Southwest Airlines at 18th Annual Conference: Navigating Challenges with Strategic Initiatives

On Thursday, 22 May 2025, Southwest Airlines (NYSE:LUV) shared insights at the 18th Annual Global Transportation & Industrials Conference. CFO Tom Doxy outlined the airline’s strategic direction amidst a challenging demand environment, where unit revenues have fallen short of expectations. Despite these hurdles, Southwest is committed to executing strategic initiatives aimed at boosting earnings and reducing costs, while maintaining a strong balance sheet.

Key Takeaways

• Southwest aims to add $1.8 billion to EBIT this year and over $4 billion next year through strategic initiatives.
• The company plans to achieve over $1 billion in cost reductions by 2027, with $400 million targeted for this year.
• New revenue streams include basic economy fares and monetization of ancillary services.
• Operational efficiency is a priority, with network adjustments and turn-time reductions in focus.
• Southwest is managing its balance sheet to maintain an investment-grade rating while returning value to shareholders.

Financial Results

• Q1 Performance:

- Unit revenue was approximately 3 points worse than expected.

• Q2 Outlook:

- Unit revenue is projected to be about 6 points worse than anticipated.

• EBIT Contribution:

- Strategic initiatives are set to contribute $1.8 billion this year and over $4 billion next year.

• Cost Reduction Target:

- Over $1 billion in cost reductions by 2027, with $400 million targeted for this year.

- Q1 unit costs reduced from an initial +8% to +4.5% by the end of the quarter.

• Revenue Management:

- Core improvements, including revenue management and network adjustments, are expected to add $1 billion to EBIT.

- New initiatives like bag fees and premium seats are projected to contribute $400 million to EBIT.

• Balance Sheet:

- Completed a $2.5 billion share buyback by July.

Operational Updates

• Capacity Plans:

- Originally planned growth of 1% to 2% has been adjusted to the lower end, with a 1.5-point reduction in the latter half of the year.

- 50 aircraft retirements and 38 new deliveries from Boeing are planned.

• Network Adjustments:

- Exiting Atlanta and expanding connecting flight options from 39 to 56 banks in August.

• Efficiency Improvements:

- Implementing turn-time reductions and increasing red-eye flights.

• Cost Savings:

- Broad-based savings with significant contributions from headcount reduction.

• Fleet Management:

- Transitioning from sale leasebacks to direct sales of aircraft.

Future Outlook

• Revenue Initiatives:

- Launching basic economy and bag fees, with expected revenue growth.

- Selling extra legroom seats and seat assignments starting in Q3 for flights in Q1 next year.

• Basic Economy Strategy:

- Aiming for product differentiation to compete effectively with other airlines.

• Cost Management:

- Comprehensive review of procurement and technology for further efficiencies.

- Reducing weight and maintenance costs by flying fewer bags.

• Unit Costs:

- Targeting a low single-digit exit rate for unit costs.

• International Expansion:

- Exploring opportunities for expanding international routes.

Q&A Highlights

• Impact of New Initiatives:

- Bags and basic economy are key initiatives for 2025.

• Analyst Valuations:

- New initiatives are not yet fully reflected in analyst valuations.

• EBIT Guidance:

- $1.7 billion in EBIT remains a feasible target.

• Basic Economy Strategy:

- Focused on competing effectively with other airlines’ offerings.

• Revenue Management:

- Positive results from revenue management strategies in Q1.

For a more in-depth understanding, readers are encouraged to refer to the full transcript available below.

Full transcript - 18th Annual Global Transportation & Industrials Conference:

Tom Doxy, CFO, Southwest Airlines: I’m here.

Unidentified speaker: I was oh. I guess we’ll keep going. Alright. Alright. We’re gonna get going with our next session with Southwest Airlines.

Really happy to have Tom Doxy, CFO of the company, at our conference. First time at our conference as someone at Southwest. So That’s right. Welcome. You’ve you’ve, I guess, graduated from the ULCC panel, which is great.

