Q1 2026 Southwest Airlines Co Earnings Call

April 23, 2026

Speaker #1: Recorded. A replay will be available on SOUTHWEST DOT COM IN THE INVESTOR RELATIONS SECTION. After today's remarks, there will be an opportunity to ask questions.

Operator: Being recorded. A replay will be available on southwest.com in the Investor Relations section. After today's remarks, there will be an opportunity to ask questions. To queue up for an opportunity to ask a question, press star then 1. To withdraw your question, the command is star and then 2. Now, Danielle Collins, Managing Director of Investor Relations, will begin the discussion. Please go ahead, Danielle.

Operator: Being recorded. A replay will be available on southwest.com in the Investor Relations section. After today's remarks, there will be an opportunity to ask questions. To queue up for an opportunity to ask a question, press star then one. To withdraw your question, the command is star and then two. Now, Danielle Collins, Managing Director of Investor Relations, will begin the discussion. Please go ahead, Danielle.

Speaker #1: To queue up for an opportunity to ask a question, press star, then one. To withdraw your question, the command is star, and then two.

Speaker #1: Now, Danielle Collins, Managing Director of Investors Relations, will begin the discussion. Please go ahead, Danielle.

Speaker #2: Hello, everyone, and welcome to SOUTHWEST AIRLINES FIRST QUARTER 2026 EARNINGS CALL. In just a moment, we will share our prepared remarks. After which, we will move into Q&A.

Danielle Collins: Hello, everyone, and welcome to Southwest Airlines Q1 2026 earnings call. In just a moment, we will share our prepared remarks, after which we will move into Q&A. Joining me today are Bob Jordan, our President and Chief Executive Officer, Andrew Watterson, our Chief Operating Officer, and Tom Doxey, our Chief Financial Officer. Before we begin, a quick reminder that in today's session, we will be making 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 reconciled to GAAP results in our earnings press release. With that, I'll turn the call over to Bob.

Speaker #2: Joining me today are Bob Jordan, our President and Chief Executive Officer; Andrew Watterson, our Chief Operating Officer; and Tom Doxey, our Chief Financial Officer.

Speaker #2: Before we begin, a quick reminder that in today's session, we will be making forward-looking statements, which are based on our current expectations of future performance.

Danielle Collins: Before we begin, a quick reminder that in today's session, we will be making 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 reconciled to GAAP results in our earnings press release. With that, I'll turn the call over to Bob.

Speaker #2: And our actual results could differ materially from expectations. Also, we will reference our non-gap results, which exclude special items that are called out and reconciled to gap results in our earnings press release.

Speaker #2: With that, I'll turn the call over to Bob.

Speaker #3: Thank you, Danielle, and good morning, everyone. We appreciate you joining us today. First quarter 2026 represents an important milestone for SOUTHWEST, as all our previously announced initiatives are now in place and contributing to our results.

Bob Jordan: Thank you, Danielle. Good morning, everyone. We appreciate you joining us today. Q1 2026 represents an important milestone for Southwest as all our previously announced initiatives are now in place and contributing to our results. What a difference a year makes. That broad set of commercial, operational, and cost and efficiency actions represent a fundamental transformation of our business model and is translating into strong customer demand for our new product, strong financial results, and strong margin expansion. The financial tailwind provided by these initiatives is meaningful, as indicated by our results.

Speaker #1: Hello everyone, and welcome to the SOUTHWEST AIRLINES FIRST QUARTER 2026 CONFERENCE CALL. I'm Nick, and I'll be moderating today's call, which is being recorded.

Operator: Hello everyone, and welcome to the Southwest Airlines Q1 2026 Conference Call. I'm Nick, and I will be monitoring today's call, which is being recorded. A replay will be available on southwest.com in the investor relations section. After today's remarks, there will be 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 and then two. Now, Danielle Collins, Managing Director of Investor Relations, will begin the discussion. Please go ahead, Danielle.

Speaker #3: And what a difference a year makes. That broad set of commercial, operational, and cost and efficiency actions represent a fundamental transformation of our business model, and is translating into strong customer demand for our new product, strong financial results, and strong margin expansion.

Bob Jordan: That broad set of commercial, operational, and cost and efficiency actions represent a fundamental transformation of our business model and is translating into strong customer demand for our new product, strong financial results, and strong margin expansion. The financial tailwind provided by these initiatives is meaningful, as indicated by our results.

Speaker #1: A replay will be available on SOUTHWEST.com in the Investor Relations section. After today's remarks, there will be an opportunity to ask questions. To queue up for an opportunity to ask a question, press star, then one.

Speaker #1: To withdraw your question, the command is star, and then two. Now, Danielle Collins, Managing Director of Investors Relations, will begin the discussion. Please go ahead, Danielle.

Speaker #3: The financial tailwind provided by these initiatives is meaningful, as indicated by our results. Our first quarter EPS of 45 cents was in line with our guidance in January, and represents a significant year-over-year improvement from a loss of 26 cents per share or an adjusted loss per share of 13 cents, and these results were delivered against a backdrop of significantly higher fuel costs, which represented a 22-cent EPS headwind in the quarter, further illustrating the underlying momentum that we're seeing across the business.

Bob Jordan: Our Q1 EPS of $0.45 was in line with our guidance in January and represents a significant year-over-year improvement from a loss of $0.26 per share or an adjusted loss per share of $0.13. These results were delivered against a backdrop of significantly higher fuel costs, which represented a $0.22 EPS headwind in the quarter, further illustrating the underlying momentum that we're seeing across the business. Q1 operating margin of 4.6% was an 8.1 percentage point improvement year-over-year or 6.6 percentage points on an adjusted basis, a powerful change in how the company generates earnings. We also generated $1.4 billion in operating cash flow in the quarter, an increase of 65% from the Q1 2025.

Speaker #2: Hello, everyone, and welcome to the Southwest Airlines first quarter 2026 earnings call. In just a moment, we will share our prepared remarks, after which we will move into Q&A.

Danielle Collins: Hello everyone, and welcome to Southwest Airlines' Q1 2026 earnings call. In just a moment, we will share our prepared remarks, after which we will move into Q&A. Joining me today are Bob Jordan, our President and Chief Executive Officer, Andrew Watterson, our Chief Operating Officer, and Tom Doxey, our Chief Financial Officer. Before we begin, a quick reminder that in today's session we will be making 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 reconciled to GAAP results in our earnings press release. With that, I'll turn the call over to Bob.

Speaker #2: Joining me today are Bob Jordan, our President and Chief Executive Officer; Andrew Watterson, our Chief Operating Officer; and Tom Doxey, our Chief Financial Officer.

Speaker #2: Before we begin, a quick reminder that in today's session, we will be making forward-looking statements, which are based on our current expectations of future performance.

Speaker #3: First quarter operating margin of 4.6% was an 8.1-point improvement, year-over-year, or 6.6 points on an adjusted basis, a powerful change in how the company generates earnings.

Bob Jordan: Q1 operating margin of 4.6% was an 8.1 percentage point improvement year-over-year or 6.6 percentage points on an adjusted basis, a powerful change in how the company generates earnings. We also generated $1.4 billion in operating cash flow in the quarter, an increase of 65% from the Q1 2025.

Speaker #3: We also generated 1.4 billion in operating cash flow in the quarter, an increase of 65% from the first quarter of 2025. Now that the contributions from our initiatives have kicked in, I want to reflect on two potential narratives that have been brought up occasionally regarding SOUTHWEST AIRLINES.

Speaker #2: With that, I'll turn the call over to Bob.

Bob Jordan: Now that the contributions for our initiatives have kicked in, I want to reflect on two potential narratives that have been brought up occasionally regarding Southwest Airlines. The first being because we don't serve long-haul international markets and lack material exposure to premium segments, we would be unable to generate margins that are in line with carriers that do have those attributes. Second, that our customer base is somehow different and would therefore be unwilling to respond to our product changes and pay more for segmented products and seat ancillaries. As evidenced by our Q1 results, we are proving those arguments wrong. Southwest has significant fundamental and enduring core strengths. The largest domestic network, the most non-stop flights at a number one position in nearly half of the 50 largest US airports.

Speaker #3: Thank you, Danielle, and good morning, everyone. We appreciate you joining us today. FIRST QUARTER 2026 represents an important milestone for SOUTHWEST, as all our previously announced initiatives are now in place and contributing to our results.

Bob Jordan: Thank you, Danielle, and good morning everyone. We appreciate you joining us today. Q1 2026 represents an important milestone for Southwest as all our previously announced initiatives are now in place and contributing to our results. What a difference a year makes. That broad set of commercial, operational, and cost and efficiency actions represent a fundamental transformation of our business model and is translating into strong customer demand for our new product, strong financial results, and strong margin expansion. The financial tailwind provided by these initiatives is meaningful as indicated by our results.

Speaker #3: The first being, because we don't serve long-haul international markets, and lack material exposure to premium segments, we would be unable to generate margins that are in line with carriers that do have those attributes.

Speaker #3: And what a difference a year makes. That broad set of commercial, operational, and cost and efficiency actions represents a fundamental transformation of our business model, and is translating into strong customer demand for our new product, strong financial results, and strong margin expansion.

Speaker #3: And second, that our customer base is somehow different, and would therefore be unwilling to respond to our product changes and pay more for segmented products and seat ancillaries.

Bob Jordan: Second, that our customer base is somehow different and would therefore be unwilling to respond to our product changes and pay more for segmented products and seat ancillaries. As evidenced by our Q1 results, we are proving those arguments wrong. Southwest has significant fundamental and enduring core strengths. The largest domestic network, the most non-stop flights at a number one position in nearly half of the 50 largest US airports.

Speaker #3: As evidenced by our first quarter results, we are proving those arguments wrong. SOUTHWEST has significant fundamental and enduring core strengths. The largest domestic network, the most nonstop flights, and a number one position in nearly half of the 50 largest US airports, operational excellence that results in SOUTHWEST being named the Wall Street Journal's best US airline of 2025, cost discipline, and operational efficiency, and importantly, legendary service and hospitality provided by our incredible people.

Speaker #3: The financial tailwind provided by these initiatives is meaningful, as indicated by our results. Our first quarter EPS of $0.45 was in line with our guidance in January and represents a significant year-over-year improvement from a loss of $0.26 per share, or an adjusted loss per share of $0.13. These results were delivered against a backdrop of significantly higher fuel costs, which represented a $0.22 EPS headwind in the quarter, further illustrating the underlying momentum that we're seeing across the business.

Bob Jordan: Our Q1 EPS of $0.45 was in line with our guidance in January and represents a significant year-over-year improvement from a loss of $0.26 per share or an adjusted loss per share of $0.13, and these results were delivered against a backdrop of significantly higher fuel costs, which represented a $0.22 EPS headwind in the quarter, further illustrating the underlying momentum that we're seeing across the business. Q1 operating margin of 4.6% was an 8.1-point improvement year over year, or 6.6 points on an adjusted basis, a powerful change in how the company generates earnings. We also generated $1.4 billion in operating cash flow in the quarter, an increase of 65% from the Q1 of 2025. Now that the contributions from our initiatives have kicked in, I want to reflect on two potential narratives that have been brought up occasionally regarding Southwest Airlines.

Bob Jordan: Operational excellence that resulted in Southwest being named The Wall Street Journal's best US airline of 2025. Cost discipline and operational efficiency, and importantly, legendary service and hospitality provided by our incredible people. Those core strengths, coupled with our new product offering, are fundamentally changing the financial margins that we produce. Our transformed business model is being stress-tested in this unique environment of geopolitical upheaval and much higher fuel prices. Against this challenging backdrop, our Q1 operating margin of 4.6% and our year-over-year unit revenue growth of 11.2% demonstrate the strength of our new model. Moreover, in the Q2, we expect unit revenue growth between 16.5% and 18.5%, which I expect to be industry-leading by a wide margin.

Speaker #3: Those core strengths, coupled with our new product offering, are fundamentally changing the financial margins that we produce. Our transformed business model is being stress-tested in this unique environment of geopolitical upheaval, and much higher fuel prices.

Speaker #3: FIRST QUARTER operating margin of 4.6% was an 8.1-point improvement year-over-year or 6.6 points on an adjusted basis, a powerful change in how the company generates earnings.

Bob Jordan: Our transformed business model is being stress-tested in this unique environment of geopolitical upheaval and much higher fuel prices. Against this challenging backdrop, our Q1 operating margin of 4.6% and our year-over-year unit revenue growth of 11.2% demonstrate the strength of our new model. Moreover, in the Q2, we expect unit revenue growth between 16.5% and 18.5%, which I expect to be industry-leading by a wide margin.

Speaker #3: Against this challenging backdrop, our first quarter operating margin of 4.6%, and our year-over-year unit revenue growth of 11.2%, demonstrate the strength of our new model.

Speaker #3: We also generated $1.4 billion in operating cash flow in the quarter, an increase of 65% from the first quarter of 2025. Now that the contributions from our initiatives have kicked in, I want to reflect on two potential narratives that have been brought up occasionally regarding Southwest Airlines.

Speaker #3: Moreover, in the second quarter, we expect unit revenue growth between 16.5% and 18.5%, which I expect to be industry-leading by a wide margin. That's all proof that our existing customer base, and the new customers we are attracting, want and are willing to pay for our new products, and our product attributes.

Bob Jordan: The first being, because we don't serve long-haul international markets and lack material exposure to premium segments, we would be unable to generate margins that are in line with carriers that do have those attributes. Second, that our customer base is somehow different, and would therefore be unwilling to respond to our product changes and pay more for segmented products and seat ancillaries. As evidenced by our Q1 results, we are proving those arguments wrong. Southwest has significant fundamental and enduring core strengths, the largest domestic network, the most non-stop flights at a number one position in nearly half of the 50 largest US airports. Operational excellence that resulted in Southwest being named The Wall Street Journal's Best US Airline of 2025. Cost discipline and operational efficiency, and importantly, legendary service and hospitality provided by our incredible people.

Bob Jordan: That's all proof that our existing customer base and the new customers we are attracting want and are willing to pay for our new products and our product attributes. In other words, they love the Southwest product. While the external environment remains uncertain, we are confident about how we are positioned. A wholesale change to the business model and product offering that is being battle-tested by higher fuel prices and geopolitical tensions, yet it's producing top-tier industry financial results. Looking deeper at the results, demand remains strong across geographies, customer segments in both business and leisure, and the customer take rate for our enhanced product offering and seating ancillaries is strong as well. Passenger revenue growth, operating revenue, and unit revenue each set Q1 records, with March marking our largest operating revenue month in our history.

Speaker #3: In other words, they love the SOUTHWEST product. While the external environment remains uncertain, we are confident about how we are positioned, a wholesale change to the business model, and product offering that is being battle-tested by higher fuel prices and geopolitical tensions yet is producing top-tier industry financial results.

Speaker #3: And second, that our customer base is somehow different and would therefore be unwilling to respond to our product changes and pay more for segmented products and seat ancillaries.

Bob Jordan: A wholesale change to the business model and product offering that is being battle-tested by higher fuel prices and geopolitical tensions, yet it's producing top-tier industry financial results. Looking deeper at the results, demand remains strong across geographies, customer segments in both business and leisure, and the customer take rate for our enhanced product offering and seating ancillaries is strong as well. Passenger revenue growth, operating revenue, and unit revenue each set Q1 records, with March marking our largest operating revenue month in our history.

Speaker #3: As evidenced by our FIRST QUARTER results, we are proving those arguments wrong. SOUTHWEST has significant fundamental and enduring core strengths. The largest domestic network, the most nonstop flights, and a number one position in nearly half of the 50 largest US airports operational excellence that results in SOUTHWEST being named the Wall Street Journal's best US airline of 2025.

Speaker #3: Looking deeper at the results, demand remains strong across geographies, customer segments, and both business and leisure, and the customer take rate for our enhanced product offering and seating ancillaries is strong as well.

Speaker #3: Cost discipline and operational efficiency and, importantly, legendary service and hospitality provided by our incredible people. Those core strengths, coupled with our new product offering, are fundamentally changing the financial margins that we produce.

Speaker #3: Passenger revenue growth, operating revenue, and unit revenue each set first quarter records with March marking our largest operating revenue month in our history. Going forward, we remain squarely focused on continued margin expansion, and are taking actions to further improve financial results, including aggressively optimizing our product and revenue initiatives, such as the recent increase in bag fees.

Bob Jordan: Those core strengths, coupled with our new product offering, are fundamentally changing the financial margins that we produce. Our transformed business model is being stress-tested in this unique environment of geopolitical upheaval and much higher fuel prices. Against this challenging backdrop, our Q1 operating margin of 4.6% and our year-over-year unit revenue growth of 11.2% demonstrate the strength of our new model. Moreover, in Q2, we expect unit revenue growth between 16.5% and 18.5%, which I expect to be industry leading by a wide margin. That's all proof that our existing customer base and the new customers we are attracting want and are willing to pay for our new products and our product attributes. In other words, they love the Southwest product. While the external environment remains uncertain, we are confident about how we are positioned.

Bob Jordan: Going forward, we remain squarely focused on continued margin expansion and are taking actions to further improve financial results, including aggressively optimizing our product and revenue initiatives, such as the recent increase in bag fees. Taking target actions to further reduce non-fuel costs and drive efficiency across the business. You saw a portion of that come through in our Q1 CASM-ex increase of 2.3%, well below our guide of 3.5%. Continuing enhancements to our product offering, such as our new partnership with Starlink. By the end of the year, Starlink will be available on at least 300 aircraft and roughly two-thirds of our fleet will be equipped with in-seat power and larger overhead bins. We expect these changes, combined with recent product enhancements, to continue to drive growth in corporate business travel.

Speaker #3: Our transformed business model is being stress-tested in this unique environment of geopolitical upheaval and much higher fuel prices. Against this challenging backdrop, our FIRST QUARTER operating margin of 4.6% and our year-over-year unit revenue growth of 11.2% demonstrate the strength of our new model.

Speaker #3: Taking targeted actions to further reduce non-fuel costs, and drive efficiency across the business. And you saw a portion of that come through in our first quarter CASMX increase of 2.3%, well below our guide of 3.5%.

Speaker #3: Continuing enhancements to our product offering, such as our new partnership with Starlink. By the end of the year, Starlink will be available on at least 300 aircraft, and roughly two-thirds of our fleet will be equipped with in-seat power, and larger overhead bins.

Speaker #3: We expect these changes, combined with recent product enhancements, to continue to drive growth, incorporate business travel. We are aggressively managing our network, reducing lower return flying, and redeploying that capacity to higher margin opportunities such as the recently announced suspension of operations at Chicago, O'Hare, and Washington Dulles; and we had a handful of flights at both airports, which were underperforming.

Bob Jordan: We are aggressively managing our network, reducing lower return flying and redeploying that capacity to higher margin opportunities, such as the recently announced suspension of operations at Chicago O'Hare and Washington Dulles, and we had a handful of flights at both airports which were underperforming. We entered 2026 with a disciplined capacity plan and now expect full-year capacity growth of approximately 2% at the low end of our prior 2% to 3% range, driven by ongoing schedule optimization and network refinement. Turning to the outlook, there is significant economic and geopolitical uncertainty, and it's not possible to know with confidence all the ways the industry could be impacted. That said, we do know two things. Fuel prices are much higher, and if that is sustained, it will require higher ticket prices to offset that increase in fuel.

Bob Jordan: A wholesale change to the business model and product offering that is being battle-tested by higher fuel prices and geopolitical tensions, yet is producing top-tier industry financial results. Looking deeper at the results, demand remains strong across geographies, customer segments in both business and leisure, and the customer take rate for our enhanced product offering and seating ancillaries is strong as well. Passenger revenue growth, operating revenue, and unit revenue each set Q1 records, with March marking our largest operating revenue month in our history. Going forward, we remain squarely focused on continued margin expansion and are taking actions to further improve financial results, including aggressively optimizing our product and revenue initiatives, such as the recent increase in bag fees. Taking target actions to further reduce non-fuel costs and drive efficiency across the business.

Speaker #3: And we entered 2026 with a disciplined capacity plan. And now expect full-year capacity growth of approximately 2% at the low end of our prior two to three percent range, driven by ongoing schedule optimization and network refinement.

Bob Jordan: We entered 2026 with a disciplined capacity plan and now expect full-year capacity growth of approximately 2% at the low end of our prior 2% to 3% range, driven by ongoing schedule optimization and network refinement.

Speaker #3: Passenger revenue growth, operating revenue, and unit revenue each set FIRST QUARTER records with March marking our largest operating revenue month in our history. Going forward, we remain squarely focused on continued margin expansion, and are taking actions to further improve financial results, including aggressively optimizing our product and revenue initiatives such as the recent increase in bag fees.

Speaker #3: Turning to the outlook, there is significant economic and geopolitical uncertainty, and it's not possible to know with confidence all the ways the industry could be impacted.

Bob Jordan: Turning to the outlook, there is significant economic and geopolitical uncertainty, and it's not possible to know with confidence all the ways the industry could be impacted. That said, we do know two things. Fuel prices are much higher, and if that is sustained, it will require higher ticket prices to offset that increase in fuel.

Speaker #3: That said, we do know two things. Fuel prices are much higher, and if that is sustained, it will require higher ticket prices to offset that increase in fuel.

Speaker #3: Taking targeted actions to further reduce non-fuel costs and drive efficiency across the business. And you saw a portion of that come through in our FIRST QUARTER CASAMEX increase of 2.3%, well below our guide of 3.5%.

Speaker #3: Given the ongoing macroeconomic uncertainty, updating our full-year adjusted EPS guide of $4, would not be productive at this time. Achieving this outcome would require lower fuel prices, and/or stronger revenue performance to offset higher fuel expense.

Bob Jordan: Given the ongoing macroeconomic uncertainty, updating our full-year adjusted EPS guide of $4 would not be productive at this time. Achieving this outcome would require lower fuel prices and/or stronger revenue performance to offset higher fuel expense. We will continue to monitor conditions closely and provide updates to our guidance as appropriate. For Q2, we expect EPS in the range of $0.35 to $0.65, using an average fuel price range of $4.10 to $4.15, based on the forward curve as of 16 April. The EPS guide represents significant expected earnings and margin expansion year over year. In closing, while fuel is an external factor and we are operating in a volatile macro environment, our Q1 results are proof there is strong customer demand for our new products. Our initiatives are working.

