Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Non-Deal Roadshow (August 2016)
31 slides from Southwest Airlines's roadshow presentation, August 2016
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: Our Purpose and Vision
Our Purpose Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel. Our Vision To become the world’s most loved, most flown, and most profitable airline.
Slide 4: A record first half of 2016
A record first half of 2016 33.5% $1.3B ROIC, pre-tax1 net income2 $10.2B $361M $1.4B operating profitsharing returned to revenues for Employees Shareholders 83.2% 0.9% nonfuel load factor CASM2,3, y/y 1ROIC is defined as annual pre-tax return on invested capital, excluding special items, for the tw
Slide 5: Committed to delivering superior financial performance
Committed to delivering superior financial performance 5
Slide 6: 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 43 consecutive years 1In the U.S. Airline industry. 6
Slide 7: Significant profit expansion
Significant profit expansion $1,400 14% $1,200 Net income 1 12% 1 Net margin $1,000 10% $800 8% Net income Net margin (in millions) $600 6% $400 4% $200 2% $- 0% 1H 2012 1H 2013 1H 2014 1H 2015 1H 2016 Y/Y % Change 79.6 28.6 86.3 86.9 16.1 Our profits and margins have dramatically improved over the
Slide 8: Delivering strong returns on investment
Delivering strong returns on investment ROIC, pre-tax1 40% Drivers of ROIC Expansion 35% 33.5% • AirTran integration 30% 28.2% • All New Rapid Rewards 25% • International 20% 17.1% • Fleet modernization/Boeing 737-800 15% 10% 8.5% • Network optimization 7.8% 5% • Low fuel prices 0% 2012 2013 2014 20
Slide 9: Compelling competitive returns
Compelling competitive returns 2015 Return on Invested Capital1 40% S&P 500 3 Consumer Discretionary 32.7% Transports 30% 2 U.S. Airlines Southwest Airlines 23.7% 23.7% 20% 18.3% 15.9% 10% 0% Southwest not only exceeded the U.S Airlines, Transports, and Consumer Discretionary returns, but more than
Slide 10: Sustaining a strong financial position
Sustaining a strong financial position Strong balance sheet Investment • $3.4 billion in unrestricted core cash and short-term investments and $1 billion line of credit fully undrawn grade rating by and available all three agencies • Balance Sheet leverage of 34%1 Balanced capital deployment Returne
Slide 11: 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: For DAL Moody’s rating, Moody’s press release dated February 11, 2016. For all other ratings, Bloomberg as of August 1, 2016. Moo
Slide 12: Manageable debt maturities
Manageable debt maturities $1,000 Convertible notes $900 Bullet maturities Amortizing debt $773 $800 $700 $600 $578 (in millions) $529 $548 $543 $500 $100 $500 1 $110 $400 $300 $300 $292 $300 $300 $478 $200 $292 $273 $248 $243 $100 $119 $- 2016 2017 2018 2019 2020 2021-2031 1We estimate the converti
Slide 13: Investing in our business
Investing in our business 2016 Capex breakdown Aircraft capex (in billions) (in billions) $2.5 Other Facilities Technology AC Capex $2.0 Restructured order book deferred $1.9B $1.5 $1.0 $0.5 $- 2016 2016 2017 2018 2019 2020 Capital spending is expected to remain manageable 13 Note: Reflects restruct
Slide 14: Future delivery schedule provides significant flexibility
Future delivery schedule provides significant flexibility The Boeing Company 737 -800 -7 -8 -800 -8 Additional Firm Firm Firm Total Options Options -700s Orders Orders Orders 2 2016 38 — — — — 23 61 2017 39 — — 14 — 14 67 2018 12 18 — 13 — 4 47 2019 — — 15 — 5 — 20 2020 — — 14 — 8 — 22 2021 — — 1 13
Slide 15: Capital investments are expected to drive significant financial and operational benefits
Capital investments are expected to drive significant financial and operational benefits New reservation system Single system Significant revenue opportunities Enhanced capabilities Operational Facilities initiatives HDQ | FLL | LAX Reliability | Hospitality 15
Slide 16: Creating significant incremental revenue opportunities with a new reservation system
Creating significant incremental revenue opportunities with a new reservation system Phases of Implementation Enhanced Capabilities R1 Sell • Schedule optimization Late 2016 • Support international R2 Operate growth 1H 2017 • Foundational capabilities R3 Enhanced capability 2H 2017 • Operational imp
