Southwest Airlines

Case Prepared By: Corey Daigle, Seth Fraser, and Megan Foreman

OverviewOverviewSouthwest Airlines – Who we are, What we do, and How we got hereSouthwest Airlines – Who we are, What we do, and How we got hereMission and VisionMission and VisionInternal AssessmentInternal Assessment

- Financial Condition- Financial Condition- IFE Matrix- IFE Matrix

External AssessmentExternal Assessment- EFE Matrix- EFE Matrix- CPM Matrix- CPM Matrix

Strategy FormulationStrategy Formulation- SWOT Matrix- SWOT Matrix- Space Matrix- Space Matrix- IE Matrix- IE Matrix- Grand Strategy Matrix- Grand Strategy Matrix- QSPM Matrix- QSPM Matrix- Matrix Analysis- Matrix Analysis

Strategic Planning for the FutureStrategic Planning for the FutureEPS/EBITEPS/EBITImplementationImplementation2004 Financials2004 FinancialsSouthwest in the NewsSouthwest in the News

Southwest Airlines Co.Southwest Airlines Co.

Headquarters: P.O. Box 36611Headquarters: P.O. Box 36611 2702 Love Field Drive2702 Love Field Drive Dallas, TX 75235Dallas, TX 75235

Phone: 214-792-4000Phone: 214-792-4000 Stock Symbol: LUV (NYSE)Stock Symbol: LUV (NYSE)

all graphics and information found on Southwest all graphics and information found on Southwest Airlines website at www.iflyswa.com or Airlines website at www.iflyswa.com or www.southwest.comwww.southwest.com

Who We Are and What We DoWho We Are and What We Do

Major domestic airline that provides short haul, Major domestic airline that provides short haul, high frequency, point-to-point, low fare servicehigh frequency, point-to-point, low fare serviceIncorporated in Texas and commenced Customer Incorporated in Texas and commenced Customer

Service on June 18, 1971 with 3 Boeing 737 Service on June 18, 1971 with 3 Boeing 737 aircrafts serving 3 cities – Dallas, Houston, and aircrafts serving 3 cities – Dallas, Houston, and San AntonioSan AntonioToday, SW operates over 400 Boeing 737 Today, SW operates over 400 Boeing 737

aircrafts in over 59 citiesaircrafts in over 59 citiesLowest operating cost structure in the domestic Lowest operating cost structure in the domestic

airline industry and consistently offers the lowest airline industry and consistently offers the lowest and simplest faresand simplest fares

Fun FactsFun Facts

In 2004, SW served:In 2004, SW served:

49 million cans of soda, juices, and 49 million cans of soda, juices, and water water 8.1 million alcoholic beverages8.1 million alcoholic beverages

3.3 million bags of pretzels3.3 million bags of pretzels

95.3 million bags of peanuts95.3 million bags of peanuts

InnovationInnovation

11stst airline to offer a profit-sharing plan to airline to offer a profit-sharing plan to employees beginning in 1979, employees employees beginning in 1979, employees now own about 10% of company stocknow own about 10% of company stock

11stst major airline to offer “ticketless” travel major airline to offer “ticketless” travel system-widesystem-wide

11stst major airline to enter information major airline to enter information superhighway by creating its own web pagesuperhighway by creating its own web page

11stst airline to offer online booking airline to offer online booking

How We BeganHow We Began

32 years ago, Rollin King and Herb Kelleher 32 years ago, Rollin King and Herb Kelleher got together and on a cocktail napkin they got together and on a cocktail napkin they came up with a simple notion that turned came up with a simple notion that turned into the 4into the 4thth largest airline largest airline

- If you get your passengers to their - If you get your passengers to their destinations when they want to get there, on destinations when they want to get there, on time, at the lowest possible fares, and make time, at the lowest possible fares, and make darn sure they have a good time doing it, darn sure they have a good time doing it, people will fly your airline.people will fly your airline.