Bob Jordan: You saw a portion of that come through in our Q1 CASM-ex increase of 2.3%, well below our guide of 3.5%. Continuing enhancements to our product offering, such as our new partnership with Starlink. By the end of the year, Starlink will be available on at least 300 aircraft, and roughly two-thirds of our fleet will be equipped with in-seat power and larger overhead bins. We expect these changes, combined with recent product enhancements, to continue to drive growth in corporate business travel. We are aggressively managing our network, reducing lower return flying and redeploying that capacity to higher margin opportunities, such as the recently announced suspension of operations at Chicago O'Hare and Washington Dulles, and we had a handful of flights at both airports which were underperforming.

Speaker #3: Continuing enhancements to our product offering, such as our new partnership with STARLINK. By the end of the year, STARLINK will be available on at least 300 aircraft, and roughly two-thirds of our fleet will be equipped with in-seat power and larger overhead bins.

Speaker #3: We will continue to monitor conditions closely, and provide updates to our guidance as appropriate. For the second quarter, we expect EPS in the range of 35 cents to 65 cents, using an average fuel price range of $4.10 to $4.15 based on the forward curve as of April the 16th.

Speaker #3: We expect these changes, combined with recent product enhancements, to continue to drive growth in corporate business travel. We are aggressively managing our network, reducing lower return flying and redeploying that capacity to higher margin opportunities such as the recently announced suspension of operations at Chicago O'Hare and Washington Dulles and we had a handful of flights at both airports which were underperforming.

Speaker #3: The EPS guide represents significant expected earnings, and margin expansion year over year. In closing, while fuel is an external factor, and we were operating in a volatile macro environment, our first quarter results are proof there is strong customer demand for our new products.

Speaker #3: Our initiatives are working. Our significant core strengths remain, and that combination is producing top-of-industry margins. I want to say how proud I am of our people.

Speaker #3: And we entered 2026 with a disciplined capacity plan. And now expect full-year capacity growth of approximately 2% at the low end of our prior two to three percent range driven by ongoing schedule optimization and network refinement.

Bob Jordan: We entered 2026 with a disciplined capacity plan and now expect full year capacity growth of approximately 2% at the low end of our prior 2% to 3% range, driven by ongoing schedule optimization and network refinement. Turning to the outlook, there is significant economic and geopolitical uncertainty, and it's not possible to know with confidence all the ways the industry could be impacted. That said, we do know two things. Fuel prices are much higher, and if that is sustained, it will require higher ticket prices to offset that increase in fuel. Given the ongoing macroeconomic uncertainty, updating our full year adjusted EPS guide of $4 would not be productive at this time. Achieving this outcome would require lower fuel prices and/or stronger revenue performance to offset higher fuel expense. We will continue to monitor conditions closely and provide updates to our guidance as appropriate.

Bob Jordan: Our significant core strengths remain, and that combination is producing top-of-industry margins. I want to say how proud I am of our people. The progress we are seeing across the business is the direct result of the work they do every day, delivering for each other, our customers, and our shareholders. We are just 18 months removed from announcing our initial transformational initiatives, and I could not be prouder of our teams for the discipline and excellence which they continue to deliver. With that, I will turn it over to Andrew to cover revenues and operational performance.

Speaker #3: The progress we are seeing across the business is the direct result of the work they do every day: delivering for each other, our customers, and our shareholders.

Speaker #3: Turning to the outlook, there is significant economic and geopolitical uncertainty and it's not possible to know with confidence all the ways the industry could be impacted.

Speaker #3: We are just 18 months removed from announcing our initial transformational initiatives, and I could not be prouder of our teams for the discipline, and excellence, which they continue to deliver.

Bob Jordan: We are just 18 months removed from announcing our initial transformational initiatives, and I could not be prouder of our teams for the discipline and excellence which they continue to deliver. With that, I will turn it over to Andrew to cover revenues and operational performance.

Speaker #3: That said, we do know two things. Fuel prices are much higher, and if that is sustained, it will require higher ticket prices to offset that increase in fuel.

Speaker #3: And with that, I will turn it over to Andrew to cover revenues and operational performance.

Speaker #4: Thanks, Bob. The first quarter was an important one for our operation. As our teams delivered industry-leading reliability, while executing a significant amount of change, across the airline.

Speaker #3: Given the ongoing macroeconomic uncertainty, updating our full-year adjusted EPS guide of $4 would not be productive at this time. Achieving this outcome would require lower fuel prices and/or stronger revenue performance to offset higher fuel expense.

Andrew Watterson: Thanks, Bob. The Q1 was an important one for our operation as our teams delivered industry-leading reliability while executing a significant amount of change across the airline. This included the successful implementation of assigned seating and Extra Legroom on 27 January, with the operation ranking first among our peers in on-time performance and completion factor on launch day. Q1 RASM was up 11.2% year over year, well above our guidance of up at least 9.5%, reflecting the contribution from our new product offering as well as broad demand strength across the network. Offering revenue of $7.2 billion was an all-time record for Q1. We also announced adjustments to our network.

Speaker #4: This included the successful implementation of assigned seating and extra legroom on January 27th. With the operation ranking first among our peers and on-time performance and completion factor on launch day.

Speaker #3: We will continue to monitor conditions closely and provide updates to our guidance as appropriate. For the second quarter, we expect EPS in the range of 35 cents to 65 cents using an average fuel price range of $4.10 to $4.15 based on the forward curve as of April the 16th.

Bob Jordan: For Q2, we expect EPS in the range of $0.35 to $0.65, using an average fuel price range of $4.10 to $4.15, based on the forward curve as of 16 April. The EPS guide represents significant expected earnings and margin expansion year over year. In closing, while fuel is an external factor and we were operating in a volatile macro environment, our Q1 results are proof there is strong customer demand for our new products. Our initiatives are working. Our significant core strengths remain, and that combination is producing top of industry margins. I want to say how proud I am of our people. The progress we are seeing across the business is the direct result of the work they do every day, delivering for each other, our customers, and our shareholders.

Speaker #4: Q1 RASM was up 11.2% year over year. Well above our guidance of up at least 9.5%. Reflecting the contribution from our new product offering, as well as broad demand strength across the network.

Andrew Watterson: Q1 RASM was up 11.2% year over year, well above our guidance of up at least 9.5%, reflecting the contribution from our new product offering as well as broad demand strength across the network. Offering revenue of $7.2 billion was an all-time record for Q1. We also announced adjustments to our network.

Speaker #4: Operating revenue of $7.2 billion was an all-time record for first quarter. We also announced adjustments to our network. As Bob mentioned, we announced the suspension of operations at O'Hare and Dulles where we would be consolidating our operation into Chicago, Midway, Reagan National, and Baltimore.

Speaker #3: The EPS guide represents significant expected earnings and margin expansion year over year. In closing, while fuel is an external factor and we were operating in a volatile macro environment, our first quarter results are proof there is strong customer demand for our new products.

Andrew Watterson: As Bob mentioned, we announced the suspension of operations at O'Hare and Dulles, where we'll be consolidating our operation in Chicago Midway, Reagan National, and Baltimore and reallocating capacity to high-performing opportunities. At the same time, we are seeing strong performance in markets where we've added capacity, including San Diego, Orlando, and Nashville. We will continue to evaluate future network and capacity adjustments that we feel will be accretive to our performance. Separately, we are seeing our initiatives resonate with customers, as demonstrated by several examples. We are seeing a meaningful shift in customer purchasing behavior. The mix of customers buying up from our base product increased from approximately 20% in 2025 to roughly 60% in the Q1 of 2026, with ancillary upsell performance also meeting expectations. We're also seeing clear traction with business travelers.

Speaker #4: And Rio Academy of Capacity to higher performing opportunities. At the same time, we are seeing strong performance in markets where we've added capacity, including San Diego, Orlando, and Nashville.

Speaker #3: Our initiatives are working. Our significant core strengths remain, and that combination is producing top-of-industry margins. I want to say how proud I am of our people.

Speaker #4: We will continue to evaluate future network and capacity adjustments that we feel will be accretive to our performance. Separately, we are seeing our initiatives resonate with customers, as demonstrated by several examples.

Speaker #3: The progress we are seeing across the business is the direct result of the work they do every day delivering for each other our customers and our shareholders.

Andrew Watterson: Separately, we are seeing our initiatives resonate with customers, as demonstrated by several examples. We are seeing a meaningful shift in customer purchasing behavior. The mix of customers buying up from our base product increased from approximately 20% in 2025 to roughly 60% in the Q1 of 2026, with ancillary upsell performance also meeting expectations. We're also seeing clear traction with business travelers.

Speaker #3: We are just 18 months removed from announcing our initial transformational initiatives and I could not be prouder of our teams for the discipline, and excellence, which they continue to deliver.

Bob Jordan: We are just 18 months removed from announcing our initial transformational initiatives, and I could not be prouder of our teams for the discipline and excellence with which they continue to deliver. With that, I will turn it over to Andrew to cover revenues and operational performance.

Speaker #4: We have seen a meaningful shift in customer purchasing behavior. The mix of customers buying up from our base product increased from approximately 20% in 2025 to roughly 60% in the first quarter of 2026.

Speaker #3: And with that, I will turn it over to Andrew to cover revenues and operational performance.

Speaker #4: Thanks, Bob. The FIRST QUARTER was an important one for our operation. As our teams delivered industry-leading reliability, while executing a significant amount of change, across the airline.

Andrew Watterson: Thanks, Bob. Q1 was an important one for our operation, as our teams delivered industry-leading reliability while executing a significant amount of change across the airline. This included the successful implementation of assigned seating and extra legroom on 27 January, with the operation ranking first among our peers in on-time performance and completion factor on launch day. Q1 RASM was up 11.2% year over year, well above our guidance of up at least 9.5%, reflecting the contribution from our new product offering, as well as broad demand strength across the network. Operating revenue of $7.2 billion was an all-time record for Q1. We also announced adjustments to our network. As Bob mentioned, we announced the suspension of operations at O'Hare and Dulles, where we'll be consolidating our operations in Chicago Midway, Reagan National, and Baltimore, and reallocating capacity to high-performing opportunities.

Speaker #4: With answering upsell performance also meeting expectations. We're also seeing clear traction with business travelers. Managed corporate revenue increased 16% in the first quarter, and 25% in March, marking the largest quarter and month in our history.

Andrew Watterson: Managed corporate revenue increased 16% in Q1 and 25% in March, marking the largest quarter and month in our history and reinforcing that our enhanced product is resonating with higher-yield customers. At the same time, engagement across our Rapid Rewards program continues to strengthen. Enrollments increased 37% year over year, and the number of customers earning tier status rose 62%, demonstrating both strong acquisition of new customers and deeper loyalty from our existing base. We continue to deliver a safe and reliable operation, improve efficiency across the system, and support the continued evolution of our product offering. Our people have done an outstanding job navigating a period of significant change. I want to thank them for the continued dedication. With that, I'll turn it over to Tom.

Speaker #4: And reinforcing that our enhanced product is resonating with higher yield customers. At the same time, engagement across our rapid rewards program continues to strengthen.

Speaker #4: Enrollments increased 37% year over year. And the number of customers earning tier status rose 62%, demonstrating both strong acquisition of new customers and deeper loyalty from our existing base.

Speaker #4: Operating revenue of $7.2 billion was an all-time record for FIRST QUARTER. We also announced adjustments to our network. As Bob mentioned, we announced the suspension of operations at O'Hare and Dulles where we would be consolidating our operation into Chicago Midway, Reagan National, and Baltimore.

Speaker #4: We continue to deliver a safe and reliable operation. Improve efficiency across the system, and support the continued evolution of our product offering. Our people have done an outstanding job navigating the period of significant change, and I want to thank them for the continued dedication.

Andrew Watterson: We continue to deliver a safe and reliable operation, improve efficiency across the system, and support the continued evolution of our product offering. Our people have done an outstanding job navigating a period of significant change. I want to thank them for the continued dedication. With that, I'll turn it over to Tom.

Speaker #4: And Rio Academy of Capacity to higher performing opportunities. At the same time, we are seeing strong performance in markets where we've added capacity including San Diego, Orlando, and Nashville.

Andrew Watterson: At the same time, we're seeing strong performance in markets where we've added capacity, including San Diego, Orlando, and Nashville. We will continue to evaluate future network and capacity adjustments that we feel will be accretive to our performance. Separately, we are seeing our initiatives resonate with customers, as demonstrated by several examples. We are seeing a meaningful shift in customer purchasing behavior. The mix of customers buying up from our base product increased from approximately 20% in 2025 to roughly 60% in Q1 2026, with ancillary upsell performance also meeting expectations. We're also seeing clear traction with business travelers. Managed corporate revenue increased 16% in Q1 and 25% in March, marking the largest quarter and month in our history, and reinforcing that our enhanced product is resonating with higher yield customers. At the same time, engagement across our Rapid Rewards program continues to strengthen.

Speaker #4: With that, I'll turn it over to Tom.

Speaker #5: Thanks, Andrew. We continue to demonstrate strong cost discipline to start the year, with first quarter CASMX up 2.3% year over year, on a capacity increase of 1.5%, and in spite of a 1.2-point headwind from the removal of six seats on our 737-700 fleet to accommodate new extra legroom seating.

Tom Doxey: Thanks, Andrew. We continue to demonstrate strong cost discipline to start the year, with Q1 CASM-ex up 2.3% year over year on a capacity increase of 1.5% and in spite of a 1.2 point headwind from the removal of 6 seats on our Boeing 737-700 fleet to accommodate new Extra Legroom seating. Fuel prices increased meaningfully during the quarter. We have forecasted a Q1 price per gallon of $2.40 and ended up at $2.73 per gallon, increasing fuel expense by approximately $164 million. In spite of the dramatic increase in fuel cost and other operational headwinds experienced during the quarter, we hit our EPS guide. We also delivered the highest adjusted net margin of the large US airlines during Q1.

Speaker #4: As demonstrated by several examples. We have seen a meaningful shift in customer purchasing behavior. The mix of customers buying up from our base product increased from approximately 20% in 2025 to roughly 60% in the FIRST QUARTER of 2026.

Speaker #5: Fuel prices increased meaningfully during the quarter. We had forecasted a first quarter price per gallon of $2.40 and ended up at $2.73 per gallon, increasing fuel expense by approximately 164 million dollars.

Tom Doxey: We have forecasted a Q1 price per gallon of $2.40 and ended up at $2.73 per gallon, increasing fuel expense by approximately $164 million. In spite of the dramatic increase in fuel cost and other operational headwinds experienced during the quarter, we hit our EPS guide. We also delivered the highest adjusted net margin of the large US airlines during Q1.

Speaker #4: With answering upsell performance also meeting expectations. We are also seeing clear traction with business travelers. Managed corporate revenue increased 16% in the FIRST QUARTER and 25% in March marking the largest quarter and month in our history.

Speaker #4: And reinforcing that our enhanced product is resonating with higher yield customers. At the same time, engagement across our rapid rewards program continues to strengthen.

Speaker #5: With our cost discipline, initiative contribution, revenue strength, and operational excellence allowing us to deliver the margin expansion that Bob outlined earlier. We ended the quarter with 4.8 billion dollars in liquidity and a leverage ratio of 2.2 times.

Tom Doxey: With our cost discipline, initiative contribution, revenue strength, and operational excellence allowing us to deliver the margin expansion that Bob outlined earlier. We ended the quarter with $4.8 billion in liquidity, and a leverage ratio of 2.2 times. Having a strong investment-grade balance sheet and high relative margins within the industry is a key strategic advantage for Southwest, especially during times of industry stress, where our strength creates the opportunity for further separation between Southwest and other airlines. During the quarter, we entered into a $500 million secured term loan facility backed by a small portion of previously unencumbered aircraft, which we used to pay down the final portion of our Payroll Support Program loans, which would have otherwise moved to a higher interest rate in the Q2.

Speaker #4: Enrollments increased 37% year over year, and the number of customers earning tier status rose 62%, demonstrating both strong acquisition of new customers and deeper loyalty from our existing base.

Andrew Watterson: Enrollments increased 37% year over year, and the number of customers earning tier status rose 62%, demonstrating both strong acquisition of new customers and deeper loyalty from our existing base. We continue to deliver a safe and reliable operation, improve efficiency across the system, and support the continued evolution of our product offering. Our people have done an outstanding job navigating a period of significant change. I want to thank them for the continued dedication. With that, I'll turn it over to Tom.

Speaker #5: Having a strong investment-grade balance sheet and high relative margins within the industry is a key strategic advantage for Southwest. Especially during times of industry stress, where our strength creates the opportunity for further separation between Southwest and other airlines.

Speaker #4: We continue to deliver a safe and reliable operation. Improve efficiency across the system and support the continued evolution of our product offering. Our people have done an outstanding job navigating the period of significant change and I want to thank them for the continued dedication.

Speaker #5: During the quarter, we entered into a $500 million secured term loan facility backed by a small portion of previously unencumbered aircraft, which we used to pay down the final portion of our payroll support program loans, which would have otherwise moved to a higher interest rate in the second quarter.

Tom Doxey: During the quarter, we entered into a $500 million secured term loan facility backed by a small portion of previously unencumbered aircraft, which we used to pay down the final portion of our Payroll Support Program loans, which would have otherwise moved to a higher interest rate in the Q2.

Speaker #4: With that, I'll turn it over to Tom.

Speaker #5: Thanks, Andrew. We continue to demonstrate strong cost discipline to start the year with FIRST QUARTER CASAMEX up 2.3% year over year on a capacity increase of 1.5% and in spite of a 1.2-point headwind from the removal of six seats on our 737-700 fleet to accommodate new extra legroom seating.

Tom Doxey: Thanks, Andrew. We continue to demonstrate strong cost discipline to start the year, with Q1 CASM ex up 2.3% year over year on a capacity increase of 1.5%, and in spite of a 1.2 point headwind from the removal of 6 seats on our 737-700 fleet to accommodate new extra legroom seating. Fuel prices increased meaningfully during the quarter. We had forecasted a Q1 price per gallon of $2.40 and ended up at $2.73 per gallon, increasing fuel expense by approximately $164 million. In spite of the dramatic increase in fuel cost and other operational headwinds experienced during the quarter, we hit our EPS guide. We also delivered the highest adjusted net margin of the large US airlines during the Q1, with our cost discipline, initiative contribution, revenue strength, and operational excellence allowing us to deliver the margin expansion that Bob outlined earlier.

Speaker #5: We also returned capital to shareholders through share repurchases of 1.25 billion dollars and 93 million dollars in dividends. We have 450 million dollars remaining in our current share repurchase authorization.

Tom Doxey: We also returned capital to shareholders through share repurchases of $1.25 billion and $93 million in dividends. We have $450 million remaining in our current share repurchase authorization. Looking ahead, our focus remains on managing what we can control, driving efficiency, maintaining disciplined cost management, and investing smartly in our product and operations. We expect Q2 CASM-ex to increase 3.5% to 4% year over year on a capacity increase of 0.5% at the midpoint. Consistent with Bob's comments, based on what we see today, we continue to expect margin expansion and earnings growth in 2026, and we'll continue to be nimble and opportunistic in the way that we manage the business. With that, I'll turn it back to Danielle for Q&A.

Speaker #5: Fuel prices increased meaningfully during the quarter. We had forecasted a FIRST QUARTER price per gallon of $2.40 and ended up at $2.73 per gallon increasing fuel expense by approximately 164 million dollars.

Speaker #5: Looking ahead, our focus remains on managing what we can control, driving efficiency, maintaining disciplined cost management, and investing smartly in our product and operations, we expect second quarter CASMX to increase 3.5% to 4% year over year, on a capacity increase of 0.5% at the midpoint.

Tom Doxey: We expect Q2 CASM-ex to increase 3.5% to 4% year over year on a capacity increase of 0.5% at the midpoint. Consistent with Bob's comments, based on what we see today, we continue to expect margin expansion and earnings growth in 2026, and we'll continue to be nimble and opportunistic in the way that we manage the business. With that, I'll turn it back to Danielle for Q&A.

Speaker #5: In spite of the dramatic increase in fuel cost and other operational headwinds experienced during the quarter, we hit our EPS guide. We also delivered the highest adjusted net margin of the large US airlines during the first quarter, with our cost discipline initiative, contribution, revenue strength, and operational excellence allowing us to deliver the margin expansion that Bob outlined earlier.

Speaker #5: Consistent with Bob's comments, based on what we see today, we continue to expect margin expansion and earnings growth in 2026. And we'll continue to be nimble and opportunistic in the way that we manage the business.

Speaker #5: And with that, I'll turn it back to Danielle for Q&A.

Speaker #5: We ended the quarter with 4.8 billion dollars in liquidity and a leverage ratio of 2.2 times. Having a strong investment-grade balance sheet and high relative margins within the industry is a key strategic advantage for SW.

Tom Doxey: We ended the quarter with $4.8 billion in liquidity and a leverage ratio of 2.2 times. Having a strong investment-grade balance sheet and high relative margins within the industry is a key strategic advantage for Southwest, especially during times of industry stress, where our strength creates the opportunity for further separation between Southwest and other airlines. During the quarter, we entered into a $500 million secured term loan facility backed by a small portion of previously unencumbered aircraft, which we used to pay down the final portion of our Payroll Support Program loans, which would have otherwise moved to a higher interest rate in Q2. We also returned capital to shareholders through share repurchases of $1.25 billion and $93 million in dividends. We have $450 million remaining in our current share repurchase authorization.

Speaker #1: Thank you, Tom. This concludes our prepared remarks. We will now open the line for analyst questions. To help us manage time efficiently, we ask that you please ask your one or two questions back-to-back at the onset.

Danielle Collins: Thank you, Tom. This concludes our prepared remarks. We will now open the line for analyst questions. To help us manage time efficiently, we ask that you please ask your one or two questions back to back at the onset.

Speaker #5: Especially during times of industry stress where our strength creates the opportunity for further separation between SW and other airlines. During the quarter, we entered into a $500 million secured term loan facility backed by a small portion of previously unencumbered aircraft which we used to pay down the final portion of our payroll support program loans which would have otherwise moved to a higher interest rate in the second quarter.

Speaker #6: Thank you, Danielle. Again, to ask a question, press star, then one. To withdraw your interest, press star, and then two. If you are on a speakerphone today, please pick up your handset before pressing any keys.

Operator: Thank you, Danielle. To ask a question, press star, then one. To withdraw your interest, press star and then two. The first question will come from Michael Linenberg with Deutsche Bank. Please go ahead.

Speaker #6: And the first question will come from Mike Lindenberg with Deutsche Bank. Please go ahead.

Speaker #7: Oh, yeah. Hey, Mike, two questions here just Andrew, the upsell out of the bottom bucket from 20 to 60 percent. Do you have a sense of what that average increase in fare is going from that 20 to 60 percent?

