Southwest Airline

Southwest Airline

Southwest AirlineStrategic Management Case Study Yoshives Belizaire Zhongling Cao Shawn Parker Dave Saucier1

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK150Projected Balance SheetLIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable7391,0571,21615% increaseAccrued liabilities8639961,0768% increaseAir traffic liability1,1981,8362,57040% increase for international flightsCurrent maturities of long-term debt50564486935% increaseTotal current liabilities3,3054,5335,731Long-term debt less current maturities2,8753,1075,9572850M long term debt portion of new strategyDeferred income taxes2,4932,5662,6172% increaseDeferred gains from sale and leaseback of aircraft887575Other noncurrent liabilities465910956Stockholders equity:Common stock, $1.00 par value: 2,000,000,000 shares authorized; 807,611,634 shares issued in 2011 and 2010808808808Capital in excess of par value1,1831,2221,222Retained earnings5,3995,3955,685Accumulated other comprehensive loss(262(224) -239Average of two prior yearsTreasury stock, at cost: 35,050,991 and 60,177,362 shares in 2011 and 2010 respectively(891(324) -324Total stockholders equity6,2376,8777,152Total Liabilities and Stockholders' Equity15,46318,06835,371Southwest Timeline

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK3From 1966 to 19714

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK

DallasSan AntonioHouston Southwest Airlines was incorporated in Texas and commenced Customer Service on June 18, 1971, with four Boeing 737 aircraft serving three Texas cities - Houston, Dallas, and San Antonio.

Today5

Southwest Airlines is now America's largest low-fare carrier, serving more Customers domestically than any other airline. Southwest Airlines operates more than 3,000 flights a day. In 2011, Southwest led the industry with more than 1,100 pieces of electric ground support equipment, which conserves fuel and reduces emissions. May 2, Southwest acquired Orlando-based AirTran Airways and expects to complete the integration of the two airlines by 2015.

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKStock Performance6


Global Industry Growth

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK7U.S. Industry Growth

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK8

Industry Fuel Costs and Net Profits 9

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKExisting Vision StatementOur vision is to expand our locations both domestic and overseas by being the largest and most profitable airline company, to achieve both short- and long-haul carriers efficiently and with low cost. Also to be an airline carrier that has the most productive workforce, to guarantee the best flight possible for each and every passenger.


Existing Mission Statement

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 EMPLOYEESWe 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.TO OUR COMMUNITIESOur goal is to be the hometown airline of every community we serve, and because those communities sustain and nurture us with their support and loyalty, it is vital that we, as individuals and in groups, embrace each community with the Southwest Spirit of involvement, service, and caring to make those communities better places to live and work.TO OUR PLANETWe strive to be a good environmental steward across our system in all of our hometowns, and one component of our stewardship is efficiency, which, by its very nature, translates to eliminating waste and conserving resources. Using cost-effective and environmentally beneficial operating procedures (including facilities and equipment) allows us to reduce the amount of materials we use and, when combined with our ability to reuse and recycle material, preserves these environmental resources.TO OUR STAKEHOLDERSSouthwest Airlines vision for a sustainable future is one where there will be a balance in our business model between Employees and community, the environment, and our financial viability. In order to protect our world for future generations and uphold our commitments to our Employees, Customers, and other Stakeholders, we will strive to lead our industry in innovative efficiency that conserves natural resources, maintains a creative and innovative workforce, and gives back to the communities in which we live and work. 2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK11Existing Business Strategy12Low cost structure, which is designed to allow it to profitably charge low faresFree checked bagsLoyal employees

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKNew Vision StatementBecome the number one airline in the world

