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Lawyer-turned-entrepreneur Herb Kelleher and Texas businessman Rollin King launched Air Southwest in 1967, later renaming it Southwest Airlines. The low-cost carrier now operates a fleet of more than 800 planes, exclusively Boeing 737s, and serves destinations in 42 U.S. states. Its international routes focus on nearby countries such as Mexico, Jamaica, and Costa Rica, though the airline has applied for approval to expand into Europe. In 2026, Southwest plans to end its long-standing open-seating policy—one of several changes proposed in response to pressure from activist investor Elliott Investment Management.

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Southwest Airlines (LUV): Company Profile, Stock Price, News, Rankings

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Southwest Airlines

southwest airlines

Hello, everyone, and welcome to the Southwest Airlines First Quarter twenty twenty five 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. Now Julia Landrum, Vice President of Investor Relations, will begin the discussion.

Thanks, Jamie. Hello, everyone, and welcome to Southwest Airlines first quarter twenty twenty five earnings call. In just a moment, we will share our prepared remarks, after which we will move into Q and A. I am joined today by our President, CEO and Vice Chairman of the Board, Bob Jordan Chief Operating Officer, Andrew Waterson and Executive Vice President and CFO, Tom Doxy. 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 twenty twenty five 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 scheduled 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 bag 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 twenty twenty six. In the first quarter, the team did a fantastic job focusing on execution.

Our operating revenue was a quarterly record at $6,400,000,000 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. CASM ex growth of 4.6% was materially better than our original guidance of up 7% to 9% 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 1,800,000,000 full year 2025 and $4,300,000,000 full 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 CASM ex 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 in Ruddi efficiency initiatives. Given the current macroeconomic environment, we are being proactive and 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 a 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.

Thank you, Bob. And thanks to our people for their exceptional efforts, which enabled us to lead the industry in on time performance and the fewest extreme delays. Our best first quarter performance in both categories in four years. Our first quarter completion factor of 98.6% was our best in twelve years. And despite some tough winter weather, we ranked number one in on time percentage and number two in completion factor on the day after winter storms, huge progress from several years ago.

We've already covered our first quarter RASM performance, so I'll jump in with some color on second quarter RASM guide of flat to down 4%, on capacity up in the range of 1% to 2%, both on a year over year basis. Our guidance range contemplates a continuation of the current environment with the largest impact coming from lower leisure travel demand. Corporate travel excluding the small percentage from government has also been softer, but stable. The impact of Southwest is mitigated by our initiatives, which are more targeted yields in the first half of this year and we'll begin targeting load factor in the back half of this year as we work to close our RASM gap to the industry through improving network connectivity opportunities and marketing distribution initiatives. Sales of initiatives are already live and we're pleased with their performance.

We expanded distribution to online travel agencies with the launch of Expedia in February and our current performance is ahead of expectations. We're seeing better than anticipated booking volumes in this channel similar to what we've seen in the meta search tools. We're very encouraged by the expanded customer base provided by this channel, as many of these customers are new to Southwest or have not flown us in quite some time. We optimized our loyalty program to better align earn and burn rates and have seen no negative trend changes as a result, such as changes in either our credit card acquisitions or attrition. In fact, we had a record first quarter spend in our co branded credit card.

We've received the necessary approvals and certifications for the MAX eight and seven thirty seven-eight hundred aircraft retrofits and expect to begin retrofitting aircraft next month. Our turn time reduction initiative, which Bob mentioned, is now in place in 19 airports including several of our mega stations like Dallas and Nashville. Reducing turn time generates more flying from each aircraft, increasing our capital efficiency and unlike normal utilization increases, which typically extend the day earlier and later, this does not increase the operating day, so it is favorable to RASM and CASM. And we launched Red Eyes in February with Hawaii Red Eyes launched just this month. Our new initiatives launching next month include basic economy, flight credit expiration and bag fees.

After announcing these changes, we saw no evidence of book away and real time data. We've executed the turn in Red Eyes with no adverse operational impact and feel confident we'll be able to introduce bag fees next month with minimal disruption. Significant planning is already underway in key areas of our operation including our gate and lobby experience, customer care and baggage service. Our goal is to mitigate any potential impact to transaction times in the lobby as well as designing new processes to manage the increase in expected check bags gate checked bags all while enabling our employees to continue to deliver incredible customer service. In addition, we're accelerating the installation of larger overhead bins in our aircraft.

