Great. Let us switch back to airlines content now, and very happy to have at Laguna again, Southwest Airlines CFO, Tom Doxey. Tom, welcome to Laguna.
Thanks. Really good to be here.
Absolutely. You guys have been the idiosyncratic story of the industry for the last couple of years now. Obviously, so much going on, A, with macro, B, at Southwest as well. Maybe just start at a high level. How do you spend your time? What's the split between looking internally? What's the split between refreshing the price chart on jet fuel versus other macro stuff?
Yeah. We'll focus on controlling the things that we can control. I think we've done a really good job at that. You mentioned the initiatives. You look at those initiatives that we've rolled in over the last 18 months or so. We were actually asked this morning in one of the investor meetings, "Okay, well, talk about one of the ones that didn't go like you thought it would.
Sure. Yep.
As we went through them, they all came in on time.
Okay.
They all have either met or exceeded the financial estimates that we have put out there. And we've done it also with maintaining the things that have been core to Southwest for 50+ years now, around hospitality and the culture and the customer centricity. We're seeing record numbers for people coming to us now. Our business revenues, for example, are up 30%. And I think that has a lot to do with the product. The fact that we now have the assigned seat, we have the extra legroom seats, we've got Starlink that's started to roll out. We'll have probably 300 or so aircraft that'll have Starlink installed by the end of this year, and we're going to continue on as we go through next year.
The product is getting to a point now where I think it's resonating with people that it didn't resonate with before while building on the base. And so yeah, things have gone really well from an initiative standpoint.
That's great. I'll come back to you in a second on that, but maybe let's hit demand trends first. 2Q earnings, you said that 3Q was roughly 65% booked with yields up 24% year-over-year, versus 13% for 2Q, so clearly a lot of momentum there, with no deceleration in demands or fares. How have those trends evolved since July? And obviously seasonality is a different thing, but how does that compare to what you saw in 2Q?
Yeah. We haven't updated those specific numbers since earnings, but what we have seen is as we've seen the quarter even progress into what has historically been more kind of trough periods, for the industry. We've seen a lot of strength. And the month that we're in now, September, tends to be kind of a lower demand month.
Yep.
September has exceeded our expectations.
Okay, that is great.
As we look at the demand environment, it is very strong. It has stayed strong.
That is awesome. Any color at all on Q4 and the holiday season? How much visibility do you have into that right now, and do you see that continuing through that?
Yeah, the booking curves are relatively short.
Sure.
We're kind of in this 60-day window.
Yep.
As we move through the next couple of months, that will start to come more into focus. But of course, it's more limited, but we do get insight into that, and we aren't seeing any signs as we move into that period of things decelerating.
Understood. Obviously, the entire industry has had this nice tailwind on yields here. But you have obviously made it very clear that this is a combination of Southwest-specific initiatives as well as industry tailwinds, as well as jet fuel recovery across the industry. How would you characterize those three buckets as drivers of that yield?
Yeah. You think of the big initiatives that we've had that are unique to us. So seat assignments, extra legroom seats, will be over $1 billion of EBIT for 2026. As we move into 2027, we've talked about that being $1.5 billion or so in EBIT as we move into next year. We launched that in January, so of course you get a full year as you go to 2027.
Sure. Yep.
We're just seeing the product mature. We're getting better at the way that we market it. There's more familiarity with it, and it's resonated really well. So you've got that's unique to us. Bags as well. It's hard to believe that it's been almost 18 months since we've launched those. You may recall that we started operating and selling on the same day. That was in May of last year, so there was a ramp-up period with that.
Yep.
That will be worth $1 billion in EBIT for the company this year as well. So just those two initiatives alone, you can see north of $2 billion. Layer that on top of the incremental loyalty revenue that's coming in with our amended deal that we did with Chase. The earn and burn on the frequent flyer, the cost savings, all of those things. All of that is helping to continue to produce EBIT. Yeah, on the revenue side, all of those initiatives are going well and are contributing to that performance. So as I think about us and how we compare to others, you've got all the Southwest-specific items.
Yeah.
