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

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Bob Jordan: Well, Duane, also if you think about just more for our customers, just the example of the change on the Tuesday, Wednesday moving to an 8% reduction from a typical Monday, changing schedules that are already published, especially for the holidays, it’s super disruptive to our customers. And so, if you’re going to go in there and make wholesale changes to the fall, we’re committed to not doing that. Obviously, we tweak our schedules now and then. But in terms of wholesale changes, we committed coming out of the pandemic to not do that to our customers. So January really — obviously, we did some things, as Andrew described, but January was really the first opportunity in a new published schedule to enact a lot of the changes.

Duane Pfennigwerth: Okay, great. And then just for my follow-up, I wonder if you’d be willing to kind of quantify the excess training investment and I think the reliability investment, which I guess is actually bigger, you would know. But, can you give us a sense for the magnitude of those that are unlikely to kind of reoccur or maybe wind down next year?

Tammy Romo: Hey Duane, I’ll take that. In terms of the training, we’ll provide more details once we have our plan fully baked here and solidify our capacity plans, et cetera. But I can help you with regard to costs that we’ve incurred this year that we believe are onetime related to the ops disruptions, and that’s about $100 million to $150 million. So, that’s kind of onetime comp that won’t repeat next year. Beyond that, we’ll share additional details once we lay out our 2024 plan for you.

Operator: Our next question will come from Jamie Baker with JP Morgan.

Jamie Baker: First question is of a modeling variety. So, Tammy, if we look at the third quarter X fuel CASM guide and then the full year guide of down 1% to 2%. And I realize there’s some wiggle room here, but it implies a fourth quarter outcome that’s pretty similar to the third quarter in terms of absolute X fuel CASM at least closer than what’s usually the sequential case. Fourth quarter is usually higher than third quarter. Just wondering how you’d address that.

Tammy Romo: Well, keep in mind, Jamie, that capacity is going to be a factor in that as we continue to add back capacity. So, I think that’s the primary driver.

Jamie Baker: Okay. And then, second, and this sort of builds off what I asked you about last quarter. You mentioned the stagnant corporate demand, revamping schedules next year to reflect post-pandemic changes to how customers are flying. And I don’t dispute that those changes have taken place. Other airlines have spoken to this. I’m just curious, how do you separate changes in travel patterns from the possibility that maybe the Southwest brand was somewhat damaged last December. I mean, you make it sound like it’s all the fault of shifting consumer preference and it may very well be but have you at least consider that maybe something about the overall value proposition of Southwest might also be a contributing factor?

Bob Jordan: Yes. I’ll let Ryan talk to the specifics, as you think about markets and trying to tease that apart. But I’ll just start at the top, and you mentioned a lot of this early on. I mean, we are just — obviously, we track customer trust and all those things, preferences and they’re all heading in the right direction and look really good. To me, the top line factor is just thinking about demand for the brand and is there any hangover effect. I mean, we had tremendous strength in the quarter. We had, again, record operating revenues, record passengers, record flights, all those things. We had our fall sale, and I believe each of those days was a record in terms of our highest booking day in our history. We haven’t talked a lot about, Ryan can talk more about demand on the business side.

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