Southwest Airlines Company

Good day and welcome to the Southwest Airlines first quarter 2023 conference call. My name is Chad and I will be moderating today's call. This call is being recorded and a replay will be available on southwest.com in the investor relations section. After today's prepared remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. At this time, I'd like to turn the call over to Mr. Ryan Martinez, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Operator, and welcome everyone to our first quarter 2023 conference call. In just a moment, we will share our prepared remarks and then jump into Q&A. On the call with me today, we have our President and CEO, Bob Jordan, Executive Vice President and CFO, Tammy Romo, Executive Vice President and Chief Commercial Officer, Ryan Greene, and Chief Operating Officer Andrew Watterson. A quick reminder that we will make forward-looking statements, which are based on our current expectation of future performance, and our actual results could differ materially from expectations. Also, we will reference our non-GAAP results, which exclude special items that are called out and reconciled to our GAAP results in our press release. So, please refer to the disclosures in our press release from this morning and visit our investor relations website for more information. With that, Bob, I'll turn it over to you.

Thank you, Ryan, and thank you everyone for joining us this morning. We incurred a first quarter net loss that was in line with our expectations, driven by a $380 million pre-tax negative financial impact related to the December operational disruption. Roughly $325 million of that was from lower revenue in January and February, much of that cancellations of holiday return trips. We saw a strong rebound in revenue trends in March, resulting in record first-quarter revenues despite the impact of the December disruption. Travel demand remains strong thus far, but we remain mindful of the uncertain economic environment. You have to be, given all the headlines and trends we are seeing across many industries. We have tough year-over-year revenue comparisons here in the second quarter, with last year's domestic revenue environment getting a boost from international closures. Taking that into consideration, demand, particularly leisure, continues to show strength as we head into the busy summer travel season. Our cost outlook is higher this year due to a few moving parts as we are making additional investments in the operation based on our learnings from December. I won't go through all of our key findings and work to show off our winter preparedness because we've done that a few times now, but I am very proud of our people for the operation they have delivered this year and for the relentless focus on executing our plan to fortify the operation in preparation for winter 2023. Despite the near-term cost pressures, we have not lost focus on our goal to effectively manage the real inflationary cost increases we are seeing, and equally as important, maintain our competitive cost position. As we look ahead, we currently expect solid profits here in Q2. We continue to expect solid profits for full year with a goal to grow full-year margins in ROIC year-over-year, as well as have our route network roughly restored by year-end. We are reducing our full-year 2023 growth plans due to a lower planning assumption for Boeing MAX deliveries this year. This relates to the recent news of further supply chain challenges at Boeing. The outcome is a reduction to our 2023 capacity and CapEx outlook, and we are currently reevaluating our hiring needs relative to our most recent expectation to hire more than 7,000 net new employees this year. We will be moderating our overall hiring plan as we get into the second half of 2023. In the meantime, we are most focused on revisions to our second half 2023 flight schedules to account for fewer aircraft, which Andrew will cover in more detail. I'm very proud of the progress we are making on our customer experience enhancements. As a reminder, we are investing in three onboard initiatives, enhanced Wi-Fi, in-seat power, and larger overhead bins. In early March, our first new aircraft with hardware from our new Wi-Fi provider, Biasat, entered revenue service. By third quarter, we expect all of our existing aircraft to be flying with upgraded Wi-Fi and new hardware, offering increased speed and reliability. So just great progress on that front. Our new MAX 8 deliveries are coming into service with in-seat power and larger overhead bins, so those are already entering service as well. We're also very focused on mobile and other enhancements on our technology roadmap to offer more self-service options for our customers to give them more flexibility and ease during their journey. Highlighting one of our stronghold markets, Southwest is the number one airline in Kansas City, growing from six flights in 1982 to 75 flights today. And I'm proud to say that our service in Kansas City is now fully restored to pre-pandemic levels. We recently celebrated the opening of the new Kansas City Airport in February, and we serve as the chair of the Airport and Airlines Affairs Committee. We really appreciated the opportunity to partner with the airport to deliver a beautiful new terminal that will serve us and the community well for a very long period of time. It was a great partnership all the way around, and it is a beautiful facility. We continue to work hard on labor agreements for our people, and we continue to make progress. We just reached a tentative agreement with TW 550, which represents our meteorologists, and I want to commend both negotiating committees for the spirit of cooperation that led to that agreement. We remain focused on negotiations with the union representing our rampant ops employees and mediation with unions representing our pilots and flight attendants, and remain committed to competitive market compensation packages for our people. We are very eager to get new contracts and have a significant amount of wage rate increases that have already been accrued and set aside, and we look forward to rewarding those remaining groups soon. In closing, I'm just so very proud of our people. They are the heart of Southwest Airlines, and they deliver day in and day out for each other and for our customers. And despite the negative impacts in Q1, we believe we still have a solid plan for 2023 We are carefully managing the business in the near term, and we continue to believe in our long-term strategy and set of initiatives. And with that, I will turn it over to Tammy.