Southwest Airlines Co.
June 8, 2021– Investor Booklet
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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, planned
retirements, and carbon emissions; (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 of and accessibility to vaccines; the pace and rate at
which vaccines are administered; 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), 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 impact
of fuel price changes, fuel price volatility, volatility of commodities used by the Company for hedging jet fuel, and any changes to the Company’s fuel
hedging strategies and positions, on the Company's business plans and results of operations; (iv) 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; (v)
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; (vi) 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; (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, including the Company’s ability to align staffing levels to support the Company’s schedules,
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.
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relied on as investment advice.
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Company Overview
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Purpose and Vision
Offer Customers low
fares, convenient
flights, and industry-
leading Customer
Service
Drive Customer
loyalty and grow
share
of wallet
Generate profit and
strengthen financial
position
Invest in airplanes
and People to grow
and develop market
leadership
Deliver an efficient
operation with a
highly-
engaged workforce
Purpose: Connect
people to what’s
important in their
lives through friendly,
reliable, low-cost air
travel.
Vision: To become
the world’s most
loved, most efficient,
and most profitable
airline.
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
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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
Low fares and a robust point-to-point network
that support market leadership and non-stop service
The best People and Culture in the industry
Reliable, efficient, low-cost operations
6
Robust point-to-point, non-stop route network
2010
2021
Source: Diio Mi. Diio scheduled for FY2021 as of 6/8/21.
Note: Includes some seasonal/less than daily routes, one announced airport that has not yet been published (BLI), and four international stations with suspended service (BZE, GCM, NAS,
and PLS).
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
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Seasonal
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
ORD Chicago (O’Hare), IL
2/14/21 ✔
SAV Savannah, GA
3/11/21 ✔
MIA Miami, FL
11/15/20 ✔
JAN Jackson, MS
6/6/21 ✔
SRQ Sarasota, FL
2/14/21 ✔
IAH Houston (Bush), TX
4/12/21 ✔
COS Colorado Springs, CO
3/11/21 ✔
HDN Steamboat Springs, CO
12/19/20 ✔
MTJ Telluride, CO
12/19/20 ✔
PSP Palm Springs, CA
11/15/20 ✔
Nov
Dec
Jan
Apr
Mar
Feb
Jun
May
Miami
Palm Springs
TellurideSteamboat Springs
Chicago (ORD)
Sarasota
Savannah
Colorado Springs
Houston (IAH)
Jackson
Santa Barbara
Fresno
SBA Santa Barbara, CA
4/12/21 ✔
FAT Fresno, CA
4/25/21 ✔
Seasonal
EUG Eugene, OR
8/29/21
BLI Bellingham, WA
2H 2021
MYR Myrtle Beach, SC
5/23/21 ✔
2H
BZN Bozeman, MT
5/27/21 ✔
VPS Destin, FL
5/6/21 ✔
Eugene Bellingham
Myrtle Beach
Bozeman
Destin/Ft. Walton Beach
City access via new co-terminals
1
New sources of Customers
New leisure destinations
New airport timeline and map with service launch date
Airports announced in 2020 and 2021
2021
Station placement illustrative, map not to scale
1
Co-terminal: Airports that share a common city or region; for example, Baltimore, Washington Reagan, and Washington Dulles are considered co-terminals to one another.
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22
10
6
3
4
2 2
SWA AAL DAL UAL ALK JBLU HA ALGT SAVE
Strong presence in top business and leisure markets
Source: Data presented herein as measured by the U.S. DOT O&D Survey for the twelve months ended December 31, 2020 based on domestic originating passengers boarded.
O&D stands for Origin and Destination.
1
Metro areas: A geographic area around a city that includes multiple major airports. In some cases, the airports within a metro area may serve separate markets.
2
Co-terminal: Airports that share a common city or region; for example, Baltimore, Washington Reagan, and Washington Dulles are considered co-terminals to one another.
3
As of December 31, 2020.
Southwest has 22% of total domestic market share and is the market leader
in 22 of the top 50 U.S. metro areas
1
(including co-terminal airports
2
).
