The Future of Transportation
The Future of Transportation
Tammy Romo Southwest Airlines SVP Finance and CFO
Forward Looking Statements This presentation 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. Forwardlooking statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and are not guarantees of future performance. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include without limitation statements related to (i) the Company’s key priorities and initiatives and its related financial and operational plans, goals, and expectations; (ii) the Company’s financial outlook and projected results of operations, liquidity, and capital resources; (iii) the Company’s growth plans and expectations, including its network and capacity plans and expectations; (iv) the Company’s operational and financial expectations related to its acquisition of AirTran; (v) the Company’s fleet plans, including its fleet modernization plans, and related financial and operational goals and expectations; and (vi) the Company’s plans related to labor matters. Forward-looking 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 impact of the economy on demand for air travel and fluctuations in consumer demand generally for the Company’s services; (ii) the impact of fuel prices, economic conditions, and actions of competitors (including without limitation pricing, scheduling, and capacity decision and consolidation and alliance activities) on the Company’s business decisions, plans, and strategies; (iii) changes in the price of aircraft fuel and any changes to the Company’s fuel hedging strategies and positions; (iv) the Company’s ability to timely and effectively prioritize its strategic initiatives and related expenditures; (v) 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; (vi) the Company’s ability to successfully integrate AirTran and realize the expected synergies and other benefits from the acquisition; (vii) the Company’s ability to maintain positive relations with employees and employee representatives; (viii) the Company’s dependence on third parties with respect to certain of its initiatives; (ix) the impact of governmental and other regulation related to the Company’s operations; 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, 2012.
2
The Airline Industry
The Airline Industry •
• • • • •
• •
Cyclical Capital-intensive Labor-intensive Energy-intensive Technology-intensive Heavily regulated Heavily taxed Brutally competitive “High fixed costs” 4
The Airline Industry - A “Tough” Business • Over the last decade, total financial losses for the U.S. airline industry have exceeded $50 billion • Economic uncertainty • Volatile fuel prices • Fuel costs alone have risen over 300 percent from 2000 levels • The U.S. airline industry was ill prepared for the events of September 11, 2001 • Excessive debt • High fixed costs • No access to liquidity • As a result, several U.S. airlines have ceased operations or reorganized through bankruptcy 5
Competitors reinvented themselves using bankruptcy and consolidation; new low cost carriers and ultra-low cost carrier competitors emerged CHAPTER 11 2001
2002, 2004
2002
2004
CONSOLIDATION 2001 2005 2008
2005
2005
2008
2010
2008 2010 2010
2011
2013
DISCONTINUED
NEW CARRIERS
2007
2008
2000
2001
2008
2008
2007
2007
85% of 2012 available seat mile capacity were produced by restructured, consolidated or new carriers 6
GDP, Domestic Airline Passengers and Seats 30% US Real GDP
O&D Passengers
Seats 21%
Percentage Change vs. 2000
20%
10% 2% 0% (2)% (10)%
(20)% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bureau of Economic Analysis; US DOT T-100 and DB1B O&D Survey
7
GDP, Domestic Airline Traffic and Capacity 30% US Real GDP
RPMs
ASMs 21%
Percentage Change vs. 2000
20% 19% 10% 2% 0%
(10)%
