The Airline Industry Challenges
 Cyclical
 Capital-intensive
 Labor-intensive
 Energy-intensive!!!
 Technology-intensive
 Heavily regulated
 Heavily taxed
 Customer Service demands
 Brutally competitive
Southwest Airlines’ Success
 36 years of consecutive profitability (1973 – 2008)
 Largest airline in the world in terms of originating
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passengers (as of June 30, 2009)
20% of domestic passenger market share
3,200+ daily flights
Service to 67 airports in 34 states (MKE – November)
Over 500 Boeing aircraft
Nearly 35,000 Employees
Never furloughed Employees (most heavily unionized
airline ~80%)
World famous Culture
The Southwest Brand
 Low fares
 Lots of flights
 Simplicity
 Reliable
 Friendly
 Safe
Southwest Business Strategy
 Best Customer Service
 Low Fare leader
 Low Cost producer
 Dominant market leader
 Excellent labor relations
 Consistent financial performance
 Strong balance sheet
 Direct Customer relationship
 Safe, clean, efficient operation
Best Customer Service
 DOT Metrics
 #1 in Customer Satisfaction
 OnTime
 Baggage handling
 Fewest cancelled flights
 Fewest denied boardings
 Generous frequent flyer program
 Easy ticket terms
 All tickets reusable
 Two free checked bags, free snacks, etc.
 Great schedule
 Lots of flights
 Expanding network (MSP, BOS, LGA, MKE, PFN)
Best Customer Service
Low Cost Producer
 Point-to-point route network
 High asset utilization (Aircraft, Airports)
 High Employee productivity
 Common fleet strategy (Boeing 737)
 Lower distribution costs
 Primarily avoid congested/restricted airports
 High quality execution
 Successful fuel hedging program
 Work hard Culture
 Low Costs are not low wages, old aircraft, lousy
service
Fuel Hedging
% hedged
Estimated Fuel Cost per gallon,
incl. taxes
(based on current market prices)
4Q09
over 45%
in the $2.25 range
2010
over 65%
in the $2.40 range
2011 to 2013
modest positions
Sustainable Low Costs
Cost per Available Seat Mile (CASM)
18.0
16.0
14.0
Cents per ASM
12.0
10.0
8.0
6.0
10.44
9.65
10.15
9.98
9.62
9.52
1Q 2009
2Q 2009
10.24
4.0
2.0
0.0
1Q 2008
2Q 2008
SOUTHWEST
3Q 2008
AIRTRAN
4Q 2008
JETBLUE
LEGACIES
ALASKA
3Q 2009
Dominant Market Share
“The Southwest Effect”
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Select underserved/overpriced markets
Lower coach fares by two-thirds
Significantly increase flights
Traffic explodes
Quick market penetration
Favorably impacts local economies
Southwest in high demand
Dominant Market Share
Top Ten Airports
(based on daily departures)
Las Vegas
Chicago Midway
Phoenix
Baltimore
Houston Hobby
Dallas Love Field
Los Angeles
Oakland
Denver
San Diego
Market Share
(based on O&D pax)
39%
78%
38%
48%
85%
95%
23%
76%
22%
40%
Dominant Market Share
 #1 share in 90 of our top 100 O&D markets
 60% share in our top 100 O&D markets
 66% share of Intra-Texas traffic
 69% share of Intra-California traffic
 47% share of Intra-Florida traffic
 38% share of Las Vegas traffic
 39% share of Phoenix traffic
Excellent Labor Relations
THE MISSION OF SOUTHWEST AIRLINES
The mission of Southwest Airlines is dedication to the highest
quality of Customer Service delivered with a sense of warmth,
friendliness, individual pride, and Company Spirit.
TO OUR EMPLOYEES
We are committed to provide our Employees a stable work
environment with equal opportunity for learning and personal
growth. Creativity and innovation are encouraged for improving
the effectiveness of Southwest Airlines. Above all, Employees
will be provided the same concern, respect, and caring attitude
within the organization that they are expected to share
externally with every Southwest Customer.
Consistent Profitability
(excludes special items)
$700
$600
(in millions)
$500
$400
$300
$200
$100
$0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Strong Balance Sheet
 Investment grade balance sheet
 BBB – S&P and Fitch (senior unsecured rating)
 Baa3 – Moody’s
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Modest debt
Leverage under 50%
Strong cash balance of $2.4 billion
Revolving credit facility fully available – $600 million
Access to capital
 Unencumbered aircraft worth $6 to $7 billion
 Reduced capital spending
 Able to withstand “shocks”
 Prepared
Direct Customer Relationship
Distribution today vs. ten years ago
Internet
(southwest.com)
Travel
Agents
Direct
(Res & Other)
1999
19%
35%
46%
3Q 2009
82%
7%
11%
Direct Customer Relationship
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Nielsen/Netratings recently reported that
southwest.com was the largest airline site in the
world in terms of unique visitors.
southwest.com is the 4th largest travel site in
terms of unique visitors (source: Comscore
MediaMetrix).
Approximately 80 percent of Southwest
Customers are checking in online or at a kiosk.
More than 7 million people subscribe to
Southwest’s weekly Click ‘N Save e-mails.
Strong Safety Record
 Robust data analysis/sharing programs
 Top down commitment to Safety from Senior
Leadership
 Work with Union groups and the FAA to foster a
proactive Safety Culture
 No accidents resulting in an onboard fatality in
SWA history
Southwest Airlines Co.
The Future
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Challenging environment
Reengineering business model for higher costs
Well prepared to adjust
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Among the Lowest Cost structures
Fuel hedge protection
Committed and engaged Employees
Operational excellence
Strong Brand rankings
Tops in Customer service rankings
More “Value” approach (No 1st and 2nd Bag Fees)