Southwest Airlines Co - April 22, 2021- Investor Booklet - Investor Relations
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Southwest Airlines Co. April 22, 2021– Investor Booklet
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. Specific forward-looking statements include, without limitation, statements related to (i) the Company’s Vision; (ii) the Company’s financial position, outlook, expectations, strategies, and projected results of operations; (iii) the Company’s network plans, expectations, and opportunities; (iv) the Company's plans and expectations regarding its fleet, including with respect to its fleet delivery schedule and planned retirements; (v) the Company’s environmental sustainability goal; (vi) the Company’s expectations with respect to capital expenditures; (vii) the Company’s initiatives and related plans and expectations, including with respect to its global distribution system and related alliances and capabilities; and (viii) the Company’s expectations with respect to liquidity and cash burn. These forward-looking statements are based on the Company’s current intent, expectations, and projections and are not guarantees of future performance. These statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the extent of the COVID-19 pandemic, including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, including through any new variant strains of the underlying virus; the effectiveness and availability of vaccines; the duration and scope of related government orders and restrictions; the duration and scope of the Company’s actions to address Customer and Employee health concerns; the extent of the impact of the COVID-19 pandemic on overall demand for air travel and the Company’s related business plans and decisions; any negative impact of the COVID-19 pandemic on the Company’s ability to retain key Employees; and any negative impact of the COVID-19 pandemic on the Company’s access to capital; (ii) the impact of fears or actual outbreaks of other diseases, economic conditions, extreme or severe weather and natural disasters, fears of terrorism or war, actions of competitors (including, without limitation, pricing, scheduling, capacity, and network decisions, and consolidation and alliance activities), fuel prices, consumer perception, and other factors beyond the Company's control, on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results; (iii) the Company’s ability to obtain necessary approvals for new service and the impact of governmental regulations and other governmental actions related to the Company’s plans, strategies, and operations; (iv) the Company's dependence on Boeing with respect to the Company's fleet order book, delivery schedule, and other performance requirements under its agreements with the Company, including with respect to the Company’s ability to return all of its MAX aircraft to revenue service; (v) the Company's and Boeing's dependence on other third-party providers to perform in accordance with expectations in connection with the manufacture and delivery of aircraft; (vi) the impact of governmental actions and governmental regulations on the Company's plans, strategies, financial results, and operations; (vii) the Company's dependence on other third parties, in particular with respect to corporate travel enhancements, and the impact on the Company's operations and results of operations of any third party delays or non-performance; (viii) the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (ix) the impact of labor matters on the Company's results of operations, business decisions, plans, and strategies; and (x) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Notice Regarding Third Party Content This presentation may contain information obtained from third parties, including ratings from credit ratings agencies such as S&P Global Ratings. Reproduction and distribution of third party content in any form is prohibited except with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. Third party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or fitness for a particular purpose or use. Third party content providers shall not be liable for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and opportunity costs or losses caused by negligence) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes, and should not be relied on as investment advice. 2
Company Overview 3
Purpose and Vision Deliver an efficient
operation with a
highly-
Purpose: Connect engaged workforce
people to what’s Offer Customers low
fares, convenient
important in their flights, and industry-
lives through friendly, leading Customer
Service
reliable, low-cost air Invest in airplanes
travel. and People to grow
and develop market
leadership
Vision: To become
the world’s most
loved, most efficient,
Drive Customer
and most profitable Generate profit and loyalty and grow
airline. strengthen financial share
of wallet
position
Our successful business model starts with an efficient operation and
highly-engaged Employees. This combination makes Southwest unique
and has produced the U.S. airline industry’s most successful low-cost,
low-fare, growth carrier for nearly five decades
4
Unparalleled brand consistently loved by Customers
Unmatched profitability record in the U.S. airline industry
with cost discipline and a strong balance sheet
Outstanding Customer Service and Hospitality
that drives brand loyalty and recognition
The best People and Culture in the industry
Low fares and a robust point-to-point network
that support market leadership and non-stop service
Reliable, efficient, low-cost operations
5
Robust point-to-point, non-stop route network
2010
2021
Including the AirTran acquisition in 2011, added 51 airports to the Southwest route
network since 2010, now serving 14 near-international destinations in 10 countries
Source: Diio Mi. Diio scheduled for FY2021 as of 4/28/21
6 Note: Includes some seasonal/less than daily routes, one announced airport that has not yet been published (BLI), and six international stations with suspended service
(BZE, GCM, LIR, NAS, PLS, and SJO).
