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SOUTHWEST AIRLINES CO (LUV)·Q4 2024 Earnings Summary

Executive Summary

  • Record Q4 operating revenue of $6.93B (+1.6% y/y) with non-GAAP operating revenue of $7.05B (+3.3% y/y), driven by revenue management maturation, marketing/distribution evolution, and network optimization; non-GAAP diluted EPS was $0.56 vs GAAP $0.42 as revenue outperformed prior guidance and close-in holiday bookings beat expectations .
  • Unit revenue inflected strongly: RASM up 8.0% y/y (ex special items), better than prior guidance; sequential RASM also improved vs Q3, with management highlighting company-specific drivers from tactical initiatives .
  • Costs were mixed: CASM-X rose 11.1% y/y (labor pressure and lower capacity); 2025 exit-rate targeted to low single-digit CASM-X growth as turn-time and redeye capacity efficiency, labor anniversary effects, and cost plan benefits ramp through the year .
  • Capital allocation turning into a catalyst: $250M ASR completed, new $750M ASR planned in Q1 2025, and management aims to repurchase ~$2.25B in 2025 (~12% of market cap) irrespective of fleet monetization timing; dividend continuity confirmed (Nov 2024) .

What Went Well and What Went Wrong

What Went Well

  • “Record fourth quarter operating revenues” and “RASM +8% y/y” on better close-in bookings and faster-than-expected revenue management benefits; management: “We are pleased that improvements… are materializing faster than expected” .
  • Operational performance: industry-leading completion factor (99.2% full-year) with 84.1% on-time in Q4; “our best performance since 2020” .
  • Strategic progress: first partner carrier (Icelandair) launching bag/interline connections (BWI, later DEN/BN A), Getaways partners expanded (MGM), and Chase co-brand amendment to support assigned/premium seating monetization .

What Went Wrong

  • Unit costs elevated: CASM-X +11.1% y/y in Q4, reflecting labor cost pressure and lower capacity; Q1 2025 CASM-X guided +7–9% y/y before improvement later in 2025 .
  • Capacity down 4.4% y/y in Q4; RPMs (-3.1% y/y) and passengers (-5.2% y/y) fell as capacity moderation weighed on volumes (load factor +1.0pt to 79.2%) .
  • Fleet execution contingent on Boeing: 2025 planning assumes just 38 -8 deliveries to de-risk operations; monetization upside requires higher deliveries as MAX-7 certification and production rates progress .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Operating Revenues ($MM)7,354 6,870 6,931
Operating Revenues, ex special ($MM)——7,047
Operating Income (GAAP, $MM)398 38 278
Operating Income, ex special ($MM)405 32 397
Net Income (GAAP, $MM)367 67 261
Diluted EPS (GAAP, $)0.58 0.11 0.42
Diluted EPS, ex special ($)0.58 0.15 0.56

Note: Operating margin (GAAP) calculated as Operating Income/Operating Revenues: Q2 ~5.4%, Q3 ~0.6%, Q4 ~4.0 (calculated from cited values). Operating margin ex special (Q4) ~5.6% (397/7,047).

Segment breakdown (Revenue mix):

MetricQ4 2023Q3 2024Q4 2024
Passenger Revenue ($MM)6,211 6,250 6,307
Freight Revenue ($MM)44 43 45
Other Revenue ($MM)567 577 579
Total Operating Revenues ($MM)6,822 6,870 6,931

Key KPIs and unit metrics:

KPIQ4 2023Q3 2024Q4 2024
ASMs (MM)45,513 45,219 43,533
RPMs (MM)35,580 36,735 34,471
Load Factor (%)78.2% 81.2% 79.2%
RASM (cents, reported)14.99 15.19 15.92
PRASM (cents, reported)13.65 13.82 14.49
CASM ex Fuel & special (cents)10.86 10.75 12.31
Fuel Cost/gal (economic, $)3.00 2.55 2.42

