All right. Well, it's right at noon, so we'll go ahead and get started. Thank you all for joining us today. I'm Ryan Martinez, Vice President of Investor Relations at Southwest. Not only thank you to who attended here in person today, but also to our webcast listeners. Thank you for joining as well. Thank you to our friends here at the New York Stock Exchange for letting us host here again. Another beautiful room. It's just a great time to be in New York. Also, a big thank you to the Southwest Investor Relations team. In addition to myself, Lauren, Micah, and Natalie, just did a great job. Thank you to all of our helpers for helping with today. You probably saw we filed our presentation slides this morning, attached to an 8-K.
We also filed a press release, reinstating and announcing a quarterly dividend. We'll walk you through our slides and give you more color on what you saw this morning. We will hear prepared remarks from Bob Jordan, our CEO, Tammy Romo, our CFO, Ryan Green, Chief Commercial Officer, and Andrew Watterson, Chief Operating Officer. Following that, we'll take a short break, and then we'll get into Q&A. We'll run Q&A as long as we can, probably till about 2:45 P.M., and then we've got some media obligations downstairs. We also have several other Southwest officers you may have met in the back of the room, and sprinkled throughout, so feel free to introduce yourselves. Thank you all for being here as well.
I'll just quickly mention that in our remarks today, we'll have forward-looking statements. Those are based on our intentions. They're not guarantees of future performance, and a variety of factors could cause actual results to differ materially. We'll also make reference to non-GAAP results, so please see the presentation and the investor relations website for more information. With that, we'll kick it off, and I'm pleased to introduce our CEO, Bob Jordan.
Hey, everybody. Sorry. We're just gonna wake everybody up here. Hey, it's good to be with y'all today. I really appreciate you being here. I know you're busy. It feels like we were just here talking about 2022, it's been a heck of a year. You know, we started the year with the Omicron wave in January and February, we had a surge in demand in March that has kept pace since. Business demand has improved meaningfully as well, which is very welcome, our operational performance has really improved since May, that just makes everything so much more stable. All that thanks in part to our hiring efforts, because we're just so much better staffed. We had record quarterly profits and revenues in the second quarter.
We had a solid profit and record revenues in the third quarter, our outlook here for the fourth quarter is very healthy, which is just terrific. We paid down a significant amount of debt, this morning our board announced their approval to reinstate our quarterly dividend of $0.18 per share or $0.72 annually, reflecting confidence in our strategy and in our plans. That is actually a reinstatement of our full pre-pandemic dividend level. We've got a lot of momentum here in Q4 and headed into 2023, I'm just really grateful for the dedication of the people of Southwest to get us here. In the next few slides, I'll provide an update on the progress we've made in our focus areas, which I laid out last year at Investor Day.
Moving on, Southwest has a history of unmatched financial performance, and our proven business model remains intact. We have an unrivaled domestic network, market share, breadth, and expanded our route network during the pandemic by opening 18 new cities and expanding our Hawaii service. That was more than any other carrier. We maintain an investment-grade balance sheet and advantage cost position. While 2022 was another year of recovery, 2023 is shaping up to be a very strong year with the opportunity to return to pre-pandemic profit levels. That's based on our current plan, which of course, bars any unforeseen events. I mean, absolutely, what a year. What a difference a year makes in terms of our results and our outlook. Next slide, I'll just talk about our purpose.
Our purpose is simple. It represents the why behind what we do, which is to connect people to what's important in their lives through friendly, reliable, low-cost air travel. Our vision is aspirational. It's to be the world's most loved, most efficient, and most profitable airline. Our five strategic priorities are the how behind that that drive us. Those aren't new. I shared them last year, but they are the key priorities that will guide us through 2026. We remain focused on, one, reinvigorating our winning culture. two, winning more customers and growing revenues. three, modernizing the operation, which Andrew's gonna talk a lot about. four, maintaining or improving our low- cost advantage, and then elevating our ESG efforts by being a good citizen. 2022 has been about focusing on five basics in order to stabilize the airline.
In fact, we named the year, the theme was Back to the Basics, and we are tracking really, really well against all five objectives. First, we're on track to hit our goal of increasing staffing by more than 10,000 employees this year. With the exception of pilots, we are pretty well staffed all across the board at this point, I would say, surpassing 2019 staffing levels in May of this year. I just want to really make the point that we are doing very, very well in our pilot staffing. The constraint there is not our ability to hire pilots. We are getting excellent pilots. The constraint is our training capacity. Our classrooms are full, our simulators are full. The constraint is training, it is not hiring. We are getting plenty of very well-qualified pilots.
Second, we continue to focus on our people and our culture, engaging with them, visiting with them across the country, hosting rallies, spirit parties, and we even brought back our famous Southwest Halloween this year. I had the chance to be one of the Mario Brothers from Nintendo, which is interesting. I think Gary was Luigi. I'm not sure what that means, but the two of us had a really good time. Our people and the service that they provide is our secret weapon and the key differentiator, and ensuring that they are engaged is critically important, especially as we add thousands of new employees to the Southwest family. Third, we made significant operational performance improvements since May, making great progress towards our historic operational reliability and efficiency.
We maintained our commitment, I think this is very important, we maintained our commitment to not republish our flight schedule since the summer. That has paid off in operational reliability. As one example, our Thanksgiving holiday period was one of the best operational performances in our history, with on-time performance over 86% and a completion factor of 99.7%, which means we only canceled about 70 flights out of 26,000 that were operated in that week, which is just incredible. Fourth, we returned to our number one customer service position among marketing carriers and remained in the lead this year per the most recent DOT reporting. Fifth, we wanted to return to consistent profitability. While the impact of the Omicron variant disrupted those goals in January and February, we returned to profitability in March and have been profitable ever since then.
I'm just immensely proud of the progress. That is just so much progress in a year, and it is all because of the people of Southwest Airlines, and I'm just so proud of them. Turning to 2023, we're ready to move past the basics, so to speak. We're planning a strong outlook next year. 2022 was all about stabilizing the airline, and our goal for 2023 is to thrive once again. To start, we'll focus on our Living Our Southwest Way values. Our values revolve around how each of us shows up to work, how we treat each other every single day, and how the company succeeds.
With all of our new people, the 10,000 folks that I talked about, we want to renew our focus there to ensure that they understand what it means to be part of Southwest Airlines and our mission. We win as a company when we support each other, serve each other, and work together as a team. Secondly, we intend to build on our legendary hospitality. Customer loyalty is created when a Southwest employee, and you see this all the time, when a Southwest employee goes above and beyond to meet a customer's needs. We want our employees to feel empowered and proud of the service that they provide, ensuring it is a service level that our customers can trust day in and day out.
Third, we aim to be consistently reliable and to operate with excellence through modernizing tools and procedures to better serve our customers and our employees, creating an energetic pace, further improving our famous short turn times, all the while keeping safety as our number one priority. We intend to stay very well-staffed and plan to hire a net 8,000 employees in 2023, including 2,100 pilots. Fourth, we'll focus on restoring our network and flying the full fleet with a goal to have the network fully restored by the end of next year. Fifth, we will focus on producing strong financial results and improving our low-cost edge. We have great profit momentum currently, and Tammy will share we're in a great spot with our competitive cost position in the industry.
We have an opportunity to be even more efficient. We can accomplish that by working as a team, by eliminating waste, and by modernizing our tools and procedures. I also want to give you an update on the strategic revenue initiatives we shared with you last year in addition to our fleet modernization efforts. We made tremendous progress this year. They're producing significant value and remain on track to produce the value that we expected and our financial benefits this year and into next year. As you all know, our GDS expansion fully launched in 2021. Our Southwest Business efforts to grow our domestic business market share are all paying off. As a recent example, I'm just so proud of this and our team, we came in second in the most recent Business Travel News, so BTN, business travel survey.
We have never been higher than fourth, we rose from fourth to second in that survey. That is our highest ranking ever, and I think it's completely due to our GDS efforts and our Southwest Business team efforts. We launched a new fare product, a Wanna Get Away Plus, in May of this year that offers customers even more flexibility for a modest buy-up. The new fare is performing well and in line with our expectations. We continue working towards the launch of a new revenue management system and expect a mid-2023 launch, while further boosting revenue opportunities through new capabilities, both in managing inventory and in managing pricing. While also continuing to see additional benefits from the Chase co-brand credit card agreement that went into effect in December 2021, we are seeing card acquisitions and card spend well above pre-pandemic levels.
These initiatives, combined with our flight credits that don't expire policy, create a product that is very attractive to our customers and further strengthens our value proposition. These initiatives including our continuous fleet modernization plans, are expected to generate a combined EBIT contribution of roughly $700 million this year, and we remain on track to hit our annual goal of $1 billion-$1.5 billion EBIT contribution in 2023. Finally, I'll close with an update on our diversity, equity, and inclusion and our environmental sustainability initiatives. In 2020, we set specific goals to further enhance our diversity, equity, and inclusion efforts at Southwest Airlines, including a board of directors' commitment to increase their diverse representation by 2025.
To highlight just a few of our efforts, we launched an inaugural DEI report to grant transparency with enhanced disclosure around our demographics as it relates to race and to gender, along with our DEI programs and progress. We partnered with our diversity council. That's a council made up of 135 employees who serve as our DEI champions across the company. We bolstered our diverse talent pipeline and implemented nine leadership hiring requirements consistent with our DEI goals. I'm just so proud that Southwest was recognized by Forbes as one of the best employers for diversity in America this year. A huge accomplishment. Our continued investments in DEI will bolster our strong culture, and they go hand in hand with our core values at Southwest Airlines. Turning to environmental sustainability, we've also made meaningful progress there as well.
Most notably, we launched the use of sustainable aviation fuel, or SAF, in our operations in January, and we're the first commercial airline to bring SAF to the Oakland Airport in August. We developed and published a formal SAF policy that guides our procurement of SAF and puts us on the right path towards replacing 10% of our total fuel consumption with SAF by 2030. We secured SAF offtake agreements, and we're investing in SAFFiRE Renewables as a part of a Department of Energy-backed project to develop and produce scalable SAF. We remain committed to reducing our carbon emissions intensity by at least 20% by 2030, as well as maintaining carbon- neutral growth each year, all relative to 2019 levels. A huge part of that is modernizing our fleet with more fuel-efficient MAX aircraft.
In addition, we're matching customer offset purchases through our Wanna Offset carbon program, and we recently purchased offsets equal to the carbon emissions generated by our employee business and charitable travel for 2021. Lastly, we continue to evaluate opportunities to further strengthen our ESG-related disclosures. As such, work is underway to report to the TCFD framework for the 2022 reporting year. We've been very busy in the environmental space, and we plan to continue investing in this very, very, very important area. In closing, I'm just very, very proud of the progress we've made this year to get the airline stable and to get back to the basics. Barring any significant unforeseen events, we expect to finish the year very strong. We expect to carry that momentum into 2023, where we expect to not only grow but to thrive.
Make no mistake, as always, Southwest is ready. Our leadership is ready. A lot of those folks are here today. Our employees are ready. Our employees are the greatest asset of Southwest Airlines. They are the key difference. They are the heart of our success in every way. Last, I just wanna say thank you to my friend, Mike Van de Ven. Stand up, Mike, if you don't mind. Come on. I'm gonna embarrass you. Mike's obviously here today. There just aren't enough ways to say thank you, my friend. Mike's been our Chief Operating Officer for the past 16 years. There's almost no way to describe how hard of a job that is. You live the operation from the time you wake up to the time you go to bed every single day.
A lot of times you live that overnight when you get phone calls and texts. Mike's had a 30, almost three-decade career at Southwest and has just served excellently that entire time. Mike's a tremendous leader, and it's just been a joy to serve alongside Mike. I'm just humbled by your efforts and I appreciate you, my friend, and I love you, and I just wanna say thank you. Thank you, Mike. With that, I will turn it over to Tammy. Thank you.
