Southwest Airlines Co. (LUV) Earnings Call Transcript & Summary

All right. I'm always quick with the introductions, but we're very pleased to have overweight-rated Southwest Airlines back in the auditorium today. We'll have a presentation from the company and then some more spirited Q&A. At least, that's the intent. Mark and I will do our best. But please, as always, we encourage the audience to engage as fully as they feel comfortable. Let me turn the podium and the table over to the team. We have Bob Jordan, definitely a household name, recognized CEO here at this event; and Tammy Romo, CFO; and Ryan Martinez in the front row. So yes, please, the podium is yours. Thank you.

That was very -- come on. How is everybody doing?

Great. Better if we moved this to Florida.

Well, I'm not in charge of moving it to Florida. I'm sorry. But -- and I think when you said the household name is actually Tammy, not Bob. It's clearly early. I've got to get better material for the group here. But hey, yes, I'm Bob Jordan. And thank -- Jamie, Mark, thank you again so much for hosting the conference today. It's great to be here with everybody in person and joining via webcast. Before I jump in, I want to mention that my presentation today includes forward-looking statements. We filed an 8-K this morning, as you know, and this slide and other disclosures in our 8-K outline a variety of factors that could cause our actual results to differ materially from our projections. So jumping into Slide 3, I'll recap our investor update that we issued this morning and provide some color on the trends. I'm just really pleased with our first quarter revenue outlook, which is currently trending in line with our expectations. Revenue trends have remained steady, and yields and point redemptions remain strong. We continue to estimate a negative revenue impact of roughly $300 million to $350 million here in the first quarter related to Bookaway that we saw following our ops disruption in late December, but this impact continues to be largely isolated to January and February. March revenue trends are encouraging, both from a revenue perspective and from a customer loyalty perspective, and I'll talk more about our customer loyalty here in just a minute. We continue to expect March managed business revenues to be roughly in line and restored to March 2019 levels, which would represent just a big and significant milestone. So the net of all this is that we have tightened our operating revenue guide range to up 21% to 23% year-over-year, which is basically the same midpoint as earnings. Based on current trends, bookings for the second quarter appear solid and in line with our expectations as we head into the busy summer travel season. And regarding bookings, the overall booking curve now seems to be generally in line with pre-pandemic trends. So close-in leisure demand seems to return to more historic levels versus being elevated during the pandemic recovery. But that's offset by managed business revenues returning to 2019 levels, which, of course, typically book closer in. So based on current revenue trends for March and what we can see so far in second quarter, we are currently tracking in line with our expectations. And I'll touch on our full year capacity plans on the next slide, but our current first quarter 2023 capacity remains unchanged at up approximately 10% year-over-year. Looking at fuel market, fuel prices have fallen over recent weeks, in particular heating oil cracks. And we have experienced significant cost relief in our first quarter fuel prices and are now expecting our first quarter fuel price to be in the range of $3.10 to $3.20 per gallon, down about $0.15 from our previous guidance, which includes a hedging gain of $0.13 a gallon. In regards to nonfuel costs, we now expect first quarter CASM-X to increase in the range of 5.5% to 6.5% year-over-year, up roughly 3 points from our previous CASM-X guidance. About half of that increase is due to increased expenses related to the late December operational disruption, including expected travel expense reimbursements to customers and an increase in the redemption rate of rapid rewards points offered as a gesture of goodwill. Another point of the increase is related to anticipated higher technology spend and other ops disruption-related expenses, and the remainder of the increase versus previous guidance is just primarily timing of maintenance and airport costs. This puts our pretax negative impact of the disruption in the $350 million to $400 million range for the first quarter. We currently estimate further cost increases of up to $50 million across the year, which puts the total estimated pretax impact, including fourth quarter 2022, in the $1.2 billion range. We're still expecting a net loss, excluding special items in the first quarter. Thankfully, our lower fuel -- first quarter fuel cost outlook is offsetting a portion of our first quarter nonfuel cost increases due to the disruption. So moving to Slide 4. We have also updated our full year 