Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Investor Day (September 2024)
112 slides from Southwest Airlines's investor day presentation, Sep 26, 2024
Slide 1: Investor Day, September 26, 2024
Thursday, September 26, 2024 9:00 AM – 2:30 PM CDT
Slide 2: Julia Landrum, Southwest. Even Better.
Julia Landrum Southwest. Even Better.
Slide 3: Cautionary statement regarding forward-looking statements
3 Cautionary statement regarding forward-looking statements The Company’s 2024 Investor Day presentations and slides contain 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. For
Slide 4: Glossary of terms and acronyms
4 Glossary of terms and acronyms Item Definition ASM An available seat mile, or one seat (empty or full) flown one mile. Also referred to as "capacity," which is a measure of the space available to carry passengers in a given period Boeing Refers to The Boeing Company CASM-X The average cost to fly
Slide 5: Today's agenda
5 Bob Jordan Southwest. Even Better. Bob Jordan President, Chief Executive Officer, and Vice Chairman of the Board Driving revenue and profitability by optimizing operations Andrew Watterson Chief Operating Officer Transforming our Customer value proposition Ryan Green Executive Vice President Comm
Slide 6: Bob Jordan
Bob Jordan Southwest. Even Better.
Slide 7: What you will hear from us today
What you will hear from us today A transformational plan that builds on our foundation A portfolio of initiatives that delivers significant value A monetization of our Customer value proposition A unique capital efficient fleet strategy A bright future with a bold plan that achieves our long- term g
Slide 8: Concrete actions to return to prosperity
8 Concrete actions to return to prosperity Fleet Labor Travel patterns and preferences Operational disruption Revenue management Financial performance We are reducing headcount through controlled hiring and attrition and labor cost certainty has been achieved We are adapting through network optimiza
Slide 9: Our unique history and industry-leading position
Our unique history and industry- leading position
Slide 10: Founded on a Culture that creates value for all Stakeholders
10 Founded on a Culture that creates value for all Stakeholders
Slide 11: Our business model is time-tested and self-reinforcing
11 Our business model is time-tested and self-reinforcing Invest in the business and People to grow and develop market leadership Deliver an efficient operation with a highly- engaged workforce Offer Customers low fares, convenient flights, and industry-leading Customer Service Drive Customer loyalt
Slide 12: It starts with our Culture and our People
It starts with our and our People Culture… 12
Slide 13: Our model is supported by a unique set of strategic advantages
Our model is supported by a unique set of strategic advantages 13 The approach continuously compounds our strategic advantages and propels the business We have a primarily point-to-point network optimized for non-stop flights We utilize a single aircraft type to optimize fleet operations We drive co
Slide 14: Our model has allowed us to maintain our relative cost position
14 Our model has allowed us to maintain our relative cost position 1. Stage-length adjusted to Southwest's 2Q2024 average stage length. Source: Carrier filings, Diio Schedule, and DOT T-100 data Note: Chart excludes 2020 and 2021 for comparative purposes CASM-X, stage-length adjusted (SLA) performan
Slide 15: Our Customer-friendly policies build enduring loyalty
15 Our Customer-friendly policies build enduring loyalty Two bags fly free No cancel or change fees Basic economy $99 fee Basic economy $99 fee Basic economy $99 fee Basic economy excluded Basic economy $100 fee Free same day standby Basic economy & int’l excluded Basic economy excluded $75 fee Poin
Slide 16: Southwest is ranked #1 in top U.S. metro areas
Southwest is ranked #1 in 23 of the top 50 U.S. metro areas1 Top 50 city where Southwest is #2 in Passengers carried Top 50 city where Southwest is outside of the top two in Passengers carried2 Top 50 city where Southwest is #1 in Passengers carried Policies, combined with our network, drive market
Slide 17: Our approach has resulted in an industry-leading balance sheet
Note: As of 8/15/2024. Moody’s Senior Unsecured rating used (if unavailable, Long Term Corporate Family or Long Term rating used); S&P’s Long Term Issuer rating used; Fitch’s Senior Unsecured rating used (if unavailable, Long-term Issuer rating used) Our approach has resulted in an industry-leading
Slide 18: An improving industry backdrop
An improving industry backdrop
Slide 19: The U.S. economy has been resilient