Announced 17 new airports
Pursuing new revenue opportunities by utilizing idle aircraft and Employees;
enhancing options in large metro areas and adding new leisure destinations
New airport timeline and map with service launch date
Airports announced in 2020 and 2021
Nov BLI Bellingham, WA
Miami Palm Springs 2H 2021
Dec EUG Eugene, OR
Steamboat Springs Telluride 8/29/21
BZN Bozeman, MT
Seasonal
5/27/21
Jan 2021 MTJ Telluride, CO
Seasonal
12/19/20 ✔
HDN Steamboat Springs, CO
ORD Chicago (O’Hare), IL
Feb FAT Fresno, CA 12/19/20 ✔
2/14/21 ✔
Chicago (ORD) Sarasota 4/25/21
Mar SBA Santa Barbara, CA
Savannah Colorado Springs COS Colorado Springs, CO
4/12/21 ✔
3/11/21 ✔ MYR Myrtle Beach, SC
5/23/21
Apr Houston (IAH) Santa Barbara PSP Palm Springs, CA JAN Jackson, MS
Fresno 11/15/20 ✔ 6/6/21
May Destin/Ft. Walton Beach SAV Savannah, GA
IAH Houston (Bush), TX 3/11/21 ✔
Myrtle Beach 4/12/21 ✔ VPS Destin, FL
Jun Bozeman 5/6/21 MIA Miami, FL
11/15/20 ✔
Jackson City access via new co-terminals1 SRQ Sarasota, FL
New sources of Customers 2/14/21 ✔
2H Eugene Bellingham
New leisure destinations
Station placement illustrative, map not to scale
7 1Co-terminal: Airports that share a common city or region; for example, Baltimore, Washington Reagan, and Washington Dulles are considered co-terminals to one another.
Strong presence in top business and leisure markets
Market leader in top 50 U.S. metro areas1
22
10
6
3 4
2 2
SWA AAL DAL UAL ALK JBLU HA ALGT SAVE
Legacy LCC ULCC
Southwest has 22% of total domestic market share and is the market leader
in 22 of the top 50 U.S. metro areas1 (including co-terminal airports2).
International operations represent
Financial preparedness has been our enduring strength
Southwest remained profitable for 47 consecutive years
through 2019, prior to the COVID-19 pandemic.