2023 outlook, which is primarily impacted by trimming capacity, lower fuel prices and an increase in nonfuel costs, mostly related to the operational disruption. Beginning with aircraft in light of recent discussions with Boeing and continued challenges in supply chain, we now expect to receive roughly 90 aircraft deliveries in 2023 compared to our previous expectation of 100. So that would put us at 833 aircraft at year-end, net of course of our 27 planned retirements. Given a more conservative approach to capacity, we expect our full year 2023 capacity growth planned to decrease by approximately 1 point, primarily due to trimming about 3 points of planned capacity out of fourth quarter. We now expect our full year 2023 capacity to be in the range of up 15% to 16% year-over-year. Now based on the current forward curve for jet fuel, our improved fuel cost outlook has more than offset our higher 2023 CASM-X outlook, which is currently expected to be down in the range of 3.5% to 5.5% year-over-year. One point of the roughly 2.5 point CASM-X increase relative to our prior guidance is due to our decision to reduce full year capacity. The remainder of the increase is primarily related to anticipated higher technology spend and other ops disruption-related expenses throughout the full year. With fewer anticipated aircraft deliveries, we now expect total 2023 CapEx to be about $4 billion, while non-aircraft CapEx is expected to increase in the tens of millions of dollars due to additional investments in operational resilience. Those increases are more than offset by lower aircraft CapEx. Lastly, our investment grade balance sheet remains very strong, and we currently have a healthy cash and short-term investment balance of $12.2 billion with very modest debt repayments this year. We're committed to sharing the findings of our review of the December operational disruption. I know that's on everybody's mind, and I want to spend some time walking you through that as I know it's been a source of a lot of questions. In terms of the work streams that we have underway related to this, we worked early on with the Board of Directors. And they established an Operations Review Committee that's been working with management to understand the events, help oversee the company's response. And we also engaged a third-party global aviation firm, Oliver Wyman, for a third-party assessment of the event and to make recommendations of additional mitigation elements to consider. All of that work is largely complete. With that assessment and our own internal revenue and -- review and assessments, we are in a position now to report out on the key findings. In summary, we identified a key root cause of the disruption that I want to cover in 2 parts. First, it all started with the effects of Winter Storm Elliott and what began as a weather-related event across our system. The severity of the weather conditions were more sudden and more severe than predicted and, therefore, had a greater impact on our station operations than we had planned for. This ultimately strained our ability to keep up pace and -- keep up with the pace and the breadth of the disruptions. Second, we experienced outsized impacts in 2 of our largest airports, Denver and Chicago Midway, where we have a very large volume of flights and aircraft, but we also have about 25% of our crew base there. We had severe impacts at other airports as well, most notably Nashville, but these 2 airports, again, Denver and Chicago being shut down for multiple days, created waves and waves of close-end flight cancellations. The cascading close-in flight cancellations overwhelmed our processes and technology, which led to manual alternatives and efforts that were both tedious and took longer to solve. This was the point at which the weather-related event turned into a crew-related event for us and eventually resulted in a 3-day reset of our aircraft and crew networks. While there's a lot more detail that I could go into, these are the 2 primary root causes of our disruption. That leads us to our response to the root causes and learnings and the tactical action plan to boost our operational resiliently and significantly reduce the likelihood of repeating an event of that magnitude and impact. And we divided our action plan into 3 buckets, and I want to cover all 3 buckets with you here. First, improve winter operations. This focuses on airport infrastructure, equipment and winter preparedness. We are in the process of purchasing 10 closed cab de-icing trucks, 5 for Denver, 5 for Chicago Midway, as well as additional ground equipment. We procured additional de-icing pads in Denver. We're in the process of increasing glycol, which is basically de-icing fluid, capacity at several key locations. We will be implementing a new weather application for our crews to provide more real-time and dynamic weather indications to enhance de-icing holdover times, which is essentially how long you have to depart before you have to de-ice again. Our existing weather application