And I’ll pass it to you for some opening thoughts and comments, and then there’s lots to talk about.

Tom Doxy, CFO, Southwest Airlines: Yeah. Well, it it’s it’s great to be here. There’s a lot maybe it’s an understatement. There’s a lot happening at Southwest right now. And we’re really excited about the changes and the pace of those changes as they come in.

First and foremost, we just heard the pilot panel, the focus on safety that we have is something that we all share. And and as we think about some of the things that we have coming up, next week, we announce basic economy and we or or I’m sorry, we implement basic economy in bags. In the first quarter, we had several things that that we talked about on our earnings call around Expedia, for example, coming in, some changes that we made with our frequent flyer program, you know, the earn and burn there and the new deal that we did with Chase. So there’s a lot that’s happening that’s just happened or is just about to happen. And then as we go throughout the year, we’ll have, well, in the third quarter, we’ll start, selling the extra legroom seats and seat assignments, which we’re really excited about, and that’s for flying that’ll happen in the first quarter.

And those airplanes are actually out flying now. So about two, two and a half weeks ago, I was down in Houston with our maintenance team as they, were doing those or doing those during overnights. And so more and more, even though we’re waiting for the full fleet to be modified, more and more, there’s an opportunity that people have to be able to get into those seats. And we’re looking at ways we might be able to monetize that even ahead of time. So there’s a lot happening, but it’s, it’s it’s exciting.

The pace of change at Southwest, I think, is something that’s that’s very different than it was before.

Unidentified speaker: Awesome. So I’ll start. If you have questions, raise your hand, we’ll get you involved. So, there’s so much, to your point, like specific to Southwest to talk about that I want to get to. Maybe we’ll spend a little less time than normal to sound like near term demand trends, but let’s just start there, just sort of knock it out.

So I guess we’ve we’ve heard from a bunch of airlines so far, right? Some variations of stabilization to it’s getting better? How would you characterize the environment as we’re progressing through Q2? What are you seeing? Are you in the stabilization camp or the you know what?

It it got worse, and now it’s starting to get better again.

Tom Doxy, CFO, Southwest Airlines: Yeah. I mean, so to give maybe just a little bit of context. Yeah. So 1Q was about three point for unit revenue was about three points worse than we were expecting at the beginning of the year. 2Q is probably about six points worse than what we were expecting at the beginning of the year.

Right? And we’ve, of course, you know, guided for for that. And, you know, we have we have a lot of data. We have a lot of industry data, and and we we have not seen in the industry an inflection back. Right?

So we’ve seen those reductions that happened earlier in the year. We’re not seeing an industry inflection back now. And so I think that’s as you as you saw what we talked about and where we wanted the focus to be at our earnings call, we were very deliberate about the reiteration of the incremental EBIT contribution that’s coming from all of these different initiatives. So that was at $1,800,000,000 for this year, and over $4,000,000,000 for next year, and we reiterated those targets. We did not reiterate the guide for the overall EBIT for the company, which is what pretty much all the airlines did.

And because we didn’t want the focus of the call to be on, well, what about this assumption about the economy or That’s sort of the background into that decision. We wanted it to be focused on the things that were more in our control, that that are going well and that are on track.

Unidentified speaker: Okay. And then as you just think about sort of where you are, right? Are there certain parts of the you’re domestic, but any certain parts of the country or regions that are feeling better or worse than others, more any any just sort of color to share there?

Tom Doxy, CFO, Southwest Airlines: Yeah. You’re you’re right that they’re they’re on a relative basis, there’s been more where this has been pretty widely discussed, more relative weakness for main cabin leisure, which is where we’re we’re currently underweighted versus our peers. And and so, you know, we’ve we’ve seen that. In spite of that, in one q, you know, we’ve talked about a lot of these initiatives that we have on the revenue management side, some network shifts and things that we’ve done. You’ve seen us pull out of Atlanta, for example, made made some reductions there.