Our preparedness was due to a balanced approach:
Financial Operations Strategy Culture
• Investment-grade • Prudent • Robust point-to- • Low-cost mindset
balance sheet investments and point, non-stop with focus on
• Ample cash and growth rate network Culture and
modest debt • Balance between • Sustainable empowering
market expansion business model Employees
• Sensible financial
commitments opportunities, • All Boeing 737 fleet • History of no pay
operational cuts, furloughs, or
• Consistent reliability, and • Reliable, efficient layoffs
Shareholder returns financial returns operations
Southwest entered the COVID-19 crisis prepared with the U.S. airline
industry’s strongest balance sheet and business model; tremendous fleet
flexibility; meaningful fuel hedging protection with no floor risk; and ability
to be nimble in uncertain environments
9
Updating strategic plan
In process of updating strategic plan with initiatives for next five years
Aggressive expansion of our route network, having opened or
announced 17 new airports since the pandemic began
Launch of Global Distribution System (GDS) access for
corporate travelers
Acceleration of fleet modernization efforts to replace our
737-700 aircraft with the MAX
Development of steps to support environmental sustainability
goal to be carbon neutral by 2050
10Recent Updates 11
Steps taken in 2020 to address impacts from COVID-19
Focus Areas Actions
• Significantly reduced capacity
Capacity • Continuously monitored demand and booking trends and adjusted capacity on an ongoing
basis
• Reduced annual 2020 cash outlays and spending by ~$8 billion compared with original plans
• Voluntary Separation Program and Extended Emergency Time Off Program; approximately
25% of workforce participating resulting in $1.1 billion to $1.2 billion in cost savings in 2021
Reduce Costs
• Canceled or deferred hundreds of capital spending projects, cut discretionary spending, and
modified vendor and supplier payment terms
• Reduced combined 2020 and 2021 CapEx by ~$5.5B compared with original plans
• Raised $18.9 billion (net of transaction fees) in 2020: $13.4 billion in debt issuances and sale-
Preserve
leaseback transactions, $2.2 billion through a common stock offering, and $3.4 billion of PSP
Liquidity and
proceeds1
Cash
• Repaid $5.5 billion of debt during 2020; Fully available $1.0 billion revolving credit line
• Pursuing additional revenue opportunities that utilize idle aircraft and Employees
New Revenue • Added a total of 17 new airports that have either been opened or announced since the
Opportunities beginning of the pandemic
• GDS participation live with Travelport and Amadeus; Sabre to be live by Labor Day 2021
• Southwest Promise—additional cleaning practices; physical-distancing procedures; required
Employees
face masks; additional policies for our Employees to protect themselves and safely transport
and
our Customers; science-based approach
Customers
• Customer policy changes: extended flight credits and status
1Amounts received pursuant to the Payroll Support Program (the “PSP”) under the CARES Act were utilized to directly offset payroll expenses incurred by the Company, including specified
benefits, between April 2020 and September 2020. For further information regarding the PSP, refer to the Company’s Forms 8-K filed April 21, 2020, June 1, 2020, June 30, 2020, July 31, 2020,
12 and September 30, 2020. In January 2021, the Company entered into definitive documentation with the U.S. Treasury for further payroll support under the Consolidated Appropriations Act, 2021
(the "PSP Extension"). Refer to the Company’s Forms 8-K filed on January 15, 2021 and March 5, 2021 for further information.First quarter 2021 financial results
(51.5)% (34.5)% (26.0)%
operating available seat RASM, y/y
revenues, y/y miles, y/y
$(1.0)B $(1.72) 23.4%
net loss1 loss per non-fuel
diluted share1 CASM1,2, y/y
$24M 64.3% $13M
average daily
Profitsharing load factor core cash burn3
1Excluding special items.
2Excluding profit sharing.
3Average daily core cash burn is calculated as Loss before income taxes, non-GAAP, adjusted for Depreciation and amortization expense; capital expenditures; and adjusted amortizing
debt service payments; divided by the number of days in the period. The Company utilizes average daily core cash burn to monitor the performance of its core business as a proxy for its
13 ability to achieve sustainable cash and profit break-even results. Refer to the Company’s Form 8-K filed on April 22, 2021, for further information.
Note: See reconciliation of reported amounts to non-GAAP financial measures.Restructured Boeing 737 order book
(a)
(b) (c)
Our restructured order book allows us to preserve the low-cost advantages
of a single fleet type, and the balance of firm orders and options—along
with flexibility with 737-700 retirement plans—allows the opportunity to
manage our fleet needs over the next decade
(a) Includes 20 737 MAX 8s delivered as of March 31, 2021, consisting of 12 owned and 8 leased aircraft.
14 (b) The Company has flexibility to designate firm orders or options as MAX 7 or MAX 8, upon written advance notification as stated in the contract.
