Southwest Airlines Co Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ravi Shanker - Morgan Stanley & Co LLC. - Analyst : So great to see no evidence of bookaway here based on your comments. But I believe you recently broadly pulled your customer base on your recent initiatives. Can you share kind of what feedback you got from that pool? And kind of if you're confident that book away kind of is not something that's going to emerge later on in the year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 4:30PM, LUV.N - Q1 2025 Southwest Airlines Co Earnings Call

Question: Andrew Dedora - Bank of America - Analyst : My question is for Tom. I'm getting just a lot of client questions with regards to the balance sheet and liquidity, given the buyback, all the debt paydown in 2Q CapEx. I guess any color you can provide on how you think about liquidity targets right now in this environment. Just how we should think about minimum cash right now.

Question: Catherine O'Brien O'Brien - The Goldman Sachs Group, Inc. - Analyst : So I know you're suspending the full year EBIT guidance, but you're maintaining the EBIT initiative targets. Can you just walk us through what's giving you confidence in achieving those initiative targets and I really mean more on the revenue side, realize the cost ones are more baked. Are there not sensitivities on some of these revenue initiatives to the macro like there are for the core business? Or maybe you feel like you baked in enough cushion back in March? Just any color there would be helpful.

Question: David Vernon - AllianceBernstein L.P. - Analyst : A question for you on the -- just the load factor and the passenger count. In relation to this idea that we're not seeing any sort of book away or any sort of unique impact from some of the initiatives on the demand base, it looks like you guys are running lower from a demand destruction standpoint relative to peers on a year-over-year basis. How do you think about explaining that sort of gap? And then when you think about that load factor running 74-ish, what are your sort of expectations as we kind of get through the rest of the year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 24, 2025 / 4:30PM, LUV.N - Q1 2025 Southwest Airlines Co Earnings Call

Question: David Vernon - AllianceBernstein L.P. - Analyst : All right. That's helpful. And then I guess, if you're thinking about kind of maintaining that kind of discipline on the pricing side, which I think many investors would -- would be very comfortable with. Does that not sort of advocate for the position of maybe cutting capacity a little bit more than you're estimating in the second half of the year? I mean just to get the load factors back up a little bit. I mean it would seem like the trends you're proposing making in the back half of the year seemed a little bit light in relation to kind of what we're seeing in the results. And I'm just wondering how you're thinking about that capacity question as you get closer to the back half of the year.

Question: Jamie Baker - JPMorgan Chase & Co. - Analyst : So here's what I'm trying to reconcile. Well before Elliott, you had various initiatives that were obviously intended to be accretive, but margins were still declining which would imply assuming the initiatives worked, it would imply assuming the initiatives. So what would imply that sort of the core of Southwest was under pressure. So when we think about the goals that you laid out this past March that you're talking about today, do you simply steady-state your sort of pre-initiative assumptions and then layer on the initiatives on top of that and call that the guide? Because it deals that might be the way that you're doing it, whereas I think the more conservative approach would be if the core actually is slipping, you would add the initiatives in on top of some sort of reduction in the base of earnings, if that makes sense.

Question: Sheila Kahyaoglu - Jefferies Financial Group Inc. - Analyst : Maybe just to expand upon some of the questions. Could you talk about Bob or Andrew, whoever would like the expansion into mediums like Google Flights and Expedia and how the yields you're experiencing there relative to volumes ultimately shake out compared to the core customer base as we heard American talk about earlier today. I mentioned the discretionary consumer could often book in those channels is not surprisingly in that -- seeing that area of weakness?

Question: Sheila Kahyaoglu - Jefferies Financial Group Inc. - Analyst : Andrew, maybe just another one then, if I can follow up with you. You mentioned the initiative target yields in the first half and loads in the second half. How realistic is it that Southwest and initiatives buck that normal relationship that you trade off one for the other.

Question: Conor Cunningham - Melius Research - Analyst : I wanted to go back to Jamie's question around the initiatives. It seems like you're approaching like the list of initiatives from a growth standpoint rather than a net. So it would suggest that you would need to continue to add to the list to keep improving. So when you do survey work, what are the customers asking for now? Are they asking for free Wi-Fi at this point given all the changes in the industry? And then, Tom, if you could just talk a little bit about the cost structure from an outsider's perspective, like as you've been there now for only a couple -- I guess, a couple of months. Can you just talk about what you see as low-hanging fruit outside of the initiatives that you've already been -- you're already working on?