Existing Mission StatementExisting Mission Statement

The mission of Southwest Airlines is The mission of Southwest Airlines is dedication to the highest quality of Customer dedication to the highest quality of Customer Service delivered with a sense of warmth, Service delivered with a sense of warmth, friendliness, individual pride, and Company friendliness, individual pride, and Company Spirit.Spirit.

New and ImprovedNew and Improved

The mission of Southwest Airlines is to provide The mission of Southwest Airlines is to provide excellent customer service and timely air travel at excellent customer service and timely air travel at an affordable price for markets in the United an affordable price for markets in the United States. We commit ourselves to the highest States. We commit ourselves to the highest standards of integrity in doing what is best for our standards of integrity in doing what is best for our passengers, the airline industry, our employees passengers, the airline industry, our employees and our stockholders. By using the latest and our stockholders. By using the latest technology in engine maintenance, we ensure technology in engine maintenance, we ensure safety, efficiency, and keep fuel emissions below safety, efficiency, and keep fuel emissions below governmental regulations. Through this mission, governmental regulations. Through this mission, we at Southwest ensure high company spirit and we at Southwest ensure high company spirit and long term financial prosperity.long term financial prosperity.

Vision StatementVision Statement

To provide the most affordable, reliable, and To provide the most affordable, reliable, and comfortable air transportation in the world.comfortable air transportation in the world.

Delta’s VisionDelta’s Vision Since the founding of Delta Air Lines, our company has stood Since the founding of Delta Air Lines, our company has stood

for safe and reliable air transportation, distinctive customer for safe and reliable air transportation, distinctive customer service, and hospitality from the heart. Our vision is for Delta service, and hospitality from the heart. Our vision is for Delta to build on its traditions and always to meet our customers’ to build on its traditions and always to meet our customers’ expectations while taking service to even higher levels of expectations while taking service to even higher levels of excellence. We are a leader in a business we know best—excellence. We are a leader in a business we know best—airline transportation. We intend to be an even greater airline transportation. We intend to be an even greater company and will focus our time, attention, and investment company and will focus our time, attention, and investment on building that leadership. We are dedicated to being the on building that leadership. We are dedicated to being the best airline in the eyes of our customers. We will provide best airline in the eyes of our customers. We will provide value and distinctive products to our customers, a superior value and distinctive products to our customers, a superior return for investors, and challenging and rewarding work for return for investors, and challenging and rewarding work for Delta people in an environment that respects and values their Delta people in an environment that respects and values their contributions. contributions.

* From www.delta.com* From www.delta.com

Financial ConditionFinancial ConditionOverallOverall

Posted a profit for 31Posted a profit for 31stst consecutive year consecutive year

Airline industry as a whole suffered a net loss Airline industry as a whole suffered a net loss for 3for 3rdrd consecutive year consecutive year

Strong Financials (End of 2003)Strong Financials (End of 2003)

- 1.87 billion in cash on hand- 1.87 billion in cash on hand

- fully available bank revolving credit of - fully available bank revolving credit of 575 million 575 million

- unmortgaged assets of over 5 billion- unmortgaged assets of over 5 billion

- debt to capital ratio of less than 40%- debt to capital ratio of less than 40%

(includes leases as debts)(includes leases as debts)

* From 2003 Annual Report* From 2003 Annual Report

Net Income increased 83.4% in 2003Net Income increased 83.4% in 2003Operating Revenue increased 415 million Operating Revenue increased 415 million

(7.5%) (7.5%) 400 million (7.5%) increase in 400 million (7.5%) increase in

passenger passenger revenuesrevenues5.6% increase in revenue passenger 5.6% increase in revenue passenger milesmiles4.2% increase in added capacity as 4.2% increase in added capacity as measured in available seat miles measured in available seat miles Addition of 13 aircrafts in 2003 Addition of 13 aircrafts in 2003

