Southwest Airlines Co. (NYSE:LUV) TD Cowen Future of Consumers Conference Call June 4, 2025 11:45 AM ET Company Participants Tom Doxey - Executive VP & CFO Conference Call Participants Thomas John Fitzgerald - TD Cowen, Research Division Thomas John Fitzgerald All right, everybody. Thanks so much for joining. We're back with the airlines and CFO of Southwest Airlines, Tom Doxey. Really excited to be here with you. Before we get into the Q&A, would you like to make any opening statements, Tom? Tom Doxey Sure ...

Summary of Southwest Airlines (LUV) FY Conference Call - June 04, 2025 Company Overview - **Company**: Southwest Airlines (LUV) - **Date of Conference Call**: June 04, 2025 Key Points and Arguments Business Transformation and Initiatives - Southwest Airlines is undergoing significant transformations across various business areas, including the launch of new products and partnerships, such as Expedia and a new deal with Chase [2][3] - The introduction of basic economy fares and changes to frequent flyer programs are aimed at enhancing customer experience and driving revenue [2][5] - The company has already modified approximately 15% of its airplanes to include extra legroom configurations, with plans to sell these options starting in Q3 [9][10] Customer Feedback and Performance Metrics - Initial customer feedback on the basic economy and extra legroom offerings is positive, with a reported six-point increase in Net Promoter Score (NPS) [10][12] - The company has historically won the JD Power award for best economy cabin for four consecutive years, indicating strong customer satisfaction [14] Operational Efficiency and Technology - Southwest Airlines has made significant investments in technology to improve operational efficiency, including predictive tools for gate agents and lobby flow management [28][30] - The airline has successfully reduced turn times by five minutes, allowing for more efficient flight scheduling and staffing [35] Capacity Management and Market Position - The company has proactively reduced capacity by approximately 1.5% to adjust to market conditions, which is expected to benefit the airline if demand rebounds [55][56] - Southwest maintains the largest point-to-point network in the U.S. and is increasing its connecting opportunities, moving from 39 to over 50 connections [36][38] Partnerships and Customer Loyalty - New partnerships with airlines like Icelandair and China Airlines are expected to enhance customer loyalty and provide more travel options for Southwest's customers [38][39] - The company is focused on improving customer experience through its mobile app, aiming to provide seamless travel information and incentivize upgrades [42][45] Financial Strategy and Capital Allocation - The airline is committed to maintaining a strong balance sheet and is currently in the final phases of a $2.5 billion share buyback program, expected to be completed by July [60][61] - Future capital allocation will focus on investing in the business, maintaining investment-grade status, and returning capital to shareholders [58][62] Fleet Management and Asset Monetization - Southwest Airlines plans to continue monetizing its fleet, with over $16 billion in assets, by selling older aircraft and utilizing parts from decommissioned planes [64][66] - The airline is expected to focus more on direct sales and parting out aircraft rather than leasebacks [68] Market Outlook and Trends - The current market environment is described as stable, with no significant inflection points observed yet, but the airline remains optimistic about future demand recovery [51][53] - The company is exploring opportunities to enhance its operational efficiency and customer offerings, indicating a proactive approach to market challenges [79][80] Additional Important Insights - The culture at Southwest Airlines is highlighted as a key strength, with a focus on hospitality and employee engagement [76][79] - The company acknowledges the need to improve margins and is actively working on initiatives to enhance profitability [81][84]

Rapid Rewards® Credit Cardmembers can also earn more points on purchases between June 3 and June 9, 2025 DALLAS, June 3, 2025 /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) is celebrating its birthday month in a big way—by showing love to its Customers with a week of special travel deals. The airline's Week of WOW offers up to 50% off base fares with the code WOWZERS, along with promotions on cruises, hotels, and car rentals. Existing Southwest Rapid Rewards® Credit Cardmembers can also earn up to 10X t ...

