Southwest Airlines Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 14 speakers on the call.

Operator

Morning, and welcome to the Southwest Airlines Second Quarter 2023 Conference Call. My name is Anthony, and I will be monitoring today's call. This call is being recorded, and a replay will be available on southwest.com in the Investor Relations section. After today's prepared remarks, There will be an opportunity to ask questions. At this time, I'd like to turn the call over to Ms.

Operator

Julia Landrum, Vice President of Investor Relations. Please go ahead, ma'am.

Speaker 1

Thank you, operator, and welcome everyone to our Q2 2023 conference call. In just a moment, we will share our prepared remarks and then jump into Q and A. On the call with me today, we have our President and CEO, Bob Jordan Executive Vice President and CFO, Tammy Romo Executive Vice President and Chief Commercial Officer, Ryan Green and Chief Operating Officer, Andrew Watterson. A quick reminder that we will make forward looking statements, which are based on our current expectation of future performance, and our actual results could differ materially from Also, we will reference our non GAAP results, which exclude special items that are called out and reconciled to GAAP results in our press release. So please refer to the disclosures in our press release from this morning and visit our Investor Relations website for more information.

Speaker 1

With that, Bob, I'll turn it over to you.

Speaker 2

Thanks, Julia, and good morning, everyone. I appreciate you joining us for our Q2 2023 earnings call. I am very pleased to report a solid quarter with net income of $693,000,000 excluding special items and all time record quarterly revenue of just over $7,000,000,000 The demand environment, especially for leisure travel, continues to be resilient as we have seen solid bookings throughout the busy summer travel season. Further, we continue to expect $1,000,000,000 to $1,500,000,000 of pre tax profit contribution in full year 2023 for strategic initiatives that we outlined at our Investor Day last December. Based on our current outlook, we continue to expect Record operating revenue and solid profits in Q3 2023 and year over year margin expansion for full year 2023.

Speaker 2

I especially want to thank our people for doing such a fantastic job. They helped us get a record number of customers and a record number of bags On a record number of flights successfully to their destinations as we experienced the lowest second quarter flight cancellation rate In the past 10 years. It wasn't without trials. We had a lot going on in the operation related to weather, and weather has continued to be a challenge here in July. Despite that, our employees have continued to deliver a very solid performance.

Speaker 2

From our network ops control center to the frontline, our people have worked Together extremely well to minimize cancellations and produce a very reliable operation. And I'm just so proud of them For getting our customers where they need to go despite a challenging operational environment. While our cost outlook has increased for the year, the change is primarily driven by updates Our market wage rate accruals for open collective bargaining agreements. And while fluid, we're making progress. It's obviously very hard work and I'm just very appreciative of the dedication of everybody involved in the negotiation process.

Speaker 2

Now thinking about where we are with the business, since 2018, we have seen very significant swings due to the grounding in the MAX. Demand fall off, of course, from COVID, then the stress from the resurgence of demand, disruptions from post pandemic supply chain issues, Challenges with employee staffing and most recently uncertainty with our Boeing aircraft deliveries. The challenges we have faced since 2018 have made planning difficult, So smoothing out fluctuations is a must, and the best way to do that is with smooth and predictable capacity growth. We told you back in April that we were reflowing our order book to allow for orderly and measured growth, and we're still finalizing the details of that with Boeing. But we remain confident that we will get the 70 deliveries in 2023 that are assumed for our public schedules.

Speaker 2

And we are working to build a 2024 plan that should be much more stable. We currently are planning to be flying the MAX 7 at some point next year, but if not, We'll take MAX-eight instead, just as we are doing now. Where that leaves us for full year 2023 capacity is unchanged for this year at up 14% to 15% year over year. As we shared this morning in our release, we are revamping our 2024 flight schedules. While our network is largely restored at this point, it is not optimized, especially for post pandemic shifts and business travel.

Speaker 2

Those adjustments to the network will be largely complete by the March 2024 flight schedules, and we expect those efforts and the continued maturation Development markets to generate an incremental $500,000,000 in pretax profit in 2024. We already have our schedule published through March 6, 2024 and currently expect Q1 2024 capacity to be up in the range of 14% to 16% on a year over year basis. Now keep in mind that nearly 90% of that year over year growth is carryover from 2023. For the remainder of 2024, we are planning for a sequential deceleration in year over year growth in each quarter Next year as we work our way back to our long term goal of mid single digit growth year over year. We made a lot of progress in first half of twenty twenty three completing several major milestones.

Speaker 2

We quickly developed and are on track for our winter operations plan. We have the staffing plan in to fully utilize our fleet by the end of the Q3 and have the network restored by the end of the year. Again, to be clear, it's Stored, but not yet optimized. And Ryan will share more on how we're going to adjust the network based on post pandemic travel patterns. But we have a lot of exciting things in the works that we believe are going to contribute to our 2024 financial results And help us deliver another year of margin expansion next year.

Speaker 2

In closing, our accomplishments in 2023 lay a foundation

Speaker 3

For us to shift

Speaker 2

our focus to restoring our industry leading financial and operational performance, boost our operational resilience And make advances in our industry leading customer service through a focus on digital hospitality. I just can't say this enough. I'm just so proud of our people. They are the heart of Southwest Airlines, and they deliver day in and day out for each other and for our customers. And with that, I will turn it over to Tammy.

Speaker 4

Thank you, Bob, and hello, everyone. First, I'd like to extend another thanks to our employees for their commendable efforts this Quarter resulting in solid operational and financial performance, a hard earned improvement from where we began the year. Overall, we had a really solid quarter. Operationally, we had a great completion factor despite many weather challenges. Financially, bottom line profits were in line with our expectations despite pressure from market driven labor accruals.

Speaker 4

We produced an all time quarterly operating revenue record. We also generated double digit operating margins each month during the quarter. All of this was made possible by the drive and hard work of our incredible employees. I just can't thank them enough. Ryan and Andrew will speak to our revenue trends and operational performance.

Speaker 4

So I will jump right to cost, Fleet and then balance sheet. Beginning with fuel, our 2nd quarter jet fuel price was 2 point $0.60 per gallon, slightly above our previous guidance. Throughout Q2, crude oil prices stayed within a reasonable range hovering for the most part around $80 per barrel. We are 49% hedged for 3rd quarter And estimate our Q3 fuel price to be similar to our Q2 fuel price. And that includes An estimated $0.08 of hedging gains.

