Southwest Airlines - Q3 2024
October 24, 2024
Transcript
Moderator (participant)
Hello, everyone, and welcome to the Southwest Airlines third quarter twenty twenty-four conference call. I'm Gary, and I'll be moderating today's call, which is being recorded. A replay will be available on southwest.com in the Investor Relations section. After today's remarks, there's an opportunity to ask questions. To queue up for an opportunity to ask a question, press Star, then one. To withdraw your question, the command is Star, then two. Now, Julia Landrum, Vice President of Investor Relations, will begin the discussion. Please go ahead, Julia.
Julia Landrum (VP of Investor Relations)
Thank you so much. Hello, everyone, and welcome to Southwest Airlines' third quarter twenty twenty-four earnings call. I'm joined today by our President and CEO, Bob Jordan, Chief Operating Officer, Andrew Watterson, and Executive Vice President and CFO, Tammy Romo. Bob will start us off by reviewing the key points from our Southwest Even Better framework, introduced last month at Investor Day, and cover how our third quarter results reflect initial progress against our plan. He will then turn it over to Andrew to share updates on our revenue and our industry-leading operational performance. Tammy will follow to discuss our cost performance, balance sheet, and capital allocations before turning it back over to Bob, who will provide a brief statement on Elliott Investment Management, after which we will move into Q&A. Ryan Green, EVP of Commercial Transformation, is also in the room with us today to support Q&A.
A quick reminder that we will make forward-looking statements which are based on 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 third quarter 2024 results and a supplemental presentation that includes additional details on the expected EBIT contributions of our planned initiatives, as well as a draft initiative scorecard, were both issued this morning and are available on our investor relations website. And now, I'm pleased to turn the call over to you, Bob.
Bob Jordan (CEO)
Thanks, Julia, and thanks everyone for joining us today. As you know, we laid out our Southwest Even Better transformational plan a few weeks ago at Investor Day. It's a plan designed to deliver increased value for our shareholders and our customers. And since then, we've engaged with many of our shareholders, and I, I truly appreciate the constructive feedback. The message is simple: Now that we have set out a clear path, it's all about executing, and that's exactly what the team and I will be discussing today. But before turning to that, I want to recognize the widespread devastation caused by recent hurricanes in communities across the Southeast. While we were able to quickly recover our operation, we know that for so many, it will take much longer.
We're leaning on our National Disaster Response partners, providing financial donations and offering complimentary travel to aid in the recovery efforts. And our Employee Catastrophic Assistance Charity is currently assisting all employees requesting support to ensure that they're cared for and receive immediate relief. Our hearts are with our employees and our communities as they recover and rebuild. Returning to the business, I'll start by reiterating the path we laid out and how our third quarter results reflect initial progress against our plan. As we shared at Investor Day, our plan is detailed, actionable, and highly intentional. We are fully committed to delivering the robust set of tactical and strategic initiatives we presented in restoring the financial prosperity that our plan supports and that Southwest and our shareholders expect.
That includes a steady march to delivering ROIC of 15% or higher, well above our cost of capital in 2027, even without tailwinds from our fleet strategy. As part of the plan, we provided specific targets for capacity, operating margin, ROIC, leverage, and free cash flow in 2027. While we have work to do, all actions to achieve those goals are well underway and progressing as planned. The team and I are accountable for delivering on the plan results and being transparent regarding our progress. To that end, we included a scorecard and supplemental detail this morning that we will use to report on progress against initiative development and expected financial results, including updates on critical milestones and the status of meaningful value capture going forward.
We also included additional detail this morning on the composition of the initiative-driven EBIT contributions and how that builds between now and twenty twenty-seven, including additional clarification on the contribution from our fleet strategy. At the highest level, our plan builds as follows: Value in twenty twenty-five is driven by improving the base business, executing tactical and efficiency initiatives, and building the capabilities to launch our strategic initiatives. Value is created in twenty twenty-six through strategic initiatives coming online, with the most significant value being unlocked through the introduction of assigned and premium seating options. Finally, value in twenty twenty-seven is created by the initiative portfolio hitting run rate, where initiatives aimed at the core operation are sized at roughly three point five billion of cumulative incremental EBIT contribution, and this includes full realization of the cost plan.
When you add the estimated benefit from the fleet strategy, you get a $4 billion of total incremental EBIT that we shared at Investor Day. Importantly, we do not view the fleet monetization strategy as part of our core business. While the combination of a favorable secondary market and our attractive aircraft pricing provides a unique and lucrative opportunity to both significantly reduce our aircraft CapEx and drive earnings accretion, we feel confident that we can achieve all of our 2027 targets, even without the benefits expected from our fleet monetization strategy. Looking at the second half of 2024, we're encouraged by both positive results from our recent actions and by recent industry trends. We are highly confident in our ability to deliver on our plan. In terms of tactical initiatives, everything is progressing in line with what is needed to hit our 2025 commitments.
We had third quarter record operating revenues of nearly $7 billion and a unit revenue increase of 2.8% compared to last year. The improvement in unit revenue reflects both a more constructive industry backdrop and a proof point of our effective execution. Improvements resulting from our revenue management actions are particularly encouraging. The team is focusing on improving yields on our best-performing flights while achieving a non-dilutive load strategy on our lower demand itineraries. While not yet in the run rate, we saw better-than-expected improvement in 3Q, and we are pleased to see all months in 4Q tracking as expected. Our strategic initiative work is also progressing as planned. On the seating and cabin front, we are working actively with both regulatory agencies and vendor partners towards successful approval and certification of our new premium cabin configurations.
That would allow aircraft retrofits to begin early next year. We will start with our larger aircraft, and the seven hundreds will follow. We are planning to retrofit 50-100 aircraft per month, completing the work late next year. We're also announcing today that we have signed our first three direct lodging partners for our Getaways by Southwest product that is planned to launch mid-next year, and that includes Caesars Properties in Las Vegas, and finally, we are narrowing the launch date of our previously announced partnership with Icelandair to the first quarter of 2025. Looking at cost and efficiency of initiatives, we continue to expect to end this year with headcount down 2,000 as compared to year-end 2023. Improved turn times are reflected in the existing schedules starting in November, and red-eye service will begin next February.
We're also very proud of our industry-leading domestic operational reliability. We had the best completion factor and on-time performance of any major airline this quarter, and Andrew will share additional highlights shortly. Regarding progress on our fleet monetization strategy, we're already starting actively exploring the market and are encouraged by what we are seeing. All that said, while our financial results are demonstrating improvement, I recognize that we still have a lot of work to do to fulfill our commitment to return to prosperity. We have a great plan, and I'm confident in our ability to execute and deliver, and we will be transparent about progress and results along the way. It's a really exciting time at Southwest. I want to take a moment to recognize all the efforts by our incredible employees who are committed to making this plan a reality. Thank you for all your extraordinary dedication.
Our continued transformational progress would not be possible without all of you. With that, I will turn it over to Andrew.