* From 2003 Annual Report* From 2003 Annual Report

Key Financial RatiosKey Financial Ratios

Valuation RatiosValuation Ratios

P/E RatioP/E Ratio

Price to SalesPrice to Sales

DividendsDividends

Dividend YieldDividend Yield

Payout RatioPayout Ratio

Growth Rates %Growth Rates %

Sales vs 1 Yr AgoSales vs 1 Yr Ago

EPS – 5 Yr GrowthEPS – 5 Yr Growth

Financial StrengthFinancial Strength

Quick RatioQuick Ratio

Total Debt to EquityTotal Debt to Equity

SouthwestSouthwest

24.7224.72

1.841.84

.14.14

3.183.18

7.527.52

-.26-.26

1.161.16

.30.30

IndustryIndustry

23.7123.71

1.241.24

.27.27

1.881.88

12.7912.79

-2.27-2.27

1.201.20

1.191.19

SectorSector

25.4125.41

1.621.62

1.381.38

23.0523.05

8.278.27

6.806.80

1.181.18

.59.59

S&P 500S&P 500

24.0124.01

3.333.33

2.042.04

26.7826.78

11.9011.90

12.1512.15

1.261.26

.85.85

Profitability Ratios Profitability Ratios %%

Gross MarginGross Margin

Net Profit MarginNet Profit Margin

Management Management Effectiveness %Effectiveness %

Return on AssetsReturn on Assets

Return on Return on InvestmentInvestment

Return on EquityReturn on Equity

SouthwestSouthwest

29.9729.97

7.467.46

4.694.69

5.635.63

9.419.41

IndustryIndustry

26.5226.52

5.275.27

4.714.71

6.516.51

11.6811.68

SectorSector

33.1533.15

6.776.77

6.666.66

8.598.59

14.5714.57

S&P 500S&P 500

47.3247.32

13.1213.12

6.406.40

9.979.97

18.7118.71

Stock InformationStock Information

LUV compared to Airline IndustryLUV compared to Airline Industry

Net Worth AnalysisNet Worth Analysis

Cash Value of Southwest Airlines at year-end Cash Value of Southwest Airlines at year-end 20032003

1.1. Equity + PIC + RE = $4930Equity + PIC + RE = $49302.2. Net Income x 5 = $2210Net Income x 5 = $22103.3. SP (14.5)/EPS(.66)xNI(398) = $8879SP (14.5)/EPS(.66)xNI(398) = $88794.4. # Shares Outstanding x SP = $11446# Shares Outstanding x SP = $11446

Method Average = $6886Method Average = $6886

Strengths / WeaknessesStrengths / WeaknessesStrengths –Strengths –

1. High capacity usage1. High capacity usage2. Named the best low cost airline leader for the last three 2. Named the best low cost airline leader for the last three

consecutive yearsconsecutive years3. Diversity in upper management3. Diversity in upper management4. Revenues increase by 8 percent to 5.94 billion in fiscal 4. Revenues increase by 8 percent to 5.94 billion in fiscal

year 2003year 20035. Net income increased 83 percent to $402 million in fiscal 5. Net income increased 83 percent to $402 million in fiscal

year 2003year 20036. Dominates the short haul segment of airline industry6. Dominates the short haul segment of airline industry7. Fourth largest domestic airline7. Fourth largest domestic airline8. In 2003 Southwest posted a profit for the 31st consecutive 8. In 2003 Southwest posted a profit for the 31st consecutive