Michael Linenberg: Yeah. Hey, my two questions here, just Andrew, the upsell out of the bottom bucket from 20% to 60%, do you have a sense of what that average increase in fare is going from that 20% to 60%? My second question to Bob, you know, just thoughts about potentially competing against the government-controlled or government-owned carrier. I mean, whether it's sound industrial policy or not. I'll let you mull that one over. Thanks for taking my questions.

Speaker #7: And then just my second question to Bob, just thoughts about potentially competing against the government-controlled or government-owned carrier. I mean, whether it's sound industrial policy or not.

Speaker #5: Looking ahead, our focus remains on managing what we can control, driving efficiency, maintaining disciplined cost management, and investing smartly in our product and operations. We expect second quarter CASAMEX to increase 3.5% to 4% year over year on a capacity increase of 0.5% at the midpoint.

Tom Doxey: Looking ahead, our focus remains on managing what we can control, driving efficiency, maintaining disciplined cost management, and investing smartly in our product and operations. We expect Q2 CASM-ex to increase 3.5% to 4% year-over-year on a capacity increase of 0.5% at the midpoint. Consistent with Bob's comments, based on what we see today, we continue to expect margin expansion and earnings growth in 2026.

Speaker #7: So I'll let you mull that one over. Thanks. For taking my question.

Speaker #8: Yeah. Thanks. It's Andrew, so I'll start with the first one. I'm not going to break down it kind of fare product by fare product, but I will say that obviously we had an 11.6% yield increase year over year.

Andrew Watterson: Thanks. It's Andrew, I'll start with the first one. I'm not gonna break down it, kind of fare product by fare product, I will say that, you know, obviously we had an 11.6% yield increase year over year and at least half of that came from people voluntarily deciding to pay more, by buying up. We have kind of secular, yield trends going on, we have people voluntarily buying up, which creates the extra yield boost. Net-net, we're super pleased with it.

Speaker #8: And at least half of that came from people volunteeringly decided to pay more by buying up. So we have kind of secular yield trends going on, and then we have people voluntarily buying up, which creates the extra yield boost.

Speaker #5: Consistent with Bob's comments, based on what we see today, we continue to expect margin expansion and earnings growth in 2026 and we'll continue to be nimble and opportunistic in the way that we manage the business.

Andrew Watterson: We'll continue to be nimble and opportunistic in the way that we manage the business. With that, I'll turn it back to Danielle for Q&A.

Tom Doxey: We'll continue to be nimble and opportunistic in the way that we manage the business. With that, I'll turn it back to Danielle for Q&A.

Speaker #8: And so net-net, we're super pleased with it.

Speaker #5: And with that, I'll turn it back to Danielle for Q&A.

Speaker #1: Thank you, Tom. This concludes our Prepare Remarks. We will now open the line for analyst questions. To help us manage time efficiently, we ask that you please ask your one or two questions back-to-back at the onset.

Speaker #9: In my case, Bob, and on the second, yeah, with Spirit, I mean, it's a tough situation. You've got a lot of people that are affected but it's a tough industry.

Bob Jordan: In my case, Bob, you know, with Spirit Airlines, I mean, it's a tough situation. You got a lot of people that are affected, but it's a tough industry. I mean, things come around. You know, I've been here 38 years. You have wars, you have fuel spikes, you have economic issues, recessions, you got to be prepared for the long term as a business because the shocks are gonna happen. That's why we've created a very resilient business here at Southwest Airlines to prepare for those things. On competition, we're focused on improving ourselves and competing with the top of the industry. It's showing in the results. If you look at Q1, you got an 8-point margin expansion year-over-year.

Speaker #9: I mean, things come around. I've been here 38 years. You have wars. You have fuel spikes. You have economic issues, recessions, and you've got to be prepared for the long term as a business because the shocks are going to happen.

Operator: Thank you, Danielle. Again, to ask a question, press star, then one. To withdraw your interest, press star, and then two. If you are on a speaker phone today, please pick up your handset before pressing any keys. The first question will come from Mike Linenberg with Deutsche Bank. Please go ahead.

Speaker #9: And that's why we've created a very resilient business here at Southwest Airlines to prepare for those things. On competition, we're focused on improving ourselves and competing with the top of the industry.

Bob Jordan: That's why we've created a very resilient business here at Southwest Airlines to prepare for those things. On competition, we're focused on improving ourselves and competing with the top of the industry. It's showing in the results. If you look at Q1, you got an eight point margin expansion year-over-year.

Speaker #6: And the first question will come from Mike Lindenberg with Deutsche Bank. Please go ahead.

Speaker #7: Oh, yeah. Hey, Mike, two questions here. Just, Andrew, the upsell out of the bottom bucket from 20 to 60 percent—do you have a sense of what that average increase in fare is going from that 20 to 60 percent?

Mike Linenberg: Yeah. Hey, Mike. Two questions here. Just, Andrew, the upsell out of the bottom bucket from 20% to 60%. Do you have a sense of what that average increase in fare is going from that 20% to 60%? And then just my second question to Bob, just thoughts about potentially competing against the government-controlled or government-owned carrier. I mean, whether it's sound industrial policy or not. I'll let you mull that one over. Thanks for taking my questions.

Michael Linenberg: Yeah. Hey, Mike. Two questions here. Just, Andrew, the upsell out of the bottom bucket from 20% to 60%. Do you have a sense of what that average increase in fare is going from that 20% to 60%? And then just my second question to Bob, just thoughts about potentially competing against the government-controlled or government-owned carrier. I mean, whether it's sound industrial policy or not. I'll let you mull that one over. Thanks for taking my questions.

Speaker #9: And it's showing in the results. If you look at the first quarter, you've got an 8-point margin expansion year over year. Our net margin is going to be the best amongst the large US carriers.

Bob Jordan: Our net margin is going to be the best amongst the large US carriers. If you look at the Q2 guide and the spread between our unit revenues and our unit cost is a 14-point expansion. We're focused on building a resilient business, continuing to optimize from the transformation. Our customers love the products, and that is where all of our focus is.

Speaker #7: And then just, my second question to Bob—you know, just thoughts about potentially competing against the government-controlled or government-owned carrier. I mean, whether it's sound industrial policy or not.

Speaker #9: You look at the second quarter guide, and the spread between our unit revenues and our unit cost is a 14-point expansion. So we're focused on building a resilient business, continuing to optimize from the transformation.

Speaker #7: So I'll let you mold that one over. Thanks for taking my question.

Speaker #9: Our customers love the products. And that is where all of our focus is.

Speaker #8: Yeah. Thanks. It's Andrew, so I'll start with the first one. I'm not going to break down it, kind of a fair product-by-fair product, but I will say that, you know, obviously we had an 11.6% yield increase year over year.

Andrew Watterson: Yeah, thanks. It's Andrew, so I'll start with the first one. I'm not going to break it down by fare product by fare product. I will say that, obviously we had an 11.6% yield increase year-over-year, and at least half of that came from people voluntarily deciding to pay more by buying up. We have kind of secular yield trends going on, and then we have people voluntarily buying up, which creates the extra yield boost. Net-net, we're super pleased with it.

Speaker #6: The next question will come from Jamie Baker with JP Morgan. Please go ahead.

Operator: The next question will come from Jamie Baker with J.P. Morgan. Please go ahead.

Speaker #10: Oh, good morning, everybody. A couple for Tom. So the first question has to do with the second quarter. Razom guide. I realize you hadn't previously given us succinct guide, nor had your competitors.

Jamie Baker: Good morning, everybody. The first question has to do with the Q2 RASM guide. I realize you hadn't, you know, previously given a succinct guide, nor had your competitors, but, you know, there was enough info out there that, you know, we all kind of back then how the Q2 was looking before the start of the war, and that's my question. Since the war's start, we've seen several points of Q2 RASM improvement at your competitors, but your Q2 guide seems kind of in line with what we were thinking before the war. Maybe, you know, we just got lucky, but for the sake of investors on the call, can you tell us how many points of RASM improvement went into this Q2 outlook as fares began to rise?

Speaker #8: And at least half of that came from people voluntarily deciding to pay more by buying up. And so we have kind of secular yield trends going on.

Speaker #10: But there was enough info out there that we all kind of backed in how the second quarter was looking before the start of the war.

Speaker #8: And then we have people voluntarily buying up, which creates the extra yield boost. And so, net-net, we're super pleased with it.

Speaker #10: And that's my question. Since the war's start, we've seen several points of second quarter Razom improvement at your competitors, but your second quarter guide seems kind of in line with what we were thinking before the war, maybe we just got lucky.

Jamie Baker: Since the war's start, we've seen several points of Q2 RASM improvement at your competitors, but your Q2 guide seems kind of in line with what we were thinking before the war. Maybe, you know, we just got lucky, but for the sake of investors on the call, can you tell us how many points of RASM improvement went into this Q2 outlook as fares began to rise?

Speaker #9: In my case, Bob, and on the second, you know, yeah, it's with spirit. I mean, it's a tough situation. You've got a lot of people that are affected, but it's a tough industry.

Bob Jordan: In my case, Bob, and on the second, yeah, with Spirit, I mean, it's a tough situation. You got a lot of people that are affected. It's a tough industry. I mean, things come around. I've been here 38 years. You have wars, you have fuel spikes, you have economic issues, recessions, and you got to be prepared for the long term as a business because the shocks are gonna happen. That's why we've created a very resilient business here at Southwest Airlines to prepare for those things. On competition, we're focused on improving ourselves and competing with the top of the industry. It's showing in the results. If you look at Q1, you've got an 8-point margin expansion year-over-year. Our net margin is going to be the best among the large US carriers.

Speaker #9: I mean, things come around. You, you know, I've been here 38 years. You have, you have wars. You have fuel spikes. You have economic issues, recessions, and you got to be prepared for the long term as a business because the shocks are going to happen.

Speaker #10: But for the sake of investors on the call, can you tell us how many points of Razom improvement went into this second quarter outlook as far as began to rise?

Speaker #9: And, that's why we've created a very resilient business here at SW Airlines to prepare for those things. On competition, we're focused on improving ourselves and competing with top-of-the-industry.

Speaker #10: And then second, still considerable consternation around the air traffic liability. It's flat year on year. I know there were some language in last night's 10Q.

Jamie Baker: Second, still considerable consternation around the air traffic liability. It's flat year on year. I know there was some language in last night's 10-Q. Maybe the way to clear this up would be and I don't know if you have this at your fingertips, but under the old methodology, what would the ATL have been at the end of Q1? I'm asking because, you know, squaring a flat ATL with such strong revenue, you know, growth is, well, it's difficult for me, and we continue to take a lot of questions on it. Thank you.

Speaker #10: Maybe the way to clear this up would be and I don't know if you have this at your fingertips, but under the old methodology what would the ATL have been at the end of the first quarter?

Speaker #9: And, it's showing in the results. If you look at the first quarter, you got an eight-point margin expansion year over year. Our net margin is going to be the best amongst the large US carriers.

Speaker #10: I'm asking because squaring a flat ATL with such strong revenue growth is well, it's difficult for me, and we continue to take a lot of questions on it.

Speaker #9: You look at the second quarter guide, and the spread between our, unit revenues and our unit cost is a 14-point expansion. So we're focused on building a resilient, business, continuing to optimize from the transformation.

Bob Jordan: If you look at the Q2 guide and the spread between our unit revenues and our unit cost is a 14-point expansion. We're focused on building a resilient business, continuing to optimize from the transformation. Our customers love the products, and that is where all of our focus is.

Speaker #10: Thank you.

Speaker #8: Hey, Jamie. It's Andrew. Tom was giving me the first one. He'll take the second one. The Razom guide is us looking at our current trends, which have accelerated, and projecting that forward.

Bob Jordan: Hey, Jamie, it's Andrew. Tom will give me the first one, and he'll take the second one. The RASM guide is us looking at our current trends, which, you know, have accelerated, and projecting that forward. I know many airlines were talking about fuel recapture and making assumptions about fuel recapture. I think that's sort of a dangerous game. We are taking our current trends, which are very strong. We have even stronger yield traction than we did in Q1, once again with stable volumes. We're taking that and pushing it forward. If there were an acceleration in the environment from today, then there would be upside to that. We'd rather just take the current trends and project that forward to get a good center cut RASM guide.

Andrew Watterson: Hey, Jamie, it's Andrew. Tom will give me the first one, and he'll take the second one. The RASM guide is us looking at our current trends, which, you know, have accelerated, and projecting that forward. I know many airlines were talking about fuel recapture and making assumptions about fuel recapture. I think that's sort of a dangerous game.

Speaker #9: Our customers love the products. And that is where all of our focus is.

Speaker #8: I know many airlines were talking about fuel recapture and making assumptions about fuel recapture. I think that's sort of a dangerous game. We are taking our current trends, which are very strong, we have even stronger yield traction than we did in Q1, once again with stable volumes.

Speaker #6: The next question will come from Jamie Baker with JP Morgan. Please go ahead.

Operator: The next question will come from Jamie Baker with JP Morgan. Please go ahead.

Operator: The next question will come from Jamie Baker with JPMorgan. Please go ahead.

Speaker #10: Oh, good morning, everybody. A couple for Tom. So, the first question has to do with the second quarter. Razom guide, I realize you hadn't, you know, previously given us succinct guide, nor had your competitors.

Jamie Baker: Well, good morning, everybody. A couple for Tom. The first question has to do with the Q2 RASM guide. I realize you hadn't previously given a succinct guide, nor had your competitors, but there was enough info out there that we all kind of back into how the Q2 was looking before the start of the war, and that's my question. Since the war's start, we've seen several points of Q2 RASM improvement at your competitors, but your Q2 guide seems kind of in line with what we were thinking before the war. Maybe we just got lucky, but for the sake of investors on the call, can you tell us how many points of RASM improvement went into this Q2 outlook as fares began to rise? Then second, still considerable consternation around the air traffic liability. It's flat year-on-year.

Andrew Watterson: We are taking our current trends, which are very strong. We have even stronger yield traction than we did in Q1, once again with stable volumes. We're taking that and pushing it forward. If there were an acceleration in the environment from today, then there would be upside to that. We'd rather just take the current trends and project that forward to get a good center cut RASM guide.

Speaker #8: We're taking that and pushing it forward. If there were an acceleration in the environment from today, then there would be upside to that. But we'd rather just take the current trends and project that forward to get a good center cut Razom guide.

Speaker #10: But, you know, there was enough info out there that, you know, we all kind of backed in how the second quarter was looking before the start of the war.

Speaker #5: Yeah. Jamie, on the ATLs, talking about old versus new methodology, we're not going to get into the detail of exactly what the different percentages are and how they allocate between the different buckets.

Tom Doxey: Yeah, Jamie, on the ATLs, you know, talking about old versus new methodology, you know, we're not gonna get into the detail of, you know, exactly what the different percentages are and how they allocate between the different buckets. What we've talked about is that what we've moved toward, as we have this new agreement with JPMorgan Chase, is very much industry standard. It's very much where a lot of our peers are in the way that we either bank into ATL loyalty revenue or recognize it in one of the revenue categories. I think as you look at ATLs just generally, there's nothing unusual to note. You look at the sequential trends, you look how it compares to, you know, other carriers, there's nothing unusual to note in what those trends are.

Speaker #5: What we've talked about is that what we've moved toward as we have this new agreement with Chase is very much industry standard. It's very much where a lot of our peers are, in the way that we either bank into ATL loyalty revenue or recognize it in one of the revenue categories.

Speaker #10: But for the sake of investors on the call, can you tell us how many points of Razom improvement went into this second quarter outlook as far as began to rise?

Tom Doxey: It's very much where a lot of our peers are in the way that we either bank into ATL loyalty revenue or recognize it in one of the revenue categories. I think as you look at ATLs just generally, there's nothing unusual to note. You look at the sequential trends, you look how it compares to, you know, other carriers, there's nothing unusual to note in what those trends are.

Speaker #10: And then second, still considerable consternation around the air traffic liability. It's flat year on year. I know there were some language in last night's 10Q.

Jamie Baker: I know there was some language in last night's 10-Q. Maybe the way to clear this up would be, and I don't know if you have this at your fingertips, but under the old methodology, what would the ATL have been at the end of Q1? I'm asking because squaring a flat ATL with such strong revenue growth is, well, it's difficult.

Speaker #5: And I think as you look at ATLs just generally, there's nothing unusual to note. You look at the sequential trends. You look how it compares to other carriers.

Speaker #5: There's nothing unusual to note in what those trends are.

Speaker #10: I'm asking because squaring a flat ATL with such strong revenue, you know, growth is well, it's difficult.

Speaker #6: The next question will come from Connor Cunningham with Melius Research. Please go ahead.

Operator: The next question will come from Conor Cunningham with Melius Research. Please go ahead.

Conor Cunningham: Thank you, guys. Maybe following up on that response to Jamie's first question, just why is it a dangerous game to assume some sort of fuel recapture throughout the remainder of your. Is it that you're fearful of demand destruction? It's just I think there's a big debate on how straightforward, like, recapture is in general. If you could just talk about that. Tom, the capital allocation decision, you know, clearly things are changing a fair bit. You know, your free cash flow profile probably took a step back with the rise in fuel. Just trying to understand, you know, the buyback going forward from here. You bought back a lot in Q1. Your leverage has gone up a little bit.

Speaker #11: Thank you, guys. Maybe following up on that response to Jamie's first question, just why is it a dangerous game to assume some sort of fuel recapture throughout the remainder of the year?

Speaker #8: The, Razom guide is us, looking at our current trends, which, you know, have accelerated and projecting that forward. I know many airlines were talking about fuel recapture and making assumptions about fuel recapture.

Andrew Watterson: The RASM guide is us looking at our current trends, which have accelerated, and projecting that forward. I know many airlines were talking about fuel recapture and making assumptions about fuel recapture. I think that's sort of a dangerous game. We are taking our current trends, which are very strong. We have even stronger yield traction than we did in Q1, once again, with stable volumes. We're taking that and pushing it forward. If there were an acceleration in the environment from today, then there would be upside to that. We'd rather just take the current trends and project that forward to get a good center cut RASM guide.

Speaker #11: Is it that you're fearful of demand destruction? I think there's a big debate on just how straightforward recapture is in general. So if you could just talk about that.

Speaker #8: I think we're that's sort of a dangerous game. We are taking our current trends, which are very strong, we have even stronger yield traction than we did in Q1, once again with stable volumes.

Conor Cunningham: If you could just talk about that. Tom, the capital allocation decision, you know, clearly things are changing a fair bit. You know, your free cash flow profile probably took a step back with the rise in fuel. Just trying to understand, you know, the buyback going forward from here. You bought back a lot in Q1. Your leverage has gone up a little bit. You've talked about that. If you could just, you know, frame up the changes in how you think about capital allocation. Thank you.

Speaker #11: And then Tom, the capital allocation decision, clearly things are changing a fair bit. Your free cash flow profile probably took a step back with the rising fuel.

Speaker #11: So just trying to understand the buyback going forward from here. You bought back a lot in the first quarter. Your leverage has gone up a little bit.

Speaker #5: Yeah. Jamie, on the ATLs, you know, talking about old versus new methodology, you know, we're not going to get into the detail of, you know, exactly what the different percentages are and how they allocate between the different buckets.

Tom Doxey: Yeah, Jamie, on the ATLs, talking about old versus new methodology, we're not going to get into the detail of exactly what the different percentages are and how they allocate between the different buckets. What we've talked about is that what we've moved toward, as we have this new agreement with Chase, is very much industry standard. It's very much where a lot of our peers are in the way that we either book into ATL loyalty revenue or recognize it in one of the revenue categories. I think as you look at ATLs just generally, there's nothing unusual to note. You look at the sequential trends, you look how it compares to other carriers. There's nothing unusual to note in what those trends are.

Speaker #11: You've talked about that. But if you could just frame up the changes in how you think about capital allocation. Thank you.

Conor Cunningham: You've talked about that. If you could just, you know, frame up the changes in how you think about capital allocation. Thank you.

Speaker #5: What we've talked about is that what we've moved toward as we have this new agreement with Chase, is very much industry standard. It's very much where a lot of our peers are, in the way that we, either bank into ATL loyalty revenue, or recognize it in one of the revenue categories.

Speaker #9: All right. Thanks, Bob. I'll take the first and then Tom will take the second. Just on the fair environment generally, certainly we've seen a willingness to move fares along.

Bob Jordan: Conor, hey, thanks, Bob. I'll take the first, and then Tom will take the second. Just on the fare environment generally, certainly, you know, we've seen a willingness to move fares along. You know, there's been constructive pricing behavior. At the end of the day, this quote, "percent of fuel recovery," which is really what you would put on top of your trend, it's gonna be dictated by market conditions, not by some academic formula or target of calculated recovery. We're, you know, based on that, we believe what is most fair is to put current trends in because you cannot predict at what point consumers and demand is going to be, you're gonna begin to see demand destruction based on the pricing environment. We've run current trends through.

Speaker #9: There's been constructive pricing behavior. But at the end of the day, this quote percent of fuel recovery, which is really what you would put on top of your trend, it's going to be dictated by market conditions, not by some academic formula or target of calculated recovery.

Speaker #5: And I think as you look at ATLs just generally, there's nothing unusual to note. You look at the sequential trends. You look how it compares to, you know, other carriers.

Speaker #9: So based on that, we believe what is most fair is to put current trends in because you cannot predict at what point consumers and demand is going to be you're going to begin to see demand destruction based on the pricing environment.

Bob Jordan: We're, you know, based on that, we believe what is most fair is to put current trends in because you cannot predict at what point consumers and demand is going to be, you're gonna begin to see demand destruction based on the pricing environment. We've run current trends through. If we see upsides to that, then that's upside to our guide. You know, bottom line, we're focused on what we can control.

Speaker #5: there's nothing unusual to note in what those trends are.

Speaker #6: The next question will come from Connor Cunningham with Amelius Research. Please go ahead.

Operator: The next question will come from Conor Cunningham with Melius Research. Please go ahead.

Speaker #10: Thank you, guys. Maybe following up on that response to Jamie's first question—just, why is it a dangerous game to assume some sort of fuel recapture throughout the remainder of the year?

Speaker #9: So we've run current trends through. We see upside to that, then that's upside to our guide. And bottom line, we're focused on what we can control.

Bob Jordan: If we see upsides to that, then that's upside to our guide. You know, bottom line, we're focused on what we can control. We're taking actions against pricing, like the bag fee increase. We're taking actions, obviously, along the broader pricing front. We have made some close-in demand shaping reductions to capacity. We already had low capacity in place for the year. We're taking actions against the things that we can control, aggressive cost discipline, and the fare environment will ultimately play out based on market conditions.