19 The U.S. economy has been resilient Economic and consumer spending trends support a favorable outlook 1. U.S. nominal GDP sourced from BMI Fitch Solutions 2. Historical average 2010-2019 Source: Capital IQ, as of 8/16/2024, BMI Fitch Solutions GDP continues to grow1 Year-over-year Inflation is mo
Slide 20: Air travel has normalized
20 Air travel has normalized Growing GDP combined with stabilized air travel trends support a positive outlook for industry revenue growth 1. Source: Bureau of Economic Analysis; travel expenditure refers to consumer spend on transportation services; indexed to 2010 2. U.S. carriers industry revenue
Slide 21: Industry capacity growth has been moderating
1. Near international includes Mexico, Canada, and the Caribbean. All data year-over-year growth rates 2. Inclusive of all marketing carriers serving domestic and near-international routes Source: Schedule data from Diio as of 9/04/2024 Industry capacity growth has been moderating Supplier issues an
Slide 22: Population is shifting to the Sun Belt
1. Sun Belt includes AL, AR, AZ, FL, GA, KY, KA, MS, NC, NM, NV, SC, TN, TX; U.S. nominal GDP sourced from BMI Fitch Solutions 2. Some of the above metros include co-terminal regions; Cincinnati (CVG DAY), Dallas (DAL DFW), Ft. Myers (PGD RSW), Houston (HOU IAH), Miami (FLL MIA PBI), Northwest Flori
Slide 23: Transforming for sustainable performance and Shareholder returns
Transforming for sustainable performance and Shareholder returns
Slide 24: We have been rapidly implementing value-enhancing initiatives
We have been rapidly implementing value-enhancing initiatives 24 Tactical initiatives address our recent underperformance Continual network optimization and maturation Marketing and distribution evolution Revenue management maturation
Slide 25: Benefits reflected in our updated 3Q2024 guidance
25 Benefits of our actions are reflected in our updated 3Q2024 guidance 1. Includes fuel taxes, fuel hedging premium expense of $0.07 per gallon, and favorable cash settlements from fuel derivative contracts of $0.02 per gallon. Based on the Company's existing fuel derivative contracts and market pr
Slide 26: Approaching our strategic plan thoughtfully
26 Additionally, we are approaching our strategic plan thoughtfully With an eye towards future market trends, we are evolving We are flexible, transparent, and offer next-level Hospitality We are making investments to align our Customer and Shareholder value propositions Research and data-driven Cus
Slide 27: The three pillars of our strategy to restore prosperity
27 The three pillars of our strategy to restore prosperity We expect our strategic initiatives to be at maturity in 2027 Monetize our Customer value proposition Increase efficiency & lower cost Optimize capital allocation Drive revenue and increase loyalty Increase aircraft productivity and manage u
Slide 28: Developing new product offerings aligned with Customer preferences
28 We are developing new product offerings that align with Customer preferences, improve the Customer Experience, and increase revenue Monetize our Customer value proposition Increase efficiency & lower cost Optimize capital allocation Drive revenue and increase loyalty Increase aircraft productivit
Slide 29: Our decisions have been shaped by rigorous research
29 Our decisions have been shaped by rigorous research 'Bags fly free' case study Monetize our value proposition Increase efficiency & lower cost Maximize capital allocation Drive revenue and increase loyalty Increase aircraft productivity and manage unit cost pressures Achieve long-term ROIC goal i
Slide 30: Increasing efficiency of operations to support low-cost position
30 We are increasing the efficiency of our operations to support our low-cost position Monetize our Customer value proposition Increase efficiency & lower cost Optimize capital allocation Drive revenue and increase loyalty Increase aircraft productivity and manage unit cost pressures Achieve long-te
Slide 31: Using capital efficiently to achieve ROIC goals in 2027
31 We are focused on using our capital efficiently to achieve our ROIC goals in 2027 Monetize our Customer value proposition Increase efficiency & lower cost Optimize capital allocation Drive revenue and increase loyalty Increase aircraft productivity and manage unit cost pressures Achieve long-term
Slide 32: Strong execution will lead to improved financial performance
32 Strong execution will lead to improved financial performance Tactical initiatives Address the base business Strategic initiatives Monetize Customer value proposition Drive revenue and increase loyalty Continual network optimization & maturation Marketing and distribution evolution Revenue managem