Andrew Watterson (COO)
Thank you, Bob, and thanks to all for joining us today. To start, I want to emphasize how proud I am of our talented team and resilient operations that enabled Southwest to lead the industry with the best on-time performance and completion factor of any major domestic airline in the third quarter. We managed to achieve these outstanding results despite a quarter filled with challenging weather, including four named hurricanes. Overall, our third quarter completion factor was 99.3%, even with critical parts of our network impacted by storms. These weather challenges continued into the fourth quarter, most recently with Hurricane Milton, where our operating teams coordinated incredibly well and were able to plan in ways that allowed for proactive cancellations with minimal disruption.
In the face of these events, we remain steadfastly focused on safely delivering strong operational performance, prioritizing the well-being of our people and supporting impacted communities. Turning now to revenue performance for the quarter. As Bob mentioned, benefits from the tactical initiatives we have implemented are reflected in the strength of both our nominal and unit revenue growth rates and are aided by a more constructive supply-demand environment, with Southwest contributing significantly to capacity rationalization. Bob covered the improvements we are seeing from our Revenue Management Action Plan, which are evidenced by the yield improvements from the work we did to recalibrate our systems and processes to better optimize the booking curve for our highest demand flights. Third quarter managed business revenue also grew nicely, with double-digit year-over-year improvement. This was driven largely by GDS bookings and the success of our investment in Southwest Business.
We're continuing to see an increase in unique customers, up 7% year over year, deeper penetration of our existing accounts, with 76% of the new individual travelers won over the quarter coming from existing corporate accounts, and finally, strong yield performance. Looking at booking trends, we are serving more managed business customers than ever, but they continue to take fewer trips per year and therefore occupy fewer seats than they did pre-COVID. So we continue to see opportunities to grow our managed business and backfill those seats with new customers. As such, we also continue to focus on initiatives aimed at closing the load factor gap. These include network changes and distribution and marketing initiatives. Starting with our network, schedules from August forward are designed to recalibrate supply to demand.
This includes aligning capacity to demand in specific geographies and also to seasonal and holiday demand patterns. Looking to the fourth quarter, we have created multiple schedules to adjust down for lower periods, including the anticipated election trough, and then to increase flight activity to capitalize on peak holiday demand. Where we have made changes, we are seeing positive results, and we expect to see additional benefits from changes in our 2025 schedules. We also continue to extend the reach of our distribution in a low-cost fashion by adding new meta search partners, including Google Flights and Kayak earlier this year, and just this month, Skyscanner. These channels have introduced Southwest to new customers and strengthen our presence in points of sale, where we have traditionally been weaker.
Looking ahead to the fourth quarter, as a result of our actions, capacity is projected to be down approximately 4% year over year, with seats and trips down about 8%. We anticipate seeing the benefits of our initiatives and the capacity moderation as RASM inflected positive in August, and we continue to see sequential RASM acceleration into the fourth quarter. With that, we expect fourth quarter RASM to be up in the range of 3.5% to 5.5% on a year-over-year basis. The range contemplates just under 0.5 point headwind from booking cancellations associated with Hurricane Milton earlier this month. In addition to these revenue initiatives, a key part of our strategic plan is reducing operating inefficiencies and increasing asset productivity. These efforts are clearly paying off.
For example, we continue to have industry-leading turn time, but we want to do even better. To that end, we have a plan to reduce our minimum turn, the time when the plane is unproductive at the gate, by five minutes by November of 2025. As we previously shared, this initiative is well underway, and the reduction is already built in the next month's schedule for twelve of our stations. The turn initiative will make our current fleet more productive and create the equivalent of sixteen free aircraft at system-wide implementation. As more investments come into the day-to-day operation, we are confident that the Southwest Turn will be a unique competitive differentiator. In addition to reducing turn times, the introduction of Red Eye flights is another key component of increasing asset productivity and improving the connectivity and efficiency of the network.
The June 2025 base schedule, with 33 daily red-eyes, will be published next week on October 30. As a reminder, the Turn and red-eyes initiatives allow us to have modest year-over-year capacity growth of 1-2% in 2025 and limit our planned aircraft CapEx exclusively for fleet monetization. To recap, we are focused on delivering on our tactical initiatives to drive financial performance, and we'll continue to look for opportunities to optimize our network, advance our revenue management capabilities, and strengthen our marketing distribution activities. Before I close, I want to express my gratitude to our people for their focus on safety and warrior spirit, which allows us to drive industry-leading operational excellence and provide our renowned Southwest hospitality. We could not do it without them. With that, I'll turn it over to Tammy to share updates on our financial performance.
Tammy Romo (CFO)
Thank you, Andrew, and hello, everyone. As Bob mentioned, just a few weeks ago, we presented our plans to transform Southwest to make our company even better, including outlining how these plans will restore our financial prosperity and drive sustainable shareholder value. We're focused on moving swiftly and deliberately to execute our plan, controlling what we can and adapting as needed. We have the right team in place, supported by our incredible people, whose warrior spirit, hard work, and continued focus will help us deliver these results. I am so appreciative of each and every one of our amazing and dedicated employees. As Bob and Andrew spoke to the macro, revenue, and operational performance, I will start with our cost performance and then cover fleet, balance sheets, and capital allocation updates.
Looking at our cost performance, overall, our third quarter CASM ex increased 11.6% year over year on the better end of expectations. For the fourth quarter, we expect continued cost pressure, driven primarily by new labor contracts and overstaffing, with additional pressure from the lower capacity, including over a half point of unexpected unit cost headwind from flight cancellations associated with Hurricane Milton. We currently estimate our fourth quarter CASM ex to increase in the range of 11%-13% year over year. We are deliberately pursuing actions to mitigate cost inflation. Looking ahead, we are in a much more stable position. We have ratified all 12 of our labor contracts, creating better cost certainty over the next three years for our largest cost item. We've implemented voluntary leave and time off programs that allow us to reduce our overstaffing impact.
In addition, we outlined a cost plan at Investor Day aimed at enhancing cost efficiency, which includes improving efficiencies in our ground operations and optimizing our operations around our new labor rules. As we shared, we expect savings from the opportunities we've identified to ramp over the next three years and reach over $500 million in run rate cost savings in 2027. This demonstrates our commitment to drive efficiency and preserve or improve our relative cost performance. And again, benefits from the fleet monetization strategy would be incremental to these savings. Our third quarter fuel cost of $2.55 per gallon was in line with our expectations, and as we have seen, fuel prices come down recently. We now estimate fourth quarter fuel to be in the $2.25-$2.35 per gallon range.
Turning to our fleet, this is one of the key areas where we're seeing our prudent planning and ability to adapt really pay off. We came into the year expecting to receive 79 Boeing aircraft deliveries. In March, Boeing informed us we would receive 46.... After going through a detailed process, we conservatively planned for 20 deliveries in April to reduce the risk of further operational impacts. As we close out the year, we have received 19 aircraft and expect to receive one more, exactly in line with our internal expectations. In the third quarter, we pulled forward the retirement of six additional -700s into 2024, bringing our count for this year to 37 Dash retirements and 4-800 lease returns, for a total of 41 retirements.