Those that’s working, right? So, certainly, when you look at carriers that are also more leisure and main cabin focused, we outperformed, but we even outperformed on a unit revenue basis in 1Q versus those that were not as over weighted in those areas. And so I think those initiatives that we have largely are working. I don’t know that I would say that there’s any specific area of the country other than the changes that we’ve announced to the network where we’re making those adjustments today.

Unidentified speaker: And then just maybe an update on capacity plans. I think you talked about maybe not 1% for the year, but how that looks, the shape of that the rest of the year?

Tom Doxy, CFO, Southwest Airlines: Yeah, we were already quite conservative on the capacity that we’re rolling out, right? We were at 1% to 2% for the year, And that capacity really was not so we’ve got 50 aircraft retirements for the year. Our current planning assumption for aircraft coming in from Boeing is 38%. Now, the year goes on, I think we’re getting a little more comfortable with perhaps some potential upside to that number, which could result in more retirements for us. So we wouldn’t use that to grow.

But that incremental capacity really was coming from the different efficiency items that we had, right? So we had the turn time reductions that we’ve had. We’ve had red eye flights that are scaling up through this year that have been really successful for us so far. That’s where that capacity was coming from. So that already low capacity was being created that way.

And and a few weeks back, we took some pretty decisive action that even though we had lower overall capacity for the year, just given the uncertainty that was out there, we wanted to be decisive and to reduce capacity, we did that by about a point and a half for the back part of the year, which will put us toward the lower end of the 1% to 2% guide for the year. Of course, I mean, it’s obvious, but the reason why we wanted to make sure we did that early was you get more opportunity to be able to take cost out. We’ve talked about low single digit exit rate for unit costs. That still holds even with that capacity. Maybe a little bit of an adjustment there, but that range still holds for us coming out of the year.

Unidentified speaker: One more just sort of on the market, and then I want to get to all the Southwest stuff. So, I’ve asked maybe, I guess I’ve asked this to everybody, right? We entered the year seemingly everyone’s seeing very good RASM trends, people getting excited about demand outpacing supply. And now for a lot of the industry, we’re back to sort of a negative RASM environment. Is this a issue of too much supply again, or is this a demand issue that sort of creeped up on us?

Tom Doxy, CFO, Southwest Airlines: Yeah. Well, we don’t fully know, right? And I think that some of that uncertainty is why you saw most carriers pulling capacity in the year because you you don’t need to get a firm answer on some of that stuff before you start making a decision on what you’re gonna do. So we wanted to be decisive. I think there were some other carriers that were decisive in what they did as well.

Whichever side it ends up being, we wanted to make sure that we were making adjustments that would allow us to react and control the things that were more in our control.

Unidentified speaker: So, now let’s get into some of the numbers around all the initiatives. So, you talked about $1.8 of EBIT initiatives this year. You’ve reiterated that, right? I guess help us just think about like how that builds throughout the year. How much of that did you realize in 1Q?

How much is the assumption for Q2? And then we could sort of obviously then fill in the what’s left for the back half of the year?

Tom Doxy, CFO, Southwest Airlines: Yeah, so there’s kind of three broad categories, I guess, of the 1,800,000,000.0 There’s $1,000,000,000 that is core business improvements, things like our revenue management system, network adjustments that we’ve made. You can see that being manifest, for example, in our reported numbers for 1Q, right, where our unit revenues compared very favorably even versus carriers that weren’t as domestic main cabin focused as as we are. So that’s about a billion of the billion 8. There’s about 400,000,000 or so that is related to the initiatives that were largely announced a couple of months ago in March. And that where the where the 1,000,000,000 is a little more spread throughout the year, the 400,000,000 for these incremental initiatives are a little more back weighted.

And as you think of what some of these different initiatives are, so I mentioned in the first quarter how we had Expedia that rolled out, we had the frequent flyer program and some of the earn and burn changes. You know, that stuff was starting to come in then. But, really, these things start to come in as the year goes on. I mentioned next week, basic economy and bags roll out. So that happens, I think, six days from now.