Speaker 4

We now estimate our full year 2023 fuel price to be And the $2.70 to $2.80 per gallon range, including $0.09 of hedging gains. This is up a dime from our previous guidance due to higher refining margins. Of course, market oil prices heating cracks can be volatile, which is why we hedge. We are currently 54% hedged in 2024 And over the last few months, we've added meaningfully to our 2025 portfolio and began building our 2026 portfolio. The total fair market value of our fuel hedge portfolio for Q3 through 2026 is 373,000,000 We will continue to seek cost effective opportunities to expand our hedging portfolio with a continued goal to get to roughly 50% hedging protection each year.

Speaker 4

Moving to non fuel cost, our 2nd quarter year over year CASM ex Increase of 7.5 percent was towards the unfavorable end of our guidance range due to incremental adjustments to market wage We have said this from the beginning, but our labor accruals are based on market, And in this environment, market has obviously been dynamic. We are planning and eager to award Trends remain fairly consistent with Q2. We currently estimate our Q3 CASM ex to increase in the 3.5 The 6.5% range year over year. This increase is again largely driven by higher labor cost. We are also continuing to incur additional maintenance expense relative to 2022 for our -eight hundred fleet as more engines come due for heavy maintenance, adding further pressure to our second Past cost inflation.

Speaker 4

For full year 2023, we now estimate CASM ex to decrease In the range of 1% to 2% year over year compared with our previous guidance of down 2% to 4%. The estimated 0.5% increase is due primarily to higher labor cost pressures as I've already covered. Turning to our fleet, during the Q2, we received a total of 21 aircraft deliveries And retired eleven-seven 100 aircraft, ending the quarter with over 800 aircraft. We are working to reflow our order book with Boeing. However, for this year, we continue to plan for approximately 70 Dash 8 deliveries and 26-seven 100 retirements, which takes the fleet to 8 14 aircraft at year end.

Speaker 4

Likewise, our CapEx outlook remains unchanged at approximately $3,500,000,000 which Approximately $2,300,000,000 in aircraft capital spend. Our 2023 capacity guidance Also remains unchanged. We continue to expect full year 2023 capacity to be up approximately 14% to 15% year over year and we have tightened our Q3 capacity guidance to be up approximately 12% year over year. As Bob mentioned, we are planning for Q1 2024 capacity to grow 14% to 16% year over year. Now keep in mind, we are growing 14% to 15% in 2023 and That alone drives nearly 90% of that Q1 year over year growth.

Speaker 4

So the primary driver That Q1 year over year growth is annualizing the additional capacity we are adding this year. But our long term goal remains mid single digit year over year growth. Lastly, Our balance sheet remains pristine and we remain the only U. S. Airline with an investment grade rating by all 3 rating agencies.

Speaker 4

We ended Q2 with cash and short term investments of $12,200,000,000 net of $67,000,000 in debt repayments the first half of

Operator

the year.

Speaker 4

We continue to be in a net cash position and expect a modest $16,000,000 in scheduled debt repayments for the remainder of the year. And currently 2023 interest income is still expected More than offset 2023 interest expense. We declared another dividend in 2nd quarter, which was paid just a couple of weeks ago. I am proud of what we have accomplished through the first half of the year. That said, we still have work to do to return to industry leading financial performance, which is our priority as we work on our plans for next year.

Speaker 4

This includes managing the ongoing inflationary cost pressures, reflowing our order book with Boeing to support orderly Measured and profitable growth and rebalancing and optimizing our network. We believe These plans combined with our existing initiatives and the maturation of our development markets will help us expand both margins and return on invested capital in 2024 as compared with this year. Let me close by saying my confidence in our ability to achieve our financial and operational goals is And with that, I will turn it over to Ryan.

Speaker 2

Thanks, Tammy. I'll walk you through our 2nd quarter revenue results, Provide context for our Q3 outlook and update you on some of our commercial priorities. And for additional detail on our revenue performance, I'll point you to this morning's Earnings release. Starting with Q2, demand continues to be resilient, especially for leisure travel. Overall trends have remained steady With operating revenue for the first half of twenty twenty three consistently well above 2019 pre pandemic levels, Operating revenue for Q2 was an all time quarterly record of just over $7,000,000,000 And in fact, we had Record operating revenue in every month of the quarter.

Speaker 2

2nd quarter 2023 unit revenue or RASM Decreased 8.3% on a year over year basis on a capacity increase of 14.1%. And while it's a year over year decline, it's still our 2nd highest second quarter RASM to date, which points to the tough comp we were up against from last year. And as a reminder, year over year RASM was impacted by a 5 point headwind from approximately $300,000,000 Of higher than normal breakage revenue that was recognized in the Q2 of 2022, resulting from flight credits issued during the pandemic that were set to prior to our later policy change to eliminate flight credit expiration dates. Overall, 2nd quarter revenue came in at Favorable end of our expectations as Close and Leisure held strong. 2nd quarter revenue from corporate travel came in largely as expected As we realize sequential and year over year improvement in managed business revenue.

Speaker 2

And while travelers from some of our largest segments have reduced their frequency Of their business trips from pre pandemic levels, we're very pleased with the gains we continue to make in the managed business space. Small and medium businesses, government and educations are strong points for us, and we are growing the number of accounts we have under contract. All of this has allowed us to continue to grow our share of the managed business space in the industry and as a result of our revenue initiatives in corporate travel. We gained additional passenger market share in the Q2 and exited the quarter seeing more unique travelers flying for business than we saw pre pandemic. Moving to the Q3, we're seeing leisure booking and yield strength continue throughout the summer travel season with July revenue, which is essentially booked, Expected to also be a record.

Speaker 2

Of course, much of the post Labor Day booking curve comes in closer, but we're very encouraged By the response to our June fare sale for off peak fall travel and what that suggests for continued leisure demand. We had all time Record bookings the week of our fair sale with 3 booking days that were top 10 all time records and included our record day for the most bookings ever taken. In fact, we have more passengers booked for 3rd quarter travel at this point in the curve than we did at the same point in time for 2nd quarter. Of course, on a revenue basis, nominal yields are typically weaker sequentially Q3 versus Q2, but the strength in passengers Points to the continued demand for Southwest Airlines. We currently expect overall corporate travel to have a modest underlying trend improvement, we expect to continue our gains in industry market share.

Speaker 2

Overall, however, we expect corporate travel demand will remain lower than leisure for the foreseeable future, Particularly compared with pre pandemic. So with a higher leisure mix and as the number of business trips taken per traveler remain down for our most frequent Customers, it gives us an opportunity to look at our current network design. Pre pandemic, those travelers had a skew of short haul travel with more frequent trips And also more mid week travel. And our current network is designed assuming those travel patterns would return. Moving forward, there is a revenue opportunity to adjust the network To adapt to the new travel patterns, we expect to continue to see from our mix of business and leisure customers.

