly long haul international as an example, so.
Thanks Gary. Welcome to the media on our call today before we begin taking your questions. Gary would you please share instructions on how to queue up for a question?
Speaker Change: queue up for an opportunity to ask a question, press star, then 1
Speaker Change: To withdraw, your question, the command is star, then 2.
Bob: We're going to be careful to understand what our customers want why they split wallet what customers that won't fly southwest Airlines want and then it makes sense.
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.
Bob: We'll do it so my point is I didnt want anybody to perceive that this set of initiatives is the stopping point.
Alison Sider: And the first question comes from Alison Sider with the Wall Street Journal. Please go ahead. Hi, thanks so much. I wanted to ask, I know it's not decided or a done deal. But you know, as you think about, you know, potential for lounges, you know, what might that look like? Or what sorts of things would have to happen? Or, you know, how could that play out? It's just sort of curious how you're thinking about it at this point.
Bob: Point is that we're going to continue to pursue our customers and there's a next set of things that I know will come as we finish up this year. So again I don't have any specific report on lounges or premium or international or long haul International again, it's just I just wanted to make sure that everyone understands.
Speaker Change: And the first question comes from Allison cider with the Wall Street Journal. Please, go ahead.
Speaker Change: Uh, hi thanks so much. Um, I wanted to ask. I know it's not, uh, decided or done deal, but, you know, as you think about, you know, potential for lounges.
Bob Jordan: Hey, Ali. Hey, it's Bob Inio. I always, you know, we were running the risk of getting over my skis, which I, which we are a bit because I've used that as any, I've used that premium long haul as examples, not not decisions. We certainly not made any kind of decision. So I can't answer your question, because that's, there's just not that work here. The whole point again, is that We're just not going to be caught short of what our customers want, you know, in other words, many, many things that I've talked about it again, if you use those examples, they take a long time to implement, decide and implement if you're going to fly long haul international as an example.
Speaker Change: You know, what might that look like or what sorts of things would have to happen? Or, you know, how could that play out at this sort of curious? How you're thinking about it at this point?
Bob: That we're not stopping we're going to continue to pursue and understand what our customers want from us.
Bob: And then long haul I mean is there a lot of like technological kind of systems work that would have to get done before you can really consider that.
Bob: Our labor agreements or is there a lot of stuff like that that you'd have to work. There again. This is all totally hypothetical so.
Bob: I, just really I prefer not to answer just because.
Speaker Change: Hey Ally. Hey, it's Bob and you know, I always, you know, I always worry running the risk of getting over my skis which I which I we are a bit because I've used that as an I've used that premium Long Haul as examples, not not decisions. We've certainly not made any kind of decision. Uh, so I I can't answer your question because the that's there's just not that work. Here, the whole point again is that um,
Bob: We're.
Bob: We're not doing the work.
Bob: We're looking at the strategy in terms of what is that our customers want which is very different than the detail on what would it take so yes.
Speaker Change: They're just not not answer because I'm afraid it might be viewed as more speculation on what we're doing the one thing I'll add to that Bob is today, we're taking tickets sold by Iceland, there in many different currencies and were lifted him and processing them.
Bob Jordan: So we're going to be careful to understand what our customers want, why they split wallet, what customers that will fly Southwest Airlines want, and then if it makes sense, we'll do it. So my point is, I didn't want anybody to perceive that this set of initiatives is the stopping The point is that we're going to continue to pursue our customers and there's a next set of things that I know will come as we finish up this set here.
Speaker Change: We're just not going to be caught short of what our customers want, you know, in other words, many, many things that I've talked about it and again, if you use those examples, they take a long time to implement decide and Implement, if you're going to fly long, hauls International as an example. So,
Bob: No problem.
Speaker Change: Uh we're we're going to be careful to understand what our customers want, why they split wallet, what customers that will fly Southwest Airlines want and then if it makes sense, uh, we'll we'll do it. So my point is
Bob: I think the one the only one obvious thing again this is not for speculation on what we're doing.
Speaker Change: I didn't want anybody to perceive that this set of initiatives is the stopping point.
Bob: As obvious is.