Slide 33: Our 2027 targets support strong Shareholder returns
33 Our 2027 targets support strong Shareholder returns 1. As measured in year-over-year available seat miles 1% to 2% Capacity1 >$1 billion Free cash flow Low to mid 30% Leverage Investment-grade credit rating Balance sheet ≥15% ROIC ~10% Operating margin ≥
Slide 34: Key takeaways
34 Key takeaways Strong foundation and proven business model Thoughtful transformation of our product as Customer preferences evolve An approach that is rooted in data and research Executing to drive Customer and Shareholder value Bold and achievable plan to deliver ROIC well in excess of WACC
Slide 35: Andrew Watterson
Andrew Watterson Driving revenue and profitability by optimizing operations
Slide 36: Changing Customer behaviors
Changing Customer behaviors
Slide 37: We are serving more Customers than ever
0.0 M 5.0 M 10.0 M 15.0 M 20.0 M 25.0 M 30.0 M 35.0 M 40.0 M Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 Jul-24 37 We are serving more Customers than ever Southwest remains an attractive, relevant offering, and our core Customer population is larger tha
Slide 38: More business Customers, but fewer trips
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 38 We have more business Customers, but they are taking fewer trips Customers are flying less frequently, due in large part to structural changes in business travel Monthly business unique travelers1 Managed
Slide 39: Business travel has structurally changed
39 Business travel has structurally changed Fewer trips per traveler results in a decrease in total business trips, despite more unique travelers 1. Total O&D managed business Passengers for travel months January-August for both years 2018 2024 Managed business total trips have decreased1 -8%
Slide 40: Leisure travel remains strong and growing
2018 2024 40 Leisure travel remains strong and growing Volume exceeds pre-pandemic levels as consumers continue to value experiences 1. Total O&D leisure Passengers for travel months January-August for both years +7% Total leisure trips have increased1
Slide 41: Changes required from structural shift in business travel
41 As a result of the structural change in business travel, we must make changes Continue to grow managed business towards “natural share” Attract new Customers to backfill reduced business travel composition Grow share of wallet from current Customers
Slide 42: Tactical initiatives to drive yield and load factor
Tactical initiatives to drive yield and load factor
Slide 43: Tactical initiatives expected to reach maturity in 2025
43 Tactical initiatives support base business improvement and are expected to reach maturity in 2025 Adjusting schedules to match Customer travel patterns Attracting new Customers to backfill lower business travel Enhance yield performance by optimizing the booking curve Continual network optimizati
Slide 44: Continual network optimization to align capacity to demand
Action 1H2024 2H2024 1H2025 Restructure the network to match post-pandemic Customer travel patterns Cut short-haul trips and redeploy to long-haul Tuesday / Wednesday flying reductions Shoulder flying reductions Redeploy underperforming capacity to more profitable flying City closures Realignment (F
Slide 45: Hawaii case study: changes are working
45 Hawaii case study: We made changes, and they are working 1. Represents 2024 year-over-year Hawaii RASM versus system RASM performance (% point difference) Recent Hawaii RASM improvement versus system1 12 pts 10 pts 19 pts 9 pts 14 pts 13 pts 8 pts 35 pts 18 pts Jan Feb Mar Apr May Jun Jul Aug Sep
Slide 46: More improvements to come in Hawaii connection profile
46 There are more improvements to come with a unique opportunity to refine the Hawaii connection profile Restructuring and redeye flying designed to enhance connectivity and performance Overnight AM Connections LIH HNL KOA ITO OGG SMF SJC SAN LAS LAX PHX OAK Reductions Additions 20% reduction in int
Slide 47: Marketing and distribution tactics deployed
47 We have deployed various marketing and distribution tactics Attracting new Customers and engaging them in our loyalty program to drive revenue Continual network optimization & maturation Marketing and distribution evolution Revenue management advancement Highlighting our unique value proposition
Slide 48: Plans support a return to historic load factor
48 Our plans support a return to historic load factor performance Note: Graph excludes 2020 and 2021 data for comparative purposes -6 -4 -2 0 2 4 1Q2019 2Q2019 3Q2019 4Q2019 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 4Q2023 1Q2024 2Q2024 3Q2024 Load factor versus 2018 Continual network optimiz
Slide 49: Our yield has grown, but not as fast as peers