Outside of the cost reduction plan, our largest initiatives at maturity are premium and assigned seating, bag fees and the loyalty program optimization. Flight credit expiration is also material estimated to yield in excess of $100,000,000 per year. In terms of the ramp, the benefits from loyalty are expected to provide the largest lift to our 2025 EBIT and will only partially be reflected in the second quarter. We expect minimal contribution from implementing basic economy, bag fees and flight credit expiration in the second quarter, given they only apply to flights booked on or after May 28. The incremental revenues from these initiatives will meaningfully ramp in the third quarter and into the fourth quarter as we increasingly shift towards bookings made on or after May 28.

We will continue to be urgent and deliberate in our execution. With that, I'll turn it over to Tom.

Thanks, Andrew. I'm happy to be joining my first earnings call today with Southwest. I've enjoyed getting to know our employees in break rooms, hangers and meeting rooms across our network and I've enjoyed being on the road meeting with the investment community as well. While we have a lot of work ahead of us, I'm encouraged and excited about the progress that we've made so far and I'm optimistic about our opportunities and where we are headed. Starting with our non fuel costs, first quarter CASM Ex came in at 4.6% beating our previously adjusted guidance of approximately 6%.

This improvement was roughly split between a variety of smaller one time items and a hyper focus on cost discipline across our entire organization. For example, we reduced consulting and marketing expense and pulled back further on discretionary spend. Looking ahead, we expect second quarter unit cost to increase in the 3.5% to 5.5% range. We are pleased with the execution of our cost reduction plan thus far and the entire organization's commitment to efficiency. Moving to fuel, market prices have been extremely volatile in response to the broader macro environment.

Overall, we have seen prices fall, which has helped offset some of the softness we are seeing on the demand front. We currently estimate our second quarter fuel cost per gallon to be in the $2.2 to $2.3 range. We recently announced that we have discontinued our fuel hedging program and have no plans to add to our portfolio. We remain 45% hedged in second quarter and 47% hedged for the full year with hedge positions in place into 2027. We will be opportunistic in unwinding our existing positions based on market conditions.

Moving to fleet, while we are not updating our previous assumption of thirty eight seven thirty seven MAX eight deliveries this year, we are increasingly optimistic about what we are seeing at Boeing and their ability to deliver. As we shared in January, we anticipate retiring roughly 50 aircraft during 2025. As a reminder, we will continue to opportunistically transact on aircraft in our existing fleet based on actual aircraft deliveries, market conditions and other factors. As such, we continue to expect 2025 gross capital spending to be in a range of $2,500,000,000 to $3,000,000,000 Moving to our capital allocation strategy, we remain committed to investing smartly in our business ensuring a strong and efficient investment grade balance sheet and returning value to shareholders. In the second quarter, we will pay down $2,600,000,000 of debt.

This includes a $976,000,000 prepayment of the first tranche of the payroll support program notes which we actually paid last week and the payoff of our $1,600,000,000 convertible notes in cash on May 1. We will also continue to return value to shareholders. We have completed $1,000,000,000 of the previously authorized $2,500,000,000 share repurchase authorization. As we announced last month, we intend to complete the remaining $1,500,000,000 or more than 10% of our current market cap under our share repurchase authorization by the July. These decisions highlight our continued confidence in the execution of our plan and driving improved results.

With that, I'll hand it back over to Bob. Well, thank you, Tom.

And before we start Q and A, I'd like to leave you with a few key points. First, we remain committed to an exceptional execution regardless of the macro environment. Had strong execution in the first quarter, initiative implementation, cost discipline in our cost plan, capacity planning and operational excellence. We will take it and we will move on to do the same in the second quarter. Second, we continue to deliver on our core business initiatives and are seeing positive results from recently launched initiatives including the optimized loyalty program and amended Chase agreement and the launch of Expedia.

Third, we are evolving more than ever and we're moving quickly. We remain confident that our initiatives including the additional initiatives announced last month will provide material incremental EBIT in 2025, '20 '20 '6 and beyond. And finally, we are resilient and well positioned to manage through a dynamic environment with our cost focus, capacity discipline, underscored by the additional reductions that we just announced, our portfolio of Southwest specific initiatives and as Tom just covered, our investment grade balance sheet. So we are not slowing down. We will keep evolving to meet the needs of our current and future customers, improve our financial performance and create value for our shareholders.

