The paragraph is the introduction to Southwest Airlines' Third Quarter 2024 Conference Call. Gary, the operator, welcomes participants and notes the call will be recorded with a replay available online. Julia Landrum, Vice President of Investor Relations, introduces the company executives present: President and CEO Bob Jordan, COO Andrew Watterson, and CFO Tammy Romo. Bob Jordan will discuss the Southwest Even Better framework, initial progress from the third quarter, and a statement on Elliott Investment Management. Andrew Watterson will provide revenue and operational updates, while Tammy Romo will address cost performance and financial status. The call will conclude with a Q&A session where Ryan Greene will also participate. The participants are reminded of forward-looking statements and non-GAAP results mentioned in the earnings release.

The paragraph discusses Southwest Airlines' recent press release about their third-quarter 2024 results and their transformative "Southwest Even Better" plan, aiming to increase value for shareholders and customers. Bob Jordan expresses gratitude for the feedback from shareholders and emphasizes the importance of executing the plan. The paragraph also acknowledges the impact of recent hurricanes in the Southeast, detailing the company's efforts in recovery and support for affected employees and communities. Finally, it highlights Southwest's dedication to implementing their detailed plan and achieving financial prosperity for the company and its shareholders.

The paragraph outlines a strategic plan to achieve a Return on Invested Capital (ROIC) of 15% or higher by 2027, which surpasses the cost of capital, without relying on fleet strategy tailwinds. The plan includes targets for capacity, operating margin, ROIC, leverage, and free cash flow. Actions to meet these goals are underway, with accountability and transparency emphasized through a scorecard and supplemental details. The plan's value builds progressively: base business improvements and efficiency initiatives in 2025, strategic initiatives starting in 2026 with significant contributions from new seating options, and full realization by 2027 with $4 billion in incremental EBIT. The fleet strategy is not considered part of the core business.

The article discusses the company's confidence in meeting its 2027 targets even without its fleet monetization strategy, backed by strong results and positive industry trends. They achieved record third-quarter revenues and improved unit revenue, attributed to effective revenue management. The company is improving yields on high-performing flights and managing load on lower-demand routes. Strategic initiatives, including new premium cabin configurations, are on track, with retrofitting to begin early next year. Additionally, they will launch "Getaways by Southwest" with three initial lodging partners, including Caesars Properties in Las Vegas, by mid-next year.

The paragraph discusses Southwest Airlines' updates and achievements. The company is focusing on launching a partnership with Icelandair by early 2025 and aims to reduce headcount by 2,000 by the end of the year. Improved schedules and services are being introduced, including red-eye flights starting in February. The airline had the best on-time performance and completion factor among major airlines, despite facing challenging weather. The fleet monetization strategy is underway, with promising market prospects. The CEO acknowledges the ongoing efforts required to achieve financial prosperity and commends the dedication of employees, expressing confidence in the company's plan. Andrew Watterson also praises the team's resilience in achieving industry-leading operational results during a difficult quarter.

In the third quarter, the company achieved a 99.3% completion factor despite weather-related challenges, such as Hurricane Milton, by proactively managing disruptions. They focused on maintaining strong operational performance and supporting impacted communities. Revenue growth was driven by tactical initiatives, improved demand-supply conditions, and significant contributions from Southwest. Yield improvements resulted from optimizing booking systems, and managed-business revenue saw double-digit year-over-year growth, largely due to GDS bookings and investments in Southwest Business. The company observed a 7% increase in unique customers and deeper penetration in existing corporate accounts. Although managed-business customers are taking fewer trips than pre-COVID, there are opportunities for growth and attracting new customers.