And then you've got all the rest of the. I'd maybe take two of your categories and put them into one, which is sort of this industry strength, slash recovery, from the increase in fuel. I think go back to maybe the first quarter, and we were asked questions in settings like this, "Well, okay, you've had so much that you've been doing on your own, and hey, that's going well, but now there's all this kind of industry stuff that's layered on top. Can one plus one equal two?
And we felt confident that it could, and we've shown that it has. And so we're seeing the magnitude of the improvement that's coming in from the industry-related stuff that's coming to us, very much in line with what you're seeing with the other carriers. But the great thing for us is we get to fully stack that on top of everything that was unique to us that I just described.
Got it. Speaking of that industry one, if you will, obviously jet fuel is creeping back up to its high water mark that it hit earlier this year. Again, you guys and the industry kind of responded by saying, "Hey, we need to recover from this," and passed through several rounds of price increases. Do you feel like there is more opportunity to do that, if you hit new water marks or even right now, how do you think about the current jet fuel environment and pricing?
I do. It has been volatile. What we have seen, there is a lag, of course, right?
Sure.
You see the volatility, if it tends to be really steep and the price of fuel is moving up quickly, both from the booking curve and just a natural lag, it takes a while for that to come. But yeah, what we have seen is the ability to recover a good portion of that. I would expect that that would continue. That if fuel remains high and it remains higher for longer, there will need to be more recovery that would occur there on the revenue side as well. We're still in these stats. You likely have heard this from others as well, but still, you go back to 2019, and you look at where we are today, and on an inflation-adjusted basis, even after the increases that we've seen in unit revenues during this year, we're still not where most of the other products are on an inflation-adjusted basis.
Right.
I think there's still room to go.
Got it. We met at your headquarters in June, and at that meeting, you noted that the percentage of passengers paying for ancillary products had increased from less than 20% historically to roughly 60% today. That stat really resonated with me. You said that 60% was not a ceiling.
Yeah.
How are you thinking about what that runway looks like in the coming years?
Yeah. In the end, I do not know that we have a target. Sometimes we are asked, "Hey, do you have a target? Do you want to get to this percentage or that percentage?" In the end, we are looking to maximize revenue and of course maximize-
100%
Earnings with it. Yeah. For sure. Yeah. Great. 100%. I do not know that we have a specific number that we are going to.
But what I can say is what we are looking to do is we are layering into the business product elements that will incent that buy-up. We have done some of that already. We have talked about other things that could potentially be in the future. We have actually just announced lounges now officially. We've been kind of unofficially, worst kept secret, been talking about that for a long time now. But those are the types of things that as we continue to layer those elements into the product, we do it in our way, and in a way that has, and I think will continue to resonate really strongly with our customers, and with people who have been choosing not to be our customers, w ho are now choosing. I mentioned the 30%.
The corporate. Yeah.
Increase in corporate.
Yep.
Those are the type of stats that are showing that these things are resonating. Like I said, we're not done. We just announced lounges. We'll continue to look forward to things that we think will resonate, whether it's the buy-up or whether it's just a product element in and of itself, that will continue to bring people to us.
Got it.
Sometimes you go back 18 months.
Yep
Some of the conversations that we would have were around, they'd say, "Well, what about the share shift from these things?
The share shift. Yeah. Uh-huh.
I love the way that one of my peers, Andrew Watterson, answers this. He goes, "Oh, yeah, I'm glad you brought up the share shift. Let me tell you about all the share shift-
The gain
Coming to Southwest because of all the things that we've done." That's what we're seeing. It's exciting because there was this pent-up demand for things that the customers were wanting, and they're buying those things that there was a pent-up demand for. Like I said, we're not done. We've just announced lounges, there's more to come.
Got it. That was literally my next question on the share. Is that share mostly coming in corporate, or is that coming on the leisure side as well?
It's coming in both.
It's coming in both.
Yeah, it's coming in both. But again, it's a combination of the pent-up demand that existed with the existing customer base.
Sure.