I'm confident in our plan, confident in our execution and confident in our people. But before I pass it back to Julia to start Q and A, I want to stop and acknowledge and thank her. This is her last earnings call as our Head of Investor Relations. That's a tough job and Julia, you have done a fantastic job and we will miss you on these calls, my friend. And with that, back to you.

Thank you, Bob. This completes our prepared remarks. We will now open the line for analyst questions. We would like to get to as many of you as possible. We will now take the first question.

Thank you, Julia. And our first question today comes from Ravi Shanker from Morgan Stanley. Please go ahead with your question.

Great. Thanks, everyone. So great to see no evidence of book away here based on your comments. But I believe you recently broadly pulled your customer base on your recent initiatives. Can you share kind of what feedback you got from that poll and kind of if you're confident that that book away kind

I think Robbie, it's Andrew. So I did see that there's a lot of press pickup. I guess somebody found a survey and tweeted out. I would just say we are constantly surveying our customer set, whether it's how was your flight today, what do you think about this initiative. And so we curate different panels to try to get different feedback on different policies, different ideas.

And so there was nothing abnormal about that survey. We didn't do it just because we had the policy change. We've been doing stuff like that all along. And so this helps us understand the perceptions and how they evolve over time to different elements. And those surveys tell us kind of what we see overall with just our e mails.

There was a in the beginning, people wrote us and said, Hey, I'm concerned about this topic. When we answered their questions, they kind of became they realized that, Oh, if I'm going to gauge customer at Southwest Airlines, these don't really apply to me. And then so they kind of changed their feelings about it. We saw the same thing in surveys. The sentiment evolved as people better understood what they would keep.

And generally, engaged customers keep their benefits and get more when we go to assign seats. And so the polling does show that those customers now fully internalize that difference from maybe the headlines originally. And so we see a fairly satisfied and engaged customer set as they wait for this next level of benefits to come out. So I think overall, we're pleased. It exceeded my expectations of how well our best customers have migrated to this new world we're going into with assigned seats and extra ledger room and such.

Our next question comes from Andrew Didora from Bank of America. Please go ahead with your question.

Hi, good afternoon everyone. My question is for Tom. I'm getting just a lot of client questions with regards to the balance sheet and liquidity given the buyback, all the debt pay down in 2Q, CapEx. I guess any color you can provide on how you think about liquidity targets right now in this environment? Just how we should think about minimum cash right now?

Sure. Thanks, Andrew. Yes, we've been targeting, as you know, around $4,000,000,000 or so in cash. And as you look at the pay downs that we've had in addition to that, the incremental 1.5 that is the remainder of the previously announced 2.5 share repurchase, That brings us down to right about that mark. In addition to that, as you know, we have significant unencumbered assets.

in our release where we reiterated that 16,000,000,000 or so in aircraft and then there's some additional unencumbered assets there on the non aircraft side as well. And so we look at all of that in totality. And then one other thing that I would say in addition to that is the focus here and this isn't necessarily a balance sheet answer, but we are laser focused here on the incremental building of EBIT through the different initiatives that we have and are confident in those initiatives and both the rollout and magnitude of that. And of course that incremental EBIT is what ultimately gives you the optionality for your balance sheet when you look at the framework of investing in business, maintaining that strong and efficient balance sheet and then any potential return to shareholders that would result.

Our next question comes from Catherine O'Brien from Goldman Sachs. Please go ahead with your question.

Hey, good afternoon, everyone. Thanks for the time. So I know you're suspending the full year EBIT guidance, but you're maintaining the EBIT initiative targets. Can you just walk us through what's giving you confidence in achieving those initiative targets? I really mean more on the revenue side, realize the cost ones are more baked.

Are there not sensitivities on some of these revenue initiatives to the macro like there are for the core business? Maybe you feel like you've baked in enough cushion back in March? Just any color there would be helpful. Thanks.

Katy, yes, Bob. Yes, it's all of that. We have a lot of confidence both in the portfolio of cost and revenue initiatives in terms of the timing. They're all on track. And then the financial benefit that we intend for them to play into the business.

Of course, are some sensitivities, are some linkage to the base business and macro backdrop, but it's substantially smaller. The base business is off a lot. We were off kind of roughly three points in the first quarter from what we thought back in January. And then the second quarter, the base business has come off about six points, which is a substantial part of the top line. The revenue initiatives are targeted.

