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]

Group 1 - The company is undergoing significant changes and is excited about the pace of these changes [3] - Upcoming initiatives include the announcement of a basic economy fare structure and changes to the frequent flyer program [3][4] - The company plans to start selling extra legroom seats and seat assignments in the third quarter, with flights already in operation [4]

Summary of Southwest Airlines Conference Call Company Overview - **Company**: Southwest Airlines - **CFO**: Tom Doxy Key Points Industry Context - The airline industry is experiencing a challenging environment with unit revenue in Q1 being approximately three points worse than expectations and Q2 projected to be about six points worse than initial forecasts [9][10] - There has been no observed industry inflection back to previous revenue levels, indicating ongoing challenges [10] Financial Performance and Guidance - Southwest Airlines has reiterated its EBIT contribution target of $1.8 billion for the current year and over $4 billion for the next year, focusing on initiatives within their control [10][21] - The company did not reiterate overall EBIT guidance, reflecting uncertainty in the macroeconomic environment [11][52] Capacity and Operational Adjustments - Southwest is maintaining a conservative capacity growth plan of 1% to 2% for the year, with 50 aircraft retirements planned [14][16] - The company has made adjustments to its network, including pulling out of Atlanta, which has shown positive results [12][13] Revenue Management Initiatives - The company is implementing several initiatives aimed at improving revenue, including: - Launching basic economy and bag fees [22] - Selling extra legroom seats and seat assignments starting in Q3 [23] - Changes to the frequent flyer program [22] - The projected EBIT contribution from core business improvements is approximately $1 billion, with an additional $400 million from new initiatives [21][23] Cost Management - Southwest aims to achieve nearly $400 million in cost reductions this year, with a target of over $1 billion by 2027 [23][57] - The company has seen a reduction in unit costs, improving from an initial increase of 8% to a final increase of 6% by the end of Q1 [24] Market Dynamics - The airline is observing relative weakness in main cabin leisure travel, which is an area where they are currently underweighted compared to peers [12] - The company is adjusting its strategy to focus more on connecting flights, which can be more profitable during industry troughs [55] Future Outlook - The company is optimistic about the upcoming initiatives and their potential impact on revenue and customer satisfaction [72] - There is a focus on product differentiation to compete effectively in the market, particularly against competitors like Delta and United [46][50] Balance Sheet and Cash Flow - Southwest has been aggressive with share buybacks, targeting $2.5 billion to be completed by July [63] - The company emphasizes maintaining a strong investment-grade balance sheet while generating free cash flow through various initiatives [66][68] Additional Notes - The company is exploring opportunities for international route expansion, particularly to Europe, as part of its growth strategy [69] - The conference concluded with recognition of retiring team member Julia, highlighting the company's culture and appreciation for its employees [75] This summary encapsulates the key discussions and insights from the Southwest Airlines conference call, focusing on financial performance, operational strategies, and future initiatives.