Speaker 2

Ultimately, this leaves us with 3rd quarter unit revenue expected to be down 3% to 7% year over year on capacity up roughly 12%, Again, on a year over year basis. The decline in year over year unit revenue is driven by capacity growing faster than Seasonably typical as we restore the network and normalize the utilization of our fleet as well as tough prior year comparisons from the post pandemic Domestic demand surge. So while there is still room to optimize our unit revenue efficiency, this guide implies a 3rd quarter record for operating revenue. So again, we are in the process of adjusting our network to support our imperative of industry leading financial performance. Starting with the January 2024 schedules, we've made changes to the composition of the network such that it supports the customer travel behavior changes I just mentioned.

Speaker 2

We made changes that reflect where our customers are traveling and when they're traveling, including time of day and day of week, This optimization will be largely complete in spring of 2024. In addition, we have more than 10% of our markets under development, which will normalize closer pandemic levels over the next 12 months to 18 months. So as we said in the release and as Bob mentioned earlier, the go forward revenue opportunity from the network is substantial. And of course, we also expect continued revenue contribution growth from our existing and fully implemented revenue initiatives. Finally, we've always worked hard to consistently deliver the best hospitality and customer service here at Southwest.

Speaker 2

Our customer service is, of course, legendary and our customer policies are industry leading. And we are on track and deploying our onboard product initiatives, Including Wi Fi upgrades, larger overhead bins and in seat power. We are now focused on widening our customer service advantage Through prioritizations of a series of initiatives that will improve our digital hospitality and allow our customers to serve themselves in most cases. We aren't ready to provide you all the details there, but the initiatives will help us achieve our goals to deliver the best and most efficient hospitality with next generation tools, Airport layouts and more. And now with that, I'll turn it to Hamzah.

Speaker 3

Thank you, Ryan, and hello, everyone. I'm going to provide some additional details on our operational performance and a brief update on our winter operations preparedness plan. We'll have to start by commending our employees with our warrior spirit a solid operational performance they delivered in an operationally challenging quarter. As Bob mentioned, we had record flight activity, Record customers and record back counts, but we were ready. We were staffed up and we were prepared.

Speaker 3

Our completion factor in the Q2 was really pretty remarkable. We reliably achieved a flight completion factor of more than 99% in the 2nd quarter. It was the highest Q2 performance in the past 10 years. And that is despite the challenging environment. June in particular had tough operating conditions.

Speaker 3

We had issues across the entire system with pretty much continuous weather disruptions. Safety is always our first priority, So we couldn't avoid some flight delays, but we have really excelled in getting customers to the destinations and with their bags. When we had weather events, we managed to reset and be right back on track the next morning, which is a sign of good management through the regular operations by our people. Underneath that headline, we saw broad based improvements in our operating metrics as on time performance, long delays, early morning originators, Turn compliance, flown is booked and trip net promoter score all showed solid year over year improvements. This was against the backdrop of runway closures in Las Vegas and Denver, which are 2 of our largest operations.

Speaker 3

Another drag was our block time hit rate, which dropped over 4 points relative to Q2 last year as our pilots had to take more circuitous routeings because of weather. The broad based improved performance against these headwinds is a testament to solid execution by our people. Looking forward, we're also really pleased with our progress on the implementation of our winter preparedness plan. Just a reminder that plan is detailed on our microsite, which is available on our website. The plan is on track to be fully implemented in Q4 2023 in advance Our winter storm season.

Speaker 3

I won't walk you through all the details today since it's on the microsite, but I will say that everything is going really well And we are already accepting delivery of new equipment and infrastructure as well as completing software implementations. We are conducting summer school to train new ramp agents on deicing and train all ramp agents on new equipment. Obviously, the other thing we have going on is labor negotiations where we continue to work diligently and we continue to make progress. I do want to thank all the parties on both sides who work hard to negotiate these collective bargaining agreements. I'm grateful that We've been able to get so many ratified in the last 9 months, but we still have work to do with a couple that have been amenable for a while.

Speaker 3

Know that negotiations can be emotional as well as complicated, but we are committed to good faith negotiations to get new agreements in place as quickly as possible and to compensate our employees with market wage rates. So in closing, I'd like to thank all of our employees for their hard work. It's an honor to be part of this team and to have the opportunity to support them. And with that, I'll turn it back over to Julia.

Speaker 1

Thank you, Andrew. We have analysts queued up for questions. So a quick reminder to please keep your questions to 1

Speaker 4

and a follow-up if needed. Operator, please go ahead and begin our analyst Q and A.

Operator

We will now begin the question and answer session. Our first question will come from Scott Group with Wolfe Research. You may now go ahead.

Speaker 5

Hey, thanks. Good afternoon. So wondering if you have any color on the pressure on load factors in the quarter? And then Guiding to a lot of pressure on RASM in Q3 as capacity accelerates. With Q4 capacity To accelerate further, do you think we should expect further RASM pressure?

Speaker 5

And given that, do you think about maybe moderating some of the capacity growth?

Speaker 2

Yes. Hey, Scott, it's Ryan. I think just Stepping back and just taking a look at the Q2 overall, I think it was a really good performance. Record Revenue for the quarter, record operating revenue for each of the months in the quarter. And I think when you think about that relative To the compare period from the prior year, with the pent up demand in Q2 plus The headwind that we were facing there on the breakage adjustment of about 5 points, which by the way does not persist going forward, that is That comparison is isolated to the 2nd quarter there.

Speaker 2

I think that the performance is really, Really good. The fare environment, 2nd quarter year over year, if you adjust because that breakage benefit or breakage Comparison from Q2 of 2022 gets booked into passenger revenue. That gets spread out over all of the revenue there in The quarter and if you isolate that, average fares in the second quarter are actually up year over year 2%. So we're in an environment here where we're managing we're optimizing revenue in a really strong fare environment, which does Typically, I have a little bit of pressure on loads. And I think if you look at our domestic load Load factor compare, 2nd quarter, that's in line with the compares or the load factor performance that our competitors saw in the 2nd quarter as well.

Speaker 2

So all of that taken into account on the second or on the second quarter, I feel really good about that. As you think about the fare environment going forward, July here is almost booked. I think the fare environment, as far as we can tell, continues to persist Here in July, I think we expect another record revenue in July, again, on a tough compare from prior periods with the pent up demand last year. So I think we're just in an environment here where we are managing where we're optimizing revenue in a very strong fare environment and that Typically comes with a couple of points of load factor adjustment there. Scott, it's Bob.

