• Unit Revenue Improvement: Fourth quarter unit revenues increased by 8% year-over-year.
• RASM Growth: Fourth quarter RASM was up 8% year-over-year, exceeding prior guidance.
• CASM-X Increase: Fourth quarter CASM-X increased 11.1% year-over-year; full year 2024 CASM-X increased 7.8% year-over-year.
• Aircraft Deliveries: Closed out 2024 with 22 aircraft deliveries, in line with internal estimates.
• Capacity Growth: Modest capacity plan of 1% to 2% year-over-year growth for 2025.
• Fleet Retirement: Planning to retire 51 aircraft in 2025.
• Capital Expenditures: Full year 2024 gross capital expenditures were $2.1 billion; net capital expenditures were $1.2 billion.
• Shareholder Returns: Returned $680 million to shareholders in 2024, including $430 million in dividends and $250 million in share repurchases.
• Share Repurchase Authorization: Planning for an additional $750 million ASR program later this quarter.

• Warning! GuruFocus has detected 9 Warning Signs with AJG.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Southwest Airlines Co (NYSE:LUV) achieved an industry-leading completion factor with less than 1% of flights canceled during the year.
• Fourth quarter RASM was up 8% year-over-year, exceeding prior guidance and demonstrating strong revenue performance.
• The company has made significant progress on its Southwest Even Better plan, which includes strategic initiatives to boost efficiency and lower costs.
• Southwest Airlines Co (NYSE:LUV) has signed its first commercial agreement with Iceland Air, expanding its network and customer travel options.
• The company is committed to maintaining a strong balance sheet and has an investment-grade rating from all three rating agencies.

Negative Points

• Southwest Airlines Co (NYSE:LUV) is experiencing above-normal unit cost inflation, particularly in market-driven wage rates, airport costs, and healthcare.
• The company has a conservative assumption of 38 aircraft deliveries for 2025, which is significantly lower than the contractual number of 136, indicating potential operational risks.
• There is pressure from supply-demand imbalance in the first half of 2024, although capacity moderation is expected to improve the situation.
• Southwest Airlines Co (NYSE:LUV) is facing challenges in managing corporate overhead, which has grown at a faster rate than the rest of the airline.
• The company is urgently working towards implementing a $500 million cost initiative to mitigate cost inflation, indicating ongoing financial pressures.

Q & A Highlights

Q: Can you provide more details on the unit cost growth for the rest of the year and the capacity growth related to the low single-digit exit rate? A: Tammy Romo, CFO, explained that the unit cost growth is expected to moderate due to several factors, including capacity from turn and redeye initiatives, absorbing overstaffing, and benefits from cost plan initiatives. The biggest impact will be seen in the fourth quarter, with a focus on cost reduction efforts ramping up throughout the year.

Q: Do you see the potential for a multiyear period of modest unit cost growth on modest capacity growth, similar to the period starting in 2012? A: Robert Jordan, CEO, indicated that while they are not ready to guide for 2026-2027, the exit rate for 2025 suggests a low single-digit CASM-X growth is achievable. With labor rate surety from closed contracts, this is considered doable.

Q: Can you update us on the certification process for the new seating configuration? A: Ryan Green, Chief Transformation Officer, stated that they have finalized cabin layouts and are working towards FAA certification. They expect to begin retrofits midyear, with the process ramping up through the remainder of the year, ensuring the fleet is ready before the operating date.

Q: How should we think about the sale-leaseback transactions and their impact on EBIT? A: Tammy Romo explained that sale-leasebacks are part of managing the exit of the NG fleet and are structured to be NPV positive. The bulk of the benefit comes from sales of excess aircraft, contingent on Boeing deliveries and market conditions.

Q: What are your thoughts on overall industry capacity for the second and third quarters, and are there any areas of overcapacity? A: Andrew Watterson, COO, noted that while schedules for Q1 are firm, summer and beyond are still in flux. They expect a constructive backdrop, with many airlines yet to finalize their schedules for the latter half of the year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.