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
Introduction Ryan Martinez VP Investor Relations
Slide 3: Cautionary statement regarding forward-looking statements
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. Forwa
Slide 4: Opening Remarks
Opening Gary Kelly Remarks Chairman of the Board & CEO
Slide 5: Presentation: Bob Jordan
Presentation Bob Jordan EVP & Incoming CEO
Slide 6: Southwest Airlines
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 has a proven track record of industry leadership, and its business model and Vision remain intact Southwest
Slide 7: Keeping our principles at heart
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 Purpose Connect People to what’s important in their lives through friendly, reliable, and low-cost air travel Vision To be the world’s most loved, m
Slide 8: Past strategic initiatives
Past strategic initiatives Our past strategic initiatives drove significant value creation in 2015 through 2019 International AirTran acquisition Fleet modernization All-New Rapid capabilities and and integration and 737-800s Rewards Program new reservation system EBIT contribution: Realized hundred
Slide 9: Past value creation
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 12 9 6 3 0 S&P 500
Slide 10: Refined strategic priorities
Refined strategic priorities We have refined our strategy for the next five years Page 10
Slide 11: 2022 focus areas
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 Page 11
Slide 12: New strategic initiatives
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 Maintain our Win more Customers and grow revenue low-cost advantage New fare product and New Chase Southwest Revenue co
Slide 13: Diversity, Equity, and Inclusion
Diversity, Equity, and Inclusion Our Diversity, Equity, and Inclusion goals are aimed at strengthening our Culture Diversity, Equity, and Inclusion goals and practices Senior Management Committee (Executive) diversity Double the percentage of racial diversity and increase gender diversity of our Sen
Slide 14: ESG: Environmental Sustainability
ESG: Environmental Sustainability Our Environmental Sustainability goals are intended to minimize our carbon footprint Environmental Sustainability targets: 2030 and 2050 timeframes Maintain carbon neutral growth to 2019 levels every year through 2030 Cap net carbon emissions at 2019 levels as avail
Slide 15: Presentation: Tammy Romo
Presentation Tammy Romo EVP & CFO
Slide 16: 4Q 2021 guidance update
4Q 2021 guidance update Our operating revenue outlook has improved based on stronger travel demand and fares, along with an incremental benefit from our new Chase co-brand agreement, and we now expect to be profitable in fourth quarter Guidance metric 4Q 2021 Down 10% to 15% Operating revenue (vs. 4
Slide 17: Historical financial performance
Historical financial performance We consistently delivered industry-leading margins pre-pandemic 2018 and 2019 industry performance 2018 2019 Net margin 15% 2019 net margin negatively impacted by ~2 points due to MAX grounding 12.6% 11.2% 10.3% 10.1% 9.7% 10% 8.9% 8.8% 8.8% 8.2% 7.9% 7.0% 7.0% 5.1%
Slide 18: Pandemic financial performance
Pandemic financial performance We are emerging from the pandemic with a strengthened financial position relative to our competitors During the pandemic, we took steps to raise liquidity and Our efforts paid off: manage our cash burn: • Raised $22.8 billion1 in 2020 and 2021 – $13.4 billion in debt i
Slide 19: Fortress balance sheet
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 Pre-pandemic (2019): Current (2021): Credit ratings Credit ratings Investment grade Investment grade Leverage Levera
Slide 20: Strong net cash position
Strong net cash position Our net cash position increased $3.4 billion during the pandemic, widening the gap to other U.S. carriers Net cash (debt) (in billions) 4Q 2019 $10 $1.4 $0.4 $0.0 $0 -$1.0 -$1.0 -$1.1 -$10 -$8.3 -$9.9 -$20 -$20.5 -$30 3Q 2021 $10 $4.8 $1.7 $0.5 $0 -$0.5 -$0.9 -$1.5 -$10 -$20
Slide 21: Sustainable cost position
Sustainable cost position Our cost position remains competitive and is supported by structural business model advantages Domestic operating expenses per available seat mile, excluding fuel 30.00 Southwest Legacy 1 LCC 2 3 25.00 ULCC 20.00 (in cents) 15.00 10.00 5.00 - 2018 2021 Our business model an
Slide 22: Five year cost plan
Five year cost plan We intend to restore our pre-pandemic productivity and leverage our business model advantages to help combat inflation during post-pandemic recovery Productivity goals 210M+ ~80 6+ 80+ ASMs per aircraft1 FTEs per aircraft2 Average trips per gate3 ASMs per gallon Continuously impr
Slide 23: Fuel hedging protection
Fuel hedging protection We have maintained a consistent, multi-year fuel hedging program to provide insurance against material spikes in jet fuel prices with solid protection in 2022 Estimated fuel hedging settlement gains (Brent price per barrel; hedging gains per gallon) Brent Price 2022 2023 2024
Slide 24: 2022 guidance
2022 guidance We expect 2022 to be a transition year in terms of pandemic recovery and operational efficiency; however, we expect to generate solid profits and margins 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 $2.0
Slide 25: Five year targets
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 Metric Annual targets through 2026 ASM growth Mid single digits1 CASM-X growth Low single digits1 RASM growth2 In excess of C
Slide 26: Fleet modernization
Fleet modernization Fleet modernization provides significant cost benefits while providing flexibility for growth or accelerated retirements Boeing order book As of December 8, 2021 -7 firm orders -8 firm orders -7 or -8 options Additional -8s Total 2021 -- 19 -- 9 281 2022 72 -- 42 -- 114 2023 52 -
Slide 27: Non-GAAP reconciliation