49 Our yield has grown, but not as fast as our peers Stage-length adjusted yield performance1 Economy class for 2024 1. Yields have been stage-length adjusted to Southwest’s average 2Q2024 stage length Note: Graph excludes 2Q2020 and 2Q2021 data for comparative purposes Source: 2018-2024 carrier fil
Slide 50: Revenue management actions are already yielding improvements
Jan Feb Mar Apr May Jun Jul Aug Sep (Est.) 50 Revenue management actions are already yielding improvements Opportunity exists for fare growth on our best flights High demand flights >90% load factor; year-over-year average fare growth • Southwest non-premium fare gap has widened relative to the indu
Slide 51: A near-term roadmap to boost yields
51 A near-term roadmap to boost yields Continual network optimization & maturation Marketing and distribution evolution Revenue management advancement Actions taken thus far System updates Recalibrated revenue management (“RM”) system to maximize our best flights, and leveraged automation to free up
Slide 52: Actions to enhance operating efficiency
Actions to enhance operating efficiency
Slide 53: A focus on increasing efficiency and lowering cost
53 A focus on increasing efficiency and lowering cost Turn Save minutes to drive aircraft productivity 24-hour operations Increase asset utilization and reduce overstaffing costs Service modernization Utilize artificial intelligence and digital to drive efficient Customer Service
Slide 54: An industry-leading turn time
54 An industry-leading turn time 1. All markets and fleet types for each marketing carrier; scheduled turn time calculated by turn minutes per seat brought to Southwest gauge in same Stations (including co-terminals) Source: masFlight; excludes international and widebody 76 74 69 65 64 56 51 49 Adju
Slide 55: Leveraging technology to improve operational efficiency
55 Leveraging technology to improve our operational efficiency Paperless turn Avio Flight / cabin / tech, e-fuel ticket, streamlined flight close Passenger movement Visual announcements, jet bridge experience Turn communication Chat, quick replies / notifications, countdown timer Ramp information di
Slide 56: Reducing turn time drives aircraft productivity
56 Reducing turn time drives aircraft productivity By late-2025, the turn time initiative is expected to create the equivalent of ~16 free aircraft November 2024 March 2025 August 2025 November 2025 April 2025 ~1 aircraft ~2 aircraft ~6 aircraft ~8 aircraft ~16 aircraft 100% October 2025 ~14 aircraf
Slide 57: 24-hour operations increases asset utilization
57 24-hour operations increases asset utilization Redeye flying is expected to create the equivalent of ~18 free aircraft in 2025 • Drive revenue without additional aircraft or headcount • Generate more value within existing network • Unlock Customer value, especially in markets like Hawaii Opportun
Slide 58: Modernizing our contact center and airports
58 Modernizing our contact center and airports Driving operational efficiencies and improved experience for Employees and Customers Build artificial intelligence capability to transition to a digital- first model for Customer care Turn 24-hour operations Service modernization Customer care upgrade A
Slide 59: Improved operational reliability
59 Improved operational reliability Our investments have contributed to improvement in nearly every metric Note: Domestic only; U.S. marketing carriers only Completion factor Jan 1, 2024-Sep 18, 2024 Ontime performance (A14) Jan 1, 2024-Sep 18, 2024 Extreme delays (A45) Jan 1, 2024-Sep 18, 2024 1st
Slide 60: Key takeaways
60 Key takeaways Structural changes in travel behavior require us to adjust The plan addresses both revenue and efficiency opportunities Tactical actions underway are already providing benefits Operational reliability improvements demonstrate our ability to execute
Slide 61: Ryan Green
Ryan Green Transforming our Customer value proposition
Slide 62: Shaping our transformation
Southwest Shaping our transformation
Slide 63: We are passionate about our Customer Experience
63 We are passionate about our Customer Experience Dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit” 2 years running3 years running Consistent winner Best Customer service Americas
Slide 64: Leaning into our high-value Customer demographic
64 We will lean into our high-value Customer demographic Estimates show that more than 50% of our Customer base has incomes over $100k per year Note: Customers in this analysis are Visa US consumer cardholders who flew two or more times in 2023, with at least 50% of their flights on the same airline
Slide 65: Momentum with our co-brand portfolio
Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 Jun-24 We have momentum with our co-brand portfolio Our co-brand portfolio is growing and spend per card is growing faster than our peer set 1. Peer set includes a mix of bank branded and co-branded Visa US consumer travel cards Source: Visa Consulting & Analytics;
Slide 66: Industry-leading loyalty revenue performance
66 We enjoy industry-leading loyalty revenue performance Rapid Rewards produces significantly higher contributions to RASM than other airlines 1. Loyalty revenue per available seat mile Source: Carrier filings Total unit loyalty revenue performance1 2018-2023 (excluding 2020 & 2021) C e n ts 0.0 0.5
Slide 67: Research revealed three key Customer preferences
67 Extensive research with Customers revealed three key preferences Our decisions are supported by data directly from our Customers +40K survey responses 1x1 interviews Focus groups multiple rounds Over the past year we have conducted extensive Customer research... Customers want to avoid the fricti
Slide 68: Assigned seats is the largest opportunity to broaden appeal
68 Assigned seats is the largest opportunity to broaden appeal Presents an opportunity to gain share and retain Customers 1. Southwest Customer research 2. Southwest Customer research. Lapsed travelers defined as travelers who have not flown with Southwest in the last 24 months but have flown before
Slide 69: Premium seating is highly desirable to Customers
69 Premium seating is highly desirable to Customers Our most loyal Customers and those flying longer haul especially desire premium seating Assigned seating Premium features Product differentiation Customer desire for premium seating Optionality Premium seat offerings provide more optionality to Cus
Slide 70: Customer-friendly policies drive differentiation
70 Customer-friendly policies are key in driving differentiation A reminder about Southwest’s core Customer value proposition Two bags fly free No cancel or change fees Basic economy $99 fee Basic economy $99 fee Basic economy $99 fee Basic economy excluded Basic economy $100 fee Free same day stand
Slide 71: Differentiation is an important factor in Customers' choice
Differentiation is an important factor in Customers’ choice ‘Bags fly free’ is central to our Customers’ purchase habits and brand value Source: 2024 ‘bags fly free’ Customer research and Business Case Assigned seating Premium features Product differentiation How familiar are Southwest Customers wit
Slide 72: Eliminating 'bags fly free' would destroy value
72 Eliminating the 'bags fly free' policy would destroy value 1. Lost market share is net of lower cost of carry from fewer Passengers Source: 2024 ‘bags fly free’ Customer research and Business Case Financial impact 0 free bags for WGA, 1 free bag for WGA+, 2 free bags for Anytime and Business Sele
Slide 73: Meeting Customer preferences drives revenue and Shareholder value
73 Meeting Customer preferences drives revenue and Shareholder value Assigned seating Premium seating Product differentiation Adding features that drive higher load factors and/or higher yields A guaranteed premium seat generates ancillary revenue per passenger Our differentiated product with Custom
Slide 74: Reimagining our core product
Reimagining our core product
Slide 75: Core product will feature changes in three areas
75 Our core product offering will feature changes in three areas Seat selection at booking New seating configurations Modernized cabin Ability to select standard or premium seats at booking Introduction of extra legroom seats New seats, updated overhead bins, better WiFi, etc.
Slide 76: Seating and boarding offerings increase with higher fare products
76 Seating and boarding offerings increase with higher fare products Offerings will also generate revenue as ancillary products Seat type Seat assignment Boarding priority Business Select Anytime Wanna Get Away Wanna Get Away
Slide 77: Introducing extra legroom seats
Introducing extra legroom seats Revenue uplift potential Generates similar revenue potential to business class (2x2 seating) or blocked middle seat, with minimal seat loss Customer demand Broadly appealing product designed for both business and leisure travelers Brand consistency Supports our brand
Slide 78: Cabin layout maximizes seats that can be monetized
ELR pitch1 Standard pitch1 Seats lost ELR seats Total seats ELR % 34” 31” 0 68 175 39% 34” 31” -2 48 148 32% 36” 31” -6 40 137 29% 78 Cabin layout maximizes seats that can be monetized with minimal impact to aircraft density – improving profitability per square foot 1. Pitch numbers are what is repr
Slide 79: Preserving our ordinal onboarding process
