Ryan Green
Executive VP of Commercial Transformation at Southwest Airlines
Thanks, Andrew. As Bob mentioned, I'm going to provide you with updates on our strategic initiatives as we continue to execute against our Southwest even better plan. Earlier this month, we signed our first commercial agreement with Iceland Air, making them our first partner carrier. And starting February 13, we will begin connecting customers and bags crossing the Atlantic on Iceland Air into the Southwest network at our Baltimore station.
This is an important milestone in our plan to expand how and where our customers can travel. We will continue to evolve this partnership and plan to also connect Iceland Air into our network in Denver and Nashville later this year, which provides even more connection opportunities through shared gateways. Also, earlier this month, we received our IOSA certification for successfully completing the Iata operational Safety Audit. This serves as the industry benchmark in safety auditing and we are proud of this achievement that reaffirms our commitment to the highest safety standards. It's also an important milestone in our transformation journey as it sets the stage for future growth through additional airline partnerships.
We continue to pursue partnership agreements with other global carriers and still plan to announce at least one additional partner carrier later this year. Our Getaways by Southwest product is also expected to launch later this year, and we are excited to announce today that we will add MGM Resorts International to our list of partners in Las Vegas. This represents a large milestone from one of our focus markets for getaways by Southwest and along with our existing partners there, this will give us access to a substantial portion of the hotel inventory in Las Vegas with more partners to come.
We continue to make progress and move forward on our assigned and premium seating product and continue to expect to meet the financial targets and timelines we communicated at Investor Day to begin selling seat assignments in the second-half of this year and operate flights with assigned and premium seating in the first-half of next year. As we finalize our cabin layout and work towards FAA certification, we plan to begin retrofitting aircraft mid-year starting with our larger Dash 800 aircraft with the smaller 700s to follow later in the year. By beginning retrofits midyear, it allows us to meet our planned operate date. It minimizes the amount of time we have a mixed fleet and it keeps the 700 aircraft flying with their current seat count for more of this year.
We believe our TechOps facilities, employees and vendors are well-equipped to update our entire fleet within our timeline. Technology development is also going well. Our technology employees and vendors are hard at-work coding the necessary technological changes and will soon begin a rigorous testing phase before we begin selling assigned seats. Another key milestone reached just this month is our amended co-brand agreement with Chase. As we've discussed before, we needed to update our agreement to provide our card members with new benefits related to our assigned and premium seating products.
We'll have more information to share on the details of those benefits soon, but we're excited to get these new card products into the market as we're confident customers will value these benefits and they will drive co-brand card acquisitions in the future. This agreement supports the multiyear financial targets we announced at Investor Day. Within the operation, we continue to focus on efficiency and modernization by reducing the time it takes to turn an aircraft and increasing our aircraft productivity. We've made meaningful progress toward our goal of removing paper-based processes from the day-to-day operation and have digitized crew paperwork.
Our November 2024 schedule was the first that implemented a five-minute reduction in-turn times in 12 of our stations, and I'm happy to report that it's working as planned with no operational impact. Later this quarter, we plan to introduce a digital communication tool that will allow pilots, flight attendants and operations agents to chat live with each other while they're working the turn, while they're working to turn the aircraft between flights, further enhancing our efficiency. We continue to expect our turn time initiative to create the equivalent of roughly 16 free aircraft by the end of November this year. While we are already a leader in-turn time, we are confident this will further our competitive advantage in the day-to-day operation. In addition to reducing turn time, we will also launch Red Eye flying in five key markets next month with the first flights arriving on Valentine's Day.
This will ramp-up to a total of 33 Red Eye markets in the June 2025 base schedule, including Hawaii routes. And we're pleased with how RedEye flights are booking to date with nearly 75% of passengers on a connecting itinerary either before or after the Red Eye flight. Red Eye flights capitalize on peak seasonality and maximize network connectivity while generating incremental load factor. And remember that our turn and red eye initiatives aid our modest capacity growth plans for this year of up 1% to 2% year-over-year. And finally, I am pleased to share that our service modernization efforts to drive operational efficiencies and improved experience for employees and customers are also paying-off.
As a result of the digital capabilities we provided our customers to enable them to self-serve, we've seen call volumes decrease even further than what was assumed in our plans. These digital enhancements have enabled a significant increase in efficiency within our call-center. As you can see, we are working hard and making continued progress on our transformational plan. We are committed to continued execution and delivering on our Southwest even better plan. And I want to thank the hard work of our incredible people who are making this happen. And with that, I'll turn it over to Tammy.Thank you, Ryan, and hello, everyone. I am pleased by the level of execution Ryan discovered and the realization of early benefits from our Southwest Even Better plan. As we laid out, our plan provides a roadmap to transform Southwest and importantly, to restore our financial prosperity and drive sustainable shareholder value. While we have more hard work ahead to hit our multiyear financial targets, our 4th-quarter performance exceeded expectations and we ended the year with improved year-over-year margins in the 4th-quarter. Much of this improvement has already been covered, so I'll pick-up with color on our cost performance and we'll close with a few comments on the balance sheet and an update on capital allocation, including more insights on our fleet monetization strategy. Our 4th-quarter 2024 CASA mix increased 11.1% year-over-year and full-year 2024 CASA mix increased 7.8% year-over-year, both inclusive of a $92 million gain from a sale-leaseback transaction in 4th-quarter 2024. The year-over-year increase was primarily the result of elevated operating expenses associated with inflationary pressures, including contractual market-driven wage rate increases. In 4th-quarter specifically, the decline in capacity growth resulted in additional unit cost pressure. We are urgently working towards implementing the $500 million cost initiative announced at Investor Day in September with an intense focus on exceeding that number and accelerating as much of the benefit into this year as possible.