(20)% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bureau of Economic Analysis; US DOT T-100 and DB1B O&D Survey
8
Evolution of Shorthaul Traffic Industry ex-Southwest Southwest
38M 30%
125M Total
32M 35% 87M 70% 77%
2000
59M 65%
91M Total
2012
Domestic Shorthaul O&D Passengers
Source: US DOT T-100 and DB1B O&D Survey
9
GDP, Domestic Airline Passengers and Fares 30% US Real GDP
O&D Passengers
Avg Real Fare
21%
Percentage Change vs. 2000
20%
10%
2% 0%
(10)%
(10)%
(20)%
(30)% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bureau of Economic Analysis; US DOT T-100 and DB1B O&D Survey
10
Industry Domestic RASM Industry
Southwest
20.00 18.00
16.00
Cents per ASM
14.00 12.00
78%
10.00 8.00 6.00
64%
4.00 2.00 0.00
Source: DOT Form 41 & T-100 Reports Domestic mainline RASM stage-length adjusted to Southwest average stage length Southwest results reflect AirTran performance beginning in 2Q2011
11
Southwest Airlines Today
Business Strategy •
Best Customer Service
•
Low cost producer
•
Dominant market leader
•
Excellent labor relations
•
Consistent profitability
•
Strong balance sheet
•
Direct Customer relationship
•
Safe, clean, efficient operation 13
SWA share of domestic traffic outpaced capacity share 3.0% RPM Share
ASM Share
2.7%
Change in Domestic Share
2.5%
2.0%
2.0%
1.5%
1.0%
0.5%
0.0% 2007
2008
2009
2010
2011
YTD 3Q 2012
14
Cost Structure 2012
2000 17%
34%
47% 36%
Fuel
37% 29%
Labor
Other
15
Fuel Price per Gallon $3.50 Southwest Hedged
Market Unhedged
2001
2004
$3.00 $2.50 $2.00 $1.50 $1.00 $0.50
$0.00 2000
2002
2003
2005
2006
2007
2008
2009
2010
2011
2012
Note: Economic fuel price, which includes AirTran as of May 2011
16
Fuel Hedging Manages Business Risk • Hedging is a tool to manage the price risk related to future purchases of jet fuel • Without hedging, we are exposing ourselves to unknown costs in our largest expense
• To hedge effectively, capital and credit are required. Within the industry, Southwest Airlines is uniquely suited to take full advantage of hedging opportunities
17
Employee Productivity 67
82%
79.6% 66
66
65
65
65
78%
74%
Load Factor
Employees per Aircraft
66
71.2% 64
64
70%
63
66% 2008
2009
2010
2011
2012
18
Industry Employee Productivity 120 103 100
95
Employees per Aircraft
87 80
72
70
69
67
66
JetBlue
Spirit
Southwest
60
40
20
0 Delta
United
American US Airways
Alaska
Source: 4Q 2012 Company reports.
19
Industry Non Fuel CASM 16.00
Cents per ASM
12.00
8.00
4.00
0.00
Source: DOT Form 41, domestic mainline operations; stage length adjusted to Southwest’s average stage length for the 12 months ended September 30, 2012
20
Southwest Airlines Today • The nation’s largest carrier in terms of originating domestic passengers boarded • Nearly 46,000 Employees deliver service to over 100 million Customers annually • 40 consecutive years of profitability, unmatched in the industry • Record revenue performance in 2012 of $17 billion • Operates the largest fleet of Boeing aircraft in the world • Only investment grade rated U.S. airline, by all three agencies • More than 3,500 departures a day
21
Southwest Airlines Our Vision
Immediate Priorities Maintain Brand, Culture & Operational Excellence
Regain Financial Prosperity
Increase Capital Efficiency
15% Pretax Return on Invested Capital
23
Strategic Plan Big 5 Initiatives
2011
2012 2012
2013 2013
2014 2014
2015 2015
Rapid Rewards 2.0 737-800
AirTran Reservation System Replacement Fleet Modernization
Complete Transformation of Capabilities Continue to fine tune 24
Return on Invested Capital (pre-tax) 15%
7%
2013 Plan • RASM increase of 4% to 5% • Market fuel price of $3.25-$3.30 per gallon range • CASM, ex-fuel, profitsharing, and special items increase of approx. 1% • ASM increase of approx. 2% • Aggressive management of invested capital base
2012
2013
Note: References to 2013 Plan increases represent 2013 plan compared to 2012 expected results.