You take something like bag feeds, for example. They just fall at such a smaller rate. If you lose if 6% of bag fees, an example, comes off, it's a much, much smaller than a percent of the top line. So and we also feel like they're far more inelastic. So while you could see some tie to the macro, it's a far smaller number.

So we have a lot of confidence both in the timing of the initiatives coming online and then the value. What is really hard to predict as everybody's been talking about today is the uncertainty in the booking trends in the macro economy. So while I've got a lot of confidence in 2025 on delivering on the $1,800,000,000 in initiative contribution, the ability to forecast with any reasonable level of certainty the base business offset to that is what's really tough. So that's really the reason we couldn't affirm the $1,700,000,000 for the year. Now we're not taking the 1,700,000,000.0 off the table.

I want to make sure you understand that that is still the internal target. You get some inflection back of the trends here later in the year, you get some additional help from fuel. We guided the initiatives in March at kind of a baseline level. The initiatives outperform and there's absolutely a shot at hitting that 1.7 or some combination of all those things. So we're not taking it off the table.

It's just the uncertainty in the demand and base business side just made it impossible to reaffirm that 1.7.

Our next question comes from David Vernon from Bernstein. Please go ahead with your question.

Hey, thanks for taking the time guys. Question for you on the just the load factor in the passenger count. In relation to this idea that we're not seeing any sort of book away or any sort of unique impact from some of the initiatives on the demand base, it looks like you guys are running lower from a demand destruction standpoint relative to peers on a year over year basis. How do you think about explaining that sort of gap? And then when you think about that load factor running 74 ish, what are your sort of expectations as we kind of get through the rest of the year?

Certainly, Andrew. The if you kind of decompose the quarter, January was down like two points in load factor and then Feb and March were down 5.5 points. So as you can see, there's really a tale of two quarters as that weakness macro weakness started in quarter. And when you have that kind of demand discontinuity, you have to be very careful about how you price. I think in your business, they call it catching a falling knife.

In our business, we have to be very careful not to try to close in discount because you could end up worse off. And so I think you see that in our yield numbers, which were quite robust. And so we maintained that in the quarter and we saw very, very strong close in revenue performance in March and again in April. However, at the same time, we had previously been not participating in a lot of discounting, especially like one hundred and twenty plus days before departure because we had low capacity growth. So it would be wise not to kind of to be very prudent with your discounts further out.

When we saw that macro environment kind of unfold in the quarter in Jan and Feb, we peeled off those kind of provisions, if you will, and participate further out in the booking curve, which is not necessarily dangerous to have that kind of discounted generic volume. And you can see that in April, now our year over year load factor improved at least two points from March to April, and that was only a partial booking curve effect from that kind of renewed further out discounting. So we expect that kind of to normalize, that kind of macro shock to normalize over the booking curve as we get more in the routine of discounting further out to make up for the kind of demand softness see on the consumer side. Because on the business side, it's been very stable. Ex government, both state and local and federal, our managed business is up.

And so those are generally higher yielding customers who will be very careful about how you price in an environment where you have consumer weakness, but kind of business strength. And so that's why we chose that approach, which led to much higher yields than you would expect and lower load factor than you'd expect, but yet a RASM on a year over year basis that overperformed our peers.

All right. That's helpful. And then I guess, if you're thinking about kind of maintaining that kind of discipline on the pricing side, which I think many investors would be very comfortable with. Does that not sort of advocate for the position of maybe cutting capacity a little bit more than you're intimating in the second half of the year? I mean, to get the load factors back up a little bit.

I mean, it would seem like the trims you're proposing making in the back half of the year seem a little bit light in relation to kind of what we're seeing in the results. And I'm just wondering how you're thinking about that capacity question as you get closer to the back half of the year?

Certainly, it's a reasonable question to ask, especially looking externally. You've heard people talk about off peak. That's been a post COVID issue and you've heard it really blossom this quarter. And so what that is, is that you have less travel in the off peak times because business travel is down and the nature of business travel has changed. And so as a result of this time of day, day of week, time of year, you have less demand.

And then our gauge is up 7% post pandemic. So in those troughs, then you don't have you can't fill your aircraft that shows up in lower load factor. And the peak time of days, day of week, time of year, you really like to have that 7% more gauge and you can fill up and as you see, you get high yield. So in a world in which demand has grown yet peaks are higher and values are lower, you would expect to see net lower load factor from us and higher yields is exactly what you see in our results. We are very strongly pushing the yields in those peaks and admittedly having difficulty with the off peak.