Speaker 2

The other thing, we obviously, the new we've got we're in this new revenue management system as well that we're I think we'll be fully Taking over the network in terms of pricing this fall, and number 1, I'm happy that we've been able to get it in. We got it in on time. But it thinks about your whole itinerary. And one of the things that happens too is it maximizes close in demand. So it wouldn't be a surprise doing that that you might see a little bit of a lower load here, especially as we learn the new system.

Speaker 2

And again, all that was known as we did testing. Second thing is we know we're in a suboptimal environment. We brought capacity back Quickly as we restored our flying, I'm very proud of the team here. We will get all of our aircraft in the air and be unconstrained And flying everything here at the end of the Q3, which is actually ahead of our plan, but it's not optimized. That's why we're doing all the work in the Q1 of next year around the network to optimize.

Speaker 2

The last thing, just Ryan talked about this, As you associate this to average fare, we have a large percent of our network in development. It's over 10%. We added new cities. We added we grew Hawaii during the pandemic. We put kind of 100 aircraft or more into Those investments and those are still in development and that will mature across 2024 and I expect That percent of our total system and development to be normal, to fall across each quarter next year and to be normal, Sort of pre pandemic normal by the end of next year.

Speaker 2

And I think, Tammy, if you just think about fares, The average fare drag from that sort of those excessive development markets compared to normal is about $2 right now. So it just gives you a ballpark in terms of thinking about average fare as well.

Speaker 5

Helpful. So I guess just quick follow-up like to that. The network optimization, is that more of a cost opportunity or revenue opportunity? I guess, ultimately, I'm trying to figure out like If capacity is up high single next year, do we think CASM is up or down next year?

Speaker 2

You want to take

Speaker 4

that, Tammy? Sorry, no. Yes, we'll tag team on that. No, I we believe that the network Redesign, it will be beneficial to both revenues as well as on the cost side. And as we look ahead to next year, we are Absolutely committed to driving our unit cost down and certainly the network And our opportunities there to align our staffing and our fleet to our network Our network design should be helpful in helping us to achieve that goal.

Speaker 2

Yes. And I think I would just add too, you talked about the large capacity in the Q1 that we've just talked about, 14 to 16. It's still capacity, but just as a reminder, with the restoration, Getting all the aircraft flying this year, it's going to produce a lot of capacity just doing that because we were so strain particularly on the pilot side, which again goes away in the Q3. So that produces a lot of carryover especially into early next year. So 90% That growth in the Q1 is simply carryover from adds back here in 2023.

Speaker 2

You think about the network optimization, yes, as Tammy said, it's a play on both sides. But the travel patterns, it's clear that travel patterns post pandemic Are not what they were pre pandemic. Some of that's leisure, a lot of that is that's business. I expect business to continue to come back, but I think it's going to trail the restoration of leisure here for a while. So, Brian talked about this, but it's things Like a much more aggressive reduction into On a Tuesday and a Wednesday, for example, normally that schedule would fall about 2 points from a Monday.

Speaker 2

I think it's going to fall about 8 points With the optimization of the network, we're managing Much better management of really early and really late flights, which obviously have RASM penalties on those. So anyways, it's definitely a revenue play, but it's really meant to just match the post pandemic demand and travel patterns To what we're seeing to the network. Yes.

Speaker 6

To give some

Speaker 3

color on this, it's kind of put it in 4 buckets of network changes we're doing. The first is a frequency shift from mostly short haul business heavy routes to more medium and long haul routes with a lower business mix. The second is Tuesday, Wednesday reductions, that are down 7% to 10% versus Monday, Thursday, Friday, depending on the season. The third is the shoulder of the day, so moving the latest and earliest flights, which are typically your worst performers a little bit in. And the 4th is we're adjusting the new city in Hawaii Mark, as we've understood, there's seasonality and demand patterns.

Speaker 3

We will be shifting them as a result. Now to give you some a little bit of color on that first one about how we're shifting the frequencies, let's take Midway. In March of 'twenty four, we'll have 2 25 departures. In March of this year, we had 2 29, so just down 4 trips. Underneath that, you have 26 city pairs that are changing frequencies.

Speaker 3

You say Midway to Columbus, down 2 frequencies from 6x to 4x, Midway to Phoenix, up 2 Frequencies and replace it. And then same thing in Columbus, they're not losing 2 frequencies. Those frequencies are going from Midway to Sarasota And to Tampa. And so everyone kept their departure, so to speak, but the composition moved a little bit. Now Sarasota is a pure play leisure, But Tampa and Phoenix is a combination of leisure and business.

Speaker 3

So it's kind of a mix shift at the margin, not like going to the other guardrail, so to speak. So All these you go through this through all of our network. It leads up to a substantial change, but each one in itself is modest.

Speaker 5

Thank you, guys.

Operator

Our next question will come from Savi Syth with Raymond James. You may now go ahead.

Speaker 7

Hey, good afternoon. Can I ask maybe a high level question kind of tying in all the different things that you're Working on and when do you think you can get back to 2019 level of profitability, not necessarily EPS, but just kind of Pretax income type level, like

Speaker 4

what does it take to

Speaker 7

get there and how long does it take to get there?

Speaker 4

Yes. Hi, Savi. We are in the midst of working on our detailed 2024 plan and certainly getting back to pre pandemic levels of profitability is our goal. And as we've shared with you, Adjusting our network to the current demand environment and current business environment Is a part a significant part of that plan. We're not ready We to provide guidance for next year, but certainly getting back to those levels of profitability is a goal.

Speaker 4

So the first order of priority is to fly all of our fleet and Optimize our staffing levels to that flying and to the network adjustments that We've taken you through. And in addition to that, we've got ongoing Contributions from our initiatives as we continue to grow the network And certainly we'll continue to get contributions from our ongoing fleet modernization plans. So we've certainly a lot of moving parts here as we've worked to rebuild following the pandemic. It's obviously been a little messy here, but the good news is that We are almost fully restored and will be soon. And we will be certainly pivoting and Putting our efforts on producing year over year margin expansion for 2024.

Speaker 7

That's helpful. And I was just wondering if I could ask a question on the labor accruals. Does that include what has historically been part of the kind of the ratification bonuses? So And in your case, anything kind of prior to April 2022 or any catch up to kind of last year's where you might be lower, Is that also included in kind of this year's labor accrual or is it just getting kind of the labor cost to what you think the market rates are?