Thank you, Bob, and thank you, Mike. All right. Hello, everyone. It's really great to be with you here in New York. Thank you to our webcast listeners for joining us as well. Also, just wanna give a quick thanks to our Southwest team here in the room with us as well as back in the office at Dallas for pulling together today's event. A big thanks to you, Mr. Ryan Martinez. You are awesome. As Bob mentioned, this has been quite a year, I think we all agree with that. Despite a rocky start due to Omicron, we have made tremendous progress this year. We set several quarterly records, including all-time high quarterly revenues in second quarter.
We have performed within our full- year 2022 cost guidance that we provided back in January, the only U.S. airline to do so. Adjusting for the impact from Hurricane Ian, we have been right on our full -year 2022 capacity guidance as well. That speaks to better stability with our trends, but it also speaks to the tremendous work of our planning teams at Southwest. I want to thank them for their efforts and countless scenarios that ensured we are making the best possible business decisions, even in this volatile environment. I see some of them in the room smiling now. Thank you. Barring any significant unforeseen events, we expect to finish this year very strong with another quarterly profit and with great momentum going into 2023.
Jumping into our fourth quarter investor update, I'm pleased to say that our guidance remains largely unchanged, with just an update to our fuel price guidance as market prices have come down just a bit. Our operating revenue outlook remains strong, unchanged at up 13%-17%. Leisure revenue trends continue to be strong both in load factors and in yields for both holiday and non-holiday time periods. Managed business revenue trends remain strong as well, unchanged at down 20%-25% or 75%-80% recovered versus fourth quarter 2019 levels. Our available seat mile outlook remains unchanged, and on the cost side, our CASM-X outlook also remains unchanged. Based on current market prices, our fuel guidance is down roughly $0.05 to the $3.10-$3.20 range.
The story behind our fourth quarter outlook reflects just a really nice job our employees who continue to execute well. Our commercial initiatives, which Ryan Green will cover in a moment, are contributing to these strong results, and our sequential revenue outlook remains and continues to outperform the industry here in the fourth quarter. Moving to our 2023 outlook, we shared a preliminary view as part of our October earnings call, and I am excited to round out our outlook for you here today. First, our overarching financial goals for next year are to grow profits, margins, and return on invested capital versus 2022. Based on current trends and barring any unforeseen events, we believe we have a solid financial plan to accomplish all three.
While we are mindful of concerns about economic weakness, so far, we are seeing no signs of a slowdown in travel demand in our current trends. I can tell you we have run multiple scenarios to feel good about our 2023 plan. I won't go through each item on this slide, but I want to provide some additional color. Just a reminder that we will be guiding to year-over-year trends for 2023. I know you will miss all of those comparisons back to 2019. I think you should read that as a sign of progress. As is typical, we will provide first quarter revenue guidance as part of our January earnings call.
However, based on current bookings, first quarter 2023 revenue trends appear strong, and we currently expect a significant operating revenue increase year-over-year. We will monitor trends over the next several weeks and provide more specific guidance on our first fourth quarter earnings call. On aircraft, we continue to expect to end 2022 with 768 aircraft. I will cover more on our aircraft order book in a few slides, but we expect to end next year with 841 aircraft. This 73 aircraft net increase year-over-year consists of our planning expectations of 100 MAX deliveries from Boeing and 27 retirements of our Dash 700s. In terms of capacity plans, we continue to expect first quarter 2023 ASM to increase approximately 10% year-over-year. No change from what we previously shared.
We also previously shared that we expect second quarter 2023 ASM to increase approximately 14% year-over-year. That still stands, even though it's not shown on this slide. Based on some analyst reports that I've seen, some of you may have missed in our third quarter earnings release that we expect our second half 2023 capacity growth year-over-year to be higher than our first half 2023 capacity growth rate year-over-year. As such, we expect our full- year 2023 capacity to increase approximately 15% for the full year 2022. As Ryan will cover, network restoration continues to be a key priority next year, and this level of capacity growth will allow us to be fully restored by the end of 2023. Our aircraft plans also support this level of capacity growth.
In fact, with pilot training, constraints for the majority of next year, we believe we could execute our capacity plan with roughly 40- 50 fewer aircraft than planned for the majority of next year. We believe our growth plans are reasonable and align with our intent to fully utilize our fleet by year-end 2023. Moving to cost, I'll start with fuel, which represents roughly 25% of our operating costs. Current fuel prices for the first quarter are estimated to be a bit lower than what we are experiencing here in fourth quarter. These projections are based on the forward curve, if it holds, we could see some helpful fuel relief as we move throughout next year.
Included in our estimated fuel hedging gains, that would result in a current estimated range of $3.00-$3.10 per gallon for our first quarter, and $2.85-$2.95 per gallon for full year 2023. I will cover our 2023 fuel hedging positions in more detail on the next slide. We recently shared our first half and second half 2023 expectations for CASM, excluding fuel, special items, and profit-sharing. We continue to expect first half CASM-X to be flat to up 2% and expect second half CASM-X to decrease in the 4%-6% range, both year-over-year. Consistent with our first half outlook, our first quarter CASM-X is expected to be in the range of flat to up 2% year-over-year.
Based on our 2023 capacity plans, our full -year 2023 CASM-X is expected to decrease in the range of 1%-3% year-over-year. As a reminder, we expect continued cost headwinds next year due to operating at sub-optimal productivity levels as well as significant inflationary cost pressures. Like this year, our 2023 cost guidance includes estimated accruals for all open labor contracts. Moving down our guidance chart, our scheduled debt repayment obligations for 2023 are modest, only $80 million for the full year. Our 2023 interest expense is estimated to be approximately $250 million. Based on our scheduled debt repayments and current interest rates, however, we expect 2023 interest rates to more than fully offset 2023 interest expense.
Lastly, we expect our 2023 capital spending to be in the range of $4 billion-$4.5 billion, including roughly $1.2 billion in non-aircraft CapEx. This is higher than previously estimated, primarily due to aircraft delivery delays from Boeing this year, which is pushing additional aircraft deliveries into next year. We continue investing in our route network and top priority initiatives with a focus on generating revenue, increasing operational efficiency, and enhancing the customer experience. Ryan will cover the latter in terms of the additional investments we are making in our aircraft cabin experience. We continue to have a very solid fuel hedging position in 2023, which covers roughly 50% of our expected fuel consumption.
As you can see, from the table on this chart, at current market prices, our first quarter 2023 fuel hedge would provide a benefit of $0.16 per gallon. For full year 2023, our hedging gain would be $0.13 per gallon at current prices. Our 2023 fuel hedging gains begin at Brent crude equivalent prices in the high $60 per barrel range. These gains become more meaningful the higher prices get. On the flip side, our fuel hedging premium expense is around $0.06 per gallon in 2023. As a reminder, our hedging gains and premium expense are included in our fuel price guidance. We will continue to build out our 2024 and beyond fuel hedging position as the market allows us to systematically build the best fuel hedge portfolio at reasonable premium cost.
Our goal is to construct a total hedge position for each calendar year, at least 50%. We are at that level of our 2023, and the current value of our entire fuel hedging portfolio is roughly $625 million. What this means is we are in solid shape with meaningful insurance against material jet fuel spikes heading into 2023. Taking a look at our Boeing order book, we have a robust firm order and option schedule that is very cost- effective. It supports our growth aspirations, our fleet modernization efforts, and our retirement plan through the end of the decade. We remain in ongoing discussions with Boeing, confirming that new MAX delivery schedule that incorporates supply chain delays and estimates on the MAX 7 certification.
In terms of a fourth quarter update through the end of November, we have received 15 MAX 8 aircraft this quarter. We continue to plan for 31 MAX 8 aircraft deliveries from Boeing here in fourth quarter, for a total of 66 MAX 8 aircraft this year. As you can see in the slide, since our October earnings release disclosure, we converted four MAX 7 firm orders to MAX 8 firm orders in 2023, and exercised eight MAX 7 options for delivery in 2024. As I mentioned earlier, we plan to retire 27 737-700 aircraft in 2023, which is a bit lower than our annual target of 30-35 retirements per year.
Given the aircraft delivery delays and uncertainty around the timing of the MAX 7 certification, it makes sense for us to hold on to a few more 700s to provide more optionality in the near term. With regard to the MAX 7 delays, we have tremendous flexibility, which allow for a mix of- 7s and - 8s, and the ability to switch between the two as we firm up each year's orders. While we desire a mix of -7s and - 8s over the long term, we are not at the point where our fleet mix is being skewed by taking more - 8s through 2023. Based on our current assumptions, it will likely be into 2024 before we have an opportunity to be fully caught up on aircraft deliveries versus our contractual order book.
I am thankful for the flexibility in both our order book and our retirement plans that allow us to keep on track with our network restoration goal for next year. This puts us in a position to adjust fleet and capacity plans should the environment dictate. Turning to our relative cost position in the industry, I want to point out an encouraging trend. Sustaining a meaningful cost advantage to our peers is key to our business model of low cost and low fares. As you can see from this chart, we have not lost ground in that regard. In fact, our cost position has improved relative to legacy carriers, other low-cost carriers, and even the ultra-low-cost carriers.
Comparing, pre-pandemic second quarter 2019 to second quarter of 2022, which is the latest, DOT data available, our non-fuel unit comparisons are three points improved compared with legacies, six points improved versus LCCs, and four points improved versus ULCCs. These improvements are despite the fact that our second quarter 2022 unit costs included labor accruals for all open contracts, unlike most of our competitors. Our cost position remains very strong, and as Andrew will cover later, we have operations initiatives that are designed to maintain or hopefully widen our industry cost position in the years to come. This should be affirming to you all that our business model of an all-Boeing 737 fleet, point-to-point, high-utilization route network, and short-term times continues to provide us with a sustainable structural unit cost advantage.
While there remains some uncertainty regarding the economic environment next year, we are in a much better position this year to articulate our long-term financial goals. Looking back a year ago, we were still facing significant uncertainty around profit levels and the severity and duration of the pandemic and further COVID waves. In the midst of that uncertainty, we provided a tactical framework that wasn't meant to be annual guidance. Since then, over the past year, we had the Omicron impact in first quarter, Boeing delivery delays, a full training pipeline governing how quickly we can bring in pilots, slower network restoration, et cetera. Our 2023 guidance is still within the spirit of the framework we outlined last year and directly aligns to our enduring annual financial goals. However, we have had to adjust along the way.
Based on where we are today, here is a higher level framework for how we are managing the business. These goals should be relevant year in and year out. They are. We plan to continue to grow the route network and to do so in a disciplined way to grow profits while generating industry-leading margins and returns. For capacity, we plan to pursue modest new market growth and leverage our robust network to add depth and breadth in stronghold Southwest markets. For non-fuel costs, we plan to maintain a competitive cost position and continue managing inflationary cost pressures as we grow. For revenue, we plan to generate RASM growth in excess of CASM growth, powered by a robust set of initiatives. We intend to produce industry-leading pre-tax margins and generate returns well in excess of our weighted average cost of capital.
Our balance sheet remains an enduring strength. We intend to maintain our investment-grade rating by all three rating agencies with modest leverage. The individual metrics may vary by year. Hopefully, this provides you all with more helpful and higher-level framework that speaks to our longer-term annual financial goals for Southwest. Before I turn it over to Ryan to discuss our commercial outlook, I want to conclude with a look at our capital allocation priorities. In addition to our balance sheet strength in terms of credit ratings and leverage, we intend to maintain a minimum cash target of at least $6 billion, while earmarking a portion of our current excess cash for additional debt repayments as opportunities arise. Important to our business model is investing in the business to fund profitable growth.
In addition to the CapEx guidance for next year, we expect our average CapEx in 2024 through 2026 to be in the $4 billion range annually. As I mentioned, we aim to reduce our debt and leverage levels over the next several years. We have been diligent with repayment opportunities this year, having repaid $2.6 billion of debt. We intend to continue to be prudent in paying down our debt with roughly $3.5 billion of debt to pay off from 2023 through 2026. Once we get to that point, we are targeting a leverage ratio in the low to mid 30% range. We are also very focused on investing in our people in getting labor agreements in place as we think about the first half of 2023.
