Dawn Gilbertson: Hi, thanks very much for taking my call. Bob, about six months ago, you were asked, as you always are, about the premium question, the open seating versus the signed seating, and you mentioned, as you always do, that you always said to customer preferences and if something changes, you’ll adapt as you said today. But here’s what you said then. You said there’s nothing underway. There’s no story here, nothing underway. So can you help us understand what has dramatically changed in the past six months on that particular front? And also related to that, is there any financially significant change to boarding or seating you can do without assigning seats? Thank you so much for the time.
Robert Jordan: You bet, Dawn. Thank you. I think the — it’s what you say that the difference is we — this is something that we look at on sort of on the surface pretty regularly. But in terms of a very deep dive of understanding customer preference and what we might do, that’s something we do less frequently. So the answer was different six months ago because the work has really accelerated. It’s work that we’ve done since then. And there’s a lot of discussion out there about just cabin and premium and all kinds of things. So it may just generally in customer preference. So it makes sense in terms of timing to study that. Again, we always want to understand what our customers want and desire. And so again, we’re — I’ll just again to tell you that we are very seriously studying this, and we’re pretty deep in that study.
And again, nothing to reveal today except that there are some interesting indications in terms of what this could mean to us and what it can mean to our customers. Again, that’s nothing to reveal. On your question about, are there other things you can do in boarding in particular? Our boarding process, we changed actually it’s over. I think it’s a decade ago at this point is very well received by our customers because it’s very organized and the way you line up. We have worked hard to monetize that and give our customers choice. You — we give you choice around how you think about your boarding position and that’s more important to some customers than others. But we’ve got that. We’ve got Business Select. We have an upgraded boarding at the gate product.
I will admit, it is hard for me, Ryan might tag in here. It’s hard for me to think of how we can really from a financial perspective or a customer desire perspective really push that even further. I think the products that we’ve added really attack what our customers want. So being just blunt. It is hard to think about how to implement more products related to boarding.
Ryan Green: Yes, I would agree with that on the incremental products. But what we are doing and what we can continue to do is to get better at how we price those products and drive incremental yield from those ancillary products. In total, our ancillary revenue in the first quarter was up 18% year-over-year. So well in excess of our O&D passenger growth. So we continue to push on optimizing for revenue there on our ancillary products, particularly the boarding products, but in terms of adding incremental products, it’s tough to imagine how that would fit into the current boarding process.
Dawn Gilbertson: If I can follow up then. My question is about — you’re talking about transformational changes here, and you’re hinting at boarding and seating. So can you do what kinds of things can you do, if anything, that doesn’t involve assigning seats because to me, that would be transformational for Southwest. Like what — can you give us — I know you’re not going to go into any detail until Investor Day, but what specifically is going to be different because just I think the price of upgraded boarding and early bird is obviously not going to meet your financial goals, as you just said. Thanks very much.
Robert Jordan: No, you’re — I think you’re exactly right, which is that’s why you want to look at all of these things. And we’re just not ready to tell you exactly what we’re studying, and we’re not ready to tell you then how that could, if we decide to go forward, turn into a different product design and a plan. But yes, just conceptually, that where you’re going is the reason we’re looking at this is we know over time, customer preference has changed. They have my whole 36 years here at Southwest Airlines. And we have changed a lot. We’ve changed our boarding. We’ve changed the product that we offer on board. We added loyalty programs and a modified those. So we are constantly changing to meet customer demand. So it’s critical to understand three things: number one, what do your customers want.
And that’s really what we’re studying right now. Two, what does that do to the way you operate the airline because we are obviously a bedrock of the company is operating very efficiently, having a quick operation, great turn times being efficient. And so making sure that whatever you might want to do, it fits in with that. And then obviously, the third piece is, is it financially beneficial back to hitting our financial goals a piece of this is, as Ryan mentioned, continuing to drive progress against our financial aspirations and goals and hitting our ROIC and margin goals. So all those three things have to work together. And we’re just not ready to share details today. But we will be, as we move across the summer and head to our Investor Day in September.
Dawn Gilbertson: Thanks, Bob.
Robert Jordan: Thank you.
Operator: The next question is from David Koenig with The Associated Press. Please go ahead.
David Koenig: Thanks very much. Well, I was going to ask about the transformational options proceeding, but I think you’ve probably said all you’re going to say on that, Bob. If I — if you could go into a little bit of explanation on the 2,000 headcount reduction. First of all, I’d like to know how many jobs you think will be eliminated by the closure of those four airports and any drawdown at here in Atlanta and elsewhere. And then secondly, are you saying that you can get to 2,000 fewer jobs this year just through attrition and leaves, can you rule out furloughs?
Robert Jordan: David, thank you. And yes, no, thanks for allowing me the ability to clarify that. We have line of sight on the 2,000 that does not include furloughs or anything like that, that we don’t want to put on the table. And then it also does not include a headcount that are effectively sort of out of the workforce in terms of not being paid because they are on voluntary unpaid leave. So it doesn’t even count that. So this is really through attrition in some cases, reassigning folks to have the work that does need to be done. But it’s also coming through pretty sophisticated initiatives. We have initiatives underway to use Gen AI to automate the way we handle cut some of our customer support functions, generate responses, decide what to do with the customer request.
We have other significant continuous improvement in automation going on in other parts of the company, and we plan to accelerate that. So not furloughs. It is primarily through planned attrition that we know we have a line of sight to. So and again, the line of sight to the 2,000, the folks that are effectively out of the workforce because we’re not — they’re not being paid in their own voluntary time off programs. That’s on top of the 2,000.