Speaker 4

Savi, it is our best attempt to adjust our market rates to Current market rates and obviously there's been changes as we've been moving along here and we've been adjusting as we go. And certainly for the Q3, we have factored all of that into our Q3 Cost guidance as best we can estimate. So And I think that's an important point, Sabi. So we've got we've been accruing all along as you know here as you know. And so just keep that in mind as you compare Southwest to maybe some of the other guides in the industry.

Speaker 2

Yes, I mean just in short though, yes, we are fully accrued for what is the most recent market. And as you know, market has been moving. In fact, the change that we made for full year cost down 2% to 4%, we guided down 1% to 2%, that change was basically entirely Updating our accruals across the quarter because the market moved.

Speaker 7

And that's pilots and that's all waiver groups?

Speaker 2

Yes, It's all.

Speaker 7

And I mean the driver of that increase, was it kind of all labor groups driving it up or this quarter more because of pilot We've seen some pilot

Speaker 2

It's anywhere we saw an increase on it. So if you have an open contract that we're still in negotiations, it's anywhere where the market We updated our accrual. So in my mind, we are fully accrued to the market. And just I mean just on that note, just little side, we just had some good news this morning. We had a we got a notice that we have ratification of a new agreement with our mechanics related employees in AMFA.

Speaker 2

So they just ratified contract extension 4 years through 2027 This morning, so a little bit of good news there. Another one, so I think that makes 7 in the last 9 months.

Speaker 7

Great. Thank you.

Operator

Our next question will come from Duane Pfennigwerth with Evercore ISI. You may now go ahead.

Speaker 8

Hey, thanks. Just on the I mean, you noted some of the reasons that you need to kind of tweak the network. But could you comment on maybe geographically and I don't know how you look at it internally, maybe Hawaii, Midwest, West Coast, East Coast. How much variation is there across the U. S.

Speaker 8

As we think about that Q3 guidance? What is stronger versus what is weaker? And then just on the network changes broadly, why start in January? If you've identified changes that need to happen, why not start in September or 4th What are the practical reasons not to do that?

Speaker 2

Yes. Hey, Duane, it's Ryan. Just on the geographic element And kind of what's stronger versus what are we seeing that's weaker. The Hawaii franchise itself, now that is That's part of our markets that are under development. And so there is the development element of that, but we've been very pleased with the Hawaii franchise Overall, especially the main lens of Hawaii, element of that franchise, load factors are very high, Yields are improving, so we're very happy with how Hawaii is performing.

Speaker 2

To your comments on why Network changes, we have made some changes to the network in IntraCal and that IntraCal itself, despite the West Coast being a little bit slower to come back the recovery, IntraCal itself is performing well. Leisure based markets, Florida is performing well. Typically, strong leisure markets in this environment continue to perform very well for us in this Strong leisure environment. So that kind of gives you a flavor for what's going well. The opportunities, there are markets As we brought back the network and restored the network, there are different geographies that have different levels of capacity kind of as we bring those cities back.

Speaker 2

And obviously, you have to work to absorb the capacity as it comes into the market. So we're working on those markets Where there's kind of been outsized capacity growth and we'll continue to focus there. But one of the things that Southwest Airlines benefits from is we have largely a relatively diverse domestic Footprint, and as different parts of the country respond differently and have go through different economic cycles, we're able to kind of weather that A little bit better maybe than some of our peers. So that's an inherent advantage for us as we go forward. And also I mean, I Go ahead.

Speaker 3

Sorry, Duane, it's Andrew. I'd also add that we want to when you make changes to your network, you want to kind of understand Before you make full some changes, so we have been making adjustments. So in September, as the first schedule, we have a modified Tuesday, Wednesday capacity versus Monday, Thursday, Friday. So we it's not as aggressive as we have starting in January. So we wanted to have that out there and see how booked to understand that And then some of the network changes that we're doing, we also stepped into them over the course September through Q4, we like we saw in the forward bookings and so we made the kind of full adjustment starting in Q1.

Speaker 3

So it's Essentially done by March except for the seasonality type adjustments I talked about will obviously happen as that season rolls around.

Speaker 2

Well, Duane, also if you think about just more for our customers, just the example, the change on the Tuesday, Wednesday move into an 8% Reduction from a typical Monday, changing schedules that are already published, especially for the holidays, it's super disruptive to our customers. And so if you're going to go in there and make wholesale changes to the fall, we're committed to not doing that. Obviously, we tweak our schedules now and then. But in terms of wholesale changes, we committed coming out of the pandemic to not do that to our customers. So January really, but obviously we did some things Andrew described, January was really the first opportunity in a new public schedule to enact a lot of the changes.

Speaker 8

Okay, great. And then just for my follow-up, I wonder if you'd be willing to kind of quantify the excess training And I think the reliability investment, which I guess is actually bigger, you would know. But can you give us a sense for the magnitude of those that are unlikely Do kind of reoccur or maybe wind down next year?

Speaker 4

Duane, I'll Take that. In terms of the training, we'll provide more details once we have our plan Fully baked here and solidify our capacity plans etcetera. But I can help you with regard to costs that we've incurred this year that we believe are one time related to the ops disruptions and that's About $100,000,000 to $150,000,000 So that's kind of one time cost that won't repeat next year. Beyond that, we'll Share additional details once we lay out our 2024 plan for you.

Speaker 8

Okay. Thank you.

Speaker 4

Thank you.

Operator

Our next question will come from Jamie Baker with JPMorgan. May now go ahead.

Speaker 6

Hey, good afternoon, everybody. First question is of a modeling variety. So Tammy, if we look at the Q3 ex fuel CASM guide and then the full year guide of down 1% to 2%. And I realize there's some wiggle room here, but It implies a 4th quarter outcome that's pretty similar to the Q3 in terms of absolute ex fuel CASM, at least Closer than what's usually the sequential case, 4th quarter is usually higher than Q3. Just wondering how you'd address that?

Speaker 4

Well, keep in mind, Jamie, that capacity is going to be a factor And that as we continue to add back capacity. So I think that's the primary driver.

Speaker 6

Okay. Okay. And then second, and this sort of builds off What I asked you about last quarter, you mentioned the stagnant corporate demand, revamping schedules next year to reflect post pandemic changes to how customers are flying. And I don't Dispute that those changes have taken place. Other airlines have spoken to this.

Speaker 6

I'm just curious, how do you separate Changes in travel patterns from the possibility that maybe the Southwest brand was somewhat Damaged last December, I mean, you make it sound like it's all the fault of shifting consumer preference and it may very well be. But have you at least considered that maybe something about the overall value proposition of Southwest might also be a contributing factor?