Lastly, and importantly, we want to enhance our returns to shareholders beyond the value we intend to deliver through growing returns on capital. In that regard, I am thrilled at our board's decision to reinstate and approve our pre-pandemic quarterly dividend of $0.18 per share or $0.72 per share annualized, which currently represents a roughly 1.8% dividend yield. In closing, all of these plans assume that the travel demand environment remains steady and we continue producing consistent profits and healthy free cash flow. As we close out 2022, I am grateful we are in a strong position with terrific momentum heading into 2023. On that note, I am going to turn it over to Ryan Green.
Thank you, Tammy. Good afternoon, everybody. It's great to be with you all today, and I look forward to meeting those of you who I haven't had a chance to meet yet. Bob already mentioned our revenue initiatives at a high level. I'll walk through each one in more detail and highlight the few other commercial initiatives we have underway. You may recognize the first six items on this slide as Andrew outlined these last year. I added a couple items that are aimed at enhancing the customer experience. To orient you to the list, the first two red items are network- focused. The next four blue items are our revenue initiatives, which we've quantified in terms of EBIT value. The last two yellow items are focused on the customer and in-flight experience. They are all intertwined.
They all build upon each other, and they all should be in place in 2023. Let's just jump right in. First up is network restoration. Network restoration remains a top priority for us next year. Tammy provided our 2023 ASM growth guidance of approximately 15% year-over-year. We view this as lower risk capacity growth, given the vast majority goes back into Southwest stronghold markets and our points of strength.
In fact, of our total capacity growth next year, 35% of it is carryover from 2022 capacity additions, and the other 65% is earmarked to rebuild our core markets. To decompose that a bit, the chart on the left side shows total trips in March of 2020 before the pandemic, and it roughly equals the total trips that we're flying at the end of this year. However, you can see the composition of this year's trips is made up of 85% of same-store pre-pandemic markets and 15% is made up of our 18 new airports and further Hawaii expansion. As we look to year-end 2023, we plan to have restored the remainder of our same-store markets, and we'll still have the new markets that we added in 2020 and 2021.
Altogether, at the end of next year, our trip count will be roughly 115% of what it was pre-pandemic. Based on our estimated trips by year-end 2023, we anticipate being ahead of the industry average in terms of trip growth and an expanded network footprint. In terms of how the capacity we're adding next year gets allocated, the chart on the right shows that the majority of our trip growth will be in depth, which is shown in yellow there on the chart, with the remainder allocated to network breadth, shown in black. We consider depth as adding new nonstop frequencies in same-store markets. Going from flying Baltimore to Nashville, as an example, from 4x a day to 6x a day.
We consider breadth as reconnecting dots in same-store markets that existed pre-pandemic, which have historically strong financial performance, and they're built on strong, solid customer bases in those markets, and this will restore our footprint in these key cities. As an example, we won't begin flying Indianapolis to Kansas City on a nonstop basis until April of next year, and that's a market that we flew for years prior to the pandemic. Since the vast majority of our trip increases next year are aimed at additional frequencies in existing markets and additional breadth from historical points of strength on our network, we believe these markets will come on producing strong financial results and will also provide additional recoverability options for our operations team.
Then in our new markets, maturing our new markets, as we opportunistically accelerated new airport growth during the pandemic to access new revenue pools and manage our cash burn, our percent of total capacity under development is higher than historical norms. You can see in the left chart that in 2019, our development ASMs were less than 5%. The red bar shows 2022 levels, and by the end of 2023, we expect to still have 11% of our capacity under development. This higher- than- normal level is going to continue into 2024, but we're very pleased with how our portfolio of new markets is performing.
While these markets are currently a revenue drag to system averages because they're still new and they're ramping up, they are performing ahead of where we would expect them to be at this point in their maturation curve. On the right, you can see our current Hawaii mainland and inter-island footprint, which we are also very pleased with following our last round of investments this summer. This puts us in a great spot in Hawaii. Any capacity changes from here likely will be more tactical in nature as we would do with most markets. We've talked a lot about our expansion into global distribution systems and investments in Southwest Business. We continue to see the benefits.
It puts us in a great position going into 2023, as we expect business travel to continue its recovery, we expect to gain a bigger share of the managed business pie. In order to illustrate our progress to date, we pulled market share data from top corporate travel agencies who settle in ARC, where the vast majority of managed business travel transactions are settled, and displayed it in the graph on the left-hand side of this slide. The progress is clear. In a very short period of time, we have grown our market share in ARC from virtually nothing in 2019 to 10% of domestic managed business passengers in fourth quarter of this year. We believe that we still have a large opportunity in front of us over the next several years.
The top 100 corporate buyers alone spent over $11 billion in domestic travel in 2019, and we were only able to pursue a very small percentage of that travel back then. Positioned now on three GDS platforms and with a world-class sales team in place, we're excited about our ability to continue to grow this business. This isn't just our opinion. The individuals who are responsible for procuring the managed business travel around the country, the corporate travel agents and travel buyers, are surveyed annually by the Business Travel News, as Bob mentioned. On the right-hand slide, we have plotted our progress in this survey since 2017, and if you follow that red line, that's the results over time for Southwest. We're very proud that in just the past year, we jumped from number four in the industry to number two.
We were also the only airline to have improved our score year-over-year. If you decompose this composite score we have on the slide into its components, we improved year-over-year in every single category. I'm especially proud of our progress in areas like overall price value, where we scored first in the industry, and how much the travel buyers value their relationship with our awesome account managers, and that saw our largest year-over-year improvement. I'm very proud about that. As business travel continues to rebound, we have a great opportunity to increase our corporate travel market share further with the vast majority of domestic business travel flown in coach. It is clear that corporate travel managers, again, the buyers of corporate travel, are taking note of our strong value proposition.
You may have noticed on your table there, we provided you with a Southwest Business stress ball that said, "Make shifts happen." That's exactly what's happening there, and that chart shows that. We launched our new fare product, Wanna Get Away Plus, in May. We've been very pleased with the performance thus far, and we're seeing more buy-up from our lowest price Wanna Get Away fares to higher -priced fare products, including Wanna Get Away Plus. The left side of the chart shows our four fare categories and the attributes of each. One of the key items that we added to Wanna Get Away Plus is transferable flight credits. Flexibility, a long-standing theme for Southwest, has been a clear driver of customer behavior since the pandemic began, and this is another way that we were able to provide product enhancements that customers are willing to pay for.
This is additive to the brand, not taking things away like some of our peers, and we continue to stay true to that philosophy. We are also optimistic about the long-term prospect of this fare product because based on our internal customer research, customers that purchase the Wanna Get Away Plus fare product have an 85% likelihood to repurchase that fare product when they fly again in the future. While we have evolved it over time, the core of our current revenue management system has been in place for many years. Revenue management science has improved over that time, and we are in the process of modernizing our current system with improved capabilities to forecast demand and optimize revenue.
To update you on our progress here, we continue to test improved science techniques and respective workflows in two production pilots, and we expect to implement the best performer in those pilots by mid-2023. Today, again, both pilots are in production and they are managing the full network for a set of travel dates throughout the booking curve. In monitoring the early revenue performance of the pilots, we remain encouraged that we can achieve the value we are expecting from this initiative and that we remain on track for our midyear implementation timeline. As we shared last year, we secured a new co-brand credit card agreement with Chase, and it continues to produce value. What I wanna call out on this slide is that we've seen significant growth in credit card acquisitions, up 32% from pre-pandemic levels recently.
The demand for our loyalty program credit card has remained robust and attrition in the portfolio has been at record low levels. Both of those contribute to the overall portfolio growth rate and shows demand for the Southwest Airlines brand and travel in general. Spend per card member has also increased since 2019, shown on the right-hand side of this slide. While the improved rates from the renewed co-brand credit card agreement are certainly welcome, it is the increased engagement in our core loyalty program that is driving the double-digit growth we have experienced in other revenues this year. I led the rollout of our current loyalty program in 2011, which was a complete overhaul of our previous program. Since then, Rapid Rewards has offered our members a combination of award flexibility, breadth, and value that's just unmatched in the industry.
The resulting and sustained growth of Rapid Rewards over the last decade has just been phenomenal. The continued demand for Southwest Airlines product, our recent expansion into the new markets we talked about, and deeper expansion into the corporate travel space should continue to fuel the growth of our loyalty program for years to come. Earlier this year, we announced several in-flight customer experience enhancements, a wholesale Wi-Fi upgrade, in-seat power installations, and larger overhead bin installations. We believe these enhancements to the cabin experience will benefit all travelers, but will especially be welcome additions for our corporate travelers as they value the ability to remain productive while they fly. We are underway with our Wi-Fi upgrades. Roughly a third of the fleet is done today.
We expect to complete half of the fleet by the end of January. We should finish all the upgrades by the third quarter of next year. The Wi-Fi systems that we are putting on our aircraft provide better reliability for customers today and have the capability for speeds that are more than 10x faster than our legacy system. Depending on how much bandwidth we procure from our providers, the capabilities of the new system allow for about 80% of the aircraft to stream video at the same time. We don't anticipate customer demand will require that much bandwidth today. The upgrades we are making now prepare us well for what customer demand might require in the future. We will begin our larger bin installations early next year. In-seat power installations will begin mid- 2023.
Earlier this year, we made the decision to eliminate expiration dates on flight credits. While this drove a temporary impact to breakage revenue in third quarter 2022 relative to second quarter 2022, we estimate no material impact going forward, during the fourth quarter or beyond. In terms of why we made this decision, it's part of our regular monitoring of customer sentiment and post-pandemic flexibility, as you all know it, is just more important to consumers today in all parts of their lives. More flexibility with their travel funds was a way to carve out yet another unique, flexible differentiator for Southwest Airlines. It works in tandem with our other industry-leading policies, which you can see on the right-hand side of the slide.
Our flexible policies remove anxiety associated with travel while driving brand affinity and customer loyalty. We expect this customer-friendly policy change to also aid in our corporate travel expansion efforts. When we polled corporate travel managers, 80% of them think this policy change will be very effective in driving further engagement from them in purchasing additional corporate travel from Southwest Airlines for their travelers. Lastly, you might recognize this slide as well from last year's Investor Day. We have a history of having a robust pipeline of initiatives to drive revenue growth. The same goes for this year and next. The value we are expecting from these initiatives is robust. We're not stopping there. We are already planning and sizing the next set of revenue initiatives for 2024 and beyond, aimed at driving meaningful revenue growth to assist in achieving our financial targets.
With that, I will turn it over to my friend, Andrew Watterson.
Good afternoon, everyone. Thank you for joining us here and online and those reading the transcripts. One of the great satisfactions for me with leadership is to see your successors do better than you. That's been my case throughout Southwest Airlines, and you can see that's the case today with Ryan taking over from me. It's usually a satisfaction, but it also means no going back, 'cause obviously, if he can do the job better than me, I better make the current job work. With that, I'll focus on the operation. As Bob mentioned, our operational performance since May has been much improved and more stable. Staffing is a big part of that, but stable flight schedules have also helped.
We want to run an efficient and reliable operation, and we expect that of ourselves, but we need a few basic pieces to be in place that we're missing in 2021 and early 2022. We must maintain that proper staffing in order to publish flight schedules that we can sell and operate without having to continually republish and reaccommodate. As Bob mentioned, that's what customers expect, that's what employees expect, and that's been the case since the summer. I feel we have the foundational amount of headcount and flight activity to be able to maintain this higher standard of operational reliability we've been having since May, and we're in a good path here in the fourth quarter, and we intend to build upon that foundation, which is what I want to cover today.
In this first slide, we have four productivity goals we outlined last year: aircraft, employee, airport, and fuel efficiency goals. These represent more optimal asset utilization levels, and we have been operating below those levels during the pandemic and still today. By the end of 2023, we expect to achieve our aircraft, airport, and fuel efficiency goals. The one metric that we do not currently expect to achieve by the end of 2023 is employee productivity, and there are several reasons for that. First, we're still experiencing growing pains coming out of the pandemic. We have onboarded thousands of new employees, put them through training, and sent them to the front line to put their training to work and gain on-the-job proficiency. Since January, nearly 20% of our workforce is new, and that puts a strain on the overall tempo of the operation.
