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McIntire Investment Institute At the University of Virginia

McIntire Investment Institute At the University of Virginia. Southwest Airlines (NYSE:LUV) - Long. Mark Fang and Jonathan Wulkan| 9/5/12. LUV is a low cost airline. Founded in 1967. Headquartered in Dallas, TX. 39 Straight years of profitability. Extreme focus on low operating costs. 4.

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McIntire Investment Institute At the University of Virginia

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  1. McIntire Investment Institute At the University of Virginia Southwest Airlines (NYSE:LUV) - Long Mark Fang and Jonathan Wulkan| 9/5/12

  2. LUV is a low cost airline • Founded in 1967 • Headquartered in Dallas, TX • 39 Straight years of profitability • Extreme focus on low operating costs 4

  3. Stock Summary

  4. LUV is a compelling long • Good Market Position • Positive Brand Image • Unique Business Model • Strong Financials

  5. LUV has a strong market position

  6. What is important in the airline industry? • Revenue Passenger Miles • Total Passengers Carried • Available Seats • Fleet Size

  7. Revenue Passenger Miles

  8. Revenue Passenger Miles 78.09%

  9. Revenue Passenger Miles http://www.airlinefinancials.com/airline_data_comparisons.html

  10. Total Pax Carried

  11. Fleet Size

  12. Fleet Size

  13. Available Seats

  14. LUV • Dedication to the highest quality of Customer Service delivered with a sense of warms, friendliness, individual pride and Company Spirit.

  15. Cheap and Reliable

  16. LUV

  17. VAR • Visited Chicago O’Hare (United/American Hub) and Midway (Southwest Hub) • Asked customers of all three airlines: • How satisfied are you with the airline you are travelling on? • How likely are you to switch from that airline to another?

  18. VAR Results

  19. VAR Results

  20. Unique Business Model • Southwest is a low-cost carrier, so how does it keep its prices lower than the competition while maintaining greater profitability?

  21. One Aircraft Fleet

  22. Fuel Hedging

  23. RNP and Route Models

  24. Strong Financial Position

  25. Valuation

  26. Valuation

  27. Southwest 5yr Organic Revenue Growth

  28. Valuation Relative Valuation: (EV/EBITDAR)/5yr Rev Growth

  29. Catalyst-How It Plays Out • Fuel prices continue rising, placing a squeeze on all airlines’ operating profits • LUV’s margins take a hit, but LUV maintains profitability • Other airlines forced to raise prices • Passengers defect to LUV

  30. Recommendation • Initiate Long Position Immediately @ 3.5%

  31. Questions?

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