Southwest Airlines Co Q4 2024 Earnings Call Transcript

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

Question: Savanthi Syth - Raymond James & Associates, Inc. - Analyst : Tammy, congratulations on the pending retirement. And one of your competitors once told me or counterpart, one of your competitor firms once told me that Southwest balance sheet as being something on another planet in terms of relative position. And I know that doesn't happen accidentally. So congrats. If I might, for my first question and maybe to Tammy, unit cost here in the first quarter is moderating by about 3 points or maybe closer to 5, if you consider that you don't have the sale leaseback gain in the quarter. And in your opening remarks, you talked about like a 1.5 point headwind in the second half from the cabin retrofits. So given all the moving parts, I was hoping you could talk a little bit about the cadence of unit cost growth for the rest of the year. And just to clarify that low single-digit exit rate, what type of capacity growth that exit rate is on?

Question: Savanthi Syth - Raymond James & Associates, Inc. - Analyst : That's helpful, Tammy. And maybe just following up on that. So from a timing perspective, those kind of ride initiatives, I'm guessing they kind of kicked in, in there in the second and third quarter. is it kind of fairly consistent than the rest of the quarters because it's the second half, you do have that kind of step up in cabin retrofit?

Question: Savanthi Syth - Raymond James & Associates, Inc. - Analyst : Okay. Understood. Thank you.

Question: Duane Pfennigwerth - Evercore ISI Institutional Equities - Analyst : Thanks. Tammy, congrats, good luck on the next phase of your career. I know you're going to miss all this fun.

Question: Duane Pfennigwerth - Evercore ISI Institutional Equities - Analyst : So look, I wanted to ask you maybe a longer-term question. There's a lot of symmetry right now between the industry backdrop and the renaissance that kicked off in 2012. And Southwest was really a big part of that renaissance. And as we go back and look at that period, you really had a multiyear period of margin expansion, RASM growth over CASM growth, not a quarter or two or timing shifts here and there, but a multiyear period of margin expansion. Now some of that was macro growth and benign fuel prices, but really CASM growth for Southwest was modest despite the fact that capacity growth was also modest and fairly tight over a multiyear period. So my question is, sorry for the long-winded lead-in, from a unit cost perspective, do you see the potential to enter a similar multiyear period where you get modest unit cost growth on modest capacity growth or does better CASM really depend upon getting back to a period of higher growth?

Question: Duane Pfennigwerth - Evercore ISI Institutional Equities - Analyst : And then maybe just for my follow-up, the certification process for your new seating configuration. Can you give us an update there? What have you learned since last quarter or since Investor Day? And when does this really start in earnest?

Question: Duane Pfennigwerth - Evercore ISI Institutional Equities - Analyst : Thank you.

Question: Michael Linenberg - Deutsche Bank AG - Analyst : I echo the comments of what everybody has said about Tammy. Tammy, it's been a lot of fun. And I think I've been there for the majority of those 33-years. So a good run. Anyway, just on questions and in fact, I do have one for you, Tammy. When I think about sale-leaseback transaction that you guys took in the fourth quarter, and so that was 35 airplanes, call it, $90 million. I know that in the past, you had indicated that we could see a margin boost upwards of, call it, maybe 2 points from this strategy. And so when I think about your revenue base for 2025, 2026, and I sort of look at this transaction, and I realize not every transaction is going to be sort of sized this way. But it does seem like that we could be looking at maybe upwards of 100 airplanes on a sale-leaseback basis. I mean, is that number too high? How should I think about it? And what sort of as a follow-up, what are you sort of targeting for 2025 with respect to sale leasebacks? And I know that there was an RFP for 30 outright divestitures. Where does that sit? So kind of a multi-pronged airplane question.

Question: Michael Linenberg - Deutsche Bank AG - Analyst : Great, thanks. Thanks everyone.