Speaker #10: Is it that you're fearful of demand destruction? It's just, I think there's a big debate on just how straightforward recapture is in general.

Speaker #9: We're taking actions against pricing like the bag fee increase. We're taking actions, obviously, along the broader pricing front. We have made some close-in demand shaping reductions to capacity.

Bob Jordan: We're taking actions against pricing, like the bag fee increase. We're taking actions, obviously, along the broader pricing front. We have made some close-in demand shaping reductions to capacity. We already had low capacity in place for the year. We're taking actions against the things that we can control, aggressive cost discipline, and the fare environment will ultimately play out based on market conditions.

Conor Cunningham: ... on how straightforward like recapture is in general. If you could just talk about that. Tom, the capital allocation decision, clearly things are changing a fair bit. Your free cash flow profile probably took a step back with the rise in fuel. Just trying to understand the buyback going forward from here. You bought back a lot in Q1. Your leverage has gone up a little bit, you've talked about that. If you could just frame up the changes in how you think about capital allocation. Thank you.

Speaker #10: So if you could just talk about that. And then Tom, the capital allocation decision, you know, clearly things are changing a fair bit. you know, your free cash flow profile probably took a step back with the rising fuel.

Speaker #9: We already had low-capacity in place for the year. So we're taking actions against the things that we can control: aggressive cost discipline, and the fair environment will ultimately play out based on market conditions.

Speaker #10: So just trying to understand, you know, the buyback, going forward from here. You bought back a lot in the first quarter. your leverage has gone up a little bit.

Speaker #10: You've talked about that. But if you could just, you know, frame up the changes in how you think about capital allocation. Thank you.

Speaker #5: And Connor, on capital allocation, as we mentioned in the prepared remarks, having a strong and efficient investment-grade balance sheet is a key differentiator. You hear others talk about their desire to get their the fact that we're there gives us the ability to, of course, borrow at lower rates and as we think about how we move forward and just how we navigate, it's all about staying within the guardrails that keep us there.

Tom Doxey: Conor, on capital allocation, as we mentioned in the prepared remarks, having a strong and efficient investment-grade balance sheet is a key differentiator. You hear others talk about their desire to get there. The fact that we're there, gives us the ability, of course, to, you know, borrow at lower rates. As we think about how we move forward and just how we navigate, it's all about staying within the guardrails that keep us there. We've been very consistent about what those guardrails are about liquidity. You see where we are relative to that this quarter. Then we've actually floated down on the debt ratio in spite of being in a, I think, a more challenging environment.

Speaker #9: Connor, hey, thanks, Bob. I'll take the first, and then Tom will take the second. just on the fair environment generally, certainly, you know, we've seen a willingness to move fares along.

Bob Jordan: Conor, hey, thanks, Bob. I'll take the first, and then Tom will take the second. Just on the fare environment generally, certainly, we've seen a willingness to move fares along. There's been constructive pricing behavior. At the end of the day, this quote, "Percent of fuel recovery," which is really what you would put on top of your trend, it's going to be dictated by market conditions, not by some academic formula or target of calculated recovery. Based on that, we believe what is most fair is to put current trends in because you cannot predict at what point you're going to begin to see demand destruction based on the pricing environment. We've run current trends through. If we see upside to that, then that's upside to our guide. Bottom line, we're focused on what we can control.

Speaker #9: you know, there's been constructive pricing behavior. But at the end of the day, this quote percent of fuel recovery, which is really what you would put on top of your trend, it's going to be dictated by market conditions, not by some academic formula or target of calculated recovery.

Tom Doxey: As we think about how we move forward and just how we navigate, it's all about staying within the guardrails that keep us there. We've been very consistent about what those guardrails are about liquidity. You see where we are relative to that this quarter. Then we've actually floated down on the debt ratio in spite of being in a, I think, a more challenging environment.

Speaker #5: And we've been very consistent about what those guardrails are about liquidity. You see where we are relative to that this quarter. And then we've actually floated down on the debt ratio in spite of being in, I think, a more challenging environment as the business and the EBITDA generation that has occurred in the business has improved.

Speaker #9: So, you know, so based on that, we believe what is most fair is to put current trends in, because you cannot predict at what point consumers and demand is—you're going to begin to see demand destruction based on the pricing environment.

Tom Doxey: As the business and the EBITDAR generation that has occurred in the business has improved, we've actually floated down on that debt ratio. Maybe just as a side note, that debt ratio is a gross debt to EBITDAR ratio, so it's, I think, even compared to some of the others out there, you know, a very conservative way to look at it. As it relates to share buybacks, it's always going to come back to staying within those guardrails. You know, we don't know exactly what's ahead, but we've seen incremental cash generation from the business versus where we were before in spite of today's environment. You know, we'll just follow that and stay within our guardrails.

Speaker #5: We've actually floated down on that debt ratio. And maybe just as a side note, that debt ratio is a gross debt EBITDA ratio. And so it's, I think, even compared to some of the others out there very conservative way to look at it.

Speaker #9: So we've run current trends through. If we see upside to that, then that's upside to our guide. And, you know, bottom line, we're focused on what we can control.

Speaker #5: So as it relates to share buybacks, it's always going to come back to staying within those guardrails. And we don't know exactly what's ahead, but we've seen incremental cash generation from the business.

Tom Doxey: As it relates to share buybacks, it's always going to come back to staying within those guardrails. You know, we don't know exactly what's ahead, but we've seen incremental cash generation from the business versus where we were before in spite of today's environment. You know, we'll just follow that and stay within our guardrails.

Speaker #5: Versus where we were before, in spite of today's environment and we'll just follow that and stay within our guardrails.

Speaker #9: We already had low capacity in place, for the year. So we're taking actions against the things that we can control: aggressive cost discipline, and the fair environment, will ultimately play out based on market conditions.

Speaker #6: The next question will come from Catherine O'Brien with Goldman Sachs. Please go ahead.

Operator: The next question will come from Catherine O'Brien with Goldman Sachs. Please go ahead.

Speaker #12: Hey, good morning, everyone. Thanks so much for the time. So my first question really that's hard to tease apart the macro from the initiatives, hence the move to EPS guidance.

Catherine O'Brien: Hey, good morning, everyone. Thanks so much for the time. My first question, really just hard to tease apart the macro from the initiatives, hence the move to EPS guidance. There were a couple of things you thought could drive upside to your EPS outlook in January, including a step-up in close in Extra Legroom purchases from corporate travelers and potential market share gains. Can you update us on those efforts specifically, how they've been going versus your initial plan? Second, a related question and a bit of a follow-up to Mike's, great to see the big step up in buy-up in Q1 puts the launch of your new seating products. Can you just break down how much of that is cash sales, loyalty points being redeemed, and credit card perks? Thanks so much for the time.

Speaker #5: And, Connor, on capital allocation, as we mentioned in the prepared remarks, having a strong and efficient investment-grade balance sheet is a key differentiator. You hear others talk about their desire to get there—the fact that we're there gives us the ability to, of course, borrow at lower rates. And as we think about how we move forward and just how we navigate, it's all about staying within the guardrails that keep us there.

Tom Doxey: Conor, on capital allocation, as we mentioned in the prepared remarks, having a strong and efficient investment-grade balance sheet is a key differentiator. You hear others talk about their desire to get there. The fact that we're there gives us the ability, of course, to borrow at lower rates. As we think about how we move forward and just how we navigate, it's all about staying within the guardrails that keep us there. We've been very consistent about what those guardrails are, about liquidity. You see where we are relative to that this quarter. Then we've actually floated down on the debt ratio in spite of being in, I think, a more challenging environment as the business and the EBITDA generation that has occurred in the business has improved. We've actually floated down on that debt ratio.

Speaker #12: But there were a couple of things you thought could drive upside to your EPS outlook in January, including a step up in close-in extra legroom purchases from corporate travelers and potential market share gains.

Speaker #12: Can you update us on those efforts specifically, how they've been going versus your initial plan? And then second, a related question and a bit of a follow-up to Mike's, great to see the big step up in buyup in one queue puts the launch of your new seating products.

Catherine O'Brien: Can you update us on those efforts specifically, how they've been going versus your initial plan? Second, a related question and a bit of a follow-up to Mike's, great to see the big step up in buy-up in Q1 puts the launch of your new seating products. Can you just break down how much of that is cash sales, loyalty points being redeemed, and credit card perks? Thanks so much for the time.

Speaker #12: Can you just break down how much of that is cash sales, loyalty points being redeemed, and credit card perks? Thanks so much for the time.

Speaker #5: And we've been, very consistent about what those guardrails are about liquidity. You see where we are relative to that this quarter. and then we've actually floated down on the debt ratio in spite of being in, I think, a more challenging environment as the business in the EBITDA generation that has occurred in the business has improved.

Bob Jordan: The corporate we gave in our prepared remarks, the corporate numbers have responded. You saw that they were back weighted to March. Once the assigned seating and Extra Legroom went in place, we saw an uptick both from current customers, but also new customers. We're seeing an acceleration of new unique customers in our corporate channels, which indicates, you know, a kind of desire now to fly Southwest Airlines. Well, also within the same existing network of accounts, we've seen buy-ups at the higher fares as corporate policy allows them to buy up. Those numbers we quoted are indicative of the consumers behaving like we anticipated.

Andrew Watterson: The corporate we gave in our prepared remarks, the corporate numbers have responded. You saw that they were back weighted to March. Once the assigned seating and Extra Legroom went in place, we saw an uptick both from current customers, but also new customers.

Speaker #13: So the corporates, we gave in our prepared remarks, the corporate numbers have responded. You saw that they were back weighted to March. So once the assigned seating and extra legroom went in place, we saw an uptick both from current customers, but also new customers.

Tom Doxey: Maybe just as a side note, that debt ratio is a gross debt to EBITDA ratio, and so it's, I think, even compared to some of the others out there, a very conservative way to look at it. As it relates to share buybacks, it's always going to come back to staying within those guardrails. We don't know exactly what's ahead, but we've seen incremental cash generation from the business, versus where we were before, in spite of today's environment. We'll just follow that and stay within our guardrails.

Speaker #13: So we're seeing an acceleration of new unique customers in our corporate channels. Which indicates a kind of desire now to fly Southwest Airlines and also within the same existing network of accounts, we've seen buyup to the higher fares as corporate policy allows them to buyup.

Andrew Watterson: We're seeing an acceleration of new unique customers in our corporate channels, which indicates, you know, a kind of desire now to fly Southwest Airlines. Well, also within the same existing network of accounts, we've seen buy-ups at the higher fares as corporate policy allows them to buy up. Those numbers we quoted are indicative of the consumers behaving like we anticipated.

Speaker #5: So as it relates to share buybacks, it's always going to come back to staying within those guardrails. And, you know, we don't know exactly what's ahead, but we've seen incremental cash generation from the business, versus where we were before.

Speaker #13: So those numbers we quoted are indicative of the consumer behaving like we anticipated. And as far as the redemptions, I think cash has accelerated more than redemptions on the fare products, which is consistent with what we wanted to do.

Bob Jordan: As far as the redemptions, I think cash has accelerated more than redemptions on the fare products, which is consistent with what we wanted to do. We went to more variable burn in our earning, excuse me, on our Rapid Rewards last year. That tends to, on the best flights, push your redemption mix down and your cash mix up.

Andrew Watterson: As far as the redemptions, I think cash has accelerated more than redemptions on the fare products, which is consistent with what we wanted to do. We went to more variable burn in our earning, excuse me, on our Rapid Rewards last year. That tends to, on the best flights, push your redemption mix down and your cash mix up.

Speaker #5: In spite of today's environment and, you know, we'll just follow that and stay within our guardrails.

Speaker #6: The next question will come from Catherine O'Brien with Goldman Sachs. Please go ahead.

Operator: The next question will come from Catherine O'Brien with Goldman Sachs. Please go ahead.

Speaker #13: We went to more variable burn in our earning excuse me, on our rep rewards last year. And so that tends to, on the best flights, push your redemption mix down and your cash mix up.

Speaker #11: Hey, good morning, everyone. Thanks so much for the time. So, my first question really is that it's hard to tease apart the macro from the initiatives, hence the move to EPS guidance.

Catherine O'Brien: Hey, good morning, everyone. Thanks so much for the time. My first question, really just hard to tease apart the macro from the initiatives, hence the move to EPS guidance. There were a couple of things you thought could drive upside to your EPS outlook in January, including a step up in close-in extra legroom purchases from corporate travelers and potential market share gains. Can you update us on those efforts specifically, how they've been going versus your initial plan? Second, a related question and a bit of a follow-up to Mike's. Great to see the big step up in buy-up in Q1 post the launch of your new seating products. Can you just break down how much of that is cash sales, loyalty points being redeemed, and credit card perks? Thanks so much for the time.

Speaker #11: but there were a couple of things you thought could drive upside to your EPS outlook in January, including a step up in close-in extra legroom purchases from corporate travelers and potential market share gains.

Speaker #6: The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.

Operator: The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker: Good morning, everyone. Maybe just kind of similar but different on the theme of RASM. To the extent possible, if you looked at your earnings for the year ex fuel on both cost and revenue, so let's say you were to use Feb 28 assumptions, do you think you're still on track for at least $4 of EPS for the full year? Then I think you pointed upside to that. Maybe as a follow-up, what inning do you think you're in when it comes to monetizing some of these internal initiatives and kind of how much you have left in the tank?

Speaker #14: Great next morning, everyone. So maybe just kind of similar but different on the theme of Rasm. It's to the extent possible, if you looked at your earnings for the year ex-fuel, on both cost and revenue.

Speaker #11: Can you update us on those efforts specifically—how they've been going versus your initial plan? And then, second, a related question and a bit of a follow-up to Mike's.

Speaker #11: Great to see the big step up in buyup in one queue puts the launch of your new seating products. Can you just break down how much of that is cash sales, loyalty points being redeemed, and credit card perks?

Speaker #14: So let's say you were to use Feb 28 assumptions. Do you think you're still on track for at least $4 of EPS for the full year?

Speaker #11: Thanks so much for the time.

Speaker #14: And I think you had pointed upside to that. And maybe as a you're in when it comes to monetizing some of these internal initiatives and kind of how much you have left in the tank?

Speaker #12: so the, corporates, we gave in our prepared remarks, the corporate numbers have responded. You saw that they were back weighted to March. So once the assigned seating and extra legroom went in place, we

Bob Jordan: The corporate, as we gave in our prepared remarks, the corporate numbers have responded. You saw that they were back weighted to March. Once the assigned seating and extra legroom went in place, we saw an uptick both from current customers, but also new customers. We're seeing an acceleration of new, unique customers in our corporate channels, which indicates a kind of desire now to fly Southwest Airlines. While also within the same existing network of accounts, we've seen buy-ups of the higher fares as corporate policy allows them to buy up. Those numbers we quoted are indicative of the consumers behaving like we anticipated. As far as the redemptions, I think cash has accelerated more than redemptions on the fare products, which is consistent with what we wanted to do.

Speaker #1: We saw an uptick . Both from current customers but also new customers . So we're seeing an acceleration of new , unique customers in our corporate channels , which indicates , you know , a kind of desire now to fly Southwest Airlines .

Speaker #13: Yeah. Yeah. Ravi, thanks so much. The I think the short story is, but for fuel, everything is on track and performing sort of at or maybe slightly better than we expected.

Bob Jordan: Yeah. Ravi, thanks so much. I think the short story is, but for fuel, everything is on track and performing sort of at or maybe slightly better than we expected. It's really just a story of fuel. I mean, it's a $0.22 headwind in Q1. It's a $1 billion headwind in Q2 or 10 points of margin. It's very material. The only change to how we were thinking about the whole year right now is fuel. I just did want to address the guide as well. There's been some reporting that we pulled our guide. We did not pull our full-year guide. There are scenarios where absolutely we could still hit the $4. It depends on, you know, fuel and revenue trends from here.

Speaker #13: It's really just a story of fuel. I mean, it's a 22-cent headwind in the first quarter. It's a billion-dollar headwind in the second quarter or 10 points change to how we were thinking about the full year right now is fuel.

Speaker #1: And, well, also within the same existing network of accounts, we've seen, by up to the higher fares, as corporate policy allows them to buy up.

Speaker #1: So those numbers we quoted are indicative of the consumers behaving like we were anticipated . And as far as the the redemptions , I think cash has accelerated more than redemptions on the on the fare products , which is consistent with what we wanted to do .

Bob Jordan: The only change to how we were thinking about the whole year right now is fuel. I just did want to address the guide as well. There's been some reporting that we pulled our guide. We did not pull our full-year guide. There are scenarios where absolutely we could still hit the $4. It depends on, you know, fuel and revenue trends from here.

Speaker #13: And I just did want to address the guide as well. There's been some reporting that we pulled our guide. We did not pull our full-year guide.

Speaker #1: We went to more variable burn in our in our in our earning , excuse me , on our on our rapid rewards last year .

Bob Jordan: We went to more variable burn on our Rapid Rewards last year, and so that tends to, on the best flights, push your redemption mix down and your cash mix up.

Speaker #13: There are scenarios where absolutely we could still hit the $4. It depends on fuel and revenue trends. From here, we just felt like it was not productive to introduce a new guide or a range given day to day.

Speaker #1: And so that tends to , on the best flights , push your redemption mix down and your cash mix up

Bob Jordan: We just felt like it was not productive to introduce a new guide or a range given how volatile fuel is, you know, day to day to day. On your second question of what inning are you in in terms of optimizing the current initiatives, I do believe we have a ways to run. Our original forecast or the plan would be to get to full run rate because these bake in over time based on the booking curve to get to run rate here in Q3. Then of course, we have opportunities to optimize fare product buy up, optimize the way we think about seat ancillaries. Then on top of that, we're gonna continue to enhance the product.

Speaker #2: The next question will come from Ravi Shanker with Morgan Stanley . Please go ahead

Operator: The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.

Speaker #13: On your second question of what ending are you in in terms of optimizing the current initiatives, I do believe we have a ways to run.

Speaker #3: Great , thanks . Morning , everyone . So maybe just kind of similar but different on the theme of Razim to the extent possible , if you looked at your earnings for the year X fuel on both cost and revenue .

Ravi Shanker: Great, thanks. Morning, everyone. Maybe just kind of similar but different on the theme of RASM. To the extent possible, if you looked at your earnings for the year ex fuel on both cost and revenue, so let's say you were to use February 28 assumptions, do you think you're still on track for at least $4 of EPS for the full year? I think you pointed upside to that. Maybe as a follow-up, what innings do you think you're in when it comes to monetizing some of these internal initiatives and kind of how much do you have left in the tank?

Speaker #13: Our original forecast or the plan would be to get to full run rate because these bake-in over time, based on the booking curve, to get to run rate here in the third quarter.

Speaker #3: So let's use the February 28 assumptions. Do you think you're still on track for at least $4 of EPS for the full year?

Speaker #13: And then, of course, we have opportunities to optimize fare product buyup, optimize the way we think about seat ancillaries, and then on top of that, we're going to continue to enhance the product.

Bob Jordan: Then of course, we have opportunities to optimize fare product buy up, optimize the way we think about seat ancillaries. Then on top of that, we're gonna continue to enhance the product. You saw the Starlink announcement continue to make a push into business who loves the new product. I mean, the fact that March revenues on the business side were up 25% is a huge indicator of that. Yeah, we're, you know, our run rate was expected in Q3 on the initiative performance, and then we have room from there.

Speaker #3: And I think you pointed outside of that and maybe as a follow up , what things do you think you're with ? You're in when it comes to monetizing some of these internal initiatives ?

Speaker #3: And kind of how much do you have left in the tank

Speaker #13: You saw the Starlink announcement continue to make a push into business who loves the new product. I mean, the fact that March revenues on the business side were up 25% is a huge indicator of that.

Bob Jordan: You saw the Starlink announcement continue to make a push into business who loves the new product. I mean, the fact that March revenues on the business side were up 25% is a huge indicator of that. Yeah, we're, you know, our run rate was expected in Q3 on the initiative performance, and then we have room from there.

Speaker #4: Yeah . Ari , thanks so much . The I think the short story is , but for fuel , everything is on track and performing sort of at or maybe slightly better than we expected .

Bob Jordan: Yeah. Ravi, thanks so much. I think the short story is, but for fuel, everything is on track and performing sort of at or maybe slightly better than we expected. It's really just a story of fuel. I mean, it's a $0.22 headwind in Q1. It's a billion-dollar headwind in Q2 or 10 points of margin, so it's very material. No, the only change to how we were thinking about the whole year right now is fuel. I just did want to address the guide as well. There's been some reporting that we pulled our guide. We did not pull our full-year guide. There are scenarios where absolutely we could still hit the $4. It depends on fuel and revenue trends from here.

Speaker #4: It's really just a story of fuel . I mean , it's a $0.22 headwind in the first quarter , and it's $1 billion headwind in the second quarter or ten points of margin .

Speaker #13: But yeah, we're our run rate was expected in the third quarter on the initiative performance. And then we have room from there.

Speaker #4: So it's very material, but no. Yeah, the only change to how we were thinking about the full year right now is fuel.

Speaker #6: The next question will come from Scott Group with Wolf Research. Please go ahead.

Operator: The next question will come from Scott Group with Wolfe Research. Please go ahead.

Speaker #4: And I just didn't want to address the guide as well . There's been some reporting that we pulled our guy . We did not pull our full year guide .

Speaker #15: Hey, thanks. So I just wanted to follow up on that sort of last answer, Bob. Your comment that the only change really is fuel and everything else is sort of in line, maybe slightly better.

Scott Group: Hey, thanks. I just wanted to follow up on that sort of last answer, Bob, like your comment that, you know, the only change really is fuel, and, you know, everything else is sort of in line, maybe slightly better. I mean, I guess it feels like everyone else is saying, yeah, fuel is a lot higher, but now our revenue assumptions are a lot higher too, as the whole industry is sort of working to pass through fuel. Would you not agree with that sort of comment? Then maybe just along those lines with fuel, like there's certainly a sense of, hey, the industry, this is the first sort of like big fuel spike where you guys aren't hedged and that's sort of helping the industry, you know, pass through fuel quicker.

Speaker #4: There are scenarios where absolutely , we can still hit the $4 . It depends on , fuel and revenue trends . From here , we just felt like it was not productive to introduce a new guide or a range , given how volatile fuel is , you know , day to day to day .

Speaker #15: I mean, I guess it feels like everyone else is saying, "Yeah, fuel is a lot higher, but now our revenue assumptions are a lot higher too as we're the whole industry is sort of working to pass through fuel." Would you not agree with that sort of comment?

