With half of 2023 behind us, I want to update you on our progress against our five Focus Areas, the work we've prioritized for the remainder of the year, and the business imperative of returning to what I call "normal business."
Normal Business Requires Orderly Growth
Since 2018, we've seen significant swings in the business: from the MAX grounding, COVID, the resurgence in demand, supply chain issues, staffing challenges, and now, Boeing aircraft delivery delays. A foundational requirement for business planning is reasonable stability, and the swings since 2018—demand, operational performance, capacity, headcount, and financial returns—have made that difficult.
The actions we took were needed, like dramatically reducing staffing during the pandemic, then dramatically ramping up hiring in the face of surging demand, but regardless of the reason, these swings are painful for the business to manage and create inefficiency. They can also create a challenging environment for our People. Smoothing out fluctuations so we can plan predictably is a must, and the best way to do that is to control our growth and capacity plans by re-flowing our Boeing deliveries and order book. We must control this, not Boeing. We're working to re-flow our aircraft deliveries in a way that supports orderly, measured, and consistent growth.
As we shared in our second quarter earnings release, we're planning for 70 737-8 deliveries this year. This is different from Boeing's plans, but regardless, we're planning to 70. The objective is to smooth out our Boeing order book to accelerate progress toward our long-term goal of mid-single digit annual capacity growth. Establishing measured and predictable growth will allow us to better optimize the airline, regain efficiency, absorb our hiring, mature the workforce, and regain our brand health and Customer and Employee trust. It's also intended to smooth our aircraft CapEx spending. My point is this—as we set our plan, we'll stick to it, and any delivery variability will be managed in a different way. That will allow all of us to execute against a steady growth plan.
Getting back to orderly growth allows us to plan our hiring and staff the airline in a normal manner. Orderly growth allows Tech Ops to count on and prepare for a specific number of monthly deliveries. Orderly growth allows Network Planning to produce schedules they don't have to adjust later. Those are just a few examples, but it just makes everything about the business function better.
It's on us to own getting the business back to the stability and predictability we had before 2018, and you'll see us taking control of the things that we can, to do just that.
Progress on 2023 Focus Areas
Our Values define who we are and what we stand for, and they've served us well for more than 50 years. We all have bad days, but no matter how hard things get, it's never an excuse to be rude to each other or our Customers. "Don't be a jerk" is in the subtext of our Values, and it's something that's entirely within our control. There's just no place for that here. So please, extend grace, but also, know that we aren't going to stand for anything less than living up to our Values.
Focusing on "we" before "me" means working as a Team and supporting each other. Operating an airline takes each of us showing up, doing our part, and stepping up when we see a need. We see Teamwork in action across the entire operation—actions like getting our early morning originators out on time each day, keeping bags with their owners, and communicating with other workgroups during the Turn. You all do a terrific job working together, and I know we'll continue to operate with a Team mentality.
You're famous for the legendary Hospitality you provide our Customers every day—Customers constantly tell us how welcomed, cared for, and appreciated they feel after traveling with us. Just like you provide the best personal Hospitality, we also want to lead in digital hospitality by increasing self-service options, adding bag tracking, and implementing more real-time day-of-travel communication.
- More Self-Service Options. We're introducing additional self-service capabilities with automated messages through email or text to provide quick access to actions Customers can take themselves. As just one example, Customers can now update or cancel flights for Passengers in a multi-Passenger itinerary without calling Customer Service, freeing up time for Employees to focus on more complex Customer issues. Investing in our digital Customer Experience gives our People more time to do what they do best and serve Customers when the situation is a bit more complicated.
- Bag Tracking. By the end of the year, we'll provide on-demand information for Customers with more visibility into their bag's journey, including when the bag is accepted, loaded onto the aircraft, and offloaded from the aircraft.
- More Real-time Messages. We're continually working to keep Customers better informed throughout their travel experience, giving them more information, which also helps you when our Customers know what to expect and where to go for information. We want Customers to have the information they need in the palm of their hand on the Southwest app.
- Modern Spaces. We're also investing in modernizing our airports. We've started rolling out new lobby signage based on your feedback, and they're live at ATL, AUS, DAL, HRL, LAS, LGB, OAK, ORD, SAN, SJC, and SMF. We anticipate completing the installations across all our airports this fall. This new signage will facilitate self-service, enhance the overall visual appeal of our lobby, and make our Customers' travel journey even easier.
