Southwest Airlines Co. (NYSE:LUV) Q4 2022 Earnings Call Transcript

Bob Jordan : Yeah, I’ll take the first part and then let Tammy take the financials. Throughout the event, right away, we promised — we knew it was the right thing to do that we had significantly impacted holiday travel plans here. We knew it was the right thing to do to offer refunds and then to offer reasonable — to reimburse for reasonable expenses related to alternative transportation. And the direction that we gave the teams were to be generous in that regard and lean towards the customer. And so I think a lot of these decisions are subjective, but I think the team did a really good job of balancing, understanding what is reasonable and leaning towards the customer in order to do the right thing by them. So I think it was — admittedly, it’s a subjective element that you’ve got to kind of find where the line is there, but I think our teams leaned into the customer and largely did the right thing there. Tammy?

Tammy Romo : Yeah. And on the financial impact, as we shared in the release, the total cost impact was $390 million for the fourth quarter. And the lion’s share of that was the customer reimbursements and the Rapid Reward points that we offer to our — and that we expect to be redeemed. So there was a much smaller portion that related to premium pay that we paid to our employees. So the lion’s share of that was the customer reimbursements in Rapid Reward points. We haven’t given the specific dollar amount of that, but it was probably roughly 50-50 between those two categories.

Bob Jordan : And Dawn, I’ll just add one more thing here. The — and those customers that were most severely impacted that we issued the gesture of goodwill for, we issued those Rapid Reward points roughly three weeks ago. And when we look at those customers today, 25% of them already have future travel booked on Southwest Airlines. So — and in 3 weeks, that’s really pretty good. So I think that it is a — I take that as a sign of confidence that customers understand. They understand that we messed up there. We did everything that we could to make it right and that fourth of them already have future travel booked on Southwest.

Ryan Green : And Dawn — not necessarily with those points, some of them with those points and some of them being cash, just future travel.

Bob Jordan : Dawn, just the fact — I think it changes day to day, but on the reimbursements, which are obviously the most complicated thing around, I think our goal — we’re tracking to be 95% complete by tomorrow and then have them all wrapped up by next — probably early next week. So we’re moving through them very quickly.

Dawn Gilbertson: Thank you, all very much.

Bob Jordan : Thank you.

Operator: And the next question is from Kyle Arnold with Dallas Morning News. Please go ahead.

Kyle Arnold: Hey, guys. Thanks for taking my question. I was curious, could you talk a little bit more about that $1.3 billion in technology spending? Is that back-end infrastructure? And does that include things like the upgrades to WiFi and the in-flight improvements that you’re making this year?

Tammy Romo : The technology spend, yeah, it would include all — everything that you referenced. And again, the $1.3 billion includes technology, the upgrades and the ongoing maintenance of the system. The — but the WiFi piece of that, it does not include. So that would be incremental.

Bob Jordan : It’s really our investment and ongoing support of the — of our technology infrastructure, including all investments, but it’s not the customer investments like the WiFi on the aircraft.

Kyle Arnold: Thanks. And are there any specific upgrades like you guys have worked on the maintenance systems, anything that you are actively working on? It was probably in place before the December event. But any other systems that will get an upgrade this year as part of your plans?

Andrew Watterson : We have a couple that are ongoing at different levels of maturation, if you will. So we just finished up with the maintenance replacement just recently. That was a big event. We’re in the middle of upgrading our ground ops infrastructure, so one of our efforts you may have seen it from Investor Day, a paperless turn. So we’re upgrading — and that comes in so many releases, some of which have already deployed and now allow us to eliminate all of our paper in our turn. That’s part of — modernizing operation within our control center. And we have an operation system and a flight planning system. Both of those have RFPs that have already been completed, and the work has been awarded. And then in our cruise system, we have just completed an RFI, which is what you do before you do an RFP.

And so we’ll get the results of that and great lessons learned from this event and then with the next step on the crew stuff. So each of the big operating areas has tech workers underway. And as you would expect, some are further ahead than others.

Bob Jordan : And Kyle, that $1.3 billion is across the enterprise. There’s a lot of commercial systems that are being upgraded and invested in as well. So it’s across the enterprise.

Kyle Arnold: Thanks.

Operator: The next question is from Lori Aratani with Washington Post. Please go ahead.