requires more subjective judgment and, in the case of our Denver operation, produced inferior holdover time for our aircraft, effectively stopping departures for a significant amount of time, in a couple of cases for days. We have purchased additional engine covers and heaters in the event that we experience prolonged severe extreme weather conditions again, and we plan to augment winter staffing in certain work groups and locations. Second, enhance cross-team collaboration, which focuses on our processes, decision-making, escalation procedures and communication during the regular operations. We've already taken action in 2 items in this category: we improved alignment between our network planning team and our network operational control team by combining both under one senior leader; and we updated our leading indicator's operational dashboard that we are currently using today to enhance real-time monitoring of numerous operational metrics across the network. We will soon be approving our dashboard alerting and decision support tools to further enhance this daily monitoring, and we'll also be upgrading capabilities to better integrate our aircraft and our crew recovery optimization. While this includes the technology component, we're currently engaged with third parties to assist with developing a timely solution to allow better collaboration between our aircraft and our crew network systems. Third, we will accelerate other investments. That includes technology and tools that will allow for greater volume and pace during irregular operations. First and foremost, we've already upgraded our SkySolver crew optimization software. As you might recall, the volume and pace of close-in cancellations, and we just had waves and waves of them, rebuild a functional gap in our crew optimization software's ability to dynamically solve past flight cancellations in conjunction with upcoming [ white ] cancellations. We designed and implemented an upgrade to address this functional gap, and this represents a swift implementation, and it's in production, and an outstanding effort by our team and by our partners at GE Digital. So just my huge sincere thanks to everybody that worked on this. In the near future, we have a few other key enhancements and upgrades, things like enhancing our electronic crew notification system and crew phone system. We will upgrade our customer support and services phone system to provide greater stability for surges in calls, and we'll have upgrades planned for mobility tools for our employees. This list is by no means meant to be exhaustive. There are other learnings and action items that will also be prioritized for this year, and we will likely have other communications in the coming weeks about these items. But this summarizes the key root cause, along with the most notable tactical actions we believe we need to take in each area. As I hope you can tell, we're well underway on a remediation plan, and we have a target completion date of October to be fully prepared as we head into next winter. The next slide may look familiar to some of you as it was a summary of the multiyear operations modernization plan that our Chief Operating Officer, Andrew Watterson, outlined at our Investor Day last December. The real reason for this slide I want to show you is to show that our tactical action plan complements the existing multiyear ops plan, and we have highlighted in red the initiative categories where our investments in operational resiliency will roll up. As an example, many of the items that were previously planned to strengthen our performance during irregular operations fell under the category called network design and recovery. I won't go through this list again. But hopefully, this visual conveys that the near-term tactical items will not only align but will accomplish many items that were already planned for the next few years, some of which we are accelerating in our multiyear time line. Shifting gears. Our operational performance prior to the last week of December was very solid, and our performance since has also been very good. A few key metrics that we closely monitor are obviously on high performance and completion factor. On the left side of this slide, you can see the industry ranking for on-time performance year-to-date through February. And Southwest is #2 in the industry, and that's up 4 spots from last year. And this is through several winter storms, regular operational events, the FAA NOTAM ground stoppage. I believe -- at last count, I believe there were already 8 named winter storms out there since the beginning of the year, including an ice storm in Dallas. And following all of these events, we had no aircraft or crew network hangover. In the 3 days following each event, we were #1 or #2 in OTP in the industry, and we had a solid completion factor. Again, my point is to illustrate that we had these severe events and the operation managed them, recovered and performed very well the days following those events. So our performance has been