ADNAN BRKIC KAREN GUAN BHUPINDER KAUR CANDICE ZHOU AGENDA INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES AIRLINE INDUSTRY OVERVIEW THE INTERNATIONAL AIRLINE INDUSTRY PROVIDES SERVICE FOR BOTH PASSAGENERS AND GOODS TO EVERY CORNER OF THE WORLDIT IS A MAJOR ECONOMIC ID: 162280
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GLOBAL AIRLINES
ADNAN BRKIC
KAREN GUAN
BHUPINDER KAUR
CANDICE ZHOUSlide2
AGENDA
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide3
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 AIRLINESSlide4
AIRLINE CATEGORIES
INTERNATIONALNATIONAL
REGIONAL
CARGO
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide5
AIRLINE
ALLIANCES
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide6
COST STRUCTURE
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINES
FUEL COST
15-35% OF TOTAL COSTS
LABOUR
40% OF TOTAL COSTS
DEPRECIATION & AMMORTIZATION
MAINTENANCE
FOOD/BEVERAGES/SUPPLIES
COMMUNICATIONS AND INFORMATION TECH
AIRCRAFT FINANCINGSlide7
OTHER FACTORS INFLUENCING COSTS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide8
INDUSTRY PROFITABILITY
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide9
FACTORS DECREASE AIRLINE FARES AND REVENUES
COMPETITIVE PRESSURE FROM LOW-COST CARRIERSTHE 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
AIRLINESSlide10
LOAD FACTOR
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide11
PASSENGER AND CARGO STATISTICS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide12
MAJOR RISKS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide13
OPERATIONAL RISKS
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
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE
AIRLINESSlide14
STRATEGIC RISKS
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
INDUSTRY OVERVIEW
SOUTHWEST
AIRLINES SINGAPORE
AIRLINESSlide15
SOUTHWEST AIRLINES
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide16
COMPANY OVERVIEW
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide17
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 AIRLINESSlide18
FINANCIALS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide19
INCOME STATEMENT
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide20
QUARTERLY INCOME
STATEMENT
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide21
QUARTERLY INCOME
STATEMENT
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide22
QUARTERLY INCOME
STATEMENT
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide23
BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide24
BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide25
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide26
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide27
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide28
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide29
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide30
QUARTERLY CASH FLOW
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide31
CASH FLOW
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide32
QUARTERLY CASH FLOW
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide33
QUARTERLY CASH FLOW
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide34
QUARTERLY CASH FLOW
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide35
GENERAL RISK FACTORS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide36
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 AIRLINESSlide37
HEDGING GOVERNANCE STRUCTURE
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide38
RISK
MANAGEMENT COMMITTEEAUDIT 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 AIRLINESSlide39
TYPES OF RISKS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide40
JET FUEL EXPENSE
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide41
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 AIRLINESSlide42
HIGH DEPENDENCY ON FUEL
UNPREDICTABLE AND UNCONTROLLABLE PRICE MOVEMENTSLIMITED ABILITY TO PASS ON HIGHER FUEL COST TO CUSTOMERS
FUEL PRICE RISK
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide43
FUEL HEDGING
NOT WIDELY TRADED ON FUTURES EXCHANGES
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide44
FUEL HEDGING
NOT WIDELY TRADED ON FUTURES EXCHANGESSOUTHWEST USES CROSS-HEDGES IN THE OTC MARKET ON THE FOLLOWING:
CRUDE OIL
HEATING OIL
UNLEADED GASOLINE
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide45
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 AIRLINESSlide46
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 AIRLINESSlide47
DERIVATIVES
SOUTHWEST FUEL DERIVATIVE CONTRACTS AS OF OCTOBER 17, 2011
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide48
DERIVATIVES
SOUTHWEST FUEL DERIVATIVE CONTRACTS AS OF OCTOBER 17, 2011
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide49
DERIVATIVES
THE LOCATION OF ALL ASSETS AND LIABILITIES ASSOCIATED WITH THE COMPANY’S HEDGING INSTRUMENTS
INDUSTRY OVERVIEW
SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide50
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 AIRLINESSlide51
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 AIRLINESSlide52
SINGAPORE AIRLINES
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide53
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 AIRLINESSlide54
COMPANY OVERVIEW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide55
COMPANY OVERVIEW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide56
COMPANY OVERVIEW
TOTAL 7 DIRECTORS
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide57
FINANCIALS
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide58
INCOME STATEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide59
INCOME STATEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide60
QUARTERLY INCOME
STATEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide61
QUARTERLY INCOME STATEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide62
INCOME STATEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide63
BALANCE SHEET
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide64
BALANCE SHEET
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide65
QUARTERLY BALANCE
SHEET
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide66
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide67
QUARTERLY BALANCE SHEET
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide68
BALANCE SHEET
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide69
CASH FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide70
CASH FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide71
CASH FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide72
CASH FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide73
QUARTERLY CASH
FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide74
QUARTERLY
CASH FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide75
CASH FLOW
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide76
CASH
FLOW SEGMENTAL FORECASTS AND ASSUMPTIONS
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide77
RISK MANAGEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide78
RISK MANAGEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide79
RISK MANAGEMENT
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide80
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 AIRLINESSlide81
DERIVATIVES
HEDGE 15 MONTHS FORWARD
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide82
FUEL HEDGING
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide83
FUEL HEDGING
SENSITIVITY ANALYSIS
HEDGING LOSS
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide84
CURRENCY HEDGING
FINANCIAL YEAR ENDED MARCH 2011:FOREIGN CURRENCY ACCOUNTED FOR 63.5% OF TOTAL REVENUEFOREIGN CURRENCY ACCOUNTED FOR 64.0% OF TOTAL OPERATING EXPENSES
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide85
INTEREST RATE HEDGING
INDUSTRY OVERVIEW SOUTHWEST AIRLINES
SINGAPORE AIRLINESSlide86
THANK YOU