Second, we are taking more MAX 8 than we anticipated that Tammy covered, which drives the need for additional flight attendants. Third, we have many initiatives underway that we'll discuss here today. For those, we've already staffed up with our indirect headcount or non-front-line operation support staff. As we grow our fleet and bring these initiatives online, that indirect headcount will start to move back towards historic norms. All these dynamics drive the need for higher staffing levels to produce 2019 levels of capacity, and we expect those challenges to continue next year. All that said, on the next slide, we have tangible opportunities for improvement, and I wanna lay out our four operations focus areas for the next several years. First, aircraft productivity, which speaks to our opportunity to increase asset utilization. Second, operating leverage.
We acknowledge that we have opportunities to realize better operating leverage going forward. Fully restoring the network in 2023 is foundational to better operating leverage. Third, operating quality, which is putting ourselves in a position to run a reliable operation, mitigate and recover more quickly from disruptions, and strengthen our hospitality. Fourth, proper frontline staffing and equipping our employees with better tools. We will continue to hire next year and fine-tune our staffing overall and by location and provide employees with better tools in an effort to step up the operations environment for success. These focus areas are designed to build upon each other, and we intend to make progress in each area over the next several years as we prepare for future low-cost growth opportunities beyond 2023.
I'll walk you through each of these pillars on the next several pages and detail some of the initiatives that we will use to deliver upon them. I'll put this in contrast to the initiatives that Ryan covered. We waited to unveil those until they were substantially done and therefore give you some initiative values. Here, we're in the early stages of build, so we'll be more circumspect about the value, but they are how we'll drive the opportunities that Tammy talked about earlier. The next page, I'll start about the aircraft productivity. In terms of aircraft productivity, we essentially wanna increase asset utilization through speeding up the tempo of the operation. There are five main areas we're focused on, with two of them planned for 2023 delivery, which means the initiatives will be done in 2023.
It doesn't necessarily mean the initiative value will be available in 2023. Turn execution is focused on faster aircraft turns between flights through streamlined digital processes and more efficient passenger flow. Aircraft maintenance optimization refers to redesigning our airframe maintenance program such that we increase availability and decrease aircraft turn time. Both of those are slated for finishing in 2023. Beyond next year, we intend to make progress with flight scheduling, blocks execution, and overnight flying. Flight scheduling enhancements should free up additional aircraft time by adjusting schedule design constraints. Better block execution is gained through flight plan optimization and performance-based navigation where we're able to do so. Overnight flying refers to red eyes. We have work streams to add these capabilities as well as unlock new flying opportunities on the same asset base.
In terms of operating leverage, we have opportunities beyond our network restoration. We have four areas that we're focused on, which are targeted flight additions, NG engine maintenance, service modernization, and growth in core cities. For targeted flight additions, we can selectively add flights in markets and at times of day where there are minimal incremental ground costs. NG engine maintenance refers to optimizing our programs and activities for greater efficiency as we have transitioned from a Power-by-the-Hour program to time and materials program for our 737-700 NGs. This means less smooth maintenance costs and allows us for our own optimization of the program going forward. Service modernization will expand customer self-service options and improve employee tools for more efficient service delivery. As you can see in the upper right visual, we have tremendous points of strength across our route network.
Southwest is number one in 23 of the top 50 cities in domestic U.S. and number two in eight of them, 3x our closest peer. That is one of the advantages to a point-to-point network, and we can leverage that to consider efficient growth opportunities in core cities across our network. In my new role as Chief Operating Officer, I'll retain oversight of network planning, which provides an opportunity for enhanced network optimization. While the primary filter remains commercial and profit opportunities, we have an opportunity to better optimize around staffing and gate capacity to pursue low-cost growth. In many of our larger airports, such as Dallas and Las Vegas, which you see on the left-hand side, and this represents charts of aircraft on the ground, so whether you're a departing flight or an originating flight.
In Dallas and Las Vegas, we have consistently high flight activity across the day, which is very efficient for the real estate, ground staff, ground support equipment. However, many of our other focus cities, like the ones you see on the right, Baltimore, Houston, Denver, Chicago, et cetera, have valleys in them throughout the day with opportunities to add flight activity with minimal incremental cost, I mentioned a second ago. You can think about where we have our crew bases. You have to have a first flight of the day, and you have to have a last flight of the day.
You look at where your crews start, every three days, you have to have someone leaving from a crew base, that creates natural peaks early and late in the day for flight activity because of the crew network. In the middle of the day, where your highest revenue opportunities are, you often have valleys or you also have idle assets and people. Adding activity in the middle of day is revenue accretive and cost- efficient. It's, you know, with our unique point-to-point network, we have many points of strength across the country to scale from, not just hubs. Beyond network restoration, we have opportunities to fill these valleys in a low-risk manner.
To kind of connect the dots back to the previous chart, you saw all the places we were number one and number two in the country. You have built-in strong customer base. If I wanna fill the valley, if I were to choose BWI , and I wanna fill the valley in Baltimore, Washington, where do I need to fly from? We'll have an opportunity of, you know, of places where I'm number one or number two, but risk of that flight, you know, failing or underperforming is extraordinarily low, so I can choose from Baltimore to fly to a number of locations, whichever one makes sense commercially. They come in the middle of the day, it helps us be cost -efficient and productive and yet have great revenue success since I'm flying from a point of strength.
Bringing these two things together leads to hitting your revenue targets while also improving your cost position. On to operating quality. We have initiatives planned to help lessen the impact of disruptions and improve our recovery time and keep the operation better on track throughout the day. There are four main areas where we are focused, and two of them are planned for 2023 delivery. Originated performance is a focus on getting the airline started on time each day through continuous improvement. Our people do an excellent job of getting the airline up and running each morning, but we have opportunities to relieve some areas of strain. It is difficult for our point-to-point network to catch up with on-time performance if we do not begin on time.
Transfer operations is optimizing the way we handle high volume connectivity across our larger airports, and we're trying new approaches by adding more transfer drivers, better information and transparency to manage our turn times. Network design and recovery converts to real-time decision-making that can take advantage of our unique network design to lessen ripple effects throughout the network. As we rolled out a limited number of station command centers a few years ago, essentially we wanna create an environment across more of our largest airports in an effort to maintain greater volume and complex activities in a coordinated and on-site fashion. On slide 38, lastly, we are focused on frontline staffing and tools. We have four main areas of focus in this pillar, two of them, again, planned for 2023 delivery.
Targeted staffing refers to maintaining hiring focus to close critical gaps across locations and keep the hiring pace to support future growth. Training and proficiency is about enhancing training approaches and to shorten the learning curves and streamline the path to proficiency. Mobility and digital tools is a key area where we want to eliminate paper from our aircraft turn processes and deliver mobile functionality across the front line. Lastly, we wanna ensure information sharing and communication between work groups to ensure we keep a focus on continuous improvement both in processes and procedures, and our frontline employees are in the best position to help us with that. These are mainly blocking and tackling items with all importance to the success and tempo of our operation. I'll close by saying, and put this all in context, we aren't looking to change our operating model.
Our key operational strengths remain core to our business model, our simplicity, point-to-point network, scale and breadth of operation, having the best people in the business and a strong brand value proposition. These operations focus areas that I covered are designed to sustain a high-quality daily operation and evaluate how we think about growth opportunities going forward. Each area builds upon and enhances our existing operational strengths. We always desire to improve and have some post-pandemic challenges we're continuing to work on, but our operations are solid, and our people are doing a fantastic job. This is about the next evolution of the operation and all about building on our past success and getting even stronger. With that, I'll turn it back over to Bob to wrap this up. Or rather Ryan.
All right. Well, thank you all for your attention. Before we go to break, we have two raffle winners. Not only are we happy to be with you, we're gonna give you stuff. The first is a Southwest model airplane, and the winner is Steve Trent with Citi. Congrats, Steve. I don't have it with me. I promise I'm good for it. We'll, we'll ship it to your home or your office. Congrats on that. Then two Southwest Airline tickets goes to Gerald Finney with Comerica. Congrats to you guys. We'll come find you during the break, and let's take a quick 10-minute
All right. We're gonna go ahead and get started with Q&A. We have Bob, Tammy, Ryan, and Andrew here up on stage. We'll have a couple mic runners, including myself. If you'll just raise your hand, we'll pass the mics around and kinda go back and forth. And like I mentioned, we do need to wrap up by 2:45 P.M. to get Bob downstairs for some media. We'll just jump right in and I'm just gonna start with Ravi. If you can bring a mic up to him, and then like I said, we'll just kinda go back and forth. Thank y'all.
Thank you. Ravi Shanker, Morgan Stanley. Two questions. First on corporate, the business you've gained so far, that 10% share, what is the mix of that between SMB and enterprise, and where do you want that to be in the long term? The second question is for you, Tammy. You said you run multiple scenarios in a bear case. Can you walk us through some of those scenarios and what the sensitivity to some of the numbers might be? Thank you.
I'll take the first question on the corporate travel business that we've won so far. You know, the larger corporate larger corporate travel has been a little bit slower to come back than some of the small and medium-sized businesses. That has been, you know, a larger share of that has been small, medium-sized businesses than, you know, kind of what the mix was pre-pandemic. I think in the long term, I think we want to get our share of all that business. We're pleased with our progress. We're gonna keep after it. We think that we've got a value proposition. We think we've got the best value proposition in coach.
I think corporate travel managers are starting to take notice of that. We're excited to continue to grow that.
If I could add on, I promise I won't add on to every single answer, Ryan, okay?
I.
Somebody keep him honest.
He doesn't believe me. I had a, just being out with our corporate teams. I had a chance to be out at the ASTA conference talking to thousands and at GBTA talking to 4,000 or 5,000. We were with BTN, Business Travel News, on Monday night. We're talking to a lot of the account managers, travel procurement buyers at all levels, top to bottom. Been in this business a long time, you know, if you dial back 5-10 years, the conversations were all about, "We love Southwest Airlines, we love your product, but you're not where we wanna buy. The back office tools are difficult, the accounting is difficult." Just all the difficulty with the process.
Now that we're in the GDS systems and other, I don't wanna overplay this, but it's just a love fest because they love the product, but now they love our processes, they love our teams. Whether from small to large, and there's a wide range, obviously, as you know, I was hearing praise for the product just off the charts compared to what I have heard before if you dial back 5 to 10 years. I do think this survey where we moved from four to two, we've never been above four, and we jumped two places in one year, trailing only Delta, past United, past American. I think that is a huge indicator of what's happening out there.
Okay. On the second part of your question on just the sensitivity, we run obviously all the sensitivities on GDP, fuel, et cetera, that you all can easily do. Really to answer your question, the approach that we took is we assume pretty tepid economic growth for next year. We use the forward curve for fuel prices, of course. We, we feel like we took a reasonable and kind of center cut, maybe a little conservative with respect to the economy in sharing with you our assumptions today.
obviously, we're mindful of what's going on in the economy, but when you kind of pair that with what feels like there are some constraints overall from a fleet perspective, getting aircraft, and obviously, we've talked a lot about pilot training. There are some constraints, at least in terms of that could be a buffer perhaps. Taking all of that into consideration, as well as just the plans that we have for growth that Ryan took you through, our growth plans, I believe, are pretty low -risk growth plans because our capacity is going into stronghold Southwest markets. We know those markets well, and we're essentially just replacing capacity that we were flying pre-pandemic, where we know there's demand. We feel really good about our plan.
You know, furthermore, we wanna fly our published schedules, but when we kinda get past that, you know, obviously, we do have flexibility with our fleet, and retirement plan so that, you know, should we need it, can also serve as a buffer as well. All that to say, we put a lot of thought into what we shared with you today, and we feel like it's a reasonable plan.