So there was that. It's people coming to us both on the corporate and on the leisure side. In particular, the wallet splitting that can sometimes happen. We are in Southern California today. Prior to assigned seating, there were, I think, more instances of somebody saying, "Look, I will fly you from John Wayne here in Southern California up to the Bay Area or Sacramento all day long. I will fly you to Texas. But if I got to go to Baltimore-
Sure
I do not know. I might fly on somebody else because I want to make sure that even if I am a little bit late to the flight, that I am going to get the seat that I wanted." Of course, our boarding was based on when you got on the plane, so the product is resonating a lot more, and what that should result in, what it has been resulting in, is less wallet splitting that is happening as well.
Got it. Maybe just a little bit of sidebar here. Just take us behind the scenes like 18 months ago when you guys are like, "Hey, we are going to do all of these things." This is entirely my personal view, but I think each of these initiatives would have been considered unthinkable for Southwest a few years ago. The fact that you are doing all of them, have executed all of them, I think is pretty remarkable. But what was the thinking of the management team at the time? Were you guys just super confident that you had just had this money left on the table and it would be, I do not want to say easy to do, but you had extreme confidence where you are like, "Let us take it as it goes?" Or just give us a sense of the behind-the-scenes there.
Yeah. These things are not easy to do. We have Lauren with us today, actually, who is our head of technology, our CIO. She would probably be the first one to tell you about the complications that exist as you're needing to roll things out. What you saw from the team was a resolve to get things done and get them done quickly. Not let perfect get in the way of really, really good, and to get things out quickly, and then to iterate on those things quickly.
Yep.
But to get them out. What you also saw was confidence from the team. That confidence continues, but you saw confidence from the team that we could get these things done as quickly as we can.
Right.
Or as we thought we would. We did. We met the timetables, and we met the financial estimates as well that came from those things. I think that's what you saw from the team was confidence and resolve to be able to get things done, and not letting perfect get in the way of really good.
Understood. You said in your first response that you did all of this while sticking to the Southwest ethos, which obviously was super important to you. Obviously, all these changes that maybe a lot of chatter on Twitter and such in the initial days. I think you guys had given us a net number, including some level of book away. Do you have a sense of how much happened versus your expectations, and do you know if the share recapture of yours is some of that book away coming back.
Yeah. Ultimately, what we saw was a net positive.
Fair enough.
Anything that occurred during that period was very, very short-lived.
Sure.
The response that we've seen when you look at the numbers, again, I referenced the 30% year-over-year increase in corporate revenues. Stats like that, the Net Promoter Score numbers that we look at to see where people are. What we're seeing is an engaged group that the group didn't go. So it's not as if they left and then they've decided a year later to join us again. They were there.
What we're seeing is. And maybe one thing I do hear from some of our highest tier folks is initially when you announced that you were going to do some of these things, I didn't quite know what to think. This is the Southwest that I've loved for so many years. And I hear this all the time. I tend to try to sit right in front or right behind the exit rows.
Okay.
Not in the extra, I want our customers to pay for the extra legroom seats.
Fair enough. Okay.
I'll sit right. But I hear a lot of the discussion.
Sure.
They'll talk to me about it.
Yeah. Uh-huh.
They'll say that. They'll say, "I didn't know quite what to think, but I love this.
That's right. Do you identify yourself on a plane?
Yeah.
Do you say, "I'm the CFO?
Oh, I do. Yeah. I introduce myself to the crew.
Okay.
And there's crew all along the way.
Okay.
As I'm boarding airplanes, yeah, basically as I go through the plane, I'm not just telling the crew what my job is, but I'm generally telling the passengers.
That's awesome. Okay. Wow.
But yeah, people will talk to me, and that's what they say is, "But I love this. Now that I've actually been able to see it and experience it, I love it. And so, yeah, "I get the seat, I get the seat every time, and I love what you're doing. Hey, I'm so excited. I can't wait to get a Starlink airplane. And more and more are coming in every week. So it's, yeah, I don't know that they ever left.
Fair enough.
I do think that they were hopeful that the changes that we were making would still be something that would allow them to love the product. I think that what we've been seeing is that is exactly what's happening.
