Southwest Airlines. Key Statistics. Trading Statistics. Margins and Ratios. Investment Thesis. April 3 rd, 2015 IME. 52 Week Price Range

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1 April 3 rd, 2015 Southwest Airlines IME Ticker: LUV Current Price: $44.30 Recommendation: Buy Price Target: $52.12 Key Statistics 52 Week Price Range 50-Day Moving Aver Estimated Beta Dividend Yield Market Capitalization 3-Year Revenue CAGR Trading Statistics Diluted Shares Outstanding $ $47.17 $ % 31.84B 6.50% 676mm Investment Thesis Southwest s low cost business models offers attractive fare prices to consumers with little to no additional fees allowing the company to capture market share in the domestic airline industry as customers seek lower prices. Increased corporate profit and consumer spending will drive demand for domestic air travel in the future giving Southwest the ability to capture more market share and increase passenger revenues. The recent repeal of the Wright Amendment allows southwest to increase capacity and expand current routes. Southwest s low cost business model and large size attracts consumers by providing non-stop flights through its point to point service compared to legacy providers that typically operate a hub and spoke model. This will also help Southwest to further capture market share in the growing US airline industry. Average Volume (3-Month) 7.67mm Institutional Ownership 83% $60.00 Five-Year Stock Chart 400,000,000 Insider Ownership 0% EV/EBITDA 6.7X Margins and Ratios Gross Margin 18.92% EBITDA Margin 23.95% Net Margin 11.17% Debt to Enterprise Value.08X Covering Analysts: Becca Katzen Bkatzen@uoreogn.edu $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Mar-10 Sep-10 Mar-11 Sep ,000, ,000, ,000, ,000, ,000, ,000,000 50,000,000 0 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Volume Adj Close 50-Day Avg 200-Day Avg 1 University of Oregon Investment Group

2 Figure 1: Revenue Breakdown 1% 4% 95% Passenger Services Freight Ancillary Revenue Source: LUV Financials Figure 2: Passenger Revenue Growth Source: LUV Financials Figure 3: Picture of Plane Business Overview Founded by Rollin King and Herb Kelleher, Air Southwest Company was created in 1967 to fly within the state of Texas. On March 29 th, 1971 Air Southwest Co. changed its name to Southwest Airlines Company with headquarters located in Dallas Texas. Today, Southwest Airlines serves over 94 destinations across the United States making it a major player in the domestic airline industry. Southwest ended the 2014 year by servicing 93 destinations within 40 states, Washington DC, Puerto Rico, and the five near international countries of; Mexico, Jamaica, The Bahamas, Aruba, and the Dominican Republic. At the end of 2014 Southwest operated a total of 665 Boeing 737 after phasing out older AirTran models. AirTran Acquisition In 2011 Southwest bought AirTran for $1.4 billion. On December 28 th, 2014 AirTran flew its final passenger service. AirTran international service was converted to Southwest on July 1, All AirTran employees were effectively converted to Southwest employees as of December 31, In 2014 Southwest completed the removal of all 66 AirTran Boeing s from service enabling an all Boeing 737 fleet. December 28 th, 2014 marked the end of the AirTran brand. Overall the AirTran acquisition resulted in net pre-tax synergies of approximately $500 million for Revenue for Southwest airlines is broken down by passenger revenues, freight revenues, and other revenue. Passenger Revenue 95% Passenger revenue makes up the majority of Southwest s sales at 95% of total revenue. Southwest s solid point to point system offers the most daily departures in the world serving more than 3,400 flights a day. LUV has a presence in 79 of the top 100 domestic airports within the US. Southwest operates the largest fleet of Boeing aircraft in the world, carrying more than 100 million customers annually. In order to maintain a high net income, Southwest implements efforts to modernize its fleet, contain costs, and increase the use of its rapid rewards program. Freight Revenue 1% Southwest Airlines offers an Air Cargo shipment service to consumers. Customers can track their package through the Cargo Companion app which shows both the location and temperature of packages. Southwest allows consumers to ship anything from seafood, animals, flowers, or human remains in a fast and efficient manner. Other Revenue 4% Other Revenue is made of Ancillary Revenues that do not come from the direct purchase of airfare. Southwest receives ancillary revenue from EarlyBird Check- In, Pets Are Welcome on Southwest (P.A.W.S.) products, Wi-Fi Services, and in-flight movie purchases. Source: Southwest.com Southwest s P.A.W.S. offering allows Customers to bring a small cat or dog into the aircraft cabin for a $95 one-way fare. Southwest also charges $50 for those who want extra care when traveling an unaccompanied minor. Customers who UOIG 2