Thank you. Good morning. Duane Pfennigwerth, Evercore ISI. Maybe just relatedly on 2023, if we look back, you know, if we meet a year from now in this room and we look back on 2023 and in the scenario where capacity is materially lower than the 15% you've outlined, what do you think the top three drivers of that will have been?
I don't expect that, number one. You know, we're always faced with uncertainty every year, whether it's the economic externals or it's fuel prices or whatever. I expect to execute our plan. I think the larger question mark is just the aircraft delivery plans probably. That's probably a bigger question in my mind right now. The good thing there, and I'm off your questions just a bit, is that because the pilot hiring doesn't catch the aircraft until probably fourth quarter of next year, there's a lot of range in those delivery plans that really doesn't affect our capacity for 2023. You know, it's complete speculation. I think for capacity to come in substantially lower, it would be a very severe recession.
That's probably the only case would be my guess. Obviously, if you have a very severe recession, a lot of times that takes oil prices down with it as well. This is all just complete speculation. You know, we use a very top-tier set of economic experts to produce our plan. As was mentioned, we have very tepid growth embedded in the plan already. The markets that we're going into, it's all basically restoring depth and breadth in markets that we had in 2019 before the pandemic. It's low risk growth. It's growth that's gonna mature rapidly. We also have the 18 cities in the Hawaii that's gonna mature.
Yeah, it's all real speculation, but I think it would just be a very, very severe recession that is really not on the radar for most of any of the experts that's, that we're talking about in terms of economic.
Appreciate those thoughts. Maybe just a follow-up for Andrew. On your slide about efficient connections and improving turn times and getting back, you know, the kind of efficiencies that Southwest produced in the past.
I wonder, do you have a sense for how much Bags Fly Free sort of strains the operation? Do you stress test the logic of maintaining Bags Fly Free as it relates to efficiency and sort of faster connections? Thanks for taking the questions.
No problem. The bag volume. We don't spend a lot of time worrying about bag volume. You know, except for certain locations, certain time of day, it may, you know, restrain your operations because of the bag handling system capacity. Absent that, you have ramp workers, you have bell loaders, you have a bag system, the amount of bags going through there is not really the issue you're worried about. The one we highlighted is connecting bags that have come up. That's two things happening. One is our largest cities are now becoming larger than we've ever experienced. Even though we're not trying to drive connections, just the sheer volume of flight activity generates more connections. You have more leisure customers than normal during this period of time. Who checks bag?
Leisure customers. The connecting bag growth on nominal terms was driven by being in a higher flight count we've experienced before and more leisure as a composition. We found that would slow us down on the connections. There's a part of the business restoration, there's a travel restoration, which will drive down the composition. That, that'll help. We still see that when we reach certain nominal flight numbers, we'll have connection bags we need to deal with. It's the icing on the cake. It's not the cake for us, but still the nominal numbers are such that we need to have a dedicated staff, processes, and technology to support it, so that we can do it efficiently and fast. That's what we're talking about. We're just getting ahead of that.
As we grow back, we can see it happening more and more, and so we'll build it before we experience it, which will happen sometime over 2023 and 2024.
When you look at the
Charging for bags. Charging for bags to fix that is not-
Oh, charging for bags is.
No.
It's not the number of bags per se that's the problem. It's when you reach certain nominal levels, even if you have a drop in bags per passenger, you still reach a point where you have a certain number of passengers and therefore a certain number of bags you must handle. We need that capability, whether that's today or 2023 or 2024. We need that regardless.
A lot of times when you just measure upstairs, downstairs, the constraint is actually passenger movement. It's not the bag loading. You've seen us recently. There's some work going on in San Antonio to just think about how to maybe speed up passenger processing and loading to the jet bridges onto the aircraft. It's typically, even though we may carry a larger number, it's typically not the bags that are the issue. You've seen our investment that's coming here in the larger bins where the bags can be tilted sideways. Andrew, I can't remember the number. I think it's 35% more bags it holds on the aircraft.
50% more.
50%. The intent there is it will speed up the boarding, that passenger movement, so you're not hunting a spot. At the same time, it should all but eliminate gate check bags, which is a lot of times the delay in the turn.
I won't let them charge for bags anyway.
Yeah. Neither will I.
No desire, really. Stop trying to vilify me.
We are not charging for bags.
This is Helane Becker with Cowen. I'm over here. So here's my two questions. The first question is how are you thinking about aircraft financing? I know you talked about the cash position coming down to closer to $6 billion, so financing those aircraft. I know you said that you said something, Bob, that was of interest. You're expecting 100 aircraft next year. What are you actually planning for, given delivery delays that still exist? How are you thinking about the -7, given that the Boeing waiver, or whatever you wanna call it, wasn't included in any of the bills that are in front of Congress before the year-end deadline? Thank you. A lot of questions.
If you don't mind, let me I'll talk to the plan and then come back to the financing with Tammy, if that's okay. Yeah, our plan originally for this year was to take 114 aircraft, and we will likely take 66. That's in the current, that's our current best estimate. We haven't changed the book, the order book. The aircraft are just pushing the future period. What we didn't take this year, we're just pushing into 2023. The plan for 2023 right now, as I mentioned, is built around 100. We'll take 100, I think, with 27 retirements, so a net of 73. You've heard me say that would push the Boeing delivery catch-up into 2024. Just the math says that that's the case.
That's our current best guess. We're agreed with Boeing as in terms of that being the best guess. Again, my guess would be when the year is done, it won't be exactly either of those numbers. It'll move a little bit, just like it moved here in 2022. The good thing is it doesn't change our ability to execute our capacity plan because the constraint is still pilot hiring. Again, the hiring is going great. Sometimes when I say that, what gets quoted or interpreted as you're having trouble hiring. We are not having trouble hiring pilots. We're getting pilots, lots of pilots, great pilots. It's the classrooms are full, the SIMs are full.
The pilot hiring doesn't cross the aircraft constraint till late next year in the fourth quarter, in all likelihood. No matter how that flushes out, it's not likely to affect our capacity in 2023. When you think about the MAX 7, we're, as I mentioned, we're eager to get the MAX 7. The MAX 8 is a great aircraft. The MAX 7 is gonna be a fantastic aircraft for us. It's in Boeing's lap, really not ours. You know, I kind of hate to speak for Boeing because the extension is really their, you know, their activity. We talk to them all the time. They're hard at work on this. This is just Bob talking, I think we'll get the extension. Boeing will get the extension.
That will take them some period of time then into 2023 to get the certification of the MAX 7. The time between that certification and when we would then put the aircraft into service is roughly 5.5 to 6 months. When you hear me say, we're likely to not fly a MAX 7 in 2023 or until late in 2023, that's really the reason. It's just the math of some number of months to be certified and then six months to put it into service. No, we fully expect, for Boeing to be granted that extension. Then on the financing.
Helane, you know, obviously we have a significant liquidity. Our cash is $13.5 billion. Our leverage is sitting at 46%. Based on plan that we've shared with you all today, we can easily manage our CapEx requirements. We're actually more in the mode right now to pay down our debt and bring our leverage. Ultimately, our target is in the low to 30% range. At least for the next year, and as we plan ahead, no, likely no financing needs if in outer years may be modest and just in terms of hitting the leverage target, the low 30% to 35%-36% is kind of what we're targeting there.
We can pay for it, with cash, and that's our intention.
Bob, Michael Linenberg over on your right. I'm gonna have you right here.
It's hard. It's hard to find.
I know.
The mic-
I think we're gonna go side to side. Michael Linenberg with Deutsche Bank, and I'm gonna ask you the question since you had the slide, but anybody else can chime in, and then just a quick follow-up. On the EBIT contribution of $1 billion-$1.5 billion, the objective this year. So far we've gotten to $700 million.
Right.
When we look at that gap, we're somewhere between $300 million and $800 million in 2023. What's getting you to the low end? What's to the high end? Is it the rollout of RMS? Is that the big driver there? What are the other initiatives that will allow you to get to the high end?
You know, it's all that, and I'll let Ryan chime in here. First, I'm really, I'm happy that we have and have had for years a commercial revenue plan that we can talk to you about in detail with targets.
Mm-hmm.
I'm second, I'm very happy that we're executing on that plan. As Ryan mentioned, when we meet again, in all likelihood, we'll come back with the next set of initiatives to begin to talk to you about. I like the discipline in which we execute on the commercial side. I think the answer is all of the above. A part of this is fleet modernization. As we take aircraft more and more and more, that contribution shows up, so you're gonna see that increase in 2023. The Chase agreement accelerates. Our acquisitions, the card spend, all of that is well above pre-pandemic. As that accelerates, that contribution also accelerates. No, you're right.
The piece that is still coming in 2023 is the revenue management system, I think in all likelihood next summer. That is really where the largest incremental contribution is. On GDS, we'll see. I feel like we talked a lot about the movement in the acceptance of the program, the traction behind the GDS. You've also got the continued traction behind restoring business travel generally from the current down 20%-25%. That's a big driver as well. It's really all of the above. Any. Yeah, Ryan, you wanna add anything?
Yeah, not much to add. I'll just say that we're on track and, you know, right where we expected to be. Some of it is growth that will continue. You know, some of these benefits are paying off here in 2022. The benefit will grow into 2023. Business travel restoration is part of that. New fare product is ramping up along its maturation curve as well. Of course, mid-next year, we're on track to deliver the new revenue management system, and it will then begin to pay off and kind of ramp up over time.
That's my second follow-up. Ryan, just to you, when we think about the rollout of RMS, what is the, you know, how many years do we get to the point where we get to sort of, you know, full potential? As I recall, you know, at least in the past, the RMS systems, you know, the accretion to revenue, people look for around 2%-3%. Is that within the ballpark? Any color on that would be great. Thank you.
I think, you know, I mentioned is that we have pilots with these new RMS systems that are in production today. We're delivering results today. You know, if you kind of take our legacy system and then each of the two pilots at the end of the year, kind of each is managing a third at the end of 2022, each is managing kind of a third of the departure days. We're seeing these systems, the results in kind of real time, and it's number one, I'll just thank our revenue management team. It's a complex task on an average day to manage to yield manage the network overall, much less how to do a third, a third, a third. They're doing a fantastic job.
You know, you see the results in our revenue, in our revenue performance here, and that's kind of under way underneath. The good news is there'll be some refinement once we get, once we choose which direction we're gonna go mid-next year. There'll be some continued refinement, but we're learning as we go here. I expect that the results will come on. In terms of the size of the opportunity, those numbers are, you know, they're certainly possible. I don't. We'll, you know, we've got a number in the EBIT value here, and we're not gonna break those out. You know, those are not out of the realm of possibility, I wouldn't think.
Thank you.
Good afternoon. Jamie Baker with JPMorgan. Question for Tammy and question for Ryan. Tammy, there was a point in my career where modeling forward year ex fuel CASM was comparatively easy. I would not describe the last three years as such. The second half guide that you gave, do you feel that that is an adequate baseline? Is it clean, for lack of a better term, that we could then build off that for 2024? Second, have you revisited your labor accruals since Friday night?
Yeah. I knew you were gonna ask or someone was gonna ask that question.
You knew it was me.
I think you might have asked me that question on our last conference call. As I mentioned and answered on the last call, yes, our accruals are dynamic, and we are doing our best to capture, you know, what is the market movement. We're, you know, we're obviously not gonna get into the details of our accruals. Yes, I can tell you that the guidance that we shared with you today incorporates our best estimate of labor accruals on the open contracts. I agree with you 100%. I remember back in the day, I think when you and I were working together, when I was much, much younger, you could kinda plug in +2 on RASM and +2 on CASM, and all was good.
Very, very different today. Just to give you a little bit of color on our CASM trends, since, you know, we're here in the fourth quarter, our CASM-ex is, our guidance is up 14%-18%. Just dissecting that a bit, over half of that CASM-ex pressure is due to suboptimal productivity, and that's both productivity and capacity. As we restore our network and our pilot hiring catches our fleet in to the fourth quarter of next year, that should address the capacity impact of that, if you will, if you're tracking me. Then the remainder is due to, you know, change of behavior.