Got it. Talking about new initiatives that customers will be enthusiastic for, give us a little more color behind the lounge decision. On the one hand, it seems like a little bit of a no-brainer. On the other hand, I'm sure it was a very considered decision involving a lot of data. Have your customers been asking you for this? How did you choose the first network of lounges? I don't think Love Field is getting one initially. What's that pipeline going to look like over time?
Yeah. So every decision that we're making, we're looking at the data, we're looking at doing things that would be accretive to the business. We want to make sure, like I talked about before, that we're not getting caught up in analysis paralysis on things either. When something is clearly the right thing that we want to do, that we move forward, and we do it. The lounges fit into that category. Of course, we're doing this in partnership with a great partner of ours in Chase.
One of the things that we as an airline bring is a lot of access at the airports. We have a lot of the space, so as we're looking at where we'd want to build some of these lounges, that's a key element that we bring. Then, of course, with Chase, we haven't built lounges before, but they have, and they do a great job with it.
So there's this great synergistic partnership that we have, and we were building already on what is a great synergistic partnership. This is just one more layer of that. As you think about the things that our customers are asking for, this has been at the top of the list. We've announced four of the locations. We've said that it's 4+ 7. Likely more to be considered after that. I think if you looked at a map and while we've only announced the four locations, I'm looking at the team to make sure I don't give away one of the cities that we haven't.
Fair enough. Okay.
But as you look at those four locations, and then if you looked at a map and said, "Well, where would I think Southwest should have a club? It's going to appear very logical as we continue to announce more and more of these locations. And so, well, what does this bring? Well, it brings the ability, we've talked about having a premium credit card that we can have come in.
Sure.
What does that do? Well, that brings in higher FICO score customers, higher spenders. You tend to be top of wallet more frequently when you have a card that's like that. So all of that's great, but then it brings a halo, more of like an aspirational halo to your entire loyalty program and to your brand. For all of those reasons, again, you've heard me, Bob, others talk about the fact that we're not going to do things unless we feel that they would be accretive to the business. For all of those reasons, we feel this will be accretive to the business. We're really excited about it and excited about who we're partnering with.
Got it. I'll ask you if you want to break some news at the conference here. Southwest obviously has a very, very unique culture, very unique experience in the sky. What can we experience in the lounge? Is it going to be something similar? Do you have surprises for us? Have you seen a prototype? What's that going to be like?
Yeah, it's going to be great.
Okay.
I have seen them. Yeah, we had some different internal meetings where we've actually done walkthroughs and seen different things, and we've got mock-ups and designs of things. Construction has started in some of these locations. I think it is part of the reason it was kind of the worst-kept secret, because we are actually starting to do some of the work before we announced it. These are real designs that are now being implemented. These are going to be great. You look at who we are partnering with, and you look at the type of lounges that they are building. This is going to resonate really well with people.
Awesome. Great location for-
I think some people are going to be a little surprised, actually, when they say, "Oh, this is the Southwest lounge.
Oh, really? Okay.
This is great. Yeah.
I was going to say, a great location for a future investor day, FYI, when this goes.
That's a great idea.
Speaking of poorly kept Southwest secrets, another one is international long haul. I think you guys have been sort of hinting at that for some time now. I think Bob Jordan kind of briefly referenced that at Laguna last year. Is that the last big initiative you guys have, and what are we looking at in terms of execution there?
Yeah. We've got a whole set of things that we're looking at. That is one of them. You think about for that in particular, going back to my comment on aspirational elements of a loyalty program. I think that's the way you can think about those sorts of things. Now we haven't made decisions on what we are going to do for that particular thing. But what you've heard Bob and me and others talk about is that we want to make sure that we're meeting the customer where they are, that the things that they're wanting and the things that we feel will be accretive for them and for our business, that we're offering those things. Again, we haven't decided what we're doing with that particular item.
Got it.
But what we have said is that we're absolutely considering whether that should be part of the offering that we have.
Got it. In addition to that, the other thing that you briefly mentioned was premium credit card. It feels like that is a real opportunity for you guys.
I think so.
Talk about, I mean, you don't have to give us numbers, but just how much have you sized, what is the opportunity there, and how quickly can you execute on that?
Yeah, we haven't publicly talked about any of those sorts of goals or estimates.