Additional operational notes: Q4 completed sale-leaseback of 35 -800 aircraft; gained $871MM proceeds and $92MM gain recognized in Q4 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RASM (y/y)Q1 2025—Up 5% to 7% New
ASMs (y/y)Q1 2025Down 1% to 3% Down 2% to 3% Lowered
CASM-X (y/y)Q1 2025—Up 7% to 9% New
Economic Fuel ($/gal)Q1 2025—$2.50 to $2.60; premium $0.07/gal New
Operating Margin ex specialFY 2025—3% to 5% New
After-tax ROICFY 2025—5% to 8% New
Capacity (ASMs y/y)FY 2025Up 1% to 2% Up 1% to 2% Maintained
Effective Tax RateFY 2025—22% to 24% New
Capital Returns2025ASR $250MM (Q4’24) ASR $750MM in Q1’25, plan ~$2.25B total buybacks in 2025 Raised
DividendJan 2025 pay date$0.18/sh declared Nov 21, 2024 —Maintained policy continuity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Revenue management & pricingQ2: O&D RM system transition; RM headwinds identified and actions underway . Q3: sequential RASM improvement as capacity moderated and initiatives progressed .RM benefits materializing faster; close-in bookings stronger; dynamic pricing for upgraded boarding launched as precursor to seat pricing .Improving, accelerating execution
Capacity moderation & demandQ2: Domestic capacity outpaced demand . Q3: moderation with healthy demand .Constructive backdrop; 2025 Q1 ASMs -2% to -3% y/y; ongoing moderation .Constructive industry backdrop persists
Assigned & premium seatingQ2: Announced plan .Selling seat assignments 2H 2025; operate 1H 2026; FAA weight/balance & STC timeline; mid-year retrofits .On track, certification and retrofit milestones
Partnerships & ancillaries—First partner carrier (Icelandair) for bag/interline at BWI (then DEN/BNA); Getaways adds MGM; co-brand amended with Chase .Expanding ecosystem
Operational efficiency—5-min turn-time reduction in 12 stations; redeye launches (5 markets in Feb ramping to 33 by June incl. Hawaii); digital crew comms; call volume declines .Efficiency gains enabling growth
Fleet monetization—Sale-leaseback economics clarified; prefer outright sales to harvest embedded -8 value; 2025 plan assumes 38 deliveries; upside if Boeing exceeds .Opportunity subject to OEM cadence
Regulatory/FAA—MAX-7 certification and cabin layout approvals gating retrofits/operate; FAA timelines referenced .Progressing, timing dependent

Management Commentary

  • CEO Bob Jordan: “We closed out 2024 with positive momentum… improvements from our tactical initiatives are materializing faster than expected… supported by a constructive demand environment” .
  • COO Andrew Watterson: “4Q RASM up 8% y/y exceeded guidance… outperformance on sequential RASM relative to norms, indicating company-specific drivers” .
  • Chief Transformation Officer Ryan Green: “We signed our first commercial agreement with Icelandair… Getaways adds MGM… retrofits begin mid-year; technology build and testing underway” .
  • CFO Tammy Romo: “Q4 CASM-X +11.1% y/y; exit 2025 with low single-digit CASM-X growth as initiatives and cost plan benefits ramp” .

Q&A Highlights

  • Cost cadence: Bridge from Q1 CASM-X +7–9% y/y to low single-digit exit in Q4 2025 comes from turn/redeye (~3–4 pts), absorbing overstaffing (~1 pt), and lapping labor plus cost plan (~2–3 pts), with biggest impact in Q4 .
  • Fleet monetization: Preference for outright sales; sale-leasebacks function as forward sales to bridge NG exits; NPV-positive approach with proceeds to modernization and buybacks; opportunity scales if Boeing exceeds 38 deliveries (potential 50–55) .
  • Assigned seating certification: Cabin layouts finalized; weight/balance in Q1; STC in Q2; retrofits mid-year to meet operate date .
  • Co-brand economics: Chase amendment includes significant additional compensation, competitive with market, contemplated in plan .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved due to a data limit error; therefore, explicit comparisons to consensus EPS and revenue are unavailable at this time. Values retrieved from S&P Global.*
  • Based on company guidance and reported results, estimate revisions are likely to reflect stronger unit revenue trajectory and improved margin outlook into 2H 2025 as tactical initiatives continue to materialize .

Key Takeaways for Investors

  • Revenue momentum is real: Q4 non-GAAP revenue +3.3% y/y; RASM +8% y/y beat guidance on RM maturation and stronger close-in demand—narrative shift from Q2 headwinds to sustained sequential improvement .
  • Cost path credible but back-end weighted: CASM-X will remain elevated in H1 as capacity is moderated, then ease to low single-digit y/y by Q4 with efficiency and cost plan benefits—watch quarterly cadence and execution scorecard .
  • Capital returns are a near-term catalyst: Completed $250M ASR, new $750M ASR in Q1, and ~$2.25B total buybacks planned in 2025 independent of fleet monetization timing; dividend continuity adds support .
  • Fleet strategy offers optionality: Sale-leasebacks and potential outright sales can unlock embedded -8 value and lower net CapEx; upside contingent on Boeing deliveries and MAX-7 progress .
  • Product/pricing transformation: Assigned/premium seating timeline intact (sell in 2H 2025, operate 1H 2026); dynamic pricing groundwork laid, partnerships expanding (Icelandair, MGM) to broaden revenue streams .
  • Operational reliability supports revenue: Best completion factor/OTP since 2020; redeye and turn-time gains add “free aircraft” capacity to fund growth without fleet additions .
  • Trading lens: Near-term setup favors names with improving unit revenue and defined cost bridges; watch Q1 RASM +5–7% and CASM-X +7–9%, then sequential improvement; ASR activity may underpin shares into assigned seating launches .