25
AirTran Integration • Expect integration to be complete by end of 2014 • Targeting $400 million net, annualized, pre-tax synergies in 2013 • Realized approximately $142 million pre-tax synergies in 2012; $80 million in 2011 • Networks fully connected, as of April 14, 2013 • Airport Conversions • Converted 4 in 2012: Washington-Dulles, Seattle, Des Moines, and Key West • Expect to convert 8 in 2013: Phoenix, Branson, Charlotte, Flint, Portland, Rochester, Wichita, and Grand Rapids • 11 left to convert in 2014, mostly international • Aircraft Conversions to Southwest Livery • Converted 11 737-700s in 2012 • Expect to convert 8 -700s in 2013; remaining 33 -700s in 2014 • Subleasing 88 AirTran 717-200s to Delta, beginning August 2013 • Estimated acquisition and integration costs of approx. $550 million • Cumulative through 2012 - $324 million 26
Fleet Modernization • Achieved EBIT contribution of $70M in 2012 • Estimate EBIT contribution >$300M in 2013; >$500M in 2014; >$700M in 2015
737-800 •
• • •
175 seating capacity (versus 143 737-700 with Evolve retrofit) 15% unit cost advantage Expect significant fuel burn improvement As of 12/31/12, we had 34 -800s in our fleet; 20 firm orders in 2013; 24 in 2014
Evolve • Sleek, new environmentally friendly cabin interior that enhances Customer comfort and adds incremental seating capacity • Completed 239 Evolve retrofits in 2012; expect to have the entire Southwest 737-700 fleet done by first half 2013 • Expect to retrofit 78 737-300 aircraft (Classics) by the end of 2013 27
Fleet Modernization 737 MAX •
• •
The MAX with LEAP-1B engines will reduce fuel burn and CO2 emissions by an additional 10-11% over today’s most fuel-efficient single-aisle airplane Replacing a Classic with a MAX reduces fuel burn by 17-18% Order book includes 150 MAX orders, with first delivery expected in 2017
737 Classic Retirements • •
Replacing a 737 Classic with a 737-700 or 737-800 reduces fuel burn by 6-7% Replacing a 737 Classic also reduces out-of-service time and increases aircraft productivity; reduces maintenance spend
717 Sublease to Delta • •
Subleasing all 88 of AirTran’s 717s to Delta (approximately 3 aircraft per month beginning August 2013) Replacing AirTran’s 717 flying with 737s as they transition to Delta, is expected to significantly benefit our results
28
• By end of 2013 annual Partner sales and commissions expected to be up over $500 million* since 2010 • Program membership is up 30% since 2010 • $180 million in incremental revenue in 2012 *Including expected incremental revenue contribution in 2013
29
New 2013 Revenue Initiatives New Origin and Destination based Revenue Management • Expect to implement in 2Q 2013 • Expect $150 million to $175 million run rate annual revenue improvement, and nearly $100 million contribution in 2013 Network Optimization Initiatives • Expect to redeploy aircraft through tighter turn and block • Will deploy those aircraft to better market timings versus additional capacity; expect to drive approximately $100 million in 2013
New Ancillary Revenue Initiatives • Selling select boarding positions at the gate, tightening the flexibility associated with our most restricted fares, and increasing existing fee revenue, expect to add over $100 million in 2013, on an annual run rate of $175 million 30
William P. Hobby Airport
Hobby International Expansion Project
31
Houston Hobby Non-Stop Service
32
Houston International Airport 51 of 54 Latin America and Caribbean Markets Served by United from Houston are Monopoly routes
33
737 Range out of HOU
34
Love Field Modernization
35
Strong Financial Position • Cash and short term investments of $3.3 billion at 3/1/13 • $1 billion line of credit fully undrawn and available
• 2012 free cash flow of over $716 million; expect healthy free cash flow in 2013 • 2013 capital spending of approximately $1.2 billion • 2013 debt repayments of approximately $220 million • Balance Sheet leverage in the low 40% range • Investment grade rating by all three agencies • As of March 4, 2013, we had repurchased 9 million shares for $100 million in 2013 •
Of the $1 billion authorization, we’ve repurchased 82 million shares for $725 million at average price of $8.85
• Distributed $22 million in dividends during 2012 36
Stock Price Performance (as of 4/10/13 close) 35%
LUV YTD 2013 Performance vs Airline Index vs S&P 500 30% LUV +27.3% 25% Airline Index +21.9%
