Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Non-Deal Roadshow (2017)
31 slides from Southwest Airlines's roadshow presentation, Aug 8, 2017
Slide 1: Slide 1
Slide 2: Cautionary Statement Regarding Forward-Looking Statements
Cautionary Statement Regarding Forward-Looking Statements This booklet contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on, and inc
Slide 3: Competitive differentiators
Competitive differentiators Unmatched profitability record with cost discipline and a strong balance sheet Outstanding Customer Service and Hospitality that drives brand loyalty and recognition Low fares and a point-to-point network that support market leadership and scale
Slide 4: Unmatched profitability record
Unmatched profitability record’ FRONTIER AIRLINES 2008 MESABA AIRLINES y N D E LTA 2005 2005 RI us AIRWAYS 2005 2004 & 2002 UNITED 2002 ») Southwest has remained profitable for 44 consecutive years In the U.S. Airline industry.
Slide 5: 2016: an outstanding year!
2016: an outstanding year! Records Operating revenues Net Income? Operating cash flow $20.4 Billion $2.4 Billion $4.3 Billion Free cash flow’ Revenue passengers Load Factor $2.3 Billion 124.7 Million 84.0% Other notable achievements: ROIC? Profitsharing Returns to Shareholders NPS 30.0% $586 Million
Slide 6: Significant profit expansion
Significant profit expansion $2,500 5 , 14% $2,000 - mam Net income! | 12% , Net margin? | 10% $1,500 - + 8% 22 $1,000 - ro Bec roy z= | 4% 3 $500 - | 2% $- 0% 2012 2013 2014 2015 2016 YN % Change 26.4 93.0 a5 68.6 0.6 Our profits and margins have dramatically improved over the past five years, as p
Slide 7: Delivering strong returns on investment
Delivering strong returns on investment ROIC, pre-tax’ 9, 5 vt 32.7% ea Drivers of ROIC Expansion —_ 30% - AirTran integration 25% | ot om * All New Rapid Rewards 2% 20% - * International 15% - 13.1% * Fleet modernization/Boeing 737-800 10% - — * Network optimization 5% 4 « Low fuel prices 0% 1 1 20
Slide 8: Low cost advantage
Low cost advantage 14.00 12.00 10.00 ad °o 3S 2 °o So & o So ——Southwest 2.00 ——Network' —Lcc’ Unit costs excluding fuel and special items (in cents) 1Q 2000 3Q 2016 While the gap to the industry has contracted over the past 10 years, we are committed to preserving a meaningful competitive cost adva
Slide 9: Fleet modernization has been a significant contributor to our cost control efforts
Fleet modernization has been a significant contributor to our cost control efforts Aircraft by fleet type Average seats per aircraft Year end aircraft on property Month end average 694 704 723 681 665 145 the 141 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 717s Classics 700s m=800s > The incre
Slide 10: Reducing fuel consumption and improving efficiency through fleet modernization
Reducing fuel consumption and improving efficiency through fleet modernization and other fuel initiatives ASMs per gallon Fuel saving initiatives 74.4 | 73.9 ¢ Split scimitar winglets 73 4 V2.7 e a 72 4 FACT! * Galley refresh 71 4 i : * Fuel and flight planning 70” 694 69 | « New seats 68 | * Single
Slide 11: Sustaining a strong financial position
Sustaining a strong financial position Strong balance sheet ¢ $3.3 billion in unrestricted core cash and short- Investment term investments and $1 billion line of credit grade rating by fully undrawn and available all three agencies : « Balance Sheet leverage of 32.5% Balanced capital deployment * C
Slide 12: Industry-leading balance sheet
Industry-leading balance sheet lon-investment grade Investment grade STANDARD Ratings ~ & POOR'S: Moopy’s ZMushaz Tol STANDARD A Zrhaz tld panna Ratings STANDARD allegiant Moopy’s | poor ‘ AN STANDARD Antlines @ Moopy’s | SP00Rs M hRatings ADELTA STANDARD tchRatings = SEOOR'S Moopy’s ip awa N chRati
Slide 13: Manageable debt maturities
Manageable debt maturities $1,000 $900 = Bullet maturities $800 = Amortizing debt $700 $400 @ $600 A $500 E $500 $400 $300 $300 $300 $526 $200 $100 $255 oe $273 $297 $148 $- ~ ~ 7 T ~ 1 2017 2018 2019 2020 2021 2022-2031 13 Note: As of December 31, 2016 a
Slide 14: Future delivery schedule provides significant flexibility
Future delivery schedule provides significant flexibilit The Boeing Company Fim 800 Fim Firm 8 Additional Orders Options Orders Orders Options -700s Total 2017 39 _ _ 14 _ 14 67 2018 21 9 _ 13 _— 4 47 2019 _ _ 19 _ 5 _— 20 2020 _ _ 14 _ 8 _ 22 2021 _ _ 4 13 18 _— 32 2022 _ _ _ 15 19 — 34 2023 _ _ _
Slide 15: Returning significant value back to Shareholders
