SOUTHWEST AIRLINES CO
For the period ended Sep 30, 2024. Filed Oct 28, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 28, 2024
LUV$44.45+0.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-07-29.
0000092380-24-000111
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-28.
0000092380-24-000147
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 157 previous paragraphs and 189 current paragraphs.
81 unchanged; 66 reworded; 41 added; 10 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 20 previous and 19 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (41)
Current report
The Company expects fourth quarter 2024 unit revenues to increase in the range of 3.5 percent to 5.5 percent on a year-over-year basis with capacity down approximately 4 percent, also on a year-over-year basis. This guidance range contemplates a headwind of just under one-half point from Hurricane Milton and the resulting Customer cancellations. Thus far in the quarter, travel demand remains healthy and bookings-to-date for the holiday season are strong, demonstrating the continued resilience of the leisure travel market. The guidance range represents another sequential year-over-year unit revenue improvement driven by the Company's focus on tactical actions including network optimization and capacity moderation, marketing and distribution evolution, and continued efforts to advance revenue management techniques.
Current report
The Company anticipates fourth quarter 2024 CASM-X to increase in the range of 11 percent to 13 percent, year-over-year, as cost pressures continue, particularly from new labor contracts. Fourth quarter CASM-X is further pressured by a 4 percent reduction in year-over-year capacity, as well as just over one-half point of unit cost headwind from flight cancellations associated with Hurricane Milton.
Current report
These and other initiatives are intended to improve the Company’s financial performance and metrics, including return on invested capital and operating margins, over the next three years. The Company will focus on the following tactical initiatives: Continual network optimization and maturation; Marketing and distribution evolution; and Revenue management maturation. Continual network optimization and maturation includes (i) reduced short-haul flying and redistributing resources to long-haul flying in profitable markets, (ii) reduced flying on weekdays with lower travel demand, (iii) restructured service and network connectivity in stations with lower demand, and (iv) taking a cross-functional, methodical approach to market maturation efforts. Marketing and distribution evolution includes (i) a new advertising campaign to highlight the unique, flexible value Southwest offers and target a new generation of travelers, (ii) partnerships with flight search engines, including Google Flights and Kayak, intended to increase visibility and drive traffic for bookings to Southwest.com, and (iii) creating the option for Customers to use a combination of cash and Rapid Rewards® points to pay for travel, providing more ways to take advantage of the Company's loyalty program. Revenue management maturation efforts include (i) refinements to the Company's revenue management system, designed to achieve better, more customized results based on the Company's primarily domestic network, (ii) additional staffing to the Company's Revenue Management team to support focusing on driving results, and (iii) recalibrating probability curves, which are expected to improve yields by capturing more demand at higher fares.
Current report
The Company has also summarized recently announced strategic initiatives into three broad categories: Monetize the Company's value proposition; Increase efficiency and lower costs; and Optimize capital allocation.
Current report
Monetize the Company's value proposition
Current report
In addition to the assigned seating and extended legroom changes discussed above, the Company also plans to offer an in-house vacation package product to Customers beginning in 2025 called “Getaways by Southwest”, versus the outsourced product it has historically offered. This new vacation booking platform is expected to be designed to allow the Company to appeal directly to its significant existing Customer base with an enhanced offering that includes both lodging and excursions, which is expected to drive growth with leisure travelers and grow higher-margin revenues with a relatively low capital and headcount investment. The Company also announced it will pursue partnerships with other airlines in order to further expand the reach of the Company’s network and connect Customers with more global destinations to generate additional demand. The Company expects to launch its first such partnership in first quarter 2025 with transatlantic connectivity with Icelandair and plans to add at least one more partner during 2025.
Current report
Increase efficiency and lower costs
Current report
In addition to the aforementioned introduction of redeye flights, which is designed to maximize or increase asset utilization, another one of the Company's efficiency initiatives includes investments that will decrease the amount of time it takes to turn an aircraft (unload Passengers from an arriving flight and load Passengers on the same aircraft for its subsequent flight). Examples of such investments include moving to a fully digital (i.e., paperless) process, improved communication tools for Employees, and better visual and real-time information to assist both Customers and Employees. These efforts are rolling out and are expected to be fully implemented in November 2025. These initiatives are expected to result in a lowering of unit costs, as the Company is expected to be able to generate either the same number of ASMs with fewer aircraft, or produce more ASMs utilizing the same number of aircraft in its fleet, respectively. The Company also continues to invest in various technologies and digital products designed to improve the Customer travel experience. In addition, the Company is targeting other cost initiatives that are expected to result in savings, including minimizing hiring in order to right-size current operations and match the Company’s lower expected growth rates in the near term, capitalizing on identified supply chain opportunities, and improving its corporate efficiency through automation and better allocation of resources. These and other initiatives are currently expected to deliver more than $500 million in annual cost savings by 2027.
Current report
Optimize capital allocation
Current report
In addition, the Company intends to focus on prudent capital deployment by minimizing fleet capital expenditures, continuing to invest in infrastructure, manage debt levels, and provide returns to Shareholders through dividends and planned share repurchases. The Company continues to have favorable pricing in its order book with Boeing for new 737 MAX aircraft that allows additional flexibility in being able to replace certain aircraft in its existing fleet, given current market conditions, with more fuel efficient and less-maintenance intensive models over the near term. The Company plans to pursue opportunities to take advantage of current market conditions through the sale and/or sale-leaseback of certain aircraft, with the intention of replacing most, if not all, of such aircraft with new MAX aircraft from Boeing by the end of 2031, assuming that Boeing is able to meet aircraft delivery expectations. As a result of these efforts, the Company’s expected net fleet capital expenditures during the near term are expected to moderate significantly from recent levels, with the added benefit of further accelerating the modernization of its fleet. The Company also intends to preserve the strength of its balance sheet with manageable debt maturities, with the goal of lowering the Company's leverage closer to pre-pandemic levels. Finally, the Company intends to return value back to its Shareholders through dividends and share repurchases, and will continually review its return of capital program based in large part upon the Company's free cash flow and leverage with an eye to maintaining investment-grade ratings.
Current report
Through these initiatives, the Company expects to return to historical levels of financial performance in which its return on invested capital exceeds its weighted-average cost of capital. The targets the Company has set through 2027 include the following:
Current report
•Annual capacity growth of approximately one to two percent, year-over-year, beginning in 2025
Current report
•Annual Operating margins of at least 10 percent, in 2027
Current report
•Free cash flow exceeding $1 billion per year in 2027
Current report
•Return on invested capital, after-tax, of at least 15 percent in 2027
Current report
•Financial leverage in the low to mid 30’s percent range in 2027
Current report
•Continue to maintain an investment-grade credit rating
Current report
On September 9, 2024, Gary C. Kelly, Executive Chairman of the Board notified the Company and the Board that he would not stand for re-election at the Company's 2025 Annual Meeting of Shareholders (the "2025 Annual Meeting") and would retire from the Board and his office as Executive Chairman of the Board, effective immediately following the 2025 Annual Meeting. Also on September 9, 2024, David W. Biegler, J. Veronica Biggins, Roy Blunt, William H. Cunningham, Thomas W. Gilligan, and Jill A. Soltau (the “Retiring Directors”) each submitted his or her resignation from the Board, effective immediately following the Company’s regularly scheduled fourth quarter Board meeting (currently scheduled for November 21, 2024). On September 26, 2024, the Company announced the addition of Robert L. Fornaro to the Board.