(c) These 9 additional MAX 8 aircraft are leases to be acquired from various third parties.The Southwest Promise A multi-layered approach to protecting public health 15
Sustaining a strong financial position for the future
Cash and short-term investments of $14.3 billion as of March 31, 2021, and a fully
available revolving credit facility of $1.0 billion
Maintained unencumbered assets with an estimated value of more than $11 billion,
including $9 billion to $10 billion in aircraft
Net cash position1 of $3.6 billion and leverage of 57 percent
Maintained investment-grade rating for 30+ years and is currently the only U.S.
airline with an investment-grade rating by all three rating agencies
First quarter 2021 average daily cash burn of ~$13 million, and ~$5 million
including certain changes in working capital2
Second quarter 2021 average daily core cash burn estimated to be in the range of
$2 million to $4 million
Based on current booking trends and cost outlook, we are hopeful to achieve
breakeven average core cash flow, or better, by June 2021
1 Net cash position is calculated as the sum of cash and cash equivalents and short-term investments, less the sum of short-term and long-term debt.
2Cash burn is a supplemental measure that most U.S. airlines began providing in 2020 to measure liquidity in light of the negative financial effects of the pandemic. Average core cash burn is
calculated as Loss before income taxes, non-GAAP, adjusted for Depreciation and amortization expense; capital expenditures; and adjusted amortizing debt service payments; divided by the
number of days in the period. The Company utilizes average daily core cash burn to monitor the performance of its core business as a proxy for its ability to achieve sustainable cash and profit
break-even results. Given that the Company’s cash burn calculation is derived from Loss before income taxes, non-GAAP, the Company excludes the following items in its calculation of
average core cash burn: financing transactions; Payroll Support Program proceeds; Supplier proceeds; voluntary separation and extended emergency time off program payments; and other
changes in working capital. Cash burn methodology varies by airline, and the Company’s average daily core cash burn may differ materially by utilizing cash burn calculations that adjust for
changes in working capital. Average core cash burn projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate those items or
16 expenses or their impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial
measures for projected core cash burn results is not meaningful or available without unreasonable effort.
.Southwest has prudently enhanced its liquidity position
Cash Balance ($ in billions)1
14.8
1.1 0.1
(3.7) 0.4 1.7 1.0 15.3
(1.0) 14.5 14.6 14.3
(1.1) (1.5) 13.3 (0.7)
(0.5)
(0.8)
5.5
1Q2020 Capital raised 3 364-Day Term RCF Payoff Cash Flow 2Q2020 CARES Act Unsecured Aircraft Cash Flow 3Q2020 2020 Bond Cash Flow 4Q2020 CARES Act Cash Flow 1Q2021 RCF availability As Adjusted
Loan Payoff (Burn) PSP Proceeds Offering Net Financing (Burn) Maturity (Burn) PSP2 Proceeds (Burn) Liquidity 2
Proceeds 4 Proceeds
1Represents the amount of cash, cash equivalents, and short-term investments.
2Represents the total as adjusted liquidity as of March 31, 2021.
3Net Proceeds from 80.5MM shares (post-greenshoe) of Common Stock issuance offered at $28.50 per share on April 28, 2020, $2.3Bn Convertible Notes issuance (post-greenshoe) on
April 28, 2020, $2.0Bn unsecured notes offering on May 4, 2020, and $1.8Bn unsecured notes offering on June 8, 2020. The proceeds displayed are after associated fees and expenses.