Change (%)
20%
S&P 500 +11.3%
15%
10%
5%
0%
37
Awards and Accolades •
FORTUNE World’s Most Admired Companies, #10 in 2012; #7 in 2013
•
Forbes The Brands American Women and Men Desire Most, #1 in 2012
•
Glassdoor Best Place to Work, #17 in 2012
•
U.S. Dept of Transportation Customer Satisfaction, #1 in 2012
•
J.D. Power Customer Service Champion in 2012
•
Likeable Media Five Most Likeable Companies in 2012
•
G.I. Jobs Magazine One of the Top 100 Military Friendly Employers, #80 in 2012; #58 in 2013
•
Air Force Reserve Command Employer of the Year in 2012
•
MSN Money Top Ten Customer Service Companies, Customer Service Hall of Fame, #10 in 2012
•
Air Transport World Eco-Pioneer of the Year in 2012
•
Harris Poll EquiTrend Value Airline Brand of the Year in 2012
•
YouGov Brand Index U.S. Airlines Top Buzz, #1 in 2012
•
Airline Quality Rating Top-Ranked Airline in 2012
•
Airforwarders Association Domestic Carrier of the Year for Cargo in 2012 38
The Future of Transportation
Tammy Romo Southwest Airlines SVP Finance and CFO
Tammy Romo Southwest Airlines SVP Finance and CFO
Forward Looking Statements This presentation 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. Forwardlooking statements are based on, and include statements about, the Company’s estimates, expectations, beliefs, intentions, and strategies for the future, and are not guarantees of future performance. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include without limitation statements related to (i) the Company’s key priorities and initiatives and its related financial and operational plans, goals, and expectations; (ii) the Company’s financial outlook and projected results of operations, liquidity, and capital resources; (iii) the Company’s growth plans and expectations, including its network and capacity plans and expectations; (iv) the Company’s operational and financial expectations related to its acquisition of AirTran; (v) the Company’s fleet plans, including its fleet modernization plans, and related financial and operational goals and expectations; and (vi) the Company’s plans related to labor matters. Forward-looking 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 impact of the economy on demand for air travel and fluctuations in consumer demand generally for the Company’s services; (ii) the impact of fuel prices, economic conditions, and actions of competitors (including without limitation pricing, scheduling, and capacity decision and consolidation and alliance activities) on the Company’s business decisions, plans, and strategies; (iii) changes in the price of aircraft fuel and any changes to the Company’s fuel hedging strategies and positions; (iv) the Company’s ability to timely and effectively prioritize its strategic initiatives and related expenditures; (v) 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; (vi) the Company’s ability to successfully integrate AirTran and realize the expected synergies and other benefits from the acquisition; (vii) the Company’s ability to maintain positive relations with employees and employee representatives; (viii) the Company’s dependence on third parties with respect to certain of its initiatives; (ix) the impact of governmental and other regulation related to the Company’s operations; 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, 2012.
2
The Airline Industry
The Airline Industry •
• • • • •
• •
Cyclical Capital-intensive Labor-intensive Energy-intensive Technology-intensive Heavily regulated Heavily taxed Brutally competitive “High fixed costs” 4
The Airline Industry - A “Tough” Business • Over the last decade, total financial losses for the U.S. airline industry have exceeded $50 billion • Economic uncertainty • Volatile fuel prices • Fuel costs alone have risen over 300 percent from 2000 levels • The U.S. airline industry was ill prepared for the events of September 11, 2001 • Excessive debt • High fixed costs • No access to liquidity • As a result, several U.S. airlines have ceased operations or reorganized through bankruptcy 5
Competitors reinvented themselves using bankruptcy and consolidation; new low cost carriers and ultra-low cost carrier competitors emerged CHAPTER 11 2001
2002, 2004
2002
2004
CONSOLIDATION 2001 2005 2008
2005
2005
2008
2010
2008 2010 2010
2011
2013
DISCONTINUED
NEW CARRIERS
2007
2008
2000
2001
2008
2008
