Southwest Airlines Co. (NYSE:LUV) Q2 2023 Earnings Call Transcript

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In March of ‘24, we’ll have 225 departures. In March of this year, we had 229, so, just down 4 trips. Underneath that, you have 26 city pairs that are changing frequencies. You say Midway to Columbus, down 2 frequencies from 6x to 4x, Midway to Phoenix up 2 frequencies and replace it. And then same thing in Columbus, they’re not losing 2 frequencies. Those frequencies are going from Midway to Sarasota and the Tampa. And so, everyone kept their departure, so to speak, so the composition moved a little bit. Now Sarasota is a pure-play leisure, but Tampa and Phoenix is a combination of leisure and business. So, it’s kind of a mix shift at the margin, not like going together guardrail, so to speak. So all these — you go do this through all of our network, it leads up to a substantial change, but each one itself is modest.

Operator: Our next question will come from Savi Syth with Raymond James.

Savi Syth: Good afternoon. Can I ask maybe a high-level question kind of tying in all the different things that you’re working on? And when do you think you can get back to 2019 level of profitability, not necessarily EPS, but just kind of pretax income type level? Like, what does it take to get there and how long does it take to get there?

Tammy Romo: Yes. Hi Savi. We are in the midst of working on our detailed 2024 plan and certainly getting back to pre-pandemic levels of profitability is our goal. And as we’ve shared with you, adjusting our network to the current demand environment and current business environment is a part, a significant part of that plan. We’re not ready, obviously, to provide guidance for next year, but certainly getting back to those levels of profitability is the goal. So, the first order of priority is to fly all of our fleet and optimize our staffing levels to that flying and to the network adjustments that we’ve taken you through. And in addition to that, we’ve got ongoing contributions from our initiatives as we continue to grow the network.

And certainly, we’ll continue to get contributions from our ongoing fleet modernization plans. So, we’ve — certainly a lot of moving parts here as we work to rebuild following the pandemic. It’s obviously been a little messy here. But the good news is that we are almost fully restored and will be soon, and we will be certainly pivoting and putting our efforts on producing year-over-year margin expansion for 2024.

Savi Syth: That’s helpful. And I was just wondering if I could ask a question on the labor accruals. Does that include what has historically been part of the kind of the ratification bonuses? So, in your case, anything kind of prior to April 2022 or any catch-up to kind of last year’s where you might be lower? Is that also included in kind of this year’s labor accrual, or is it just getting kind of the labor cost to what you think the market rates are?

Tammy Romo: Savi, it is our best attempt to adjust our market rates to current market rates. And obviously, there’s been changes as we’ve been moving along here, and we’ve been adjusting as we go. And certainly, for the third quarter, we have factored all of that into our third quarter cost guidance, as best we can estimate. So — and I think that’s an important point, Savi. So, we’ve got — we’ve been accruing all along, as you know here — as you know. And so, just keep that in mind as you compare Southwest to maybe some of the other guys in the industry.

Bob Jordan: Yes. I mean just in short, though, yes, we are fully accrued for what is the most recent market. And as you know, market’s been moving. In fact, the change that we made for full year cost down 2% to 4%, we guided down 1% to 2%. That change was basically entirely updating our accruals across the quarter because the market moved.

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