SOUTHWEST AIRLINES CO Q3 FY2024 earnings call

Bob Jordan introduced the Southwest Even Better transformational plan, stressing the importance of execution. Andrew Watterson emphasized the airline's industry-leading operational performance in the third quarter with best on-time performance and completion factor. Tammy Romo discussed cost performance, fleet plans including opportunistic fleet monetization, and balance sheet strength. Strategic initiatives progress: working on premium cabin configurations approval, Getaways by Southwest product with first three direct lodging partners signed, and narrowing launch date of partnership with Icelandair. Cost and efficiency initiatives: expected headcount reduction of 2,000 by year end, improved turn times starting in November, and red-eye service to begin next February.

Southwest Airlines reported third quarter 2024 operating revenues of nearly $7 billion, with a unit revenue increase of 2.8% compared to the previous year. CASM-X (cost per available seat mile - adjusted) increased 11.6% year-over-year in the third quarter. For the fourth quarter, CASM-X is expected to face cost pressure primarily from new labor contracts, over staffing, and lower capacity, estimated to be in the range of 11% to 13% year-over-year. Revenue contribution breakdown by product segment wasn't provided by specific percentage, but overall revenue and cost performance were highlighted.

For 2027, Southwest aims for ROIC (return on invested capital) of 15% or higher even without fleet strategy benefits. Core operation initiatives are sized to contribute roughly $3.5 billion of cumulative incremental EBIT by 2027, and with fleet strategy, total incremental EBIT is $4 billion. In the second half of 2024, fourth quarter RASM (revenue per available seat mile) is expected to be up in the range of 3.5% to 5.5% year-over-year, considering a headwind from Hurricane Milton. Guidance for 2025 and beyond is uncertain due to Boeing delivery issues and other factors, with no specific guidance yet provided for 2025 cost and fleet-related metrics.

• Uncertainty in Boeing aircraft deliveries which could impact fleet plans and capacity. • Labor cost increases and over staffing leading to cost pressure. • Weather events like hurricanes causing operational disruptions and revenue impact. • Market uncertainty affecting the expected gains from fleet monetization strategy.

Q: Stephen Trent asked about CASM for 2025 and sale leaseback gains.

A: Bob Jordan stated it's early to guide on 2025 CASM as there's uncertainty with Boeing, and Tammy Romo mentioned flexibility in sale leasebacks.

Q: Savi Syth inquired about revenue trends, especially managed corporate side.

A: Andrew Watterson said managed business travel had a dip during Hurricane Milton but rebounded, and revenue trends are positive with acceleration from tactical actions.

Q: Duane Pfennigwerth asked about fleet monetization and cost trends.

A: Bob Jordan and Tammy Romo said fleet monetization could be sale-leasebacks or direct sales, and cost trends for next year are uncertain with ongoing moderation and inflation factors.

Q: Tom Fitzgerald asked about revenue management system.

A: Andrew Watterson said the system and processes have shown inflection with yield growth on strong flights.

Q: Jamie Baker asked about loyalty and premium credit card.

A: Bob Jordan and Ryan Green said there's opportunity to further monetize the Chase relationship with ongoing work on card mechanics.

Q: Dan McKenzie asked about headcount and cost initiative.

A: Bob Jordan and Andrew Watterson said they're on track to reduce headcount, working on overhead efficiencies, and there's a journey to get more efficient.

Q: Chris Stathoulopoulos asked about capacity composition and Boeing impact.

A: Bob Jordan and Andrew Watterson discussed capacity composition and the impact of Boeing strike on growth plans.

Q: Robert Silk asked about Getaways product sales channel.

A: Ryan Green said Getaways will launch mid-next year with direct lodging partners and access to other hotel inventory.

Q: Rajesh Singh asked about Boeing strike impact and Elliott deal.

A: Bob Jordan said Boeing strike could impact fleet plans and the Elliott deal was part of Board refresh with new members adding expertise.

Q: Leslie Josephs asked about MAX 7 and long-term Southwest.

A: Andrew Watterson said MAX 7 certification is ongoing with engine issues, and Bob Jordan said Southwest has a good order book with Boeing but focused on executing current transformational plan.