We shared our plans to opportunistically monetize the value of our fleet and order book at Investor Day. As a reminder, we are funding annual capacity growth of 1-2% over the next three years through our turn time, modernization, and red-eye flying, which results in access to more aircraft than we need to fund our capacity plans. Therefore, the combination of a favorable secondary market, our attractive aircraft pricing, and the excess aircraft available in our order book, provides us a unique opportunity to reduce our aircraft CapEx and drive earnings accretion. We plan to capitalize on this opportunity through both sales and sale-leasebacks. We will pursue our fleet monetization strategy with a focus on delivering a positive NPV across the portfolio of sale-leaseback transactions. We're actively exploring the market and are encouraged by what we're seeing.
And again, we consider our fleet strategy as incremental to our core business. As such, we provided additional breakout of the EBIT contribution in our supplemental third quarter earnings materials available on our investor relations website. Given the complexity of the transactions, the competitive nature of the market, and the fluidity of new aircraft deliveries, we are going to limit the level of detail provided on future transactions that we are planning. And of course, we'll update you as we close deals. Regardless, our plan comfortably supports all of our 2027 Investor Day financial targets without benefits from our fleet strategy. Ultimately, we remain committed to achieving our ROIC goal, and in doing so, have committed to longer-term capacity discipline.
With this discipline and the plans we have outlined, we believe we are well positioned to achieve ROIC greater than or equal to 15% in twenty twenty-seven, which is well in excess of our WACC. Our expected capital spending for this year is approximately 2.1 billion, of which just under a billion is aircraft CapEx, excluding any impact from our fleet strategy. Obviously, there is a lot of uncertainty around future aircraft availability, given continued challenges at Boeing. We have taken this risk into consideration in our twenty twenty-five contingency planning. While planning and replanning remain a challenge, our moderated capacity plan reduces our need for new aircraft, and we have a lot of flexibility to make further adjustments with planned retirements.
Boeing production is something we're watching closely, and we'll defer providing more detail on CapEx and additional 2025 guidance until we have a better line of sight to an updated order book. Finally, our balance sheet remains a lasting competitive advantage, and we continue to be the only airline with an investment-grade rating by all three rating agencies. We ended the third quarter in a net cash position with cash and short-term investments of $9.4 billion and a fully available revolving credit line of $1 billion for total liquidity of $10.4 billion, well in excess of our $8 billion of outstanding debt. We remain committed to providing significant returns to our shareholders through dividends and share repurchases.
We have returned more than $13.7 billion through share repurchases and dividends since 2010, including $431 million in dividends to shareholders this year. As we announced at Investor Day, our board authorized a $2.5 billion share repurchase program, which we expect to be significantly earnings accretive, and as we announced this morning, we will soon be launching an initial ASR under this authorization, so as we wrap up, I want to reiterate that we have a strong financial foundation and compelling plan to support our return to prosperity and strong shareholder return. We have a comprehensive and measurable plan that we expect will enable us to cover our WACC in 2026 and achieve after-tax ROIC of at least 15% in 2027.
There is a significant body of work underway, and we believe we are taking all the necessary steps to deliver. And with that, I will turn it back over to Bob. Thank you.
Bob Jordan (CEO)
Thank you, Tammy. Before we go to Q&A, I wanna briefly address our recent settlement with Elliott last night. You know, the board has taken a lot of time to engage with shareholders and get feedback and taken significant steps based on that feedback. There's been a lot of board refresh that had already begun and is ongoing, and we're very pleased to have come to a collaborative resolution with Elliott. You know, as we welcome our new members to our board, all of whom I had a chance to interview and talk to and get to know, our focus remains on executing our plan, and that's exactly what we are going to do.
I can promise you, it's all eyes forward here as we work to set up Southwest for success for generations to come. And with that, I'll pass it back to Julia to start our Q&A session.
Julia Landrum (VP of Investor Relations)
Thank you, Bob. This completes our prepared remarks. We will now transition to analyst questions. We'd like to get to as many of you as possible, so we ask that you please limit yourself to one question. Gary, we are ready for the first question.
Moderator (participant)
Let's begin the question and answer session. Again, to ask a question, press star then one. To withdraw your interest, press star then two. If you are on a speaker phone today, please pick up your handset before pressing the keys. The first question is from Stephen Trent with Citi. Please go ahead.
Stephen Trent (Analyst)
Yes, good afternoon, everybody, and thanks very much for taking my questions. Just curious, when we think about your CASM for 2025 and going forward, how are you thinking about your goals with respect to sale leaseback gains, you know, in the event that you might not receive equipment at the pace at which you're currently expecting? Thank you.
Bob Jordan (CEO)
Hey, Steven. Yeah, first, I just say, we obviously, as you just think about our unit costs, generally today, there are costs in there that are, you know, really one-time step-ups, things like labor, new labor agreements, and you have costs in there, like the hurricane, that, you know, are one-time pressures that don't occur, and, you know, items like the labor step-ups, obviously, we will lap those. But there's a lot of work in our transformational plan that we put in front of you a few weeks ago. A lot of that's around efficiency, like the Red-Eyes and compressing time out of the turn, driving aircraft efficiency. And then there's cost plan that we're committed to fully realizing by 2027.
And so looking at 2025 and beyond, just gonna, you're thinking about run rate, we're just not ready to guide yet. There's a lot of uncertainty out there with Boeing, in particular. You saw that the contract was not approved, and so, it's just early to be able to guide to guide the year at this point. But obviously, it's something that we're very focused on. Tammy, do you want to add anything?
Tammy Romo (CFO)
The only thing I might add is just in regards to your question on the sale-leasebacks. You know, obviously, we have flexibility there, and those we would keep in our fleet for some period of time. So we continue to have opportunities there on the sale-leaseback front. And, again, just a lot of flexibility to manage to the targets that we laid out at Investor Day.
Stephen Trent (Analyst)
Okay. Appreciate the time. Thank you.
Bob Jordan (CEO)
Thank you.
Moderator (participant)
The next question is from Savi Syth with Raymond James. Please go ahead.
Savi Syth (Analyst)
Hey, good afternoon, everyone. I was just wondering if you could share from a revenue trend perspective, just, you know, what you're seeing on the managed corporate side, as well as kinda generally how the quarter is progressing, you know, given the noise. I know you called out the Milton, Hurricane Milton impact here, but just wondering if there's anything else in the quarter that we should consider that's gonna be on the core.
Andrew Watterson (COO)
Also, with regards specifically to managed business, you know, we did see during the hurricane, there was a dip in managed business travel because, as you might imagine, in that geography, and so that did have a dip down, but then it bounced back up after the both hurricanes went through, it kind of returned to its previous run rate. So we don't see any kind of structural change in demand for business travel, at this point in time.
Bob Jordan (CEO)
And then, Savi, just generally on revenues, obviously, you know, here in the fourth quarter, and the holidays period looks strong as well. We're really pleased that you saw our unit revenue performance in the third. You know, we saw with the actions that are being taken to revenue management and network and in distribution marketing, we saw an acceleration in the trends across the quarter, and, you know, that continues here into the fourth quarter. So a good tailwind from the actions that are being taken, so I'm very pleased with that. More to come, and but we're on track in terms of the performance out of those tactical actions that we need to hit, you know, what we told you concerning twenty twenty-five goals at Investor Day.
Savi Syth (Analyst)
Appreciate that. And Tammy, if I might follow up on the previous question. When it comes to sale-leasebacks, you know, given the Boeing delivery uncertainty, is the considerations that it includes, like existing aircraft in the fleet, that you could do sale-leasebacks? Or how are you thinking about that in terms of the progression?