very solid and we have several improvements already in place and producing positive results. And I'm just really, really, really proud of our people. On the right side of the slide, it shows our completion factor year-to-date through February compared to the 3-year average pre-pandemic. The pre-pandemic average completion factor for January, February 2018 to 2020 was 97.5%. And our January, February 2023 completion factor was 97.7%. So we're slightly better than our historical average. We've gotten several questions regarding whether we are proactively canceling more flights this year than we would typically, and this illustrates that we are continuing to be proactive in a similar manner that we have been for many, many years. And that continues to serve us very, very well as an airline. Another encouraging sign is what we've seen with customer engagement. In addition to strong revenue trends in March, we've been monitoring several engagement metrics that are trending upward and remaining very steady. On the left side of this slide, the chart shows the percentage of customers who were impacted during the December disruption that have since flown on Southwest or have booked future travel on Southwest. You can see how the volume has grown week by week. And by early this month, it was up to nearly 50%. While these customers receive Rapid Rewards points as gestures a goodwill, many of these are cash bookings. Either way, it's just -- to me, it's just really encouraging that folks that are part of our disruption in December are very willing to fly Southwest again so soon. We've also seen new account sign-ups for Rapid Rewards and points redeemed for travel rebound since late December and remain well above the trailing 12-month average. In addition, we do extensive research and surveys that monitor, among other things, customer consideration for Southwest when shopping for air travel as well as confidence that Southwest can get them to their destination on time. Both of these metrics, consideration and confidence, have shown significant improvement since the beginning of the year. So I'm just really thankful, just so thankful, for our customers and appreciate that they are sticking with Southwest Airlines. And we continue to invest in the customer experience. In addition to better mobility and tools, we're adding power points -- power [ ports ] in our seats, larger bins on the aircraft and stronger and more reliable WiFi across our fleet. And I'm happy to report that, that new WiFi is on roughly 60% of the fleet at this point. So we'll absolutely keep on this path and not interrupt those important investments for our customers and their upgrades. So all of this to me begs a question. Are there structural changes needed to the Southwest business model or route network based on what happened in December? We believe the answer is no. Our review has not revealed structural changes nor did it indicate that we need to depart from the key tenets of our business model that makes Southwest unique and support our competitive position within the industry. We have the most robust domestic point-to-point network in the industry. We have the #1 or #2 passenger market share in 61 domestic cities. In the top 50 travel markets in the U.S., we have the #1 market share in 23 of those or roughly half, more, far more than our competitors. We get significant productivity from our all-Boeing 737 fleet, high frequency point-to-point network and high asset utilization. This low-cost business model enables our low-fare brand, and we have no plans to alter our business model. Aside from the tactical action plan that I outlined earlier, we remain focused on restoring our route network by year-end 2023. And that will also provide additional operational resiliency with more depth and frequency across the network, and it's good for our customers because it provides more and more choice. Growing our existing network is exciting as it represents relatively low risk growth. And lastly, tying back to the financial goals we outlined at Investor Day, our goals remain unchanged despite recent headwinds. As a reminder, our 2023 goals are: restore the route network and utilize fully our fleet by year-end; grow profits, margins and our ROIC year-over-year; and return to 2019 profitability levels. Obviously, lower market fuel prices are helpful in terms of this year's net income production, but we intend to offset as much of the revenue penalty as nonfuel cost increases -- as possible this year. In closing, we have a lot to be excited about at Southwest. And we continue to have many, many enduring strengths. We have sustainable competitive advantages. We're off to a very terrific start this year on blocking and tackling. We have exciting company-specific revenue initiatives. We have beyond a doubt the best people in the industry, and I believe our very best days are yet to come. I absolutely believe that. I appreciate everybody joining and listening today. And with that, Jamie and Mark, I am ready to take questions.