There's some part of that that we are working to address, and Andrew took you through a lot of the actions and initiatives we're working on there. It does feel like a little bit of that is sticky. You know, we are working on that as we move into, you know, as we end 2023 into 2024. Hopefully, that helps provide a little bit of insight. Except for that piece of it, I would say it's, you know, it's fair, it's fairly clean. Again, as you started out with your question, it does include labor accruals. Of course, those are compounding into next year from this year, and all that's been taken into the guidance that we've given you.
Very helpful. Ryan, you know, it's clear that Southwest, it's been mentioned, you know, a couple times today, you're not seeing any unique pilot challenges, especially with training, not with hiring. Other airlines, competitors clearly are. Smaller competitors clearly are. You're obviously well aware of what's been going on with regional pay rates, and the cessation of service to smaller communities. When I think through that overall phenomenon, my conclusion is that there is a positive potential knock-on effect for Southwest, but that was not one of your slides today. Have I been wasting my time thinking in this way? Feel free to tell me that I've been wasting my time.
Well, I'm not... Uh, what I would say to that is that, um, you know, as Bob mentioned, we're not having, uh, a difficult time hiring pilots. Um, we are, uh, an employer of choice, and, um, we are a fantastic opportunity, uh, for pilots, and, um, we, we don't expect, um, that to change as we go forward. So I think the way I would characterize that for you is that I don't-- I think that we are going to be able to prosecute the growth opportunities that we want to prosecute that would not be constrained, um, by any sort of pilot capacity issue, just given the fact that they wanna come work for us.
I, I, I-
You know.
Both of us. Sorry. Just I think-
He's not gonna answer you.
Is there a pilot shortage is a complex question because it depends who you ask and who you're talking to. That's the point of your question. I think the. What is the impact on the industry if there is. We have spent a lot of time understanding what does it take to produce a pilot? Where are people in the system to become commercial airline pilots? What all that means for the industry and what all that means for Southwest Airlines. I'm sure we're all doing that. One thing's for sure is that, well, I think a couple things. I think it's a great time to be negotiating because wages, you're seeing wages come up. It's a great time if you're a pilot to be negotiating.
I think all that will over time bring more pilots into the system and help solve this. It takes three years, maybe sometimes longer, for a pilot, once they enter that process, to come out the back. That would tell you that we've got a period of time here where there is a squeeze no matter what happens. Which is why you've seen all kinds of things going on around bonusing and rates. As you're already seeing, I would suspect, and I'm not trying to speak for anyone else, just more an industry dynamic, you would suspect that that is tougher on the regionals and others, and not as tough on maybe mainline, Southwest obviously being one of those. Our read of that dynamic is that we don't have an issue.
Which is why I always say we are not having trouble getting hiring pilots. I don't think we will have trouble hiring pilots. We're hiring 2,100 plus next year. That doesn't mean parts of the industry won't have trouble hiring pilots. Again, this is all total speculation. You could extend that argument to parts of the industry are gonna be capacity constrained, and then even parts of the industry that have feeders and connectors to that may be constrained, which I know is where you're going. I'll just tell you that shortage and squeeze for a period of time and then that outcome in terms of the impact on the industry is not an unreasonable outcome.
I would say, trying to answer your question, is that, you know, our growth that we're talking about as restoration would be very low risk. We'll be putting capacity back into the markets we were at before. We're not suddenly gonna be distracting, go out of our way to prosecute, you know, things we see off to the side. However, even though sometimes the regional capacity crunch is characterized as small city, the large majority of regional flying is in big cities and that's flying up against us. There are many markets where they overlap with us as RJs, and if They can choose where they choose to deploy their RJs, but there will be less of them than there were before.
Whether that's a positive for us, that's up to them, where they deploy the RJs. We know that we're gonna be focused on restoration and to the extent they can't support the flying because of the pilot shortage, yes.
The last connector to that, as you can tell, we've spent a lot of time thinking about this. The last connector to that too, it is a little more of a tangent, is, I mean, during the pandemic, obviously we opened the 18 cities and many of those are very small, a few flights a day. We have absolutely figured out how to connect small and very small cities into our large network and be successful. Those are all at or ahead of the progression that we had planned in terms of their maturity. In terms of thinking about others may pull out of things and what can we do over time, again, our focus next year is on restoration. If you go out past that, what kinds of opportunities could we prosecute?
As a commercial capability, we know how to execute small cities and very small cities now.
The sky's the limit, Jamie.
Hi, good afternoon. Daniel McKenzie from Seaport Global here.
Yes.
On your right. A couple questions. The first for Ryan. Thanks for the slide on the share shift in based on the ARC data. If you can also talk about share shift in the, you know, the $11 billion wallet spend. The largest 100. You know, you shared that that's slower to come back. What's it going to take to accelerate those volumes? Where are you today with respect to that wallet spend? What percentage share? If you can just remind us, you know, what % of your flying is, say, three hours and less.
The percentage of flying. Let me take that first. Do you know that off the top of your head, percentage of flying three hours or less?
These days with the networks moving around.
Yeah.
Usually we have 40% of our trips in kind of shorter haul and 20% on medium haul.
That's the answer there. On the share shift question, I think the $11 billion that I threw out, that's just really to give you context on what the opportunity is with the top 100 buyers alone. Of course, the market itself is bigger than that. Like I said, over time, as corporate travel continues to rebound, we want to get our share of the large corporate travel buyers and then small and medium business as well. We're making good progress there. You can see that the progress going from in ARC virtually nothing in 2019 to 10% here today. We're continuing to make progress, and we think that we're probably outperforming.
Not probably, we think we're outperforming the industry on passenger, on passenger growth. We're really pleased with that progress. On a revenue basis.
It's interesting, the industry, it's a little bit of apples and oranges on how the industry is reporting on corporate travel recovery. The way that we have done it is that we're reporting on managed business revenues, and the revenue piece of that that's associated with a corporate travel ID. It's part of our managed, it's part of our managed program. That continues to recover. We're a little bit on the revenue side, you know, we don't participate really on the premium side of revenue, of which our competitors do. They may have a little bit more of a tailwind on the revenue side. Certainly on the passenger side, we're making progress, and we're really pleased with it.
We expect to continue to make progress as we go forward into next year.
I correct myself. It's 40/40/20 for short, medium, and long. I apologize.
Thanks. Appreciate that. Second question here is for Tammy. You know, the messaging today, RASM, you know, the plan is for RASM to exceed CASM. Does that get you to free cash flow profitability this year? One, then second, you know, what are the larger working capital drivers that might swing that one way or the other?
Yeah. With the outlook that we shared with you, and as Bob alluded to, you're getting back to 2019 levels kinds of profitability and very strong, you know, similar cash flows relative to 2019, you know, in that ballpark. The one thing on the CapEx for next year, just keep in mind that our Boeing deliveries did shift. We were originally planning for CapEx of about $5 billion this year. When we were here a year ago, that was the number that we shared with you all. We're gonna close out this year, call it $1 billion less. We've got certainly some shifting into next year. Very manageable obviously.
As I mentioned earlier, I think with Helane's question, you know, obviously we have a very strong cash reserves, our long-term target there is $6 billion. We've got a little bit of choppiness here from a free cash flow perspective, given some of the lumpiness in our capital expenditure, the way that's moving. The CapEx guidance that we provided for next year, it's tied to our getting 100 aircraft, just remember our contractual order book is kind of moving with that. At some point, probably when we get into 2024, all of that should smooth out some.
Thanks.
All right. David Vernon from Bernstein. Thanks for having us in today and thanks for the presentations. Andrew, you mentioned, we're not gonna be quite getting to your productivity goals in 2023. Can you talk about kind of what the runway is from 2023 going forward on productivity? Should we be expecting pilot productivity to get back to pre-COVID levels, or do some of these never complete changes kind of constrain you in some ways? How do you think about driving productivity in other parts of the operation, outside of the flying ops?
Well, I would say that our pilot productivity is on the how much they're flying is not an issue. We're kind of maximizing pilot productivity right now. Employee productivity, I talked about employees per aircraft. Flight attendants and ground ops are the employee groups that are larger on a per aircraft basis than normal that we won't be able to get back to. As I mentioned, the flight attendant part of that's driven by the larger gates. With the MAX 8 requires four flight attendants rather than three. We had originally planned on taking all MAX 7s this year. Now it's all MAX 8s.
That, and Bob talked about how next year we're not planning for the MAX 7, so another year of all aircraft take four flight instead of three. That just pushes up your nominal employee count. On ground operations, we have some areas that are properly staffed, and some areas that are overstaffed now because people who are junior don't have the proficiency. As those people get proficiency over next year and into the year after, we should see ground operations generally start to normalize. I mean, if more people leads to less CASM, we'll certainly make that trade-off and gladly have too many nominal heads if it leads to lower CASM-ex.
Right now we're overstaffed in ground ops because of that proficiency level that I talked about. They're at a training, they can't maintain that same tempo as a tenured employee.
Before I get to Ryan, though, but if you think about the pilots that are in training right now, when those get absorbed, then will you still be back at that same level of?
There is a, there is a modest number. It doesn't really affect the big number I talked about of employees per aircraft. There are pilots that are in the active pilot count that are in training and therefore not flying.
Yeah.
Those as our training bubble comes down. Having been pilot constrained, necessarily that implies you have a training bubble which then normalizes to track aircraft growth after you finish, after you catch up. In that situation, it'll normalize, but there'll still be people in training as a drag. Not a drag, but as a component of that going forward.
All right. Then, Brian, just to talk a little bit about commercial for a second. The 11%-13% of routes that are in development right now, obviously launching those routes during the pandemic. Can you talk about how they're developing relative to, you know, pre-pandemic kind of levels of maturation? Do you see any sort of risk that if there is a little bit of pent-up flying that's absorbing that, does that go away? How do you think about maybe curtailing some of that capacity in a down market in those development areas?
You know, just the markets overall, we're pleased with where they are in the maturation curve. I think we've shared previously that when we go into a brand-new market, it takes us about three years on average to mature a brand-new market. That's just because it takes time to drive awareness and set trial from customers, get them into the loyalty program. You know, and then over time, we get them into our lifecycle marketing and customer development efforts to kind of move them up the customer value segmentation chain. That just takes a little bit of time. These markets are on, you know, the same type of maturation curve, regardless of when we added them.
If you look at their performance in totality, which we do, the markets are performing ahead of where we would expect them to be in their maturation curve at the moment. The commercial teams. That doesn't just happen. The commercial teams have been actively working cross-functionally to mature those markets faster than their maturation curve, and we'll continue that work into next year. In terms of what the impact is into next year, they'll be further along in their maturation curve, so the penalty is less next year than what it was this year. That should be helpful, you know, regardless, and we'll continue to work on that. It's a commercial priority and focus for us.
It's all tailwind. I mean.
Yeah.
We've got the 18 cities that we opened during the pandemic who are now deeper into their maturity curve. Those are close to the end state in terms of ramping up, they're all on track or ahead. Same thing with Hawaii. We've got the new Hawaii Inter-Island service that we'll have to mature. We've got the restoration of the network, depth, breadth, which is much lower in terms of its level of risk, they will mature faster. That'll occur across 2023, 2024. A lot of our 20-- we haven't talked about 2024 capacity. We're not gonna share a, you know, a number there. Obviously, with the level in 2023, a lot of your 2024 capacity is gonna be carryover, which also carries a lower level of risk in terms of its development.
I think it's all a good story.
Hey, everyone. It's Conor Cunningham from Melius Research. I'm over here. Hey. Andrew, just on this concept of filling valleys. You know, I get what you're saying on the efficiency side, but it's hard for me to understand why it wouldn't be margin dilutive overall. Like, they're a valley for a reason. Can you just, you know, dive a little bit more into that topic and why you think it's accretive overall?
Sure. The... I'm assuming you're saying it's dilutive because of the revenue side, right?
Correct.