yearyear

Weaknesses – Weaknesses – 1. No international flights1. No international flights

2. No segmented seating2. No segmented seating

3. Dependent on a single producer3. Dependent on a single producer

4. Lack of exposure towards online booking agencies4. Lack of exposure towards online booking agencies

5. Four out of five employees are members of the union5. Four out of five employees are members of the union

6. Carry a small amount of freight and cargo6. Carry a small amount of freight and cargo

7. Do not use chat communication such as e-mail7. Do not use chat communication such as e-mail

8. Do not offer morning flights8. Do not offer morning flights

Key Internal Factors Weight Rating WeightedScore

Strengths

1. High capacity usage 0.08 4 0.32

2. Named the best low cost airline leader for the last three consecutive years 0.10 4 0.40

3. Diversity in upper management 0.04 3 0.12

4. Revenues increase by 8 percent to 5.94 billion in fiscal year 2003 0.05 3 0.15

5. Net income increased 83 percent to $402 million in fiscal year 2003 0.08 4 0.32

6. Dominates the short haul segment of airline industry 0.10 4 0.40

7. Fourth largest domestic airline 0.03 3 0.09

8. In 2003 Southwest posted a profit for the 31st consecutive year 0.10 4 0.40

Weaknesses

1. No international flights 0.09 1 0.09

2. No segmented seating 0.03 2 0.06

3. Dependent on a single producer 0.05 2 0.10

4. Lack of exposure towards online booking agencies 0.05 2 0.10

5. Four out of five employees are members of the union 0.02 1 0.02

6. Carry a small amount of freight and cargo 0.02 2 0.04

7. Do not use chat communication such as e-mail 0.03 2 0.06

8. Do not offer morning flights 0.03 2 0.06

TOTAL 1.00 2.73

Opportunities1.National and international markets

2.Growth of older generation

3.Industrial research and development

4.Growth of Hispanic population

5. New technology opens the door for new products/services

6.Increased Internet advertising

7.Longer flights

8. Growth of business and leisure travel

External AuditExternal Audit

Threats

1.Decline of leisure travel due to economy and terrorism

2. Competing online ticket reservation systems.

3.New government regulations that make operations costlier.

4.Demand for air travel has dropped sharply since September 11th.

5.Gas and oil price fluctuations.

6.Terrorist attacks.

7.Increased restrictions to limit noise (including restrictions on types of aircraft used and limits on number of operations)

8. Annual airline security costs have increased.

Key External FactorsKey External Factors WeightWeight RatingRating Weighted ScoreWeighted Score

OpportunitiesOpportunities

1. National and international markets1. National and international markets 0.030.03 22 0.060.06

2. Growth of older generation2. Growth of older generation 0.050.05 22 0.100.10

3. Industrial research and development3. Industrial research and development 0.020.02 33 0.060.06

4. Growth of Hispanic population4. Growth of Hispanic population 0.050.05 33 0.150.15

5. New technology opens the door for new products/services5. New technology opens the door for new products/services 0.040.04 33 0.120.12

6. Increased Internet advertising6. Increased Internet advertising 0.060.06 33 0.180.18

7. Familiarity of Generation X with air travel and technology7. Familiarity of Generation X with air travel and technology 0.070.07 33 0.210.21

8. Growth of business travel8. Growth of business travel 0.060.06 33 0.180.18

ThreatsThreats

1. Decline of leisure travel due to economy and terrorism1. Decline of leisure travel due to economy and terrorism 0.100.10 33 0.300.30

2. Competing online ticket reservation systems2. Competing online ticket reservation systems 0.110.11 33 0.150.15

3. New government regulations that make operations costlier3. New government regulations that make operations costlier 0.030.03 44 0.120.12

4. Demand for air travel has dropped sharply since September 114. Demand for air travel has dropped sharply since September 11 0.100.10 22 0.320.32

5. Gas and oil price fluctuations5. Gas and oil price fluctuations 0.060.06 33 0.180.18

6. Terrorist attacks6. Terrorist attacks 0.150.15 33 0.450.45

7. Increased restrictions to limit noise (including restrictions on types of aircraft used and 7. Increased restrictions to limit noise (including restrictions on types of aircraft used and limits on a number of operations)limits on a number of operations)