Sure.
I think for this conversation, it's more around what something like that brings to us. I'll go back to what I said before. The higher fee card that gives you that access tends to have you spending more top of wallet, higher FICO score spenders, higher spenders to the airline, and on the card as well.
We talk a lot about flight profitability as you look at the network. I think more and more, you will hear airlines talking about city-level profitability, that includes elements around the credit card and other loyalty things. And you may have parts of your network that are a little more profitable on the flight side, maybe a little less profitable on the card side, some that are profitable on both. But you need to make sure that you're looking at that entire ecosystem there, that just with how attractive these cards. These are the most attractive co-brand cards of any company that's going to be here are the airline cards. And so the lack of the most premium level of that for us has been a hole for us. So we're going to fill that.
Got it. Speaking of filling holes, let's talk about corporate for a second, because you spoke about gaining corporate share with the new initiatives, and that's very clear. But corporate has been a real focus area for you guys long before you announced the initiatives, literally coming out of the pandemic, right? So where are you in terms of corporate capture versus your expectations? What more levers you need to pull there, especially with large enterprise accounts?
I think we punch above our weight when it comes to corporate. I think sometimes when an investor, an analyst, or somebody will think about us versus somebody else, they think, well, they do more corporate.
Okay.
We do a lot of corporate today, and we haven't publicly talked about exactly where those levels are and what the mixes are. But we're very strong on the corporate side. What we have seen over the last six years or so with the pandemic is that shorter haul corporate has been impacted more than the longer haul multi-day trip corporate. That quick day trip that I'm going to take from city A and city B isn't quite as prevalent. And we were a little more overweighted there.
Sure.
And some of the product elements that we lacked, specifically around seats kept us from having more penetration into that longer haul corporate. So I think some of what we're seeing now is the fact that the product is resonating more, it's more relevant to that longer haul and what is the more prominent business traffic that remains post-pandemic. So that's an adjustment that I think is really helpful to us. And again, I think the lounges will be helpful there, too.
Absolutely.
Again, lounges aren't a corporate product, but they will resonate. The Venn diagram now is different than it used to be. It used to be much more corporate, but now there's a lot more leisure that's there, too. But certainly, having that product element in lounges will be helpful to corporate.
Got it. So when you think of your overall corporate position, you look at product, you look at lounges, you look at distribution. Do you feel like you are where you need to be to go toe to toe versus your peers on corporate share?
I think we are getting there. I think there's more opportunity that's ahead of us. As these product elements come in, you look at some of the distribution and how we're set up, some of this is pretty recent for us.
Right.
Yeah, I think there's maturation still to come for us that maybe where another carrier will be a little later in that cycle. I think we're on the early side of that one.
Understood. One of the broad themes out there, maybe to switch gears a little bit and talk about some of the financials specifically, is the fact that, again, you mentioned earlier that you get to stack what's happening in the industry on top of what you're doing. But again, it's no surprise to people that your comps will start getting more difficult as you start lapping some of these initiatives.
Sure.
How do we think about what that almost net number on yield looks like, what that net number on margin looks like? Obviously, you've given us EBIT targets. But A, how much upside do you have to that in terms of more to come in terms of dry powder, whether it's lounges or international or whatever? And B, how do we think of how that comp progresses as well?
Yeah. I think it's not just some of these bigger initiatives that would maybe result in a media headline. Like an international or something like that. Those are certain.
Even smaller ones as well.
Yeah. I think it's more around the way that we're running the business today, the systems that we have to use it. Our revenue management system, for example, is set up to be much more system-driven and a lot less segment-driven. I think that's helped us to iterate more quickly and to do more within the broader network that can be more accretive.
We're on the earlier end of a lot of these sorts of initiatives, and so as you think about the next couple of years, I think back even to an internal meeting that we had just two or three months ago where we're going through, all right, now here's the next list. The next meeting we'll have, there's the next list to the next list. There's a lot of things relating to the way that we segment the business, the way that we're marketing, the way that we can market individually to customers as well, and to give them offers that will resonate with them individually. Those are things that we are on the early end of. Yeah, there's some potentially really fun headline media sort of stuff that's out there.