David Koenig: Okay. And how many of the 2,000 do you think will be pilots?
Andrew Watterson: Yes. I don’t think we give a breakdown by work group, David. There’ll be some that will be back office, people that work at headquarters, some that will be a frontline we have. There’s natural attrition that goes along throughout the company, whether one reaches retirement age or want to sites to go find a different job. You have that natural. We have a good history on that, so we can model out what that’s going to look like and which ones we need to backfill, which ones do not need to backfill and that’s how we get to these projections. It’s not any kind of reduction in force or eliminated people currently employed is more when physicians become available, not backfilling them.
David Koenig: Okay. All right, thank you.
Andrew Watterson: Thank you.
Operator: The next question is from Leslie Josephs with CNBC. Please go ahead.
Leslie Josephs: Hi, everyone. Thanks for taking my question. Just knowing what you know now from these customer surveys about potential seating changes. Are you thinking that it could be like a big front seat or bigger front seat type product? Or do you think that at some point, there will be a curtain on a Southwest Airlines plan and secondly, are you ruling out baggage fees entirely? Is that still or is that something that’s on the table for you as you’re looking at revenue initiatives? And then on the 1% of bookings that were canceled because of concerns about air safety, how many people is 1%? And how does that compare with — after the MAX crashes when the plane came back? Thanks.
Ryan Green: Hey Leslie, I’ll try and take all of those. The first one on what we’re learning from customer research, I think just stay tuned there. We’ll have more to share on what we’re learning and how that factors into what we may do different, if anything, at all. I will say though, the Southwest Airlines is — we will stay true no matter what we do to the brand and who we are and how we approach customers. And I think things like curtains and things like that are a bit far field from who Southwest Airlines is. On your bag fee question, no, we are not considering bag fees. The reason we’re not considering bag fees is because people choose Southwest Airlines because we don’t have bag fees. If you go look the most recent J.D. Power survey, which obviously is an independent syndicated piece of research that’s well respected in the industry.
Over 60% of customers say that they choose Southwest Airlines as one of their top reasons because of bag fees. You — companies love to have differentiation in their product that drives customer preference and drives customer choice. Our next closest competitor on that measure is Alaska at 19%. So we get 3x the preference in terms of bag fees relative to our competition. So that’s why bag fees are not on the table for consideration. On the 1% of cancellations, it’s a very small number. We don’t — our overall cancellation rate is a very small number, so 1% of that is a very, very small number. So it’s not material.
Andrew Watterson: Yes. And I’ll just emphasizing that, Leslie, it’s not 1% of our bookings, it got canceled because of all of those people who canceled. And so yesterday, 0.4% of people canceled and 1% of that 0.4% said it was safety concerns. So it’s a very small number of an extraordinarily small number that did that, which is why Brian would say is immaterial or even inconsequential.
Leslie Josephs: And how does that compare with what the MAX came back in 2020 after the crashes.
Andrew Watterson: That was also quite small. I mean we also track people who look at what the aircraft type is on the website and those really didn’t see any movement of consequence in there. And so it seems like this is not something that customers investigate any great deal with the very early days of the MAX grounding, there were some interest heightened to that. When the MAX came back, it was — we prepared as if it would be, I think, of interest and it was not a thing of interest. And currently, customers are acting as we saw seeing interest as well. So it’s I think that even though Boeing is having individual controllers as a company, customers are trusting at least Southwest Airlines and that we will operate our aircraft safely.
Leslie Josephs: Thank you.
Andrew Watterson: It’s pleasure.
Operator: The next question is from Rajesh Singh with Reuters. Please go ahead.
Rajesh Singh: Hi, Bob. All the additional voluntary unpaid time of programs that you’re considering, does that include the pilots as well?
Andrew Watterson: So thanks Rajesh, this is Andrew. And so what we’re doing right now that we’ve spoken of is the voluntary time off has roughly been with our ground operations flight attendants and some of our call center people. They’ve taken advantage of that for flexibility in their programs. We do not have anything with our pilots at the moment. A provision of our contract requires us to consult with them, and we will certainly do that before we do anything with regards to our pilots. Thank you.
Rajesh Singh: Bob, you said that you were encouraged by Boeing’s approach. Can you please share some specific examples and color that make you feel encouraged about their approach?
Andrew Watterson: Andrew, again, I’ll take that because I was up there with Bob on our visit. And so really, we’re impressed by how Boeing is putting kind of quality ahead of short-term profit, so to speak. So an example is, they have many portions in their factory. There’s like 10 stations they go through the construction. They don’t allow anything to progress past Stage 3 that has traveled work. And so that creates gaps in their factory, which then leads to obviously a plane that’s not sold and delivered that month. So the fact they’re taking this very strong approach to bring quality out in the early stages of the production process from their suppliers is a much different approach. And frankly, as when to put safety ahead of profitability in the short term. But it’s obviously their long-term interest. So we were very impressed by that kind of not just change of words, but by change of actions.
Robert Jordan: Yes. You want to see the tone at the top be appropriate, which is an understanding that — again, I can’t speak for Boeing, I’m just thinking about how we view this but a tone that recognizes that this is a big issue, and it’s bigger than a quality escape. And to some extent, it is a cultural issue. And so they need to attack it very broadly. And that is the way that they — our view when we visit with them, that is the way that they appear to be tackling that, as Andrew said, it appears to be showing up in their actions. Now at the end of the day, they have to deliver and — but no, no, we are encouraged by what we’re seeing.