The paragraph outlines a company's strategic initiatives focused on optimizing network schedules and marketing efforts to better align supply with demand. Starting from August 4th, adjustments include adapting to geographic, seasonal, and holiday demand patterns, and preparing for variations such as the election trough and holiday peaks. The company has expanded its distribution channels by partnering with metasearch engines like Google Flights, Kayak, and Skyscanner to reach new customers. For the fourth quarter, it expects a 4% reduction in capacity and an 8% reduction in seats and trips year-over-year. However, positive financial performance is anticipated, with RASM expected to rise by 3.5% to 5.5% year-over-year, despite disruptions from Hurricane Milton. Additionally, the company emphasizes reducing operating inefficiencies and increasing asset productivity, maintaining industry-leading turn times as part of its strategic plan.

The paragraph outlines a plan to improve operational efficiency and financial performance for Southwest Airlines by reducing aircraft turnaround times by five minutes by November 2025, which will increase fleet productivity equivalent to 16 additional aircraft. This initiative, along with the introduction of 33 daily red-eye flights in June 2025, aims for modest capacity growth of 1% to 2% and limits capital expenditure to fleet modernization. The focus remains on optimizing the network, enhancing revenue management, and boosting marketing efforts. The paragraph concludes by acknowledging the dedication of Southwest employees, crucial for maintaining operational excellence and customer service, before transitioning to Tammy Romo's financial update.

The company is focused on executing its plan with a dedicated team. It acknowledges increased third-quarter costs and anticipates further cost pressures in the fourth quarter due to new labor contracts, overstaffing, and unexpected costs from flight cancellations caused by Hurricane Milton. To mitigate these pressures, they have ratified labor contracts for more cost certainty and implemented voluntary leave programs to address overstaffing. The company has identified cost efficiency measures, including ground operations and labor rule optimizations, aiming for $500 million in annual cost savings by 2027. These efforts demonstrate a commitment to efficiency and improved cost performance.

In the third quarter, the company's fuel costs were as expected, and they anticipate lower costs in the fourth quarter. The company adjusted its expectations for Boeing aircraft deliveries from 79 to 20 and has received 19 so far. They've also expedited the retirement of certain aircraft, totaling 41 retirements this year. The company is leveraging a favorable secondary market and excess aircraft to reduce capital expenditures and enhance earnings through sales and sale-leaseback transactions. They are focusing on maintaining a positive net present value across these transactions as part of their broader fleet strategy, which supports modest capacity growth without impacting their core business.

The company has provided an EBIT contribution breakdown in its third-quarter earnings materials but plans to limit transaction detail in the future due to market complexity. Despite uncertainties with Boeing's aircraft availability, the company supports its 2027 financial targets without relying on its fleet strategy and aims to achieve a ROIC of at least 15%. It expects $2.1 billion in capital spending in 2021, with nearly half going to aircraft. The company's moderated capacity plan allows flexibility for adjustments, and it maintains a strong balance sheet, being the only airline with an investment-grade rating by all three major rating agencies.

The company concluded the third quarter with a strong financial position, having $9.4 billion in cash and investments, and a $1 billion credit line, surpassing their $8 billion debt. They are committed to returning value to shareholders through dividends and share repurchases, having returned $13.7 billion since 2010, including $431 million in dividends this year. The Board authorized a $2.5 billion share repurchase program to enhance earnings. The company has plans to cover their weighted average cost of capital by 2026 and achieve a 15% after-tax return on invested capital by 2027. A recent settlement with Elliott led to Board changes, and the focus remains on executing their strategic plan for long-term success.

The paragraph details a Q&A session during an analyst call, where Stephen Trent from Citi asks about the company's cost per available seat mile (CASM) projections for 2025, particularly in relation to sale leaseback gains if equipment delivery lags. Bob Jordan responds by addressing current unit costs impacted by one-time pressures like labor agreements and the hurricane. He mentions plans for efficiency improvements and cost reductions by 2027 but notes that due to uncertainties, particularly with Boeing contracts, the company is not ready to provide specific guidance for 2025 and beyond.