Current report
In connection with the Retiring Directors' resignations and the appointment of Robert L. Fornaro to the Board, and in accordance with the Company's Fourth Amended and Restated Bylaws, the Board decreased the size of the Board to ten members, effective upon the effectiveness of the Retiring Directors' resignations. The Board further resolved to decrease the size of the Board to nine members, effective immediately following the 2025 Annual Meeting. However, the Board also expressed its desire to identify and appoint up to three new independent Directors. None of the departures from the Board described herein are due to any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.
Current report
On October 14, 2024, the Company confirmed that Elliott requested a Special Meeting of Shareholders to consider Elliott's proposals, including to remove without cause eight members of Southwest's Board and elect eight Director candidates chosen by Elliott.
Current report
On October 23, 2024 (the "Effective Date"), the Company entered into a Cooperation Agreement (the "Cooperation Agreement") with Elliott, Elliott Associates, L.P., Elliott International, L.P., and The Liverpool Limited Partnership. Pursuant to the Cooperation Agreement, the Company has agreed to, among other things, (i) appoint David Cush,
Current report
Sarah Feinberg, David Grissen, Gregg Saretsky and Patricia Watson (collectively, the “Cooperation Agreement Directors”) to the Board, effective 11:59 p.m. Central Time on November 1, 2024 (the "Appointment Date"), each with an initial term expiring at the 2025 Annual Meeting; (ii) announce that two incumbent Directors as of the Effective Date will not stand for re-election to the Board at the 2025 Annual Meeting; and (iii) include the Cooperation Agreement Directors, together with the other persons recommended by the Board, in the Company’s slate of nominees for election as a Director at the 2025 Annual Meeting.
Current report
The Cooperation Agreement includes certain voting commitments, customary standstill restrictions and mutual non-disparagement provisions that remain in place until the earlier of (x) the date that is 30 days prior to the notice deadline under the Company's Fourth Amended and Restated Bylaws for the nomination of non-proxy access Director candidates for election to the Board at the Company's 2026 Annual Meeting of Shareholders and (y) February 14, 2026 (such period, the "Cooperation Period").
Current report
On October 23, 2024, (i) Gary C. Kelly, Executive Chairman of the Board, notified the Company and the Board that he will retire from the Board and his office of Executive Chairman of the Board, effective 11:59 p.m. Central Time on November 1, 2024 and (ii) David W. Biegler, J. Veronica Biggins, Roy Blunt, William H. Cunningham, Thomas W. Gilligan, and Jill A. Soltau each submitted his or her resignation from the Board, effective 11:59 p.m. Central Time on November 1, 2024. None of the departures from the Board described herein are due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. Also on October 23, 2024, the Board appointed Pierre Breber as a member of the Board, effective 11:59 p.m. Central Time on November 1, 2024, with an initial term expiring at the 2025 Annual Meeting.
Current report
In connection with the appointments of Mr. Breber and the Cooperation Agreement Directors, the Board decreased the current size of the Board from 16 members to 15 members, effective 11:59 p.m. Central Time on November 1, 2024, and in connection with the Cooperation Agreement, the Board agreed to limit the size of the Board to (i) no more than 15 members from the Appointment Date until the 2025 Annual Meeting and (ii) no more than 13 members from the conclusion of the 2025 Annual Meeting until the expiration of the Cooperation Period.
Current report
The foregoing description of the Cooperation Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Cooperation Agreement, which is filed as Exhibit 10.1 to our Current Report on Form 8-K, filed with the SEC on October 24, 2024.
Current report
On October 25, 2024, pursuant to the Cooperation Agreement, the Company and Equiniti Trust Company, LLC entered into the Amendment to the Rights Agreement (the "Amendment to the Rights Agreement"), which amended the Rights Agreement. The Amendment to the Rights Agreement terminated the Rights Agreement by advancing the expiration time of the Company's common stock purchase rights (collectively, the "Rights") to 5:00 p.m., New York City time, on October 25, 2024. At the time of the termination of the Rights Agreement, all of the Rights, which were previously distributed to holders of the Company’s Common Stock, pursuant to the Rights Agreement, expired.
Current report
Capitalized interest for third quarter 2024 increased by $5 million, or 125.0 percent, compared with third quarter 2023, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.
Current report
Comparison of nine months ended September 30, 2024 and September 30, 2023
Current report
Capitalized interest for the first nine months of 2024 increased by $9 million, or 60.0 percent, compared with the first nine months of 2023, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.
Current report
Interest income for the first nine months of 2024 decreased by $33 million, or 7.8 percent, compared with the first nine months of 2023, primarily due to lower cash and investment balances in the total investment portfolio and lower interest rates.
Current report
(d) Adjustment related to GAAP and Non-GAAP diluted weighted average shares difference due to the Convertible Notes being anti-dilutive for GAAP but dilutive for Non-GAAP for the three months ended September 30, 2024.
Current report
On May 15, 2019, the Company’s Board authorized the repurchase of up to $2.0 billion of the Company’s common stock, of which approximately $899 million remained as of September 2024. On September 25, 2024, the Company’s Board terminated and replaced this previous share repurchase authorization with a new $2.5 billion share repurchase authorization of the Company’s common stock. Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions. No repurchases had been made as of September 30, 2024 under this new authorization; however, on October 24, 2024, the Company announced its intention to launch an initial $250 million accelerated share repurchase program in fourth quarter 2024.
Current report
Financial Derivative Instruments
Current report
Fair values for financial derivative instruments are estimated prior to the time that the financial derivative instruments settle. However, once settlement of the financial derivative instruments occurs and the hedged jet fuel is purchased and consumed, all values and prices are known and are recognized in the financial statements. Although the Company continues to use a prospective assessment to determine that commodities continue to qualify for hedge accounting in specific locations where the Company hedges, there are no assurances that these commodities will continue to qualify in the future. This is due to the fact that future price changes in these refined products may not be consistent with historical price changes. Increased volatility in these commodity markets for an extended period of time, especially if such volatility were to worsen, could cause the Company to lose hedge accounting altogether for the commodities used in its fuel hedging program. During third quarter 2024, the routine statistical analysis performed by the Company to determine which commodities qualify for special hedge accounting treatment on a prospective basis indicated that WTI crude oil based derivatives no longer qualify for hedge accounting. This change is primarily due to the fact that the correlation between WTI crude oil prices and jet fuel prices during recent periods has not been as strong as in the past, and therefore the Company can no longer demonstrate that derivatives based on WTI crude oil prices will result in effective hedges on a prospective basis. As such, all WTI-based instruments have been de-designated from their hedging relationships and the change in fair value of all of the Company's derivatives based in WTI have been recorded to Other (gains) losses for third quarter 2024, and will also be marked to market in the same manner in fourth quarter 2024. The Company currently has no WTI crude oil based derivatives that settle beyond December 31, 2024. The change in fair value of the Company's WTI derivative contracts during third quarter 2024 was a decrease of $23 million which resulted in a corresponding loss in the Condensed Consolidated Statement of Comprehensive Income. Any amounts previously recorded to AOCI will remain there until such time as the original forecasted transaction occurs in accordance with hedge accounting requirements. Further, should the occurrence of anticipated fuel purchases covered by the Company's fuel hedges no longer be probable, the Company would discontinue hedge accounting. The loss of hedge accounting would create further volatility in the Company’s GAAP financial results.