That's great, too, but there's a whole bunch of other. I don't even know that I'd call it blocking and tackling, but just sets of initiatives that we're working through that-
Got it.
Will continue to drive performance in the business.
Speaking of headline gathering and focusing on some of the other things, lost in the middle of all this initiative talk is the fact that your operational reliability has been excellent for the last couple of years. Obviously, you had the big Christmas thing a couple of years ago, and then people are like, "Uh, Southwest," whatever.
Four years. Yeah, four.
Four years ago.
A long time in the past.
But literally since then, your operations have been incredible. Your IT performance has been incredibly strong as well. Talk to us about how much effort is going into ensuring the basics, if you will, while you work on this new stuff on top.
Yeah. There's a ton of effort that goes into all of that. You're right, the Wall Street Journal rankings, if you look at last year, we were number one. We're trending number one so far this year as well. What I like about that one is it is just a broad. It's great to be in a financial setting. It's just sort of the portfolio, right?
Sure.
I mean, it has everything from customer complaints to mishandled bags, to canceled flights, to on-time performing. It goes through the whole portfolio. It's a balanced look at the operation. To be able to be number one there, now, of course, it's a great customer thing to do. The biggest correlator with our Net Promoter Score is on-time performance. You get a little bit of grace in there, but once you kind of get past a certain amount of time being late, it falls off pretty quickly.
Sure.
The best thing you can do for your customer and financially, really, because the same is true financially. Once you start to have cancels and other things, it starts to become really expensive, and paying extra crew costs and those things, is to run a really good operation. Yes, we've modernized so many of the systems that we have within the company. They help us to make better decisions. If you go to our airports today, and in fact, this would be a fun thing for you and I to do one time. We'll bring you to one of our airports, and just have you talk with the folks, with the leaders on the ground, and say, "Talk to me about how this is different than how you used to do this three or four or five years ago.
I will just sit back and let them talk to you. They will walk through equipment and process and technology and tools that they have there that are helping them. This does not just happen by chance. It comes because of investments that we are making and process improvements that we are making. So people like Justin Jones and Andrew Watterson and so many others that are part of the operational team. You mentioned Lauren and the investments that we make on the technology side. Her team does a fantastic job, and she is here with us now at the conference. Those are the things that we are doing. It is not happening by chance. It is happening because we are being deliberate.
Got it.
You have to do those things.
Right.
Because if you don't do those things well, then nobody wants to hear about all the other things that you're trying to do to improve the business.
Right.
The fundamentals have to be fixed first, and I feel like we're in a position of strength to be able to continue to move forward.
Absolutely. All of this distills down into financial performance. What does this mean in terms of, again, you can talk about, pick a horizon that you want. So back half of the year, going from the first half of the year, obviously jet fuel is a big factor to consider. How would you talk to your investors and remind us about some of the big moving parts here about first half and second half, and how you are thinking about 2027 at this point as well?
Yeah. I mentioned before that as we moved into the fall, I would say that revenues have exceeded the expectations that we had even just a couple of months ago.
Sure.
The fall has held up really well, to the point where that in spite of the incremental fuel expense that we have, even for this quarter, that we have the ability to still hit the EPS guide that we had for the third quarter. What that means is that we're seeing really good strength on the revenue side, to be able to offset that as that's coming in. Then as we move throughout the rest of the year, we'll see what happens ultimately with fuel. I do think the obvious thing that you've seen us do this year, we started at kind of the 2%-3% year-over-year capacity increase for 2026, and you've seen that come down. We've cut that about in half-ish.
Sure.
And we have done that because fuel has been higher. So as fuel is higher, that is the natural response. So if fuel is higher for longer, I think that is a natural response that you see, is that you trim some of that capacity off.
Sure. Makes sense. Any questions from the audience? We have one back there.
Could you just talk to us briefly about the sequencing, timing, and deployment of the MAX 7 in your fleet through this year and maybe next year?