Bob Jordan: We just felt like it was not productive to introduce a new guide or a range, given how volatile fuel is day to day to day. On your second question, of what inning are you in in terms of optimizing the current initiatives? I do believe we have a ways to run. Our original forecast or the plan would be to get to full run rate because these bake in over time based on the booking curve to get to run rate here in Q3. Then, of course, we have opportunities to optimize fare product buy up, optimize the way we think about seat ancillaries. Then on top of that, we're going to continue to enhance the product. You saw the Starlink announcement continue to make a push into business who loves the new product.

Speaker #4: On your second question of what inning are you in in terms of optimizing the current initiatives ? I do believe we have we have a ways to run our original forecast or the plan would be to get to full run rate , because these bake in over time based on the booking curve , to get to run rate here in the third quarter .

Scott Group: Would you not agree with that sort of comment? Then maybe just along those lines with fuel, like there's certainly a sense of, hey, the industry, this is the first sort of like big fuel spike where you guys aren't hedged and that's sort of helping the industry, you know, pass through fuel quicker. Like, are you approaching fuel pass-through differently than maybe you have in the past? Do you think you're approaching it differently than the industry?

Speaker #15: And then maybe just along those lines with fuel, there's certainly a sense of, "Hey, the industry this is the first sort of big fuel spike where you guys aren't hedged and that sort of helping the industry pass through fuel quicker." Are you approaching fuel pass-through differently than maybe you have in the past?

Speaker #4: And then of course , we have opportunities to optimize fare product by up , optimize the way we think about seed ancillaries . And then on top of that , we're going to continue to Continue to enhance the product .

Scott Group: Like, are you approaching fuel pass-through differently than maybe you have in the past? Do you think you're approaching it differently than the industry?

Speaker #15: And maybe do you think you're approaching it differently than the industry?

Speaker #13: Yeah. The first question, where would we be but four, is all, again, hypothetical. You're trying to compare what would the industry have done with pricing and fares as compared to what is happening today.

Bob Jordan: The first question, where would we be but for is all again, hypothetical. You are trying to compare what would the industry have done with pricing and fares as compared to what is happening today. With the rise in fuel, no doubt, there is a more constructive backdrop, I believe, in terms of pricing. I think it's fair to say that the pricing environment is stronger. We didn't give you a range. We gave you an at least $4. We did not give you what that upper range would be. No, it's a more constructive fare environment certainly than I would have expected. You just look at Southwest performance. We are demonstrating incredible cost discipline.

Speaker #4: You saw the Starlink announcement continue to make a push into business . Who loves who loves the new product ? I mean , the fact that March revenues on the business side were up 25% is a huge indicator of that .

Bob Jordan: I mean, the fact that March revenues on the business side were up 25% is a huge indicator of that. Yeah, our run rate was expected in Q3 on the initiative performance, and then we have room from there.

Speaker #13: With the rise in fuel, no doubt there is it's a more constructive backdrop, I believe, in terms of pricing. So yeah, I think it's fair to say that the pricing environment is stronger and we didn't give you a range.

Speaker #4: But yeah , we're , you know , our run rate was expected in the in the third quarter on the initiative performance . And then we have room from there

Speaker #2: The next question will come from Scott Group, Wolfe Research. Please go ahead.

Operator: The next question will come from Scott Group with Wolfe Research. Please go ahead.

Bob Jordan: We didn't give you a range. We gave you an at least $4. We did not give you what that upper range would be. No, it's a more constructive fare environment certainly than I would have expected. You just look at Southwest performance. We are demonstrating incredible cost discipline.

Speaker #13: We gave you an at least $4. So we did not give you what that upper range would be. But no, it's a more constructive fare environment, certainly, than I would have expected.

Speaker #5: Hey , thanks . So I just wanted to follow up on that sort of last answer . Bob , like your comment that , you know , the only change really is fuel and everything else is sort of in line , maybe slightly better .

Scott Group: Hey, thanks. I just wanted to follow up on that sort of last answer, Bob, your comment that the only change really is fuel and everything else is sort of in line, maybe slightly better. I guess, it feels like everyone else is saying, "Yeah, fuel is a lot higher, but now our revenue assumptions are a lot higher, too, as the whole industry is sort of working to pass through fuel." Would you not agree with that sort of comment? Then maybe just along those lines with fuel, there's certainly a sense of, hey, the industry, this is the first sort of big fuel spike where you guys aren't hedged, and that's sort of helping the industry pass through fuel quicker. Are you approaching fuel pass-through differently than maybe you have in the past? Or maybe do you think you're approaching it differently than the industry?

Speaker #13: And then you just look at Southwest performance. We are demonstrating incredible cost discipline in the first quarter. You had costs come in at unit costs come in at 2.3.

Speaker #5: I mean , I guess it feels like everyone else is saying , yeah , fuel is a lot higher , but now our revenue assumptions are a lot higher too , as were the whole industry is sort of working to pass through fuel .

Bob Jordan: In the Q1, you had, you know, unit costs come in at 2.3, and you had a 1.2 headwind in that from seat removal. The cost discipline, which is structural, it's not timing, it's not odd transactions. It's structural improvements in cost is certainly helping here at Southwest as well. Which is my whole point about the fact that looking at revenue trends, it's gonna take revenues, it's gonna take fuel, but our $4, you know, is absolutely not off the table. On hedging, you know, we've talked about this many times. Hedging had become very expensive. The cost of hedging because of volatility, we were spending about $150 million a year in hedging.

Speaker #13: And you had a 1.1, 1.2 headwind in that from seat removal. So the cost discipline which is structural it's not timing. It's not odd transactions.

Speaker #5: Would you not agree with that sort of comment ? And then maybe just along those lines with fuel , there's certainly a sense of , hey , the industry , this is the first sort of like big fuel spike .

Speaker #13: It's structural improvements in cost. It's certainly helping here at Southwest as well. Which is my whole point about the fact that looking at revenue trends, it's going to take revenues.

Speaker #5: Where , where you guys aren't hedged . And that's sort of helping the industry , you know , pass through fuel quicker . Like , are you approaching fuel pass through differently than maybe you have in the past or , and maybe do you think you're approaching it differently than the industry ?

Bob Jordan: Which is my whole point about the fact that looking at revenue trends, it's gonna take revenues, it's gonna take fuel, but our $4, you know, is absolutely not off the table. On hedging, you know, we've talked about this many times. Hedging had become very expensive. The cost of hedging because of volatility, we were spending about $150 million a year in hedging.

Speaker #13: It's going to take fuel. But our $4 is absolutely not off the table. And then on hedging, we've talked about this many times. Hedging had become very expensive.

Speaker #4: Yeah , the first question , you know , where are where would we be ? But for is all again , hypothetical , you're trying to compare what would the industry have done with with pricing and fares as compared to what is happening today with the rise in fuel ?

Bob Jordan: Yeah. The first question, where would we be but for, is all again hypothetical. You're trying to compare what would the industry have done with pricing and fares as compared to what is happening today. With the rise in fuel, no doubt, it's a more constructive backdrop, I believe, in terms of pricing. Yeah, I think it's fair to say that the pricing environment is stronger, and we didn't give you a range. We gave you an at least $4. We did not give you what that upper range would be. No, it's a more constructive fare environment, certainly, than I would have expected. Then you just look at Southwest performance. We are demonstrating incredible cost discipline. In Q1, you had unit costs come in at 2.3, and then you had a 1.1.2 headwind in that from seat removal.

Speaker #13: The cost of hedging because of volatility we were spending about $150 million a year in hedging. So it just if you look back over a period of time, it just made no sense to hedge.

Bob Jordan: If you look back over a period of time, it just made no sense to hedge. Of course, yeah, I mean, you, you can't, you know, you can't predict an extraordinary circumstance like a war. If we all could, you'd hedge and then you wouldn't, and it's unreasonable to think you could do something like that. I do think the fact that we're all basically unhedged puts the industry in a position where you're gonna take, and we're all gonna take actions to deal with the fact that fuel is rising at an extraordinary rate, which again, is why you're seeing a constructive pricing environment right now.

Speaker #13: And of course, I mean, you can't predict an extraordinary circumstance like a war. If we all could, you'd hedge and then you wouldn't. And it's unreasonable to think you could do something like that.

Speaker #4: No doubt there is . It's a more constructive backdrop . I believe , in terms of pricing So yeah , I think it's fair to say that the pricing environment is stronger and we didn't give you a range .

Speaker #13: I do think the fact that we're all basically unhedged puts the industry in a position where you're going to take we're all going to take actions to deal with the fact that fuel is rising at an extraordinary rate, which again is why you're seeing a constructive pricing environment right now.

Bob Jordan: I do think the fact that we're all basically unhedged puts the industry in a position where you're gonna take, and we're all gonna take actions to deal with the fact that fuel is rising at an extraordinary rate, which again, is why you're seeing a constructive pricing environment right now.

Speaker #4: We gave you an at least $4 . So we did not give you what that upper range would be . But no , it's a more constructive fair environment .

Speaker #4: Certainly than I would have expected . And then you just look at southwest performance . We are demonstrating incredible cost discipline in the first quarter , you had , you know , costs come in at unit costs come in at 2.3 .

Speaker #6: The next question will come from Dwayne Fenningworth with Evercore ISI. Please go ahead.

Operator: The next question will come from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Speaker #4: And you had a 1.11.2 headwind in that from seat removal . So the cost discipline which is structural , it's not timing . It's not odd transactions .

Speaker #16: Hey, this might be tricky to. Thanks for the time. This might be tricky to announce sequentially here. But just the first was on fleet requirements.

Duane Pfennigwerth: Thanks for the time. This might be tricky to announce sequentially here, but just the first was on fleet requirements. How has your plan for retirements or used aircraft sales changed, if at all? If you could walk us through any cash flow or, you know, cash flow 1 and 2 P&L impacts from aircraft sales. Then Bob, my follow-up. Organizationally, Southwest has been very focused on rolling out these initiatives, executing on these initiatives. Are you now in a better place or more prepared to consider potential consolidation scenarios? Thanks for taking the questions.

Bob Jordan: The cost discipline, which is structural, it's not timing, it's not odd transactions. It's structural improvements in cost is certainly helping here at Southwest as well, which is my whole point about the fact that looking at revenue trends, it's going to take revenues, it's going to take fuel, but our $4 is absolutely not off the table. On hedging, we've talked about this many times. Hedging had become very expensive. The cost of hedging, because of volatility, we were spending about $150 million a year in hedging. If you look back over a period of time, it just made no sense to hedge. Of course, you can't predict an extraordinary circumstance like a war. If we all could, you'd hedge, and then you wouldn't, and it's unreasonable to think you could do something like that.

Speaker #16: How has your plan for retirements or used aircraft sales changed if at all? And if you could walk us through any cash flow or cash flow one and two P&L impacts from aircraft sales and then Bob, my follow-up.

Speaker #4: It's structural improvements . In costs . Is certainly helping here at southwest as well . Which is my whole point about the fact that looking at revenue trends , it's going to take revenues , it's going to take fuel .

Speaker #4: But our $4 , you know , is absolutely not off the table . And then on hedging You know , we've talked about this many times .

Duane Pfennigwerth: Then Bob, my follow-up. Organizationally, Southwest has been very focused on rolling out these initiatives, executing on these initiatives. Are you now in a better place or more prepared to consider potential consolidation scenarios? Thanks for taking the questions.

Speaker #16: Organizationally, Southwest has been very focused on rolling out these initiatives, executing on these initiatives. Are you now in a better place or more prepared to consider potential consolidation scenarios?

Speaker #4: Hedging had become very expensive . The cost of hedging because of volatility . We were spending about 150 million a year in hedging .

Speaker #16: Thanks for taking the questions.

Speaker #17: Hey, Dwayne. I'll take your first one on the fleet side. You've seen the numbers that we've talked about for this year in the 60s for aircraft coming in, new from Boeing.

Tom Doxey: Hey, Duane. I'll take your first one on the fleet side. You've seen the numbers that we've talked about for this year, you know, in the 60s for aircraft coming in new from Boeing. No change there. You know, we're feeling confident about what we're seeing out of Boeing. You know, every month things seem to just be getting better and better there about their ability to deliver on time. The retirements that we have are very much tied to the aircraft that are coming in. You've seen what we've guided around, you know, both for this year and kind of high-level commentary that we've given for the next several years around capacity. You know, no major changes there.

Speaker #4: So it just it just if you look back over a period of time , it just made no sense to hedge . And of course , I mean , you can't , you know , you can't predict an extraordinary circumstance like a war .

Speaker #17: No change there. We're feeling confident about what we're seeing out of Boeing. Every month, things seem to just be getting better and better there about their ability to deliver on time.

Speaker #4: If we all could, you'd hedge, and then you wouldn't. And that's—it's unreasonable to think you could do something like that.

Speaker #4: I do think the fact that we're all basically unhedged puts the industry in a position where you're going to take we're all going to take actions to deal with the fact that fuel is rising at an extraordinary rate , which again , is why you're seeing a constructive pricing environment right now

Bob Jordan: I do think the fact that we're all basically unhedged puts the industry in a position where you're going to take, and we're all going to take actions to deal with the fact that fuel is rising at an extraordinary rate, which again, is why you're seeing a constructive pricing environment right now.

Speaker #17: And so the retirements that we have are very much tied to the aircraft that are coming in. You've seen what we've guided around both for this year and kind of high-level commentary that we've given for the next several years around capacity no major changes there.

Tom Doxey: The retirements that we have are very much tied to the aircraft that are coming in. You've seen what we've guided around, you know, both for this year and kind of high-level commentary that we've given for the next several years around capacity. You know, no major changes there. The quantity of retirements really will just depend on the timing with which those new aircraft deliver, which again, are becoming more and more predictable by the week.

Speaker #17: And so the quantity of retirements really will just depend on the timing with which those new aircraft deliver, which again are becoming more and more predictable by the week.

Tom Doxey: The quantity of retirements really will just depend on the timing with which those new aircraft deliver, which again, are becoming more and more predictable by the week.

Speaker #2: The next question will come from Dwayne Pennyworth with Evercore ISI . Please go ahead

Operator: The next question will come from Duane Fenneworth with Evercore ISI. Please go ahead.

Operator: The next question will come from Duane Pfennigwerth with Evercore ISI. Please go ahead.

Speaker #13: Dwayne, on your second, the organizationally, I think there's been a lot of organizational efficiency that's been put into place here at Southwest both on the front line and then especially here in sort of the corporate side of the business in the last year.

Bob Jordan: Duane, on your second, organizationally, I think there's been a lot of organizational efficiency that's been put into place here at Southwest, both on the frontline and then especially here in sort of the corporate side of the business in the last year. The business is moving at an incredibly agile pace in terms of change. You're seeing that come through in the execution of the transformation and then continuing to add focus on our customer, add attributes that our customer wants. We're moving at a pace that I've just not seen here at Southwest. Our ability to deal with any issue, you know, I think is better than it was, you know, a year or two ago, period.

Speaker #6: Hey , this might be tricky to thanks for the time . This might be tricky to announce sequentially here , but just just the first was on fleet requirements .

Duane Fenneworth: Hey. Thanks for the time. This might be tricky to announce sequentially here, but just the first was on fleet requirements. How has your plan for retirements or used aircraft sales changed, if at all? And if you could walk us through any cash flow or cash flow one and two P&L impacts from aircraft sales. And then Bob, my follow-up. Organizationally, Southwest has been very focused on rolling out these initiatives, executing on these initiatives. Are you now in a better place or more prepared to consider potential consolidation scenarios? Thanks for taking the questions.

Duane Pfennigwerth: Hey. Thanks for the time. This might be tricky to announce sequentially here, but just the first was on fleet requirements. How has your plan for retirements or used aircraft sales changed, if at all? And if you could walk us through any cash flow or cash flow one and two P&L impacts from aircraft sales. And then Bob, my follow-up. Organizationally, Southwest has been very focused on rolling out these initiatives, executing on these initiatives. Are you now in a better place or more prepared to consider potential consolidation scenarios? Thanks for taking the questions.

Speaker #6: How has your plan for retirements or used aircraft sales changed , if at all ? And if you could walk us through any cash flow or , you know , cash flow one and two , P impacts from from aircraft sales .

Speaker #13: The business is moving at an incredibly agile pace in terms of change. You're seeing that come through in the execution of the transformation and then continuing to add focus on our customer, add attributes that our customer wants.

Speaker #6: And then , Bob , my follow up organizationally , Southwest's been very focused on rolling out these initiatives , executing on these initiatives .

Bob Jordan: You're seeing that come through in the execution of the transformation and then continuing to add focus on our customer, add attributes that our customer wants. We're moving at a pace that I've just not seen here at Southwest. Our ability to deal with any issue, you know, I think is better than it was, you know, a year or two ago, period.

Speaker #6: Are you now in a better place, or more prepared, to consider potential consolidation scenarios? Thanks for taking the questions.

Speaker #13: So we're moving at a pace that I've just not seen here at Southwest. So our ability to deal with any issue I think is better than it was a year or two ago, period.

Speaker #7: Hey , Dwayne , I'll take your first one on the fleet side . You've seen the numbers that we've talked about for for this year .

Bob Jordan: Hey, Duane. I'll take your first one on the fleet side. You've seen the numbers that we've talked about for this year, in the 60s for aircraft coming in new from Boeing. No change there. We're feeling confident about what we're seeing out of Boeing every month.

Tom Doxey: Hey, Duane. I'll take your first one on the fleet side. You've seen the numbers that we've talked about for this year, in the 60s for aircraft coming in new from Boeing. No change there. We're feeling confident about what we're seeing out of Boeing every month.

Speaker #7: You know , in the 60s for aircraft coming in new from Boeing . No change there . You know , we're we're feeling confident about what we're seeing out of Boeing .

Speaker #13: We don't comment on what consolidation and what could happen in the industry. There's lots of rumors out there. We're focused on what we can control.

Bob Jordan: We don't comment on, you know, what consolidation and what could happen in the industry. There's lots of rumors out there. We're focused on what we can control. There's no value in focusing on rumors. There's no value focusing on fuel because you don't have one thing that you can do about it. You know, things change, and if the, if some of that were to become real, then obviously we would take a look and decide what our response to that would be, but we don't comment on those things.

Speaker #7: You know , every month things seem to just be getting better and better . They're about their ability to deliver on time . And so the the retirements that we have are very much tied to the aircraft that are coming in .

Tom Doxey: Things seem to just be getting better and better there about their ability to deliver on time. The retirements that we have are very much tied to the aircraft that are coming in. You've seen what we've guided around, both for this year and high-level commentary that we've given for the next several years around capacity. No major changes there. The quantity of retirements really will just depend on the timing with which those new aircraft deliver, which again, are becoming more and more predictable by the week.

Speaker #13: There's no value in focusing on rumors. There's no value focusing on fuel because you don't have one thing that you can do about it.

Speaker #7: You've seen what we've around , you know , both for this year and kind of high level commentary that we've given for the next several years around capacity , you know , no , no major changes there .

Speaker #13: But things change and if the if some of that were to become real, then obviously we would take a look and decide what our response to that would be.

Speaker #7: And so the quantity of retirements really will just depend on the timing with which those new aircraft deliver , which again are becoming more and more predictable by the week

Speaker #13: But we don't comment on those things.

Speaker #6: The next question will come from Atul Maheswari with UBS. Please go ahead.

Operator: The next question will come from Atul Maheshwari with UBS. Please go ahead.

Speaker #18: Good morning. Thanks a lot for taking my question. Based on the full-year guide on capacity, it implies that the back half capacity growth is going to be closer to 3%.

Atul Maheshwari: Good morning. Thanks a lot for taking my question. Based on the full-year guide on capacity, it implies that the H2 capacity growth is gonna be closer to 3%, so you're accelerating capacity in the H2 at a time when others are cutting. Just some rationale for the implied capacity growth acceleration in the H2 in this field backdrop would be helpful. You know, as my second question on the cost outperformance, I know you mentioned those are structural, but if you could provide some key buckets of the cost outperformance or the improvement that you're seeing currently, that would be helpful.

Speaker #4: Dwayne , on your second , the Organizationally , I think the there's been a lot of organizational efficiency that's been put into place here at southwest , both on the front line and .

Bob Jordan: Duane, on your second. Organizationally, I think there's been a lot of organizational efficiency that's been put into place here at Southwest, both on the frontline and then especially here in sort of the corporate side of the business in the last year. The business is moving at an incredibly agile pace in terms of change. You're seeing that come through in the execution of the transformation, and then continuing to add focus on our customer, add attributes that our customer wants. We're moving at a pace that I've just not seen here at Southwest. Our ability to deal with any issue, I think is better than it was a year or two ago, period. We don't comment on consolidation and what could happen in the industry. There's lots of rumors out there. We're focused on what we can control. There's no value in focusing on rumors.

Speaker #18: So you're accelerating capacity in the back half at a time when others are cutting. So just some rationale for the implied capacity growth acceleration in the back half in this fuel backdrop would be helpful.

Speaker #4: And especially here in sort of the corporate side of the business . In the last year , the , the business is moving at an incredibly agile pace in terms of change .

Speaker #18: And then as my second question on the cost outperformance, I know you mentioned those are structural, but if you could provide some key buckets of the cost outperformance or the improvement that you're seeing currently, that would be helpful along those lines.

Atul Maheshwari: You know, as my second question on the cost outperformance, I know you mentioned those are structural, but if you could provide some key buckets of the cost outperformance or the improvement that you're seeing currently, that would be helpful. Along those lines, if I could add just one quick one, is what should we think about the CASM mix, in the back half on the 3% capacity, growth? Thank you.

Speaker #4: You're seeing that come through in the execution of the transformation, and then continuing to add focus on our customer, add attributes that our customer wants.

Atul Maheshwari: Along those lines, if I could add just one quick one, is what should we think about the CASM mix, in the back half on the 3% capacity, growth? Thank you.

Speaker #18: If I can add just one quick one is what's the thought what should we think about the CASA mix in the back half on a 3%-ish ish capacity growth?

Speaker #4: So we're moving ahead at a pace that I've just not seen here at southwest . So our ability to deal with any issue , I think is better than it was , you know , a year or two ago , period , we don't comment on , you know , what consolidation and what could happen in the industry .

Speaker #18: Thank you.

Speaker #13: Yeah, to always, Bob. I'll take the first and then Tom will take the second on cost. Our we entered the year 2026 with a very disciplined cost plan.