17 4Net Proceeds from the $1.0Bn unsecured notes offering after associated fees and expenses. Note these offerings issued at a premium. The unsecured notes offering closed on July 31,
2020.Sustained high net margins prior to COVID-19
2019 net margin
15%
10%
12.6%
5% 10.3% 10.1%
8.8% 8.8%
7.9%
7.0% 7.0%
3.7%
0%
SWA DAL UAL AAL ALK HA JBLU ALGT SAVE
Legacy LCC ULCC
18
Source: Based on company research calculated as net income divided by operating revenues, as reported in each respective airline’s 2019 Form 10-K.Proven ability to maintain reliable operations and control
costs
Domestic operating expenses per ASM, ex-fuel
25.00
20.00
(in cents)
15.00
10.00
5.00 1
Southwest Legacy
2 3
LCC ULCC
-
2012 2020
Southwest business model and point-to-point network provide
sustainable, long-term unit cost advantages compared with the majority
of the domestic airline industry
1Legacy airlines: Trans World, American, US Airways, Northwest, Delta, Continental, United, America West (post-American merger)
2LCC airlines: JetBlue, Alaska, Virgin America, America West (pre-AA merger), AirTran (pre-Southwest merger)
3ULCC airlines: Spirit, Frontier, Allegiant
19 Source: DOT form 41 and T100 data, through September 30, 2020. 2012 is as of 4Q12; 2020 is as of 3Q20. Estimated unit costs have been stage-length adjusted to Southwest’s average
2017 stage-length, represents domestic mainline.Leading the U.S. airline industry in Customer Service
In 2020…
Southwest produced the Southwest produced its Southwest generated its
best Customer Satisfaction best annual ontime best-ever annual
ranking among Marketing performance since 2003 baggage handling
Carriers results
Customer Satisfaction ranking among Marketing Carriers
2018 2019 2020
#1 #1 #1
Southwest has set the bar high for customer satisfaction, earning the
DOT’s best ranking among Marketing Carriers for 27 of the past 30 years
Source: Department of Transportation (DOT) Air Travel Consumer Report (ATCR). The DOT ranks all U.S. carriers based on the lowest ratio complaints per 100,000 passengers enplaned.
Note: Southwest earned the best Customer Satisfaction ranking among U.S. Marketing Carriers with the lowest ratio of complaints to the DOT per 100,000 enplaned passengers for 2018,
2019, and 2020. A Marketing Carrier is an airline that advertises under a common brand name, sells reservations, manages frequent flyer programs, and is ultimately responsible for the
20 airline’s consumer policies. Operating Carriers only handle the flight operations, passenger check-in/boarding, and baggage handling for the respective Marketing Carriers they serve—
Operating Carriers are not responsible for DOT complaints related to policies, procedures, and advertising associated with the Marketing Carrier’s brand.Pillars of our strength position us strongly amidst impact
from COVID-19 pandemic
1 Robust Network with Strong Presence in Many Attractive Metro Areas
2 Unparalleled Brand and Customer Loyalty with Award-Winning Rapid Rewards Program
3 Highly Defensible, Low Fare, Point-to-Point Network
Large Fleet of Modern Boeing 737s, Industry ‘Workhorses’,
4 a Substantial Portion of Which are Unencumbered
5 Proven Ability to Maintain Reliable Operations and Control Costs & Capex
Organic Growth Opportunities: New Destinations,
6 Densifying Existing Network, Reservation System, and GDS1
7 Commitment to Strong Balance Sheet with Sustainable Debt Balance and Significant Liquidity
21 1Global Distribution SystemProven Leadership Team
GARY C. KELLY TOM NEALON MIKE VAN DE VEN
Chairman of the Board & President Chief Operating Officer
Chief Executive Officer 8 years at Southwest 28 years at Southwest
34 years at Southwest 5 years on Southwest’s Board
of Directors
BOB JORDAN TAMMY ROMO MARK SHAW
Executive Vice President Executive Vice President & Executive Vice
of Corporate Services Chief Financial Officer President, Chief Legal
33 years at Southwest 29 years at Southwest and Regulatory Officer
20 years at Southwest
ANDREW WATTERSON ALAN KASHER
Executive Vice President Executive Vice President
and Chief Commercial Daily Operations
Officer 20 years at Southwest
7 years at Southwest
22Non-GAAP reconciliation 23
Non-GAAP reconciliation (continued)
(a) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.
(b) Adjustment related to GAAP and Non-GAAP diluted weighted average shares difference, due to the Company being in a Net income position on a GAAP basis versus a Net loss position on a Non-GAAP basis.
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