Current report
•the Company’s focus areas, goals, opportunities, and initiatives, including with respect to network optimization and maturation, marketing and distribution evolution, and efforts to advance revenue management techniques;
Current report
•the Company’s initiatives associated with Customer Experience on flights, improved financial performance, and driving Shareholder value;
Current report
•the Company’s plans and expectations with respect to assigned and premium seating, cabin design and seating, redesigned boarding model, aircraft turn times, and redeye flying;
Current report
•the Company’s plans and expectations with respect to airline partnerships and its in-house vacation product;
Current report
•the Company’s financial targets and goals, including with respect to balance sheet goals and cost mitigation;
Showing the first 40 of 41 passages. Open the source sections for the rest.
Removed paragraphs (10)
Previous report
The Company expects third quarter 2024 unit revenue to be in the range of flat to down two percent on a year-over-year basis with capacity up roughly two percent, also on a year-over-year basis. This guidance range contemplates a revenue management headwind similar to second quarter of two points from bookings already in place. In 2023, the Company transitioned to a modernized Origin and Destination ("O&D") revenue management system that consistently produced superior results to its prior leg-based revenue management system during an eighteen-month long parallel test prior to launch. The Company continues to gain experience with the system, particularly in periods with changing capacity and close-in changes to published schedules driven by Boeing's aircraft delivery challenges. The Company recently conducted an evaluation of its revenue management performance, including a third-party review, to identify opportunities to improve the revenue management of future bookings. Those opportunities are currently being actioned. The Company continues to believe that the new revenue management system will deliver better long-term performance compared with its prior system. In addition to revenue management actions, network optimization and capacity moderation in the second half of the year are expected to support sequential year-over-year unit revenue improvement. Summer, fall, and recently published winter base schedules all include changes to better match supply to demand with capacity expected to decline four percent year-over-year in fourth quarter, and seats and trips to decline roughly eight percent year-over-year in fourth quarter. As such, the Company expects unit revenue to inflect positively by fourth quarter 2024, on a year-over-year basis.
Previous report
The Company continues to expect cost increases, most notably market-driven rate inflation in salaries, wages, and benefits, and higher maintenance expenses, for the remainder of the year, driving third quarter 2024 CASM-X to an expected increase in the range of 11 percent to 13 percent, year-over-year. The sequential year-over-year increase from second quarter 2024 is primarily due to lower year-over-year capacity growth in third quarter 2024. The Company continues to expect full year 2024 CASM-X to increase in the range of seven percent to eight percent, year-over-year.
Previous report
RECARO seats. Following a Customer study regarding open versus assigned seating launched last fall, the addition of assigned and premium seating is designed to address the overwhelming Customer preference and give Customers more choice, which is expected to further enhance the all-in value for which Southwest Airlines is known.
Previous report
Comparison of six months ended June 30, 2024 and June 30, 2023
Previous report
(b) Represents changes in estimate related to the contract ratification bonus for the Company’s Ramp, Operations, Provisioning, and Cargo Agents as part of the tentative agreement ratified in March 2024 with TWU 555. The Company began accruing for all of its open labor contracts on April 1, 2022.
Previous report
(c) The Company had not previously included an approximate $84 million adjustment associated with on-going labor contract negotiations during second quarter 2023 as a special item, and provided revised second quarter 2023 results in the Company's third quarter 2023 Form 10-Q. The Company has included the adjustment amount in its calculation of Non-GAAP financial measures for both the second quarter and year-to-date periods ending June 30, 2023. See the Note Regarding Use of Non-GAAP Financial Measures for further information.
Previous report
Accruals associated with the recently ratified Ramp, Operations, Provisioning, and Cargo Agents contract. These amounts accrued in 2024 relate to additional compensation for services performed by Employees outside of this fiscal year;
Previous report
•the Company’s fleet and network-related plans and goals including, without limitation, with respect to better optimizing its network, operational goals, improving reliability, assigned and premium seating, cabin design and seating, and the introduction of redeye (i.e., overnight) flying;
Previous report
•the Company’s focus areas, goals, opportunities, and initiatives including, without limitation, with respect to elevating the Customer experience and enhancing all-in value, redesigning the boarding model, improving financial performance, driving Shareholder value, operational excellence and reliability, regaining efficiencies, increasing productivity, and returning margins to historical levels;
Previous report
•the Company’s expectations with respect to the Rights Plan;
Reworded paragraphs (66)
Previous wording
Relevant comparative operating statistics for the three and six months ended June 30, 2024 and 2023 are included below. The Company provides these operating statistics because they are commonly used in the airline industry and, as such, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers.
Current wording
Relevant comparative operating statistics for the three and nine months ended September 30, 2024 and 2023 are included below. The Company provides these operating statistics because they are commonly used in the airline industry and, as such, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers.
Previous wording
The Company recorded second quarter 2024 operating revenues of $7.4 billion, an all-time quarterly record, driven by all-time quarterly record passengers carried, passenger revenue, and ancillary revenue as well as a second quarter record number of Rapid Rewards member acquisitions.
Current wording
The Company recorded third quarter 2024 operating revenues of $6.9 billion, a third quarter Company record, driven by record third quarter passenger revenue, other revenue, and passengers carried.
Previous wording
The Company's operating income and net income for the three months ended June 30, 2024, on a GAAP and non-GAAP basis, decreased compared to the same prior year period primarily due to higher salaries, wages, and benefits and fuel prices. On a GAAP basis, the Company's Operating expenses increased 11.4 percent year-over-year, while Operating revenues increased 4.5 percent.
Current wording
Despite the third quarter record revenue performance, the Company's operating income and net income for the three months ended September 30, 2024, on a GAAP and non-GAAP basis, decreased compared to the same prior year period primarily due to higher operating expenses, driven by higher Salaries, wages, and benefits expense, which exceeded the year-over-year increase in Operating revenues. On a GAAP basis, the Company's Operating expenses increased 6.6 percent year-over-year, while Operating revenues increased 5.3 percent. Operating expenses on a GAAP basis for the three months ended September 30, 2023 included incremental expense of $96 million related to the contract ratification bonus for the Company's Flight Attendants as part of the tentative agreement reached in October 2023 and ratified in April 2024.
Previous wording
The Company's operating income and net income for the six months ended June 30, 2024, on a GAAP and non-GAAP basis, decreased compared to the same prior year period primarily due to higher salaries, wages, and benefits expense and maintenance, materials, and repairs expense. On a GAAP basis, the Company's Operating expenses increased 11.8 percent year-over-year, while Operating revenues increased 7.4 percent.
Current wording
The Company's operating income and net income for the nine months ended September 30, 2024, on a GAAP and non-GAAP basis, decreased compared to the same prior year period, driven by higher Salaries, wages, and benefits expense and higher Maintenance materials and repairs expense. On a GAAP basis, although Operating revenues increased 6.7 percent, the Company's Operating expenses increased 10.0 percent year over year. Operating expenses for the nine months ended September 30, 2023 included incremental expense of $180 million related to the contract ratification bonus for the Company's Flight Attendants as part of the tentative agreement reached in October 2023 and ratified in April 2024.