Speaker 2

Yes. I'll let Ryan talk to the specifics as you think about markets And trying to tease that apart, but you started at the top and you mentioned a lot of this early on. I mean, we are just Obviously, we track customer trust and all those things preferences and they're all headed in the right direction and look really good. To me, the top line factor is just thinking about Demand for the brand and is there any hangover effect? I mean, we had tremendous strength in the quarter.

Speaker 2

We had, again, record operating revenues, record passengers, record flights, all those things. We had our fall sale and I believe each of those days was A record in terms of our highest booking day in our history. We haven't talked a lot about, Ryan can talk more about demand On the business side, we're seeing, I would say, significant market Share gains in terms of our piece of the business. We talked about that at Investor Day in December. And since that time, we're seeing really meaningful shifts in market share our way on the business side.

Speaker 2

So As you think about demand for the brand, demand for the product that shows up obviously in bookings, we're just not seeing any sign of Yes. No, like I think we mentioned last quarter, of course, following the event, we have Brand tracking research in place where we're tracking sentiment on a weekly basis. Those scores in terms of trust Southwest Airlines, their confidence in our ability to get them where they want to go, all of those have rebounded past Post disruption and I would say we're those are back to normal ranges certainly. I'd echo what Bob said, the biggest single indicator is Demand for Southwest Airlines overall, I think as you look forward to the Q3, expecting another record revenue in 3rd quarter, just This came off a record revenue performance in Q2. We had record rapid reward acquisitions in the Q2, record co brand spend, Which is an indication of customer engagement in the second quarter.

Speaker 2

So I think all of that points to the fact that there is continued strong demand from for Southwest Airlines And the disruption is in our past. I will also just point to the fact the travel pattern is Changing. If you look at an individual customer basis and you look at the frequency of their travel, Especially for business trips. That began to plateau prior to last December. So there's been no step down in terms a frequency of travel on Southwest Airlines post disruption event.

Speaker 2

Those trends were beginning to emerge last year and Prior to the event overall. Now on the whole, as Bob mentioned, we're continuing to pick up market share in the managed business space. So we're winning more business And we're winning we're earning the business of incremental passengers. So we're going out and Adding more accounts under contract. We're winning more of their business as we move forward.

Speaker 2

It's just the structural impact The pandemic on the frequency of business trips on an individual traveler that again persists or that was taking place prior to the disruption in December.

Speaker 6

Okay. All of that commentary is very, very helpful. Thanks for taking the questions.

Speaker 2

Thank you, Jamie.

Operator

Our next question will come from Connor Cunningham with Melius Research. You may now go ahead.

Speaker 9

Hey, everyone. Thank you. 10 years ago, you guys established a plan that was centered around minimal Capacity growth until your return on invested capital hit like 15%. During that timeframe, slow growth, your earnings exploded. I realize today is not exactly the same.

Speaker 9

You have a large order book, open labor contracts, all that stuff, but you do have a lot of planes that you could retire. I'm just trying to understand why you're not taking a step back and following capacity into 2024, accelerating your fleet plan. I'd like why is Mid single digit growth the right number for Southwest right now? Thank you.

Speaker 4

I'll start and Well, first of all, we do believe we have growth opportunities. And I'll just remind you again That we did make investments during the pandemic to grow our route network. And as we've reported, we have a larger than normal amount of our capacity in development markets. But those are progressing and they are trending in line if not higher than our expectation. So We're pleased with that growth.

Speaker 4

And based on what we've seen so far, we have no plans to Pull back on the development of those markets because we believe those are really good markets for Southwest over the long term. And we believe we have additional opportunities in our strong cold market. So Now that said, based on our assessment of our growth opportunities, we believe that supports Mid single digit, ASM growth. Now, as always, and I remember that plan very well. At the end of the day, we are determined to drive The returns on invested capital that we can all be very proud of.

Speaker 4

And as always one of the wonderful things about Southwest Airlines is we build our plans with ample opportunity. So to your point, we have a flexible order book and flexible fleet plans. And you're exactly right. If we're not we don't have we've given you our plans, but should we We need to adjust. We've got the levers that we could do so.

Speaker 4

But at this point, Based on everything that we've seen, we believe with these network changes that we can drive The revenue performance next year that we all desire. So a lot of moving parts here and we're busy at work on our 2024 plan. But again, as we look ahead to next year, we are very focused on delivering a 2024 plan that will deliver margin expansion and as well as Expansion and return on invested capital.

Speaker 2

Well, Condrey, you're just in a period of year where we're not optimized to. I'm really proud of the fact that we got all the aircraft We'll up and flying here in the Q3 and we'll have our network restored by the end of the year. But again, it doesn't mean optimal. It's not just the network. It's not optimal in terms of how we think about our resource usage and our efficiency.

Speaker 2

And so we'll attack that very aggressively, Just like we're attacking the network here in the Q1 of 2024. Past that, to me, the biggest question would be, do you have opportunities For the aircraft that we're talking about, the mid single digit growth supporting. And we have significant opportunities And just name a place, Denver and Austin and Nashville and on and on and on where There's huge demand for the Southwest product. We have gates coming online. I would be worried if you're sitting here going, I don't know where to put the next aircraft.

Speaker 2

That's not the case. We have tremendous demand for the brand. We have tremendous demand in our focus cities and our large cities and others. And a lot of brand strength here. And again, yes, absolutely, there's work to do to optimize the airline, Bring out costs, continue to boost revenues to things like the network actions and then obviously boost our returns.

Speaker 2

And as Tammy said, we have a lot of flexibility.

Speaker 9

Okay. That's helpful. And then Maybe just to put a finer point on 2024 or as we just think about what you've added so far the implications for 2024. If you just pull 4th quarter capacity through 2024, I think it's the implied capacity growth is like 6% year over year. So is that the low watermark that we should expect next year?

Speaker 9

I'm just again, just trying to understand the context of this measured in orderly and all these other moving parts you have that's going on with your network right Thank

Speaker 7

you. So

Speaker 4

the impact of just the carryover to next year is probably I would say 7 points.

Operator

Yes.

Speaker 9

Okay. Thank you.

Operator

You're welcome. We have time for one more question. We'll take our last question from Sheila Kahyaoglu with Jefferies. You may now go ahead.

Speaker 10

Hi. Thank you, everyone. So just lots of moving pieces on RASM and obviously a very hot topic. As we look out 2024, you gave us a lot of moving pieces. How do we think about earnings growth for 2024 given you have $500,000,000 benefit from network But RASM will be down most likely and CASM ex could be up.

