Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Investor Day (December 2021)
54 slides from Southwest Airlines's investor day presentation, Dec 8, 2021
Slide 1: 2021 Investor Day
2021 Investor Day New York Stock Exchange December 8, 2021
Slide 2: Introduction
Ryan Martinez VP Investor Relations Introduction
Slide 3: Cautionary statement regarding forward-looking statements
Page 3 Cautionary statement regarding forward-looking statements The Company’s 2021 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: Opening Remarks
Gary Kelly Chairman of the Board & CEO Opening Remarks
Slide 5: Bob Jordan, EVP & Incoming CEO Presentation
Bob Jordan EVP & Incoming CEO Presentation
Slide 6: Southwest Airlines: unmatched record of top financial performance
Page 6 Southwest Airlines Southwest has an unmatched record of top financial performance in the U.S. airline industry and is emerging from the pandemic with an improved competitive position Southwest is preparing to grow again and has a goal to return to its superior pre-pandemic financial performan
Slide 7: Keeping our principles at Heart
Page 7 Keeping our principles at Heart Our Purpose and Vision guide the way we work, and our unique qualities endure and support our industry-leading position Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel Purpose To be the world’s most loved, m
Slide 8: Past strategic initiatives
Page 8 Past strategic initiatives Our past strategic initiatives drove significant value creation in 2015 through 2019 AirTran acquisition and integration EBIT contribution: 2013: $300M 2014: $500M 2015: $700M Fleet modernization and 737-800s Realized $700M2 incremental revenue All-New Rapid Rewards
Slide 9: Past value creation
Page 9 Past value creation Our strong financial performance and solid execution resulted in significant value creation, which outpaced the market and related sectors in 2015 through 2019 Value creation of Southwest vs. other benchmarks After-tax ROIC to WACC spread1; in percentage points 3 0 12 6 9
Slide 10: Refined strategic priorities
Page 10 Refined strategic priorities We have refined our strategy for the next five years
Slide 11: 2022 focus areas
Page 11 2022 focus areas We will focus on the basics next year while restoring our route network, and our goal is to be solidly profitable in 2022, including all quarters
Slide 12: New strategic initiatives
Page 12 New strategic initiatives Our new strategic initiatives are expected to drive significant value that is estimated to generate $1 billion to $1.5 billion of incremental EBIT in 2023 Win more Customers and grow revenue Maintain our low-cost advantage Southwest Business and GDS participation Ne
Slide 13: Diversity, Equity, and Inclusion
Page 13 Diversity, Equity, and Inclusion Our Diversity, Equity, and Inclusion goals are aimed at strengthening our Culture Senior Management Committee (Executive) diversity Double the percentage of racial diversity and increase gender diversity of our Senior Management Committee by 2025 Hiring and d
Slide 14: ESG: Environmental Sustainability
Page 14 ESG: Environmental Sustainability Our Environmental Sustainability goals are intended to minimize our carbon footprint Maintain carbon neutral growth to 2019 levels every year through 2030 Cap net carbon emissions at 2019 levels as available seat mile (ASM) growth resumes Reduce: At least 20
Slide 15: Tammy Romo, EVP & CFO Presentation
Tammy Romo EVP & CFO Presentation
Slide 16: 4Q 2021 guidance update
Page 16 Guidance metric 4Q 2021 Operating revenue (vs. 4Q 2019) Down 10% to 15% (Previous estimation: down 15% to 25%) Load factor 80% to 85% (No change from previous estimation) ASMs1 (vs. 4Q 2019) Down ~8% (No change from previous estimation) Fuel costs per gallon2 $2.15 to $2.25 (Previous estimat
Slide 17: Historical financial performance
Page 17 Historical financial performance We consistently delivered industry-leading margins pre-pandemic 2018 and 2019 industry performance Net margin 11.2% 8.9% 5.1% 3.2% 5.3% 8.2% 2.5% 9.7% 4.7% 10.3% 10.1% 7.0% 3.7% 8.8% 7.9% 7.0% 12.6% 8.8%10% 0% 5% 15% 2018 2019 Note: Calculated as net income d
Slide 18: Pandemic financial performance
Page 18 Pandemic financial performance We are emerging from the pandemic with a strengthened financial position relative to our competitors • Raised $22.8 billion1 in 2020 and 2021 – $13.4 billion in debt issuances and sale-leaseback transactions – $2.2 billion through a common stock offering – $7.2
Slide 19: Fortress balance sheet
Page 19 Fortress balance sheet Our balance sheet provided us advantaged access to liquidity and remains at the top of the U.S. airline industry with current cash1 of approximately $16 billion Credit ratings Leverage Net cash position3 Unencumbered assets2 Investment grade 24% $13.4 billion $1.4 bill
Slide 20: Strong net cash position
Page 20 Strong net cash position Our net cash position increased $3.4 billion during the pandemic, widening the gap to other U.S. carriers $4.8 $1.7 $0.5 -$0.5 -$0.9 -$1.5 -$14.6 -$14.7 -$24.1 -$20 -$30 $0 -$10 $10 Net cash (debt) (in billions) $1.4 $0.4 -$1.0 -$1.0 -$1.1 -$8.3 -$9.9 -$20.5 $10 $0 -
Slide 21: Sustainable cost position
Page 21 - 5.00 10.00 15.00 20.00 25.00 30.00 2018 Southwest Legacy LCC ULCC 3 2021 1 2 (i n c e n ts ) 1. Legacy airlines: American, Delta, United 2. LCC airlines: JetBlue, Alaska, Virgin America 3. ULCC airlines: Spirit, Allegiant, Frontier Source: DOT form 41 and T100 data, through June 30, 2021.
