Southwest Airlines Company

Hello everyone and welcome to the Southwest Airlines third quarter 2023 conference call. My name is Jamie and I will be moderating today's conference. 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 and then one on your telephone keypads. To draw your questions, you may press star and two. At this time, I'd like to turn the floor over to Mrs. Julia Landrum, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you so much, and welcome everyone to our third 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 Green, 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. We also reference our non-GAAP results, which exclude special items that are called out and reconciled to GAAP results in our press release. Please refer to the disclosures in our press release from this morning and visit our investor relations website for more information. With that, Bob will turn it over to you.

Well, thanks, Julia, and good morning, everyone. Before we jump into the financials, I wanted to acknowledge that there have been heart-wrenching challenges around the world the past several months, and we've had natural disasters in the communities that we serve. Earlier this quarter, I visited our team in Maui and witnessed firsthand the impact from the catastrophic wildfires on the islands. Our hearts go out to all those who are suffering, and we're really proud of the support we are providing, including the volunteer efforts of our employees. Moving to the results, operating revenues for the third quarter were just over $6.5 billion, up nearly 5% from the same period last year, and a third quarter record. Despite the recent uptick in fuel prices and other inflationary pressures, we are again profitable, with net income of $240 million, excluding special items. Revenue strength was driven by solid leisure demand throughout the quarter and by managed business continuing to come in largely as expected. And Ryan will share more details with you, but overall, demand remains healthy. As we close out this quarter and look ahead to the end of the year, we are very pleased with our accomplishments. We are running a great operation, reaching significant milestones, completing important initiatives, and delivering great customer experience enhancements. We're making great progress on labor agreements, including yesterday's announcement of a tentative agreement with our incredible flight attendants. The team will walk you through many of these accomplishments, but for now, I want to talk to you about immediate actions we are taking to adapt to the current demand environment and solidify our path to operational and financial excellence. Perhaps our biggest milestone is completion of our network restoration plan in the fourth quarter of this year. Reaching this milestone has obviously been a years-long effort, and has taken heroic coordination across the entire organization. It's just incredibly challenging, and I am so appreciative of every single employee. It truly was a whole company accomplishment. With this behind us offer, we are set up really well to focus on optimizing our business. That starts with reflowing the fleet order book to support orderly growth. And to that end, we just announced a new order book with our partner Boeing, yet another milestone. This sets us up for orderly and measured growth and gives us flexibility to adapt in a dynamic environment. And we have a lot of options as we move forward. And we will plan in a way that allows us both the flexibility to move up or down. And this order book, combined with opportunities to retire DASH 700s and modernize our fleet, supports that really well. Finally, as we move into 2024, we are carefully evaluating the current macro environment and post-pandemic travel behaviors to create the best possible plan for the company. We are now planning for a sequential quarter-over-quarter decline in nominal ASMs in the first quarter of 2024. This will result in capacity growth on a year-over-year basis of approximately 10 to 12 percent, all of which is carryover from growth this year. Note that this is a reduction from what we shared in July, which was an expectation to grow approximately 14 to 16 percent on a year-over-year basis. In the back half of 2024, we expect a nominal decline in seats relative to the same period in 2023. Therefore, for the full year, our network plan will focus on absorbing current capacity, maturing development markets, and designing schedules for current travel patterns. This plan offers us the ability to redirect the teams that have worked so effectively to get it staffed and restored to now focus on better optimizing the operations. We will be relentless in our focus to ring out inefficiencies, drive productivity, increase reliability, and our goal to return margins to historic levels. We are still hard at work on both our 2024 and long-term plans, but we are building them with a priority and a focus on generating value. Value for our employees, value for our customers, and of course, value for our shareholders. And with that, I will turn the call over to Tammy.