Non-GAAP reconciliation 1.One-time adjustment related to the amendment of the Company's co-branded credit card agreement with Chase Bank USA, N.A. and a resulting change in accounting Twelve months ended December 31, methodology. 2015 2016 2017 2018 2019 2. Pursuant to the terms of the Company’s Pro
Slide 28: Presentation: Andrew Watterson
Presentation Andrew Watterson EVP & Chief Commercial Officer
Slide 29: Points of strength
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. Domestic Cities: Southwest was #1 in 23 of Top 50 1 Cities where Southwest carried more Passengers than any other airli
Slide 30: New revenue pools
New revenue pools We re-deployed idle aircraft and Employees while travel demand was reduced across our network, which helped us better manage cash burn Deploy Idle Assets to New Existing Revenue Pools Idle Southwest Assets Revenue Pools Demand in existing revenue pools With demand limited, we can’t
Slide 31: Increased leisure market breadth by 32%
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 Hawaii New Stations New online connections Expanding access to the Aloha State Providing new leisure destina
Slide 32: Adding points of strength
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 Stations New online connections New route trips by Southwest origin Trips from new Stations by Southwest Trips by Southwest origin shar
Slide 33: Southwest Business and GDS
Southwest Business and GDS During the pandemic, we continued our multi-year investment in Southwest Business to enable progress towards capturing new revenue Southwest Business investments Southwest vs Industry Business Travel News (BTN) Survey Results Operational Rapid Rewards Business: Giving busi
Slide 34: Network status and ASM growth
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 2022 ASMs (vs 2019) Illustrative point contribution July July KPIs 2019 2021 Trips1 3,910 3,387 -
Slide 35: Network restoration
Network restoration Continued schedule restoration and future network investment is intended to bolster offerings in places where we have a very strong Customer base Southwest restoration Southwest restoration in Top 50 U.S. Cities1 December 2021 Full Restoration December 2021 Full Restoration C
Slide 36: City pair restoration
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 System-wide restoration2 Pre-pandemic, mid-pandemic, and current scheduled Dec. 2021 restoration Same-store
Slide 37: New capabilities and initiative pipeline
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 pandemic
Slide 38: New capabilities: Network
New capabilities: Network Our plans for the network focus on restoring the depth from our pre-pandemic network and maintaining and optimizing our breadth 1 Network restoration 2 New market maturation Initiative Description: Initiative Description: Adding back trips to the network that existed prior
Slide 39: New capabilities: Demand
New capabilities: Demand In coordination with restoring our network, we plan to generate increased demand through Corporate travel and an enhanced product offering 3 Southwest Business / GDS 4 New fare product Initiative Description: Initiative Description: Continued investment and execution in “clo
Slide 40: New capabilities: Optimization
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 5 Revenue Management System 6 New co-brand credit card agreement Initiative Description: Initiative Description: Impleme
Slide 41: New capabilities
New capabilities Southwest has a healthy pipeline in 2022 and 2023 to drive commercial and revenue performance 1 Network restoration Low risk capacity additions over the next several years 2 New market maturation 3 Southwest Business 4 New fare product Portfolio of new initiatives provides significa
Slide 42: Presentation: Mike Van de Ven
Presentation Mike Van de Ven President & Chief Operating Officer
Slide 43: Ramp up in flight activity and performance
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 4,000 Returns Begin Aircraft Removed Original 2H 2021 f
Slide 44: Recent operational challenges
Recent operational challenges As we ramped up the airline across the summer, we experienced a challenging operating environment that we have worked to address 1 2 3 Network Breadth Turn Complexity Staffing Environment Greater network breadth & Greater work volume & Day-to-day variability of our conn
Slide 45: Thanksgiving performance
Thanksgiving performance As we have stabilized the operation, our recent holiday performance highlighted our improvements Ontime Performance: Thanksgiving Week Baggage Performance: Thanksgiving Week 2017-2021; DOT Ontime Performance 2017-2021; Mishandled Baggage Rate 100% 4.00 3.84 94% 3.35 90% 3.24
Slide 46: The advantages of the Southwest network
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 Page 46
Slide 47: Fleet productivity
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 25 20 20 15 10 10 5 5 0 Legacy 1 LCC 2 ULCC 3 1. Legacy airlines: American, Delta, United 2. LCC
Slide 48: Optimal cost performance
Optimal cost performance As part of our operational design, we are working towards an optimal performance target that balances planned schedule investment with daily execution costs 1 2 Plan to optimal position on Pursue future operational today’s cost curve capabilities to lower curve H H Summer 20
Slide 49: Recent accomplishments
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 Network Ops Station Command Baker Recovery ETOPS Maintenance Center Centers Optimizer Certification System Improved daily
Slide 50: Focus of our operational strategy
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 To fully transform the operation, we must continue to… Modernize Mobilize Optimize …our fleet, processes, and
Slide 51: Closing
Closing Bob Jordan EVP & Incoming CEO
Slide 52: Break
Break | 10 minutes
Slide 53: Q&A
Q&A | Panel of speakers
Slide 54: Thank you for attending!
Page 54 Thank you for attending!