And then we’ll start selling in the third quarter the extra legroom seats and seat assignments for flying in the first quarter. And so you start to see that $400,000,000 ramping up as the year goes on. The remaining $400,000,000 ish or so is on the cost side. So recall at our Investor Day last fall, we had talked about a $500,000,000 cost reduction by 2027. A couple of months ago, we doubled that to be over $1,000,000,000 by 2027 and said that we would achieve just shy of $400,000,000 of that during this year.

We’re on track. Been really excited about what we’ve seen on the cost side, where you look back to 1Q, we were plus eight initially for unit costs. We reduced that six weeks or so later to plus six, and then by the time we got to the end of the quarter, we had gained another point and a half gained in a good way. And I think what’s great about it, and this this is a stat I love, is that forty two of our senior executives had a budget beat in the first quarter. And and Forty two out of?

42 out of 60 some odd. Right? And so this is this is a broad based, you know, it’s not just a lot of times when you have a beat like that, well, we had this maintenance item that moved out or this one thing, this special item, this was broad based cost savings. And we’re seeing that continue on as we go throughout the year, and so feeling very confident about that. Of course, the lion’s share of that, probably two thirds or so of the number for this year is related to the reduction, the headcount reduction that we had, which was done earlier than planned and ended up being larger than planned.

Unidentified speaker: So, one thing that you said surprised me a little bit of that billion 8 that there’s a billion that’s more like just revenue management core business changes, and then only because and then 400,000,000 of because you’ve announced a lot of, you know, bag fees, premium seats. You know, I’m surprised that’s a 400,000,000. I would have thought it could have been maybe the opposite. Right? Is it that those are just much more 26 weighted?

And, know, because I guess it’s $1,000,000,000 this year and it turns into $3,000,000,000 next year. So does the lion’s share of all of these big things really show up in ’26?

Tom Doxy, CFO, Southwest Airlines: That’s exactly what it is. It’s the timing of these things. Yeah. And it goes, it’s 4.3 next year. Right?

So it it it’s as you think about what these things are, so, you know, bags and basic economy that start next week, but you could book a flight today for a flight a month from now, and it would be under the current, you know, the current structure. And so that will ramp up. You know, we talked about seats and seat assignments, which I think will be will be really great. That is something that doesn’t actually we’re not actually flying that with those being sold until the beginning of next year. So, yeah, I I think that’s what’s what’s so exciting for us is that as we start to look to 2026, you know, maybe we’re not at a full run rate for each one of these things as we get into 2026, but they they ramp up significantly as we move toward the back part of this year.

As we get into 2026, there’s a significant amount of these new initiatives that are now there. So, it is a timing and a ramp up thing.

Unidentified speaker: Okay. If there’s a actually, we’ll come to you in one second, Jason. So, if there’s a mic, we’ll get you. So, just so I understand, so of the is there a way to sort of size, like, again, when you add up the premium legroom bag feed, like, what is the size of that, not this year, but just over the next couple of years in total?

Tom Doxy, CFO, Southwest Airlines: Yeah. The we’ve sized a couple of them. We’ve tried to get away from giving a specific estimate for

Unidentified speaker: Maybe not each one, but just when you

Tom Doxy, CFO, Southwest Airlines: So we’ve talked about $1,000,000,000 or so in contribution that would come from the seat assignments and the extra legroom as we get more toward a run rate, so kind of a twenty twenty seven number for those. As we think about this year and that $400,000,000 we’ve talked about the fact that the loyalty program changes and bags and basic economy make up those are the two biggest ones. But to give you a sense for some of the others, like the credit, so we’ve gone from a credit so this is not frequent flyer points, rapid rewards points, but it’s the credits for refunds that for our basic economy product, those will expire in six months. And for the others, they will expire in twelve months. That alone for this year, we think, is is a hundred million dollars.

And so it gives you a sense for the fact that this is not all weight all weighted in this year toward any one, you know, big big item there. But Is that

Unidentified speaker: is there is that cash or non cash, that piece?

