Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations

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Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
Southwest Airlines Co.
June 8, 2021– Investor Booklet
Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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.

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
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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.

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Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
Company Overview

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Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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
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Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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

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Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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 6/8/21.
6    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).
Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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.
Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
Strong presence in top business and leisure markets

Market leader in top 50 U.S. metro areas1

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                         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
Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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
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Southwest Airlines Co - June 8, 2021- Investor Booklet - Investor Relations
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 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

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Recent Updates

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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, 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
  12   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.
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 from various third parties.
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 capital1
  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

     1Cash  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
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 results is not meaningful or available without unreasonable effort.
     .
Southwest has prudently enhanced its liquidity position

      Cash Balance ($ in billions)1
           14.8

                                                                                                                                                                                                                                             1.0           17.6
                                                                                                                                                                                                         2.1         0.2        16.6
                                                                                         1.1           0.1
                              (3.7)                                          0.4                                                                                         1.7
                                          (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    RCF Payoff   Cash Flow   2Q2020    CARES     Unsecured       Aircraft   Cash Flow   3Q2020   2020 Bond   Cash Flow   4Q2020    CARES     Cash Flow   1Q2021   Cares Act   Cash Flow   6/7 cash     RCF          As Adjusted
                              Term Loan                 (Burn)              Act PSP    Offering Net   Financing    (Burn)               Maturity    (Burn)              Act PSP2    (Burn)               PSP2/3      (Burn)     balance    availability    Liquidity 2
                                Payoff                                      Proceeds    Proceeds 4    Proceeds                                                          Proceeds                        Proceeds

                 1Represents the amount of cash, cash equivalents, and short-term investments.
                 2Represents the total as adjusted liquidity as of June 7, 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,
      17         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.
                 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
             50.00
             45.00                                                                                                                                                          Southwest                      Legacy 1
                                                                                                                                                                                     2                          3
             40.00                                                                                                                                                          LCC                            ULCC

             35.00
(in cents)

             30.00
             25.00
             20.00
             15.00
             10.00
              5.00
                   -
                       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 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.
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 System
Proven 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

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Non-GAAP reconciliation

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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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