Bob: If youre going to fly a long haul mission. It requires aircraft that can fly a lot longer so it would take a different aircraft to be able to do that I mean, thats very very obvious but again, that's just to give you. An example is not not to give you.
Bob Jordan: So again, I don't have any specific report on lounges or premium or international or long haul international. Again, it's just, I just want to make sure that everyone understands. that we're not stopping. We're going to continue to pursue and understand what our customers want.
Speaker Change: The point is that uh we're going to continue to pursue our customers and there's a next set of things that I know will come as we finish up this set here. So again I I I don't have any specific report on lounges, or premium or International or Long Haul International again. It's just, I just want to make sure that everyone understands
Bob: Any insight into something that we're doing so but I appreciate the question.
That we're not stopping. We're going to continue to pursue and understand what our customers want from us.
Bob Jordan: And on long haul, I mean, is there a lot of like, technological kind of systems work that would have to get done before you could really consider that? Or labor agreements? Or is there a lot of stuff like that that you'd have to work through? Again, you know, this is all totally hypothetical. So I just really prefer not to answer just because we don't we're not doing the work. We're looking at the strategy in terms of what is it our customers want, which is very different than the detail on what would it take? So yeah, I'd rather just not not answer because I'm afraid it might be viewed as more speculation on what we're doing.
Bob: Yeah.
Speaker Change: The next question is from Robert Silk with travel weekly. Please go ahead.
Robert Silk: Hey, there thanks for taking my call.
Robert Silk: Okay, you all provide maybe Andrew a little bit more detail on.
Speaker Change: And our Long Haul, I mean, is there a lot of like, technological kind of systems work that would have to get done before you could really consider that, um, or or labor agreements? Or is there a lot of stuff like that that you'd have to work through again? You know, this is all totally hypothetical.
Speaker Change: The connectivity.
Speaker Change: Were you talking about connecting itineraries, where that's happening and is it particular airports or particular type of routes or anything like that.
Speaker Change: I just really, yeah, prefer not to answer just because uh, we don't we we're we're uh, we're not doing the work.
Robert Silk: Sure Robert.
Robert Silk: It kind of across of our network and you look at our bigger stations and those are places, where we have a lot of flights and the opportunity to.
Andrew Watterson: The one thing I'll add to that Bob is today, we are taking tickets sold by Icelandair in many different currencies, and we're lifting them and processing them. And there's no problem. I think the only one obvious thing, again, this is not for speculation of what we're doing, it's just, it's obvious, is If you're going to fly a long-haul mission, it requires aircraft that can fly a lot longer. So it would take a different aircraft to be able to do that. I mean, that's very, very obvious, but again, that's just to give you an example.
Robert Silk: I have more connectivity the one on <unk>.
Robert Silk: What I'm most excited about is we launched red eyes. So we have a number of red eyes now arrive into Baltimore in the morning, and then those.
Uh, we're looking at the strategy in terms of what is it our customers want, which is very different than the detail on what would it take? So I yeah, I'd rather just not not answer because I'm afraid it might be viewed as more speculation on what we're doing. The 1 thing, I'll add to that. Bob is today, we are taking tickets, sold by Iceland are in many different currencies and we're lifting them in processing them and there's no problem.
Robert Silk: Those flights connect two flights, probably north bound, but kind of shorter haul flights from Baltimore and so if youre going to the west coast to a smaller city on the East Coast. This is a very efficient itinerary for you to fly a red eye into Baltimore and connected the first flight those first flights generally have or less full and so that allows us to get incremental.
I think the 1, the only 1 obvious thing again. This is a, this is not for speculation on what we're doing. It's just it's it's obvious is
Robert Silk: It's not to give you any insight into something that we're doing, but I appreciate the question, The next question is from Robert Silk with Travel Weekly.
Robert Silk: Load factor on those flights.
Speaker Change: Uh, if you're going to fly a long haul Mission, it requires aircraft that can fly a lot longer. So it would take a different aircraft to be able to do that. I mean, that's very, very obvious. But, again, that's just to give you an example. It's not
Robert Silk: As well as incremental opportunities for our customers in the west.
Robert Silk: To the east or if you're on the East returned home and so that's one that I think we really didn't have it in past years. There is some we hadn't passengers were just bringing back.