In the paragraph, Tammy Romo notes the flexibility in managing sale leasebacks, aligning with their Investor Day targets. Savi Syth from Raymond James asks about revenue trends, particularly the impact of hurricane Milton and overall quarter performance. Andrew Watterson responds that managed business travel dipped during the hurricane but quickly rebounded, with no structural change in demand observed. Bob Jordan adds that revenue trends were strong in the third quarter and holidays look promising. They are seeing positive effects from revenue and marketing strategies, positioning them well to meet 2025 goals outlined at Investor Day.

In the conversation, Tammy Romo discusses the flexibility in managing the fleet through sale leasebacks and potential outright sales, considering the uncertainty around Boeing deliveries. They have a substantial number of aircraft on order but may not need all of them due to moderated capacity plans. The company intends to manage fleet monetization over a three-year horizon by considering both sale leasebacks and potential sales. This strategy will be informed by Boeing's delivery schedule and recent developments, giving them opportunities to adapt their plans accordingly.

The paragraph discusses a conversation about monetizing the fleet order book through various flexible strategies, such as sale-leasebacks or direct sales, to maximize value. Duane Pfennigwerth asks about cost and revenue trends, highlighting uncertainties in fleet management and the need for clear non-fuel cost guidance. Tammy Romo clarifies that capacity guidance was discussed, and more specific guidance will be provided in future earnings calls, but their operating margin targets remain unchanged. Tom Fitzgerald inquires about the status of the revenue management system, and Andrew Watterson responds that improvements were made in late Q2, resulting in better-than-expected outcomes in Q3, with a smaller impact on performance than initially forecasted.

In the paragraph, the speakers discuss recent strategic adjustments at the company, including system recalibration, new hires, and process improvements, which have led to increased yield growth on their strongest flights. This gives them confidence that their efforts are paying off. Specifically, they note an increase in Revenue per Available Seat Mile (RASM) in their Hawaii operations, both inter-island and from the mainland, attributing this to cross-functional teams driving focused efforts. Future actions, such as adjusting inter-airline capacity and introducing red-eye flights for better mainland connections, are also expected to enhance performance. Separately, a question from Scott Group about sale leaseback and margin projections leads to a request for clarification on whether these margins include or exclude potential sale-leaseback transactions.

The paragraph discusses the increase in labor costs and provides explanations for the cost pressures faced by the company. Tammy Romo explains that labor costs are up due to new labor contracts, inflationary cost pressures, and work rule changes. These factors are part of the company’s guidance for an expected operating margin of 3% to 5% for the next year. Additionally, the company has moderated capacity growth and will incur costs related to new seating initiatives, though some of these expenses will be offset by savings from their cost plan. Detailed insights will be shared in the next earnings call.

The paragraph involves a conversation between Jamie Baker, Tammy Romo, and Bob Jordan about the interpretation of operating margin guidance related to fleet initiatives. Tammy Romo clarifies that there is no change from what was presented at Investor Day, noting that the 3% operating margin is without the fleet, while 5% includes it. Bob Jordan explains that the provided ranges account for operations with and without fleet involvement and clarifies that a return on invested capital (ROIC) of 15% by 2027 is expected regardless of fleet inclusion. He mentions that the additional clarity in recent discussions was based on shareholder engagement feedback, and denies any influence from Elliott, emphasizing the additional decomposition provided was for transparency. Jamie Baker touches on changes in tone and queries about potential influences other than stakeholder clarity. Finally, the conversation shifts to discussing another topic—loyalty.

The paragraph discusses the potential for introducing a more premium credit card in partnership with Chase, following changes in airline seating and monetization strategies. Bob Jordan notes opportunities to further monetize this relationship, though specific benefits have not yet been detailed. Ryan Green explains that any new card would require negotiations with Chase, as they would need to underwrite it and agree on associated benefits and economics. Existing card benefits, such as boarding perks, will need adjustment due to changes in seating arrangements, and discussions with Chase are ongoing, allowing for contract amendments rather than a complete reopening.

