Southwest Airlines Company

Hello everyone and welcome to the Southwest Airlines first quarter 2025 conference call. I'm Jamie and I will be moderating today's conference, which is being recorded. A replay will be available on southwest.com in the investor relations section. After today's remarks, there will be an opportunity to ask questions. To queue up for an opportunity to ask a question, please press star and one to withdraw your questions. The command is star and then two. Now, Julia Landrum, Vice President of Investor Relations, will begin the discussion. Please go ahead, Julia.

Thanks, Jamie. Hello, everyone, and welcome to Southwest Airlines' first quarter 2025 earnings call. In just a moment, we will share our prepared remarks, after which we will move into Q&A. I am joined today by our President, CEO, and Vice Chairman of the Board, Bob Jordan, Chief Operating Officer, Andrew Watterson, and Executive Vice President and CFO Tom Doxey. 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 GAAP results in our earnings press release. Our press release with first quarter 2025 results and supplemental information, including our initiative highlights, were both issued yesterday afternoon and are available on our investor relations website. And now, I'm pleased to turn the call over to you, Bob.

Thank you, Julia, and thanks, everyone, for joining us today. Before we get started, I want to welcome Tom to his first Southwest Airlines earnings call. We are very grateful to have you on the team, my friend. Well, last month we announced a plan to transform our revenue strategy, improve our cost performance, and deliver meaningfully improved financial results on an accelerated timeline. Regardless of the economic environment, we remain focused on executing our strategic plan, which is a unique opportunity to Southwest, and on controlling what we can control. We are very encouraged by the results from the initiatives we implemented in the first quarter. Just to name and highlight a few, we amended our agreement with Chase. We implemented enhancements to our rapid rewards program, including introducing dynamic reward pricing, and we launched Expedia with results exceeding our expectations thus far. We also seamlessly implemented our turn time initiative in more stations, and we now have removed five minutes of turn time from schedules in 19 stations while leading the industry in on-time performance. And importantly, we executed on unit costs and our overall cost reduction plan. Transformational change in the implementation of our initiatives will continue at a very rapid pace. Next month, we will begin offering a basic economy product and new fare structure supporting increased buy-up. We'll start charging check-back fees and reduce the expiration of flight credits. We also remain on track to begin selling premium and assigned seating in the third quarter of this year for flights in the first quarter of 2026. In the first quarter, the team did a fantastic job focusing on execution. Our operating revenue was a quarterly record at $6.4 billion as RASM increased 3.5% on all-time record yields. Despite industry weakness and domestic main cabin travel, where we are currently more heavily weighted compared to our larger industry peers, we finished at the high end of our guidance range, outperforming on a relative basis and underscoring the team's strong revenue execution and early returns from our revenue management, distribution, and network initiatives. CASMX growth of 4.6% was materially better than our original guidance of up seven to nine and well below our revised guidance of approximately six. Of course, the big topic on everyone's minds right now is the macroeconomic environment. As we shared last month, the year started out very strong. However, that changed and we saw demand weaken as the quarter progressed. especially in leisure demand. Since that time, we have seen softer booking trends continue into the second quarter, which Andrew will cover in more detail here in just a moment. Amid the current macroeconomic uncertainty, it is very difficult to confidently forecast given recent and short-lived trends. Given this environment, we are not reiterating our full year 2025 or our full year 2026 EBIT guides. However, we remain confident in and committed to continued strong execution of our initiatives, and we are reaffirming our targets of $1.8 billion for year 2025 and $4.3 billion for year 2026 incremental EBIT contribution from those initiatives. At Southwest, we are uniquely positioned in the industry given the transformative initiatives we have rolling out the rest of this year and into 2026. which should provide a significant benefit relative to our peers. Cost discipline is important in any environment. In an uncertain environment, it becomes paramount. I am very pleased that we are ahead of the game with our cost reduction plan. The cost work is going very well, and we saw proof of that in our first quarter CASMX performance. Those cost reduction targets are still in place, and we continue to seek opportunities to further increase and accelerate savings. We also had an already moderated capacity plan in place with full-year 2025 planned ASM growth of 1% to 2%, with this growth driven entirely by our turn and ruddy efficiency initiatives. Given the current macroeconomic environment, we are being proactive in further reducing capacity in the second half of the year. These incremental schedule reductions are in progress, and we expect to reduce both third and fourth quarter published schedules by roughly 8%. point and a half each, bringing expected full-year 2025 capacity down to roughly 1% year-over-year. We are making these changes quickly to capture as many cost savings as possible. We will continue to evaluate and modify as needed with a focus on margin accretive adjustments as we move through the rest of the year. As we manage through these challenging times, we will stay focused on our plan, but we'll also stay nimble. We have significant flexibility, including fleet flexibility, and we benefit from the industry's strongest investment-grade balance sheet with significant unencumbered assets. All of this helps us navigate the current environment while continuing to evolve for our customers and create value for our shareholders. Before I turn it over to Andrew, I want to say thank you to our people for their dedication and resilience and for the world-class hospitality they deliver day in and day out. Our people set us apart. And that cannot be duplicated.