Executive Chairman, Southwest Airlines Co
Southwest Airlines CEO: Flying Higher | Mad Money | CNBC
Airline stocks have been losing altitude, but after the company's record quarter Jim Cramer speaks to the CEO to see if the stock can start climbing again?
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"Mad Money" takes viewers inside the mind of one of Wall Street's most respected and successful money managers. Jim Cramer is your personal guide through the confusing jungle of Wall Street investing, navigating through both opportunities and pitfalls with one goal in mind -- to...
About Gary Kelly
Gary Kelly, Executive Chairman of Southwest Airlines, moderated the company's third quarter 2025 earnings call on October 29, 2025. During the call, he and other executives discussed the airline's financial performance and initiatives. Kelly noted that the company's credit card applications have accelerated with new products and features, and that Rapid Rewards signups are exceeding expectations. He stated that the annualized contribution from checked bag fees is around $1 billion, and that overall checked bags are down materially, though there has been a modest increase in gate-checked bags. Kelly also remarked that Southwest's checked bag revenue per passenger is similar to that of the "big three" U.S. carriers.
Transcript (15 segments)
✨ AI-enhanced transcript with speaker attribution
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Jim Cramer0:06
In this market we're seeing lots of groups trading lockstep with whole sectors being taken up or down all at once. But there are still some areas where individual stock picking does matter, where individual companies are succeeding or falling by their own metrics. And one of those is the airlines. Many have done well, some have done poorly. What is the hideous decline of United Continental both yesterday and today? But some have done extremely well, and arguably the best in the group right now is best of breed Southwest Airlines, symbol LUV for you home gamers. Southwest just reported on Wednesday after the close, and the company posted a fabulous quarter: a 4-cent earnings beat off of an 84-cent basis, higher than expected revenues to go at a 99.3% clip. And Southwest is practically printing money here with $1.2 billion in free cash flow. Now granted, some of this strength comes from lower jet fuel prices, but not all of it. Some of it comes from adding new capacity, not all of it. But I think that this is just a better managed airline. Yes, I'm worried if everyone in the industry starts adding planes, setting off some sort of price war that's been endemic to the airline business in the past. But for now, the strategy is working for Southwest. They've got the best balance sheet in the business, one of the lowest cost structures, and they're returning ever more capital to shareholders, including a $500 million buyback in the latest quarter alone. It's no wonder the stock is up 10% year to date, and by the way, up nearly 30% since we last spoke to the CEO 11 months ago. But can it keep climbing? Let's take a closer look with Gary Kelly. He's the Chairman and CEO of Southwest Airlines to learn more about the quarter and the company's prospects. Mr. Kelly, welcome back to Mad Money.
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Gary Kelly1:37
Hey Jim, great to be with you.
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Jim Cramer1:41
I look, I've been speaking to almost all the airlines and to the executives, and they're all saying to a man, it's just a tough time. It's not that good. You know, it's just not as good as you thought it would be. Your company, it is. What's the difference between you and the other guys? Why are your revenues so great? Why are your gross margins the best? Why do you have a return on invested capital that is the best I've seen this airline in, I don't know, 30 years?
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Gary Kelly2:02
You know, Jim, I just give all the credit to our people. I think they're the best in the business. We have very low cost, we offer great service. It's just a powerhouse combination. We're coming off of a year where we've integrated an acquisition, AirTran, in at the end of 2014. We're beginning to see really the full benefits of that. You know, our expansion out of Dallas Love Field has been absolutely phenomenal, and it's really all coming together. We don't charge bag fees, we don't charge change fees. We've got a great advertising campaign to support that, and we've got the nation's best route network. So it's just a powerhouse combination.
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Jim Cramer2:43
Gary, you came on the show 11 months ago and I told you I was worried about Texas. I had looked up the different routes that you had in Midland, and I was worried about Houston. You told me not to worry. On the conference call, I hear Bob Jordan, the Chief Commercial Officer, say Houston looks fantastic, Midland looks fantastic. How is it possible that the most devastated area in this country looks fantastic?