0.030.03 22 0.060.06

8. Increasing annual airline security costs.8. Increasing annual airline security costs. 0.040.04 22 0.080.08

TOTALSTOTALS 1.001.00 3.043.04

EFE MatrixEFE Matrix

Southwest Southwest DeltaDelta American Airlines American Airlines

Critical Success Critical Success FactorsFactors

WeightWeight RatingRating Weighted Weighted ScoreScore

RatingRating Weighted ScoreWeighted Score RatingRating Weighted ScoreWeighted Score

AdvertisingAdvertisingProduct QualityProduct QualityPrice Price CompetitivenessCompetitivenessManagementManagementFinancial Financial PositionPositionCustomer Customer LoyaltyLoyaltyGlobal Global ExpansionExpansionMarket ShareMarket ShareReward Reward ProgramsProgramsSecuritySecurity

.15.15

.11.11

.14.14

.09.09

.14.14

.08.08

.06.06

.05.05

.05.05

.13.13

3333

44

44

44

33

11

2222

33

0.450.450.330.33

0.560.56

0.360.36

0.560.56

0.240.24

0.060.06

0.100.100.100.10

0.390.39

4444

22

33

22

33

44

3344

33

0.600.600.440.44

0.280.28

0.270.27

0.280.28

0.240.24

0.240.24

0.150.150.200.20

0.390.39

2244

22

33

11

22

33

3322

33

0.300.300.440.44

0.280.28

0.270.27

0.140.14

0.160.16

0.180.18

0.150.150.100.10

0.390.39

TotalTotal 1.001.00 3.153.15 3.523.52 2.412.41

Competitive Profile MatrixCompetitive Profile Matrix

Strengths Weaknesses 1. High capacity usage.

2. Named the Best Low Cost Airline leader for the last three consecutive years. 3. Diversity in upper management. 4. Revenues increased by 8% to 5.94 billion in fiscal year 2003. 5. Net Income increased 83% to $402million in fiscal year 2003. 6.Dominates the Short haul segment of Airline Industry. 7. Fourth largest domestic airline. 8. In 2003 Southwest posted a profit for the 31st consecutive years.

1.No international flights. 2.No segmented seating. 3.Dependent on a single producer. (Boeing) 4.Lack of exposure towards online booking agencies. 5.Four out five employees are members of the union. 6.Carry a small amount of freight and cargo. 7.Do not use chat communication such as e-mail. 8.Do not offer morning flights.

Opportunities S-O Strategies W-O Strategies 1.National and International Markets 2.Growth Of Older Generation 3.Industrial Research and Development 4.Growth of Hispanic Population In U.S.A. 5.New Technology Opens the Door for New Products/ Services 6.Increased Internet advertising 7.Longer flights 8.Growth of business and leisure travel

1. Expand into other countries or new cities. (S2, S6, S7, O1, O7)

1. Expand into Canada. 2. Expand into Mexico.

(W1, W2, W3, O1, O3, O6, O7)

Threats S-T Strategies W-T Strategies 1.Decline of leisure travel due to economy and terrorism 2.Competing online ticket reservation systems.

1. Increase advertising for southwest.com. (S8, T2)

SWOTSWOT

SPACE MatrixSPACE Matrix

Y axisY axis Financial strengthFinancial strength +5 +5 +1 worst to + 6 best+1 worst to + 6 best Y Y

axis: 5 + (-3) = 2axis: 5 + (-3) = 2 Environmental stabilityEnvironmental stability -3 -3 -1 best to –6 worst-1 best to –6 worst

X axisX axis Industry strengthIndustry strength 3 3 1 worst to 6 best 1 worst to 6 best

X axis: 3 + (-2) = 1X axis: 3 + (-2) = 1 Competitive advantageCompetitive advantage -2-2 -1 best to -6 worst-1 best to -6 worst