Speaker 10

So, is

Speaker 4

there a possibility for flat earnings or revenue EBIT Growth next year.

Speaker 2

Well, Sheila, obviously, we have the as we talked about at Investor Day, we've got the contribution from our initiatives we described there, which is $1,000,000,000 to $1,500,000,000 in EBIT, you've got on top of that. The 500,000,000 That we've described in the value of the network changes that occurred during the Q1 And are in place again by March. We have some other things that we're talking about here relative to opportunities. So all that is obviously The desire to lead you to margin expansion again here in 2024, but We're working on our plan. We don't have a plan to share with you yet.

Speaker 2

That's coming later, obviously in the fall. But yes, margin expansion is absolutely the goal. Tammy, also you want to add anything?

Speaker 4

No. I think you covered it. Great. Thank you.

Operator

Thank you.

Speaker 1

Okay. That concludes the analyst portion of our I appreciate everyone joining. Have a great day.

Operator

Ladies and gentlemen, we will now begin our media portion of today's call. I'd like to first introduce Ms. Linda Rutherford, Chief Administration and Communications Officer.

Speaker 4

Thank you, Anthony, and welcome to the members of our media on our call today. We'll go ahead and get started with our media Q and A. So Anthony, if you would queue folks up to begin asking questions.

Operator

Our first question will come from Alexandra Skors with Dallas Morning News. You may now go ahead.

Speaker 4

Hi, everyone. Thank you so much for the time today. I wanted to revisit the conversation earlier about Pilot contract, because obviously we saw United come out with their tentative agreement and that ultimately brought American back to the Negotiating table to try and meet those pay standards and benefits. I wanted to ask if there's an update there and if Southwest I'm committed to kind of meeting those new pay standards and benefits and where you all are at with that.

Speaker 2

Thanks for the question. Andrew, you can chime in too. Obviously, we are negotiations are complex. We are eager to reach Agreements with all of our groups that have opened have opened contracts right now. We're meeting very regularly with Swappa And very hopeful for progress there, but nothing new to report.

Speaker 2

You've heard about The strike authorization vote, obviously, that is an NMB A defined process, mediation is a defined process. So it's a there is no strike or imminent strike. There are a lot of steps would lead up to that. And obviously, we want to make progress well ahead of any of those, but there's no threat of an imminent Strike or anything like that. There are many, many steps that would have to occur first.

Speaker 2

No, we have a desire to get all of our contracts closed up, Obviously, including that with our pilots to get them taken care of. They do a fantastic job, but we certainly want progress there.

Speaker 3

I'd say that if you look at it's a strong pilots market, so it's a great time to be a pilot and you see that reflected in the wage rates, which often get the headlines. But I think what's characterized by all the agreements I've seen so far is it's not so much the wage rates, it's the other the non wage portions of scheduling rules and such, which increases the quality of life for the pilots can also increase costs for the company. And so those Rules can be complex and difficult, so you spend lots of time then to go through it. Wage rates is a defined matter, you know that, but the scheduling rules and implications Take longer to write out and to model out and to agree upon it. So in my opinion, that's what makes the timeline longer I would like with regards to our current negotiations.

Speaker 4

Thank you.

Operator

Our next question will come from Mary Schlangenstein with Bloomberg News. You may now go ahead.

Speaker 11

Thank you. Good morning. I just wanted to clarify, when will you have everything under your winter plan, Everything that was planned as a result of the disruption, when will you have all of that in place? And the $100,000,000 to $150,000,000 cost you Earlier, that was for everything post disruption. Is that right?

Speaker 3

Also for the I'll handle the timeline. So we have October is the deadline we've given ourselves to get everything ready. Expect winter storms to actually be after that, but our internal deadline is October. And so that will be when we report our Q3 earnings, it will be later in October, and we'll Make sure to go through and have a comprehensive review and status update where we are on that. But so far, things are on track and we're taking delivery and encouraged by the results.

Speaker 4

And Mary, your question on the $100,000,000 to $150,000,000 would you mind repeating that?

Speaker 11

Yes. I was asking if that's the cost For everything that you've put in place as a result of the disruptions or if that was just related earlier to the mention of additional training costs for ramp workers?

Speaker 4

No, it didn't. It's our best estimate right now of what our one time Costs, there may some of those costs that we some of the investments that we made this year may Prove to be somewhat sticky into next year and including some of our technology Investments, but so that's just our best guess of what the one time costs are.

Speaker 2

And Tammy, I think it also includes things like we did gratitude. Yes, the gratitude. And we did we had some incremental customer Reimbursements this year, things like that, that are really a one time related to this disruption that don't show up again in 'twenty four.

Speaker 7

Right. Okay. Thank you very much.

Speaker 4

Mary, just one more thing. Just want to remind you that we Even before the event, we had plans to modernize our operations. Yes, those are some of the investments that I referring to earlier. Those were already in place and obviously those will continue and all that's been

Operator

Our next question will come from Dawn Gilbertson with The Wall Street Journal. You may now go ahead.

Speaker 12

Hi, good afternoon. Quick question here. Your competitors for more than a year now have been talking over and over again about You know how the leisure travel surge has everybody paying up for premium seats and so forth. You guys don't have anything really to upsell But I'm curious how has this manifested itself

Operator

if it

Speaker 12

has at Southwest? I mean, can you share any details on Demand for upgraded boarding, early bird boarding, even leisure travel purchase of Business Select? Thanks. And one related question to that. I noticed a lot of you're making a lot of pitches now to buy A List status.

Speaker 12

I could be wrong, but I don't recall that in the past. So I'm curious about the strategy there too. Thank you.

Speaker 2

Hey, Don, it's Ryan. Good to talk to you. Yes, you're right. Some of our competitors for a while now have been talking about premium revenue and that being a tailwind to their RASM Performance, and I think that it probably has a material impact on their RASM performance that our business model, just We don't participate in that premium revenue stream to any of the same degree that they do. However, having said that, our ancillary revenue in the second quarter, as an example, was a record.

Speaker 2

It was a very good quarter for EarlyBird. EarlyBird had been lagging a little bit Through the pandemic recovery, but early bird, it performed very well in the Q2. Upgraded boarding, We added the ability in the Q3 of last year to purchase upgraded boarding on digital on your mobile device. Take rates have tripled since that point. And so we've had very strong upgraded boarding revenue over the course Of the last year.

