Southwest's Secret Weapon

On its recent earnings call, executives spent little time discussing commercial initiatives. Instead, they want you to know the value of their airplanes.

Dear readers,

When people ask me if Southwest will recover from its post-pandemic financial mediocrity, I tell them that it will. I point to the brand loyalty it has gained over more than five decades, thanks to its customer-friendly policies, its playful culture, and its convenient, point-to-point network that gets people where they want to go.

Now I wonder if I have been naive. Perhaps the real secret sauce at Southwest is its order book for Boeing 737 Max 8s, plus its existing fleet of midlife Boeing 737-800s.

That was the narrative of Southwest’s fourth quarter earnings call last week. CFO Tammy Romo and CEO Bob Jordan mostly focused on how the airline plans to monetize its current fleet and its future orders. The airline has a hundreds of Boeing 737NGs (including about 200 of the more in-demand 737-800), plus orders for 672 airplanes, and since Southwest has significantly slowed its growth and there’s a shortage of newer planes, it now seeks to make money from some aircraft.

"We're committed to extracting every dime out of that value," Jordan told analysts during Southwest’s fourth quarter earnings call. "And we're using the cash proceeds to buy back stock and deliver value to our shareholders and to modernize the fleet and lower operating costs."