Tammy Romo (CFO)
Yeah, thanks, Savi. No, that's exactly right. You know, obviously, aircraft in our fleet are certainly eligible. So, so it would include existing aircraft in our fleet. So that's... So we again, we have a lot of flexibility, I believe, when it comes to the sale-leasebacks. With regard to outright sales, you know, obviously, we would pace those based on that, that would be informed by Boeing and the delivery schedule. So we've got some work to do here, given the news that was out yesterday.
Savi Syth (Analyst)
Appreciate it. Thank you.
Moderator (participant)
The next question is from Duane Pfennigwerth with Evercore ISI. Please go ahead.
Duane Pfennigwerth (Analyst)
Hey, thanks. Not to beat a dead horse, but certainly appreciate for competitive reasons you might not want to be that specific, but you know, many investors left the Investor Day with the perception that fleet monetization over the three-year time horizon only means sale-leaseback gains. Is that how investors should be viewing? Is that the right takeaway, or is it more than that, specifically on the new side?
Tammy Romo (CFO)
Yeah, Duane, no, it would include potential sales, and that's over the three-year period. We'll just have to obviously consider the fluidity of the situation at Boeing. But just again, we have 694 aircraft in our order book, and with our moderated capacity plans, we don't need that many airplanes. We'll manage accordingly based on what's thrown our way with regard to the situation at Boeing. But certainly in the nearer term, we have opportunities without consideration for sale leaseback. We'll...
As always, the world's constantly changing, but we, again, just have a lot of flexibility, and we'll take the news that we all heard yesterday into consideration as we solidify our plans for next year.
Bob Jordan (CEO)
Yeah, Duane, yeah, we. I thought we were clear. My apologies. I thought we were clear at Investor Day that, yeah, we're gonna. We will be monetizing the value that is in the fleet order book. And then, yeah, that could be sell leasebacks, could be direct sales. We'll be flexible on that front and, obviously take into account where we are, what the market looks like, but I think we're open to, you know, whatever approach maximizes that value.
Duane Pfennigwerth (Analyst)
Thanks, and certainly, appreciate the uncertainty with respect to fleet, next year. But can you give us any high-level shaping on cost trends, non-fuel cost trends, maybe first half, second half? Is the, you know, down one to three, I think, in the first quarter, is that new information, or was that kind of your thinking, at Investor Day? And, just to put a bow on it, like, when do you expect unit revenue growth to exceed, non-fuel cost growth? Thanks. Thanks for taking the questions.
Tammy Romo (CFO)
Duane, what you were referencing was our capacity. I believe our capacity guidance. We did not provide-
Duane Pfennigwerth (Analyst)
Exactly. Yep.
Tammy Romo (CFO)
Yeah, we didn't provide a CASM ex guidance for next year. We'll come back, given the moving parts here, at our next earnings call and give more specific guidance for next year. Our targets that we provided at Investor Day with regard to our operating margins, all of that still, all of that still stands.
Duane Pfennigwerth (Analyst)
Okay. Thank you.
Tammy Romo (CFO)
You're welcome.
Moderator (participant)
The next question is from Tom Fitzgerald with TD Cowen. Please go ahead.
Tom Fitzgerald (Analyst)
Hi, everyone. Thanks very much for the time. Would you mind providing us an update with where things stand with your revenue management system? Is that giving you a tailwind now, or what's the latest on that? Thanks.
Andrew Watterson (COO)
Yeah. Thanks, Tom. It's Andrew. I would classify the system and processes and organization together. It wasn't just one thing, it was a combination of factors, and we put those into place in late Q2, and if you recall, we forecasted a two-point drag to Q3, and we ended up with just a one-point drag in Q3, so that shows that we saw an inflection point in that. We highlighted, I think, in Investor Day, that August was in particular the inflection point where we saw that, particularly the last, you know, half of August.
And so, we've recalibrated our system, hired new people, put in place new processes and new tooling to support them, and that is driving yield growth on our strongest flights, which is the objective. So we can see the intended actions are manifesting in actual outcomes, so it gives us confidence that this is working for us.
Tom Fitzgerald (Analyst)
Thanks very much. That's really helpful, Andrew. And then any color, it seems like just anecdotally, interisland fares in Hawaii have been picking up lately. Are you seeing any benefit from that? Thanks again for the time, everyone.
Andrew Watterson (COO)
My pleasure. So, you know, Hawaii, we view as a franchise, but knowing there's different parts to your franchise, and we have seen results of our focused efforts that we mentioned in Investor Day. We're seeing RASM increase quite significantly above system RASM, which is, as you saw from our results, also increasing, and that is both for interisland and mainland to Hawaii. We're pleased with the progress. We have teams that are cross-functional teams that are organized to focus and drive this, and we're seeing the results of those efforts, and those continue and will continue until we reach our business case.
Bob Jordan (CEO)
You've got future actions coming next year around modestly moderating interisland capacity and then adding red eyes and really helping connections and a connecting complex back to the mainland, so all that should continue to drive improvement as well on top of what you're seeing already today.
Moderator (participant)
The next question is from Scott Group with Wolfe Research. Please go ahead.
Scott Group (Analyst)
Hey, thanks. Good afternoon. So I apologize for turning this into a sale leaseback call, but I am still a little confused because I think I heard something different at the Analyst Day than what I just heard. So maybe, Tammy, can you just clarify, like, the 3%-5% margin for next year? Does that include or exclude any potential sale leaseback? And then just separately, on the cost side, I know we talk a lot about CASM, but if I just looked, Q3's got employees down 1% and labor cost up 18% year over year. I know we've got, like, new contracts, but I don't know that they're up that much. Like, can you just help us understand, like, why labor costs are up so much?
Tammy Romo (CFO)
Yes. So, on your first question, on the margin guidance that was provided in Investor Day, we provided you a range. The low end of that range would be without the fleet monetization strategy, and the high end of that range contemplates our fleet strategy. So that, and which is why we provided you a range, so you can think of it more or less with or without the fleet strategy. So hopefully that clarifies that. And then, with regard to the cost pressures, we looking ahead, I guess as a starting point, we would expect for next year, just our normal inflationary cost pressure to continue.
And keep in mind, an important input into all of that is our moderated capacity growth. So as we've already shared, we will be moderating our capacity growth next year. And then we'll also have costs associated with the investment and the launch of our assigned seating and premium seating initiatives. But offsetting, you know, we'll realize savings from our cost plan. So again, we'll provide more insight into all of that on our next earnings call. But the inflation cost obviously was much more significant. And as Bob said, we'll be lapping some of the abnormal labor cost pressures.
There is just normal annual inflationary cost pressures baked into our labor contracts, and that includes also some work rule changes as well. That is all factored into, again, the guidance that we gave you, for next year for an operating margin in the 3%-5% range.
Scott Group (Analyst)
Okay. Thank you, guys. Appreciate it.
Moderator (participant)
The next question is from Jamie Baker with J.P. Morgan. Please go ahead.