In the paragraph, Bob Jordan responds to Dan McKenzie's question about the impact of new board members on Southwest Airlines' strategy. Jordan outlines the board's ongoing refresh process, accelerated by Elliott, and highlights the addition of six new board members, including those with extensive airline experience. He emphasizes that these members bring diverse expertise and insights that will enhance strategic thinking at Southwest. While not indicating any immediate strategic changes, Jordan acknowledges the constant evolution of plans at the airline.

The paragraph discusses discussions around Southwest Airlines' strategic planning and financial strategies for the future, specifically looking ahead 5, 10, and 15 years. Input from stakeholders is anticipated to be constructive. Dan McKenzie acknowledges past achievements and inquires about the fleet monetization strategy, including the main benefits like reduced depreciation and maintenance expenses, and if there's a labor aspect involved. Tammy Romo explains that the primary driver is the gains from potential aircraft sales aided by attractive pricing and the net book value of the fleet. Conor Cunningham asks about the $1 billion EBIT planned for 2025, questioning what part is already in place, particularly regarding network optimization and marketing. Andrew Watterson seeks clarification on whether the question is about network or overall revenue progress.

In the article paragraph, Bob Jordan and Andrew Watterson discuss the company's strategy to achieve $1 billion in 2025. They outline three key areas: revenue management changes enacted in August, ongoing network changes with more planned for next year, and recent distribution and marketing efforts like the activation of Skyscanner. These initiatives have contributed to positive trends in unit revenue in the third and into the fourth quarter. While specific contributions are not quantified, they emphasize that the company is on track to meet its financial goals, with further actions planned in revenue management, pricing, and marketing to enhance value. The upcoming publication of the network plan will reflect these changes.

In the paragraph, Conor Cunningham asks about the company's approach to managing headcount, particularly regarding early retirements, in the context of stock buybacks and capacity growth expectations. Bob Jordan responds by reaffirming their commitment to reducing headcount by 2,000 this year through natural attrition, despite modest growth. Additionally, he mentions that another 2,000 employees are effectively out due to short-term leave programs. The company also plans to reduce headcount again next year. While Jordan does not predict any immediate changes, he suggests that as part of ongoing cost initiatives, they might consider offering early retirement options in the future, depending on the numbers and goals they need to meet.

The paragraph discusses the company's commitment to increasing efficiency and reducing costs by managing corporate overhead. Andrew Watterson explains that for the hourly workforce, the relationship between full-time equivalents (FTEs), salaries, and hours worked is more complex than it is for a salaried workforce. He notes that there is a significant gap between the hours paid and headcount post-pandemic, with part of this gap being attributed to necessary staffing adjustments and reduced efficiency levels. Future efforts will focus on reducing inefficiencies and managing staffing levels to meet operational demands, especially in terms of recent high demands due to winter operations. However, this does not necessarily mean reducing headcount, as the need for operational efficiency persists. The exception to these dynamics applies to the pilot group, which has separate considerations.

The paragraph discusses a company's strategy for managing pilot staffing and operational costs. They are currently overstaffed, resulting in significant costs primarily from their pilot workforce. By adding more red-eye flights next year, they aim to reduce overstaffing costs without needing additional pilots. The company anticipates that the overstaffing impact, which was roughly $120 million this year, will be reduced to less than $20 million in the fourth quarter. The focus is on cost initiatives to address this issue. Additionally, the paragraph includes a question from an analyst about network strategy for 2025, seeking details on capacity, opportunities, and how it will affect frequencies and connectivity, with a focus on the 1% to 2% growth forecast for next year.

The paragraph discusses capacity management strategies in the airline industry. Bob Jordan explains that the modest capacity growth is achieved through operational initiatives like optimizing red-eye flights and route redeployment, rather than purchasing new aircraft. Capacity is being shifted from struggling areas, like Atlanta and Chicago O'Hare, to stronger markets, such as Nashville and Austin. He emphasizes a focus on maximizing capacity in high-demand areas while acknowledging that business travel hasn't fully recovered, affecting short-haul routes. The discussion also touches on the narrow growth rate of 1% to 2%, its impact on unit costs, and the commitment to maintaining lower capacity until financial targets are met. The paragraph ends with mention of uncertainty related to Boeing in 2025.