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK13New Mission Statement

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK14Here at Southwest Airlines our mission as a company is to provide affordable direct flights (1). We want to also accommodate our customers with the best all around flight service from the moment they arrive at the airport to the time they arrive at their destination (2). At Southwest our service and philosophy is to fly safe with high frequency, low-cost flights that allow for timely arrival with limited travel from the airport(6).Constantly looking for new ways to satisfy our customers by staying atop technological advances and services (4). Not only do we look after our customers but also the planet by limiting waste and recycling used materials (8). We provide equal employment opportunities and a stable working environment with room for advancement (9).Continuing to grow as a company and developing to be the top airline and meet the demand of consumers is key (3). We believe that air travel should be provided at an affordable rate in order to satisfy our customers (5). Providing the lowest fairs and the highest quality service is our guarantee to customers (7).External Audit 2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKIndustry Market Analysis16

Source from BTS

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKScheduled Passengers Carried17


Opportunity1811 out of 12 U.S. airline charge second checked bag.Deregulation on global sky policies in international countries (Canada).Business and leisure travel is beginning to increase due to the recovering US Economy.9 out 12 U.S. airline offers business/first class.Traveler traffic is expected to grow by 3.5% through 2019 as the United States recovers from the recession.Delta partner with 22 other airlines.Over 58 million U.S. citizen travel to overseas in 2011.Boeings new plane models could burn 70% less fuel than conventional planes and travel farther. Research shows that economy passengers are willing to spend up to $21 on onboard services (including food and entertainment)

Threats19Increased competition in low cost market, no longer a niche market for Southwest as there is now JetBlue, Spirit, Frontier, Public Airways and Allegiant Travel. Introduction of ultra low cost carriers like Spirit and Frontier. The operating costs of airlines are constantly increasing, roughly 5% since 2010.High unemployment of 8.9% is preventing people from choosing air travel. Joint ventures can negatively affect brand name for example customer service.Transportation Security Administration (TSA) will assess an Aviation Security Infrastructure Fee ("ASIF") on each airline. The company's ASIF liability is $3.5 million annually. In June 2010, the Department of Transportation (DOT) proposed a new rule that would expand the Passenger Protection Rule and increase fines and penalties for airlines. Ever-increasing costs of jet fuel [up 300% since 2000] at historical highs and continuing to rise.Technological and capital intensive industry could prove increasing cost of planes.


20

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKSouthwestDeltaUnited AirlinesCritical Success factorsWeightsRatingWeighted ScoreRatingWeighted ScoreRatingWeighted Score0.0 to 1.01 to 41 to 41 to 4Advertising0.0530.1540.230.15Organization0.0920.1830.2730.27Structure0.0930.2720.1830.27Customer Service0.140.430.320.2Global Expansion0.0610.0630.1830.18Financial Position0.0830.2420.1630.24Employee Deduction0.0630.1830.1830.18Management Experience0.0520.140.230.15Customer Loyalty0.0930.2730.2740.36Market Share0.0630.1840.2420.12Product Quality0.120.220.240.4E-commerce0.0730.2130.2130.21Price Competitiveness0.120.230.340.4Totals13.142.893.13Competitive Profile Matrix (CPM)21

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKExternal Factor Evaluation Matrix (EFE)Key External FactorsWeightsRatingWeighted ScoreOpportunities0.0 to 1.01 to 411 out 12 us airlines charge for Second checked bag0.0510.05 Deregulation on global sky policies in international countries (Canada).0.0720.14Business and leisure travel is beginning to increase due to the recovering US Economy.0.0620.129 out of 12 U.S. Airlines offers business/first class.0.0810.08Traveler traffic is expected to grow by 3.5% through 2019 as the United States recovers from the recession.0.0330.09Delta Partnered with 22 other airlines0.0420.08Over 58 million US citizens travel to overseas in 20110.0610.06 Boeings new plane models could burn 70% less fuel than conventional planes and travel farther. 0.0510.05Research shows that that economy passengers are willing to spend up to $21 on onboard services( including food and entertainment0.0610.0622