Previous wording
The following tables present current selected financial guidance for third quarter and full year 2024:
Current wording
The following tables present current selected financial guidance for fourth quarter 2024:
Previous wording
(b) Available seat miles ("ASMs" or "capacity"). The Company's flight schedule is published for sale through March 5, 2025. The Company expects fourth quarter 2024 capacity to decrease approximately 4 percent, year-over-year.
Current wording
(b) Available seat miles ("ASMs" or "capacity"). The Company's flight schedule is published for sale through June 4, 2025. The Company expects first quarter 2025 capacity to decrease in the range of 1 percent to 3 percent, year-over-year.
Previous wording
(d) Based on the Company's existing fuel derivative contracts and market prices as of July 17, 2024 third quarter, fourth quarter, and full year 2024 economic fuel costs per gallon are estimated to be in the range of $2.60 to $2.70, $2.60 to $2.70, and $2.70 to $2.80, respectively. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, or the impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.
Current wording
(d) Based on the Company's existing fuel derivative contracts and market prices as of October 16, 2024, fourth quarter and full year 2024 economic fuel costs per gallon are estimated to be in the range of $2.25 to $2.35 and $2.60 to $2.70, respectively. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, or the impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.
Previous wording
(g) Aircraft on property, end of period. The Company continues to plan for approximately 20 Boeing 737-8 ("-8") aircraft deliveries and 35 aircraft retirements in 2024, comprised of 31 Boeing 737-700s ("-700") and four Boeing 737-800s ("-800"). The delivery schedule for the Boeing 737-7 ("-7") is dependent on the Federal Aviation Administration ("FAA") issuing required certifications and approvals to The Boeing Company ("Boeing") and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and Boeing may continue to experience manufacturing challenges, so the Company offers no assurances that current estimations and timelines will be met.
Current wording
(g) Aircraft on property, end of period. The Company continues to plan for 20 Boeing 737-8 ("-8") aircraft deliveries and now expects 41 aircraft retirements in 2024, comprised of 37 Boeing 737-700s ("-700") and four Boeing 737-800s ("-800"). The delivery schedule for the Boeing 737-7 ("-7") is dependent on the Federal Aviation Administration ("FAA") issuing required certifications and approvals to The Boeing Company ("Boeing") and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and Boeing may continue to experience manufacturing challenges, so the Company offers no assurances that current estimations and timelines will be met.
Previous wording
On July 25, 2024, the Company announced several new initiatives designed to elevate the Customer experience on its flights, improve financial performance, and drive Shareholder value. As part of its ongoing focus on product evolution, the Company is moving forward with plans to assign seats, offer premium seating options, redesign the boarding model, and introduce redeye (i.e., overnight) flying. The Company has been known for its open seating model for more than 50 years, which was unique in the airline industry and has been popular with Southwest Customers for decades. Open seating served the Company well as a primarily short-haul carrier. The open seating design, combined with historically lower load factors, contributed to the efficiency of turning aircraft quickly. The Company’s low-cost model enabled low fares and, combined with great Customer Service, allowed the Company to grow across the country and eventually become the nation’s largest domestic carrier.
Current wording
As part of the Company's ongoing modernization efforts, during third quarter 2024, the Company announced several new initiatives designed to elevate the Customer experience on its flights, improve financial performance, and drive Shareholder value. As part of its ongoing focus on product evolution, the Company is moving forward with plans to assign seats, offer premium seating options, redesign the boarding model, and introduce redeye (i.e., overnight) flying. The Company has been known for its open seating model for more than 50 years, which was unique in the airline industry and has been popular with Southwest Customers for decades. Open seating served the Company well as a primarily short-haul carrier. The open seating design, combined with historically lower load factors, contributed to the efficiency of turning aircraft quickly. The Company’s low-cost model enabled low fares and, combined with great Customer Service, allowed the Company to grow across the country and eventually become the nation’s largest domestic carrier.
Previous wording
However, as the domestic travel market has matured and structural changes have reduced the demand for short-haul travel—first after 9/11 and more recently post-pandemic—the Company began flying longer distances. The importance of having an assigned seat grows among Customers as the length of flight gets longer. In addition, Customer travel frequency and preferences have evolved—for both frequent flyers, as well as those of more infrequent travelers who are not accustomed to the open seating policy utilized by the Company—especially as it has opened several new markets and expanded its route network during the past few years. The Company has continually monitored Customer feedback regarding seating preferences for decades, and it is now overwhelmingly clear Customer travel patterns and preferences have evolved and a seat assignment is preferred. Recent research conducted by the Company indicates that a vast majority of both existing Southwest Customers and potential Customers prefer an assigned seat, which supports the Company’s decision to now evolve its boarding and seating processes. In addition to assigning seats, the Company plans to offer a premium, extended legroom portion of the cabin that research shows many Customers also prefer. While specific cabin layout details are still in design, the Company expects roughly one-third of seats across the fleet to offer extended legroom, in-line with that offered by industry peers on narrowbody aircraft.
Current wording
However, as the domestic travel market has matured and structural changes have reduced the demand for short-haul travel, especially post-pandemic, the Company has increased its proportion of longer-haul flights. The importance of having an assigned seat grows among Customers as the length of flight gets longer. In addition, Customer travel frequency and preferences have evolved—for both frequent flyers, as well as those of more infrequent travelers who are not accustomed to the open seating policy currently utilized by the Company—especially as Southwest has opened several new markets and expanded its route network during the past few years. The Company has continually monitored Customer feedback regarding seating preferences for decades, and Customer travel patterns and preferences have evolved and a seat assignment is generally preferred. Recent research conducted by the Company indicates that a vast majority of both existing Southwest Customers and potential Customers prefer an assigned seat, which supports the Company’s decision to now evolve its boarding and seating processes. In addition to assigning seats, the Company plans to offer a premium, extended legroom portion of the cabin that research shows many Customers also prefer. The Company expects roughly one-third of seats across the fleet to offer extended legroom, in-line with that offered by industry peers on narrowbody aircraft.
Previous wording
The decision to update the seating and boarding model is part of the Company's continued modernization and Customer experience efforts. Following a Customer study regarding the inflight experience, the Company has enhanced its onboard offerings during the past two years with improvements such as faster WiFi, in-seat power, and larger overhead bins. Work is well underway on a refreshed cabin design, including new, more comfortable
Current wording
The decision to update the seating and boarding model is part of the Company's continued modernization and Customer Experience transformation. Following a Customer study regarding the inflight experience, the Company has continued to enhance its onboard offerings during the past two years with both completed and ongoing improvements being made, such as faster WiFi, in-seat power, and larger overhead bins. Work is well underway on a refreshed cabin design, including new, more comfortable RECARO seats.
Previous wording
The move to assigned and premium seating will be a significant undertaking by the Company. In addition to incorporating new technologies and procedures for a seamless transition, the new cabin layout will require approvals from the FAA. The Company expects to make bookings available in 2025. The Company also announced it is adding 24-hour operation capabilities with the introduction of overnight, redeye flights. Booking of redeye flying on initial routes became available starting July 25, 2024 through Southwest.com, with the first overnight flights landing on February 14, 2025 (Valentine’s Day) in five initial nonstop markets: Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore.