Yeah. I was up in Seattle maybe a month or so ago. I actually saw some of the Boeing leadership team here just a few minutes ago. They're here at the conference, too. We were there for the sign-off for the MAX 7. That was really exciting. Of course, we're the largest customer there. We have 27 of those airplanes that are already built that have been in storage. We've been working with Boeing actually for a year now to be able to bring those to the current spec.
That work is happening. As we get around the end-of-the-year timeframe is where I think some of those airplanes start to deliver, and then early next year is when those start to go into service. We have been replacing. Most of our retirements have been 737-700s, some of our oldest airplanes, and we've been replacing those with 737 MAX 8s. So it's a 137-seat airplane with a 175-seat airplane, which of course is a lot more efficient as well, not just the extra seats and the extra revenue. The MAX 7 will give us an ability, in the 150-ish seat range, to be able to have kind of that middle ground. So flying out of places, well, like the closest airport here. John Wayne.
Short runway, to have more of the range with a larger gauge airplane, and do that with the efficiency that comes with the fuel burn, and then the extra seats will be really accretive to the business. So yeah, you'll see those start to roll out. We'll take both those 27, but also start to layer in new delivery MAX 7s off of the line at Boeing that will be intermixed with the MAX 8s that we'll continue to take.
Matt. Get one up here.
Thank you. Just wondering here, I know you guys have identified hundreds of million dollars of incremental cost savings, since the beginning of the year, all of which is incorporated into the 2026 outlook. Wondering how much additional opportunity is there, and how we should be thinking about it for 2027, and then just CASM in general for 2027.
Yeah, I love that question. I think we fundamentally changed the way that we are just looking at the day-to-day management of the company. That hundreds of millions that I mentioned, I think this is a response on our last earnings call.
I think that was one of my responses. It's happening throughout the business. It's every leader everywhere. We're working on our 2027 budget now. Two or three weeks ago, I was over in our operations building, and we had the operations leaders who were in there talking to their plans for 2027. I just love the way that they're talking about their business. They're talking about taking care of their people. They're talking about keeping their people safe. All the things that you would expect an operations leader to talk about. As they're doing that, they're talking about how they can make sure that they're running their business in a really efficient way. So this isn't the, "Oh, well, let's have the finance teams coming around again to try to pull some more cost savings from us." It's not t hat.
It's leaders throughout the entire business looking at ways to be able to manage efficiently. Sometimes we're spending money to ultimately achieve that savings. Like, well, if we can buy this equipment or if we can build this tech tool, let's spend $10 million on that because if we do that's going to make it so much more efficient in whatever area of the business. Airlines are so complicated, the operation is so complicated, that little changes like that can make significant differences.
So, yeah, I think it's a mindset shift, really. As we look to 2027, that's why I brought up the budget discussion. It's happening. That is how we are talking about 2027, and we should anticipate that the view, the way in which that we're looking at costs as we move forward, is going to stay how you've seen it. I think we've had really good cost performance.
Maybe on a related note, just address CapEx as well, because obviously new planes, lounges, et cetera. What is the trajectory of CapEx look like next few years?
Yeah. It is going to be very aircraft dependent. It is a very NPV positive thing for us to be able to bring a MAX 8 or now a MAX 7 into the fleet to replace these older aircraft. We have a really great balance sheet, so we have really low debt balances. As you think about the way in which we would deploy capital, ensuring that the balance sheet is remaining strong. It is very strong already, but assuming that we continue to ensuring that it remains strong.
Then we invest in the business, then we've got returns for shareholders. Our operating cash flow has increased pretty significantly as we've had these changes that have come in. Then the walk from operating to free will largely be dependent because our non-aircraft CapEx is relatively steady. It largely will be dependent on the quantum of the aircraft transactions that we have. That said, maybe one last part of this answer would be, as you think about our debt to EBITDA ratios, we've talked about ensuring that we stay between one and 2.5, keeping solidly investment grade. The more we're building up EBITDA within the business and all these things that we're talking about, the more headroom that gives us to be able to return capital to shareholders that way, too.
Got it. Tom, tons going on at Southwest. Very exciting story. I am very excited to see the lounges when they are open. Thank you so much for being here.
Yeah. Thanks for having us.
Thank you.