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKKey External FactorsWeightsRatingWeighted ScoreThreats0.0 to 1.01 to 4Increased competition in low cost market, no longer a niche market for Southwest as there is now JetBlue, Spirit, Frontier, Public Airways and Allegiant Travel. 0.0820.16Introduction of ultra low cost carriers like Spirit and Frontier. 0.0520.1The operating costs of airlines are constantly increasing, roughly 5% since 2010.0.0430.12High unemployment of 8.9% is preventing people from choosing air travel. 0.0630.18Joint ventures can negatively affect brand name for example customer service.0.0430.12Transportation Security Administration (TSA) will assess an Aviation Security Infrastructure Fee ("ASIF") on each airline. The company's ASIF liability is $3.5 million annually. 0.0520.1In June 2010, the Department of Transportation (DOT) proposed a new rule that would expand the Passenger Protection Rule and increase fines and penalties for airlines. 0.0330.09Ever-increasing costs of jet fuel [up 300% since 2000] at historical highs and continuing to rise.0.0740.28Technological and capital intensive industry could prove increasing cost of planes.0.0620.12Totals0.982External Factor Evaluation Matrix (EFE)Internal Audit23Organization Chart24

Southwest Net Income Growth25


Net Margin26

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKOperating Revenues27


2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKFinancial Information Income Statement

(in millions, except per share amount)29

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKFinancial Information Balance Sheet

(in millions)30

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKFinancial Information Balance Sheet

(in millions, except per share amount)

Financial Information Net Worth Analysis31

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKNet Worth Analysis (in millions)Stockholders' Equity $6,877 Net Income x 5 890 (Share Price/EPS) x Net Income 6,594 Number of Shares Outstanding x Share Price 6,876 Method Average $5,309 Ratio Analysis32

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKSouthwestDeltaUnited AirlinesLiquidity RatiosCurrent Ratio0.780.610.85Quick Ratio0.400.580.80Leverage RatiosDebt-to-Total Assets Ratio0.621.030.78Debt-to-equity Ratio1.63-32.16-7.50Long-term debt-to-equity Ratio0.97-23.06-3.86Times-Interest-earned Ratio3.572.191.49Activity RatiosFixed Assets Turnover1.281.742.63Total Assets Turnover0.870.811.16Accounts Receivable Turnover52.3722.4727.73Average Collection Period6.8415.5512.71Profitability RatiosGross Profit margins58.86%67.40%61.00%Operating Profit Margin4.43%5.62%4.19%Net Profit Margin1.14%2.43%1.33%Return on Total Assets0.99%1.96%1.54%Return on Stockholders equity2.59%-61.17%-14.76%Earning per share0.200.990.23Price-earnings Ratio37.047.9337.04Growth Rations (yearly)Sales29.36%10.58%6.96%Net Income-61.22%44.01%-29.57%Earnings per share-62.90%43.66%108.20%Dividends per share7.69%-

Strength33Only Airline with 1st and 2nd bags flying free within the U.S.Is considered the largest airline carrying 104 million passengers in 2011 compared to its main competitor United Airlines at 96 million. Has been in the airline industry for 40 plus years.Strong brand image, Named tenth most admired Company in the world in FORTUNE magazine's survey of corporate reputationsCompany is known for its great staff, loyal employees, and low turnover rate having laid off three people in the last 25 years; hiring them back almost immediately. Southwest.com was the second-largest travel site. The "look-to-book" ratio is twice that Travelocity and higher than any traditional retailer.Southwest has high capacity usage due to its low turnaround time leading the industry at approximately 20 minutes attributed by point-to-point service versus hub-and-spoke. Southwest is one of the 7 safest U.S. airlinesLargest domestic carrier with 698 aircraft owning roughly 71% or 499 of those aircraft outright and the remaining 29% (199) aircraft being leased.Strong financial position and cash flow with roughly $3.1B in cash and short-term investments, $800M fully available in lines-of-credit, and debt-to-capital down roughly 3% with the acquisition of AirTran.