Tom Doxy, CFO, Southwest Airlines: That’s EBIT contribution.

Unidentified speaker: Okay.

Tom Doxy, CFO, Southwest Airlines: Yeah. Okay.

Unidentified speaker: Sorry, cut you off. Go ahead. Yeah.

Tom Doxy, CFO, Southwest Airlines: No, it’s EBIT contribution. Yeah. So, as we think about these different items, we’ve we’ve we’ve we’ve had a net impact for these that we’ve put into these numbers. And so I think sometimes it’s okay. Are we in fact, think it was even asked on the on the earnings call.

Right? Or is this a gross number you’re assuming? Are you assuming any sort of impact for the fact that you’re moving to a basic economy in bags? We are. And so what’s factored into these numbers into the 1.8 is a net number for these net of those impacts.

Unidentified speaker: Jason, your question? Yes. That was about the nicest way of him to ask why is my model so bad.

Tom Doxy, CFO, Southwest Airlines: Yes. No, you are right. I think in the models, probably maybe around 60% or so of we have put out there has made its way into the models and then something less than that, that’s actually made its way into the valuations. So, there’s a bit of a wait and see approach, I think, on some of these things. And I and I think the wait and see is probably different for the different initiatives.

I I’m excited about our next earnings call. Right? We’re about two months away from that next earnings call. In that earnings call, knowing that we’re six days away from launching basic, economy and and and launching bags, we will be able to talk. Now it’s there’ll be a ramp up there, right, because it’s for people who are buying starting that day and flying starting that day.

So there’ll be a ramp up, but we’ll be able to talk about the impact that we’re seeing there in reported numbers. And and I like to be able to do that. We didn’t have a lot of the initiatives that were there in one q, but we got to do that in one q. We talked about Expedia and the benefit that we were seeing there That week, that exceeded expectations. Right?

And then we got to talk a little bit about what we were seeing on the unit revenue side. So the the the further we get into this and as we have that actual data, we will then be able to talk about exactly what what that is. So you’ll see the short answer is you’ll see more and more specificity around what we’re seeing as we get to where it is part of our reported numbers. And in that, a bit of a wait and see approach, which which I get, by the way. I get that when we announce a lot at a time that as an investor or as an analyst that you’d say, look, I like what you’re doing.

Mean, you just heard Hank, you know, here as well. I think our our our employees, you know, we we refer to each other as cohorts. Right? There’s a lot of support in the building and out in our operation for what we’re doing as well, and you heard that on the panel. So there’s a I think and I think there’s a lot of opt optimism.

As I talk to investors and I talk to analysts, there’s a lot of optimism about what we’re doing and how we’re doing it. It then turns to the quantum and the ability to then be able to execute well on it. And so, that wait and see approach, what’s so great, is we’re at the point where for for for more and more of these items, that wait isn’t very long, which I’m excited about. Bags and basic, which we have coming up now, you know, I think bags gets a little more of the press. The basic economy structure, though, is really what I’m excited about.

As you think about, we we historically, and we’re changing the names, but historically, we’ve had four different categories, Wanna Get Away, Wanna Get Away Plus Anytime, and Business Select. And the lion’s share of our bookings go through Wanna Get Away. And the answer to why is obvious. It’s because there was so much included in that bottom category that there was no incentive to buy up. The the challenge one of the challenge one of the big challenges is is largely we have had to compete that wanted that very inclusive, want to get away product with basic economy at a at a United or at a Delta.

And though and that basic economy product comes with far fewer features, but we’ve had to compete on price. However, for basic economy, you have heard people like Delta and United talk about the fact that it’s actually not that large, percentage of the overall bookings. They’re actually completed in that category. So think about that. We’re competing the lion’s share of we’re the lion’s share of of our product, and and and competing it on price against something that’s a very small percentage of somebody else’s where the product is not at the level that ours is.