International operations represent <5% of total capacity
3
Market leader in top 50 U.S. metro areas
1
ULCC
Legacy
LCC
9
Financial preparedness has been our enduring strength
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
Southwest remained profitable for 47 consecutive years
through 2019, prior to the COVID-19 pandemic.
Our preparedness was due to a balanced approach:
• Investment-grade
balance sheet
• Ample cash and
modest debt
• Sensible financial
commitments
• Consistent
Shareholder returns
• Prudent
investments and
growth rate
• Balance between
market expansion
opportunities,
operational
reliability, and
financial returns
• Robust point-to-
point, non-stop
network
• Sustainable
business model
• All Boeing 737 fleet
• Reliable, efficient
operations
• Low-cost mindset
with focus on
Culture and
empowering
Employees
• History of no pay
cuts, furloughs, or
layoffs
Financial Operations Strategy Culture
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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 to replace older
737-700 aircraft with the MAX, reduce carbon emissions
Development of steps to support environmental sustainability
goal to be carbon neutral by 2050
Updating strategic plan
In process of updating strategic plan with initiatives for next five years
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Recent Updates
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Steps taken in 2020 to address impacts from COVID-19
Capacity
Employees
and
Customers
Reduce Costs
Preserve
Liquidity and
Cash
• Significantly reduced capacity
• Continuously monitored demand and booking trends and adjusted capacity on an ongoing
basis
• Southwest Promise—additional cleaning practices; physical-distancing procedures; required
face masks; additional policies for our Employees to protect themselves and safely transport
our Customers; science-based approach
• Customer policy changes: extended flight credits and status
• 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
• 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-
leaseback transactions, $2.2 billion through a common stock offering, and $3.4 billion of PSP
proceeds
1
• Repaid $5.5 billion of debt during 2020; Fully available $1.0 billion revolving credit line
Actions
Focus Areas
1
Amounts 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, 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 regarding the PSP Extension. In April 2021, the Company entered into definitive
documentation with the U.S. Treasury with respect to funding support pursuant to the American Rescue Plan Act of 2021 (the “ARP”). Refer to the Company’s Form 10-Q filed on April 27, 2021 and
Form 8-K filed on June 3, 2021 for further information regarding funding under the ARP.
New Revenue
Opportunities
• Pursuing additional revenue opportunities that utilize idle aircraft and Employees
• Added a total of 17 new airports that have either been opened or announced since the
beginning of the pandemic
• GDS participation live with Travelport and Amadeus; Sabre to be live by Labor Day 2021
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First quarter 2021 financial results
64.3%
load factor
$(1.0)B
net loss
1
$24M
Profitsharing
$13M
average daily
core cash burn
3
23.4%
non-fuel
CASM
1,2
, y/y
$(1.72)
loss per
diluted share
1
(51.5)%
operating
revenues, y/y
(34.5)%
available seat
miles, y/y
(26.0)%
RASM, y/y
1
Excluding special items.
2
Excluding profit sharing.
3
Average 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
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.
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Restructured Boeing 737 order book
(b) (c)
(a)
(a) Includes 20 737 MAX 8s delivered as of March 31, 2021, consisting of 12 owned and 8 leased aircraft.
(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 from various third parties.
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
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The Southwest Promise
A multi-layered approach to protecting public health
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Sustaining a strong financial position for the future
Cash and short-term investments of $16.6 billion as of June 7, 2021, and a
fully available revolving credit facility of $1.0 billion
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
May 2021 average daily cash burn of ~$2 million, and average daily cash
flow of ~$4 million including certain changes in working capital
1
Second quarter 2021 average daily core cash burn estimated to be in the
range of $1 million to $2 million
Based on current booking trends and cost outlook, we expect to achieve
breakeven average core cash flow, or better, in June 2021
1
Cash 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 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 ability to achieve sustainable break-
even or positive results on a cash basis. 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; 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
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 results is not meaningful or available without unreasonable effort.
.