They're a valley only because there's a peak. Not to get too cute on you, but the peak is driven by crew. Your crew have to start the day somewhere, and they start the day in their bases. They have a three-day trip. That means a third of your aircraft have to start the day in a crew base. Then end the day in a crew base, and that invariably leads to these peaks at the end of the days. You don't have to have the valley be all the way to the top. You saw that in Vegas and Dallas, there's still peaks throughout the day. It's just bringing the valley floor higher. Doesn't have to be all the way up.
To the extent you bring the valley floor higher, you're doing it in a very cost-efficient manner. You say, "Well, where are you flying that flight from?" Because if you just pile it into the same route, then yes, it's dilutive. The point is, if you're a company that has, like, just four or five cities where you have a strong customer base, then you're gonna be flying it to those four or five cities. The point from the other slide, where there's 23 markets where we're the number one carrier, and eight markets with the number two carrier, and that could be places like, you know, Dallas and Chicago, where we have huge customer bases.
You have 31 cities, and multiple airports in those cities sometimes, where you could fly that flight from to Baltimore to fill up that valley. You don't have to choose one that's already well-served. You can choose one that's modestly served and needs to be better served for the business traveler or one that's unserved. The way to have your cake and eat it too is to fill the valley coming from places where you're gonna minimize dilution. When you have a starting point of 31 places to choose from, you can then avoid dilution, unlike a carrier who has just four or five choices. That's the trick. That's why we're different. That's why we can break the trade-off curve there.
Okay. Appreciate that. Then, Ryan, at the end of your presentation, you talked about 2024 a little bit, and I hate to go that far ahead, but I'm going to. Just, high level, like, how are you thinking about those revenue initiatives that are out there that you're starting to build into that pipeline? Is it more dynamically pricing or penetration on what you're currently doing? Just, you know, again, not asking for what they are, but, you know, how are you thinking about it overall? Thanks.
Yeah. I think, I think we've got a lot of opportunities available to us just in general. You know, if you think about there are still things that we have not prosecuted that are really kind of industry standard type things. Andrew mentioned red-eyes. There's obviously a utilization benefit to red-eyes, but there's also a revenue benefit to red-eyes. That's kind of industry standard stuff that we haven't prosecuted yet. Interlines, code shares, airline partnerships, things like that, we have not prosecuted those industry standard type revenue initiatives. You know, I think the great thing is that we've got.
Tremendous network and a very large revenue base and small improvements on a very large revenue base are material to our results. You know, I think we've got a lot of opportunities at our disposal. It's really more about picking the ones and prioritizing them in a way that come on over time and that we can absorb from a technology and an operations perspective, just that the organization itself can digest those in a reasonable manner.
Thanks. It's Scott Group from Wolfe Research. You talked about a plan to get back to 2019 margins next year. I'm wondering, do you need positive unit revenue to get there? 2019 was impacted by the MAX. Do you see a path over the next few years to get to the 2017, 2018 kind of margin range?
Yeah, I think I just start with, well, how do we plan, you know, for 2023? That's, we've gotten that question quite a bit and got it earlier. 'Cause there are all kinds of things out there. You got recession talks at all kinds of levels. You got fuel prices at different levels. You've got global potential global threats. We like to plan straight down the middle. We don't plan aggressively or conservatively. We try to plan to the best set of information that we've got. We use a set of economic advisors. I would tell you that what's baked into the plan is very tepid in terms of GDP and growth. I think we planned appropriately there.
So we've got tremendous, and sort of back to your question, revenue strength right now. There's our booking demand is really good as far as we can see. We have visibility, you know, kind of into February, maybe a little bit beyond that. The demand is very strong. We've got revenue momentum. We've got sequential revenue improvement here from the third to the fourth quarter. The plan is for that to continue to some extent into 2023. I think our plan is very appropriate. In other words, just to simplify it, to get back to pre-pandemic net income or profit levels, that's not a stretch in terms of the way we plan. Plan's gonna unfold however the plan's gonna unfold. The year's gonna unfold however the year's gonna unfold.
In terms of how we plan, we plan normally and we planned, you know, basically straight up the middle in terms of the external factors, especially the economy. I'll pay if you wanna add anything.
Yeah, no. You've covered all of it really. I'll just go back to the discussion we're just having with Ryan. You know, we're not depending on just the economy. We've really worked hard to have revenue initiatives that will help obviously in any type of environment. You know, that we're not immune to economic weakness, but I think over the years we're resilient because of our low fare, low-cost brand. We're not relying on just that. We also have the revenue initiatives that we expect will contribute very nicely.
You got the revenue initiatives, you got the continued increase in business travel, managed business. You've got whatever this business leisure, I refuse to say bleisure by the way. You know, combo. Something is happening there that's material in terms of the way traffic is showing up. The growth that is coming, we just talked about it, is low risk for us because you're basically putting depth and breadth and restoring markets that were successful prior to the pandemic. You have a lot of things that provide a tailwind on top of whatever the economy is gonna do, which I think is very helpful to our planning.
Okay. Tammy, just one more for you. If I look at the back half next year, we've got capacity up high teens and CASM down mid-single. I guess, when do you think we get back to more of a normal relationship between capacity growth and CASM? Maybe just a similar version, I guess, maybe of Jamie's question.
Yeah, no, that's a great question. I think hopefully we're doing an effective job sort of painting the picture for you. You know, obviously, this year was more of a transition year coming out of the pandemic, starting off the year with Omicron. We're ending this year on a high note, with strong revenue trends. As we move into next year, we've talked a lot about the cost pressures, of which a lot of those are tied to just not having back our normal productivity levels. There's a piece of this, of just getting our pilots and getting our staffing to levels that we need them to be to fully fly the fleet.
Then you have the fleet question, which is likely gonna carry over into 2024. Hopefully by the time we get into 2024, maybe, it's hard to say exactly when in 2024, 'cause I don't know the answer to the fleet piece of that yet. But I would think that, you know, we'll be in a much stable, more stable environment, and we can, you know, fingers crossed, get back to, you know, more traditional relationships.
Yeah, sorry to jump in again, but I think you've got just simplistic, you've got this period of very abnormal inflation. Some of that is goods and services, a lot of that is wage rates, where they're moving quickly. We'll all get contracts. We've got contracts opening and voting for our customer service agents, for our flight instructors now. We're making a lot of progress on the contract front. Obviously, our big ones are still open with our pilots and our flight attendants, but we'll get that done. All carriers have to get those done, and then I think lap that period where you had that abnormal inflation of the rates moving. That's 2024, that's some period of time that you've got to get to that.
You've also got this period of time where we Southwest and all others, but I'm just talking about ourselves. We've, as we talked about before, you know, half of the CASM increase is due to inflation and all that other stuff, half is due to other things, most of which is we're just not flying all of our aircraft. We're just not efficient in terms of the network and the aircraft. Once you get all that accomplished, which is probably fourth quarter of next year, about half of that, half of that half goes away, that takes you into late 2023, early 2024.
Now you're left with three or four points of stuff to wring out, which to me, that's really back to your question, kind of the normal CASM increases that we would be working on. That's really mostly all the stuff that Andrew was talking about around modernizing processes and procedures. It feels like it's into 2024 before we get back to what you're talking about, a period where that relationship with capacity and CASM is normalized again.
Yeah. Just, you know, the environment we're in has obviously been very dynamic for all of us. We, I think the key here is we really have to balance all of this as we go. You know, we've worked really hard to do that and then also just have a lot of flexibility in our plans, so that we can adjust, you know, should we need to. We built our plan that way. We have our Boeing order book. It has lots of flexibility in it and so forth and so on.
We are the framework that we shared updated a little bit for you today that really is how we're looking at managing the business so that, you know, we can year in and year out, deliver RASM in excess of CASM and in a way that produces industry-leading returns. The financial goals that we've long had, you know, over the long term, those really haven't changed, and we're just going to have to adjust and adapt here as we go.
Hi.
Good afternoon, everyone. Oh.
Sorry. Brandon Oglenski from Barclays. Tammy, maybe just to follow up on those comments and Bob and Scott's initial question on margins. It's no doubt that investors don't like volatility and, you know, just looking at airline stocks this year, right? We're all worried about a recession. How do you manage earnings downside risk? How do you manage such that this isn't such a boom and bust business now? What are some of the tolerance levels next year that you guys will be looking at to change course? Then maybe longer term, you know, interest rates are higher now, maybe with some duration is, you know, a mid-teens operating margin the right target going forward?
Well, you know, when we look at managing our business, we're obviously looking at over the long term. You know, obviously there's, if you, if you look at Southwest over a long period of time, there's obviously, you know, cycles. As I said earlier, we're not immune to economic weakness, but we have tried to build a lot of resiliency in our plan. Our plan, it was designed in a way to mitigate risk from the economy, that the economy might present. Our growth plans, we've spent a lot of time talking to you about those today.
They are designed to be low risk because we know those markets, we know what the demand is in those markets, and we're in a lot of ways just really simply replacing the 125 airplanes that we kind of borrowed to accelerate the growth for these 18 new cities from markets that we were flying pre-pandemic. We can certainly adjust as we go here, but we have designed our plan with in a way that mitigates our risk. That's just one example on the revenue side. Then on the cost side, you know, we definitely have inflationary pressures. Those are real. We talked a lot about those. Certainly the cost that we can control, we're working really hard to improve where we can.
Fuel cost is another one. You know, if we are in an, I can't tell you for sure sitting here today what fuel prices will do, obviously, but that could, you know, we're in an environment where fuel prices, we are seeing some relief there. If not, we've got a fuel hedge in place to protect us, you know, should we see higher fuel prices. We the plan that we have today is trying to mitigate some of those risks that we're talking about. At the, you know, end of the day, we also have a very important strategic initiative called fleet modernization.
We have the good fortune of being able to make decisions as we go here as to whether we put that aircraft into growth or we replace the 700. The NPV on just accelerating fleet modernization efforts is very strong and positive. You know, we'll make these decisions. We'll be nimble, as we always have been, but we are driving the business to achieve the kind of margins that we can all be proud of.
Good afternoon, everyone. Andrew Didora at Bank of America. Tammy, just on CapEx. I know a lot of moving parts here between 2022 and 2023 that you outlined pretty well in your remarks. In terms of 2024 through 2026, I think your numbers came up about $500 million a year. Is that also just shift in spend, or is that higher non-aircraft? Just curious what accounts for that.
Yeah, it's largely just shift in aircraft. As I mentioned, as we've shifted the order book, that's certainly impacting 2024 as well. You know, if you look at our non-aircraft CapEx spend, most of that goes into the operations, close to a half a billion of that. You know, we'll work really hard, obviously, to manage that as we go. Technology is another big piece of that as well. We spend several hundred millions in technology. We'll, you know, work really hard to keep that under control as well. The other really relates to airports and, you know, that's a couple hundred million. We'll rein all of that in and control that as best we can, as always.
Most of it certainly is the aircraft and just the shifting of the deliveries.
Right. It's the aircraft plan. It's almost entirely that.
Got it. Second question for Ryan or Andrew. You know, I guess in the past, when Southwest has rolled out new systems, you know, I guess we're often reminded just how maybe old the old systems are. You know, when we think about the new revenue management system coming in, are there any new capabilities that you will have in that system versus what you're working on right now outside of just pure price optimization? Thanks.
Yeah. The new system, or that are in pilot today, it's really gonna do two things. The revenue management science has evolved over time and certainly since we put our current system in place. It really... There's two different things. First, it just forecasts demand coming at us better. It's just more sophisticated that way, and obviously that helps in terms of how you manage the yield and manage the individual flights. The other key piece of it is on the optimization of the revenue front. It makes better decisions for lack of a better word.
It makes better decisions and trade-offs, at the system level on what fares to take, either on a connecting basis or on a nonstop basis, or even when to sell different fares at different points in the curve. All of that just optimizes the demand and optimizes the revenue that's coming at it. It's just a more sophisticated system overall. The workflows, the analyst workflows are more sophisticated as well. It helps the analysts make better decisions. You know, all of those things together kind of provide the benefit.