Returning significant value back to Shareholders $2,500 | Free cash flow’ m= Share repurchases >$5.6B $2,000 | apividends Returned to Shareholders $1,500 $1,000 $500 i » B | | | he 2011 2012 2013 2014 2015 2016 In May 2016, Southwest BOD authorized a $2 billion share buyback and a 33% increase in th
Slide 16: Only domestic carrier with decades-long history of returning capital
Only domestic carrier with decades-long history of returning capital (in billions) January 2008 $253MM Special Dividend UNITED ® American Airlines “¢. ADELTA Southwest» $0.1 <$01 <$0.1 <$0.1 <$0.1 <$0.1 <$0.1 $0.1 <$0.1 <$0.1 jetBlue Mushaz lle $01 <$01 <$0.1 HAWAIIAN —ninuines — spirit allegiant™ <
Slide 17: Significant returns to Shareholders
Significant returns to Shareholders $700 5 $600 | —Southwest — NYSE Arca Airline $500 + —— S&P 500 bad bh fo) (=) L $300 + Total cumulative return (dollars) $200 5 $100 + $0 2011 2012 2013 2014 2015 2016 Note: This graph compares the cumulative total shareholder retum on the Company's common stock o
Slide 18: Customer Experience builds loyalty
Customer Experience builds loyalty “It’s a good experience. | feel a sense of Hospitality that other airlines do not have.” Exceptional Inflight Offerings * Live TV * $8 Wi-Fi flat rate per day « Complimentary snacks and beverages _ Rapid Rewards” _ Frequent Flyer Program * 100% seat availability’ «
Slide 19: Consistently loved and recognized brand
Consistently loved and recognized brand Awards in 2016 Net Promoter Score 75% 5 « InsideFlyer’s 2016 Airline Program of the Year for Rapid Rewards * Best Airline (Domestic) and Best 70% Loyalty Credit Card in MONEY Magazine’s Best in Travel Awards 65% + Air Forwarders Association’s Domestic Carrier
Slide 20: With Transfarency, we say YES! to our Customers
With Transfarency, we say YES! to our Customers eae It’s time to depart from no § They’re notorious for saying no. and arrive at yes. We're yestorious for... you get it. That’s Transfarency: Southwest's 6 That's Transfarency: Southwest¢ J in aworld full of no, You are now entering we're a plane full
Slide 21: Mission to our Employees
—— Mission to our Employees We are committed to provide our Employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, Employees will be provided the same conc
Slide 22: Our network in 1996
Our network in 1996 Source: EDW DOT Traffic December 1996
Slide 23: Our network 1996 vs 2006
ADs Bm 1996 BH 2006 ‘Source: EDW DOT Traffic December 2006
Slide 24: ... and today
... and today BH 2006 BH 2016 ‘Source: Dito schedules December 2016
Slide 25: The expansion of our robust network has driven meaningful results
$2,100 3,200 >3,900 12% 11% 30% > The expansion of our robust network has driven meaningful results 1996 market share based on enplaned passengers; 2006 and 2016 market share based on revenue passengers. 22006 includes 32 states and the District of Columbia: 2016 includes 40 states, the District of
Slide 26: The nation's largest domestic airline
The nation’s largest domestic airline LA Basin Phoenix (LAX, LGB, ONT, SNA, BUR) M% 0, 30% wae Market share 20% 14% 7 o- 10% * 24% of total domestic market share « Market leader in 25 of the top 50 U.S. metro areas’? DC/BWI Area Denver * 67% market share in Southwest hg enihions 37% Airlines’ top 10
Slide 27: Focus on Reliability
Focus on Reliability Ontime Performance Baggage Delivery Rate 82% 4 4.0 5 81% 4 3.5 | 80% 4 30 | 79% 4 2.5 | 78% 2.0 2015 2016 2015 2016 With record passengers in 2016, improvements in OTP and baggage delivery rate were notable operational achievements
Slide 28: Single reservation system in May 2017
Single reservation system in May 2017! « Schedule variation « Increased days of inventory + Redeyes * Improved connection times * O&D Controls * Improved fare flexibility ¢ Ancillary controls Reservation System « IROPS automation & optimization * Mobile enhancements at airport « Standby capability &
Slide 29: Purpose and Vision
———— Purpose——— Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel. Vision To become the world’s most loved, most flown, and most profitable airline. 29
Slide 30: Non-GAAP Reconciliation
Non-GAAP Reconciliation in millions, except per share amounts Year ended December 31, 2011° 2012 2013 2014 2015 2016 Operating revenues, as reported $15,658 $17,088 $17,699 $18,605 $19,820 $20,425 Deduct: Special revenue adjustment’ - 7 7 - (172) 7 Operating revenues, non-GAAP $15,658 $17,088 $17,69
Slide 31: Non-GAAP Reconciliation (continued)
Non-GAAP Reconciliation (continued) Twelve months ended December 31, 1996 2006 2011° 2012 2013 2014 2015 2016 Operating income, as reported $ 351 $ 934 $ 693 $ 623 $ 1,278 $ 2,225 $ 4116 $ 3,760 Special revenue adjustment! - - - - - - (172) - Union contract bonuses - - - - - 9 334 356 Net impact fro