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Gary Kelly3:06
Well, you know, for Houston, I think they're just much more diversified today than they were 30 years ago. So our business has held up extraordinarily well. I think the other points that Bob and I were making yesterday about Houston is that we've been able to establish a lot of momentum. We're bringing a lot of new things to the market. We've opened up a new international terminal, we've added new international destinations, and it just has created greater awareness for Southwest Airlines in the market. But even Midland, that you mentioned, interestingly enough, there's still a lot of activity going on in Midland, and our business is very, very strong out there. So I'm glad, but obviously the results really show that we've just benefited from strength across all of our system. But you know, fortunately, the oil patch has held up fine for us.
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Jim Cramer3:58
Coming back, there was something I think could really help our viewers. There's a moment in the call where you talk about how, I'm just going to quote you, it says that you looked at Bush Airport in Houston and you said you noticed that the fares were extraordinarily high, double in fact, the fares compared even to Chicago, and you regarded that as something that you could take advantage of. So explain to people what happens when Southwest sees an opportunity.
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Gary Kelly4:24
Well, Jim, thanks for that question. That is the classic Southwest opportunity. Where fares are high, we can come into a market, lower the fares substantially, and it just makes flying more affordable for people. And the US Department of Transportation back in the 1990s called that the Southwest effect. So we'll lower fares, and sometimes the traffic can increase 50%, double, triple what it was before. It just shows you the power of having lower fares, and that's exactly what we're doing in Houston.
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Jim Cramer4:54
Well, let me follow up on that. You added 99.2% capacity, and typically you would not expect that the revenues would go up as much. How can you add so much capacity and not be more worried about price war?
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Gary Kelly5:09
You know what, 99.2% is pretty aggressive in this environment, and it was really what I was referring to earlier, sort of the culmination of integrating AirTran, opening up Dallas Love Field, opening up an international terminal in Houston. And all of those are a risk. And what we've tried to do here in 2016 is slow down adding new and let the new things that we were adding in 2014 and 2015 give them time to mature. So really, what you're seeing in 2016 is the year-over-year build up. We're not actually adding a lot of new flights here in the first quarter of 2016, and you're beginning to see the maturing of those previously added markets. And I'm very proud of our people. I think they've done a wonderful job. I would also give a lot of credit to our advertising campaign where we're pointing out to customers that Southwest is really different. We don't nickel and dime you, and you're going to get a great low fare and great service. And I think that's had a powerful impact as well.
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Jim Cramer6:14
One last question. I hear periodically, not a lot of planes for sale, but I know gasoline's come down to the point, jet fuel's come down to the point where it may not matter. But pilot shortage too. I mean, is it possible that there are some constraints on just naturally adding more planes from here?
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Gary Kelly6:30
Jim, I think there are definitely constraints. I think there are constraints locally. Some airports are at capacity. I worry about constraints in the United States with our air traffic control system. It's very antiquated and it needs better throughput. And then, yeah, you can only build and sell so many airplanes at a time. In terms of pilots, I think clearly in the future there's going to be more and more of a concern about that. But as it stands today, we start this year with about 700 airplanes at Southwest Airlines. I think we have opportunities to grow that are unconstrained over time for as many as 500 more airplanes. Wow. And Southwest is a great airline that has never had a furlough, never had a pay cut. As you pointed out yesterday, didn't lose money during the downturn. And it is a pilots' airline, and we have pilots lined up out the door wanting to join Southwest Airlines. So I think we're in good shape for a long, long time.
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Jim Cramer7:35
Well, you've done a remarkable job, continuation of a very long history of great CEOs who've done a great job at Southwest, sir. Thank you so much for coming on Mad Money.
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Gary Kelly7:43
Thank you, Jim.
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Jim Cramer7:45
Gary Kelly, Chairman and CEO of Southwest Airlines. Hey, best of breed, what can I say? Everybody's back after the break. Booyah! Jim Cramer here from Mad Money. Thanks for watching CNBC on YouTube. Click here to subscribe and get the jump on my exclusives with CEOs, plus market news, investing advice, and a whole lot more.