We needed to fix that. That will happen as part of what we’re doing, but it’s about product differentiation, right? And bags are a part of that, extra legroom will be a part of that, seat assignments will be a part of that. And then we’ve been pretty open about the fact that we’re not done, right? Now we’re not ready to talk specifically about what that might mean, but there’s more product differentiation that we know that our customers and people who are not or are choosing not to be our customers today that they want that we’re not offering.

And so don’t think of this as the end state, what we’ve announced. Think of this as a point in time as we continue to move forward and offer more differentiation, more of what we think people want.

Unidentified speaker: So and that basic kind of that matters even more as you are on Expedia and things like that.

Tom Doxy, CFO, Southwest Airlines: Absolutely, it does.

Unidentified speaker: It’s more directly comparable. Absolutely. So, like, what to your point, like, what is the do you have a number? Like, what percentage of the tickets today are wanna get away? And what percent do you think will be this new basic economy for you?

Tom Doxy, CFO, Southwest Airlines: It’s it’s a majority today. We haven’t we haven’t publicly talked about what the specific number is, but it’s a majority today. You know, we don’t know exactly where we’ll end up. I think this goes to the wait and see question. We have we have some thoughts.

Right. We have some well informed thoughts on on where we’re gonna get. But, you know, again, we’ll know a lot more as we get to earnings, which is just a couple months away.

Unidentified speaker: And, you know, maybe just to follow-up on Jason’s questions a little bit, like, I go back to the q one call, and you didn’t reiterate the billion 7 of of EBIT. Right? Not but you said, hey, it’s still possible, or it’s still on our site, or what I forgot the exact language you use. I don’t know. Any what what do you wanna say with respect to that?

Tom Doxy, CFO, Southwest Airlines: Yeah. We were, we were deliberate about saying that, going in going into the call. And and, you know, the the background there is, you know, heading into the call, you’re we’re looking at different sets of assumptions with the model and looking at the, you know, the up and down for things like fuel, for things like revenue, and things like the initiatives, and to see kind of what that fan might look like. And as we did that, there were scenarios that got us to that number. Right?

And as as we saw that, we we we didn’t want to send too much of a signal with not reiterating the EBIT guide for the year other than as carriers, other carriers said, there was so much uncertainty there that it really was impossible to tell, how those assumptions were going to play out. We didn’t want the whole focus of the call to be on those sorts of assumptions. We wanted it to be on the things that were more that were more in our control. But but, yeah, it is you know, of course, the further the year goes on, and as we’re not seeing inflections, you know, the longer we get into the year without that inflection, the harder it becomes to achieve those things. Right?

But but, certainly, we saw we saw sets of assumptions that would still get us there.

Unidentified speaker: And then, I wanna go the the billion bucket from revenue management?

Tom Doxy, CFO, Southwest Airlines: Yeah. And it’s they’re more than just that. It’s revenue management. It’s changes we’re making to the network and the structure. We’re we’re moving to more connections.

So we’re we’re going from, you know, 39 to 56 banks as we get into the August schedule. So there’s a lot of things to it.

Unidentified speaker: We heard some versions of that in ’24, ’20 ’3 that didn’t necessarily show up. So I guess what’s different about it today? And is that how much of that billion is sort of totally in your control, but still needing some supportive macro backdrop, if that makes sense?

Tom Doxy, CFO, Southwest Airlines: Yeah, so the 1Q relative RASM that we had, I think, is one proof point that we have around what that was. And as we continue to move forward and continue to make some of those structural changes, whether it’s to where we’re flying, how we’re structuring the network, I think sometimes a question will come, well, are you going to be more a connecting carrier or more a point to point? As if as if it’s a binary decision. I think what you’re seeing is that, especially where there’s more relativity between the peaks and the troughs for the whole industry, but certainly for leisure, there’s much more relativity between those two. Connections become increasingly powerful, especially during those times where you’re in the trough, where you just have the ability to bring if you have 20 flights coming in and 20 flights going out, if you had two more, you didn’t just add two more, you added two more plus all of those.