79 Preserving our unique and superior ordinal onboarding process The process will be very familiar, continuing to board using boarding positions and stanchions We are preserving our operational efficiency and providing a better Customer Experience 8.5M Simulated flights 3.3M Simulated boarding hours
Slide 80: Modernizing the cabin: what's been done
80 Capping off a purposeful plan to modernize the cabin Translating Customer value into Shareholder value Aircraft already equipped with larger bins, in-seat power, and improved WiFi have seen higher NPS scores when these features come together • +5 ppts improvement in bin satisfaction and fewer gat
Slide 81: Modernizing the cabin: what's to come
81 Capping off a purposeful plan to modernize the cabin Translating Customer value into Shareholder value As we add new and extra legroom seats, the onboard experience will be even better • Seat selection, with pitch among the best in the industry • New RECARO seats are 400% more preferred than curr
Slide 82: Assigned seat rollout plan
82 Our assigned seat rollout plan balances managing executional risk with speed to market and value Critical path activity 2023 2024 2025 2026 Extensive 3rd party research confirms Customer preferences Seeking FAA approval of supplemental type certificate (STC) to modify aircraft product Starting in
Slide 83: Multiple value drivers: ~$1.5B incremental EBIT in 2027
83 Multiple value drivers in our plan We expect our new core product will generate ~$1.5B in incremental EBIT in 2027 New seating products are expected to more than offset lost revenue ~30%+ of each aircraft will feature extended legroom seats, equating to >70M flown seats with extended legroom Sele
Slide 84: Staying true to the Southwest promise
84 Staying true to the Southwest promise to drive Shareholder value Customer-friendly policies • Bags fly free • Industry-leading base product in Wanna Get Away • Industry-leading Rapid Rewards Program Southwest Hospitality • Fantastic Employees who provide great Customer Service • Assigned seating
Slide 85: Extending our value proposition beyond the core product
Extending our value proposition beyond the core product
Slide 86: Enhanced vacations product and additional value drivers
Enhanced vacations product Product re-launch allows us to fully leverage our strengths in vacation packages market 86 We are building additional value drivers on top of our core product Loyalty and co-brand Our new core product strengthens Rapid Rewards Airline partnerships Partnerships expand the r
Slide 87: Airline partnerships expand our network across the globe
87 Airline partnerships expand our network across the globe We will launch our first partner in early 2025 with transatlantic connectivity We plan to add at least one more partner in 2025 We will eventually sell partners in our Southwest channels – with assigned seats Drive incremental Passengers wi
Slide 88: Introducing Getaways by Southwest
88 Introducing Getaways by Southwest A new vacations booking platform launching in mid-2025 to expand what Customers love about Southwest to their entire vacation experience Value drivers Grow high-margin revenue with low CapEx and headcount investment Use direct channel strength and build on existi
Slide 89: Evolved product boosts Rapid Rewards' value
89 Evolved product and expanded portfolio boost Rapid Rewards’ value Enhanced Rapid Rewards appeal drives more enrollments, increased Cardmember engagement Grow membership • Broadened appeal with better core product • Additional ways to earn and redeem loyalty currency ✓ Long-haul international trip
Slide 90: Key takeaways
90 Key takeaways Customers want new products, and we will meet their needs We are building additional value drivers on top of our core product Changes will be made in a uniquely Southwest way The plan supports significant economic value creation
Slide 91: Tammy Romo
Tammy Romo Transforming for sustainable profitability and Shareholder returns
Slide 92: Building on a strong financial foundation
Building on a strong financial foundation
Slide 93: We have an industry-leading balance sheet
93 We have an industry-leading balance sheet Note: Figures shown above as of 09/20/2024, except as noted for unencumbered assets 1. Includes $9.4 billion in cash and cash equivalents and short-term investments and a fully available revolving credit line of $1.0 billion 2. Net cash position is calcul
Slide 94: Our relative unit cost advantage remains strong
94 Our relative unit cost advantage remains strong Our relative unit cost advantage remains ~20% below the Legacy carriers 1. Stage-length adjusted to Southwest's 2Q2024 average stage length Source: Carrier filings, Diio Schedule, and DOT T-100 data 6.41 8.98 10.13 11.59 ULCC LCC Legacy 8.1 11.5 12.
