Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Investor Day (December 2022)
42 slides from Southwest Airlines's investor day presentation, Dec 7, 2022
Slide 1: 2022 Investor Day
2022 Investor Day New York Stock Exchange December 7, 2022
Slide 2: Welcome
Ryan Martinez Vice President Investor Relations Welcome
Slide 3: Cautionary Statement Regarding Forward-Looking Statements
Page 3 Cautionary Statement Regarding Forward-Looking Statements The Company’s 2022 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
Slide 4: Bob Jordan, Chief Executive Officer Presentation
Bob Jordan Chief Executive Officer Presentation
Slide 5: Proven Track Record
Page 5 Proven Track Record We have an unmatched record of financial performance in the U.S. airline industry, emerging from the pandemic with an improved competitive position Southwest is restoring its route network and preparing for growth, with a goal to return to its superior pre-pandemic financi
Slide 6: Strategic Priorities
Page 6 Strategic Priorities Support our Purpose and Vision Our five strategic priorities remain unchanged through 2026 Vision To be the world’s most loved, most efficient, and most profitable airline Purpose Connect People to what’s important in their lives through friendly, reliable, and low-cost a
Slide 7: 2022 Focus Areas
Page 7 2022 Focus Areas We focused on ‘the basics’ this year with a goal to stabilize our business, and we made significant progress in each area Get properly staffed • Expect to hire >10,000 net Employees in 2022 • Surpassed 2019 staffing levels in May 2022 Focus on our People and our Culture • Imp
Slide 8: 2023 Focus Areas
Page 8 2023 Focus Areas We are ready to move past ‘the basics’ of recovering from the pandemic as our business has stabilized, and we aim to thrive in 2023 Live our Southwest Way Values • We win when we support each other, serve others, and work together as a Team Build on our legendary Hospitality
Slide 9: Strategic Initiatives
Page 9 Strategic Initiatives Our strategic initiatives are performing in line with expectations, and we continue to expect significant financial benefits in 2022 and 2023 Win more Customers and grow revenue Maintain our low-cost advantage Southwest Business and Global Distribution System (GDS) parti
Slide 10: Diversity, Equity, and Inclusion
Page 10 Diversity, Equity, and Inclusion Our Diversity, Equity, and Inclusion (DEI) goals are aimed at strengthening our Culture, and our Board of Directors set a goal to increase diverse representation by 2025 Executive diversity Double the percentage of racial diversity and increase gender diversi
Slide 11: Environmental Sustainability
Page 11 Environmental Sustainability We have made progress toward our goal to achieve full carbon neutrality by 2050 and continue to expect to achieve our near-term goals by 2030 Maintain carbon neutral growth to 2019 levels every year through 2030 Cap net carbon emissions at 2019 levels as availabl
Slide 12: Tammy Romo, EVP & Chief Financial Officer Presentation
Tammy Romo EVP & Chief Financial Officer Presentation
Slide 13: Fourth Quarter 2022 Guidance Update
Page 13 Guidance metric 4Q 2022 Operating revenues (vs. 4Q 2019) Up 13% to 17% Managed business revenues (vs. 4Q 2019) Down 20% to 25% Available seat miles (ASMs, or capacity) (vs. 4Q 2019) Down ~2% Fuel costs per gallon1 $3.10 to $3.20 Non-fuel unit costs (CASM-X2) (vs. 4Q 2019) Up 14% to 18% Sched
Slide 14: 2023 Guidance Update
Page 14 Guidance metric 1Q 2023 2023 Aircraft1 Not provided 841 Available seat miles (ASMs, or capacity) (vs. 2022) Up ~10% Up ~15% Fuel costs per gallon2 $3.00 to $3.10 $2.85 to $2.95 Non-fuel unit costs (CASM-X3) (vs. 2022) Flat to Up 2% Down 1% to 3% Scheduled debt repayments (millions) ~$20 ~$80
Slide 15: Fuel Hedging Protection
Page 15 1. Brent crude oil average market prices as of November 30, 2022, were approximately $87 and $85 for 1Q 2023 and 2023, respectively. 2. Based on the Company’s forecasted fuel consumption and available seat miles. We are currently 15 percent hedged for 2024 with hedging gains beginning at Bre
Slide 16: Fleet Modernization
Page 16 Fleet Modernization Our Boeing order book supports growth and fleet modernization plans, and we have significant fleet flexibility Contractual Boeing order book As of December 7, 2022 We are currently planning for 66 MAX deliveries in 2022 and ~100 in 2023, with 26 and 27 planned retirements
Slide 17: Sustainable Cost Position
Page 17 8.13 10.48 13.47 16.17 ULCC LegacyLCC -22% +22% +35% 32 1. ULCC airlines: Spirit, Allegiant, Frontier 2. LCC airlines: JetBlue, Alaska 3. Legacy airlines: American, Delta, United 4. Cost per Available Seat Mile, excluding fuel and oil expense, and transport related expenses. Source: DOT form
Slide 18: Financial Goals
Page 18 Financial Goals Our annual goals are to generate consistent profitability, grow the route network and revenue, and enhance Shareholder value by generating consistent returns on invested capital in excess of weighted average cost of capital Our 2023 goals are to grow profits, margins, and ROI
Slide 19: Capital Allocation Priorities
Page 19 Capital Allocation Priorities Our investment-grade balance sheet continues to be an enduring strength and remains top in the U.S. airline industry • Cash balance of $13.5B1 • Long-term minimum cash target of ~$6B plus revolver • Earmarking cash for step-up in debt repayments scheduled in 202
Slide 20: Ryan Green, EVP & Chief Commercial Officer Presentation
Ryan Green EVP & Chief Commercial Officer Presentation
Slide 21: Revenue and Customer Initiatives
Page 21 Revenue and Customer Initiatives We have several areas of focus for 2023 designed to drive revenue performance Network restoration New market maturation Southwest Business and GDS New fare product Revenue management system modernization Co-brand and loyalty Inflight Customer Experience enhan
Slide 22: Network Restoration
