Yahoo Finance

Southwest Airlines pulling its full year 2025 and 2026 guidance citing macroeconomic uncertainty. The company saying it is difficult to forecast given recent and short-lived booking trends. The carrier are also planning to reduce flying capacity in the second half of the year. Joining us now, Southwest Airlines CEO, Bob Jordan, and my morning brief co-host Brad Smith for the interview. Bob, great to have you on with us. I want to get a sense of the degree to which these results were driven by the economic certain uncertainty caused by tariff policy. If you had to put a percentage on it, how much of your results were driven by the uncertainty caused by these tariffs?

Well, first, I I'm really proud of the execution in the first quarter. We we had terrific operating results. We we we really beat our cost plan. We had good revenue results. So the the all of our initiatives are on track. So the company is doing great, but no, we were highly impacted on the demand side by the tariffs and then just the the consumer confidence erosion. When we started the year in January and had our expectations for the first quarter and the second quarter. Since then, the first quarter fell off about three full points. And the second quarter has fallen off about six full points, compared to what we thought in January. So that gives you a a good indication of the of the level of impact on demand and just how rapidly the the decrease in demand fell.

And so with that in mind, Bob, as you think about the difficulty right now it is for for you and your airline peers to really forecast in this environment beyond what the bookings look like for the next 60 to 90 days, just take us into the the modeling and and how you and the team are going about that.

Well, first, you've got to come into something like this in a strong position. We have a strong balance sheet. We have net cash, not net debt. We are very well positioned. We already had very low capacity for the rest of the year. So you've got to come in prepared because ultimately looking forward, it is really hard to predict what bookings will look like. The other thing is we have a really strong transformational plan, cost levers, a lot of revenue levers. Uh this past quarter, we turned on Expedia as a distribution channel. We started optimizing and dynamically pricing our rapid rewards redemptions. Coming up here in just, you know, a few weeks next month, we've got uh uh bags, our bag fees that will come online. We are preparing for the extra leg room in assigned seating. We started to retrofit our first aircraft next month. So the good thing is Southwest Airlines is we have a plan and a set of initiatives that will fight against this environment and those are unique to Southwest. So we are very well positioned. You know, the macro is going to do whatever the macro is going to do and we are focused on what we can control, which is executing our initiatives, having a strong operation and then really strongly controlling our cost base.

Within that, what are the realities of that capacity control that you're kind of evaluating right now, as it seems the rest of the industry is using that as one of its levers where it can perhaps take the cost of flying out of the equation, at least in this interim uncertainty.

We already had low capacity plans for 2025. We were planning to grow between 1 and 2%. We've cut another 1.5 points out of both the third and the fourth quarter, really taking out those lower demand off-peak flying. And you do that early because if you do that early, then you can take out the costs that are associated with those. So we'll have very low capacity this year and all of that growth is funded by initiatives. We're taking five minutes out of every turn in 19 stations right now. And that basically an effectively creates extra new aircraft and that's what's funding our growth. So all the growth is funded by initiatives, but no, we have a very low growth profile, which makes perfect sense in this very uncertain demand environment.

Bob, we've heard from several other CEOs over the course of the week, both in terms of our programming and other networks reporting that other CEOs specifically in retail have been meeting with President Trump at the White House, speaking about the negative impact of these tariffs. Have you scheduled a call with the White House? What are your coms looking like with administration officials?

No, we we are we were speaking to the uh the administration a lot on a number of fronts. Uh on this, on work that's underway to really modernize the air traffic control system that'll help the whole industry in terms of of efficiency. But no, we're talking to the administration uh often on this and other topics.

You know, with with that in mind, what are you hearing from the administration on safety of of air travel? And and we know that for some of the headlines that consumers will see in that much much of the flying public will see, it does insert once again the reality of, okay, yeah, there are things that we have to, of course, keep our head on a swivel around and but there is so many requirements that come into place for everything within the air travel experience from the flight hours that a pilot has to take in order to even pilot a plane. And then for all of the safety mechanisms for passengers as well along the way to be in compliance with the travel experience for everybody else. How are you navigating what consumers are feeling right now in the first quarter and coming off of the first quarter this year of some of the unfortunate headlines around air aviation?

Well, you start with, air travel is the safest form of travel on the planet. And just just start there. You know, there are opportunities to improve, of course. Uh but it's a very, very safe form of transportation, safer than a decade ago, safer than two decades ago. What we really need is investment in the air traffic control system. That's both staffing and then it's modernization of the systems that are used. I've spoken with uh Secretary Duffy a lot and I'm very encouraged by his focus on modernizing the air traffic control system and uh getting the funding to do that, making that funding stable and then really making progress in terms of modernizing the system. We need to lead the world in uh the the efficient way that we can use the system that's available to us.

You know, Bob, I want to come back to something that you mentioned a moment ago, and I know we're limited on time, so we got to go rapid fire here, but you mentioned the bag fees. That makes everybody's ears perk up here a little bit. Why was this the move to decide to make right now? And and just how much of an additive to the financial performance do you project that it could be?

Well, it's a collection of things. It is introducing a new basic economy fair. It's bag fees. It's it's introducing flight credits that now expire. It's introducing extra leg room section to derive more revenue. So that whole combination is expected to generate an incremental 1.8 billion in ebit from those initiatives here in 2025 and 4.3 billion in ebit in 2026. So it's it's very, very meaningful in terms of contribution to the financial side of the business. At the end of the day, we've got to offer the products that our that our customers want and we've got to meet the financial returns that our shareholders expect. With bag fees, the good thing is for our our customers, especially our most loyal customers, the the product that they see in a lot of cases will actually be better. They'll have access to the seat map. A credit card holder will get a free bag. A customer that has tier uh uh level will get a free bag. So in a lot of cases, this is actually better for many of our customers. But no, you you've got to drive the right level of revenue production. We have always led the industry in terms of our financial performance and we are going to lead the industry again.

30 seconds left, Bob. There's evidence in consumer sentiment data that what consumers and your customers want the most is for these tariffs to go away. What is your message to the administration specifically about these tariffs?

Well, you know, the tariffs, there's a lot of focus on the impact of pricing in terms of the tariffs. I think the biggest thing right now is the impact on the economic uncertainty and therefore the consumer uncertainty. That's the biggest impact of terrors at this moment. is we need that uncertainty to go away so that we can return to the right level and and correct trends in terms of of travel. Travel is incredibly important to the economy and this level of uncertainty is making it very difficult to predict and it's very hard on the economy.

Bob, we've had you here in studio before. You're not a height challenged person. You're telling me the seats are going to get smaller, larger, what's happening?

No, the seats are not getting smaller. I assure you. We're we're going to have terrific uh uh uh uh uh seating and spacing for everybody. We're simply adding a section of the aircraft that is now premium extra leg room. And I cannot wait for that day to come. We're we'll be selling that in the third quarter, operating that in the first quarter of 2026. And again, we are beginning to retrofit those aircraft starting next week.