Jamie Baker (Analyst)
Oh, hey there, everybody. Scott's question was the same as mine. So we should interpret today's 3%-5% margin as essentially a guidance lift versus last month, since fleet initiatives are now separate, correct?
Tammy Romo (CFO)
No, there's no change here in what we said at Investor Day, Jamie. It's ex fleet. Yeah, the 3% is ex fleet on operating margin, and the 5% would include fleet.
Bob Jordan (CEO)
And Jamie, for each year, you know, there was a page in there that we had an operating margin range, and we had an ROIC range. And, the way to think about that is, one is without fleet and base business, and one is with fleet. And then I think for twenty twenty-seven, you know, we said that the ROIC greater than or equal to 15% would be exceeded with and without fleet. So yeah, the ranges were intended to provide you with-
Jamie Baker (Analyst)
Okay.
Bob Jordan (CEO)
and without fleet number. And then I think we also clarified that the fleet contribution was roughly $500 million a year.
Jamie Baker (Analyst)
Okay. And so the change in tone, Bob, in your prepared remarks and in the answers on this topic, what drove that? Was that something maybe Elliott pushed for, or was it just sort of trying to clear up misperceptions? I'm just curious, you know, and also why it's not just called out as a special item, you know?
Bob Jordan (CEO)
On the fleet?
Jamie Baker (Analyst)
Yeah. Yeah.
Bob Jordan (CEO)
No, no, no. Yeah, no, nothing. In fact, I might probably... I thought we were clear at Investor Day about the, you know, the with and without. And then on the scorecard, you know, the scorecard or graph scorecard that we presented today added even more clarity around the EBIT decomposition, but then also the with and without fleet, and then the fleet decomposition across the year. So no, that had nothing to do with... No, no, no connection to Elliott-
Jamie Baker (Analyst)
Okay.
Bob Jordan (CEO)
at all. Now, in subsequent, you know, after Investor Day, we, as you would have guessed, we did a lot of shareholder engagement discussions and, you know, one of the items was, hey, you know, a little more clarity on the EBIT stack in 2027 and some of the things you just talked about.
Jamie Baker (Analyst)
Okay.
Bob Jordan (CEO)
- which is why we added that into the, you know, presentation that was filed this morning.
Jamie Baker (Analyst)
Got it. And then for my second topic, and thanks, Bob. And then for my second topic, just quickly on loyalty. It seems to me that with the LOPA changes and, you know, the plans to better monetize the cabin, that there could be room for a more premium credit card than the, I guess, two consumer cards that you offer through Chase right now. I'm just wondering, like, mechanically, how does that work? Are you guys free to potentially-
... offer a third card if you choose to, or, or does that require reopening the contract? You know, stuff like that. Just, just wondering about those mechanics and whether there's maybe a loyalty benefit on top of the cabin stuff that you've already announced. Thanks in advance.
Bob Jordan (CEO)
Well, and I'll let Ryan take the details, but I think what we said at, you know, the Investor Day was that there is a lot of opportunity inside everything we announce. Things like the seating changes, the airline partnerships, getaways, all that, to further monetize the card, the relationship with Chase. And there's just work to do there. And generally, what could be, you know, a tailwind there with continuing to monetize the Chase relationship was not included in the numbers that-
Jamie Baker (Analyst)
Okay.
Bob Jordan (CEO)
We gave you at Investor Day. So it's on top of that. There's work to do there, but just the mechanics of how you get there, obviously, it's a negotiation. I'll let Ryan talk about that.
Ryan Green (EVP of Commercial Transformation)
Yeah, Jamie, we could not just create a card on our own absent Chase. They have to underwrite it. We have to come to agreement on what the associated benefits with the card, with the new card product is and what the economics around that is. But, you know, we do those things from time to time, and we have to... There are boarding benefits associated with our cards today that will no longer be relevant in an assigned-
Jamie Baker (Analyst)
Right
Ryan Green (EVP of Commercial Transformation)
... seating and premium seating world, and so discussions with Chase on just how we're going to evolve the product structure to account for an assigned seating and premium seating world are currently underway. It doesn't take a reopening of the entire contract. We can make amendments to the contract, but yeah, that's a conversation between us and Chase.
Jamie Baker (Analyst)
That's very helpful. Thanks, everybody. Take care.
Moderator (participant)
The next question is from Dan McKenzie with Seaport Global Securities. Please go ahead.
Dan McKenzie (Analyst)
Oh, hey, thanks, guys. Bob, I know it's really early, and I know your focus is the current plan, but when you were interviewing the board additions, I'm curious if the new members have begun to affect your thought process initially, and if there were any ideas shared that you're contemplating. And, you know, I guess, you know, how the current strategic initiatives are being received.
Bob Jordan (CEO)
You know, Dan, I may give you a little broader answer just to kind of clarify all this. You know, we, the board has been undergoing a lot of refresh. That was ongoing, that was going on before Elliott, and then obviously, that's accelerated. You know, we announced the six off, and then with Gary, seven, and then we've been looking to fill those, and we, you know, we filled one of those through Southwest with Pierre and then the five from Elliott. Just to make sure you know that I had a chance to interview their slate, and I've talked to each of those folks extensively about their views of Southwest, what they bring to the board, what they bring to Southwest Airlines.
I can tell you that they're all committed to serving Southwest and looking forward to being part of our board and serving our shareholders. Obviously, we've added a number of airline experts, both through, you know, Southwest and then with what was announced last night. So we've added, you know, Rakesh, we've added Bob Fornaro, and now Gregg Saretsky and David Cush. And they all bring a wealth of airline experience, and what I like is that they bring a variety of experience. So you've got folks that have started airlines, have worked, obviously, at ULCCs, low cost, something closer to a legacy, and have had a lot of different types of service.
Not arguing that we're gonna do any of those things at Southwest Airlines, but they will certainly help stretch our thinking. Obviously, there'll be, you know, there'll be another plan after this plan. We're always evolving, and so I... Their input will be welcome and, I think, constructive in terms of how we think about Southwest five and 10 and 15 years from now. At the same time, I can assure you they all have genuine respect for Southwest, our history, our culture, and are all looking forward to working together.
Dan McKenzie (Analyst)
Yeah. Congrats on putting that behind you. Tammy, thanks for the comment around the fleet monetization strategy, and apologies for going back to this again, but is the primary driver of the benefit just really a function of reduced depreciation and maintenance expense? You know, just wondering if there's a labor component in there or high level, I guess, pardon me. I'm just curious, you know, what the big drivers are to that estimate or that range.
Tammy Romo (CFO)
Yes. No, the big driver, of course, would be the gain that we would report. Again, we have very attractive pricing on our aircraft and on our existing fleet. Of course, that would be reflected in the net book value. So the primary driver there would be the gains on the monetization of that strategy, particularly for the, you know, potential aircraft sales.
Dan McKenzie (Analyst)
Hmm. Yeah. Okay, thanks for that. Appreciate it.
Bob Jordan (CEO)
You're welcome.
Moderator (participant)
The next question is from Conor Cunningham with Melius Research. Please go ahead.
Conor Cunningham (Analyst)
Everyone, thank you. On the $1 billion EBIT build you called out for 2025, I believe most of that's revenue. But could you just talk about what percentage is already enacted? You show an ongoing network optimization, and you're doing... I know you're doing marketing now and revenue management. But if you could just, like, talk about where we're at in terms of percentages of that already in the network today. Thank you.
