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00:00 Speaker A
And speaking of Southwest, they report tomorrow, right? And they’re also just ending their long-time boarding procedure. Um, so how do you what do you think is the future and outlook for Southwest?
00:13 Speaker B
Yeah, it’s an interesting one. On one level, they have a formidable uh strategic shareholder that’s been making uh important changes uh to their boarding process. Uh they have strategically uh moving towards a a look and smell that looks somewhat more like a network carrier.
00:41 Speaker B
International, um uh code shares with with different airlines. Uh for example, changing the boarding procedure, uh no more bags fly free. I think if you’re a Southwest, however, relative to the other three, the main thing on my mind, um is the EBIT to free cash flow uh conversion. If we think about pre-pandemic, Southwest was doing three billion each of Ebit and free cash flow, for example. You look at today’s EBIT to free cash flow conversion, it looks really poor versus what it used to. In fact, Southwest has been burning cash. Uh whereas the big three have have been generating free cash flow.
01:23 Speaker A
Can they get back there?
01:24 Speaker B
I think it’s going to I think time will tell, you know, how these initiatives play out. I think on the revenue side, it it looks like they’re on a right path. In terms of getting to more of a a look and smell like a network airline model, seat mile cost is going to be the thing uh to watch over the next couple of years. As they onboard new equipment, uh maybe there’s going to be nuances in pilot salary, maybe they need new flight simulators, depending if they, you know, assuming they go that way. So, I think the seat mile cross sign of the fence uh is a big question mark. Uh but the EBIT to free cash flow conversion that they used to have, I don’t see them getting back to that. Um and then an opportunity to lever up, which they’re doing. Uh but I think longer term, we have to watch the EBIT the free cash flow conversion for Southwest.
02:27 Speaker A
Gotcha.