So when things were still fluid and happening in December, there was a lot of speculation just heaped on Southwest. They significantly underinvested or their bench is too entrenched, the company is just made up by longtime executives and what have you. And we obviously understand, and thank you for the detail as to what actually went wrong. My question for you is, during this process in terms of everything you were reading about the franchise, was there anything that you read that you thought, "Maybe that's a fair point. Maybe I hadn't thought of that before." I mean you must have known that 1,000-year flood all that kind of stuff. I mean, I doubt anything -- I doubt you've learned anything new about your systems that you didn't already know, where you just understand how they came under pressure. But was there any sort of enlightenment or awakening as to maybe we hadn't considered that in the past?

Yes, boy, you got a lot in there in that question. I think when you're in the middle of an operational mess like that, and we made a mess for our customers, we made a mess for our employees, and there's no way around that. When you impact 2 million people, it's a mess. It's not what Southwest Airlines wanted. It's not what we wanted for our employees or our customers. It's not what we stand for, and this is why we're making it right. When you're in the middle of it, I'm not thinking about what others are thinking about or opining on. The point was stay safe, get the network under control and back to normal and get our crews and our aircraft in the right spot, get back to the -- get back to flying and then next, take care of the customers that we disrupted. Get them refunds, get them travel vouchers, get them all their expenses recovered and paid for. You know all those things. So I'll admit that I wasn't paying a lot of attention to that. I was paying attention to getting us back on our feet and handling our customers. A lot of those stories you read early, there was a theme of -- it's all about technology. It's all about different things. They weren't all fully based in fact. Good headlines, but not based in facts. I'll admit it's frustrating, but that always happens. There's a fog of war. People speculate. I'm pretty good about dividing. I think you can just put that off to the side and come back to it. So people speculated about everything before there was real good information. What I like now is we have real information today. I think where there was a -- and I just went through this. There was -- where there was a connector. It's obviously, we had a plan already to -- I had already acknowledged, we need a 5-year plan to modernize the operations processes and tools and some technology, and all of those things would have been extremely helpful in this ops disruption. So rather than that's an aha, to me, it almost validated that we're on the right path because it validated our need to modernize. I wish, number one, the disruption had not happened. I wish we had, had more time to work on the modernization. It also validated the moves we were already making. We had already put a lot of staffing into crew scheduling before this ever happened. We had already made that combination of network planning and the NOC, network ops control. Things that -- moves that had already been made to be validated, they were needed because the ops disruption and these OW findings have revealed that. But no, I'm not trying to be arrogant at all. I think we knew a lot of these things. Again, I've been going on a long time. But the big discovery, the big aha for me was the winter ops preparedness. We've operated well historically. This storm was extraordinary, both in terms of cold, moisture in the air, and so just an understanding of how much more we need to do to be fully prepared. This app that tells you how much holdover time that you have -- we use an app. The vast majority of other carriers use something different called Sure Weather. And in Denver, our holdover time for 2 days was basically telling us 0 minutes. In other words, you can't fly. Because once you de-ice, you have 0 minutes to take off. Most other carriers were getting much longer times, much longer times. So they were effectively able to operate. We had to shut Denver down. So the needs in the winter ops preparedness is -- was the biggest aha for me by far.