Our competitors continue to invest in their service and hospitality. By improving our digital hospitality, we believe we can widen our Customer Service advantage, reduce manual transactions, decrease costs, and equip you to deliver Next Level Hospitality. All of these investments in our physical and digital hospitality enhance—not replace—our legendary Hospitality provided by all of you each day.
Running a consistently reliable operation is at the Heart of our brand promise—as Herb used to say, "an operation you can set your watch by."
You all delivered a very smooth and reliable operation in second quarter 2023, despite disruptive weather. We operated a record number of flights and carried a record number of Customers and bags, all while achieving a completion factor of more than 99 percent—our highest second quarter performance in the past 10 years. This solid operating performance has continued into July, where we've been able to minimize cancellations amid continued weather challenges throughout the network.
We continue to invest in a reliable operation. Much of this work was already planned and underway for 2023, and it's now accelerated through our action plan coming out of the December disruption.
- Improving winter operations means reinforcing airport infrastructure, increasing the availability of winter equipment, and strengthening our overall preparedness for extreme winter conditions. We're developing a winter ops playbook as a cross-functional resource to support winter ops preparation and execution, and Teams analyzed seven years' worth of historical weather patterns—by the hour!—to project operating rates in certain conditions and investments in our deicing procedures.
- We've purchased about 100 new deicing trucks, bringing our total by the end of 2024 to more than 360. Using Denver as an example, we're increasing deicing trucks from 25 to 40 this year, five of which have enclosed cabs. (MDW and BNA will also receive five trucks with enclosed cabs). We increased the deicing pads in Denver from 6 to 10 to provide enough space for us to perform deicing activities in cold weather.
- We're increasing the storage capacity of deicing fluid at key airports by nearly 400,000 gallons to have sufficient levels of fluid available to support long-duration and back-to-back winter events.
- We've increased the number of engine plugs and heaters available to protect aircraft and ground equipment in very low temperatures. We ordered more than 350 engine inlet plugs, which protect the engine inlets against the accumulation of snow or precipitation that would otherwise require additional treatment in extreme cold weather. Additionally, we have 16 new high-output portable heaters allocated to specific cold weather stations.
- To get a head start on deicing activities for our stations, training, and qualification for Ramp Agents is already underway in a few stations and is ramping up in many others. Each year, we qualify new Agents to perform deicing, and a lot goes into the training required to get a full Team up to speed. For stations with the new enclosed-cab trucks, Agents can use simulators to prepare and learn the functionality of the trucks to operate them safely and efficiently when a storm comes.
- We've added staff at airports where extreme cold requires more frequent rotation for Ground Operations Employees working outside.
- We're partnering with SureWx to fast-track the implementation of a Liquid Water Equivalent System (LWES) to provide Pilots with more accurate deice/anti-icing holdover times. Several airports are equipped with meteorology sensors to provide real-time measurement of freezing precipitation to the Pilot's electronic flight bag (EFB) application where they determine the holdover time. The application is ready for use. Pilots are qualified, and we'll train Dispatchers before the upcoming winter season.
- Enhance cross-Team collaboration is about how our Teams work and communicate together to streamline decision-making. We've consolidated the Network Planning Team that designs our flight schedule with the NOC Team overseeing the day-to-day operations into one department.
- We've implemented enhanced real-time dashboards for increased visibility into things like impending close-in flight cancellations to better monitor the health of our network.
- We've enhanced capabilities to alert, define, and escalate awareness of potential issues.
- We've established clearer lines of communication among the groups operating the airline.
- The Summer Preparedness Forum came together weekly beginning in May to discuss our summer season. The working group includes operational experts and Leaders from the NOC, Crew Scheduling, Crew Planning & Analytics, Ground Ops Command Centers, Maintenance Operations, Network Planning, and Operational Performance.
- Accelerate operational investments. We're continuing our investment in technology and tools to improve our recovery during irregular operations.
- We completed an upgrade to the software that reassigns our Crews during disruptions.
- We increased our phone system call capacity to better handle large call volumes from both our Flight Crews and our Customers.
- We've improved the tool responsible for notifying Flight Crews of their new flight assignments and electronically allowing them to acknowledge changes in their work plan.
Beyond our focus on winter operations, the Turn is part of a multi-year series of projects to invest in efficiencies that improve our turn times and operational excellence. The 10-minute Turn is a big part of Southwest lore, but it's evolved since 1972.