I also would say that the fact that he has three systems running, two new systems, speaks to the technical prowess of both his team and the IT department. For most airlines, having one new system implemented is a big deal. The fact that he already did two and they're running just fine, I think, speaks to the technical prowess of his department.
Hi, it's, Savanthi Syth from Raymond James.
Savi.
You know, A couple of follow-up questions, really. On the CapEx side, you know, it's pretty elevated here. I realize that you're kind of making up for maybe 2019, 2020, 2021.
Right.
Of not really having much of a program. When do we kind of get past this kind of catch-up acceleration, is this the kind of the roughly $4 billion, is that the kind of the new normal for CapEx at least in the, you know, foreseeable future?
Yes. We're in a phase where we're replacing our fleet. We have our 700s that we'll be replacing, you know, over the next number of years. It will be, you know, in that kind of $4 billion range here for the next several years. Again, the driver of that is largely aircraft for fleet replacement and to fund our growth plans.
I guess fleet replacement is always something you do, right? You've had multiple fleet replacement. I'm just wondering if this is elevated or because you know, you didn't have the MAX grounding, you had multiple things happen over the last few years that kind of pushed out some of your CapEx investments.
Yeah. It's a combination, Savi, but certainly a lot of it's been pushed out on the aircraft, and that's the large majority of it.
Okay.
Yes, it's the timing. If we were gonna take 114 this year and now that's 66, and we were gonna take 90 originally next year, and now that's 100, I think if I get the math right, that pushes 50 by nature into 2024, if that's what happens. The numbers are just moving around a lot here, 2022, 2023, 2024. It's likely, I think you'll get normalized back half of 2024 into 2025.
Yeah. The $4 billion is from 2024 to 2026.
Yeah.
Okay. Yeah. Got it. Then just on the passenger purchasing behavior, I think there's been, you know, mostly from this kind of work from home, people taking advantage of it. You are probably seeing changes in kind of purchasing patterns. Also I think of a trend that you've seen even before is kind of the premium leisure purchasing. I'm kind of curious, as you kind of roll out, you know, test these RM systems out, you know, are you having to change maybe the learnings from the first half to the second half and how that applies to how you're thinking about, like, promotions and when, you know, how you build load factors versus kind of pre-pandemic before we had some of these trends?
Also on the premium leisure side, what tools do you have to kind of capture that demand for that?
I'll take that at a couple different angles here. In terms of the changing travel patterns, leisure has certainly been stronger. If you just go back to March, obviously that's when the demand came back. We had late spring and summer. Summer was the peak of the peak. We get into Labor Day, and that's when we started post-Labor Day, when we started to see real leisure strength in kind of a typically down period in terms of September. That was welcome. As you look at what the changes are there's definitely strong leisure demand. As we look out into the booking curve after the first of the year, I think I would characterize it the same way.
I think there's strong leisure demand, out a little bit further, you know, past the holidays, a little bit further out into the curve. This is strong demand kind of in aggregate and overall. When you look at kind of travel pattern changes, there's modest increases in length of stay. There's modest increases in number of trips that touch a weekend. I would just characterize it as strong leisure travel overall. The systems are designed and our revenue management team are designed to take the demand as it comes in and adjust and yield up as necessary.
I think, you know, the team is watching for these changes in demand trends and adjusting all of the time, and that's no different really than how you manage the business overall. I think that's what we're seeing there on the, you know, on kind of the changing travel patterns. In terms of premium leisure and being able to take advantage of that, really there are a lot of ways to drive revenue growth without necessarily charging higher fares. Obviously, the revenue initiatives are paying off very nicely for us. One of the things that we have done here over the recent past is that we have tried to keep...
In order to attract these leisure customers, we've tried to keep, as best we can, fares in a reasonable range that would incent this travel. When you look at our filed fares, pre-pandemic to now, filed fares on average, the nominal prices that we're charging, they're actually the same or lower than what they were pre-pandemic. We're seeing very nice yield improvement. The way that we're getting that is we're just selling a better mix of fares all along the curve, selling lower, really cheap fares, lower really high fares, and just a lot more really good fares kind of in the middle. That's one of the ways in which we're trying to make sure that the product itself is attractive to this kind of high leisure demand environment.
We're seeing really nice results with that.
Savi, I'm probably way over my skis on technology here, but, you know, I think one of your questions was the. With a lot of these travel pattern changes going on, they're recent. How do you adapt to those and understand what's happening? Ryan, if I remember right, you know, typically a revenue management system-
Yeah.
It obviously relies on history. A lot of times that history is old and maybe even years, and then it's making assumptions around how to modify the history. There's a lot of variability.
Yeah.
The systems that we are testing are much, much better at reacting to changes in demand, very close in and then adapting inventory levels and what is being sold without having to rely on year-old history, for example. I think that's one of the biggest opportunities as they react to changes in buying patterns and demands, exactly what you're talking about much faster without having to wait on history to occur.
Good afternoon, it's Stephen Trent from Citi. Thank you very much for the time. Two questions from me. The first is actually kind of a follow-up on Savi's question. You know, when you think about the managed business travel growth, any high-level view with respect to how that's lining up or not lining up with higher loyalty, and co-branded card, revenue? Someone traveling on business wants the points, and they're using the card more frequently. Is the wall between business and non-business travel too muddled down now in the pandemic to, you know, have a good view on that?
If I don't answer your question, let me know.
Okay.
I absolutely think that when you talk about expanding our market, our share within the managed corporate travel space, over time, that absolutely is, it kind of has flywheel benefits. We go out, we acquire a new account, we sign an agreement with that account, we have access to a new set of travelers, we have outreach efforts to get them into the loyalty program. Once they're in the loyalty program, we have the opportunity, it's easier to then offer them a credit card.
I think, over the long term, I think that, or even the medium term, I think that our expansion into the managed business travel space is giving us access to a new pool of travelers that we can then talk to, grow their customer value over time by selling them additional products. You know, this year we've added 8,000, roughly, Dave, about 8,000 new accounts, corporate accounts that we're managing, you know, millions of new travelers that we didn't have access to before. Many of those were already in the Rapid Rewards program, but many were not. I think that's an opportunity for us as we go forward.
Very helpful. Appreciate the color, Ryan. Just a very quick second question from me. You know, I saw you restarted your dividend program, and congrats on that. Any sort of quantitative or qualitative reasons behind doing a divvy as opposed to share repurchases? Was there some tax wrinkle for you guys on one of the other? Just curious.
No, I think we're committed obviously. I mean, we're committed to our priorities just like we were before, you know, before the pandemic ever hit. We wanna restore value to our shareholders. Step one here was, you know, restoring the dividend. I'm just absolutely pleased that it's a full restoration, and that we could be the first to do that. I think that's just terrific. Our other priorities, obviously, we talked some about contracts. We need to invest in our people. For right now, that's getting contracts done and investing in them. We wanna keep investing in the airline, obviously. As you noticed, and at some point it'll be appropriate to talk about share repurchases, and that's not today. Obviously, our priorities have not changed since pre-pandemic.
All right. We'll do one more question from Sheila.
Thank you.
Thanks so much, Ryan. Sheila Kahyaoglu with Jefferies. Note, I will never sit in the back row at an airline analyst day again because I've changed my questions about 45x . When we think about GDS initiative in 2023, how much of that EBIT contribution is it contributing, the $300 million to up to $800 million for 2023? If you can talk about that at all? GDS demand trends, how that scenario planning plays into that?
Yeah. Well, we're not gonna break out, we're not gonna break out the EBIT contribution number into its individual components, but it is a component of the total pie. It's providing value here in 2022, and we expect that value to continue to grow into 2023. We're going to do that by continuing to go out, win new accounts, win new business and grow our share of the managed business pie.
Maybe just a follow-up on the co-brand acquisition activity. It's up 32% versus pre-pandemic. What's the real runway here, and where do you see the largest opportunity outside of corporate you just touched upon?
Well, I think it's within the customer base overall. I mean, we've got, you know, as we continue our growth in additional markets, we've become more relevant in those in those markets overall, and we just grow over time here. We've got 18 new markets that we brought online. I think one of the things that's unique about the loyalty program for Southwest relative to our peers, our peers have, they're very relevant in their hubs. As Andrew talked about, we're the number one carrier in 23 of the top 50 markets in the United States. We're very relevant in a larger number of markets than what our peers are.
I think that there's a tremendous amount of opportunity within the existing customer base just to continue to go deeper and penetrate the customer base even further.
All right. Well, thank you all for the great questions. Just before we wrap up, we've shared a lot of information today. Hopefully you found it helpful. I just want Bob to wrap us up here real quick to make sure you guys leave with the right context.
Yeah, I appreciate it. I'm gonna look here. I've just been taking notes along the way to make sure I'm being responsive. I don't know if there's an issue sitting in the back row or not. I think that's just fine. I mean, as Ryan said, we've shared a lot with y'all today. I really appreciate you being here, number one. Appreciate your patience as you went through our presentations. We've got a really healthy plan. We got a lot of momentum here in 2022, especially in the fourth quarter heading into 2023. We've got a lot of healthy growth in 2023, and some of that obviously will carry over into 2024.
Obviously, you can tell we look at that as much lower risk growth because it is all about getting our aircraft in the air that we're not flying today, and it's about restoring the network, which means it is lower risk. We opened a lot of cities during the pandemic. We opened 18. We expanded Hawaii. Those will continue to mature as well. I think what you can expect from us is that was a lot of pull forward. I wouldn't expect to see us thinking about adding new cities. Not literally, but that's probably something that is 2024. It's a little further out because we pulled so much of that forward. We have a lot of opportunities.
We're heading to a point here in a few years where, you know, all things go right, we'll have over 6,000 flights a day, and we will have 1,000 aircraft at Southwest Airlines. I get the question all the time: Are you out of opportunities? With the 737. I've been here since 1988. I got that question in 1988. Could you possibly be successful outside of the Texas region? I've watched us go into other geographies. I've watched us morph from mostly short haul to medium and long haul as well. Go into international, go, acquire ETOPS, go to Hawaii, all kinds of things, and you'll see those things continue. We're not ready to talk about our next set of commercial plans.
We mentioned things like codeshare, red- eyes, interline, other geographies, you know that will continue. There are lots and lots of dots on the map that are open to Southwest Airlines. There are other new commercial capabilities that are open to Southwest Airlines. I am just super excited about that. If you just wrap it up, I feel like, again, we're in great shape. We're very well-positioned. We've got a lot of momentum. That momentum is gonna carry us here into 2023. Now, there are a lot of uncertainties: recession, fuel prices. We are very well-positioned. We have a great fuel hedge at roughly 50% right now. We have opportunities to be flexible in the fleet if we need to do that.
The capacity that we're adding is lower risk because it's almost all restoration of markets that we were in pre-pandemic. So I feel like our the risk profile, even though we can't control those externals, like the potential of a restoration, those our risk profile is lower just because of all the things that I went through. Our plan is, of course, in 2023, to keep growing profits, keep growing margins, keep growing return on invested capital. I'm really pleased that after just a few years post-pandemic, the plan that we have for 2023 has us restoring our net income to pre-pandemic levels. I think that's a huge accomplishment. I think the restoration of the dividend is a huge accomplishment.
I just want to leave with one thing, I've been at Southwest a long time, I'm not just saying this, we have the best people in the world. I love the people of Southwest Airlines. They are the ones that deliver. They are the ones that deliver for our customers. They are the ones that show up every single day and work hard. We have the best leadership team, not just in the airline industry, but on the planet. I believe in our people, I believe in our leaders, this team can do anything. They are ready to deliver, they are delivering today, and they're going to deliver in 2023. I have the utmost confidence because of the people of Southwest Airlines. We appreciate again, we appreciate you being here.
I think I have to take off and go do a CNBC thing. I'm not running away. I've just got to go do a quick interview there. Again, I appreciate y'all's time so much to be with us today. Thank you.
I wanna thank you, Bob. All right. That'll include, conclude the event and the webcast. Thanks for coming. Don't forget your stress balls.
Oh, yeah, the stress ball.