2007
2007
85% of 2012 available seat mile capacity were produced by restructured, consolidated or new carriers 6
GDP, Domestic Airline Passengers and Seats 30% US Real GDP
O&D Passengers
Seats 21%
Percentage Change vs. 2000
20%
10% 2% 0% (2)% (10)%
(20)% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bureau of Economic Analysis; US DOT T-100 and DB1B O&D Survey
7
GDP, Domestic Airline Traffic and Capacity 30% US Real GDP
RPMs
ASMs 21%
Percentage Change vs. 2000
20% 19% 10% 2% 0%
(10)%
(20)% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bureau of Economic Analysis; US DOT T-100 and DB1B O&D Survey
8
Evolution of Shorthaul Traffic Industry ex-Southwest Southwest
38M 30%
125M Total
32M 35% 87M 70% 77%
2000
59M 65%
91M Total
2012
Domestic Shorthaul O&D Passengers
Source: US DOT T-100 and DB1B O&D Survey
9
GDP, Domestic Airline Passengers and Fares 30% US Real GDP
O&D Passengers
Avg Real Fare
21%
Percentage Change vs. 2000
20%
10%
2% 0%
(10)%
(10)%
(20)%
(30)% 2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Bureau of Economic Analysis; US DOT T-100 and DB1B O&D Survey
10
Industry Domestic RASM Industry
Southwest
20.00 18.00
16.00
Cents per ASM
14.00 12.00
78%
10.00 8.00 6.00
64%
4.00 2.00 0.00
Source: DOT Form 41 & T-100 Reports Domestic mainline RASM stage-length adjusted to Southwest average stage length Southwest results reflect AirTran performance beginning in 2Q2011
11
Southwest Airlines Today
Business Strategy •
Best Customer Service
•
Low cost producer
•
Dominant market leader
•
Excellent labor relations
•
Consistent profitability
•
Strong balance sheet
•
Direct Customer relationship
•
Safe, clean, efficient operation 13
SWA share of domestic traffic outpaced capacity share 3.0% RPM Share
ASM Share
2.7%
Change in Domestic Share
2.5%
2.0%
2.0%
1.5%
1.0%
0.5%
0.0% 2007
2008
2009
2010
2011
YTD 3Q 2012
14
Cost Structure 2012
2000 17%
34%
47% 36%
Fuel
37% 29%
Labor
Other
15
Fuel Price per Gallon $3.50 Southwest Hedged
Market Unhedged
2001
2004
$3.00 $2.50 $2.00 $1.50 $1.00 $0.50
$0.00 2000
2002
2003
2005
2006
2007
2008
2009
2010
2011
2012
Note: Economic fuel price, which includes AirTran as of May 2011
16
Fuel Hedging Manages Business Risk • Hedging is a tool to manage the price risk related to future purchases of jet fuel • Without hedging, we are exposing ourselves to unknown costs in our largest expense
• To hedge effectively, capital and credit are required. Within the industry, Southwest Airlines is uniquely suited to take full advantage of hedging opportunities
17
Employee Productivity 67
82%
79.6% 66
66
65
65
65
78%
74%
Load Factor
Employees per Aircraft
66
71.2% 64
64
70%
63
66% 2008
2009
2010
2011
2012
18
Industry Employee Productivity 120 103 100
95
Employees per Aircraft
87 80
72
70
69
67
66
JetBlue
Spirit
Southwest
60
40
20
0 Delta
United
American US Airways
Alaska
Source: 4Q 2012 Company reports.
19
Industry Non Fuel CASM 16.00
Cents per ASM
12.00
8.00
4.00
0.00
Source: DOT Form 41, domestic mainline operations; stage length adjusted to Southwest’s average stage length for the 12 months ended September 30, 2012
20
Southwest Airlines Today • The nation’s largest carrier in terms of originating domestic passengers boarded • Nearly 46,000 Employees deliver service to over 100 million Customers annually • 40 consecutive years of profitability, unmatched in the industry • Record revenue performance in 2012 of $17 billion • Operates the largest fleet of Boeing aircraft in the world • Only investment grade rated U.S. airline, by all three agencies • More than 3,500 departures a day
21
Southwest Airlines Our Vision
Immediate Priorities Maintain Brand, Culture & Operational Excellence
Regain Financial Prosperity
Increase Capital Efficiency
15% Pretax Return on Invested Capital
23
Strategic Plan Big 5 Initiatives
2011
2012 2012
2013 2013
2014 2014
2015 2015
Rapid Rewards 2.0 737-800
AirTran Reservation System Replacement Fleet Modernization
Complete Transformation of Capabilities Continue to fine tune 24
Return on Invested Capital (pre-tax) 15%
7%
2013 Plan • RASM increase of 4% to 5% • Market fuel price of $3.25-$3.30 per gallon range • CASM, ex-fuel, profitsharing, and special items increase of approx. 1% • ASM increase of approx. 2% • Aggressive management of invested capital base
2012
2013
Note: References to 2013 Plan increases represent 2013 plan compared to 2012 expected results.