Slide 22: Restore network, reliability and productivity
Page 22 Restore depth and frequency to the network • Drives aircraft and facility productivity • Supports reliability and recovery Restore operational reliability • Increased People productivity • More efficient crew routings We expect higher CASM-X4 inflation in 2022, with a goal to return to pre-p
Slide 23: Fuel hedging protection
Page 23 1. Based on market values as of November 29, 2021. Brent crude oil average market prices as of November 29, 2021, were approximately $71, $68, and $66 per barrel for 2022, 2023, and 2024, respectively. 2. Compared with 2019 fuel burn We plan to continue building our fuel hedging portfolio wi
Slide 24: 2022 guidance
Page 24 Guidance metric 1Q 2022 2022 Aircraft1 727 814 ASMs2 (vs. 2019) Down ~6% Down 3% to Up 2% Fuel costs per gallon3 $2.05 to $2.15 $2.05 to $2.15 CASM-X4 (vs. 2019) Up 10% to 14% Up 8% to 12% Debt repayments5 ~$60M ~$455M Interest expense ~$110M ~$440M Capital spending (CapEx) Not provided ~$5.
Slide 25: Five year targets
Page 25 Five year targets 2022 through 2026 represents an unprecedented time period as the pandemic recovery may be choppy; however, our goal is to produce steady profits and returns We expect to make significant progress toward our financial goals in 2022 and, assuming continued pandemic recovery a
Slide 26: Fleet modernization
Page 26 Fleet modernization Fleet modernization provides significant cost benefits while providing flexibility for growth or accelerated retirements Boeing order book As of December 8, 2021 Since October 21st, we exercised 14 -7 options for 2023 delivery, and we continue to plan for 30 to 35 737-700
Slide 27: Non-GAAP reconciliation
Page 27 Non-GAAP reconciliation 2015 2016 2017 2018 2019 Operating income, as reported 4,116$ 3,522$ $ 3,407 $ 3,206 2,957$ Special revenue adjustment 1 (172) - - - - Contract ratification bonuses 334 356 - - - Net impact from fuel contracts (323) (201) (156) (14) - Lease termination expense - 22 33
Slide 28: Andrew Watterson, EVP & Chief Commercial Officer Presentation
Andrew Watterson EVP & Chief Commercial Officer Presentation
Slide 29: Points of strength
Page 29 Points of strength Our unique point-to-point network, low fares, and famous Hospitality have made Southwest an attractive choice for Customers in cities across the U.S. Top 50 U.S. city where Southwest was #1 in Passengers carried Source: U.S. DOT O&D Survey data for the twelve months ended
Slide 30: Deploy idle assets to new revenue pools
Page 30 Existing Revenue Pools Idle Southwest Assets Deploy Idle Assets to New Revenue Pools Demand in existing revenue pools has been limited during COVID-19 and normal post-recession business travel patterns will create a gap post-COVID With demand limited, we can’t fully use our schedule capacity
Slide 31: Increased leisure market breadth
Page 31 O ri g in s Increased leisure market breadth by 32% We added service in leisure destinations during the pandemic, especially locations where Customers can enjoy the outdoors, and repurposed ~125 aircraft These additions have utilized aircraft and Employees that would have otherwise been idle
Slide 32: Adding points of strength
Page 32 Adding points of strength By connecting new service with existing points-of-strength, we leveraged Customer depth in Stations where Southwest is #1 or #2 Hawaii New route trips by Southwest origin share position1 New online connections Trips by Southwest origin share position1 New Stations T
Slide 33: Southwest Business and GDS
Page 33 Southwest Business and GDS During the pandemic, we continued our multi-year investment in Southwest Business to enable progress towards capturing new revenue Customers have taken notice of our continued investment in Southwest Business, closing our gap versus the industry Operational People
Slide 34: Network status and ASM growth
Page 34 Network status and ASM growth Our additional leisure service added during the pandemic increased the breadth of our overall network, which we intend to maintain coming out of the pandemic Network status KPIs July 2019 July 2021 Trips1 3,910 3,387 O&Ds offered 3,494 4,604 Itineraries 40,614 4
Slide 35: Network restoration
Page 35 Network restoration Continued schedule restoration and future network investment is intended to bolster offerings in places where we have a very strong Customer base Sources: Map/Bar Chart - U.S. DOT O&D Survey data for the twelve months ended 12/31/19 based on domestic passengers boarded; S
Slide 36: City pair restoration
Page 36 Dallas Austin City pair restoration We plan to restore frequencies in markets across the system as Southwest continues restoring the network in the wake of the COVID-19 pandemic Weekday frequency examples1 Pre-pandemic, mid-pandemic, and current scheduled Dec. 2021 restoration System-wide re