Current wording
The move to assigned and premium seating will be a significant undertaking by the Company. In addition to incorporating new technologies and procedures for a seamless transition, the new cabin layout will require approvals from the FAA. The Company currently expects to make assigned seat and extended legroom bookings available in mid-2025, with related flights occurring in early 2026. The Company also announced it is adding 24-hour operation capabilities with the introduction of redeye flights. Booking of redeye flying on initial routes became available starting July 25, 2024 through Southwest.com, with the first redeye flights landing on February 14, 2025 in five initial nonstop markets: Las Vegas to Baltimore and Orlando; Los Angeles to Baltimore and Nashville; and Phoenix to Baltimore.
Previous wording
The Company's Board of Directors (“the Board”) received a letter dated June 10, 2024, from Elliott Investment Management L.P. (“Elliott”), stating that Elliott had made an investment of approximately $1.9 billion in the Company, representing an approximately 11 percent economic interest in the Company, and advocating for changes to management, the Board, and corporate strategy. Given continued activist activity, the Company expects an increase in professional advisory fees and other costs related to shareholder activism matters in future periods. See Part II Item 1A Risk Factors – “The Company’s business has been and could be negatively affected as a result of actions of activist shareholders, and such activism could adversely affect the strategic direction and business results of the Company."
Current wording
The Company's Board of Directors (“the Board”) received a letter dated June 10, 2024, from Elliott Investment Management L.P. ("Elliott") stating that Elliott had made an investment of approximately $1.9 billion in the Company, representing an approximately 11 percent economic interest in the Company, and advocating for changes to the Company's management, the Board, and the Company's corporate strategy. Because of this activist activity, the Company has incurred increased professional advisory fees and other costs related to Shareholder activism matters.
Previous wording
Additionally, in order to provide the Board with time to make informed decisions that are in the best interests of the Company and its Shareholders, on July 2, 2024, the Board adopted a shareholder rights plan (the “Rights Plan”) and declared a dividend of one right in respect of each of the Company’s issued and outstanding shares of common stock, which will cause substantial dilution to any person or group acquiring 12.5 percent or more of the Company’s outstanding common stock without the prior approval of the Board. The Rights Plan is designed to deter the acquisition of actual, de facto, or negative control of the Company by any person or group without appropriately compensating its Shareholders for that control. See Note 11 to the unaudited Condensed Consolidated Financial Statements for additional detail regarding the Rights Plan.
Current wording
Additionally, in order to provide the Board with time to make informed decisions that are in the best interests of the Company and its Shareholders, on July 2, 2024, the Board adopted a shareholder rights plan (the "Rights Agreement") and declared a dividend of one right in respect of each of the Company’s issued and outstanding shares of common stock, which would have caused substantial dilution to any person or group acquiring 12.5 percent or more of the Company’s outstanding common stock without the prior approval of the Board. The Rights Agreement was designed to deter the acquisition of actual, de facto, or negative control of the Company by any person or group without appropriately compensating its Shareholders for that control.
Previous wording
On April 24, 2024, the Company's nearly 20,000 Flight Attendants, represented by the Transport Workers of America Union Local 556 ("TWU 556"), voted to ratify a four-year contract extension with the Company. The newly ratified agreement becomes amendable in May 2028.
Current wording
On September 16, 2024, the Company announced its more than 50 Flight Simulator Technicians, represented by the International Brotherhood of Teamsters, had voted to ratify a four-year contract extension with the Company. The newly ratified agreement becomes amendable in September 2028. With this result, all the Company's labor contracts are now closed until the next labor contract becomes amendable in October 2026. Since October 2022, each of the 12 union-represented workgroups, which collectively represent approximately 83 percent of the Company's Employees, have ratified new contracts.
Previous wording
The Company continues to receive updates from Boeing regarding further aircraft delivery delays, which presents significant planning challenges for both 2024 and 2025. While the Company has not further adjusted capacity expectations this quarter, it will continue to closely monitor the ongoing aircraft delivery delays with Boeing and adjust expectations, conservatively, as needed.
Current wording
The Company continues to receive updates from Boeing regarding further aircraft delivery delays, which presents significant planning challenges for both 2024 and 2025. During 2024, as a result of Boeing's ongoing delivery delays, the Company conservatively re-planned its capacity and delivery expectations for the remainder of this year and for 2025. In September 2024, Boeing and the International Association of Machinists and Aerospace Workers at Boeing did not reach an agreement before their contract expired on September 12, 2024, and a worker strike is now underway.
Previous wording
The Company ended second quarter 2024 with 817 Boeing 737 aircraft, including 233 -8 aircraft. During second quarter 2024, the Company retired six -700 aircraft and one -800 aircraft and took delivery of five -8 aircraft. During April 2024, the Company shifted one 2025 -8 option into 2026. In July 2024, the Company exercised two -7 options for delivery in 2025 and converted two 2025 -7 firm orders into 2025 -8 firm orders. The Company continues to plan for approximately 20 -8 aircraft deliveries in 2024, which differs from its contractual order book due to Boeing's continued manufacturing challenges and the current status of the -7 certification. The Company plans to retire approximately 35 aircraft, comprised of 31 -700s and four -800s in 2024, ending the year with roughly 802 aircraft in its fleet. The Company's aircraft delivery and retirement expectations for 2024 and beyond are fluid and subject to Boeing's production capability.
Current wording
The Company ended third quarter 2024 with 811 Boeing 737 aircraft, including 242 -8 aircraft. During third quarter 2024, the Company retired 14 -700 aircraft and one -800 aircraft and took delivery of nine -8 aircraft. In July 2024, the Company exercised two -7 options for delivery in 2025 and converted two 2025 -7 firm orders into 2025 -8 firm orders. In September 2024, the Company exercised four -7 options for delivery in 2025. In October 2024, the Company exercised five -7 options for delivery in 2025, one -7 option for delivery in 2026, and converted nine 2025 -7 firm orders into 2025 -8 firm orders. The Company continues to plan for 20 -8 aircraft deliveries in 2024, which differs from its contractual order book due to Boeing's continued manufacturing challenges and the current status of the -7 certification. The Company has also chosen to retire six additional aircraft in 2024, bringing total aircraft retirements for the year to 41, comprised of 37 -700s and 4 -800s in 2024, ending the year with roughly 796 aircraft in its fleet. The Company's aircraft delivery and retirement expectations for 2025 and beyond are fluid and subject to Boeing's production capability.
Previous wording
The Company has published its flight schedule through March 5, 2025. The Company continues to focus on its goals of operational excellence and reliability, regaining efficiencies, increasing productivity, and returning margins back to historical levels.
Current wording
The Company has published its flight schedule through June 4, 2025. The Company continues to focus on its goals of operational excellence and reliability, regaining efficiencies, increasing productivity, and returning financial margins back to historical levels.
Previous wording
Total operating revenues for second quarter 2024 increased by $317 million, or 4.5 percent, year-over-year, to achieve an all-time quarterly Company record of $7.4 billion. Passenger revenues for second quarter 2024 increased by $303 million, or 4.7 percent, year-over-year. Other revenues for second quarter 2024 increased by $16 million, or 2.8 percent, year-over-year. These revenue increases were primarily due to an 8.6 percent increase in capacity and aided by all-time quarterly Company records for ancillary revenue and passengers carried. The Company's Rapid Rewards® loyalty program had record second quarter new Member additions and an all-time quarterly record level of Member engagement, as measured by an all-time quarterly record spend on the Company's co-branded Chase® Visa credit card. Second quarter 2024 managed business revenues (defined as travel booked through the Company's managed business tools) continued to improve on a year-over-year basis. Despite the record revenue performance, second quarter 2024 RASM was 15.90 cents, finishing 3.8 percent lower than second quarter 2023, primarily driven by industry-wide domestic capacity growth outpacing demand.