Question: Catherine O'Brien - Goldman Sachs Group, Inc. - Analyst : Good afternoon, everyone, and maybe I haven't been here for all of the 33 years like Mike has. But Tammy, it's truly been a pleasure to work with you. So congratulations on the career on quite a career and happy retirement. So I have one quick revenue one and then one quick fleet one for you, Tammy, but maybe I'll start on revenue. The 4Q RASM result you mentioned that the beat was driven in part by stronger holiday peak and then also the ramp of revenue management. Can you just help us think about broad strokes, how much each of those buckets contributed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 5:30PM, LUV.N - Q4 2024 Southwest Airlines Co Earnings Call And how do we think about the pacing of that $1 billion in tactical revenue-driven initiatives in 2025. How much of your 1Q guide does that drive versus general industry environment? And how does that build for the year?

Question: Catherine O'Brien - Goldman Sachs Group, Inc. - Analyst : That's great. And then I guess one last question for Tammy. On the fleet strategy, you've called out you expect that to contribute about $500 million in EBIT on average per year. I understand that's very fluid. Tammy, in your answer to Mike, I think you made it clear that the bulk of that will come from straight sales, not sale-leasebacks. Should we think of sale leasebacks as offsetting that positive sale impact? Just with the first leaseback the increased rent over three years offset the gain on the decrease in D&A? Or do we need to be adding like other items like lower maintenance dispatch reliability. I guess what I'm really getting at is, do you expect the net of gain aircraft front and DNA for these sale leasebacks to also be EBIT positive? Or how do we think about that?

Question: Catherine O'Brien - Goldman Sachs Group, Inc. - Analyst : Thanks and congrats Tammy.

Question: Daniel McKenzie - Seaport Research Partners - Analyst : Tammy, I have to jump on the bandwagon here and say huge congrats on such an extended run as a CFO and at Southwest, of course. A couple of questions here. Following up on my question. And when all is said and done, how much cash could potentially be unlocked from the balance sheet from these sales? And so I guess my question is how many aircraft fall into that attractive mid-age bucket -- and over how many years could these sales potentially occur if you wanted to pull the trigger?

Question: Daniel McKenzie - Seaport Research Partners - Analyst : Yeah, that's perfect. Second question here is a balance sheet question. I believe the plan is to pay down the debt coming due this year. I think it's $2.9 billion in the first half, if I'm not mistaken, but please correct me on that. But where would that leave the balance sheet metrics? And secondly, would that open the door for the Board to consider an acceleration of capital returns once you hit those metrics?

Question: Daniel McKenzie - Seaport Research Partners - Analyst : Thanks so much, you.

Question: Ravi Shanker - Morgan Stanley - Analyst : Hi, good afternoon. This is Catherine on for Ravi. We also wanted to thank you, Tammy, for all your help over the past few years, and we congratulate you as well. I was just wondering if you had thoughts on overall industry capacity in maybe 2Q through 3Q and whether you're confident that may come down from what we're seeing maybe in schedules or if there's any areas of pockets overcapacity that you're seeing specifically? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 5:30PM, LUV.N - Q4 2024 Southwest Airlines Co Earnings Call

Question: Ravi Shanker - Morgan Stanley - Analyst : And just as a quick follow-up. I know you guys have kind of talked about your plans for retrofitting aircraft for the premium cabin. But I was just curious if you could give us a quick update on the progress you've made since the Investor Day, maybe something that you've been excited about or that you've done since then.

Question: Mary Schlangenstein - Bloomberg News - Analyst : I just had a quick question on the amended credit card deal. With your forecast that it's going to really drive acquisitions of the card up. Are you offering any kind of a forecast in terms of how your remuneration from Chase may expand and some idea of what that could be on an annual basis going forward?

Question: Mary Schlangenstein - Bloomberg News - Analyst : Thank you.

Question: Robert Silk - Travel Weekly - Analyst : Two quick questions. One, has there been a shift in Southwest approach to DEI? There's been some attention paid to the change in title from your Vice President of DEI changing the corporate citizenship and Chief Inclusion Officer. That's question one. Question 2, very different question is [get away] Southwest any updates on that in terms of how you work with the travel trade or travel advisers.

Question: Robert Silk - Travel Weekly - Analyst : Okay, thank you very much.