Connecting becomes more powerful as part of this too. And that’s part of what we’re doing. So the direct answer to your question I was, I would, is I would point to what we did in one q. And then the things that we’ve announced that will continue to roll out throughout throughout the year.

Unidentified speaker: Okay. Back to cost for a second. Mhmm. Rough numbers about just under $400,000,000 of cost save this year. Yes.

I think the guidance implies like an incremental $400,000,000 plus next year. Right? You did like the big corporate overhead reduction this year. What’s the next sort of to get a similar total cost save next year? What what what are the drivers of getting us there?

Tom Doxy, CFO, Southwest Airlines: Yeah. That that’s the larger one. Right? But there are a lot of other things that we’re doing. The way that we’re looking at our procurement, we’re doing a top to bottom review of all of our procurement today.

We’re looking at the way that we’re doing technology. You know, I I think, I I did a LinkedIn post yesterday where I I I shared one of the neat tools that were you where we’re using AI to be able to, better predict lobby flow and some the way that we dynamically staff. You know? So there there’s a lot that we’ve done to invest on the technology side, and we’ve come a long way in a short period of time there. And as we look at that, there’s opportunities for us to become more efficient in the way that we’re deploying those resources.

So that’s a part of it. The way that we’re looking at staffing as well out out with our ground operations. So one of the big inputs to ground staffing, of course, is bags. We will there will be incremental revenue that will come from bags, but there will also be cost savings that results from the fact that we will fly fewer bags. We fly significantly more bags than any other carrier does, today, and that’ll be reduced.

So that’s a big driver of staffing, but it’s also a driver of weight. It’s a driver of maintenance cost for engines. So there’s that as well. And, you know, the list goes on, but there’s a whole host of things. But the largest it’s that reduction that we had, specifically for this year, it’s about two thirds of it.

And then it’s a lot of these other things that are throughout the business.

Unidentified speaker: And so as you think about any update CASM, what, four to five this quarter? What is the back half of the year like? Any I know, unfair question to ask you about next year, but I don’t know how to think about next year in any way.

Tom Doxy, CFO, Southwest Airlines: Yes. The so of course, we’ve guided for 2Q, have not given specific guides for 3Q or 4Q, but what we’ve talked about is an exit rate that’s kind of in the low single digit rate. Now, talked about that prior to bringing capacity down by zero point in the back part of the year, so there will be a bit of impact there, but that doesn’t change the statement that we made that we still feel even after the capacity change that we will be able to exit the year at those levels. We start to get to the point where we are lapping implementation of contracts as those start to come in, so there’s some of those tailwinds that we get as we move toward the end of the year.

Unidentified speaker: Okay. Just last couple of minutes, I want talk about balance sheet, cash flow a little bit. You guys have been aggressive with the buyback. Yeah. 2 and a half billion we’re gonna be completing by By July.

Yeah. By July. And do you think that there so I guess, talk about where you want to target cash balances, do you think, would you consider ever adding some net leverage in order to sort of keep supporting the buyback, or is that sort of, we don’t want to do that, just?

Tom Doxy, CFO, Southwest Airlines: Yeah, so I think it comes back to a framework, right? And I think as we, I’m what, three months into the job, I think as we get just a few more months down the road, you’ll see us putting a little more specificity around what some of those metrics are for the balance sheet. It’s it’s it is critical for us that we maintain a strong and efficient investment grade balance sheet. You know, we we have one of the strongest balance sheets in the world for airlines. There are just a couple of others that that that are even investment grade.

It’s really important that we stay there. It gives us the ability to borrow, you know, if we borrow unsecured or that, you know, really, really attractive rates. So you’ll see us continue to do that. But it’s really, in the end, it’s about working within that framework, investing in the business, ensuring that we keep that strong and efficient balance sheet. And then really what the focus is, you know, that that third category, you know, being shareholder returns in the form of dividends and share repurchases.