Slide 17: Further strengthening our foundation through operational investments
Further strengthening our foundation through operational investments Focus Fleet Outcome modernization • Strong operational platforms Delivering • Industry-leading fleet excellent Customer efficiency Service • Network-based staffing Improving productivity • Improved Cargo revenue • Real-time informa
Slide 18: Investing in facility modernization
Investing in facility modernization Headquarters (HDQ) Densification & Training and Operations Support (TOPS) • Moved Managers into workstations • Culture Centers replaced individual department break rooms • Reduced SF per Employee by 30% Headquarters Expansion (Wings) • Designing & building a new 3
Slide 19: Returning significant value back to Shareholders
Returning significant value back to Shareholders $2,000 1 $1,800 Free cash flow >$5.0B Share repurchases Returned to $1,600 Dividends Shareholders $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 2011 2012 2013 2014 2015 1H 2016 In May 2016, Southwest BOD authorized a $2 billion share buyback and a 33% i
Slide 20: 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 21: Industry-leading revenue performance
Industry-leading revenue performance 1H 2016 Unit revenues (RASM) 3% Dynamic revenue management 0.3% 0% • Industry-leading first half operating unit revenue growth • Challenging revenue environment -3% • Difficult comparisons in second half 2016 with lapse of year-over-year -4.8% benefit relating to
Slide 22: Southwest's brand reputation stands on its own
Southwest’s brand reputation stands on its own FORTUNE’S 2016 World’s Most Admired Companies 1. Apple 2. Alphabet (Google) No Hidden Fees1 3. Amazon 4. Berkshire Hathaway 5. Walt Disney 6. Starbucks 7. Southwest Airlines 8. Federal Express 9. Nike 10. General Electric Low Fares2 TransfarencySM is a
Slide 23: The nation's largest domestic airline
The nation’s largest domestic airline LA Basin Phoenix (LAX, LGB, ONT, SNA, BUR) Market share 41% 30% 34% 20% • 24% of total domestic market share 14% 10% • Market leader in 27 of the top 50 U.S. metro areas1,2 • 68% market share in Southwest DC/BWI Area Airlines top 100 O&D city pairs Denver (BWI,
Slide 24: All in a day's work
All in a day’s work 24 Note: Schedule as of August 4, 2016.
Slide 25: We intend to approach future growth prudently with a focus on strong margins
We intend to approach future growth prudently with a focus on strong margins Where can we go? • Expand/optimize domestic network • Canada • Caribbean • Mexico • Central America • Northern reaches of South America Where are we going? • 2016 capacity (ASM) growth, year- over-year will be in the 5-6 pe
Slide 26: Committed to sustaining our low cost advantage
Committed to sustaining our low cost advantage 14.00 Southwest 12.00 Industry1 10.00 8.00 (in cents) 6.00 4.00 2.00 - 1Q 2000 1Q 2016 While the gap to the industry has contracted over the past 10 years, we are committed to preserving a meaningful competitive cost advantage Source: DOT form 41 and T1
Slide 27: 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 Unit costs Year end aircraft on property Month end average Excluding special items 698 694 704 13.42 681 665 13.18 Average seats per aircraft 12.86 12.43 12.68 Aircraf
Slide 28: Focused on reducing fuel consumption and improving efficiency
We remain focused on reducing fuel consumption and improving efficiency through fleet modernization and other fuel initiatives ASMs per gallon 76 Fuel saving initiatives 75 74.6 74.2 74 • Split scimitar winglets 73 72.4 • Galley refresh 72 71.4 71 • Fuel and flight planning 70 • New seats 69.0 69 68
Slide 29: Proven business strategy
Proven business strategy 1 Unmatched profitability record Best People in the airline industry Outstanding Customer Service and Hospitality Robust route network Low fares with Transfarency Competitive cost advantage 1In the U.S. Airline industry. 29
Slide 30: Non-GAAP Reconciliation
Non-GAAP Reconciliation (in millions, except per share amounts) Twelve Months Six Months Ended June 30, Twelve Months Ended June 30, Ended December 31, 2011 2012 2013 2014 2015 2016 20113 20123 2013 2014 2015 2016 2015 Fuel and oil expense, unhedged $ 2,577 $ 3,022 $ 2,847 $ 2,776 $ 1,792 $ 1,293 Op
Slide 31: Third party content notice
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