Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Non-Deal Roadshow (2017)
31 slides from Southwest Airlines's roadshow presentation, 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 The best People and Culture in the industry Low fares and a point-to-point network that support market lea
Slide 4: Unmatched profitability record
1 Unmatched profitability record U.S. Airline Industry Bankruptcies, 2000-2011 Chapter 7 2008 2004 2003 2011 2008 2008 & 2004 2005 2005 2005 Chapter 11 2005 2004 & 2002 2003 2002 2001 2001 Southwest has remained profitable for 44 consecutive years 1In the U.S. Airline industry. 4
Slide 5: 2016: an outstanding year!
2016: an outstanding year! 3 1Excludes special items. 2ROIC is defined as annual pre-tax return on invested capital, excluding special items. 3Free cash flow is calculated as operating cash flows less capital expenditures less assets constructed for others, net. Note: See reconciliation of reported
Slide 6: Significant profit expansion
Significant profit expansion $2,500 14% Net income 1 12% $2,000 2 Net margin 10% $1,500 8% Net income Net margin (in millions) $1,000 6% 4% $500 2% $- 0% 2012 2013 2014 2015 2016 Y/Y % Change 26.4 93.0 73.5 68.6 0.6 Our profits and margins have dramatically improved over the past five years, as plan
Slide 7: Delivering strong returns on investment
Delivering strong returns on investment ROIC, pre-tax1 35% 32.7% Drivers of ROIC Expansion 30.0% 30% • AirTran integration 25% • All New Rapid Rewards 21.2% 20% • International 15% 13.1% • Fleet modernization/Boeing 737-800 10% • Network optimization 7.2% 5% • Low fuel prices 0% 2012 2013 2014 2015
Slide 8: Low cost advantage
Low cost advantage 14.00 Unit costs excluding fuel and special items 12.00 10.00 8.00 (in cents) 6.00 4.00 Southwest 2.00 Network1 2 LCC - 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 advantage Sourc
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 723 694 704 681 665 149 146 145 141 136 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 717s Classics 700s 800s The i
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 75 Fuel saving initiatives 74.4 73.9 74 • Split scimitar winglets 73 72.7 72 71.7 • Galley refresh 71 • Fuel and flight planning 70 69.4 • New seats 69 68 • Single engine taxi 67
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%1 Balanced capital deployment • Ca
Slide 12: Industry-leading balance sheet
Industry-leading balance sheet Non-investment grade Investment grade S&P/ Fitch B- B B+ BB- BB BB+ BBB- BBB BBB+ A- Moody’s B3 B2 B1 Ba3 Ba2 Ba1 Baa3 Baa2 Baa1 A3 Source: Bloomberg as of March 16, 2017. Moody’s Senior Unsecured rating used (if unavailable, Long Term Corporate Family or Long Term rat
Slide 13: Manageable debt maturities
Manageable debt maturities $1,000 Bullet maturities $900 Amortizing debt $800 $400 $700 $600 (in millions) $500 $500 $300 $300 $400 $300 $526 $200 $323 $297 $255 $273 $100 $148 $- 2017 2018 2019 2020 2021 2022-2031 Note: As of December 31, 2016. 13
Slide 14: Future delivery schedule provides significant flexibility
Future delivery schedule provides significant flexibility The Boeing Company -800 -7 -8 Firm -800 Firm Firm -8 Additional Orders Options Orders Orders Options -700s Total 2017 39 — — 14 — 14 67 2018 21 9 — 13 — 4 47 2019 — — 15 — 5 — 20 2020 — — 14 — 8 — 22 2021 — — 1 13 18 — 32 2022 — — — 15 19 — 3
Slide 15: Returning significant value back to Shareholders
Returning significant value back to Shareholders $2,500 1 Free cash flow Share repurchases >$5.6B $2,000 Dividends Returned to Shareholders $1,500 $1,000 $500 $0 2011 2012 2013 2014 2015 2016 In May 2016, Southwest BOD authorized a $2 billion share buyback and a 33% increase in the quarterly dividen
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 $0.3 $0.5 $0.3 $0.1 <$0.1 $0.3 $0.3 $1.2 American $0.7 $0.9 $0.9 $1.2 $4.1 Delta $0.6 $0.2 $0.4 $0.2 $0.7 $0.6 $0.5 $0.4 $1.4 $2.6 Southwest <$0.1 <$0.1 <$0.1 <$0.1 <$0.1 <$
Slide 17: Significant returns to Shareholders
Significant returns to Shareholders $700 $600 Southwest NYSE Arca Airline Total cumulative return $500 S&P 500 (dollars) $400 $300 $200 $100 $0 2011 2012 2013 2014 2015 2016 Note: This graph compares the cumulative total shareholder return on the Company’s common stock over the five-year period ende
Slide 18: Customer Experience builds loyalty
Customer Experience builds loyalty “It’s a good experience. I feel a sense of Hospitality that other airlines do not have.” ® Exceptional Inflight Rapid Rewards Offerings Frequent Flyer Program • Live TV • 100% seat availability1 • $8 Wi-Fi flat rate per day • No blackout dates • Complimentary snack
Slide 19: Consistently loved and recognized brand
Consistently loved and recognized brand Awards in 2016 Net Promoter Score 75% • 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 of
Slide 20: With Transfarency, we say YES! to our Customers
With Transfarency, we say YES! to our Customers 20
Slide 21: Culture of celebration & appreciation
Culture of celebration & appreciation 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, Emplo
Slide 22: Our network in 1996
Our network in 1996 1996 22 Source: EDW DOT Traffic December 1996
Slide 23: By 2006…
By 2006… 1996 2006 23 Source: EDW DOT Traffic December 2006
Slide 24: … and today
… and today 2006 2016 24 Source: Diio schedules December 2016
Slide 25: The evolution of our network
The evolution of our network 1996 2006 2016 Daily departures >2,100 >3,200 >3,900 Market share1 11% 18% 24% Number of cities 49 63 101 Number of states2 24 32 40 Number of countries 1 1 9 Fleet 243 481 723 ROIC3 12% 11% 30% The expansion of our robust network has driven meaningful results 11996 mark
Slide 26: The nation's largest domestic airline
The nation’s largest domestic airline LA Basin Phoenix (LAX, LGB, ONT, SNA, BUR) 41% 30% 34% Market share 20% 14% 10% • 24% of total domestic market share • Market leader in 25 of the top 50 U.S. metro areas1,2 DC/BWI Area Denver • 67% market share in Southwest (BWI, DCA, IAD) 37% Airlines’ top 100
Slide 27: Focus on Reliability
Focus on Reliability Ontime Performance Baggage Delivery Rate 82% 4.0 81% 3.5 80% 3.0 79% 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 27
Slide 28: Single reservation system in May 2017!
Single reservation system in May 2017! • Schedule variation • O&D Controls • Increased days of inventory • Improved fare flexibility • Redeyes • Ancillary controls • Improved connection times New Reservation System • IROPS automation & optimization • Mobile enhancements at airport • Standby capabili
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, 5 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 adjustment1 - - - - (172) - Operating revenues, non-GAAP $ 15,658 $ 17,0
Slide 31: Non-GAAP Reconciliation (continued)
Non-GAAP Reconciliation (continued) Twelve months ended December 31, 1996 2006 20116 2012 2013 2014 2015 2016 Operating income, as reported $ 351 $ 934 $ 693 $ 623 $ 1,278 $ 2,225 $ 4,116 $ 3,760 Special revenue adjustment1 - - - - - - (172) - Union contract bonuses - - - - - 9 334 356 Net impact fr