Bob Jordan: Yeah, Atul, it's Bob. I'll take the first, and then Tom will take the second on cost. We entered the year 2026 with a very disciplined cost plan. You know, capacity up 2% to 3%. We've been modestly trimming that as we move throughout the year. I would call that sort of normal demand shaping where you take a look and there are flights that just don't make sense anymore and you either cut that capacity or you cut that capacity and then you redeploy.

Speaker #4: There's lots of rumors out there . We're focused on what we can control . There's no value in focusing on rumors . There's no value .

Speaker #13: Capacity up 2 to 3. We've been modestly trimming that as we move throughout the year. I would call that sort of normal demand shaping where you take a look and there are flights that just don't make sense anymore.

Bob Jordan: There's no value focusing on fuel because you don't have one thing that you can do about it. Things change, and if some of that were to become real, then obviously we would take a look and decide what our response to that would be. We don't comment on those things.

Speaker #4: Focusing on fuel because you don't have one thing that you can do about it . But you know , things change . And if the if the if some of that were to become real , then obviously we would take a look and decide what our response to that would be .

Speaker #13: And you either cut that capacity or you cut that capacity and then you redeploy. We've also been aggressive with moves like you saw with O'Hare.

Speaker #4: But we don't comment on those things .

Bob Jordan: We've also been aggressive with moves, like you saw with O'Hare and Dulles, to take underperforming markets and deal with those, then move capacity to markets that are performing, you know, the San Diegos and Nashvilles, et cetera, of the network. We've taken our Q2 capacity down, as you saw. We're now expected to grow, you know, roughly half a point. I just would point to the fact that we'll continue that close in, demand shaping and capacity activity in the Q3. We'll do that in the Q4. I understand your point, but I would not read through. I wouldn't read that through as the final number. Again, you know, you've heard others talking about cutting capacity. We started there.

Speaker #2: The next question will come from Atul Maheswari with UBS . Please go ahead . Thanks .

Operator: The next question will come from Atul Maheswari with UBS. Please go ahead.

Speaker #13: And Dulles to take underperforming markets and deal with those and then move capacity to markets that are performing. The San Diegos and Nashville, etc.

Speaker #8: Good morning . Thanks a lot for taking my question . Based on the full year guide on capacity , it implies that the back half capacity growth is going to be closer to 3% .

Atul Maheswari: Good morning. Thanks a lot for taking my question. Based on the full year guide on capacity, it implies that the H2 capacity growth is going to be closer to 3%. You're accelerating capacity in the H2 at a time when others are cutting. Just some rationale for the implied capacity growth acceleration in the H2 in this fluid backdrop would be helpful. Then, as my second question on the cost outperformance, I know you mentioned those are structural, but if you could provide some key buckets of the cost outperformance or the improvement that you're seeing currently, that would be helpful. Along those lines, if I could add just one quick one, is what should we think about the CASM mix in the H2 on a 3% capacity growth? Thank you.

Speaker #8: So your accelerating capacity in the back half at a time when others are cutting . So just some rationale for for the implied capacity growth , acceleration in the back half in this field backdrop would be helpful .

Speaker #13: of the network. We've taken our second quarter capacity down. As you saw, we're now expected to grow. Roughly half a point. And I just would point to the fact that we'll continue that close-in demand shaping and capacity activity in the third quarter.

Speaker #8: And then , you know , as my second question on the cost outperformance , I know you mentioned those are structural , but if you could provide some key buckets of the cost of outperformance of the improvement that you're seeing currently , that would be helpful along those lines , if I could add just one quick one is , what's the thought ?

Bob Jordan: I just would point to the fact that we'll continue that close in, demand shaping and capacity activity in the Q3. We'll do that in the Q4. I understand your point, but I would not read through. I wouldn't read that through as the final number. Again, you know, you've heard others talking about cutting capacity. We started there. We started with a well-thought-out, conservative, constructive capacity plan for the year at 2 to 3 points, and that's now become 2. You're seeing others come back to us, not others go below our capacity plans.

Speaker #13: We'll do that the fourth quarter. So I understand your point, but I would not read through I wouldn't read that through as the final number.

Speaker #13: But again, you've heard others talking about cutting capacity. We started there. We started with a well-thought-out conservative constructive capacity plan for the year. At 2 to 3 points.

Speaker #8: What should we think about the kazimw X in the back half on a 3% capacity growth ? Thank you .

Bob Jordan: We started with a well-thought-out, conservative, constructive capacity plan for the year at 2 to 3 points, and that's now become 2. You're seeing others come back to us, not others go below our capacity plans.

Speaker #4: Yeah . Joyce . Bob , I'll take the first and then Tom will take the the second on cost Our we entered the year 2026 with a , a very disciplined cost plan .

Bob Jordan: Yeah, Atul, it's Bob. I'll take the first, and then Tom will take the second on cost. We entered the year 2026 with a very disciplined cost plan. Capacity up 2 to 3. We've been modestly trimming that as we move throughout the year. I would call that sort of normal demand shaping, where you take a look and there are flights that just don't make sense anymore and you either cut that capacity, or you cut that capacity and then you redeploy. We've also been aggressive with moves, like you saw with O'Hare and Dulles, to take underperforming markets and deal with those, and then move capacity to markets that are performing, the San Diegos and Nashvilles, et cetera, of the network. We've taken our Q2 capacity down, as you saw. We're now expected to grow roughly 0.5 point.

Speaker #13: And that's now become 2. So you're seeing others come back to us, not others go below our capacity plans.

Speaker #17: And Atul, on the cost question, the cost performance that you're seeing and Bob referenced this a bit earlier, but this is structural. This is representing great work that's happening across a lot of the teams.

Tom Doxey: Atul, on the cost question, you know, the cost performance that you're seeing, and Bob referenced this a bit earlier, but this is structural. This is representing great work that's happening across a lot of the teams, not relating to, you know, timing or transactions or other things. As you think about some of the bigger buckets that are there, you know, for us, the people expense represents, you know, just shy of half of our cost structure. So we need to make sure that as we're out operating, that we're doing that in an efficient way. You've heard us talk a lot about how important it is that we continue to run a really high-quality operation. It is a cost-efficient thing to be running as good an operation as we are now.

Speaker #4: You know , capacity up 2 to 3 . We've we've been modestly trimming that as we move throughout the year . I would call that sort of normal demand shaping where you you take a look in their flights .

Speaker #17: Not relating to timing or transactions or other things. And as you think about some of the bigger buckets that are there, for us, the people expense represents just shy of half of our cost structure.

Speaker #4: It just doesn't make sense anymore. And you, you either cut that capacity, or you cut that capacity. And then you redeploy.

Tom Doxey: As you think about some of the bigger buckets that are there, you know, for us, the people expense represents, you know, just shy of half of our cost structure. So we need to make sure that as we're out operating, that we're doing that in an efficient way. You've heard us talk a lot about how important it is that we continue to run a really high-quality operation. It is a cost-efficient thing to be running as good an operation as we are now.

Speaker #4: We've also been aggressive with moves like you saw with O'Hare and Dulles to take underperforming markets and deal with those . And then move capacity to markets that are performing .

Speaker #17: And so we need to make sure that as we're out operating, that we're doing that in an efficient way. You've heard us talk a lot about how important it is that we continue to run a really high-quality operation.

Speaker #17: It is a cost-efficient thing to be running as good an operation as we are now. And so we look to be as efficient as we can be out there.

Speaker #4: You know , the San Diego's and Nashville's , etc. , the network , we've taken our second quarter capacity down . As you saw , we're now expected to grow , you know , roughly half a point .

Tom Doxey: We look to be as efficient as we can be out there. Some of the other big buckets that we have, you know, technology for one, we have come a long way. Lauren and her team are just phenomenal in the tools that they built. You know, we did have a bit of catch-up that we were doing, and that gives us the ability to kind of back off a bit while still maintaining the strong trajectory in technology transformation. You're seeing some savings there. Maybe the third and final bucket I'll raise is just on the kind of maintenance and fleet side of things.

Speaker #17: Some of the other big buckets that we have technology for one. We have come a long way. Lauren and her team are just phenomenal in the tools that they built.

Speaker #4: And I just would point to the fact that we'll continue that close end demand shaping and capacity activity in the third quarter . We'll do that in the fourth quarter .

Bob Jordan: I just would point to the fact that we'll continue that close in demand shaping and capacity activity in the Q3. We'll do that in the Q4. I understand your point, but I wouldn't read that through as the final number. Again, you've heard others talking about cutting capacity. We started there. We started with a well-thought-out, conservative, constructive capacity plan for the year at 2 to 3 points, and that's now become 2. You're seeing others come back to us, not others go below our capacity plans.

Speaker #17: But we did have a bit of catch-up that we were doing, and that gives us the ability to kind of back off a bit while still maintaining this strong trajectory in technology transformation.

Speaker #4: So I understand your point , but I would not read through . I wouldn't read that through as the final number , but again , you know , you've heard others talking about cutting capacity .

Speaker #17: So you're seeing some savings there. And then maybe the third and final bucket I'll raise is just on the kind of maintenance and fleet side of things.

Speaker #4: We started there . We started with a , a well thought out conservative constructive capacity plan for the year at 2 to 3 points .

Tom Doxey: As you're going through a replacement of older, less efficient, aircraft and replacing those with brand-new, more efficient Boeing 737 MAX, you just wanna make sure that you're doing that as far as component maintenance and other things, that you're doing that in the most efficient way that you can. I think we are one of the best in the world at doing that type of optimization work. You're seeing that showing up in the numbers quarter after quarter after quarter as we do that.

Speaker #17: As you're going through a replacement of older, less efficient aircraft and replacing those with brand new, more efficient 737 MAXs, you just want to make sure that you're doing that as far as component maintenance and other things that you can.

Speaker #4: And that's now become two . So you're seeing others come back to us , not others . Go below our capacity plans

Speaker #17: I think we are one of the best in the world at doing that type of optimization work. And you're seeing that showing up in the numbers quarter after quarter after quarter as we do that.

Speaker #7: And a tool on on the cost question . The the cost performance that you're seeing . And Bob referenced this a bit earlier , but this is structural .

Tom Doxey: Atul, on the cost question, the cost performance that you're seeing, and Bob referenced this a bit earlier, but this is structural. This is representing great work that's happening across a lot of the teams, not relating to timing, transactions, or other things. As you think about some of the bigger buckets that are there, for us, the people expense represents just shy of half of our cost structure. We need to make sure that as we're out operating, that we're doing that in an efficient way. You've heard us talk a lot about how important it is that we continue to run a really high-quality operation. It is a cost-efficient thing to be running as good an operation as we are now. We look to be as efficient as we can be out there.

Speaker #7: This is representing great work that's happening across a lot of the teams. Not relating to, you know, timing or transactions or other things.

Speaker #6: The next question will come from Savi Sith with Raymond James. Please go ahead.

Operator: The next question will come from Savanthi Syth with Raymond James. Please go ahead.

Speaker #7: And as you think about some of the bigger buckets that are there , you know , for us , the people expense represents , you know , just shy of half of our cost structure .

Speaker #19: Hey, good morning. Maybe I think Dwayne just to follow up on Dan's question there. Just curious what the aircraft sale benefits were in one queue and expected in two queue in the P&L.

Savanthi Syth: Hey, good morning. Maybe, I think just to follow up on Duane's question there. Just curious what the aircraft sale benefits were in Q1 and expected in Q2 in the P&L, in terms of understanding what the core, you know, cost is. Maybe for the second question, just to follow up on that, how are you thinking about aircraft sales going forward? 'Cause it feels like as you catch up to this kind of delayed MAX delivery, that we will see this kind of continue for, you know, for a few years yet. Just kind of curious your thoughts there.

Speaker #7: And so we need to make sure that as we're out operating , that we're doing that in an efficient way . You've heard us talk a lot about how important it is that we continue to run a really high quality operation .

Speaker #19: In terms of understanding what the core cost is and maybe for the second question, just to follow up on that, just how are you thinking about aircraft sales going forward?

Speaker #7: It is a cost-efficient thing to be running as good an operation as we are now. So we look to be as efficient as we can be out there.

Speaker #19: Because it feels like as you catch up to this kind of delayed max delivery, that we will see this kind of continue for a few years yet.

Speaker #7: Some of the other big buckets that we have , you know , technology , for one , we have come a long way .

Tom Doxey: Some of the other big buckets that we have, technology for one, we have come a long way. Lauren and her team are just phenomenal in the tools that they've built. We did have a bit of catch-up that we were doing, and that gives us the ability to kind of back off a bit while still maintaining the strong trajectory in technology transformation. You're seeing some savings there. Then maybe the third and final bucket I'll raise is just on the kind of maintenance and fleet side of things, as you're going through a replacement of older, less efficient aircraft and replacing those with brand-new, more efficient 737 MAXs. You just want to make sure that you're doing that as far as component maintenance and other things, that you're doing that in the most efficient way that you can.

Speaker #19: So just kind of curious your thoughts there.

Speaker #7: Lauren and her team are just phenomenal in the tools that they've built . But you know , we did have a bit of catch up that we were doing .

Speaker #17: Yeah, thanks, Savi. We had five aircraft sales that we did. There were three 737-700s. There were two 737-800s that we sold. So those five aircraft.

Tom Doxey: Yeah. Thanks, Savi. We had 5 aircraft sales that we did. There were 3 737-700s. There were 2 737-800s that we sold. Those 5 aircraft. You know, about a $30 or $40 million dollar, you know, book impact there. You know, not super material to the cost numbers that you saw. You know, everything you're seeing in the cost numbers is around the structural changes that we're making to the business.

Speaker #7: And that gives us the ability to kind of back off a bit while still maintaining the strong trajectory in technology transformation. So you're seeing some savings there.

Speaker #7: And then maybe the third and final bucket . I'll raise is just on the kind of maintenance and fleet side of things as , as you're going through a replacement of older , less efficient aircraft and replacing those with brand new , more efficient .

Speaker #17: And about a 30 or 40 million dollar book impact there. So not super material to the cost numbers that you saw. So everything you're seeing in the cost numbers is around the structural changes that we're making to the business.

Speaker #7: 737 maxes , you just want to make sure that you're that you're doing that as far as component maintenance and other things that you're doing that in the most efficient way that you can .

Operator: The next question will come from John Godyn with the Citigroup. Please go ahead.

Speaker #6: The next question will come from John Godden with the Citigroup. Please go ahead.

Speaker #7: I think , I think we are one of the best in the world at doing that type of optimization work . And you're seeing that showing up in the numbers quarter after quarter after quarter as we do that .

Speaker #20: Hey, guys. Thank you for taking my question. Bob, I wanted to follow up on the topic of consolidation. And it's not about rumors, news, or anything like that.

John Godyn: Hey, guys. Thank you for taking my question. Bob, I wanted to follow up on the topic of consolidation, and it's not about, you know, rumors, news, or anything like that. I mean, you were pivotal and central to the AirTran deal many years ago. I feel like there must be learnings from that. There must be kind of a philosophy on when consolidation or being involved in it matters and adds value, when it doesn't. I'm hoping for just, you know, more historical context and plugging into the company's philosophy today rather than any commentary on what's going out there right now.

Tom Doxey: I think we are one of the best in the world at doing that type of optimization work. You're seeing that showing up in the numbers quarter after quarter after quarter as we do that.

Speaker #20: I mean, you were pivotal and central to the AirTran deal many years ago. I feel like there must be learnings from that. There must be kind of a philosophy on when consolidation or being involved in it matters and adds value when it doesn't.

Speaker #2: The next question will come from Sabi Sith with Raymond James. Please go ahead.

Operator: The next question will come from Sabih Sith with Raymond James. Please go ahead.

Operator: The next question will come from Savanthi Sith with Raymond James. Please go ahead.

Speaker #9: Hey , good morning . Maybe I think Dwayne , just to follow up on Dan's Jan's question there . Just curious what the aircraft sale benefits were in one .

Sabih Sith: Hey, good morning. Maybe, I think, Duane, just to follow up on Dan's question there. Just curious what the aircraft sales benefits were in Q1 and expected in Q2 in the P&L in terms of understanding what the core cost is. Maybe for the second question, just to follow up on that, just how are you thinking about aircraft sales going forward? Because it feels like as you catch up to this kind of delayed MAX delivery, that we will see this kind of continue for a few years yet. Just kind of curious your thoughts there.

Savanthi Sith: Hey, good morning. Maybe, I think, Duane, just to follow up on Dan's question there. Just curious what the aircraft sales benefits were in Q1 and expected in Q2 in the P&L in terms of understanding what the core cost is. Maybe for the second question, just to follow up on that, just how are you thinking about aircraft sales going forward? Because it feels like as you catch up to this kind of delayed MAX delivery, that we will see this kind of continue for a few years yet. Just kind of curious your thoughts there.

John Godyn: There must be kind of a philosophy on when consolidation or being involved in it matters and adds value, when it doesn't. I'm hoping for just, you know, more historical context and plugging into the company's philosophy today rather than any commentary on what's going out there right now.

Speaker #20: I'm hoping for just more historical context and plugging into the company's philosophy today rather than any commentary on what's going out there right now.

Speaker #9: Two questions and expected in two: Q in the P&L in terms of understanding what the core cost is, and maybe for the second question, just to follow up on that, just how are you thinking about aircraft sales going forward?

Speaker #21: Yeah, John, thanks for the question. And it's pretty basic in my mind. Again, as you sort of go back and reflect on AirTran, it and yeah, I was involved in that deal heavily.

Bob Jordan: Yeah, John Godyn, thanks for the question. It's pretty basic in my mind. Again, as you sort of go back and reflect on AirTran Airways, yeah, I was involved in that deal heavily. It's number one, got to make sense. In other words, the pieces that get put together have to result in synergies. They have to result in goodness in terms of geographies served. Do you have to be compatible enough, thinking about things like aircraft cultures. At the end of the day, if it doesn't paper out financially, and other, it doesn't make sense to pursue it. Second, you've got to have a chance to pass muster and get it approved.

Speaker #9: Because it feels like, as you catch up to this kind of delayed MAX delivery, that we will see this kind of continue for, you know, for a few years yet.

Speaker #21: It's number one, got to make sense. In other words, you have the pieces that get put together have to result in synergies. They have to result in goodness in terms of geography, served.

Speaker #9: So just kind of curious , your thoughts there ?

Speaker #7: Yeah , I think we had five aircraft sales that we did . There were three , seven , 37 , 737 , 700 .

Tom Doxey: Yeah. Thanks, Sabih. We had 5 aircraft sales that we did. There were three 737-700s. There were two 737-800s that we sold. Those 5 aircraft. And about a $30 or $40 million book impact there. Not super material to the cost numbers that you saw. Everything you're seeing in the cost numbers is around the structural changes that we're making to the business.

Tom Doxey: Yeah. Thanks, Savanthi. We had 5 aircraft sales that we did. There were three 737-700s. There were two 737-800s that we sold. Those 5 aircraft. And about a $30 or $40 million book impact there. Not super material to the cost numbers that you saw. Everything you're seeing in the cost numbers is around the structural changes that we're making to the business.

Bob Jordan: They have to result in goodness in terms of geographies served. Do you have to be compatible enough, thinking about things like aircraft cultures. At the end of the day, if it doesn't paper out financially, and other, it doesn't make sense to pursue it. Second, you've got to have a chance to pass muster and get it approved.

Speaker #7: There were two seven , 30 seven dash 800 seconds that we sold . So those , those five aircraft and you know about a 30 or $40 million , you know , book impact there .

Speaker #21: You have to be compatible enough, thinking about things like aircraft cultures. So at the end of the day, if it doesn't paper out financially, and it doesn't make sense to pursue it.

Speaker #7: So , you know , not , not super material to , to the cost numbers that you saw . So , you know , everything you're seeing in the cost numbers is around the structural changes that we're making to the business

Speaker #21: Second, you've got to have a chance to pass muster and get it approved. If it's no matter how good it might look, if you have too much overlap, as an example, and your odds of approval are low, it's too risky and no matter what you think, yeah, it's not something that you can pursue.

Bob Jordan: If it no matter how good it might look, if you have too much overlap, as an example, and your odds of approval are low, it's too risky, and no matter what you think, it's not something that you can pursue. You know, we've always been pro-competition, pro-consumer here at Southwest. The combo has to be something that's good for your customers. It's got to in particular add geographies, add to the network, potentially add products, but serve them in a better way. That's how we thought about AirTran. It met all those. The geographic combination made sense, the synergies were there, the cultures were similar. At the end of the day, that was a, you know, that was a great thing for Southwest Airlines.

Speaker #2: The next question will come from John Gordon with Citigroup . Please go ahead

Operator: The next question will come from John Godden with Citigroup. Please go ahead.

Speaker #10: Hey guys . Thank you for taking my question , Bob . I wanted to follow up on the topic of consolidation . And it's not about , you know , rumors , news or anything like that .

John Godden: Hey, guys. Thank you for taking my question. Bob, I wanted to follow up on the topic of consolidation, and it's not about rumors, news, or anything like that. You were pivotal and central to the AirTran deal many years ago. I feel like there must be learnings from that. There must be kind of a philosophy on when consolidation or being involved in it matters and adds value, when it doesn't. I'm hoping for just more historical context and plugging into the company's philosophy today rather than any commentary on what's going out there right now.

Speaker #21: And we've always been pro-competition, pro-consumer here at Southwest. So the combo has to be something that's good for your customers. It's got to and particularly add geographies, add to the network, potentially add products, but serve them in a better way.

Speaker #10: I mean , you were pivotal and central to the AirTran deal many years ago . I feel like there must be learnings from that .

Bob Jordan: It's got to in particular add geographies, add to the network, potentially add products, but serve them in a better way. That's how we thought about AirTran. It met all those. The geographic combination made sense, the synergies were there, the cultures were similar. At the end of the day, that was a, you know, that was a great thing for Southwest Airlines. It can't be simply because, hey, it's a good time to do something, or the rest of the industry is doing something. It has to make sense fundamentally.

Speaker #10: There must be kind of a philosophy on when consolidation is involved—when it matters, and when it adds value, and when it doesn't. I am hoping for just, you know, more historical context and plugging into the company's philosophy today, rather than any commentary on what's going on out there right now.

Speaker #21: And that's how we thought about AirTran. And it met all those. The geographic combination made sense. The synergies were there. The cultures were similar.

Speaker #4: Yeah . John , thanks for the question . And it's pretty basic in my mind , again , as you sort of go back and reflect on AirTran , it and yeah , I was involved in that deal heavily .

Speaker #21: And at the end of the day, that was a great thing for Southwest Airlines. It can't be simply because hey, it's a good time to do something or the rest of the industry is doing something.