Andrew Watterson (COO)
... Is that, the network changes or the overall revenue progression? I'm sorry, I apologize.
Conor Cunningham (Analyst)
Yeah, the one, so you have $1 billion of EBIT coming from, you know, network optimization, marketing, and so on. What is already in the market today? I know you made a lot of adjustments to your to your network in general, and you're doing marketing and so on, but if you could just level set on on what's already been put out there, in general.
Bob Jordan (CEO)
Yeah, Conor, I'll just start, and then Andrew can come behind with details. Yeah, obviously, you've got three things. You've got the revenue management changes that were enacted, you know, primarily to take effect in August. You had network changes that are ongoing. There's another set that comes into play next year with things like Atlanta. And then you've got the distribution and marketing efforts and changes, things like Skyscanner that just went active. And the ones that are in place today, primarily revenue management, are the contributor to why we're seeing the acceleration in the unit revenue trends across the third quarter, and that, so far, is continuing into the fourth quarter.
So you take all that together, what is in place so far, which is, again, some network, primarily revenue management. We're on track for what we need to see in terms of improvement to hit that $1 billion in 2025. That's a little different than your question. I can't quantify, but the main point is that we're on track in terms of ability to hit that $1 billion in 2025.
Andrew Watterson (COO)
Yeah, you're right, Bob. I don't think we've decomposed,
Bob Jordan (CEO)
We have not.
Andrew Watterson (COO)
How much and when, and stuff like that. But as far as the actions that lead to that value, the network, as I mentioned earlier, will be published next week through the summer. So what you'll see then will be reflection of the network changes largely in place then. Then you have the revenue management and marketing activities, which the first couple of waves of those have already been implemented, and you're seeing them ramp up in their benefits. There are further actions to come in both revenue management pricing and the marketing distribution for us to drive further value, to get to that, tactical initiatives business case that you'll see reflect in twenty twenty-five.
So I would say that a lot of the actions are done and underway and in the market, but the value would ramp up as we progress through next year.
Conor Cunningham (Analyst)
Got it. That's helpful. And then maybe back to just the headcount question that Scott was talking about. Yeah, I know you're offering, you know, paid time off to some employees, and you're working through headcount in general through natural attrition. Has there been any internal debate, though, around being more aggressive with headcount, whether it's early retirements or so on? The reason why I ask, you're buying back stock, you feel comfortable with the outlook. Has there been more of a focus on trying to get heads out that aren't necessarily as productive as they're going to be, given your expectations around capacity growth? Thank you.
Bob Jordan (CEO)
Yeah. Kind of, thank you. Just to level set on where we are, and I'm sorry, this is redundant. You know, our commitment was to be down, you know, two thousand headcount this year compared to last year, you know, even on modest growth, and we're on track to do that. We have another. It's kind of invisible, we have another close to two thousand that are effectively out through these short-term leave programs, you know, a day, a week, a month kind of thing. So they show up as an FTE, but there's no cost because they're on, effectively on a short-term leave or basically just time off without pay. And then we're committed to being down again next year. Now, your question is, you know, are we willing to go farther?
As part of the cost project, in addition to sort of your typical supply chain efforts, tech ops, you know, parts, all the kinds of things that are, you know, efficiencies, we'll be working hard on overhead. As we work our way through that, which we are just now starting, I'm not predicting anything, but you know, we've done it before. It may be that we do offer tools around things like early out. We just need to first see the numbers, understand where we are, and then look at what tools it takes to hit the target. We'll have a lot more for you as we progress our way through the cost initiative.
But just start with, we are committed to hitting the cost initiative, committed to being more efficient across the company, through overhead, you know, corporate overhead, and we use the techniques that we need to get there.
Andrew Watterson (COO)
And I think, Bob, sometimes people do a FTE times a salary-
Bob Jordan (CEO)
Yeah.
Andrew Watterson (COO)
equals a cost, which is appropriate for a white-collar workforce, but for an hourly workforce, it misses the fact that there's hours in there. So if you were to look at, say, our ground ops and public data, you'd say FTEs per trip up about 22% versus pre-pandemic. Look at the hours we paid, it's up 14%. So you see a big gap between the hours we're paying out and the headcount. Now, that residual 14% is still something we need to work on, but you can take roughly half of that and say that is staffing we needed pre-pandemic, that we didn't have. And we saw with winter storm Elliott, we needed to have that. So that is in there.
And then the portion of that, which is like many of the airline industry, economy in general, we're less productive or efficient than we used to be. So the work we have going forward, whether it's the turn, red eyes, standards that we're putting in place, lots of other tools, we're going to work down the, that kind of inefficiency that's come in post-pandemic, and then also work back that extra headcount, the needs of the extra headcount that we saw that we needed 'cause of the winter ops demands, and so the overstaffing portion has been mitigated by the reduced hours I illustrated earlier, but the remaining hours are needed for the operation we have, yet there's still a need to get more efficient.
And so we need to get more efficient is the next step on our journey, not necessarily less people, since we've got the hours down with regards to this particular workgroup. And many of the workgroups is a similar dynamic. The one work group that does not have that dynamic is our pilots, as we've discussed previously. However, and so this year we are paying minimums, meaning there's times when we don't need as many pilots as we have, not every month, but a number of the months this year. When we add Red Eyes next year, that will then start to eat into that period where we are paying minimums because that'll be incremental flying, for which we don't need incremental pilots. So it's a journey, but you can't just do the FTEs times salary math to look at potential savings.
You have to really work through the hours, since this is an hourly workforce, except for the overhead, which Bob mentioned.
Tammy Romo (CFO)
Yeah, and,
Conor Cunningham (Analyst)
Appreciate the detail.
Tammy Romo (CFO)
Just one final-
Conor Cunningham (Analyst)
Sorry.
Tammy Romo (CFO)
Just note that might be helpful just on the, what's embedded in terms of the net overstaffing impact. As I shared, I believe at Investor Day, we expect that to be roughly $120 million this year. And as Andrew took you through, the impact is primarily coming from our pilot work group. And just to demonstrate how we're continuing to work that down, for the fourth quarter, that impact is expected to be less than $20 million, again with that impact coming primarily from the pilots. So we're working it down, and we're very focused on our cost initiative next year to continue to rein in the impact from overstaffing.
Conor Cunningham (Analyst)
A lot of details. Thank you.
Bob Jordan (CEO)
Thank you.
Moderator (participant)
The next question is from Chris Stathoulopoulos with SIG. Please go ahead.
Chris Stathoulopoulos (Analyst)
Thank you. Good afternoon, everyone. Bob, keep it to one question, three parts here, though, and it's really about capacity. I wanna take it back to your opening remarks when you talk about tactics and strategy. So as we think about, you know, the network for 2025, could you speak to the composition, so stage, gauge, departures, and then also where you see the opportunities, where you're focusing on, I guess, and, you know, within those markets, is that gonna be more about frequencies and connectivity? And then part B, so the 1%-2% guide for next year, it's not a wide range, it's a point, but all the moving pieces, particularly as they relate to the revenue side, why isn't 1% a better way to think about this?