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKWeakness34They only fly to six near-international countries and no international countries. They are heavily dependent on one producer Boeing, and only have two aircraft they use being the Boeing 737 and Boeing-717.They have the lowest number of morning flights in the industry.One of the only carriers who do not offer business class or first class.They do not offer entertainment in their flights like video or audio programs. Southwest doesn't transfer package to other carrier. Customer has to do it on them own.Southwest does not flight 13 states in the U.S.Southwest does not provide any meals, only drinks and peanuts.Realized a -28% change in operating income and a -40% change in net income from 2010. (1167839B Oper. Income / 550330B Net Income)Increased indirect labor costs, health care up $6M, workers compensation up $20M, vacation pay up $48M; totaling $74M and accounting for 75% of the increase in accrued liabilities.


Key Internal FactorsWeightsRatingWeighted ScoreInternal Strengths3 or 4Only Airline with 1st and 2nd bags flying free within the U.S.0.0530.15Is considered the largest airline carrying 104 million passengers in 2011 compared to its main competitor United Airlines at 96 million. 0.0540.2Has been in the airline industry for 40 plus years.0.0440.16Strong brand image, Named tenth most admired Company in the world in FORTUNE magazine's survey of corporate reputations0.0440.16Company is known for its great staff, loyal employees, and low turnover rate having laid off three people in the last 25 years; hiring them back almost immediately. 0.0540.2Southwest.com was the second-largest travel site. The "look-to-book" ratio is twice that Travelocity and higher than any traditional retailer.0.0540.2Southwest has high capacity usage due to its low turnaround time leading the industry at approximately 20 minutes attributed by point-to-point service versus hub-and-spoke. 0.0440.16Southwest is one of the 7 safest U.S. airlines0.0630.18Largest domestic carrier with 698 aircraft owning roughly 71% or 499 of those aircraft outright and the remaining 29% (199) aircraft being leased.0.0540.2Strong financial position and cash flow with roughly $3.1B in cash and short-term investments, $800M fully available in lines-of-credit, and debt-to-capital down roughly 3% with the acquisition of AirTran.0.0430.1235 2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKInternal Factor Evaluation Matrix (IFE)

Key Internal FactorsWeightsRatingWeighted ScoreInternal Weaknesses1 or 2They only fly to six near-international countries and no international countries. 0.0620.12They are heavily dependent on one producer Boeing, and only have two aircraft they use being the Boeing 737 and Boeing-717.0.0520.1They have the lowest number of morning flights in the industry.0.0610.06One of the only carriers who do not offer business class or first class.0.0620.12They do not offer entertainment in their flights like video or audio programs.0.0520.1Southwest doesn't transfer package to other carrier. Customer has to do it on them own.0.0620.12Southwest does not flight 13 states in the U.S.0.0510.05Southwest does not provide any meals, only drinks and peanuts.0.0520.1Realized a -28% change in operating income and a -40% change in net income from 2010. (1167 to 839B Oper. Income / 550 to 330B Net Income)0.0420.08Increased indirect labor costs, health care up $6M, workers compensation up $20M, vacation pay up $48M; totaling $74M and accounting for 75% of the increase in accrued liabilities. 0.0510.05Totals12.6336Internal Factor Evaluation Matrix (IFE) 2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKStrategy Formulation37 2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKSource of Passenger Revenues 38

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKSWOT Matrix

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK39StrengthsWeaknessesOpportunitySO StrategiesWO Strategy1. Add ability to purchase tickets threw mobile devices (S6, O3)1. Provide a better variety of food that people can eat on the plane (W8, O9)2. Start charging second checked bag (S7, S8, O1)2. Offering business/first class (W4, O3)3. Expand international flight to Canada. (S2, O2)3. Have flights to all 50 states in the US. (W7, O6)4. Acquire new planes that have wifi, tv access, and audio in there planes. (W2, W5, O8)ThreatsST StrategiesWT Strategy1. Aquire/merge with competitors such as Jetblue and Frontier. (S10, T1, T2)1. Offer a business/first class to differentiate itself from other ULCC(W4, T2)2. Purchase airline fuel refinery(S10, T8)2. Start offering Wi-fi, videos on demand, video games, satellite radio, etc to differentiate itself from its competion, and market the changes. (W5,T2)3. Market southwest's web site more, with the highest look-to-book ratio, there low cost flights might appealing then competitors sites(S6,T1)SPACE Matrix40Financial Position ScoreCompetitive PositionScoreCash flow4Market share-1working capital5Product quality-1Inventory turnover7Customer loyalty-2EPS3Technology know-how-1Leverage3Product life cycle-2Liquidity3Capacity utilization-24.17-1.50Stability PositionScoreIndustry PositionScoreTechnological changes-2Growth potential5Rate of inflation-3Profit potential6Demand variability-4Financial stability4Competitive pressure-3Extent leverage4Barriers to entry-3Resource utilization5Price elasticity of demand-3Ease of entry into market3-3.004.50