Can I just ask a follow-up to that, Bob?

Yes, sir.

Because one of the questions we talked to investors about is -- this goes all the way back to why don't you charge for bags and so forth and all the conspiracy theories about whether the technology would have allowed for it when the industry first went there, and Southwest was so stuck in their ways and so forth. And the question I get all the time is, why is the best airline in the world? And you are, if not the best, one of the best airlines in the world. With the best balance sheet and the most cash flow, why don't you have the best of everything? Why don't you have the best technology backbone? Is there something structural in the sort of inherent simplicity of the Southwest business model that was sort of -- just sort of left over that sort of led to this? And so with you and your management team and with the Board, are you sort of thinking about almost like the DNA, if you will, of Southwest Airlines and whether or not you should use this cash that you have and think about how you're investing differently going forward?

We've been a terrific operator for 52 years. And so it's not like suddenly, we didn't know how to operate. Southwest has been a terrific operator. I've been here 35 years. We've been terrific that time and before. We are larger and more complex than we've ever been. We have a wider network. We have more larger -- we call them mega cities. And obviously, weather is more severe period, just generally in the last 10 years. We all have -- there's been a lot of focus on technology. Do you spend enough? Do you have technical debt? We spent $1.3 billion a year on technology this year. Every company has technical debt. Every company has systems that are new and systems that they need to work on. In the last 5 years, we put in new res systems, a new tech ops, state-of-the-art maintenance system. We put in new gate management systems. We put in a new human capital, human resource system. I can go on and on and on. So there's been a ton of investment in technology. Not answering your question. I do think the -- again, it goes back to -- we had a -- when you go back to Investor Day, Andrew had a plan to modernize the operation for a reason. That's a theme for a reason. As we've gotten larger and complex, we have definitely discovered needs to be able to manage the turn better, take out paper, manage resources better, understand exactly where they are on the airfield as an example. We've moved a basic thing. If you wanted to trade your shift as a ramp agent, until not long ago, that was a piece of paper that you submitted. That's now electronically. So there are a number of places. I think the aha maybe for me was that there were a number of places where we did need to modernize. I don't think any of those are fundamental to running the airline. If you look at the SkySolver, there's been a lot of focus on the SkySolver gap that there was a functional gap. It couldn't solve these past problems. And that's what pushed us over, pushed us to manual. Ultimately couldn't keep up. That's ultimately what caused the reset. Well, that gap was never discovered because we've never had past problems before. The cascading rapid close and cancels overwhelmed the processes, which then pushed a solving -- instead of being in front of you solving a crew line, it's now behind you by an hour or 2 here. So the SkySolver had never seen that. So rather than being a deficit in the system, it was basically functionality that had never been asked for, which is now in place. I don't think that there's not a -- something about the model of Southwest Airlines that is causing us to underinvest. We invest significantly in technology. But I do think we have had places and systems maybe where we overcame processes just with hard work. It's like the paper and the turn as an example, which is exactly why we had to modernize the operations strategy as one of our top strategies for the next 5 years. I do not think we have a chronic underinvestment in technology, though.

And how much was the situation over the winter here exacerbated by the growth of connecting traffic on the network and how you think about running the airline with the growth of connecting traffic?

If you go back to the -- there's been a lot of speculation of it's the point-to-point network. It's the way the network is designed that is causing this issue. If you go back to the root cause that I just went through, the root cause was the inability to operate at the planned throughput in Denver, Chicago and other places. So we had a plan. We did our advanced planning. We cut -- I think we cut those cities down to about 40%. And had that executed properly, we would have been just fine. What happened is we got into the bay and couldn't even come close to operating at that level. We weren't able to de-ice at the right pace. Then you hit this de-icing holdover limit, where it said doesn't matter. You can't take off because there's no holdover time between de-icing and take off. So you must stop flying in Denver. Same thing happened in Chicago. That's what produced all these cancellations that then cascaded and provided so much work that it tilted us over in the crew solves. So it wasn't the design of the network. It wasn't the crew flows. It wasn't the aircraft flows that was the root cause. It was the inability to de-ice and operate at the throughput that we expected. So no matter what the crew design -- crew or network design looked like, the fact that we couldn't operate at the planned level on those 2 cities, that's what caused the issue, and it would have caused the issue no matter what the network structure was. Makes sense. But no, we found nothing in our network design that indicates it was an issue.

And just to level set, sort of where is connecting traffic now versus a few years ago coming out of COVID?

We're roughly the same. So the -- our one-stop of connecting traffic is roughly 25% and 75% nonstop. So we really are very consistent where we have been historically.

So Bob, I started in research in 1991, and Tammy knows this. She was the very first airline executive that I ever met. And the reason I mentioned this is because I've been around for a lot of downturns, starting with the Gulf War in '91 and everything since then, I won't recount that. My impression, and I think the data would back me up, is that the Southwest has emerged stronger following every downturn. I mean you think about the failure of Midway Airlines, what that allowed to accomplish the post 9/11 environment. So the fuel heads going into the -- during 2008. Setting aside December, this seems to be the first downturn that you have not clearly and structurally emerged superior to your positioning going in. Why is that? Does that speak more to Southwest or just the unusual nature of the COVID downturn? Because this is the first time -- and we all expected back in 2020, they're going to inherit the Earth, they're going to take over. This is just going to fuel their model and victory, victory, victory. And it doesn't seem to have happened that way. How come?