3 Figure 4: US Airline Industry Revenue (in Millions) 160, , , , , , ,000 purchase EarlyBird Check-In for an additional $12.50 each way can check-in before the general public. In addition, Southwest holds priority-boarding positions A1-A15 which passengers can purchase for $40. During 2014, AirTran charged fees for checked baggage, carriage of pets, liquor sales, advance seat assignments, call center services, priority seat selection, and special services such as the transportation of unaccompanied minors, and extension or transfer of A+ Miles Rewards. Since the completion of the integration of AirTran services, other revenues have declined due to the decrease is checked bag fees. 90,000 80, Source: IBIS World Figure 5: Industry Revenue Breakdown 3% 4% 5% 10% 78% Industry Overview The demand for domestic air travel has increased dramatically since the recession due to an increase in consumer and business spending. After the recession low profit margins and price competition forced some airlines out of business and led others to merge. This lead to lower industry concentration as high profile companies merged with each other. The top four domestic airline companies, American, Delta, Southwest, and United, held approximately 66.5% market share in 2014, Southwest being the only low-cost carrier among them. Airlines can differentiate themselves from competitors in a number of ways. Legacy carriers, like United and American, typically utilize a hub and spoke model. The hub and spoke model concentrates most of an airline s operations within a few central hub cities and serves destinations by connecting a flight through the hub. While the hub and spoke model may benefit the airline company the most it is not as attractive to consumers who would prefer non-stop flights. In addition, Legacy carriers often have higher fares then low-cost carriers however they offer more amenities to consumers. Low-cost carriers typically charge lower fare costs than big legacy carriers, but they make up this cost through high ancillary revenues. Low-cost carriers often typically utilize a point to point service, rather than a hub and spoke model. 160, , , , Coach Class Fares Business Classes Fares First Class Fares Air Freight Services Other Source: IBIS World Figure 6: Projected Industry Revenue (in millions) The Department of Transportation (DOT) has adopted Passenger Protection Rules, which address a wide variety of matters including flight delays on the tarmac, chronically delayed flights, denied boarding compensation, and advertising of airfares, among others. Airlines that violate the Passenger Protection Rules can be subject to fines up to $27,500 per occurrence or per passenger. Demand for Air travel is seasonal. Generally, demand for air travel is greater during the summer months, and therefore, revenues in the airline industry tend to be stronger in the second and third quarters of the year. Industry Operating Metrics Because an airline s business model is so unique relative to another business, airlines utilize specific operating metrics in order to measure operating performance and efficiency. These airline metrics are defined below. Available Seat Mile (ASM): The Basic Measure of Capacity - One seat (empty or filled) flying one mile is an ASM. 140, , Source: IBIS World Revenue Passenger Mile (RPM): The Basic Measure of Production- A paying passenger flying one mile creates an RPM UOIG 3

4 % 30% 20% 10% 0% -10% -20% -30% -40% Figure 7: Corporate Profit Growth Source: IBIS World Figure 8: Crude Oil Growth Rates Source: IBIS World Figure 9: 2014 Market Segmentation 3% 10% 25% 62% Load Factor: Production Compared to Capacity - RPMs divided by ASMs. Passenger revenue per available seat mile (PRASM) Passenger revenue divided by ASMs, also known as unit revenue. Operating Revenue per available seat mile (RASM) Operating Revenue divided by ASMs. Average Stage Length The average number of miles flown per flight. Yield Scheduled service revenue divided by scheduled rpm. Macroeconomic Environment The airline industry is extremely competitive and historically has been volatile due to being subject to numerous external factors. The airline industry has been cyclical, energy intensive, labor intensive, capital intensive, technology intensive, highly regulated, heavily taxed, and extremely competitive. In addition, unforeseen events can also impact the airline industry such as; acts of terrorism (for example, 9/11), poor weather, and natural disasters. Within recent years the industry was affected by uncertain economy conditions, volatile fuel prices, and also U.S. government shut downs. All of these factors can lead to unpredictable demand for air travel thus causing pricing challenges. Economic Conditions The airline industry is sensitive to different changes in economic conditions that can often require a company to adjust their business strategy. Because airlines are subject to a lot of fixed costs, economic conditions can greatly impact demand, which can unfavorably affect an airlines net income. Historically, poor economic conditions have driven lower demand for both business and leisure travel. In addition, airlines cannot counteract this low demand by raising fares to higher prices because it would result in a further decrease in demand. Business travel demand accounts for a significant portion of domestic air travel demand. Therefore significantly impacting domestic flight revenues. Companies tend to pay for travel when corporate profit is high and business activity is strong. When corporate profit declines, demand for air travel declines. Rebounding demand and loosening credit conditions will drive future growth for corporate profit until interest rates begin to rise. However slowly rising interest rates allow profit levels to remain strong for the next decade. The expected increase corporate profit represents a potential opportunity for companies to increase market share. Fuel and Energy Costs Airlines are dependent on energy in order to operate. Even a small change in market fuel prices can impact a company s profitability. Volatile fuel prices can be caused by external factors that are beyond a company s control. Fuel prices can be impacted by both political factors and economic factors such as foreign imports, conflicts in oil producing areas, limited domestic or pipeline capacity, worldwide demand for fuel, U.S. policies involving fuel production, transportation, taxes, and marketing. An airline s ability to combat increasing fuel price is limited by its ability to increase fares, at the risk that an increase in fares will reduce demand. Fuel and oil expense remains one of Southwest s largest operating costs, despite the decrease in fuel prices in In order to manage risk in the volatility of oil price Southwest enters into fuel derivative contracts. Southwest utilizes these contracts to hedge a portion of their future jet Businesses Coach Customers First and Business Class Freight Forwarders Source: IBIS World UOIG 4