Core Points - Southwest Airlines is celebrating its 54th anniversary with a promotional event called "Week of WOW," offering significant discounts and rewards for customers [2][4] - The promotion includes up to 50% off base fares, special offers on cruises, hotels, and car rentals, and enhanced points earning for Rapid Rewards Credit Card members [1][2] Promotions and Offers - Customers can save up to 50% on base fares for select flights booked between June 3 and June 5, 2025, for travel from August 12 to December 17, 2025, using the code WOWZERS [2][4] - Rapid Rewards Credit Card members can earn 10 points per $1 spent on Southwest purchases, up to $500, from June 3 to June 9, 2025, which also counts towards the Companion Pass [1][2] - A sweepstakes is available for customers to win 500,000 Rapid Rewards Points and a Carnival Cruise for two, running from June 2 to July 31, 2025 [2][6] - Hotel bookings made between June 3 and June 9, 2025, can earn customers 5X points on a minimum three-night stay or a discount of 5,000 points on bookings made with points [2][4] - Rental car reservations made during the promotional period can save customers up to 30% and earn 1,200 Rapid Rewards points for rentals of two or more days [2][4] Company Overview - Southwest Airlines operates at 117 airports across 11 countries and is known for its low-cost air travel and customer service [4][7] - The airline carried over 140 million customers in 2024 and employs more than 71,000 people [4][7]

Core Insights - Southwest Airlines and China Airlines are forming an interline partnership to enhance trans-Pacific travel options, marking the first such collaboration for Southwest Airlines [1][2] - The partnership aims to provide seamless travel experiences for customers, allowing them to book itineraries under one ticket and improve connectivity between the U.S. and Asia [2] Company Overview - Southwest Airlines operates one of the most admired airlines globally, serving 117 airports across 11 countries and carrying more domestic passengers than any other airline in the U.S. [5][6] - China Airlines, founded in 1959, employs over 10,000 people and operates a fleet of 111 aircraft, aiming to be a leading airline in the Asia-Pacific region [3][4] Strategic Goals - The partnership aligns with Southwest's vision to expand its network and provide more choices for customers, particularly in California, where it has a significant presence [2] - China Airlines is focused on growing its long-haul network and enhancing gateway operations in key U.S. cities, including Los Angeles and San Francisco [2] Recent Developments - Southwest Airlines recently launched a partnership with Icelandair, further expanding its international connectivity [2] - The announcement of the partnership with China Airlines was made during the IATA 2025 Annual General Meeting in New Delhi, indicating a strategic move to attract global partnerships [1][2]

Core Insights - Southwest Airlines anticipates generating over $4 billion from recent operational changes, including the elimination of unassigned seating and the "Two bags fly free" policy [1] - The airline expects an incremental EBIT contribution of $4.3 billion by 2026, which is expected to significantly impact business margins [1] Revenue Generation Strategies - Starting Wednesday, Southwest introduced fees of $35 for the first checked bag and $45 for the second, with loyalty members and credit card holders receiving one free bag. This is projected to contribute $800 million [2] - The introduction of assigned seating is expected to generate an additional $1.5 billion in 2026, as it encourages passengers to pay for seat selection and premium options [2][3] - The remaining $2 billion in revenue is anticipated from cost-cutting measures and improvements in the airline's revenue management system [3] Market Dynamics - Increased fuel and labor costs, along with domestic overcapacity, have made it challenging for Southwest to fill planes, while customers are increasingly interested in premium offerings [4] - The company is responding to customer demand for cabin segmentation and a variety of product offerings [4] Market Reaction - The changes have positively influenced Wall Street sentiment, with Southwest's share price rising over 20% in the past month [5] - Deutsche Bank analysts upgraded Southwest's stock from Hold to Buy, expressing confidence in the company's transformation plan under new management [5]

Company Overview - Southwest Airlines participated in the Bernstein 41st Annual Strategic Decisions Conference, with key executives including CEO Bob Jordan and CFO Tom Doxey present [1][2]. - The conference format included a fireside chat, allowing for audience interaction through a question submission system [2]. Industry Insights - Bob Jordan, the CEO, was invited to share insights on the current state of the airline industry and the company's business performance [3]. - There is significant interest in the changes occurring within the airline sector, indicating a dynamic environment that may impact operational strategies [4].

