Southwest Airlines Company · NYSE:LUV
Southwest Airlines — Investor Presentation (2016)
26 slides from Southwest Airlines's investor presentation, Apr 29, 2016
Slide 1: Page 1
Page 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: A banner year
A banner year Southwest achieved numerous financial records in 2015 32.7% $2.4B $19.6B operating ROIC, pre-tax1 net income2 revenues2 $620M $1.4B profitsharing returned to for Employees Shareholders $1.3B 83.6% (2.0)% economic nonfuel fuel savings load factor CASM2,3, y/y 1ROIC is defined as annual
Slide 4: Competitive ROIC performance
1 Competitive ROIC performance Southwest’s 2015 ROIC performance was highly competitive compared with the market 40% S&P 500 Consumer Discretionary 32.7% Transports 2 30% U.S. Airlines ex: LUV Southwest Airlines 23.7% 23.7% 20% 18.3% 15.9% 10% 0% Source: Third party investment firm. 1Southwest ROIC
Slide 5: Cumulative Shareholder return on LUV
Cumulative Shareholder return on LUV Southwest’s stock performance over the past five-year period has outperformed the S&P 500 and the NYSE ARCA Airline Index $350 Southwest Airlines Co. $300 NYSE ARCA Airline S&P 500 $250 (In dollars) $200 $150 $100 $50 2010 2011 2012 2013 2014 2015 Page 5
Slide 6: Successful strategic initiatives
Successful strategic initiatives Southwest has far exceeded its 15% pre-tax ROIC target through transformational strategic initiatives AirTran Integration All New Rapid Rewards 32.7% ROIC, pre-tax1 International Fleet Modernization & the Boeing 737-800s 1ROIC is defined as annual pre-tax return on i
Slide 7: Fleet modernization
Fleet modernization Southwest’s fleet modernization provides significant cost savings and enhanced Customer experience Benefits include: • Incremental revenue opportunities -800 • Significant unit cost improvement • Fuel efficiency o MAX vs NG: ~14% -700 o MAX vs Classic: ~20% • Better utilization -
Slide 8: 737 Delivery Schedule
737 Delivery Schedule Southwest operates the largest fleet of Boeing aircraft in the world The Boeing Company The Boeing Company 737 NG 737 MAX -7 -8 -800 Firm Additional Options Firm Firm Options Total Orders -700s Orders Orders 2016 36 — 17 — — — 53 2017 35 — 14 — 14 — 63 2018 18 18 4 — 13 — 53 20
Slide 9: Capital investments
Capital investments Southwest is making numerous capital investments that are expected to drive significant financial and operational benefits Operational Facilities LAX | FLL | HOU | DAL initiatives Reliability | Hospitality New reservation system Single system Significant revenue opportunities Enh
Slide 10: Strong financial position
Strong financial position Southwest is focused on preserving our strong balance sheet and cash flows while returning significant value to Shareholders • $3.1 billion in unrestricted core cash and short term investments and $1 billion line of credit fully undrawn and available • Cash flow from operat
Slide 11: Record cash flow from operations
Record cash flow from operations Southwest has strong internally-generated cash flow that has consistently grown $3.2 $2.9 $2.5 Capex $2.1 Cash flow from operations $2.0 $1.7 (in billions) $1.5 $1.4 $1.4 $1.0 FCF1 $1.0 $1.1 $1.1 $0.7 $0.4 2011 2012 2013 2014 2015 1 2 Free Cash Flow (FCF) ACFO, net C
Slide 12: Significant returns to Shareholders
Significant returns to Shareholders Southwest is committed to enhancing Shareholder value, with returns to Shareholders in 2015 exceeding free cash flow $1,600 $1,400 $1,360 $1,200 $4.3B $1,094 $1,000 (In millions) $800 $611 $600 $549 $422 $400 $239 $200 $0 2011 2012 2013 2014 2015 YTD 2016 Dividend
Slide 13: Industry-leading balance sheet