Again, all things considered with the plan out there and how dynamic the marketplace is. Thank you.
Bob Jordan (CEO)
You bet, and just this capacity and what that kinda decomposing that generally, maybe a couple of things. I'm sorry to be redundant, but you know, the capacity that is being created is being created through initiatives. Just making sure that that's clear. It's coming from red-eyes and the turn compression that creates a significant amount of aircraft without having to apply aircraft CapEx. So the modest capacity that we do have is being created without spending money to buy those aircraft. On the decomposition of the network, and Andrew can add a lot more here, we're basically pulling capacity from areas that may be struggling a bit.
You know, you saw the changes we announced to Atlanta, Chicago O'Hare, we closed a few cities, and they're being generally redeployed in points of strength, like the Nashvilles and Austins, those kinds of things. And it's a little bit of everything. Sometimes it's a new route, sometimes it's frequency on a route. Andrew, I think generally, the stage is continuing to rise, just generally, as maybe a little rule of thumb, you know, especially with business travel continuing to not be all the way back and put some pressure on short haul. But well, the thing we're gonna do is we're going to continue to apply capacity in points of strength and where we see the demand. On the narrow range between the one and the two, yeah, that's really, really tight.
I'm not sure I understand the question on why, why one versus two, but it, it's really a modest amount, and, you know, that already creates, obviously, unit cost pressure to be, growing at that small of a rate, and anything below that, you know, exacerbates that. But we're just committed to a lower capacity number until we earn our cost of capital, exceed our cost of capital, and hit the targets that we've talked to you about. Now, the wild card, obviously, for 2025 is what about Boeing? I'm proud of our folks. They planned really effectively for 2024. We planned for a strike. We created our own number of twenty deliveries, and it's gonna come in right on top of that. And 2025, if the strike goes much longer, there'll be an impact.
We have a lot of flexibility in the fleet. We'll have to deal with that and adapt. But if the strike goes a long time, it's gonna make it hard. I'll just admit, it's gonna make it hard to hit those, you know, the higher end, certainly, of that capacity number, because you're just not getting the deliveries. So a lot of this is really up in the air until we know more about Boeing, when the strike ends, when they get back online, and when they hit their rate. So I just would say that, you know, 2025, we just owe you an answer there as we know more about Boeing. And then just on decomposition, Andrew.
Andrew Watterson (COO)
Yeah, we already see this year that our stage inflected upward, pushing mid-single digits. And as we go into next year, you can see what's already published that our trips are gonna be down year over year, but our, you know, our actual gauge by aircraft is about 1% in those months already published, and you start to get to lower single digits for stage increase. So the stage and gauge will drive ASMs on a reduced frequency.
So you can, you know, infer by that. These are gonna be not short-haul business markets necessarily, but a kind of mixed business leisure and that, more medium, what we call medium-haul, distance, which is, you know, around about 1,000 miles on average, is what you can expect to see for all the new stuff.
Chris Stathoulopoulos (Analyst)
Okay, great. Thank you.
Ryan Green (EVP of Commercial Transformation)
Thank you, Chris.
Julia Landrum (VP of Investor Relations)
Okay, that wraps up the analyst portion of today's call. I appreciate everyone joining, and hope you all have a great day.
Moderator (participant)
Ladies and gentlemen, we now transition to our media portion of today's call. Ms. Whitney Eichinger, Chief Communications Officer, leads us off. Please go ahead, Whitney.
Whitney Eichinger (Chief Communications Officer)
Thanks, Gary. Welcome to the media on our call today. Before we begin taking your questions, Gary, can you please share instructions on how to queue up for a question?
Moderator (participant)
To queue up for an opportunity to ask questions, please press star, then one. To withdraw your question, the command is star, then two. If you're on a speakerphone, please pick up before pressing the keys. We'll pause for a moment and then start answering your questions. The first question is from Robert Silk with Travel Weekly. Please go ahead.
Robert Silk (Analyst)
Yeah, hi. Thanks for taking my question. Probably a question for Ryan. The Getaways product, have you decided yet if you're going to only sell direct, or will you also be selling through travel agencies? And the second part of that question is, you all noted Caesars as a partner, you said there were two others. Are you able to say what the other two are?
Ryan Green (EVP of Commercial Transformation)
Sure, yes. Getaways, as you know, will launch mid-next year, and today we announced partnerships, three direct lodging partnerships, Caesars Entertainment in Las Vegas, and then Sandos and Playa in Cancun and in the Caribbean are the three direct lodging partners. We also, you know, we have access to hotel inventory outside of direct lodging partners as well. We announced our bed bank partner today, Hotelbeds as well, and there are a couple other announcements out there on some technology that we're using to package the packages together, so a lot of announcements today, making really good progress towards our launch mid-next year.
As it relates to how we're gonna go to market there, primarily, it'll be direct from our website. We have the largest airline website in the United States. We carry a lot of customers to these large leisure markets that have the highest share of packages. So we've already got we already have customers on our website that we can monetize these packages to. You know, does that mean that we won't sell through travel agents at all? That answer, you know, the answer there is no, but the primary source of that will be our own direct distribution.
Robert Silk (Analyst)
Okay. So you may still work through... You are still gonna have-- is it gonna be select agencies, or will there be a general reach out to agencies?
Ryan Green (EVP of Commercial Transformation)
Yeah, we're working through our go-to-market plans on that, so there's nothing to share specifically on that, today. But I think you should just think about it generally as primarily a direct distribution on our own, through our own channels.
Robert Silk (Analyst)
Thank you.
Moderator (participant)
The next question is from Rajesh Singh with Reuters. Please go ahead.
Rajesh Singh (Analyst)
Hi, Bob. I have two questions, one on Boeing, second one on Elliott. When does Boeing strike start impacting your growth plans?
Ryan Green (EVP of Commercial Transformation)
You know, on Boeing, I think we just, you know, we just don't know. I mean, we're already, like, we talked about, we were expecting near 80 aircraft this year. We're gonna take 20, so we're far off of our plan. We will no doubt be far off of our contractual plan next year. You know, the fact that we lowered our capacity appetite to 1% to 2% is certainly helpful. Had we, if we've been at something higher, we'd have a much more difficult issue. We do have a lot of flexibility in our fleet plan because of that, because we just need a smaller number of aircraft to fill the growth, and the growth is coming through initiatives anyway.
But at the end of the day, we need, we need a good Boeing and a strong Boeing, and we need a Boeing that is on track in terms of its rate, and on track and in terms of its delivering its aircraft to Southwest Airlines. So we could tolerate, you know, a bit of an interruption here with the strike because we planned for it. But if the strike goes much further, obviously, we'll have to decide how we, how we adjust our fleet, next year or, you know, adjust our appetite, in our schedule. So a lot more to come there, obviously, in terms of Boeing clearing up what's happening. And then second, once we know that, we can deal with, what we can do to mitigate the, the impact. But no, it's an issue for sure.
Rajesh Singh (Analyst)
On Elliott, congrats for getting the deal done, but there is a view that the deal has come at a very high price. They have got five board seats, and some people are calling it more of a truce than a peace deal. Do you foresee it being disruptive going forward for your turnaround strategy?