IE MatrixIE Matrix

SegmentSegment RevenueRevenue EFEEFE IFEIFE

Passenger $5.4 B 3.34 3.32 Passenger $5.4 B 3.34 3.32

FreightFreight $1.1 M 3.20 $1.1 M 3.20 3.80 3.80

Grow and Build

1.0 to 1.99

IXVIIIVIILow

Passenger2.0 to 2.99The EFE Total Weighted Score

VIVIVMedium

Freight

Southwest

3.0 to 3.99

IIIIIIHigh

1.0 to 1.992.0 to 2.993.0 to 4.0

WeakAverageStrong

4. Joint venture

3. Horizontal diversification

2. Conglomerate diversification

1. Concentric diversification

SLOW MARKET GROWTH

Quadrant IVQuadrant III

Southwest

POSITION

COMPETITIVEPOSITION

STRONGCOMPETITIVE

WEAK

Quadrant IQuadrant II

RAPID MARKET GROWTH

Grand Strategy MatrixGrand Strategy Matrix

Strategic Alternatives

Key Internal Factors Weight Expand Into Mexico Expand Into Canada

Strengths AS TAS AS TAS

1. High capacity usage 0.08 --- --- --- ---

2. Named the best low cost airline leader for the last three consecutive years 0.10 --- --- --- ---

3. Diversity in upper management 0.04 --- --- --- ---

4. Revenues increase by 8 percent to 5.94 billion in fiscal year 2003 0.05 --- --- --- ---

5. Net income increased 83 percent to $402 million in fiscal year 2003 0.08 2.00 0.16 4.00 0.32

6. Dominates the short haul segment of airline industry 0.10 3.00 0.30 2.00 0.20

7. Fourth largest domestic airline --- --- --- --- ---

8. In 2003 Southwest posted a profit for the 31st consecutive year 0.10 --- --- --- ---

Weaknesses

1. No international flights 0.09 --- --- --- ---

2. No segmented seating 0.03 1.00 0.03 2.00 0.06

3. Dependent on a single producer 0.05 --- --- --- ---

4. Lack of exposure towards online booking agencies 0.05 2.00 0.10 1.00 0.05

5. Four out of five employees are members of the union 0.02 --- --- --- ---

6.Carry a small amount of freight and cargo 0.02 --- --- --- ---

7.Do not use chat communication such as e-mail 0.03 2.00 0.06 1.00 0.03

8.Do not offer morning flights 0.03 --- --- --- ---

Total 0.65 0.65

Key External Factors Weight

Expand Domestic Routes Expand Freight Loads

Opportunities AS TAS AS TAS

1. National and international markets 0.03 2.00 0.06 4.00 0.12

2. Growth of older generation 0.05 --- --- --- ---

3. Industrial research and development 0.02 2.00 0.04 3.00 0.06

4. Growth of Hispanic population 0.05 3.00 0.15 1.00 0.05

5. New technology opens the door for new products/services 0.04 2.00 0.08 3.00 0.12

6. Increased Internet advertising 0.06 2.00 0.12 3.00 0.18

7. Familiarity of Generation X with air travel and technology --- --- --- --- ---

8. Growth of business travel 0.06 --- --- --- ---

Threats

1. Decline of leisure travel due to economy and terrorism 0.10 --- --- --- ---

2. Competing online ticket reservation systems 0.11 4.00 0.12 3.00 0.09

3. New government regulations that make operations costlier 0.03 --- --- --- ---

4. Demand for air travel has dropped sharply since September 11 0.10 --- --- --- ---

5. Gas and oil price fluctuations 0.06 --- --- --- ---

6. Terrorist attacks 0.15

7. Increased restrictions to limit noise (including restrictions on types of aircraft used and limits on a number of operations)