Industry-leading balance sheet Southwest is the only domestic airline with investment grade credit ratings from all three agencies Moody’s Caa1 B3 B2 B1 Ba3 Ba2 Ba1 Baa3 Baa2 Baa1 A3 A2 A1 Standard CCC BBB B- B B+ BB- BB BB+ BBB- BBB A- A A+ & Poor’s + + CCC BBB Fitch B- B B+ BB- BB BB+ BBB- BBB A-
Slide 14: Unmatched profitability record
Unmatched profitability record 1 Southwest has remained profitable for 43 consecutive years 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 1In the U.S. Airline industry. Page 14
Slide 15: Fortune's 2016 World's Most Admired Companies
FORTUNE’S 2016 World's Most Admired Companies 1. Apple 2. Alphabet (Google) 3. Amazon 4. Berkshire Hathaway 5. Walt Disney 6. Starbucks 7. Southwest Airlines 8. Federal Express 9. Nike 10. General Electric Page 15 This honor belongs to our Employees! Thanks to our People, Southwest is a World's Most
Slide 16: All in a day's work
All in a day’s work Southwest’s point-to-point network allows more Customers to fly direct Page 16
Slide 17: The nation's largest domestic airline
The nation’s largest domestic airline Southwest’s market share remains strong, especially in our top 100 O&D city pairs 24% of total domestic market share Market share in Southwest Airlines top 100 O&D • Serves 24 of the top 25 U.S. metro areas1 • Serves 94 of the top 100 domestic O&D city pairs (in
Slide 18: Transfarency
Transfarency Southwest’s brand reputation stands on its own Transparency How we behave: Openly and honestly 1 No Hidden Fees + Fare More than a ticket price, it’s an entire Customer experience = Low Fares 2 Transfarency 1No Hidden fees determined by having bag and reservation change/cancellation fee
Slide 19: Competitive cost advantage
Competitive cost advantage Southwest’s low cost structure enables us to maintain our low fare brand 12.00 10.00 8.00 CASM, ex-fuel (in cents) 6.00 4.00 Southwest Industry ex-Southwest 2.00 0.00 2000 2015 Source: DOT form 41 and T100 data, through September 30, 2015. Stage-length adjusted for Southwe
Slide 20: Volatile jet fuel market
Volatile jet fuel market Southwest’s fuel hedging strategy serves as insurance against a volatile market $4.50 Jet Fuel PPG $4.00 $2.0B $3.50 $3.00 $2.50 economic fuel savings since 20001 $2.00 (from fuel hedging) $1.50 $1.00 $0.50 $0.00 1Through December 31, 2015. Page 20
Slide 21: Proven business strategy
Proven business strategy Southwest is in a category of its own 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. Page 21
Slide 22: 2016 Capacity growth
2016 Capacity growth Southwest continues to plan for 5 to 6 percent ASM growth year-over-year 7.3% 5-6% range Carry-over growth into 2016 1.7% 0.5% -0.3% 1 2012 2013 2014 2015 2016 1Year-over-year percent change calculation includes ASMs for AirTran prior to the May 2, 2011 acquisition date. Note: g
Slide 23: Normalization of development markets
Normalization of development markets Southwest’s markets under development are returning to historically normal levels 25% 20% 18% 16% 15% 12% 12% 10% 5% 4% 3% 0% 2011 2012 2013 2014 2015 2016 Note: guidance was provided on March 8, 2016 and is not being updated herein. Page 23
Slide 24: Growth opportunities
Growth opportunities Southwest has identified approximately 50 potential new markets, mostly beyond the Lower 48 NAS SJD CUN PVR BZE PUJ MEX MBJ AUA LIR SJO Page 24
Slide 25: 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 26: NonGAAP Reconciliation
NonGAAP Reconciliation Year Ended Year Ended 2014 2015 2015 Operating revenues, as reported $ 19,820 Operating income, as reported $ 4,116 Deduct: Special revenue adjustment1 (172) Deduct: Net impact from fuel contracts (323) Operating revenues, Non-GAAP $ 19,648 Add: Acquisition and integration cos