Bob Jordan: Yeah. John Godden, thanks for the question, and it's pretty basic in my mind. Again, as you sort of go back and reflect on AirTran, and yeah, I was involved in that deal heavily. It's, number one, got to make sense. In other words, the pieces that get put together have to result in synergies. They have to result in goodness in terms of geography served. You have to be compatible enough, thinking about things like aircraft cultures. So at the end of the day, if it doesn't paper out financially, and other, it doesn't make sense to pursue it. Second, you've got to have a chance to pass muster and get it approved. No matter how good it might look, if you have too much overlap, as an example, and your odds of approval are low, it's too risky.

Bob Jordan: It can't be simply because, hey, it's a good time to do something, or the rest of the industry is doing something. It has to make sense fundamentally.

Speaker #4: It's number one . Got to make sense . In other words , you have the the pieces that get put together have to result in synergies .

Speaker #21: It has to make sense fundamentally.

Speaker #6: The next question will come from Tom Fitzgerald with TD Cowan. Please go ahead.

Operator: The next question will come from Helane Becker with TD Cowen. Please go ahead.

Speaker #4: They have to result in goodness in terms of geography served. You have to be compatible enough, thinking about things like aircraft cultures.

Speaker #22: Hi. Thanks very much for the time. Just curious on just within the outlook for QQ RASM, or just even kind of broadly over the balance of the year, do you anticipate load factors getting back up into the 80% range?

Helane Becker: Hi, thanks very much for the time. Just curious on, just within the outlook for QQ RASM or even just even kind of broadly over the balance of the year, do you anticipate load factors getting back up into the 80% range? It's just one concern we hear a lot from investors. Like, as long as it's in the 70% range, there's, like, that risk that there's maybe or concern that there's share loss in some key or some of the more competitive markets. Thanks again for the time.

Speaker #4: So at the end of the day , if it doesn't paper out financially and other , it doesn't make sense to pursue it .

Speaker #22: And this is just one concern we hear a lot from investors. As long as it's in the 70% range, there's that risk that there's maybe or concern that there's share loss in some key or some of the more competitive markets.

Speaker #4: Second , you've got to have a chance to pass muster and get it approved . If it's . If no matter how good it might look , if you have too much overlap .

Speaker #22: Thanks again for the time.

Speaker #23: Yeah, I'll take that. So if you look at our Q1 RASM and you kind of foot back to Q1 of 2019, you see our RASM on the stage with such a basis has outperformed the carriers that report so far.

Andrew Watterson: Yeah, I'll take that. If you look at our Q1 RASM and you kind of flip back to Q1 of 2019, you see our RASM on a states adjusted basis has outperformed the carriers that report so far, the big 3 in particular. Obviously that's the metric that matters. Whether year-over-year, year-over-6 year, you drive RASM. You know, Bob mentioned we cut O'Hare, and I got employee questions about, Hey, Andrew, the flights were always full. A full flight does not mean a profitable flight. One of the most ruinous things you can do in the airline business is chase market share or chase volume. You have to go after RASM, and our RASM is performing with us on a year-over-year basis, a year-over-6 year basis, year-over-7 year basis. It is working for us.

Speaker #4: As an example your odds of approval are low , it's too risky . And no matter what you think , it's not something that you can pursue and you know , we've always been pro-competition pro-consumer here at Southwest .

Bob Jordan: No matter what you think, it's not something that you can pursue. We've always been pro-competition, pro-consumer here at Southwest. The combo has to be something that's good for your customers. It's got to, in particular, add geographies, add to the network, potentially add products, but serve them in a better way. That's how we thought about AirTran. It met all those. The geographic combination made sense. The synergies were there. The cultures were similar. At the end of the day, that was a great thing for Southwest Airlines. It can't be simply because, hey, it's a good time to do something, or the rest of the industry is doing something. It has to make sense fundamentally.

Speaker #23: The big three in particular. And so obviously, that's the metric that matters. But the year-over-year, year-over-six-year, you drive RASM. Bob mentioned we cut O'Hare and I got employee questions about, "Hey, Andrew, the flights were always full." Well, full flight does not mean a profitable flight.

Speaker #4: So the the combo has to be something that's good for your customers . It's got to in particular , add geographies , add to the network , potentially add products , but serve them in a better way .

Andrew Watterson: A full flight does not mean a profitable flight. One of the most ruinous things you can do in the airline business is chase market share or chase volume. You have to go after RASM, and our RASM is performing with us on a year-over-year basis, a year-over-6 year basis, year-over-7 year basis. It is working for us.

Speaker #23: And so one of the most rumorous things you can do in the airline business is chase market share or chase volume. You have to go after RASM and our RASM is performing with us on a year-over-year basis, a year-over-six-year basis, year-over-seven-year basis.

Speaker #4: And that's how we thought about AirTran . And it met all those the , the geographic combination made sense . The synergies were there .

Speaker #23: It is working for us. And so we'll continue to focus on that. If that results in load going up, so be it. And then our calculations, we look at the incremental cost to carry as well as the incremental answer we get.

Andrew Watterson: We'll continue to focus on that. If that results in load going up, so be it. In our calculations, we look at the incremental cost to carry as well as the incremental answer we get as we price and we accept and reject demand every day. For us, it's working. We'll continue to push RASM as hard as we can, and we're seeing extraordinary good yield traction right now. If that's a vehicle for higher RASM, we will pursue it.

Speaker #4: The cultures were similar . And at the end of the day , that was , you know , that was a great thing for Southwest Airlines .

Speaker #23: As we price and we accept and reject demand every day. So for us, it's working. We'll continue to push RASM as hard as we can and we're seeing extraordinary good yield traction right now.

Speaker #4: It can't be simply because , hey , it's a good time to do something or the rest of the industry is doing something .

Speaker #4: It has to make sense . Fundamentally

Speaker #23: And that's if that drives the if that's the vehicle for higher RASM, we will pursue it.

Speaker #2: The next question will come from Tom Fitzgerald with TD Cowen. Please go ahead.

Operator: The next question will come from Tom Fitzgerald with TD Cowen. Please go ahead.

Speaker #6: The next question will come from Brandon Oglenski with Barclays. Please go ahead.

Operator: The next question will come from Brandon Oglenski with Barclays. Please go ahead.

Speaker #11: Hi , thanks very much for the time . Just curious on within the outlook for TC or are you just kind of broadly over the balance of the year ?

Tom Fitzgerald: Hi, thanks very much for the time. Just curious on, just within the outlook for Q2 RASM or just even kind of broadly over the balance of the year, do you anticipate load factors getting back up into the 80% range? It's just one concern we hear a lot from investors. As long as it's in the 70% range, there's that risk that there's major concern that there's share loss in some of the more competitive markets. Thanks again for the time.

Speaker #24: Hey, good morning. And thanks for taking the question. I mean, maybe if I can just follow up on that because there seems to be this fickle market view that a high teens RASM guide is somehow indicative that Southwest is incrementally losing share.

Brandon Oglenski: Hey, good morning, and thanks for taking the question. I mean, maybe if I can just follow up on that, 'cause there seems to be, like, this fickle market view that a high teens RASM guide is somehow indicative that Southwest is incrementally losing share. I know we've kind of beat around the bush around this, but I don't know, Bob or Andrew, do you wanna comment on that? Maybe incrementally for the second part of my question, you know, how dynamic have you gotten to pricing these incremental products that you just haven't had before? Is there more upside to come on figuring out, you know, what people's value they put on these products is? Thank you.

Speaker #11: Do you anticipate load factors getting back up into the 80% range? That's just one concern. We hear a lot from investors.

Speaker #11: Like, as long as it's in the 70% range, there's that risk that there's maybe concern that share loss in some key or some of the more competitive markets.

Speaker #24: And I know we've kind of beat around the bush around this, but I don't know, Bob or Andrew, do you want to comment on that?

Speaker #24: And then maybe incrementally for the second part of my question, how dynamic have you gotten to pricing these incremental products that you just haven't had before?

Brandon Oglenski: Maybe incrementally for the second part of my question, you know, how dynamic have you gotten to pricing these incremental products that you just haven't had before? Is there more upside to come on figuring out, you know, what people's value they put on these products is? Thank you.

Speaker #11: Thanks again for the time.

Speaker #1: Yeah, I'll take that. So, if you look at our Q1 and you kind of flip back to Q1 of 2019, you see our RASM on the stage basis has outperformed the carriers that have reported so far.

Andrew Watterson: Yeah, I'll take that. If you look at our Q1 RASM and you kind of flip back to Q1 of 2019, you see our RASM on a stage adjusted basis has outperformed the carriers that report so far, the big three in particular. Obviously that's the metric that matters. Whether year over year over six year, you drive RASM. Bob mentioned we cut O'Hare, and I got employee questions about, "Hey, Andrew, the flights were always full." Well, full flight does not mean a profitable flight. One of the most ruinous things you can do in the airline business is chase market share or chase volume. You have to go after RASM, and our RASM is performing with us.

Speaker #24: Is there more upside to come on figuring out what people's value they put on these products is? Thank you.

Speaker #1: The big three in particular . And so obviously , that's the metric that matters whether the year over year , year over six year , you drive for ASM , you know , Bob mentioned we cut O'Hare and I got employee questions about , hey , Andrew , the flights are always full .

Speaker #23: Sure. I'll start. I mean, you're growing slower as Bob mentioned. So therefore, your share will drop. And that should be fine. You look at the number of people on board your aircraft, once again, footing back to pre-pandemic, the number of the people in the aircraft, it is flat to up.

Andrew Watterson: Sure. I'll start. I mean, you're growing slower, as Bob mentioned, so therefore your share will drop, and that should be fine. You look at the number of people on board your aircraft, once again, footing back to, you know, pre-pandemic, the number of the people on the aircraft is flat to up. The aircraft have gotten bigger. Our aircraft size is 160. You know, the big three, I think, is about 120, 130, so it's a much bigger aircraft size. Other airlines with big aircraft also, you know, see this challenge. I don't think it's anything to do about inherently attractiveness of Southwest Airlines.

Speaker #1: A full flight does not mean a profitable flight . And so one of the most ruinous things you can do in the airline business is to chase market share or chase volume .

Speaker #23: The aircraft have gotten bigger. And so our aircraft size is 160. The big three, I think, is about 120, 130. So it's a much bigger aircraft size.

Speaker #1: You have to go after rasam and our rasam is performing , whether it's on a year over year basis , a year over six year basis , year over year basis .

Speaker #23: Other airlines with big aircraft also see this challenge. And so I don't think it's anything to do about inherently attracting us to Southwest Airlines.

Speaker #1: It is working for us . And so we'll continue to focus on that . If that results in load going up , so be it .

Speaker #1: And then our calculations , we look at the incremental cost to carry as well as the answer . We get . We price and we accept and reject demand every day .

Speaker #23: You see all the metrics we talk about is we have always been attractive. And we got incrementally attractive with these new products. And we were monetizing that mostly in the back of yield in a high fuel environment.

Andrew Watterson: You see all the metrics we talk about is we have always been attractive, and we got incrementally attractive with these new products. We were monetizing that mostly in the back of yield. In a high fuel environment, that is the path to prosperity, is getting it on the back of yield.

Speaker #1: So for us, it's working. We'll continue to push as hard as we can, and we're seeing extraordinarily good yield traction right now.

Speaker #23: That is the path to prosperity is getting it on the back of yield.

Speaker #1: And that's if that drives the—if that's the vehicle for higher ASM, we will pursue it.

Speaker #25: Well, and I just want to add a little perspective here because now the narrative is, yeah, 17 and a half percent guided RASM is not enough.

Bob Jordan: Well, I just want to add a little perspective here because now the narrative is, yeah, 17.5%, you know, guided RASM is not enough. Even though load factor is up, somehow we must be losing share. Our customers love these new products, and there's incredible demand. If you just go back a bit here over the last, you know, 18 months, you know, the narratives about Southwest from the naysayers, I think they're becoming increasingly desperate a bit here.

Speaker #2: The next question will come from Brandon Oglenski with Barclays . Please go ahead .

Speaker #12: Hey , good morning , and thanks for taking the question . I mean , maybe if I can just follow up on that because there seems to be like this fickle market view that a high teens guide is somehow indicative that southwest is incrementally losing share .

Speaker #25: And then even though load factor is up, somehow we must be losing share and there's our customers love these new products and there's an incredible demand.

Speaker #12: And I know we've kind of beat around the bush on this , but I don't know Bob or Andrew . Do you want to comment on that ?

Speaker #25: But if you just go back a bit here over the last 18 months, the narratives about Southwest from the naysayers I think they're becoming increasingly desperate a bit here.

Speaker #12: And then maybe incrementally for the second part of my question , you know , how dynamic have you gotten to pricing these incremental products that you just haven't had before ?

Speaker #12: Is there more upside to come on figuring out , what people , people's value they put on these products is ? Thank you

Speaker #25: First, it was Southwest won't change. And then it became, well, Southwest can't execute the changes that they've talked about. And then it was, well, they got them done, but their customers aren't going to want to buy the new products.

Bob Jordan: First it was, you know, Southwest won't change. Then it became, Well, Southwest can't execute the changes that they've talked about. Then it was, Well, they got them done, but their customers aren't gonna wanna buy the new products. Now there's some, you know, wonky argument about accounting and ATL, then we're losing share. If you just step back, ignore all that junk and look at the results, terrific product demand, best net margin of the large US carriers. A 17.5% unit revenue growth in Q2, which is off the charts. Business revenue up 25% in March. The transformation is working. Customers love the product, it is transforming our financial results.

Speaker #1: Sure . I'll start . I mean , you're growing slower . As Bob mentioned . So therefore your share will drop . And that should be fine .

Speaker #25: Now there's some wonky argument about accounting and ATL and then we're losing share. And if you just step back, ignore all that junk and look at the results.

Speaker #1: You look at the number of people on board your aircraft. Once again, footing back to pre-pandemic, the number of people in the aircraft is flat to up. The aircraft have gotten bigger.

Bob Jordan: If you just step back, ignore all that junk and look at the results, terrific product demand, best net margin of the large US carriers. A 17.5% unit revenue growth in Q2, which is off the charts. Business revenue up 25% in March. The transformation is working. Customers love the product, it is transforming our financial results. I just would say, too, you've got to always examine the motives of those that are pushing a narrative, especially one that's increasingly irrational.

Speaker #25: Terrific product demand. Best net margin. Of the large US carriers. A 17 and a half percent unit revenue growth in the second quarter, which is off the charts.

Speaker #1: And so our aircraft size is 160 . You know , the big three , I think is about one 2130 . So it's a much bigger aircraft size .

Speaker #1: Other airlines with big aircraft also, you know, see this challenge. And so I don't think it's anything to do with inherently attracting us to Southwest Airlines.

Speaker #25: Business revenue up 25% in March. The transformation is working. Customers love the product. And it is transforming our financial results. And I just would say too, you've got to always examine the motives of those that are pushing a narrative especially one that's increasingly irrational.

Speaker #1: You see, all the metrics we talk about is we have always been attractive. We've gotten incrementally more attractive with these—these new products.

Bob Jordan: I just would say, too, you've got to always examine the motives of those that are pushing a narrative, especially one that's increasingly irrational.

Speaker #1: And we were monetizing that most in the back of yield and a high fuel environment . That is the path to prosperity is getting it on the back of yield .

Speaker #6: The next question will come from Sheila Cayello with Jefferies. Please go ahead.

Operator: The next question will come from Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker #4: Well , and I just want to add a little perspective here because now the narrative is , yeah , you 17.5 , you know , percent guided ASM is not enough .

Speaker #26: Good morning, guys. And thank you. Maybe just related to all the fuel comments and capacity comments, Bob, I could see why you're frustrated at the same time too.

Sheila Kahyaoglu: Good morning, guys, and thank you. Maybe, just kind of related to all the fuel comments and capacity comments, Bob, I could see why you're frustrated at the same time too. You know, I guess, at what fuel price do you make further changes to capacity? As a follow-up to that, you know, how do we think about when fuel prices and how fuel prices impact your aircraft sales or deliveries, and how you think about changing them for how long they stay at these elevated levels?

Speaker #4: And then even low load factor is up somehow . We must be losing share . And there's our , our customers love these new products .

Speaker #26: I guess at what fuel price do you make further changes to capacity? And as a follow-up to that, how do we think about when fuel prices and how fuel prices impact your aircraft sales or deliveries and how you think about changing them for how long they stay at these elevated levels?

Speaker #4: And there's an incredible demand . But if you just go back a bit here over the last 18 months , you know , the narratives about southwest from the naysayers , I think they're becoming increasingly desperate a bit here .

Speaker #4: First , it was , you know , southwest won't change . And then it became , well , southwest can't execute the changes that they've talked about .

Speaker #23: Yeah, I'll and maybe Tom on the second one. I'll take the first one. It's really hypothetical because fuel is moving around. I mean, really day to day, you're seeing 8 and 10 percent moves day to day.

Bob Jordan: Yeah. I'll, maybe Tom on the second one. I'll take the first one. It's really hypothetical because fuel is moving around, I mean, really day to day. You're seeing 8% and 10% moves day to day. We are again, you're not in control of exactly how fast-

Speaker #4: And then it was well , they got them done . But their customers aren't going to want to buy the new products . And now there's some , know , wonky argument about accounting and ATL .

Speaker #4: And then we're losing share . And if you just step back , ignore all that junk and look at the results . Terrific product demand .

Speaker #23: We are again, and you're not in you're not in control of exactly how fast and how much you can raise fares. There's market dynamics at play, but there is a lot of constructive fare movement we're seeing that.

Speaker #4: Best net margin of the large U.S. carriers. A 17.5% unit revenue growth in the second quarter, which is off the charts.

Andrew Watterson: How much you can raise fares. There's market dynamics at play, but there is a lot of constructive fare movement. We're seeing that. As, you know, clearly, revenues and therefore fares are underneath the increase in fuel. We've not caught the increase in fuel by any stretch of the imagination, which is why, you know, you're continuing to see fares move in the industry. I can't predict exactly where fuel is going, therefore can't predict exactly where pricing and fares are going. Which is why, you know, I indicate we're just using the forward curve. We'll continue to be dynamic. We'll continue to react.

Bob Jordan: How much you can raise fares. There's market dynamics at play, but there is a lot of constructive fare movement. We're seeing that. As, you know, clearly, revenues and therefore fares are underneath the increase in fuel. We've not caught the increase in fuel by any stretch of the imagination, which is why, you know, you're continuing to see fares move in the industry.

Speaker #23: And as clearly revenues and therefore fares are underneath the increase in fuel. So we've not caught the increase in fuel by any stretch of the imagination.

Speaker #4: Business revenue up 25% in March . The transformation is working . Customers love the product , and it is transforming our financial results .

Speaker #4: And I just would say too, you've got to always examine the motives of those that are pushing a narrative, especially one that's increasingly irrational.

Speaker #23: Which is why you're continuing to see fares move in the industry. So I can't predict exactly where fuel is going. And so therefore can't predict exactly where pricing and fares are going.

Bob Jordan: I can't predict exactly where fuel is going, therefore can't predict exactly where pricing and fares are going. Which is why, you know, I indicate we're just using the forward curve. We'll continue to be dynamic. We'll continue to react. We came in again to the year with a very disciplined capacity plan.

Speaker #2: The next question will come from Sheila Kahyaoglu with Jefferies. Please go ahead.

Speaker #13: Good morning , guys , and thank you . Maybe just related to all the fuel comments and capacity comments , Bob , I could see why you're frustrated at the same time too .

Speaker #23: Which is why I indicate we're just using the forward curve. We'll continue to be dynamic. We'll continue to react. We came in again to the year with a very disciplined capacity plan.

Bob Jordan: We came in again to the year with a very disciplined capacity plan. We'll continue to be aggressive in redeploying capacity to better performing markets. Yeah, you know, if fuel really moves up from here, obviously, we would take further actions. I think, you know, trying to indicate what those might be is just speculation at this point. Just know that we'll be aggressive, though.

Speaker #13: You know , I guess at what fuel price do you make further changes to capacity ? And as a follow up to that , you know , how do we think about when fuel prices and how fuel prices impact your aircraft sales or deliveries and how you think about changing them for how long they stay at these elevated levels ?

Speaker #23: And we'll continue to be aggressive in redeploying capacity to better performing markets. And then, yeah, if fuel really moves up from here obviously, we would take further actions.

Bob Jordan: We'll continue to be aggressive in redeploying capacity to better performing markets. Yeah, you know, if fuel really moves up from here, obviously, we would take further actions. I think, you know, trying to indicate what those might be is just speculation at this point. Just know that we'll be aggressive, though.

Speaker #23: But I think trying to indicate what those might be is just speculation at this point. Just know that we'll be aggressive, though.

Speaker #4: Yeah , I'll and maybe Tom , on the second one , the I'll take the first one . It's really hypothetical because fuel is moving around .

Speaker #25: And then the follow-on question on aircraft, having such a large fleet of mostly unencumbered owned airplanes, gives us tons of flexibility. So that'll really just be an output of how and where we're looking to grow.

Tom Doxey: Then the follow-on question on aircraft, having such a large fleet of, you know, mostly unencumbered owned airplanes gives us tons of flexibility. That'll really just be an output of how and where we're looking to grow, and to what levels and that flexibility is there to retire or retain to adjust to whatever the environment might be.

Speaker #4: I mean , really day to day you're seeing eight and 10% moves day to day We are again . And you're not in .

Speaker #25: And to what levels and that flexibility is there to retire or retain to adjust to whatever the environment might be.

Speaker #4: You're not in control of exactly how fast and how much you can raise fares. There are market dynamics at play, but there is a lot of constructive, fair movement.

Speaker #6: The next question will come from Dan McKenzie with Seaport Global. Please go ahead.

Operator: The next question will come from Dan McKenzie with Seaport Global. Please go ahead.

Speaker #4: We're seeing that . And as you know , clearly revenues and therefore fares are underneath the increase in fuel . So we've not caught the increase in fuel by any by any stretch of the imagination , which is why , you know , you're continuing to see fares move in the industry .

Speaker #27: Oh, hey, good morning. So my question is similar to a prior one trying to get at M&A philosophically. And I guess my question really is, how sacrosanct is the investment-grade rating?

Dan McKenzie: Oh, hey, good morning. My question is similar to a prior one trying to get at M&A philosophically. I guess my question really is, you know, how sacrosanct is the investment-grade rating? Is that something you'd ever be willing to put at risk temporarily if a deal checked all the boxes that you talked about, Bob? Secondly, I guess, Andrew, you know, Southwest is doing so much on merchandising. Just going back to that question about how much room is left in the tank. You know, the revenue upsell at the time of sale seems, you know, pretty compelling, pretty, you know, communicated pretty well. I'm curious how big the upsell opportunity is after the sale, what you're doing here, and what percent of revenue that could ultimately be.