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKSPACE Matrix41

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKMarket PenetrationMarket DevelopmentGrand Strategy Matrix

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK42Quadrant IIQuadrant IQuadrant IIIQuadrant IV

Rapid Market GrowthStrong Competitive PositionWeakCompetitive PositionSlow Market GrowthMatrix Analysis

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK43Alternative StarategiesIESPACEGRANDBCGCOUNTForward Integrationxx2Backward integrationxx2Horizontal Integrationxx2Market Penetrationxx2Product Developmentxx2Market Developmentxx2Related Diversificationx1Unrelated Diversificationx1Retrenchment0Divestiture0Liquidation0QSPM44

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKAdd meal, entertaining system, and business/first class Add more international and domestic flightsKey factorsWeightASTASASTASExternal1 to 41 to 4Deregulation on global sky policies in international countries (Canada).0.11--40.44Business and leisure travel is beginning to increase due to the recovering US Economy.0.0930.27--9 out 12 U.S. airline offers business/first class.0.0820.16--Traveler traffic is expected to grow by 3.5% through 2019 as the United States recovers from the recession.0.1320.2630.39Over 58 million U.S. citizen travel to overseas in 2011.0.1110.1140.44Boeings new plane models could burn 70% less fuel than conventional planes and travel farther. 0.09--20.18Research shows that economy passengers are willing to spend up to $21 on onboard services (including food and entertainment)0.1140.4410.11The operating costs of airlines are constantly increasing, roughly 5% since 2010.0.0630.1810.06 Joint ventures can negatively affect brand name for example customer service.0.07--10.07Ever-increasing costs of jet fuel [up 300% since 2000] at historical highs and continuing to rise.0.0510.0530.15Technological and capital intensive industry could prove increasing cost of planes. 0.1030.320.2Total1QSPM45

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKInternalOnly Airline with 1st and 2nd bags flying free within the U.S.0.09--30.27 Strong brand image, Named tenth most admired Company in the world in FORTUNE magazine's survey of corporate reputations0.0920.1830.27Southwest has high capacity usage due to its low turnaround time leading the industry at approximately 20 minutes attributed by point-to-point service versus hub-and-spoke. 0.1--20.2Strong financial position and cash flow with roughly $3.1B in cash and short-term investments, $800M fully available in lines-of-credit, and debt-to-capital down roughly 3% with the acquisition of AirTran.0.1230.3640.48They only fly to six near-international countries and no international countries. 0.07--30.21They are heavily dependent on one producer Boeing, and only have two aircraft they use being the Boeing 737 and Boeing-717.0.07--10.07One of the only carriers who do not offer business class or first class.0.1140.44--They do not offer entertainment in their flights like video or audio programs.0.1230.36--Southwest does not fly to 13 states in the U.S.0.07--40.28Southwest does not provide any meals, only drinks and peanuts.0.130.3--Increased indirect labor costs, health care up $6M, workers compensation up $20M, vacation pay up $48M; totaling $74M and accounting for 75% of the increase in accrued liabilities. 0.060013.413.82

3 Year Goal and Annual Objectives46Year one, expand into Canadas 10 largest cities. Expand south into Mexicos vacation destinationsYear two, start trans- Atlantic flights into Europe, expand into more cities in Mexico and Canada, re-evaluate. Year three, expand into South America and Asia, Australia.