Our efforts are focused on mitigating cost inflation by minimizing hiring, optimizing scheduling efficiency, capitalizing on supply-chain opportunities and aggressively improving corporate overhead. Looking-forward, we currently expect this quarter's CASM to increase in the range of 7% to 9% year-over-year, driven primarily by the continuation of general inflationary pressures from wage and work rule headwinds from labor contracts ratified last year and also from continued capacity moderation efforts. As 2025 progresses, our year-over-year unit cost inflation is expected to ease as we lap labor contract anniversaries, deploy initiative-driven capacity growth and aggressively pursue benefits from our cost initiatives.
Our cabin retrofit efforts associated with our premium seating initiatives are expected to result in approximately $150 million in incremental cost primarily in the second-half of the year. But these will be onetime and will not carry-forward into 2026. Taking all these variables into account excluding potential gains from any future sale -- fleet sales, sale-leaseback transactions, we expect to exit 2025 with 4th-quarter year-over-year CASM X growth in the low-single digits. Moving to fleet, as we highlighted in 3rd-quarter earnings, we saw the prudent planning of our conservative fleet delivery expectations pay-off.
As a reminder, we enter 2024 expecting to receive 79 Boeing aircraft deliveries. In March, March, Boeing informed us we would receive 46. After going through a detailed process, we conservatively adjusted our plan to 20 deliveries to reduce the risk of further operational impacts. We closed out 2024 with a total of 22 deliveries, essentially in-line with our internal estimations. Now in terms of how we are thinking about managing our fleet this year, we have a modest capacity plan of 1% to 2% year-over-year growth and that growth is fully-funded by our efficiency initiatives. This sets us up to reduce our total aircraft count by year-end. However, we still want as many deliveries as possible to modernize our fleet and reach our goal of an all Dash 7 Dash 8 fleet in 2031.
To that end, we are planning to retire 51 aircraft this year. And in addition, we are contemplating the sale of an additional 10-800 NGs. To support this, we need 38 deliveries from Boeing. However, as Bob shared, all incremental deliveries beyond 38 offer an opportunity to accelerate the execution of our fleet monetization strategy. I will remind you that we view our fleet monetization strategy as incremental to the base business improvements. The strategy is highly idiosyncratic opportunity to monetize our fleet through a portfolio of sales and sale-leaseback to fund fleet monetization and support shareholder returns.
The fleet opportunity is uniquely available to Southwest as a result of the following factors: one, current industry aircraft supply constraints, which are driven by OEM challenges, creating strong demand in the secondary market; two, the embedded value in our Dash 8 from Boeing compensation and favorable pricing, which creates a meaningful value gap relative to the strong secondary market. And three, access to aircraft provided by our contractual order book, which is beyond the needs of our modest capacity plans. As a reminder, the 1% to 2% growth over the next three years does not require additional aircraft as it is funded by efficiency initiatives.
Now, of course, the Dash 800 and Dash 8 aircraft play different roles in our fleet strategy initiatives. I'll start with the Dash 800s. These are mid-life aircraft that currently have highly favorable market valuations. The current market setup and our order book economics combined to create an opportunity to replace these Dash 800s with new Dash 8s. This creates value for Southwest as we plan to realize the lower maintenance and fuel costs, enhance customer experience and better reliability associated with Dash 8 aircraft, all with reduced capital spending. With the Dash 8 aircraft, the opportunity to realize value comes from the ability to sell excess aircraft in our order book and pull-forward the significant embedded value that comes from favorable pricing and the current market value.
However, to be able to fully execute the strategy, we must receive sufficient deliveries from Boeing. While we are feeling very good about where Boeing is headed, we will want to gain confidence in their production capabilities before we move forward with sales. So you can understand that our strong preference is to execute sales. The Dash 800 sales facilitate capital-efficient fleet modernization and for the Dash 8, the opportunity is to harvest the significant embedded value. We will, however, be opportunistic with sale-leasebacks and pursue them as a mechanism for an orderly exit of the DASH 800s from our fleet.
Now that we have completed our first transaction, you have a better idea of the economics of the DASH-800 sale-leasebacks. Sale-leasebacks allow us to lock-in the certainty of today's strong secondary pricing, while simultaneously bridging our operation until we are confident that we will receive our contractual replacement Dash 7s and from Boeing. Essentially, these sale-leasebacks are functioning as forward sales and again, we will pursue them opportunistically only where it makes financial sense, while also taking into account overall fleet modernization goals, financing needs and capital allocation considerations.
Moving to capex, full-year 2024 gross capital expenditures were $2.1 billion, in-line with previous guidance, including proceeds of $871 million from the sale-leaseback transaction in 4th-quarter 2024, full-year 2024 net capital expenditures were $1.2 billion. We currently expect 2025 gross capital spending to be in the range of $2.5 billion to $3 billion. This includes approximately $1.2 billion in aircraft capital spending and $1.6 billion in non-aircraft capital spending. And again, there is an opportunity to lower net capital spending from our fleet monetization strategy.
As we look to the future, we remain committed to maintaining a strong balance sheet and are proud to have an investment-grade rating by all three rating agencies. We also remain committed to providing significant returns to our shareholders through dividends and share repurchases. In 2024, we returned $680 million consisting of $430 million of dividends and $250 million of share repurchases to our shareholders. The $250 million ASR was the first repurchase program of the $2.5 billion share repurchase authorization announced at our September Investor Day.
The company continues to plan for the launch of an additional $750 million ASR program later this quarter. Assuming performance trends continue as expected, we plan to complete repurchases of the remaining $1.5 billion available under our share repurchase authorization in 2025. Before I hand it back to Bob, I want to send-out LUV's love to my Southwest family and to all of you in the investment community for your support in camaraderie over the past 33 plus years. With that, I will turn it back to Bob.
