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ADNAN BRKIC KAREN GUAN BHUPINDER KAUR CANDICE ZHOU. GLOBAL AIRLINES. AGENDA. INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES. AIRLINE INDUSTRY OVERVIEW.

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Global airlines

ADNAN BRKIC

KAREN GUAN

BHUPINDER KAUR

CANDICE ZHOU

GLOBAL AIRLINES


Agenda
AGENDA

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Airline industry overview
AIRLINE INDUSTRY OVERVIEW

THE INTERNATIONAL AIRLINE INDUSTRY PROVIDES SERVICE FOR BOTH PASSAGENERS AND GOODS TO EVERY CORNER OF THE WORLD.IT IS A MAJOR ECONOMIC FORCE INFLUENCES BOTH THE RELATED INDUSTRIES SUCH AS TOURISM, AIRCRAFT MANUFACTURE AND INDIVIDUALS WHO TRAVEL BY AIR.

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Airline categories
AIRLINE CATEGORIES

INTERNATIONAL

NATIONAL

REGIONAL

CARGO

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Airline alliances
AIRLINE ALLIANCES

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cost structure
COST STRUCTURE

  • FUEL COST

    • 15-35% OF TOTAL COSTS

  • LABOUR

    • 40% OF TOTAL COSTS

  • DEPRECIATION & AMMORTIZATION

  • MAINTENANCE

  • FOOD/BEVERAGES/SUPPLIES

  • COMMUNICATIONS AND INFORMATION TECH

  • AIRCRAFT FINANCING

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Other factors influencing costs
OTHER FACTORS INFLUENCING COSTS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Industry profitability
INDUSTRY PROFITABILITY

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Factors decrease airline fares and revenues
FACTORS DECREASE AIRLINE FARES AND REVENUES

COMPETITIVE PRESSURE FROM LOW-COST CARRIERS

THE LOSS OF CONSUMER CONFIDENCE IN THE AIR TRANSPORTATION SYSTEM’S RELIABILITY AND OPERATING PERFORMANCE,

THE TRANSPARENCY OF PRICING FACILITATED BY THE INTERNET AND ONLINE TRAVEL DISTRIBUTION CHANNELS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Load factor
LOAD FACTOR

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Passenger and cargo statistics
PASSENGER AND CARGO STATISTICS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Major risks
MAJOR RISKS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Operational risks
OPERATIONAL RISKS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

OPERATIONAL RISKS ARISE FROM THE MORE TACTICAL ASPECTS OF RUNNING THE BUSINESS DAY-TO-DAY

  • ORGANIZATIONAL SOLUTIONS

    • REDESIGN THE PROCESS

    • ORGANIZATION STRUCTURAL CHANGES

    • IMPROVED COMMUNICATION

    • PERFORMANCE MEASUREMENT

    • REWARD SYSTEMS

    • CAPITAL ALLOCATION


Strategic risks
STRATEGIC RISKS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

STRATEGIC RISKS ARE DEFINED BY BUSINESS DESIGN CHOICES AND HOW THESE INTERACT WITH VARIOUS EXTERNAL FACTORS. EG:

SHIFTS INCUSTOMER TASTES

INDUSTRY CONSOLIDATION

  • SOLUTIONS

  • THROUGH THE SELECTION OF THE BUSINESS DESIGN ITSELF.

  • TRADITIONA RESPONSES

    • CREATING A CULTURE FOCUSED ON CUSTOMER

    • DEVELOPING A RIGOROUS STRATEGIC PLANNING PROCESS

    • MAINTAINING AN INDEPENDENT BOARD OF DIRECTORS


Southwest airlines
SOUTHWEST AIRLINES

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Company overview
COMPANY OVERVIEW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Southwest airlines1
SOUTHWEST AIRLINES

“THE MISSION OF SOUTHWEST AIRLINES IS DEDICATION TO THE HIGHEST QUALITY OF CUSTOMER SERVICE DELIVERED WITH A SENSE OF WARMTH, FRIENDINESS, INDIVIDUAL PRIDE, AND COMPANY SPIRIT.”

MISSION STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Financials
FINANCIALS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Income statement
INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly income statement
QUARTERLY INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly income statement1
QUARTERLY INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly income statement2
QUARTERLY INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Balance sheet
BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Balance sheet1
BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet1
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet2
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet3
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet4
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly cash flow
QUARTERLY CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow
CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly cash flow1
QUARTERLY CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly cash flow2
QUARTERLY CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly cash flow3
QUARTERLY CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


General risk factors
GENERAL RISK FACTORS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Risk management policy
RISK MANAGEMENT POLICY

  • FIRM USES DERIVATIVE INSTRUMENTS TO MITIGATE THE RISK OF JET FUEL PRICE INCREASES

  • TO REDUCE VOLATILITY IN OPERATING EXPENSES FIRM USES A FUEL HEDGING PROGRAM

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Hedging governance structure
HEDGING GOVERNANCE STRUCTURE

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Risk management committee
RISK MANAGEMENT COMMITTEE

  • AUDIT COMMITTEE CHARTER DEALS WITH RISK MANAGEMENT

  • DISCUSSES THE FIRM’S MAJOR FINANCIAL RISK EXPOSURES

  • EVALUATES THE FIRM’S RISK ASSESSMENT AND RISK MANAGEMENT POLICIES

  • ANALYSES THE MANAGEMENT’S INITIATIVE TO MONITOR, CONTROL, OR MITIGATE SUCH EXPOSURES

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Types of risks
TYPES OF RISKS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Jet fuel expense
JET FUEL EXPENSE

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Jet fuel expense1
JET FUEL EXPENSE

FOR THE SEVEN CONSECUTIVE YEARS, FUEL AND OIL EXPENSE REPRESENTED THE COMPANY’S LARGEST OR SECOND LARGEST COST.