Slide 37: New capabilities and initiative pipeline
Page 37 New capabilities and initiative pipeline As we’ve done historically, we’re planning and investing in the next set of opportunities to drive revenue performance in 2022-2023 Commercial development pipeline Multi-year projects to develop capabilities have continued to be funded throughout the
Slide 38: New capabilities: Network
Page 38 New capabilities: Network Our plans for the network focus on restoring the depth from our pre-pandemic network and maintaining and optimizing our breadth Network restoration New market maturation Initiative Description: Adding back trips to the network that existed prior to the pandemic is l
Slide 39: New capabilities: Demand
Page 39 New capabilities: Demand In coordination with restoring our network, we plan to generate increased demand through Corporate travel and an enhanced product offering Southwest Business / GDS New fare product Initiative Description: Continued investment and execution in “closing the gap” with p
Slide 40: New capabilities: Optimization
Page 40 New capabilities: Optimization We plan to increase demand and yields through a new Revenue Management System, as well as increase revenue from a new co-brand credit card agreement Revenue Management System New co-brand credit card agreement Initiative Description: Implementation of a new Rev
Slide 41: New capabilities
Page 41 New capabilities Southwest has a healthy pipeline in 2022 and 2023 to drive commercial and revenue performance Network restoration New market maturation Southwest Business New fare product RMS modernization New co-brand credit card agreement Portfolio of new initiatives provides significant
Slide 42: Mike Van de Ven, President & COO Presentation
Mike Van de Ven President & Chief Operating Officer Presentation
Slide 43: Ramp up in flight activity and performance
Page 43 Ramp up in flight activity and performance As the demand environment improved in the spring, we began to increase flight activity rapidly, adding 1,000 additional flights from April to July Average scheduled daily flights By Month; Feb-Nov 2021 1,500 2,000 2,500 3,000 3,500 4,000 February –
Slide 44: Recent operational challenges
Page 44 Recent operational challenges As we ramped up the airline across the summer, we experienced a challenging operating environment that we have worked to address • +18 new airports • Increased itineraries offered • Reduced market frequencies • Higher percentage of leisure Travelers • More Passe
Slide 45: Thanksgiving performance
Page 45 Thanksgiving performance As we have stabilized the operation, our recent holiday performance highlighted our improvements 90% 85% 77% 94% 88% 87% 50% 60% 70% 80% 90% 100% 2017 2018 2019 2020 2021 5-Yr. Avg. Ontime Performance: Thanksgiving Week 2017-2021; DOT Ontime Performance 3.35 3.84 3.2
Slide 46: The advantages of the Southwest network
Page 46 The advantages of the Southwest network Our network design and operating model deliver significant competitive advantages for our operation and serve as the foundation of our cost structure 2019
Slide 47: Fleet productivity
Page 47 20 10 5 0 5 10 15 20 25 Legacy LCC ULCC 2 Fleet productivity Our design enables us to produce more flights with less scheduled time than the competition, driving a structural cost advantage Block and turn minutes in excess of Southwest Airlines 1. Legacy airlines: American, Delta, United 2.
Slide 48: Optimal cost and on-time performance
Page 48 C o s t OTP H L H Longer-term Improvement Pursue future operational capabilities to lower curve 2 Drive down costs further by producing ‘more with less’ C o s t OTP H L H Summer 2021 OTP & Cost Optimal OTP & Cost Plan to optimal position on today’s cost curve 1 Deliver consistent ontime perf
Slide 49: Network Ops Center: improved daily Ops execution
Page 49 Network Ops Center Improved daily Ops execution Recent accomplishments We have been adapting the operation to support a larger, more advanced airline over the last several years that provides a foundation for our future plans Station Command Centers Mega Station decision support Self-tagging
Slide 50: Focus of our operational strategy
Page 50 Focus of our operational strategy As we look to the future of our operation, we are focused on key efforts to complete our operational transformation and build on our competitive advantages Modernize …our fleet, processes, and technical infrastructure …our Customers & Employees with informat
Slide 51: Bob Jordan, EVP & Incoming CEO Closing
Bob Jordan EVP & Incoming CEO Closing
Slide 52: Break
Break | 10 minutes
Slide 53: Q&A | Panel of speakers
Q&A | Panel of speakers
Slide 54: Thank you for attending!
Page 54 Thank you for attending!