M c I n t i r e I n v e s t m e n t I n s t i t u t e 1 M C I NTIRE I NVESTMENT I NSTITUTE A T THE U NIVERSITY OF V IRGINIA Mark Fang and Jonathan Wulkan| 9/5/12 Southwest Airlines (NYSE:LUV) - Long

M c I n t i r e I n v e s t m e n t I n s t i t u t e 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 2

M c I n t i r e I n v e s t m e n t I n s t i t u t e 3 Share Price: Week Range: Market Capitalization: 6.72bnAverage Volume (3 Month): 9.3m P/E: 20.83Current Assets: 4.7b EPS: 0.43Total Liabilities: 11.7b EV: 6.66bEBITDAR: 950m S TOCK S UMMARY

M c I n t i r e I n v e s t m e n t I n s t i t u t e LUV IS A COMPELLING LONG Good Market Position Positive Brand Image Unique Business Model Strong Financials 4

M c I n t i r e I n v e s t m e n t I n s t i t u t e LUV HAS A STRONG MARKET POSITION 5

M c I n t i r e I n v e s t m e n t I n s t i t u t e W HAT IS IMPORTANT IN THE AIRLINE INDUSTRY ? Revenue Passenger Miles Total Passengers Carried Available Seats Fleet Size 6

M c I n t i r e I n v e s t m e n t I n s t i t u t e 7 R EVENUE P ASSENGER M ILES

M c I n t i r e I n v e s t m e n t I n s t i t u t e 8 R EVENUE P ASSENGER M ILES 78.09%

M c I n t i r e I n v e s t m e n t I n s t i t u t e 9 R EVENUE P ASSENGER M ILES

M c I n t i r e I n v e s t m e n t I n s t i t u t e 10 T OTAL P AX C ARRIED

M c I n t i r e I n v e s t m e n t I n s t i t u t e 11 F LEET S IZE

M c I n t i r e I n v e s t m e n t I n s t i t u t e 12 F LEET S IZE

M c I n t i r e I n v e s t m e n t I n s t i t u t e 13 A VAILABLE S EATS

M c I n t i r e I n v e s t m e n t I n s t i t u t e 14 Dedication to the highest quality of Customer Service delivered with a sense of warms, friendliness, individual pride and Company Spirit. LUV

M c I n t i r e I n v e s t m e n t I n s t i t u t e 15 C HEAP AND R ELIABLE

M c I n t i r e I n v e s t m e n t I n s t i t u t e 16 LUV

M c I n t i r e I n v e s t m e n t I n s t i t u t e 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? 17

M c I n t i r e I n v e s t m e n t I n s t i t u t e VAR R ESULTS 18

M c I n t i r e I n v e s t m e n t I n s t i t u t e VAR R ESULTS 19

M c I n t i r e I n v e s t m e n t I n s t i t u t e U NIQUE B USINESS M ODEL 20 Southwest is a low-cost carrier, so how does it keep its prices lower than the competition while maintaining greater profitability? One Aircraft Fleet Fuel Hedging RNP and P2P Customized Service Secondary Airports Lower Op Cost Route Optimization 70% of fuel needs Lowest average fuel prices Shorter Routes More Destinations Maximizes customer value Shortens aircraft turnover time MDW DAL BWI

M c I n t i r e I n v e s t m e n t I n s t i t u t e 21 O NE A IRCRAFT F LEET

M c I n t i r e I n v e s t m e n t I n s t i t u t e 22 F UEL H EDGING

M c I n t i r e I n v e s t m e n t I n s t i t u t e 23 RNP AND R OUTE M ODELS

M c I n t i r e I n v e s t m e n t I n s t i t u t e S TRONG F INANCIAL P OSITION 24

M c I n t i r e I n v e s t m e n t I n s t i t u t e 25 V ALUATION UnitedDeltaSouthwestUS AirwaysJetBlueAverage P/E Trailing Ratio P/E Forward Ratio Debt/Equity22.666N/A Ratio EV Billion EV/EBITDAR Ratio Market/Book Ratio OPM5.785%1.377%9.940%10.759%10.180%7.608%Percentage Acid Test Ratio Ratio Liabilities Billion Owner's Equity Billion Current Assets Billion Inventory Billion Current Liabilities Billion Market Cap Billion Organic Rev Growth Percentage

M c I n t i r e I n v e s t m e n t I n s t i t u t e 26 V ALUATION UnitedDeltaSouthwestUS AirwaysJetBlueAverage P/E Trailing Ratio P/E Forward Ratio Debt/Equity22.666N/A Ratio EV Billion EV/EBITDAR Ratio Market/Book Ratio OPM5.785%1.377%9.940%10.759%10.180%7.608%Percentage Acid Test Ratio Ratio Liabilities Billion Owner's Equity Billion Current Assets Billion Inventory Billion Current Liabilities Billion Market Cap Billion Organic Rev Growth Percentage

M c I n t i r e I n v e s t m e n t I n s t i t u t e S OUTHWEST 5 YR O RGANIC R EVENUE G ROWTH 27

M c I n t i r e I n v e s t m e n t I n s t i t u t e V ALUATION 28 Relative Valuation: (EV/EBITDAR)/5yr Rev Growth

M c I n t i r e I n v e s t m e n t I n s t i t u t e C ATALYST -H OW I T P LAYS O UT 29 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

M c I n t i r e I n v e s t m e n t I n s t i t u t e R ECOMMENDATION 30 Initiate Long Position 3.5%

M c I n t i r e I n v e s t m e n t I n s t i t u t e Q UESTIONS ? 31