Financial Data and Key Metrics Changes - The company announced a significant increase in its cost reduction plan, raising the target from $500 million to over $1 billion by 2027, with $370 million in cost reductions expected this year [7][8] - The company reported strong cost discipline, with first-quarter results showing costs well below consensus, and a low single-digit CASM ex rate expected by the end of 2025 [9][10] - The company anticipates $4.3 billion in EBIT value in 2026 from various initiatives, indicating a substantial financial impact [10][22] Business Line Data and Key Metrics Changes - The introduction of a basic economy fare and changes to fare families were implemented recently, including charging for bags, which is expected to enhance revenue [5][6] - The company is set to begin selling assigned seating and extra legroom in the third quarter of this year, with operations starting in the first quarter of 2026 [7][8] - The initiatives are projected to contribute approximately $4.3 billion in incremental EBIT in 2026, with various components such as base business changes and assigned seating [26][28] Market Data and Key Metrics Changes - Demand has stabilized at lower levels than previously expected, with a noted decline of about six points from earlier projections [11][12] - The booking curve has shortened, indicating consumers are making travel decisions closer to their travel dates, leading to less visibility for summer bookings [15][16] - Business travel is holding up better than consumer travel, with government travel being the most affected segment [16][17] Company Strategy and Development Direction - The company is focusing on executing operational initiatives and maintaining strong performance despite macroeconomic uncertainties [13][21] - There is a shift towards cabin segmentation and offering a variety of fare products to meet changing consumer demands, moving away from a one-size-fits-all model [52][54] - The company is exploring broader access to international markets and considering future fleet diversification, although no immediate changes are planned [74][76] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the macroeconomic environment, noting that while consumer confidence is low, business travel remains stable [18][19] - The company is committed to executing its initiatives and believes that the financial benefits will materialize sooner than previously anticipated [61][62] - There is a recognition of the need to adapt to consumer preferences and market changes, with a focus on maintaining operational excellence [66][68] Other Important Information - The company has implemented several operational changes, including bag fees and basic economy, which are expected to enhance revenue without significant risk [28][29] - Management highlighted the importance of maintaining a strong balance sheet and financial discipline, with a focus on maximizing revenue per square foot in the cabin [88][90] - The company is optimistic about improvements in aircraft delivery from Boeing, expecting better quality and stability in future deliveries [92][93] Q&A Session Summary Question: What is the expected EBIT contribution from the new initiatives? - The company expects a $4.3 billion incremental EBIT contribution in 2026 from various initiatives, which includes base business changes and new revenue streams [25][26] Question: How does the company plan to manage potential overlaps in revenue from new initiatives? - Management clarified that the revenue figures provided are net contributions, accounting for any potential overlaps, ensuring conservative estimates [32][33] Question: What has changed in the company's approach to bag fees and seating assignments? - The company has shifted its strategy to include bag fees and assigned seating as part of a broader cabin segmentation approach, responding to consumer demand for more options [40][42]

Core Viewpoint - Southwest Airlines' stock rose over 5% following the announcement of a new pricing regime that aligns with industry standards, outperforming the S&P 500's gain of just over 2% [1]. Group 1: New Pricing Strategy - Southwest Airlines will implement a $35 fee for the first checked bag and a $45 fee for a second checked bag, effective immediately for flights booked from that day onward [2][4]. - Passengers with Business Select or Choice Extra tickets can check two bags for free, while A-List and Rapid Rewards credit card holders can check one bag for free [2]. Group 2: Industry Trends - The introduction of bag fees is part of a broader trend in the airline industry, where carriers have been increasingly relying on non-ticket revenue to supplement income as many travelers opt for the cheapest available tickets [5]. Group 3: Financial Context - The decision to charge for checked bags follows Southwest's recent disappointing financial performance, suggesting that the airline is seeking new revenue streams [6]. - There is uncertainty regarding whether the removal of the free bag check policy will lead to customer defection, although it is anticipated that travelers may accept the new fees if overall flight costs remain reasonable [6].

Group 1 - Southwest Airlines is ending its long-standing policy of free checked bags, introducing a new basic fare that charges $35 for the first checked bag and $45 for the second checked bag for flights booked or changed on or after Wednesday [1][6] - The new basic fare will be the cheapest but least flexible option offered by the airline [3] - CEO Bob Jordan stated that these changes aim to meet current and future customer needs and attract new customer segments [6] Group 2 - Rapid Rewards A-List Preferred members and customers on Business Select or Choice Extra fares will still receive two free checked bags for up to eight additional passengers on the same reservation [2] - A-List Members and Rapid Rewards Credit Card members will receive one free checked bag, encouraging more participation in the loyalty program [2] - Southwest is also planning to offer assigned seating and premium seating options across its network, a significant shift from its traditional open seating policy [9] Group 3 - The airline will change fare classes in the third quarter of 2025, introducing new options such as Choice Extra, Choice Preferred, and Choice, along with new seat options that will incur additional costs [10] - Southwest Airlines withdrew its financial forecast due to economic uncertainty, not reaffirming its previous forecast of $1.7 billion in earnings before interest and taxes in 2025 and about $3.8 billion in 2026 [11]