Slide 95: We have labor cost stability
Pilots Flight Attendants N/A Ramp N/A N/A N/A Customer Service N/A N/A N/A Mechanics N/A N/A 95 We have labor cost stability We have contracts in place with all labor groups through 3Q2027 Source: Carrier filings Labor cost stability Open contract in 2024/2025 Non-contractN/A
Slide 96: Executing our plan to drive Shareholder returns
Executing our plan to drive Shareholder returns
Slide 97: Additional elements of our financial plan
97 Additional elements of our financial plan Removing costs from the business through efficiency and optimization Monetizing assets in a low growth environment to drive profits Exercising discipline while managing toward long-term goals Disciplined cost initiative Strategic fleet management Prudent
Slide 98: Multi-year plan expected to deliver over $500M in cost savings
98 Multi-year plan expected to deliver over $500M1 in cost savings Run rate savings in 2027 1. Excludes profitsharing Today +$500M 2027 Minimize hiring Optimize scheduling efficiency Capitalize on supply chain opportunities Improve corporate efficiency Disciplined cost initiative Strategic fleet man
Slide 99: Capacity moderation through turn, redeyes, and modernization
99 Capacity moderation through turn, redeyes, and modernization 1. Average year-over-year growth for 2015-2019 Capacity moderation Year-over-year ASM growth by period TurnRedeyes Net fleet changes 2015 → 20191 2023 2024 2025 2026 2027 Capacity that requires minimal CapEx 1%-2% per year Disciplined c
Slide 100: Our fleet and order book have significant value
100 Our fleet and order book have significant value We are actively pursuing opportunities to monetize the value of our all-Boeing 737 fleet (a) The delivery timing for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately det
Slide 101: A generational fleet modernization opportunity
27% 60% 73% 40% 100% Start of 2024 2027 2031 101 We have a generational fleet modernization opportunity Our plan supports an all -7 / -8 fleet with an average age of five years in 2031 1. On order (firm and options) or on backlog Fleet composition through 20311 Disciplined cost initiative Strategic
Slide 102: Our capital allocation priorities
102 Our capital allocation priorities Thoughtful approach with emphasis on returning value to our Shareholders Disciplined cost initiative Strategic fleet management Prudent capital deployment Minimize fleet CapEx, leveraging the value in our existing assets Continue to invest in infrastructure to o
Slide 103: Fleet strategy helps moderate CapEx
~$1.5B ~$1.5B ~$2.1B ~$0.5B 103 Fleet strategy helps moderate CapEx 1. Based on the Company's contractual order book with Boeing as of September 26, 2024, contractual aircraft commitments by year are ~$2.3B in 2024, ~$1.8B in 2025, ~$1.8B in 2026, and ~$2.6B in 2027 Aircraft Non-aircraft Contractual
Slide 104: Preserving our investment-grade balance sheet
104 Preserving our investment-grade balance sheet Significant deleveraging in 2025 based on our debt obligations and scenario prepayment $0.3B $2.1B $1.6B $1.3B $0.3B $0.1B $0.5B $1.0B $1.1B $1.7B 2024 2025 2026 2027 2028 2029 2030+ Convertible notes Bullet maturities Payroll Support Program (PSP) l
Slide 105: Resuming share repurchase program with $2.5B authorization
105 Resuming share repurchase program with $2.5B authorization Longstanding commitment to return value to Shareholders 1. Displays aggregate share repurchases and dividends to date Over $13B returned to shareholders since 20111 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20
Slide 106: Supporting a path to sustainable prosperity
Supporting a path to sustainable prosperity
Slide 107: Initiatives expected to drive ~$4B incremental EBIT
2025 2026 2027 107 Initiatives are well underway and expected to drive incremental EBIT ~$4B in cumulative EBIT contributions expected in 2027 1. The Company expects Getaways to fully mature beyond 2027 Monetize Customer value proposition Optimize capital allocation Increase efficiency & lower cost
Slide 108: Initiatives provide a path to prosperity
2024 2025 2026 2027 Fleet strategy opportunity Core operations 108 Tactical and strategic initiatives provide a path to prosperity Our plan delivers ROIC well above WACC in 2027 ROIC contributions After-tax ROIC WACC ~9% 5%-8% 10%-13% ≥15%
Slide 109: Our 2027 targets support strong Shareholder returns
109 Our 2027 targets support strong Shareholder returns 1. As measured in year-over-year available seat miles 1% to 2% Capacity1 >$1 billion Free cash flow Low to mid 30% Leverage Investment-grade credit rating Balance sheet ~10% Operating margin ≥15% ROIC ≥
Slide 110: Key takeaways
Key takeaways 110 Industry-leading balance sheet and a strong foundation Transformational initiative portfolio for sustainable profitability Idiosyncratic opportunities to unlock additional value A clear path to achieve 2027 targets
Slide 111: Bob Jordan, Southwest. Even Better.
Bob Jordan Southwest. Even Better.
Slide 112: Southwest. Even Better.
Southwest. Even Better. A strong foundation and industry-leading position Thoughtfully transforming our product as Customer preferences evolve An approach that is rooted in data and research Executing our plan to drive Customer and Shareholder value A comprehensive and measurable plan to deliver ROI