Current wording
Total operating revenues for third quarter 2024 increased by $345 million, or 5.3 percent, year-over-year, to achieve an all-time third quarter Company record of $6.9 billion. Passenger revenues for third quarter 2024 increased by $338 million, or 5.7 percent, year-over-year. Other revenues for third quarter 2024 increased by $8 million, or 1.4 percent, year-over-year. These revenue increases were primarily due to a 2.4 percent increase in capacity and aided by all-time third quarter Company records for other revenue and passengers carried. The Company's Rapid Rewards® loyalty program had a record third quarter level of Member engagement, as measured by a third quarter record spend on the Company's co-branded Chase® Visa credit card. As a result of the record revenue performance, third quarter 2024 RASM was 15.19 cents, finishing 2.8 percent higher than third quarter 2023, primarily driven by an increase in yield of 2.5 percent coupled with an increase in Load factor of 0.5 points. The unit revenue sequential improvement was also driven by the improving industry backdrop, tactical commercial actions including network and revenue management initiatives, as well as an approximate one point tailwind from the reaccommodation of Customers affected by other airlines' cancellations following their CrowdStrike technology outage incident in July.
Previous wording
Operating expenses for second quarter 2024 increased by $714 million, or 11.4 percent, compared with second quarter 2023, and capacity increased 8.6 percent over the same prior year period. Approximately 30 percent of the increase in expense was due to higher Salaries, wages, and benefits expense, approximately 30 percent was due to higher Fuel and oil expense, and approximately 10 percent was due to higher Maintenance materials and repairs expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the second quarter of 2024 and 2023, followed by explanations of these changes on a dollar basis. Unless otherwise specified, changes on a per ASM basis were driven by changes in capacity, which increased and caused the Company's fixed costs to be spread over significantly more ASMs.
Current wording
Operating expenses for third quarter 2024 increased by $424 million, or 6.6 percent, compared with third quarter 2023, and capacity increased 2.4 percent over the same prior year period. The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense, partially offset by a year-over-year decrease in Fuel and oil expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the third quarter of 2024 and 2023, followed by explanations of these changes on a dollar basis.
Previous wording
Operating expenses per ASM for second quarter 2024 increased by 2.6 percent, compared with second quarter 2023, primarily due to increases in Fuel and oil expense and Maintenance materials and repairs expense. Operating expenses per ASM for second quarter 2024, excluding Fuel and oil expense, profitsharing, and special items (a non-GAAP financial measure), increased 6.0 percent, compared with second quarter 2023, primarily due to market-driven rate inflation in salaries, wages, and benefits expense and higher maintenance expenses in 2024. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
Current wording
Operating expenses per ASM for third quarter 2024 increased by 4.1 percent, compared with third quarter 2023, primarily due to increases in Salaries, wages and benefits expense, which included incremental expense in the three months ended September 30, 2023 related to the contract ratification bonus for the Company's Flight Attendants as part of the tentative agreement reached in October 2023 and ratified in April 2024, partially offset by a decrease in Fuel and oil expense. Operating expenses per ASM for third quarter 2024, excluding Fuel and oil expense, profitsharing, and special items (a non-GAAP financial measure), increased 11.6 percent, compared with third quarter 2023, primarily due to market-driven rate inflation in Salaries, wages, and benefits expense in 2024. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
Previous wording
Salaries, wages, and benefits expense for second quarter 2024 increased by $213 million, or 7.6 percent, compared with second quarter 2023. On a per ASM basis, second quarter 2024 Salaries, wages, and benefits expense decreased 1.2 percent, compared with second quarter 2023. On a dollar basis, 40 percent of the increase was primarily due to step/pay rate increases and related benefits for certain workgroups (including the recently ratified labor contracts with the Company's Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents), approximately 40 percent of the increase was driven by an increase in capacity and/or number of trips flown, and the remainder was due to various benefits associated with the higher contractual wages. On a per ASM basis, the majority of the change was due to a decrease in Profitsharing expense as a result of lower year-to-date pre-tax profit eligible for profitsharing.
Current wording
Salaries, wages, and benefits expense for third quarter 2024 increased by $342 million, or 12.5 percent, compared with third quarter 2023. On a per ASM basis, third quarter 2024 Salaries, wages, and benefits expense increased 9.9 percent, compared with third quarter 2023. On a dollar basis, approximately 40 percent of the increase was due to step/pay rate increases and related benefits for certain workgroups (including the recently ratified labor contracts with the Company's Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents), approximately 15 percent of the increase was driven by an increase in capacity and/or number of trips flown, and the majority of the remainder was due to various other benefits associated with the higher contractual wages, such as earned vacation pay, and additional supplemental pay and benefits, primarily for Pilots. On a per ASM basis, the increase is due to higher wage rates.
Previous wording
Fuel and oil expense for second quarter 2024 increased by $196 million, or 14.0 percent, compared with second quarter 2023. On a per ASM basis, second quarter 2024 Fuel and oil expense increased 5.2 percent. On a dollar basis, 50 percent of the increase was primarily attributable to an increase in fuel gallons consumed, and the remainder of the increase was due to an increase in fuel prices. The Company's second quarter 2024 average economic jet fuel price of $2.76 per gallon is net of approximately $21 million in cash settlements from hedging activities. On a per ASM basis, the majority of the change was due to higher average economic jet fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contract settlements:
Current wording
Fuel and oil expense for third quarter 2024 decreased by $147 million, or 9.4 percent, compared with third quarter 2023. On a per ASM basis, third quarter 2024 Fuel and oil expense decreased 11.3 percent. On a dollar and per ASM basis, the decrease was primarily attributable to a decrease in fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contract settlements:
Previous wording
The Company's second quarter 2024 available seat miles per gallon ("fuel efficiency") increased 1.1 percent, year-over-year, due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet. The continued deliveries of MAX aircraft are expected to remain critical to the Company's efforts to modernize its fleet, reduce carbon emissions intensity, and achieve its near-term environmental sustainability goals.
Current wording
The Company's third quarter 2024 available seat miles per gallon ("fuel efficiency") increased 1.5 percent, year-over-year, due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet. The continued deliveries of MAX aircraft are expected to remain critical to the Company's efforts to modernize its fleet, reduce carbon emissions intensity, and achieve its near-term environmental sustainability goals.
Previous wording
(a) Brent crude oil average market prices as of July 17, 2024, were $84 and $82 per barrel for third quarter and fourth quarter 2024, respectively.
Current wording
(a) Brent crude oil average market prices as of October 16, 2024, were $74 and $80 per barrel for fourth quarter and full year 2024, respectively.
Previous wording
(b)Based on the Company's existing fuel derivative contracts and market prices as of July 17, 2024, third quarter, fourth quarter, and full year 2024 economic fuel costs per gallon are estimated to be in the range of $2.60 to $2.70, $2.60 to $2.70, and $2.70 to $2.80, respectively. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, or the impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.