Speaker #27: And is that something you'd ever be willing to put at risk temporarily if a deal checked all the boxes that you talked about, Bob?

Speaker #27: And then secondly, I guess, Andrew, Southwest is doing so much on merchandising and just going back to that question about how much room is left in the tank.

Speaker #4: So I can't predict exactly where where fuel is going . And so therefore it can't predict exactly where pricing and fares are going , which is why , you know , I indicate we're just using the forward curve .

Dan McKenzie: Secondly, I guess, Andrew, you know, Southwest is doing so much on merchandising. Just going back to that question about how much room is left in the tank. You know, the revenue upsell at the time of sale seems, you know, pretty compelling, pretty, you know, communicated pretty well. I'm curious how big the upsell opportunity is after the sale, what you're doing here, and what percent of revenue that could ultimately be.

Speaker #27: The revenue upsell at the time of sale seems pretty compelling, pretty communicated pretty well. But I'm curious how big the upsell opportunity is after the sale.

Speaker #4: We'll continue to be dynamic . We'll continue to react . We came in again to the year with a very disciplined capacity plan .

Speaker #27: What you're doing here and what percent of revenue that could ultimately be?

Speaker #4: And we'll continue to be aggressive in redeploying capacity to better performing markets . And then yeah , you know , if if really , if you'll really moves up from here Obviously we would take further actions .

Speaker #28: So Dan, I'll take the first one. And this goes to comments I made earlier. The investment-grade rating for us is a differentiator. There are only three airlines in the world that have an investment-grade rating.

Tom Doxey: Dan, I'll take the first one. This goes to comments I made earlier. The investment-grade rating for us is a differentiator. You know, there are only three airlines in the world that have an investment-grade rating. You know, as we look at the activities that we do, just know that along with the guardrails that I referenced earlier, are a filter that we use to evaluate different opportunities or, you know, different decisions that we make within the business.

Speaker #4: But I think, you know, trying to spec, try and indicate what those might be is just speculation at this point. Just know that we'll be aggressive, though.

Speaker #28: And so as we look at the activities that we do, just know that that along with the guardrails that I referenced earlier are a filter that we use to evaluate different opportunities or different decisions that we make within the business.

Speaker #7: And then the follow on question on aircraft having such a large fleet of mostly unencumbered owned airplanes gives us tons of flexibility . So that'll really just be an output of , of how and where we're looking to grow and to what levels .

Speaker #29: And on your second question, I think when we originally gave some of our values before for initiatives that you kind of signed seeing extra legroom, we talked about how we expected the kind of that to improve as we kind of bake it in from this year into next year.

Andrew Watterson: On your second question, I think when we originally gave some of our values before for initiatives that you kind of size the Extra Legroom, we talked about how we expected the kind of that to improve as we kind of bake it in from this year into next year. Obviously there's still upside to come from it. At time of sale, we are seeing very good traction as we indicated in our pre-prepared remarks, but we're also still continuing to optimize that. We're happy with it. The standalone seats, some of that comes at sale, but there's a very kind of sharp inside the week before departure booking curve there.

Speaker #7: And that flexibility is there to retire or retain , to adjust to whatever the environment might be

Speaker #2: The next question will come from Dan McKenzie with Seaport Global . Please go ahead .

Speaker #29: So obviously, there's still upside to come from it. The app time of sale we are seeing very good traction as we indicate by our prepared remarks.

Speaker #14: Oh , hey , good morning . So my question is similar to a prior one trying to get at M&A philosophically . And I guess my question really is , you know , how sacrosanct is the investment grade rating .

Andrew Watterson: At time of sale, we are seeing very good traction as we indicated in our pre-prepared remarks, but we're also still continuing to optimize that. We're happy with it. The standalone seats, some of that comes at sale, but there's a very kind of sharp inside the week before departure booking curve there.

Speaker #29: But we're also still continuing to optimize that. We're happy with it. The standalone seats some of that comes at sale, but there's a very kind of sharp inside the week before departure booking curve there.

Speaker #14: And is that something you'd ever be willing to put at risk temporarily if a deal checked all the boxes that you talked about , Bob , and then secondly , I guess , Andrew , you know , southwest is doing so much on merchandising .

Speaker #29: And we have dynamic pricing tools that we've deployed to help us with that. And we expect benefits there all those in the same vein of we expect improved from this year into next.

Andrew Watterson: We have dynamic pricing tools that we've deployed to help us with that. We expect to have benefits there, all those in the same vein that we expect to improve from this year into next. There's also other opportunities that Bob's talked about that we're looking at to take it into the next level, including getting some more share shift out of this. Overall, as Bob said, it's working better than we expected. There is implied room to come in our business case, and we think there's room on top of that for upside.

Speaker #14: And just going back to that question about how much room is left in the tank , you know , the revenue upsell at the time of sale , seems , you know , pretty compelling , pretty , you know , communicated pretty well .

Speaker #29: And there's also other opportunities that Bob's talked about that we're looking at to take it into the next level, including getting some more share shift out of this.

Speaker #14: But I'm curious how big the upsell opportunity is after the sale , what you're doing here and what percent of revenue that could ultimately be .

Speaker #29: So overall, as Bob said, it's working better than we expected. There is implied room to come in our business case and we think there's room on top of that for upside.

Speaker #7: So , Dan , I'll take the first one . And this goes to comments I made earlier . The investment grade rating for us is a differentiator .

Speaker #6: The next question will come from Chris Weatherby with Wells Fargo. Please go ahead.

Operator: The next question will come from Chris Wetherbee with Wells Fargo. Please go ahead.

Speaker #7: You know , there are only three airlines in the world that have an investment grade rating . And so , you know , as we look at the activities that we do , just know that that along with the guardrails that I referenced earlier , are a filter that we use to , to evaluate different opportunities or different decisions that we make within the business .

Speaker #30: Yeah, hey, thanks. Good morning, guys. I just want to try to make sure I understand this. I was going to I'm going to ask this question.

Chris Wetherbee: Hey, thanks. Good morning, guys. I just wanna try to make sure I understand this. I'm gonna ask this question. It's been asked a bunch of times, but I'm just curious. Since 1 March, how many fare increases have you put through? Just putting initiatives aside, I guess, how many have you participated in the industry just to give a sense of kinda how that's played out?

Speaker #30: It's been asked a bunch of times, but I'm just curious. Since March 1st, how many fare increases have you put through? Just putting initiatives aside, I guess.

Speaker #30: How many have you participated in the industry? Just to give a sense of kind of how that's played out.

Speaker #1: And on your second question, I think when we originally gave some of our values before for initiatives that you kind of see — extra legroom — we talked about how we expected that to improve as we kind of bake it in from this year into next year.

Speaker #29: I count five broad industry-wide fare moves and another one underway today.

Andrew Watterson: I count 5 broad industry-wide fare moves, and another one underway today.

Speaker #30: And you participated in all of them?

Chris Wetherbee: You participated in all of them?

Speaker #29: Those all stuck. And which means all carriers participated.

Andrew Watterson: Those all stuck, which means all carriers participated.

Speaker #1: So obviously there's there's still upside to come from it . The app time of sale , we are we are seeing very good traction as we indicated by our , our prepared remarks .

Speaker #30: That's very helpful. Thank you very much.

Chris Wetherbee: That's very helpful. Thank you very much.

Speaker #6: The next question will come from David Vernon with Bernstein. Please go ahead.

Operator: The next question will come from David Vernon with Bernstein. Please go ahead.

Speaker #28: Hey, good morning. And thanks for taking the question. So I guess I should say, yeah. So if you look at the rapid rewards information that's in the earnings release, they're talking about enrollments up 37%, highest year status earners increased 2%.

David Vernon: Hey, good morning. And thanks for taking the question. I guess I should say, yeah. If you look at the Rapid Rewards integration that's in the earnings release, they're talking about enrollments up 37%, high interest credit card spend increased 2%. Is there any color you can give us around how the card program is performing as far as, you know, total spend or signups for the card? Just trying to figure out like how the card program is performing during this period.

Speaker #1: But we're also still continuing to optimize that . We're happy with it . The standalone seats , some of that comes at sale , but there's a very kind of sharp inside the week before departure , booking curve there .

Speaker #28: Are there any is there any color you can give us around how the card program is performing as far as total spend or sign-ups for the card?

Speaker #1: And we have dynamic pricing tools that we've deployed to to help us with that . And we expect benefits there . All those in the same vein of we expect to improve from from this year into next .

Speaker #28: Just trying to figure out how the card program is performing during this period.

Speaker #1: And there's also other opportunities that we've talked about that we're looking at to take it to the next level, including getting some more share shift out of this.

Speaker #29: You know, I would say that we saw improvement with the rollout in the mid-last year of the new card. Our remuneration was up 8% approximately year over year, which is, I think, just shy of the other airlines.

Andrew Watterson: You know, I would say that we saw improvement with the, you know, rollout in the mid last year of the new card. Our remuneration was up 8% approximately year over year, which is, I think, just shy of the other airlines, and we don't yet have a high fee credit card, which is a source of much of the gains across the card industry. We're really encouraged that without that key aspect, we're at 8%, and we expect that to accelerate if we can offer that kind of card.

Speaker #1: So overall , as Bob said , it's working better than we expected . There is implied room to come in our business case , and we think there's room on top of that for upside

Speaker #2: The next question will come from Chris Wetherbee with Wells Fargo . Please go ahead .

Speaker #29: And we don't yet have a high fee credit card which is a source of much of the gains across the card industry. And so we're really encouraged that without that key aspect, we're at 8%.

Speaker #15: Hey . Hey , thanks . Good morning guys . I just want to try to make sure I understand this . I was going to ask this question has been asked a bunch of times , but I'm just curious .

Speaker #29: And we expect that to accelerate if we can offer that kind of card.

Speaker #15: Since March first , how many fare increases have you put through ? Just putting initiatives aside , I guess , how many have you participated in the industry ?

Speaker #6: The next question will come from Chris Stephanopoulos with SIG. Please go ahead.

Operator: The next question will come from Chris Stathoulopoulos with SIG. Please go ahead.

Speaker #15: Just to give a sense of kind of how that's played out .

Speaker #29: Okay. Good morning, everyone. I'll keep it to one call. So one question. On-demand elasticity destruction, although I prefer the former, I guess, term there.

Chris Stathoulopoulos: Okay. Good morning, everyone. I'll keep it to one call. One question. On demand elasticity, destruction, although I prefer the former, I guess, term there. If you could contextualize the part of your network that is perhaps more resilient than others. Whether, you know, it's some inherent pricing power due to network architecture or otherwise as we consider what is likely going to be, I guess, some weakening at certain parts of this K-shaped recovery, however you wanna describe it, but parts of your network that you believe, for whatever reason, are more resilient or have some inherent pricing power around them. Thank you.

Speaker #1: I count five broad industry wide fare moves and another one underway today .

Speaker #15: Can you participated in all of them ?

Speaker #1: Those all stuck . And which means all carriers participated .

Speaker #29: If you could contextualize the part of your network that is perhaps more resilient than others. So whether it's some inherent pricing power due to network architecture or otherwise as we consider, what is likely going to be I guess some weakening at certain parts of this K-shaped recovery, however you want to describe it.

Speaker #15: That's very helpful . Thank you very much

Speaker #2: The next question will come from David Vernon with Bernstein. Please go ahead.

Speaker #16: Hey . Good morning , and thanks for taking the question . So I guess I should say . Yeah . So if you look at the rapid rewards information that's in the earnings release , they're talking about enrollments up 37% .

Speaker #16: High tier status earners increased 2% . Are there any is there any color you can give us around how the card program is performing as far as , you know , total spend or or sign ups for the for the card , just trying to figure out like how the , the , the card program is performing during this , during this period .

Speaker #29: But parts of your network that you believe for whatever reason are more resilient or have some inherent pricing power around them. Thank you. Well, this is Andrew.

Andrew Watterson: This is Andrew. We are seeing extraordinarily strong fares, and strong demand across the entire network, across all customer segments, across different travel types. The only place seeing weakness are the Mexican beach resorts and Hawaii because of weather and political activities. Even those have seen a sequential improvement in the last couple weeks. It is when we say broad-based, we very much mean broad-based.

Speaker #29: We are seeing extraordinarily strong fares and strong demand across the entire network, across all customer segments, across different travel types. The only place seeing weakness are the Mexican beach resorts and Hawaii because of weather and political activities.

Speaker #1: You know , I would say that we saw improvement with the , the , rollout in the mid last year of the new card .

Speaker #1: Remuneration was up 8% approximately year over year , which is , I think just shy of the other airlines . And we don't yet have a high fee credit card , which is a source of much of the gains across the the card industry .

Speaker #29: And even those have seen a sequential improvement in the last couple of weeks. So it is when we say broad-based, we very much mean broad-based.

Speaker #1: And so we're really encouraged that without that key aspect, we're at 8%, and we expect that to accelerate. If we can offer that kind of card,

Speaker #29: And the other thing I would add just with the fundamental change in the financial performance of the business and the fundamental change in our margins, whatever is happening in the customer response so at some point you do begin to see some pushback on fare increases, which again, as Andrew said, there's absolutely no sign of that.

Bob Jordan: The other thing I would add, just, you know, with the fundamental change in the financial performance of the business and the fundamental change in our margins, you know, whatever is happening in the customer response. At some point, you do begin to see, you know, some pushback on fare increases, which again, as Andrew said, there's absolutely no sign of that. Obviously, with higher margins now, you know, top of the industry margins, and that performance allows us to look at the business and markets in a different way because they're performing. Markets flipping from a performer to an underperformer is very different when you're near breakeven than when you're producing top of the industry margins.

Speaker #2: The next question will come from Chris Stephanopoulos with s I g . Please go ahead .

Speaker #17: Okay , good morning everyone . I'll keep it to one call . So one question on demand elasticity , destruction . Although I prefer the the former , I guess term there , if you could contextualize the part of your network that is perhaps more resilient than others .

Speaker #29: Obviously, with higher margins now, top of the industry margins, and that performance allows us to look at the business and markets in a different way because they're performing so markets flipping from a performer to an underperformer is very different when you're near break-even than when you're producing top of the industry margins.

Bob Jordan: Obviously, with higher margins now, you know, top of the industry margins, and that performance allows us to look at the business and markets in a different way because they're performing. Markets flipping from a performer to an underperformer is very different when you're near breakeven than when you're producing top of the industry margins.

Speaker #17: So whether you know , it's some inherent pricing power due to network architecture or otherwise , as we consider what is likely going to be , I guess , some weakening at certain parts of this K shape recovery , however you want to describe it .

Speaker #1: Thank you for that, Bob. We'll have time for one last question.

Danielle Collins: Thank you for that, Bob. We'll have time for one last question.

Speaker #17: But parts of your network that you believe, for whatever reason, are more resilient or have some inherent pricing power around them. Thank you.

Speaker #6: Thank you. And the next question will come from Michael Goldie with BMO Capital Markets. Please go ahead.

Operator: Thank you. The next question will come from Michael Goldey with BMO Capital Markets. Please go ahead.

Speaker #2: Good morning. And thank you for squeezing me in. Going back to costs, for maintenance expense, is the performance that we're seeing driven by delivery of new aircraft and then divesting of older equipment?

Michael Goldey: Morning, and thank you for squeezing me in. Going back to costs for maintenance expense, is the performance that we're seeing driven by delivery of new aircraft and then divesting of older equipment? Or is anything else changing that's driving that maintenance performance? Just to follow up on headcount, we've seen headcount per ASM climb quite a bit since 2019. I get that part of that is investing in network resiliency. Are we at the right levels, or are you gonna grow into these resources over time? Thank you.

Speaker #1: This is Andrew. We are seeing extraordinarily strong fares and strong demand across the entire network, across all customer segments, and across different travel types.

Speaker #2: Or is anything else changing that's driving that maintenance performance? And then just to follow up on headcount, we've seen a headcount per ASM climb quite a bit since 2019.

Speaker #1: The only place that's seen weakness are the Mexican beach resorts and Hawaii, because of weather and political activities, and even those have seen a sequential improvement in the last couple of weeks.

Speaker #2: I get that part of that is investing in network resiliency. Are we at the right levels or are you going to grow into these resources over time?

Speaker #1: So it is when we say broad based , we very much mean broad based .

Speaker #4: And the other thing I would add just , you know , with with the fundamental change in the financial performance of the business and the fundamental change in our margins , you know , what , whatever is happening in the customer response .

Speaker #2: Thank you.

Speaker #29: Thanks, Michael. So on the maintenance side, there's several buckets that are there. What you referenced, which is the ability to be efficient in the way that you are retiring a fleet type.

Tom Doxey: Thanks, Michael. On the maintenance side, you know, there's several buckets that are there. What you referenced, which is the ability to be efficient in the way that you are retiring a fleet type, that's certainly part of it. I think we've consistently quarter to quarter to quarter gotten more and more efficient in the way that we're doing that, especially as it relates to the Boeing 737-700, you know, the smaller, less fuel efficient aircraft as we're bringing the new MAX 8s into the fleet. That is definitely a contributor. We have many, many years ahead of that continuing to occur for us as we continue that transition with hundreds of airplanes, newer airplanes on order.

Speaker #4: So at some point you do begin to see , you know , some pushback on fare increases , which again , as Andrew said , there's absolutely no sign of that .

Speaker #29: That's certainly part of it. And I think we've consistently quarter to quarter to quarter gotten more and more efficient in the way that we're doing that, especially as it relates to the 737-700, the smaller, less fuel-efficient aircraft as we're bringing the new MAX 8s into the fleet.

Speaker #4: Obviously , with higher margins . Now , you know , top , top of the industry margins and that performance allows us to look at the business and markets in a different way because they're performing so a , you know , markets flipping from a performer to an underperformer is very different when you're near break even than when you're producing top of the industry margins

Speaker #29: So that is definitely a contributor. And we have many, many years ahead of that continuing to occur. For us, as we continue that transition with hundreds of airplanes, newer airplanes on order.

Tom Doxey: That is definitely a contributor. We have many, many years ahead of that continuing to occur for us as we continue that transition with hundreds of airplanes, newer airplanes on order. Apart from that, though, there is efficiency around the way that we're managing our supply chain and other elements of the program that are also contributing to that maintenance expense being as efficient as it has been.

Tom Doxey: Apart from that, though, there is efficiency around the way that we're managing our supply chain and other elements of the program that are also contributing to that maintenance expense being as efficient as it has been. To your second question on headcount, you know, so much of the headcount expense that we have is variable. Yes, we do look at headcount in and of itself as it relates to the front line, but it's really more about having the right number of people so that you have the right folks in the right places, so that you're not having to have more, you know, premium pay and other things that would result from not, you know, not having kind of an efficient set up across our operation.

Speaker #29: Apart from that, though, there is efficiency around the way that we're managing our supply chain, and other elements of the program that are also contributing to that maintenance expense being as efficient as it has been.

Speaker #7: Thank you for .

Speaker #18: That , Bob . We'll have time for one last question .

Speaker #2: Thank you . And the next question will come from Michael Goldie with BMO Capital Markets . Please go ahead .

Speaker #29: And then to your second question on headcount, so much of the headcount expense that we have is variable. And so yes, we do look at headcount in and of itself as it relates to the front line, but it's really more about having the right number of people so that you have the right folks in the right places so that you're not having to have more premium pay and other things that would result from not having kind of an efficient setup across our operation.

Tom Doxey: To your second question on headcount, you know, so much of the headcount expense that we have is variable. Yes, we do look at headcount in and of itself as it relates to the front line, but it's really more about having the right number of people so that you have the right folks in the right places, so that you're not having to have more, you know, premium pay and other things that would result from not, you know, not having kind of an efficient set up across our operation.

Speaker #19: Good morning, and thank you for squeezing me in. Going back to costs for maintenance expense, is the performance that we're seeing driven by delivery of new aircraft?

Speaker #19: And then divesting of older equipment ? Or is anything else changing that's driving that maintenance performance ? And then just to follow up on headcount , we've seen headcount per ASM climb quite a bit since 2019 .

Speaker #19: I get that part of that is investing in network resiliency . Are we at the right levels or are you going to grow into these resources over time ?

Speaker #29: And then on the indirect side for headcount, you've heard us talk about the fact that we year to year are keeping headcount or SWIB dollars flat, which as we go through attrition and other things, you probably see that headcount come down just a bit to be able to enable the dollars to stay flat year to year to year.

Tom Doxey: On the indirect side for headcount, you've heard us talk about the fact that we year to year are keeping headcount, or you know, SWIB dollars flat, which, you know, that as we go through attrition and other things, you know, you probably see that headcount come down just a bit to be able to enable the dollars to stay flat year to year to year.

Speaker #19: Thank you .

Speaker #7: Thanks , Michael . So on on the maintenance side , you know , there's there's several buckets that are there . What you referenced , which is the ability to be efficient in the way that you are retiring a fleet type .

Speaker #7: That's certainly part of it . And I think we've , we've consistently quarter to quarter to quarter gotten more and more efficient in the way that we're doing that , especially as it relates to the 737 , 700 , you know , the smaller , less fuel efficient aircraft , as we're bringing the new Max eights into the fleet .

Speaker #1: That wraps up today's call. We appreciate everyone for joining us.

Danielle Collins: That wraps up today's call. We appreciate everyone for joining us.

Operator: The conference has concluded. Thank you all for attending. We'll meet again here next quarter.

Speaker #7: So that's that is definitely a contributor . And we have many , many years ahead of that continuing to occur for us as we continue that transition with hundreds of airplanes , newer airplanes on order .

Speaker #7: Apart from that , though , there is efficiency around the way that we're managing our supply chain and other elements of the program that are also contributing to , to , to that maintenance expense being as efficient as it has been .

Speaker #7: And then to your second question on headcount , you know , so much of the headcount expense that we have is , is variable .

Speaker #7: And so , yes , we do look at headcount in and of itself as it relates to the front line , but it's really more about having the right number of people so that you have the right folks in the right places , so that you're not having to have more premium pay and other things that would result from not , you know , not having kind of an efficient setup across our , our operation .

Speaker #7: And then on , on the indirect side for headcount , you've heard us talk about the fact that we year to year are keeping headcount or SWB dollars flat , which , you know , as we go through attrition and other things , you'd probably see that headcount come down just a bit to be able to enable the dollars to stay flat year to year to year

Speaker #18: That wraps up today's call . We appreciate everyone for joining us .

Q1 2026 Southwest Airlines Co Earnings Call

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