Speaker 2

And we've been able to maintain the price and grow the price actually some on upgraded boarding and early bird as well. So Ancillary revenue is definitely a high point for us in the quarter. It's just we don't participate at the same level a premium revenue standpoint as some of our competitors do. Related to your last question on the ability to buy A List status, we have Historically, we run campaigns, we call those tier qualifying points, the ability to Kind of top off pay your pay a little bit and top off your tier qualifying points to get to A List, A List Preferred. That's Nothing new.

Speaker 2

We've recently run some of those campaigns, but we've done those historically in the past as well.

Speaker 12

Can you one Can you give any it's been years, I think, since you guys have put any dollar figures on early bird revenue and or now Can you quantify that at all, please? Thanks.

Speaker 2

Yes. We generate 100 of 1,000,000 of dollars from those boarding products On an annual basis. And like I said, we just had a record here in the Q2. So those revenues continue to grow.

Speaker 4

Yes. And just for Q2, just to give you a little early bird alone was in excess of 100,000,000

Speaker 12

Thank you.

Operator

Our next question will come from Leslie Joseph with CNBC. You may now go ahead.

Speaker 4

Hi, everyone. Just Curious on the RASM decline for Q3, is that just kind of like

Speaker 11

a return to seasonality and capacity going up? And are you seeing any sharp drop off after say like mid August? And how does that compare with 2022 and maybe more people We're flying off season. Thanks.

Speaker 2

Yes. Hey, Leslie, it's Ryan. So certainly, there is A RASM headwind with the capacity growth that's a little bit or that's above seasonal norms in the 3rd quarter. There's definitely a headwind there. But if you take Q3 on balance and just look at the demand in place, I'm very encouraged By where the Q3 sits today, we are anticipating a record Q3 revenue Here over the next couple of months, we have more bookings in place actually at this point in the curve for Q3 And we had at the same time, same point in time in the curve for Q2.

Speaker 2

We had an all time record Fare sale in June for our fall travel. We had top 10 booking days during that fair sale and Including our all time record for bookings taken in a single day, and that compares to Even when we open up schedules for the summer or for the holidays, we took more bookings for the fall during the fair sale than we have Any other day in our history. So we've got a tremendous base of bookings in place for the fall. I think that that Shows a lot of demand for the Southwest Airlines product like we've talked about on the call. And from a fare standpoint, July is Roughly booked at this point, and the strong fare environment from the 2nd quarter has persisted here End of July.

Speaker 2

So I think that while RASM is decelerating here in the Q3, we do have the capacity headwinds. But when you compare that to some of the domestic RASM of our peers, I think, the way we're shaping up Looks favorable.

Speaker 11

Okay. Thanks.

Operator

Our next question will come from Alison Snyder with Wall Street Journal. You may now go ahead.

Speaker 4

Hi. Thanks so much. I guess, the pilots have been talking a lot about attrition in the last couple of months. I'm curious if that's something you're seeing in your data, If it's at a level that's unusual or concerning and then I guess if so, like do you have a sense of when in their careers are pilots leaving or a sense of why?

Speaker 3

It's definitely a hot pilot market. And so you in, I guess, hot employee market as well, you have to work To hire people and to keep people. And so it's a record year for our pilot hiring. It's also a record year for pilot attrition, but it's a modest number That is not sufficient to actually change our plan. So we our amount of flying we have this year and the next It's not at all affected by the this kind of a little bit uptick in attrition this year.

Speaker 3

We do see pilots as a kind of Job hop around the industry trying to maximize their personal gain, what airline appeals in the best. And I don't begrudge that to them because it's Once you start with the mainline, it becomes you're there for a little while. It's a kind of lifelong commitment, obviously, a seniority system. And so We do see some people come and leave right away, but it's a I think it kind of spiked here in the Q2 and now it's kind of even start Yes.

Speaker 2

I mean, it's definitely higher than normal. And again, as Andrew said, completely Makes sense in the context of the hottest pilot market in history. But I think Where that impacts the business, I mean, we our plan was to hire 17, I think, 1700 pilots net this year. We're still on that plan. And that, of course, was intended to fly the whole fleet, get all of our aircraft back up in the year and in the air.

Speaker 2

We'll do that in the third Quarter by the end of the Q3, actually ahead of our original plan, which was the Q4. So I feel good about all of this. And yes, I think The fact that the attrition is up a bit is not a surprise given this is the hottest market for pilots, I believe in history.

Operator

We have time for one more question. We'll take our last question from David Zlodnick with TPG. You may now go ahead. Hi, everyone. Thanks for the question.

Speaker 13

Following up a little bit on what Leslie asked, it's I understand where the RASM headwind would be, but just considering that, considering the capacity growth, Do you think that fares are going to stay similar or come down? Do you think pricing power is going to fall a little bit in the fall? And then just secondary to that, are you expecting to see really any kind of return to the shoulder season seasonality that we had Pre pandemic or are you really seeing just leisure travel staying at steady levels into the fall? Thanks.

Speaker 2

Hi, David. Yes, I think the demand environment I just characterized the demand environment, especially for leisure as strong and that it continues to be that way. We don't have a ton of visibility into the Q4 at this point, so I wouldn't comment really too much for the Q4. But certainly, as you look ahead at the Q3, as I mentioned, we've got a very strong base of bookings In place and the fair environment, as I look at what we're taking here in July, And admittedly, we're still in the summer travel season here in July, but that strong fare environment continues. As you look, Q3 to Q2 yields normally give are weaker quarter over quarter, and I Expect that to be the case as we go as we look at Q3 versus Q2, but that's normal.

Speaker 2

But all of this is setting up for another record revenue quarter for us in the Q3. And I think we probably mentioned this several times, but if look at our fair performance of the 2nd quarter and sort of run that through, you just have to be aware of this breakage A change from last year about $300,000,000 impact that impacted year over year the fare calculation. So if you just look at Average spares year over year, I think it looks like they're down 2.7%. If you normalize that for the breakage impact last They're actually up this year 2.2%. They're actually up.

Speaker 2

So I just as you think about our fares and extrapolating that, Just want to make sure you know that because they are actually up year over year.

Speaker 13

Thank you. And then just from what visibility you do have, you think that a shoulder season is going to come back for this fall or is that sort of the thing in the past?

Speaker 2

I think I just would characterize what we're seeing In terms of the demand and the bookings that we have in place for the fall, that would That tells me that we've got a strong Q3 ahead of us here.

Speaker 13

Okay. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Ms. Rutherford for any closing remarks.

Speaker 4

Thank you, Anthony. If you all have any other follow-up questions, you can reach our communications team at 214-792-4847 or through our media website portal at www.swamedia.com. Thank you all so much.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now

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