Current wording
(b)Based on the Company's existing fuel derivative contracts and market prices as of October 16, 2024, fourth quarter and full year 2024 economic fuel costs per gallon are estimated to be in the range of $2.25 to $2.35 and $2.60 to $2.70, respectively. Economic fuel cost projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate the hedge accounting impact associated with the volatility of the energy markets, or the impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort. See Note Regarding Use of Non-GAAP Financial Measures.
Previous wording
(a) Based on the Company's current available seat mile plans. The Company is currently 57 percent hedged inthird quarter 2024 and 59 percent hedged for fourth quarter 2024.
Current wording
(a) Based on the Company's current available seat mile plans. The Company is currently 59 percent hedged for fourth quarter 2024.
Previous wording
Maintenance materials and repairs expense for second quarter 2024 increased by $79 million, or 29.2 percent, compared with second quarter 2023. On a per ASM basis, Maintenance materials and repairs expense increased 18.8 percent, compared with second quarter 2023. On a dollar and per ASM basis, approximately 40 percent of the increase was due to an increase in engine shop visits and other engine expenses for the Company's -700 and -800 fleet, approximately 15 percent of the increase was driven by airframe repairs due to a higher average cost per event and the timing of maintenance events, and approximately 15 percent was due to increased bulk purchases of materials for the Company's seat refurbishment efforts on its entire fleet.
Current wording
Maintenance materials and repairs expense for third quarter 2024 increased by $9 million, or 2.8 percent, compared with third quarter 2023. On a per ASM basis, Maintenance materials and repairs expense remained flat compared with third quarter 2023. On a dollar basis, approximately 60 percent of the increase was due to increased bulk purchases of materials for the Company's seat refurbishment efforts on its entire fleet. The remainder of the increase was primarily due to increases in engine shop visits and other engine expenses for the Company's -700 and -800 fleet.
Previous wording
Landing fees and airport rentals expense for second quarter 2024 increased by $52 million, or 11.3 percent, compared with second quarter 2023. On a per ASM basis, Landing fees and airport rentals expense increased 3.7 percent, compared with second quarter 2023. On a dollar and per ASM basis, approximately 75 percent of the increase was due to an increase in airport rental expense throughout the network driven by higher rates charged by airports. The remainder of the dollar increase was due to higher landing fees, driven both by the increase in trips flown and higher rates charged by airports.
Current wording
Landing fees and airport rentals expense for third quarter 2024 increased by $36 million, or 7.9 percent, compared with third quarter 2023. On a per ASM basis, Landing fees and airport rentals expense increased 4.8 percent, compared with third quarter 2023. On a dollar and per ASM basis, the increase was primarily attributable to an increase in airport rental expense and higher landing fees throughout the network driven by the higher rates charged by airports, partially offset by more favorable settlements and credits from various airports received in third quarter 2024.
Previous wording
Depreciation and amortization expense for second quarter 2024 increased by $37 million, or 10.1 percent, compared with second quarter 2023. On a per ASM basis, Depreciation and amortization expense increased 1.2 percent, compared with second quarter 2023. On a dollar basis, approximately 50 percent of the increase was due to accelerating the depreciation for certain -700 aircraft planned for early retirement in 2024 and 2025, and approximately 25 percent of the increase was due to the acquisition of 45 -8 aircraft since second quarter 2023, as partially offset by 30 -700 owned and finance leased aircraft retirements.
Current wording
Depreciation and amortization expense for third quarter 2024 increased by $63 million, or 16.8 percent, compared with third quarter 2023. On a per ASM basis, Depreciation and amortization expense increased 14.1 percent, compared with third quarter 2023. On a dollar and per ASM basis, approximately 50 percent of the increase was due to accelerating the depreciation for certain -700 aircraft planned for early retirement in 2024 and 2025, and approximately 25 percent of the increase was due to the acquisition of 36 -8 aircraft since third quarter 2023, partially offset by 40 -700 owned and finance leased aircraft retirements.
Previous wording
Other operating expenses for second quarter 2024 increased by $137 million, or 14.3 percent, compared with second quarter 2023. Included within this line item was aircraft rentals expense in the amounts of $49 million for each of the three-month periods ended June 30, 2024 and 2023. On a per ASM basis, Other operating expenses increased 5.4 percent, compared with second quarter 2023. On a dollar and per ASM basis, (i) approximately 40 percent of the year-over-year increase was due to higher advertising expense, (ii) approximately 20 percent was due to higher revenue related expenses (including credit card processing charges), and (iii) approximately ten percent was due to higher per diem rates paid to Flight crews, primarily driven by the new Pilot and Flight Attendant ratified agreements.
Current wording
Other operating expenses for third quarter 2024 increased by $121 million, or 12.6 percent, compared with third quarter 2023. Included within this line item was aircraft rentals expense in the amounts of $52 million and $49 million for the three-month periods ended September 30, 2024 and 2023, respectively. On a per ASM basis, Other operating expenses increased 10.1 percent, compared with third quarter 2023. On a dollar and per ASM basis, (i) approximately 20 percent of the increase was due to higher professional fees driven by an increase in consulting services related to various Company initiatives, (ii) approximately 20 percent of the increase was due to higher software license and maintenance agreement expense driven by expanded cloud-based services, (iii) approximately 15 percent of the increase was due to higher ad valorem tax rates, and (iv) approximately 10 percent of the increase was due to higher per diem rates paid to Flight crews, primarily driven by the new Pilot and Flight Attendant ratified agreements. The majority of the remainder of the increase was due to various other flight-driven and revenue related expenses.
Previous wording
Interest income for second quarter 2024 decreased by $14 million, or 9.7 percent, compared with second quarter 2023, primarily due to lower cash and investment balances in the total investment portfolio.
Current wording
Interest income for third quarter 2024 decreased by $35 million, or 22.4 percent, compared with third quarter 2023, primarily due to lower cash and investment balances in the total investment portfolio and lower interest rates.
Previous wording
The Company's effective tax rate was 23.2 percent in second quarter 2024, compared with 22.9 percent in second quarter 2023. The year-over-year increase in the tax rate was primarily due to the impact of projected pre-tax book income on the annual effective tax rate. The Company currently estimates its annual 2024 effective tax rate to be approximately 24 percent.
Current wording
The Company's effective tax rate was 24.0 percent in third quarter 2024, compared with 18.5 percent in third quarter 2023. The year-over-year increase in the tax rate was primarily due to a third quarter 2024 deferred tax liability adjustment combined with the impact of lower pre-tax book income on discrete tax items. The Company currently estimates its annual 2024 effective tax rate to be approximately 24 percent.
Previous wording
Passenger revenues for the six months ended June 30, 2024, increased by $910 million, or 7.9 percent, compared with the first six months of 2023. On a unit basis, Passenger revenues decreased 1.7 percent, year-over-year. The dollar increase was primarily due to a 9.7 percent increase in capacity due to increased flight activity and strong operational performance and completion factor for the six months ended June 30, 2024 versus 2023. For the six months ended June 30, 2024, the year-over-year Passenger revenue yield per ASM decrease was primarily driven by industry-wide domestic capacity growth outpacing demand, including the Company’s own capacity increase of 9.7 percent year-over-year. In addition, the Company has continued to gain experience with a new revenue management system that was implemented in 2023, which it believes will deliver better long-term performance compared with its prior system. However, during the first half of 2024, the Company believes it sold an excess number of seats for the peak summer travel period too early in the booking curve, leading to a further dilution in unit revenues.