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK47Increase advertising budget by 282 million to market the expansion into Canada and MexicoPurchase 15 more planes for the extra flights150M * 15 planes = 2.25 BillionLegal fees for expansion and terminal fees 468 MillionTotal cost for all three years Approximately 3,000 Million

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKStrategy Selection with Year 1 CostEPS/EBIT48

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKRecessionNormalBoomRecessionNormalBoomClose Price for Southwest on October 11, 2011 8.52 Common Stock FinancingDebt Financing EPS for Disney on October 11,2011 0.20 EBIT 505 710 915 EBIT 505 710 915 Initial Shares Outstanding 807 Interest - - - Interest 150 150 150 Dividends on Preferred Stock 0.018 EBT 505 710 915 EBT 355 560 765 Funds Needed 3,000 Taxes 146 206 265 Taxes 103 162 222 90% of Funds Needed 2,700 EAT 359 504 650 EAT 252 398 543 10% of Funds Needed 300 # Shares 1,159 1,159 1,943 # Shares 807 807 807 Interest Rate5%EPS 0.42 0.59 0.45 EPS 0.61 0.86 1.12 ConclusionRecessionNormalBoomRecessionNormalBoomThe preferred financing option would 100% debt financing, proving the best EPS. 90% Stock 10% Debt Financing90% Debt 10% StockEBIT 505 710 915 EBIT 505 710 915 Interest 15 15 15 Interest 135 135 135 EBT 490 695 900 EBT 370 575 780 Taxes 142 202 261 Taxes 107 167 226 EAT 348 493 639 EAT 263 408 554 # Shares 1,124 1,124 1,124 # Share 821 821 821 EPS 0.43 0.61 0.80 EPS 0.60 0.85 1.10 Projected Balance Sheet49

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKSOUTHWEST AIRLINES CO. CONSOLIDATED BALANCE SHEET / PROJECTED20102011ProjectedAssumptionsASSETSCurrent assets:Cash and cash equivalents$1,261$8291,500Short-term investments2,2772,3152,3843% increase in short term investmentsAccounts and other receivables1952993145% increase in receivablesInventories of parts and supplies, at cost24340148120% increase Deferred income taxes2142632682% increasePrepaid expenses and other current assets892382432% increaseTotal current assets4,2794,3455,191Property and equipment, at cost:Flight equipment13,99115,54217,5422B increaseGround property and equipment2,1222,4233,273850M increaseDeposits on flight equipment purchase contracts23045665610% of 2B in new planes16,34318,42121,471Less allowance for depreciation and amortization-5,765-6,294-7,188increase of 894 for new planes10,57812,12714,283Goodwill 970970Other assets606626645increase of 3% $15,463$18,06835,371Projected Income Statement51


Southwest Update52 2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFK

Questions53


Reference54Southwest 2011 Annual ReportBook: Lunch: How to quickly propel your business beyond the competitionSouthwest.comSouthwestonereport.comhttp://www.eturbonews.com/12003/evolution-airline-foodhttp://tinet.ita.doc.gov/view/m-2011-O-001/index.html

2013, Yoshives Belizaire, Zhongling Cao, Shawn Parker, Dave Saucier, UMFKMichael Van De VenExecutive Vice Presidentand Chief Operating OfficerGreg WellsSenior Vice PresidentOperations

Davis RidleySenior Vice PresidentMarketing and RevenueManagementGary KellyChairman of the Board, President and CEOJeff LambSenior Vice PresidentAdministration and Chief People OfficerLaura H. WrightSenior Vice PresidentFinance and Chief Financial OfficerRon RicksExecutive Vice PresidentCorporate Services andCorporate SecretaryRobert JordanExecutive Vice PresidentStrategy and Planning

IPCPSPFP+6+1+5+4+3+2-6-5-4-3-2-1-6-5-4-3-2-1+1+2+3+4+5+6ConservativeAggressiveDefensiveCompetitive

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Southwest Airline