The paragraph discusses strategies for dealing with potential disruptions, notably a strike affecting Boeing, and its potential impact on aircraft deliveries and capacity plans for 2025. The speaker acknowledges the challenge in meeting high capacity targets if the strike persists. Andrew Watterson mentions adjustments in flight operations, noting a decrease in trips year-over-year but a slight increase in aircraft utilization, with changes expected in flight routes towards medium-haul distances. The latter part of the paragraph transitions to the end of the analyst discussion and the beginning of the media portion, introduced by Whitney Eichinger, the Chief Communications Officer.

In the paragraph, Robert Silk of Travel Weekly asks Ryan Green about the distribution strategy for the Getaway product, specifically whether it will be sold directly or through travel agencies. Ryan Green explains that the Getaway product, launching mid-next year, will primarily be sold directly through their website, which is the largest airline site in the U.S. They have partnerships with Caesars Entertainment in Las Vegas, Sandos, and Playa in Cancun and the Caribbean, and announced a bed bank partnership with hotelbeds. While the main focus is on direct sales, they are not ruling out working with travel agencies, although the extent of agency involvement is not specified.

In the paragraph, Ryan Green discusses the company's distribution strategy, indicating that it will primarily be direct through their own channels. Bob Jordan addresses concerns about Boeing's delivery delays due to a strike, noting the company's flexibility with its fleet plan and reduced capacity appetite, which mitigates immediate impacts. However, prolonged disruptions may require adjustments. Rajesh Singh congratulates on a deal with Elliott but mentions concerns about the high cost, with Elliott securing five board seats, suggesting some view it more as a truce than a peace deal.

Bob Jordan discusses the transition and refreshment of the Board, emphasizing that the changes are not meant to disrupt control or strategy. Seven members are stepping down, with six new members, including Pierre Breber, being added to the Board. The focus has been on selecting board members who align with the company's goals and values, bringing diverse experiences from various industries, such as airlines, government, hospitality, technology, and finance. This process aims to ensure strong support for Southwest Airlines and its shareholders.

In the given paragraph, Andrew Watterson discusses the timeline for the Boeing MAX 7's certification and integration into Southwest's fleet. He anticipates certification by mid-next year, but notes that several steps, including FAA approval and updating manuals, will delay its revenue service for at least six months after certification. Thus, the MAX 7 is not included in Southwest's plans for the next year, but it could be incorporated into the 2026 plan once certification is confirmed. Additionally, Boeing's delivery trends over recent years are considered when finalizing their future plans.

Bob Jordan discusses Southwest Airlines' strong aircraft order book with Boeing, which extends through 2031 and offers attractive pricing. Despite having the flexibility to change fleet plans, they depend on Boeing to fix delivery issues. The airline is focused on implementing a new transformational plan that includes features like assigned seating and partnerships. While they consider long-term strategies, they're not ready to disclose future plans, although the airline will likely evolve. Leslie Josephs asks about the impact of an ongoing strike on their fleet plan, to which Bob responds that the timing is uncertain.

The paragraph discusses the planning and impact of a potential strike at Boeing, historically lasting around five weeks, on aircraft delivery and schedules. The company has prepared for such interruptions, ensuring they receive the expected number of aircraft for the year. The focus is on maintaining capacity without disrupting schedules, despite potential prolonged strikes affecting the supply chain and ramp-up processes. If the strike extends, further adjustments might be needed. Boeing and its suppliers face furloughs during the strike, and production can only restart effectively once a new contract is established.

The paragraph describes the conclusion of a media Q&A session, with Whitney Eichinger directing any further questions to the communications group, whose contact information and today's news release are available at swamedia.com. The operator closes the conference, thanking attendees and noting the next meeting will occur next quarter.

This summary was generated with AI and may contain some inaccuracies.