If you just reduce capacity, you both take away the goodness from the peak and you don't get as much benefit from the valley. Now we're conscious that we need to fill back up our load factors in our plan. And so what we need to do for the off peak is we can do a little bit of stimulation because with basic economy coming, we'll be able to offer maybe different types of leisure discounts that will not undermine or create business buy down because business travels are not generally blocked from buying business of a basic economy. And we see from our competitors flow or connectivity as a way to aggregate little bits of demand and the off peak to fill up your flight. And so starting in August, we have a lot of connectivity, searcher connectivity for that off peak period.

We expect that to yield us more flow for that the off peak load factor. Additionally, we previously changed the network to reduce capacity in underperforming areas and put it into higher performing areas, and that actually just started this month in April. So all these things together, we think, is a good plan to achieve our Investor Day promises of closing our yield gap to our competitors as well as closing the load factor composition to ourselves pre- post pandemic.

Our next question comes from Jamie Baker from JPMorgan. Please go ahead with your question.

Hi, everybody. So here's what I'm trying to reconcile. Well before Elliott, you had various initiatives that were obviously intended to be accretive, but margins were still declining, which would imply, assuming the initiatives worked, it would imply that sort of the core of Southwest was under pressure. So when we think about the goals that you laid out this past March that you're talking about today, do you simply steady state your sort of pre initiative assumptions and then layer on the initiatives on top of that and call that the guide? Because it feels that, that might be the way that you're doing it, whereas I think the more conservative approach would be if the core actually is slipping, you would add the initiatives in on top of some sort of reduction in the base of earnings, if that makes sense?

Yes, Jay, I think it does. I think, yes, you're always Andrew could talk to this too. I mean, you need initiatives every single year to continue to drive revenue production in RASM and that's just the way the business works. You're constantly adding initiatives on top of the base business to produce gains. At the end of the day, the particularly coming out of COVID with the change in demand, the change in the cost structure with new labor contracts, the stack of initiatives prior to what we talked about in the fall and then again in March was just insufficient to drive appropriate margins at Southwest Airlines, certainly industry leading margins.

We just had too many revenue streams as an example that were just left on the table that other airlines have in place and we just don't have in place at Southwest and it was impossible to hit appropriate returns without acknowledging that. So what you've seen is this move to a set of initiatives that meets consumers where they are. They want to sign seating. They want access to premium and extra leg room and then adding revenue initiatives that will be very accretive to the business like bag fees and flight credit expiration. And we'll continue to add initiatives, not ready to obviously report anything today, we'll continue to add initiatives that move towards the type of products that our customers and future customers want and we'll continue to add initiatives around expansion geographic expansion adds to the network, those kinds of things.

But I'm not sure if I'm answering your question, but you but we found ourselves at a point where the stack of initiatives prior, especially with the changes coming out of COVID are just insufficient to meet the level of returns that we need at Southwest Airlines.

I'd say on top of that, Jamie, I think we've pretty much admitted that the value proposition we had was not generating the revenue we needed. So we did then with the latest set of both Investor Day and when we announced at your conference, we've admitted that we are going to a different value proposition. We have a more segmented offering where customers can pay more to get more and that would lead to the revenue production to be sufficient to return it back to previous levels of prosperity. And so that is and that's the same, the old model wasn't working and so now we've pivoted to this new set. I've said this before, what

I really like now, I mean, nobody likes where we are with the economic backdrop and this weakness that severely showed up in the last ninety days. But the majority of the levers, certainly the revenue levers that we have attacked in particular the March and beyond set are really unique to Southwest Airlines. They're in place for other airlines today. So we have a unique set of revenue production that can come online for Southwest against this weak backdrop that is not available to others. The second thing is there a there's strong cost very, very strong cost discipline at Southwest right now.

The we had an original first quarter guide of eight. We came in and re guided at six and we came in at 4.6. And it's across the board reductions and efficiency in the company. We're seeing performance in every department across the company on the cost front and that will continue. So we have unique levers that to me are just not available to others, which will absolutely drive relative performance.

Our next question comes from Sheila Kahyaoglu from Jefferies. Please go ahead with your question.

Good morning, guys. And thank you, Julia. Maybe just to expand upon some of the questions. Could you talk about Bob or Andrew, whoever would like, the expansion into mediums like Google Flights and Expedia and how the yields you're experiencing there relative to volumes ultimately shake out compared to the core customer base as we heard American talk about earlier today mentioned the discretionary consumer could often book in those channels is not surprisingly in that is seeing that area of weakness?