But where our focus is is more around building incremental proceeds that could be used for that framework. So all the initiatives that we’ve announced, that’s about building more free cash flow. That’s about building more proceeds. The fleet monetization that we’re doing, you’ll likely see us doing fewer sale leasebacks, more direct sales, which probably means it shifts things a little to to the right as far as when, those transactions actually occur and the proceeds come in. You know, there’s accounting gains generated by those, but you’re not gonna see us emphasizing that.

You’re gonna see us talking about the proceeds that can come from the embedded value in our existing fleet and in our order book. And so as we generate more free cash flow through the initiatives, as we unlock that embedded value in our order book and in the existing fleet, that produces that free cash flow, then you work within that framework, to be able to allocate, you know, based on, you know, based on those three priorities that I

Unidentified speaker: Do think you stay net cash?

Tom Doxy, CFO, Southwest Airlines: It’s it’s something that we’re that we’re looking at. Right? I I think that that we’re gonna we’re gonna make sure that we have a strong and efficient investment grade balance sheet. And I think we’ll over the next coming, you know, couple of months, we’ll give you a little more specificity on exactly where we want to be.

Unidentified speaker: I know we’re getting over, but just last couple of things. Some talk about adding more international routes to Europe. Is that likely timing? Is that part Is that in the numbers we’ve been given already?

Tom Doxy, CFO, Southwest Airlines: Yeah. You probably saw in the news some, you know, open sky. So we’ve flying international for, you know, for a long time now, almost almost a decade. That’s something that gives flexibility. It’s a framework that we can work in.

Speaking of frameworks. It’s a framework that we can work in, for, for the ability to be able to fly international. You know, you you asked a question earlier to to the pilot panel about the ability to continue to expand the network, right? And that that that has to be something that we continue to look at, right, is is whether that is something that that is going to be accretive to the business as we look at the different product elements that that we’re using to enhance what we’re doing.

Unidentified speaker: Great. And then, just lastly, I’m giving everyone a chance, you know, we’ve touched on a lot, but anything we didn’t touch on or anything you want to emphasize, just make sure people in the room understand about Southwest?

Tom Doxy, CFO, Southwest Airlines: Yeah. Well, I’m really excited about what we’re doing. The pace with which we’re doing it, the thoughtfulness, the execution that we’ve seen, we’re running a really, really good operation, right? Really, really good. And you look at the Wall Street Journal rankings, those come out just once a year, but we track that portfolio of rankings, and we’ve been number one in those rankings.

And the overwhelming majority of when you look at a net promoter score, right, how satisfied are you? The overwhelming majority of that score comes from running a reliable operation, and and we’re absolutely doing that, you know, better than anybody right now, which is great. And so, you know, between that, that sets the foundation and all of the things that we’ve been talking about here, all these initiatives that are rolling out, and the fact that the wait and see that that that the wait now is just around the corner. You know, we’re six days away from from the next big milestone as we launch basic and as as we launch bags. And then we’re moving into in into, you know, the seat assignments and the extra leg room as we get throughout the year.

And then there’s more to come. It’s it’s a really exciting time to be at Southwest, and it’s you know, the the team is is is just incredible, I think, in in executing. And and one last thing that I’d like to do, if you’ll let me

Unidentified speaker: Be quick. Yeah.

Tom Doxy, CFO, Southwest Airlines: Is just to recognize Julia. So Julia is retiring, from her role and has just been fantastic. And so, Julia, I just wanted to make sure to thank you. This is Julia’s last conference. I just wanted to thank you for everything that you’ve done and for the impact that you’ve had on Southwest.

So thank you, Julia.

Unidentified speaker: A round of applause. Thank you for saying that, Tom. Thank you, Julia. Thank you. This this was great.

Appreciate it.

Tom Doxy, CFO, Southwest Airlines: Thank you.

Unidentified speaker: Alright. Thanks all. So taking a quick break on the airline side. We’ve got Curtis Wright coming in right now. Sorry.

We’re running a little bit over. Bye.

Operator: This presentation has now finished. Please check back shortly for the archive.

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