Current wording
Passenger revenues for the nine months ended September 30, 2024, increased by $1.2 billion, or 7.2 percent, compared with the first nine months of 2023. On a unit basis, Passenger revenues remained flat, year-over-year. The dollar increase was primarily due to a 7.1 percent increase in capacity due to increased flight activity and strong operational performance and completion factor for the nine months ended September 30, 2024 versus 2023. In addition, the Company has continued to gain experience with a new revenue management system that was implemented in 2023, which it believes will deliver better long-term performance compared with its prior system. However, during the first half of 2024, the Company believes it sold an excess number of seats for the peak summer travel period too early in the booking curve, leading to a dilution in unit revenues.
Previous wording
Other revenues for the six months ended June 30, 2024, increased by $30 million, or 2.6 percent, year-over-year. On a dollar basis, the increase was primarily due to additional marketing revenue from Chase Bank USA, N.A., driven by improved retail spend on the Company's co-brand credit card.
Current wording
Other revenues for the nine months ended September 30, 2024, increased by $38 million, or 2.2 percent, year-over-year. On a dollar basis, the increase was primarily due to additional marketing revenue from Chase Bank USA, N.A., driven by improved retail spend on the Company's co-brand credit card.
Previous wording
Operating expenses for the six months ended June 30, 2024, increased by $1.4 billion, or 11.8 percent, compared with the first six months of 2023, and capacity increased 9.7 percent over the same prior year period. Approximately 45 percent of the increase in expense was due to higher Salaries, wages, and benefits expense, approximately 15 percent was due to higher Maintenance materials and repairs expense, and approximately 10 percent was due to higher Fuel and oil expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the first six months of 2024 and 2023, followed by explanations of these changes on a dollar basis. Unless otherwise specified, changes on a per ASM basis were driven by changes in capacity, which increased and caused the Company's fixed costs to be spread over significantly more ASMs.
Current wording
Operating expenses for the nine months ended September 30, 2024, increased by $1.9 billion, or 10.0 percent, compared with the first nine months of 2023, and capacity increased 7.1 percent over the same prior year period. Approximately 55 percent of the increase in expense was due to higher Salaries, wages, and benefits expense, approximately 10 percent was due to higher Maintenance materials and repairs expense, approximately 10 percent was due to higher Landing fees and airport rentals expense, and approximately 10 percent was due to higher Depreciation and amortization expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the first nine months of 2024 and 2023, followed by explanations of these changes on a dollar basis.
Previous wording
Operating expenses per ASM for the first six months of 2024 increased by 1.9 percent, compared with the first six months of 2023. The majority of the year-over-year unit cost increase was primarily due to increases in Salaries, wages, and benefits expense and Maintenance materials and repairs expense, partially offset by a decrease in the Company's fuel cost per gallon. Operating expenses per ASM for the first six months of 2024, excluding Fuel and oil expense, profitsharing, and special items (a non-GAAP financial measure), increased 5.5 percent, year-over-year. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
Current wording
Operating expenses per ASM for the first nine months of 2024 increased by 2.7 percent, compared with the first nine months of 2023, primarily due to increases in Salaries, wages, and benefits expense, which included incremental expense of $180 million in the nine months ended September 30, 2023 related to the contract ratification bonus for the Company's Flight Attendants as part of the tentative agreement reached in October 2023 and ratified in April 2024. The majority of the remainder of the year-over-year unit cost increase was primarily due to Maintenance materials and repairs expense, partially offset by a decrease in the Company's fuel cost per gallon. Operating expenses per ASM for the first nine months of 2024, excluding Fuel and oil expense, profitsharing, and special items (a non-GAAP financial measure), increased 7.5 percent, year-over-year. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
Previous wording
Salaries, wages, and benefits expense for the first six months of 2024 increased by $675 million, or 12.8 percent, compared with the first six months of 2023. On a per ASM basis, Salaries, wages, and benefits expense for the first six months of 2024 increased 2.9 percent, compared with the first six months of 2023. On a dollar basis, approximately 45 percent of the increase was due to step/pay rate increases for certain workgroups (including the recently ratified labor contracts with the Company's Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents), and approximately 25 percent of the increase was driven by an increase in capacity and/or number of trips flown. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP measures.
Current wording
Salaries, wages, and benefits expense for the first nine months of 2024 increased by $1.0 billion, or 12.8 percent, compared with the first nine months of 2023. On a per ASM basis, Salaries, wages, and benefits expense for the first nine months of 2024 increased 5.3 percent, compared with the first nine months of 2023. On a dollar basis, approximately 65 percent of the increase was due to step/pay rate increases for certain workgroups (including the recently ratified labor contracts with the Company's Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents) and approximately 25 percent of the increase was driven by an increase in capacity and/or number of trips flown. The majority of the remainder was due to various other benefits associated with the higher contractual wages, such as earned vacation pay, and additional supplemental pay and benefits, primarily for Pilots. On a per ASM basis, the increase was due to step/pay rate increases. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP measures.
Previous wording
Fuel and oil expense for the first six months of 2024 increased by $180 million, or 6.1 percent, compared with the first six months of 2023. On a per ASM basis, Fuel and oil expense for the first six months of 2024 decreased 3.3 percent. On a dollar basis, the increase was primarily attributable to an increase in fuel gallons consumed, partially offset by a decrease in the Company's fuel cost per gallon. On a per ASM basis, the decrease was primarily attributable to a decrease in the Company's fuel cost per gallon. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:
Current wording
Fuel and oil expense for the first nine months of 2024 increased by $34 million, or 0.8 percent, compared with the first nine months of 2023. On a per ASM basis, Fuel and oil expense for the first nine months of 2024 decreased 5.8 percent. On a dollar basis, the increase was primarily attributable to an increase in fuel gallons consumed, partially offset by a decrease in the Company's fuel cost per gallon. On a per ASM basis, the decrease was primarily attributable to a decrease in the Company's fuel cost per gallon. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:
Previous wording
Maintenance materials and repairs expense for the first six months of 2024 increased by $200 million, or 39.1 percent, compared with the first six months of 2023. On a per ASM basis, Maintenance materials and repairs expense increased 27.0 percent, compared with the first six months of 2023. On a dollar and per ASM basis, approximately 65 percent of the increase was primarily due to an increase in engine shop visits and various other engine expenses for the Company's -700 and -800 fleet, approximately 15 percent of the increase was driven by airframe repairs due to a higher average cost per event and the timing of regular maintenance events, and approximately 10 percent was due to increased bulk purchases of materials for the Company's seat refurbishment efforts on its entire fleet.
Current wording
Maintenance materials and repairs expense for the first nine months of 2024 increased by $210 million, or 25.1 percent, compared with the first nine months of 2023. On a per ASM basis, Maintenance materials and repairs expense increased 16.4 percent, compared with the first nine months of 2023. On a dollar and per ASM basis, approximately 60 percent of the increase was primarily due to an increase in engine shop visits and various other engine expenses for the Company's -700 and -800 fleet, approximately 15 percent of the increase was driven by airframe repairs due to a higher average cost per event and the timing of regular maintenance events, and approximately 10 percent was due to increased bulk purchases of materials for the Company's seat refurbishment efforts on its entire fleet.
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Current report — wording carried from elsewhere
Incremental expense associated with contract ratification bonuses for various workgroups related to additional compensation for services performed by Employees outside the applicable fiscal period;