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5.5
14.5
14.6
13.3
14.3
16.6
17.6
14.8
0.4
1.1
0.1
1.7
2.1
0.2
1.0
364-Day
Term Loan
Payoff
1Q2020 Capital raised Cash Flow
(Burn)
(3.7)
(1.0)
RCF Payoff
(1.1)
2Q2020
(1.5)
Aircraft
Financing
Proceeds
RCF
availability
Unsecured
Offering Net
Proceeds
Cash Flow
(Burn)
Cash Flow
(Burn)
4Q2020CARES
Act PSP
Proceeds
Cash Flow
(Burn)
CARES
Act PSP2
Proceeds
Cares Act
PSP2/3
Proceeds
Cash Flow
(Burn)
(0.8)
6/7 cash
balance
As Adjusted
Liquidity
3Q2020
(0.7)
2020 Bond
Maturity
1Q2021
(0.5)
Southwest has prudently enhanced its liquidity position
Cash Balance ($ in billions)
1
3
4
2
1
Represents the amount of cash, cash equivalents, and short-term investments.
2
Represents the total as adjusted liquidity as of June 7, 2021.
3
Net 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.
4
Net 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.
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10.3%
10.1%
7.0%
3.7%
8.8%
7.9%
7.0%
12.6%
8.8%
0%
5%
10%
15%
SWA DAL UAL AAL ALK HA JBLU ALGT SAVE
Sustained high net margins prior to COVID-19
Source: Based on company research calculated as net income divided by operating revenues, as reported in each respective airline’s 2019 Form 10-K.
2019 net margin
ULCC
Legacy
LCC
19
Proven ability to maintain reliable operations and control
costs
1
Legacy airlines: Trans World, American, US Airways, Northwest, Delta, Continental, United, America West (post-American merger)
2
LCC airlines: JetBlue, Alaska, Virgin America, America West (pre-AA merger), AirTran (pre-Southwest merger)
3
ULCC airlines: Spirit, Frontier, Allegiant
Source: DOT form 41 and T100 data, through December 31, 2020. 2012 is as of 4Q12; 2020 is as of 4Q20. Estimated unit costs have been stage-length adjusted to Southwest’s average
2017 stage-length, represents domestic mainline.
Domestic operating expenses per ASM, ex-fuel
Southwest business model and point-to-point network provide
sustainable, long-term unit cost advantages compared with the majority
of the domestic airline industry
1
2
(in cents)
20
Leading the U.S. airline industry in Customer Service
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
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.
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
2018
2019
Customer Satisfaction ranking among Marketing Carriers
Southwest produced the
best Customer Satisfaction
ranking among Marketing
Carriers
Southwest produced its
best annual ontime
performance since 2003
Southwest generated its
best-ever annual
baggage handling
results
In 2020…
2020
#1 #1 #1
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Pillars of our strength position us strongly amidst impact
from COVID-19 pandemic
1
Global Distribution System
Robust Network with Strong Presence in Many Attractive Metro Areas
1
Proven Ability to Maintain Reliable Operations and Control Costs & Capex
5
Unparalleled Brand and Customer Loyalty with Award-Winning Rapid Rewards Program
2
Organic Growth Opportunities: New Destinations,
Densifying Existing Network, Reservation System, and GDS
1
6
Large Fleet of Modern Boeing 737s, Industry ‘Workhorses’,
a Substantial Portion of Which are Unencumbered
4
Commitment to Strong Balance Sheet with Sustainable Debt Balance and Significant Liquidity
7
Highly Defensible, Low Fare, Point-to-Point Network
3
22
Proven Leadership Team
GARY C. KELLY
Chairman of the Board &
Chief Executive Officer
34 years at Southwest
BOB JORDAN
Executive Vice President
of Corporate Services
33 years at Southwest
ANDREW WATTERSON
Executive Vice President
and Chief Commercial
Officer
7 years at Southwest
TAMMY ROMO
Executive Vice President &
Chief Financial Officer
29 years at Southwest
TOM NEALON
President
8 years at Southwest
5 years on Southwest’s Board
of Directors
ALAN KASHER
Executive Vice President
Daily Operations
20 years at Southwest
MIKE VAN DE VEN
Chief Operating Officer
28 years at Southwest
MARK SHAW
Executive Vice
President, Chief Legal
and Regulatory Officer
20 years at Southwest
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Non-GAAP reconciliation
24
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.
25