Yes. I think it's -- boy, that's a good question. This downturn was like no other. I mean when you look at COVID, when your business is down 98%, you have 2% of your folks flying, that's not a normal recessionary kind of downturn. And when we rocked along a business down 74% nearly a year, and so we managed in a different way. I would argue, though, that we did exactly what you said. So we came out of the downturn much better positioned than anybody else. I mean we have cash -- net cash, cash in excess of debt of, I think, about $4.2 billion right now. We opened 18 new cities. We expanded the route network. We aggressively hired. We were on our Boeing contractual delivery plan. We've not -- as you look forward, we've not tempered our growth. We gained market share. We gained passengers. We restored capacity at a faster rate. We have a much stronger balance sheet. So I think we came out of the pandemic in much better shape, but I also don't think that the story is fully written. We're still coming out here a bit. You've got this recession, potential recession. Obviously, this event with the disruption, it is a factor that kind of interrupts some of that progress, but I see that as a one-off. But we're in very good -- we're in a very, very good position. We're the first airline to be fully staffed back to pre-pandemic levels. So no, I'm very proud of the way we handled the pandemic.

Questions from the room before we run out the clock here.

So just speaking to your modernization goals, how much in capital investment do you think is needed to reach those goals? Over what time frame would these investments be made? And how do you expect to finance it? I mean more specifically, should we expect your cash balance to decline materially?

The -- boy, there's a lot in there because the Modernize The Operation is a very wide program. A lot of this, we always have a large amount of spending, particularly in technology devoted to operations. And so that will continue. We have boosted that modestly, even pre the operational disruption. It's a 5-year plan. It's a 5-year plan for a reason. Some of these things are faster. Some of them take longer, particularly the infrastructure. The operational disruption adds both additional new things on top of that technology plan, modernization plan. And in all likelihood, it adds pace to some of those. We're having a debate around the technology priorities and spending right now. I do expect the operational disruption to add tens of millions of dollars to the tech plan, but a lot of it was already in there. So my guess a lot of it is actually about timing and prioritization. The balance sheet, we're very well positioned both from a balance sheet perspective and a free cash flow perspective. I don't see us having to finance that investment because, again, a lot of this is -- a lot of it is technology. It's already in our $1.3 billion a year technology plan. So I almost see it as more routine than an extraordinary investment. What we're really doing is putting a focus on those things that we need to do to modernize the operation. And the spending will come up, and it will come up primarily for the -- to handle the ops disruption.

One last question from me. Tammy, for you. Since we talked about a little bit in the past, MAX 7s versus MAX 8s or Dash 7s versus Dash 8s. Boeing obviously is still delayed with the Dash 7s. We've also talked a little bit about the carbon footprint of both, right? It's a more carbon efficient airplane, the bigger sized variant. Has that -- have you rethought about sort of your mix of 7s versus 8s going forward in light of everything that's going on, the production delays, carbon footprint, any change to thinking there?

Not really, Mark. We always evaluate and we will continue to do so. So we do have a lot of flexibility with our order book. But now having a healthy mix of Dash 7s in the fleet serves our business model well. We -- it serves the needs of our more short haul to medium-haul market. So we are still excited to get the MAX 7. we're looking forward to that getting certified. And we'll -- as soon as we get the certification, we'll bring on the Dash 7, at least at this juncture in line with our plans. So really no wholesale changes to that thinking at all. Although admittedly, that's something that we'll continue to evaluate.

Great. Bob, Tammy, Ryan, thank you very much. That's all we have time for.

Thank you all so much. Thank you.