Sheila, Andrew, I'll start off and see if I answer it and Bob can chime in here. And so yes, the Expedia, I think it ramped up faster to say Google Flights did. So we're pleased with that. Expedia represents probably between 45% of our booked customers for the recent months when we went live. It was a customer base that is majority we have not seen before or have not seen in a long time.

And so therefore, it's a new source of customers for us. As one might expect with indirect distribution, it's particularly helpful in places where we don't have a strong point of sale, a big city. We're quite strong in San Diego, so we get lots of people come to our website there. But we're very underweight, let's call it, in Boston or New York. And so it helps us there.

So the kind of indirect distribution is kind of servicing its inherent need, which is to generate new customers who would not otherwise come to your business, and it comes in a very, very cost effective manner. So we're quite pleased with that. Google Flights is of a similar nature. The distribution doesn't go through, say, GDS. It just comes straight to our website.

So it gives us additional opportunity to merchandise. So we're happy about that. But both the meta searches, Google Kayak and Skyscanner and Expedia are really good partners. We don't it's not an eitheror. We like introducing that into our portfolio distribution and plan to expand it as it makes sense over time.

Andrew, maybe just another one then, if I can follow-up with you. You mentioned the initiative target yields in the first half and loads in the second half. How realistic is it that Southwest and its initiatives buck that normal relationship that you trade off one for the other?

Yes. I think what's kind of going back to my earlier discussion, you just sort peak off peak that you've heard probably a lot of other lines talk about. The peak, you have chances for yield. So at a peak time, demand exceeds supply. And so you must take those opportunities to drive yield.

And so that is what we're doing. You can see by our results, and that's kind of what we promised at Investor Day. We're getting, frankly, more traction than I expected. The load factor doesn't come from getting more volume during the peak because we're already full during the peak. Our problem is our empty seats are not the good times of day, the good days of week or the good times of the year.

It's the off peak. So how do we get more customers, more bottoms and seats, if you will, in the off peak? And so some of that will be we'll use the basic economy tactic when it comes online here, but a lot of it will be connectivity. And so it's taking people going from Albany to Tucson, where there's never going be a nonstop, but we'll perhaps connect through our network. And so designing connectivity to facilitate these small bits of demand, you aggregate those small bits of demand enough and you help fill your aircraft.

Some of our competitors who are on big hub and spokes, they do this naturally. But for us, it's something that's kind of like an addition to our normal point to point model. So we're going to focus that kind of connectivity in these off peak times of day, of week, of year to drive the load factor. So two distinct things so that you're not doing that trade off of yield versus load you're talking about.

point out too that it added a whole level another layer of sophistication to be able to manage this. Well, you have to understand where that where each flight is ultimately going to land in terms of how full it's going to be because it's going to be managed two different ways. It's going be managed for yield or it's going to be managed for load. And the new revenue management system that we put in last year is designed to push yield and manage yields on those full flights. And you can see it.

I mean we had record all time yields in the first quarter, not record first quarter yields, but record all time yields in the first quarter. And now it's about building load on those flights that are not projected to go out full. The change in the Rapid Rewards program and dynamic allocation on the burn side will help as well because it's very similar. You want to be able to manage up on the flights where those seats are very scarce because the flight is going to be full and then you want to be able to manage load factor on those flights that are going to have open seats and discount those from a rapid rewards perspective. So I'm very pleased with the performance, especially on the yield side and that will attack the load side.

Our next question comes from Connor Cunningham from Melius Research. Please go ahead with your question.

Hi, everyone. Thank you. I wanted to go back to Jamie's question around the initiatives. It seems like you're approaching like the list of initiatives from a gross standpoint rather than a net. So it would suggest that you would need to continue to add to the list to keep improving.

So when you do survey work, what are the customers asking for now? Are they asking for free WiFi at this point given all the changes in the industry? And then Tom, if you could just talk a little bit about the cost structure from an outsider's perspective, like as you've been there now for only a couple, I guess, a couple of months, can you just talk about what you see as low hanging fruit outside of the initiatives that you've already been you're already working on? Thank you.

Southwest Airlines Q1 2025 Earnings Call Transcript | Fortune

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Southwest Airlines (LUV) Q1 2025 Earnings Call Transcript

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