Question: Conor Cunningham - Melius Research - Analyst : Can I just follow up on that? Do you need to see things in the current initiative set before you can launch new ones? Like, is it that you want to make sure that premium is working the way it is before you do additional stuff? And then -- could you just talk about maybe like the loyalty component, like you mentioned a lot of changes, are people signing up for credit cards now to offset some of the potential book at? I know that you're not seeing it, but if it did happen in the future ?

Question: Tom Fitzgerald - TD Cowen - Analyst : Quick one first. Just -- I apologize if I missed this earlier, but it looked like at Investor Day, you had talked about having 68 extra legroom seats on the MAX and the 800s, but now it looks like it's only 46%. Is that correct? And if so, what changed?

Question: Tom Fitzgerald - TD Cowen - Analyst : Okay. That's really helpful. And then as a follow-up, just to kind of piggyback on some of the questions that Jamie and Conor have asked. One of your competitors talks a lot about being the brand loyal airline in a specific market. And I'm just thinking about markets where you're really dominant in like a St. Louis or Nashville versus some of the more competitive markets like a Denver or Chicago, and initiatives that you might need to become the brand loyal airline in some of those more competitive markets again. And I'm just like wondering you talked a little bit -- you hinted a little bit this a month ago at JPMorgan, but other initiatives, just where you're thinking it -- where your head is at right now, your latest thinking on maybe fleet initiatives, whether it's trying to get scope relief to roll out RJs or partner with a regional airline or acquiring wide-bodies to be able to offer more of an international product. But just love to think about how you're thinking -- if there's been any change in your thinking or any updates and the time line on that? Because if you think about Southwest in the 2030s, it seems like a lot of these decisions you have to start putting in place now to really get the airline humming where you'd like it to be.

Question: Duane Pfennigwerth - Evercore ISI - Analyst : Andrew, you mentioned -- I think you did anyway, managed business is up -- can you talk through the trends that you saw through March and April. One of your peers talked about a slowdown. It sort of turned negative on volume but has picked back up more recently to kind of low singles. Any green shoots you're seeing yet on that front?

Question: Duane Pfennigwerth - Evercore ISI - Analyst : And then just on premium, it's come up a couple of other questions, but is it still -- is the target still 1/3 of your seats, when do you expect that to go live? And by that, I mean like which quarter would we actually start to see the contribution -- and then how big of a RASM tailwind does that represent going from effectively no premium to 130 your seats?

Question: Savanthi Syth - Raymond James & Associates, Inc - Analyst : Just a follow-up on David's question earlier on the load factor. I was curious, you are getting MAX 8 and retiring 700s not getting the MAX 7, but you also talked about maybe in the future, not needing as many of the kind of the smaller gauge aircraft, like what kind of an impact is just not having the kind of the gauge of aircraft you want having on your load factor? Or is that not a driver here?

Question: Savanthi Syth - Raymond James & Associates, Inc - Analyst : That's helpful. And if I might follow up on Duane's question on corporate. What's the size of that kind of government exposure? And I know some of your kind of competitors have kind of reduced the dedicated sets into those areas? Like have you been able to kind of offset some of that weakness? Or is that kind of a continuing drag here?

Question: Allison Snyder - Wall Street Journal - Analyst : There's been a lot of talk on some of your competitors, even earlier today about O'Hare and ramping up there. And I was just curious kind of what you guys see as your future at O'Hare.

Question: Allison Snyder - Wall Street Journal - Analyst : Got it. But you don't see it as a sort of a major growth airport?

Question: Mary Schlingenstein - Bloomberg News - Analyst : I wanted to ask, as consumers view Southwest is becoming more and more like every other airline, I'm wondering in the promotions that you're working on going forward, what are going to be some of the hard assets, the product assets that you can point to that differentiate you in the future, not things like hospitality friendly employees. But what are some of the hard assets that you can point to that would be a reason for somebody to fly Southwest versus one of your competitors?