0.03 --- --- --- ---

8. Increasing annual airline security costs. 0.04 3.00 0.12 2.00 0.08

SUBTOTAL 0.69 0.70

SUM TOTAL ATTRACTIVENESS SCORE 1.34 1.35

Matrix Analysis and SWOT Matrix Analysis and SWOT summarysummary

Alternative StrategiesAlternative Strategies IEIE SPACESPACE GRAND GRAND COUNTCOUNT Forward IntegrationForward Integration X X X X 2 2 Backward IntegrationBackward Integration X X X X 2 2 Horizontal IntegrationHorizontal Integration XX X X 2 2 Market PenetrationMarket Penetration X X X X 2 2 Market DevelopmentMarket Development X X X X 2 2 Product DevelopmentProduct Development XX X X 2 2 Concentric DiversificationConcentric Diversification X X X X 2 2 Conglomerate DiversificationConglomerate Diversification X X X X 2 2 Horizontal DiversificationHorizontal Diversification X X X X 2 2 Joint VentureJoint Venture X 1 X 1 Retrenchment Retrenchment DivestitureDivestiture LiquidationLiquidation

Strategic plans for the futureStrategic plans for the future

Southwest Airlines should expand into Southwest Airlines should expand into Mexico.Mexico.

Expand into CanadaExpand into Canada

Expand domesticallyExpand domestically

EPS/EBIT AnalysisEPS/EBIT Analysis

Amount NeededAmount Needed $1,000M$1,000M

InterestInterest 5% 5%

Tax RateTax Rate 38% 38%

Share PriceShare Price $7.20 $7.20

Shares OutstandingShares Outstanding 770M 770M

EPS/EBIT AnalysisEPS/EBIT AnalysisRecession Normal Boom Recession Normal Boom

EBIT 300,000,000 500,000,000 800,000,000 300,000,000 500,000,000 800,000,000Interest 0 0 0 50,000,000 50,000,000 50,000,000EBT 300,000,000 500,000,000 800,000,000 250,000,000 450,000,000 750,000,000Taxes 114,000,000 190,000,000 304,000,000 95,000,000 171,000,000 285,000,000EAT 186,000,000 310,000,000 496,000,000 155,000,000 279,000,000 465,000,000# Shares 838,965,517 838,965,517 838,965,517 770,000,000 770,000,000 770,000,000EPS 0.22 0.37 0.59 0.20 0.36 0.60

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom

EBIT 300,000,000 500,000,000 800,000,000 300,000,000 500,000,000 800,000,000Interest 15,000,000 15,000,000 15,000,000 35,000,000 35,000,000 35,000,000EBT 285,000,000 485,000,000 785,000,000 265,000,000 465,000,000 765,000,000Taxes 108,300,000 184,300,000 298,300,000 100,700,000 176,700,000 290,700,000EAT 176,700,000 300,700,000 486,700,000 164,300,000 288,300,000 474,300,000# Shares 818,275,862 818,275,862 818,275,862 790,689,655 790,689,655 790,689,655EPS 0.22 0.37 0.59 0.21 0.36 0.60

70 Percent Debt - 30 Percent Stock70 Percent Stock - 30 Percent Debt

ImplementationImplementation

ObjectivesObjectives5 Year Plan5 Year Plan

Increase domestic routes to Increase domestic routes to include 80% of the continental United Statesinclude 80% of the continental United States

Increase operating revenue by Increase operating revenue by addition of more aircraftsaddition of more aircrafts

10 Year Plan10 Year Plan11stst in industry for short-haul flights in industry for short-haul flights

2004 Financial Condition2004 Financial Condition

Operating Revenue $6.53 billionOperating Revenue $6.53 billion

Net Income $313 millionNet Income $313 million

EPS $.40 EPS $.40

Total Debt $1.7 billionTotal Debt $1.7 billion

Southwest in the NewsSouthwest in the News

03/09/05

05/10/04

Hungry? Southwest Airlines Takes Care of Its Customers With Free Inflight Snack and Beverage Service

Southwest Airlines Flies Into Philly With a 'Ding06/19/03 Southwest Airlines Pilot Honored as an American Hero