Page 22 Network Restoration Network restoration is a priority in 2023 as we rebuild a robust post-pandemic network in key Southwest markets through lower-risk capacity growth Historical and projected trips Pre-pandemic through year-end 2023 Full network restoration in 2023 plus new markets added dur
Slide 23: New Market Maturation
Page 23 Hawaii service December 2022 New Market Maturation We are focused on maturing new markets that launched during the pandemic, and shifting capacity growth to restoring core markets We have made great progress increasing Customer awareness and improving revenue performance in new markets; howe
Slide 24: Southwest Business and GDS
Page 24 Southwest Business and GDS We have invested in People, processes, and technology to grow our presence in the corporate travel space, and have grown our passenger share by 10 percent We expect to continue realizing the planned EBIT contribution from our GDS initiative in 2023, and we have sig
Slide 25: New Fare Product
Page 25 Attributes Rapid Rewards® Pts / $ 12 10 8 6 Funds Flexibility Refundable Transferable Flight Credit Refundable Transferable Flight Credit Transferable Flight Credit Flight Credit Same-Day Standby Fare Diff Same-Day Change Fare Diff Priority/Express Lanes N/A N/A Auto-Boarding
Slide 26: Revenue Management System
Page 26 Revenue Management System Revenue Management System modernization creates the opportunity for incremental revenue by improving forecasting and optimization science Upgrade optimization science Quickly adapt forecast to recent trends Improve workflow to drive analyst effectiveness Modernize f
Slide 27: Co-Brand and Loyalty
Page 27 +32% 32% more acquisitions than pre-pandemic Co-Brand and Loyalty In addition to our Chase agreement benefits, we are seeing momentum in acquiring new Cardmembers and increased spend per Cardmember, with very low attrition Co-brand acquisition performance1 Spend per Cardmember 2022 Spend per
Slide 28: Inflight Customer Experience Enhancements
Page 28 Inflight Customer Experience Enhancements To further strengthen our brand, we are investing in a cabin experience tailored to our Customers’ needs WiFi upgrades In-seat power installations Larger bin installations Upgrades to WiFi hardware are expected to continue through 3Q 2023; larger bin
Slide 29: Enhanced Flexibility
Page 29 Program feature engagement effectiveness1 80% 80% of Corporate Travel Managers think “Flight Credits Don’t Expire” is extremely or very effective in driving program engagement Enhanced Flexibility Flexibility has become more important to our Customers, and flight credits that don’t expire fu
Slide 30: New Capability and Initiative Pipeline
Page 30 New Capability and Initiative Pipeline As we have historically done, we are continually planning and investing in the next set of opportunities that continue to supplement revenue performance Commercial development pipeline Multi-year projects to enhance revenue capabilities have continued t
Slide 31: Andrew Watterson, Chief Operating Officer Presentation
Andrew Watterson Chief Operating Officer Presentation
Slide 32: Productivity Goals
Page 32 1. Aircraft on property 2. Excludes contractors; part-time Employees counted as 0.5 fulltime equivalent Employees (FTEs); aircraft on property 3. Includes common use, preferential use, and exclusive use gates 210M+ ASMs per aircraft1 ~80 FTEs per aircraft2 6+ Average trips per gate3 80+ ASMs
Slide 33: Operations Focus Areas
Page 33 Operations Focus Areas As we move beyond the pandemic, we are leveraging the strengths of our business model to drive efficient growth, operational reliability, and an enhanced experience for our Employees and Customers Aircraft productivity Operating leverage Operating quality Frontline sta
Slide 34: Aircraft Productivity
Page 34 Aircraft Productivity We plan to increase our asset utilization while speeding up the tempo of the operation Aircraft productivity Increase asset utilization Turn execution Flight scheduling Maintenance optimization Block execution Overnight flying Planned 2023 delivery
Slide 35: Operating Leverage (1 of 2)
Page 35 Operating leverage Pursue efficient growth Operating Leverage (1 of 2) We have many opportunities to pursue efficient growth across the core of our network by aligning network restoration plans with staffing and facility capacity; we also have several initiatives designed to improve operatin
Slide 36: Operating Leverage (2 of 2)
Page 36 Several of our large airports have consistently high flight activity across the day… …while many have valleys that represent opportunities for efficient growth Operating Leverage (2 of 2) We have significant growth opportunities in our largest airports within existing flight volume peaks, en
Slide 37: Operating Quality
Page 37 Operating quality Further strengthen operational Reliability and Hospitality Operating Quality We intend to lessen the impact of irregular events and reduce the causes of disruption Originator performance Transfer operations Station command centers Network design & recovery Planned 2023 deli
Slide 38: Frontline Staffing and Tools
Page 38 Frontline staffing & tools Get properly staffed and better equip our Employees Frontline Staffing and Tools We intend to rapidly close gaps and increase investment in the Frontline Employee experience Targeted staffing levels Training and proficiency Mobility / digital tools Continuous impro
Slide 39: Driving Value from the Southwest Business Model
Page 39 Driving Value from the Southwest Business Model Our operations focus areas are expected to continue to build upon and enhance the key operational strengths of our business model The simplicity of our operating model The power of our People The strength of our point-to- point network Flexibil
Slide 40: Break
Break | 10 minutes
Slide 41: Q&A Panel
Bob Jordan Tammy Romo Ryan Green Andrew Watterson Q&A Panel
Slide 42: Thank you for attending!
Page 42 Thank you for attending!