Not to give you, uh, uh, you know, any insight into something that we're doing so, but I appreciate the question Ally.
Robert Silk: Please go ahead. there. Thanks for taking my call.
The next question is from Robert silk with travel weekly, please go ahead.
Robert Silk: There'll be some of those.
Robert Silk: In Denver.
Robert Silk: Now some in Nashville.
Andrew Watterson: Can you all provide maybe Andrew a little bit more detail on The connectivity that you're, where you're talking about connecting itineraries, where that's happening, is it particular airports, a particular type of routes, anything like that? Sure, Robert. It's a kind of a cross of our network. You look at our bigger stations and those are places where we have a lot of flights and they have the opportunity to have more connectivity. The one I'd highlight that I'm most excited about is, you know, we launched Red Eyes. So we have a number of Red Eyes now that arrive into Baltimore in the morning and then those flights connect to flights, probably northbound, but kind of shorter haul flights from Baltimore.
Robert Silk: Hey there. Thanks for taking my call. Um,
Robert Silk: <unk> built up Nashville, So we've added some kind of all throughout our network.
can you all provide maybe Andrew a little bit more detail on?
Robert Silk: Since we don't have like three really huge.
Robert Silk: Airports, we have like maybe 10 big airports and all those tend to 12, we've got discounting bank sprinkled in.
Robert Silk: The connectivity, the the that you're where you're talking about connecting itineraries, where that's happening, is a particular airports are particular type of Route, anything like that.
Speaker Change: Okay. That's helpful. Thank you my.
Robert Silk: My pleasure.
Whitney Eichinger: This concludes our question and answer session for media so back over to Whitney now for some closing thoughts.
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 concluded. Thank you all for attending we'll meet again here next quarter you may now disconnect.
Andrew Watterson: And so if you're going from the West Coast to a smaller city on the East Coast, this is a very efficient itinerary for you to fly a Red Eye into Baltimore and connect to the first flight. Those first flights generally are less full and so that allows us to get, you know, incremental load factor on those flights as well as incremental opportunities for our customers in the West to get to the East or people in the East to return home. And so that's one that I think we really didn't have in past years. There's some we had in past years we're just bringing back.
Andrew Watterson: There will be some of those in Denver and now some in Nashville. Now we've built up Nashville. So we've added some kind of all throughout our network since we don't have like three really huge airports. We have like maybe 10 big airports and all those 10 to 12 we've got these connecting banks sprinkled in.
Robert Silk: Excited about um, is you know, we launched red eyes. So we have a number of red eyes. Now that that arrived in the Baltimore in the morning and then those uh uh uh those flights connect uh to uh flights probably Northbound. But kind of shorter haul flights from Baltimore. And so if you're going for the west coast to a smaller City in the east coast, uh this is a very efficient itinerary for you to fly a red eye into Baltimore and connect to the the the first flight. Those first flights generally have are less full and so that allows us to get, you know, incremental, uh, load Factor on those flights. And as well as, uh, incremental opportunities for our customers, in the west, uh, to get to the east or people in the East to return home. And so, that's 1 that I think is, uh, uh, we really didn't have in past years. There's some we had in past years were just bringing back, uh, there will be some of those, uh, in Denver and, um, and now some in Nashville. Now, we've we've built up Nashville. So we've added some kind of all throughout our Network, um, since we don't have like, 3 really huge, uh, um, uh
Uh, uh, airports. We have like maybe 10 big airports and all those, uh, 10 to 12. We've got um, these connecting Banks sprinkled in.
Unknown Executive: Okay, that's helpful. Thank you. My pleasure.
Whitney Eichinger: This concludes our question and answer session for media, so back over to Whitney now for some closing thoughts. 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.
Okay, that's helpful. Thank you, my pleasure.
This concludes our question and answer session for media. So, back over to Whitney now for some closing thoughts.
Robert Silk: If you have any further questions or Communications Group is standing by their contact,
Unknown Executive: The conference has concluded. Thank you all for attending.
Information, along with today's news, release are all available at SWA media.com.
Unknown Executive: We'll meet again here next quarter. You may now disconnect. https://www.facebook.com.com
Robert Silk: Conference has concluded. Thank you. All for attending we'll meet again here next quarter. You may now disconnect