I know what you're thinking—there's already so much to do to prepare a flight—how can I possibly go any faster? We're not adding more responsibilities but providing more efficiencies in how Employees perform their duties. It's about using next-generation tools and capabilities to free up greater flying time throughout the day. For example, we'll introduce eFuel Onboard (eFOB) in August. Today, Ops Agents manually verify the amount of fuel onboard the aircraft with our Pilots. With the push of a button, eFOB allows the Ops Agent to get that same information faster.
We've restored the vast majority of our network, which is a real accomplishment, but restoration doesn't mean the network is optimized for different post-pandemic travel patterns. We need to focus on better optimizing the network now and into 2024.
- This optimization includes making sure we have the right number of flights in the right places and evaluating our short-haul routes as business travel has somewhat plateaued below pre-pandemic levels. This restructuring to rebalance business markets gives us an opportunity to get more exposure to additional leisure demand, which remains uniformly strong. Our point-to-point model allows us to do this without structurally disrupting our Megas and other larger cities. We're also adding new flight activity to times of day when we already have the staff but offer fewer flights. Dropping new flights into those gaps provides added revenue with little additional cost.
- I mentioned above that we're taking control of our order book, allowing for orderly, measured, and consistent growth.
- We continue to get staffed and have staffing in place to fly our full fleet by the end of the third quarter.
Together, our 2023 Focus Areas and the initiatives we've prioritized under each are designed to contribute to restoring our financial leadership in the industry and serving you better. Historically, we've experienced industry-leading margins and topped the charts caring for our Customers. We must regain our position as a financial leader in the industry, and there are tangible plans to close the gap and restore our position as the leader in operating margin.
Some look at that and say, "Oh, it's all about the profits." It's not. Making a profit and having industry-leading margins are important because they allow us to buy airplanes and grow. These profits allow us to reward our Employees and provide raises, invest in building new facilities at the airports we serve, offer best-in-class training, and more. Without adequate profits there's no growth, so it's just as important to get our financial returns back over time as investing in staffing and the operation and all those things … and you all can help us get there.
We closed seven contracts in nine months, including ratifying a contract extension for our Mechanics and Related Employees last week. We're driving hard toward reaching agreements for the other four that are open so we can reward our Employees for their work.
Diversity, Equity, & Inclusion (DEI)
As we continue into the second half of 2023, I want to address DEI. It's an increasingly complex world out there, and it's not just the divisiveness and the political nature of almost every issue but the vitriol—the seemingly constant negativity and hate. With the 2024 election approaching, we can anticipate even greater polarization of our society and a likely continued erosion in the level of discourse. But I take comfort in knowing WE stand for something better at Southwest Airlines.
That's what has always made this Company different and the inspiration behind our founding to make flying accessible to everyone. Our Purpose is about bringing People together for what's important in their lives, not to divide them. And we've always stood for treating each other with care, concern, and respect.
We are—and always strive to be—an inclusive environment where we appreciate each other's unique skills, talents, and backgrounds. We refer to our "Southwest Family" because we want you to feel like you belong here. We absolutely won't stand for divisiveness.
For us, this isn't a political issue—it's a People issue. Inclusivity and belonging are about who we are as an organization. We're a Company of People, and we want you to belong, to feel included, and to know you're valued.
You're seeing companies reacting to social issues in different ways. People pressure organizations depending on what's important to them. And with 75,000 Southwest Employees, what's important to each of us will differ, but the one thing we all have in common, the one thing we all share, is our Company Values. Those are who we are and what we stand for.
Whenever we face a difficult question or challenging issue, we need to stop, take a deep breath, and refer to our Values. Our Values spell out who we are, what we stand for, and what sustains us. And our Values guide us and lead us on how we respond to issues.
I'm proud of our DEI efforts at Southwest Airlines. Inclusion isn't about agreement. We'll never agree on everything; no family does. Being inclusive means we're open to others' perspectives and differences and treat each other with respect even if we don't always agree. It means appreciating what each of you brings to the organization and leveraging these talents for the benefit of the Team and Southwest Airlines. It's the essence of The Golden Rule—treat each other how you'd like to be treated.
Social issues will always exist. Opinions will always vary. It will be loud at times and quiet at times. But what we stand for won't change, no matter what's occurring around us.
So, as we think about the rest of this year, 2024, and the future, it's all ours to own. Taking ownership of what we can control, from our fleet down to the attitude we choose each day, is up to you. We're an absolutely iconic Company with absolutely amazing People. Work hard. Have fun. Stay true to our Values—they've guided us from the beginning. And, let's own our exciting future!