25
AirTran Integration • Expect integration to be complete by end of 2014 • Targeting $400 million net, annualized, pre-tax synergies in 2013 • Realized approximately $142 million pre-tax synergies in 2012; $80 million in 2011 • Networks fully connected, as of April 14, 2013 • Airport Conversions • Converted 4 in 2012: Washington-Dulles, Seattle, Des Moines, and Key West • Expect to convert 8 in 2013: Phoenix, Branson, Charlotte, Flint, Portland, Rochester, Wichita, and Grand Rapids • 11 left to convert in 2014, mostly international • Aircraft Conversions to Southwest Livery • Converted 11 737-700s in 2012 • Expect to convert 8 -700s in 2013; remaining 33 -700s in 2014 • Subleasing 88 AirTran 717-200s to Delta, beginning August 2013 • Estimated acquisition and integration costs of approx. $550 million • Cumulative through 2012 - $324 million 26
Fleet Modernization • Achieved EBIT contribution of $70M in 2012 • Estimate EBIT contribution >$300M in 2013; >$500M in 2014; >$700M in 2015
737-800 •
• • •
175 seating capacity (versus 143 737-700 with Evolve retrofit) 15% unit cost advantage Expect significant fuel burn improvement As of 12/31/12, we had 34 -800s in our fleet; 20 firm orders in 2013; 24 in 2014
Evolve • Sleek, new environmentally friendly cabin interior that enhances Customer comfort and adds incremental seating capacity • Completed 239 Evolve retrofits in 2012; expect to have the entire Southwest 737-700 fleet done by first half 2013 • Expect to retrofit 78 737-300 aircraft (Classics) by the end of 2013 27
Fleet Modernization 737 MAX •
• •
The MAX with LEAP-1B engines will reduce fuel burn and CO2 emissions by an additional 10-11% over today’s most fuel-efficient single-aisle airplane Replacing a Classic with a MAX reduces fuel burn by 17-18% Order book includes 150 MAX orders, with first delivery expected in 2017
737 Classic Retirements • •
Replacing a 737 Classic with a 737-700 or 737-800 reduces fuel burn by 6-7% Replacing a 737 Classic also reduces out-of-service time and increases aircraft productivity; reduces maintenance spend
717 Sublease to Delta • •
Subleasing all 88 of AirTran’s 717s to Delta (approximately 3 aircraft per month beginning August 2013) Replacing AirTran’s 717 flying with 737s as they transition to Delta, is expected to significantly benefit our results
28
• By end of 2013 annual Partner sales and commissions expected to be up over $500 million* since 2010 • Program membership is up 30% since 2010 • $180 million in incremental revenue in 2012 *Including expected incremental revenue contribution in 2013
29
New 2013 Revenue Initiatives New Origin and Destination based Revenue Management • Expect to implement in 2Q 2013 • Expect $150 million to $175 million run rate annual revenue improvement, and nearly $100 million contribution in 2013 Network Optimization Initiatives • Expect to redeploy aircraft through tighter turn and block • Will deploy those aircraft to better market timings versus additional capacity; expect to drive approximately $100 million in 2013
New Ancillary Revenue Initiatives • Selling select boarding positions at the gate, tightening the flexibility associated with our most restricted fares, and increasing existing fee revenue, expect to add over $100 million in 2013, on an annual run rate of $175 million 30
William P. Hobby Airport
Hobby International Expansion Project
31
Houston Hobby Non-Stop Service
32
Houston International Airport 51 of 54 Latin America and Caribbean Markets Served by United from Houston are Monopoly routes
33
737 Range out of HOU
34
Love Field Modernization
35
Strong Financial Position • Cash and short term investments of $3.3 billion at 3/1/13 • $1 billion line of credit fully undrawn and available
• 2012 free cash flow of over $716 million; expect healthy free cash flow in 2013 • 2013 capital spending of approximately $1.2 billion • 2013 debt repayments of approximately $220 million • Balance Sheet leverage in the low 40% range • Investment grade rating by all three agencies • As of March 4, 2013, we had repurchased 9 million shares for $100 million in 2013 •
Of the $1 billion authorization, we’ve repurchased 82 million shares for $725 million at average price of $8.85
• Distributed $22 million in dividends during 2012 36
Stock Price Performance (as of 4/10/13 close) 35%
LUV YTD 2013 Performance vs Airline Index vs S&P 500 30% LUV +27.3% 25% Airline Index +21.9%
Change (%)
20%
S&P 500 +11.3%
15%
10%
5%
0%
37
Awards and Accolades •
FORTUNE World’s Most Admired Companies, #10 in 2012; #7 in 2013
•
Forbes The Brands American Women and Men Desire Most, #1 in 2012
•
Glassdoor Best Place to Work, #17 in 2012
•
U.S. Dept of Transportation Customer Satisfaction, #1 in 2012
•
J.D. Power Customer Service Champion in 2012
•
Likeable Media Five Most Likeable Companies in 2012
•
G.I. Jobs Magazine One of the Top 100 Military Friendly Employers, #80 in 2012; #58 in 2013
•
Air Force Reserve Command Employer of the Year in 2012
•
MSN Money Top Ten Customer Service Companies, Customer Service Hall of Fame, #10 in 2012
•
Air Transport World Eco-Pioneer of the Year in 2012
•
Harris Poll EquiTrend Value Airline Brand of the Year in 2012
•
YouGov Brand Index U.S. Airlines Top Buzz, #1 in 2012
•
Airline Quality Rating Top-Ranked Airline in 2012
•
Airforwarders Association Domestic Carrier of the Year for Cargo in 2012 38
The Future of Transportation
Tammy Romo Southwest Airlines SVP Finance and CFO