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Fuel price risk
FUEL PRICE RISK

  • HIGH DEPENDENCY ON FUEL

  • UNPREDICTABLE AND UNCONTROLLABLE PRICE MOVEMENTS

  • LIMITED ABILITY TO PASS ON HIGHER FUEL COST TO CUSTOMERS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Fuel hedging
FUEL HEDGING

  • NOT WIDELY TRADED ON FUTURES EXCHANGES

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Fuel hedging1
FUEL HEDGING

  • NOT WIDELY TRADED ON FUTURES EXCHANGES

  • SOUTHWEST USES CROSS-HEDGES IN THE OTC MARKET ON THE FOLLOWING:

    • CRUDE OIL

    • HEATING OIL

    • UNLEADED GASOLINE

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Derivatives used
DERIVATIVES USED

  • CALL OPTIONS

  • COLLARS (BUY CALL OPTION, WRITE PUT OPTION)

  • CALL SPREADS (BUY CALL OPTION AND WRITE CALL OPTION)

  • SWAP AGREEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Fuel hedging policy
FUEL HEDGING POLICY

  • WHEN SOUTHWEST PERCEIVES THAT PRICES ARE LOWER THAN HISTORICAL OR EXPECTED FUTURE LEVELS, THEY PREFER TO USE FIXED PRICE SWAP AGREEMENTS AND PURCHASED CALL OPTIONS.

  • HOWEVER, AT TIMES WHEN THEY PERCEIVE THAT PURCHASED CALL OPTIONS HAVE BECOME TOO EXPENSIVE, THEY CHOOSE TO USE MORE COLLAR STRUCTURES AND CALL SPREADS.

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Derivatives
DERIVATIVES

SOUTHWEST FUEL DERIVATIVE CONTRACTS AS OF OCTOBER 17, 2011

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Derivatives1
DERIVATIVES

SOUTHWEST FUEL DERIVATIVE CONTRACTS AS OF OCTOBER 17, 2011

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Derivatives2
DERIVATIVES

THE LOCATION OF ALL ASSETS AND LIABILITIES ASSOCIATED WITH THE COMPANY’S HEDGING INSTRUMENTS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Interest rate hedging
INTEREST RATE HEDGING

THE FLOATING RATES RECOGNIZED DURING 2010, BASED ON ACTUAL AND FORWARD RATES AT DECEMBER 31, 2010, UNDER THE COMPANY’S FIXED-TO-FLOATING INTEREST RATE AGREEMENTS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Interest rate hedging1
INTEREST RATE HEDGING

INTEREST RATE HEDGES FIXED THE FOLLOWING FLOATING-RATE TERM LOANS:

  • $600 MILLION FLOATING-RATE LOAN AT 5.223% UNTIL MATURITY

  • $332 MILLION FLOATING-RATE LOAN AT 6.64% UNTIL MATURITY

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Singapore airlines
SINGAPORE AIRLINES

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Singapore airlines1
SINGAPORE AIRLINES

“SINGAPORE AIRLINES IS A GLOBAL COMPANY DEDICATED TO PROVIDING AIR TRANSPORTATION SERVICES OF THE HIGHEST QUALITY AND TO MAXIMIZING RETURNS FOR THE BENEFIT OF ITS SHAREHOLDERS AND EMPLOYEES”

MISSION STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Company overview1
COMPANY OVERVIEW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Company overview2
COMPANY OVERVIEW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Company overview3
COMPANY OVERVIEW

TOTAL 7 DIRECTORS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Financials1
FINANCIALS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Income statement1
INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Income statement2
INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly income statement3
QUARTERLY INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly income statement4
QUARTERLY INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Income statement3
INCOME STATEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Balance sheet2
BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Balance sheet3
BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet5
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet6
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly balance sheet7
QUARTERLY BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Balance sheet4
BALANCE SHEET

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow1
CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow2
CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow3
CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow4
CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly cash flow4
QUARTERLY CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Quarterly cash flow5
QUARTERLY CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow5
CASH FLOW

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Cash flow segmental forecasts and assumptions
CASH FLOW SEGMENTAL FORECASTS AND ASSUMPTIONS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Risk management
RISK MANAGEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Risk management1
RISK MANAGEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Risk management2
RISK MANAGEMENT

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Derivatives3
DERIVATIVES

  • FORWARD CURRENCY CONTRACTS

  • FOREIGN CURRENCY OPTIONS

  • CROSS CURRENCY SWAPS

  • INTEREST RATE SWAPS

  • INTEREST RATE CAP CONTRACTS

  • JET FUEL EQUIVELANTS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Derivatives4
DERIVATIVES

HEDGE 15 MONTHS FORWARD

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Fuel hedging2
FUEL HEDGING

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Fuel hedging3
FUEL HEDGING

SENSITIVITY ANALYSIS

HEDGING LOSS

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Currency hedging
CURRENCY HEDGING

  • FINANCIAL YEAR ENDED MARCH 2011:

    • FOREIGN CURRENCY ACCOUNTED FOR 63.5% OF TOTAL REVENUE

    • FOREIGN CURRENCY ACCOUNTED FOR 64.0% OF TOTAL OPERATING EXPENSES

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES


Interest rate hedging2
INTEREST RATE HEDGING

INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES



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