Bob Jordan (CEO)
First, I just remind you that we have been in a, the board has been in an ongoing, long-planned refresh-
...refreshment period here. We've added a lot of new members. We had already announced that we would have six step off, and then Gary, so that's seven, and we did accelerate that to November first as part of the agreement. But we had announced seven were coming off, and we had plans to, if we couldn't get an agreement with Elliott, continue to march through filling those seats, which is what you saw with us adding Pierre. So, it's basically seven off, six on with Pierre, so the board is still shrinking. I think that the main thing is that it is a portion of the board. It's a portion of the board, it is not control. It's not control of the company, not control of the board. It's a subset.
And then, really, our focus has been on interviewing these folks and understanding what they bring to the board, who they are, what their personalities are like, how well they'll get along with our current board members and assimilate. Because at the end of the day, you want great board members to support Southwest Airlines and our shareholders and our plans. And again, I had a chance to interview the five that we took, and I think we've got some great board members here. They bring a wealth of experience, and they'll be additive to our board. So whether they came from Elliott or another route, we're just looking for good board members. If you just go down the list, again, Gregg Saretsky, a lot of airline experience, WestJet, Alaska, Cush, experience with Virgin America and others. Sarah Feinberg, Governmental Affairs, FAA background.
David Grissen, president of Marriott, a lot of retail. Patty Watson, a CIO at NCR, brings a lot of technology experience which we can use. And then Pierre Breber, who we, you know, have sourced ourselves, you know, retired CFO at Chevron, brings both a financial background and brings an oil and gas background. So all of those folks, I think, will serve our board, bring expertise, and serve our shareholders well.
Rajesh Singh (Analyst)
Thanks a lot, Bob.
Bob Jordan (CEO)
Raji, absolutely, sir.
Moderator (participant)
The next question is from Leslie Josephs with CNBC. Please go ahead.
Leslie Josephs (Analyst)
Hi, everyone. Thanks for taking my question. Just curious, on the MAX 7, when, knowing what we know now, when do you reasonably expect that to fly for Southwest? And then secondly, this is a little existential, but Boeing is looking at, you know, it's what it would look like in five years, slimming down and all its changes. How do you... You're making a lot of changes at Southwest. How do you see the airline in five years' time, in ten years' time? And, and do you think it'll look a lot more like some of the legacy carriers, and, and how do you expect to stand out? Thanks.
Andrew Watterson (COO)
I'll take the first one and give Bob the second one, obviously. The MAX 7 we still expect it to be certified sometime in the middle of next year. The engine anti-ice issue for which is a pacing item. It's undergoing tests now, and the change we have, you know, our engineers have confidence in the technical changes that are proposed. The FAA will ultimately decide if it's sufficient, and once that is sufficient, then they have to finish the rest of the certification activities, which to us look, you know, almost all but done.
And then after that, we'll need at least a six-month lag between that and us putting it in revenue service, because obviously, we have to then bring it into our certificate, get our manuals updated and approved by the FAA and such, and you obviously can't rush those type of things. So therefore, our plan for next year does not include the MAX 7, but our plan for the following year could. You know, given that the Boeing's delivery foibles over the last few years, we don't lock down that plan with regards to their you know, type of gauge they deliver to us at this point in time.
But as we get closer, and we do see the certification, we begin in earnest putting the details in our 2026 plan, we would then perhaps integrate that into our flying schedule.
Bob Jordan (CEO)
Leslie, just on the maybe the longer-term Boeing, you know, much longer-term Southwest Airlines, I'll tell you, we've got a great order book in place with Boeing that goes through 2031. Access to a lot of aircraft at very attractive pricing, so we've got really good protection there, kinda no matter what we wanna do with that. You know, we've talked a lot about monetizing the opportunity to monetize the fleet, but we have access. Again, the main thing is we have access to a lot of aircraft at terrific pricing, and we need Boeing to you know, to fix the issues and deliver those aircraft. As you think about further than that, you know, what maybe that's where you're going.
Number one, for Southwest Airlines, we're focused on delivering the transformational plan that we just laid out a few weeks ago, assigned seating and extra legroom and partnerships and Getaways by Southwest and so much more. Our focus is delivering all those initiatives and hitting the targets that we laid out. As any company, you're always, there's always a strategy mode out there. You're always thinking about, what about five years from now? What about ten years from now? You know, we're just not ready to talk about any of that. One thing you know for sure is the Southwest that you see in ten years won't look like the Southwest that you see today, because you're always evolving, and that could include all kinds of things. But just, yeah, just, I'd just be speculating.
The main thing is we've got a great order book with Boeing. It takes us well into the future to 2031, and we're fully focused on executing the plan that's in front of us.
Leslie Josephs (Analyst)
Okay, thank you. And then you mentioned earlier, Bob, that if the strike goes on much longer, you're gonna have to revisit this, the fleet plan. What is much longer? Is it through the end of the year? Is it a couple more weeks? What is that cutoff?
Bob Jordan (CEO)
... You know, it's probably an inexact answer. You know, we planned for a strike roughly, I think, Andrew, in the five-ish weeks kind of range, kind of where we are, because I believe historically that's been a typical strike for Boeing. So we planned for that. And, you know, the amount of adjustment, it obviously fluctuates a lot based on how long this goes. So it's just really hard to speculate. If the strike goes a lot further, again, we'll look at our fleet opportunities in terms of what we can do and maintain capacity sets. At some point, it becomes difficult to do that, and you think about having to, you know, adjust schedules that are way out in the future. We don't wanna do that because it's disruptive to our customers.
So it's all total speculation at this point. And, what I'm most proud of is that our folks planned for the strike, and they planned appropriately. We're getting exactly the number of aircraft this year that we planned on, and you gotta control what you can control, and we've planned on a moderated number in twenty-five as well, kind of compared to what the original expectation was. I think we just have to see where we are. Again, we have options to manage this within our fleet, and you know, but at some point, you'd have to moderate the capacity and schedules. We're just not there yet.
Andrew Watterson (COO)
It's less about the duration, per se, than the ramp up afterwards.
Bob Jordan (CEO)
Yeah.
Andrew Watterson (COO)
The longer it goes on, the more it could trickle back in the supply chain and cause delays there. So any manufacturing process of airlines, aircraft, or whatever, if you shut down, the longer you shut down, the longer it takes to ramp back up, and it's not often one for one. So it's really understanding how long that ramp up will be. It'll be the pace item. We can speculate now and plan for it, but ultimately, Boeing will have to master that and communicate to their customers.
Bob Jordan (CEO)
Yeah, you've seen that, you know, Boeing has furloughs or plans, and then, you know, now the suppliers have furloughs, and all that has to be restarted once they have a contract in place.
Leslie Josephs (Analyst)
Thank you.
Moderator (participant)
This concludes our question and answer session for media. So back over to Whitney now for some closing thoughts.
Whitney Eichinger (Chief Communications Officer)
Thanks, everyone. If you have any further questions, our communications group is standing by. Their contact information, along with today's news release, are all available at southwestmedia.com.
Moderator (participant)
The conference has concluded. Thank you all for attending. We'll meet again here next quarter. You may now disconnect.