5 Figure 10: Southwest Boeing fuel purchases. Fuel derivatives contracts are discussed further under Southwest s business strategy. Labor relations The airline industry is extremely labor intensive. The majority of airline employees are represented by labor unions which exposes airlines to laborrelated job actions. An increase in wages could put a lot of pressure on a company s labor costs. In addition, a company s success depends on its ability to maintain a skilled staff. Companies may be required to increase compensation in order to maintain a skilled workforce. Southwest currently operates with over 46,000 employees with 83% of them represented by unions. While labor negotiations are ongoing Southwest currently does not expect any changes that will dramatically affect salaries and wage expense. Figure 11: Projected Domestic Trips (in millions) Source: IBIS World Figure 12: Per Capita Disposable Income Growth 3.20% 3.00% 2.80% 2.60% 2.40% 2.20% 2.00% Source: IBIS World Consumer Income The airline industry revolves around consumer demand. The majority of revenue earned by an airline comes from a consumer s discretionary income. Because the cost of air travel is high, changes in disposable income directly affect demand for domestic air travel. When consumer disposable income goes up, they are much more likely to spend money on travel plans. However when disposable income decreases consumers are much more likely to find cheaper methods of transportation for short haul trips. Southwest tries to counteract this risk by utilizing a low cost model. While the average ticket price may be comparable to a competitors Southwest does not charge additional fees for carryon items, the first two checked bags, or seat arrangements. Since the recession housing and stock values are continually increasing as well as the number of Americans going back to work. With increased disposable income, American consumers are more willing to spend money on luxury goods that they had forgone during the recession. Southwest s combined low-fares and fees remain attractive to these consumers who are used to being conscious of how much they spend. Security Concerns Terrorist attacks or threatened attacks have affected demand for air travel. The results of these attacks have caused increased safety measures which increased security costs for the airline industry in general. Safety measures also create delays and inconveniences, which can reduce a company s competitiveness for short-haul routes as customers would prefer to take other methods of transportation. Competition The airline industry is extremely competitive with competition being intense and unpredictable. Southwest currently competes with other airlines on virtually all of its current routes. Different competitive factors can differentiate airlines including pricing and cost structure, routes, frequent flyer programs, schedules, customer service, comfort, and amenities. Within recent years Southwest and the other largest major U.S. airlines have provided the majority of domestic service including; American Airlines, Delta Air Lines, United Airlines, and US Airways. In 2013 American Airlines merged with US Airways as a result from emerging out of bankruptcy. Currently there are 15 major U.S. Airlines, which are defined by the U.S. Department of Transportation as airlines with annual revenues of at least $1 billion. With recent improved economic conditions and improved profitability the airline industry is becoming even more competitive. UOIG 5

6 Figure 13: Southwest s New Logo Southwest generally provides point-to-point service model, rather than the huband-spoke service provided by most major U.S. airlines. Southwest s point-topoint route structure has allowed for more direct nonstop routing than hub-andspoke service by not concentrating operations through one or more central transfer points. In 2014, approximately 73% of Southwest s consumers flew on non-stop flights to their destination. Southwest s point to point service allows the company to provide conveniently timed flights for low costs. As of December 2014, Southwest served 581 nonstop city pairs. Strategic Positioning In order to preserve Southwest s low-cost advantage and low-fare brand the company has undertaken numerous cost containment projects. Southwest has a lower unit cost than the majority of major US air carriers. In addition, the use of a single aircraft type, the Boeing 737, has allowed for simplified scheduling, maintenance costs, and training activities. Source: Southwest.com Marketing Efforts Southwest continually markets and benefits from its points of differentiation from its competitors. Through national and local marketing campaigns Southwest aggressively promotes the fact that they do not charge additional fees for the first and second checked bags with its Bags Fly Free message. In September 2014 Southwest launched its new Heart aircraft livery, airport experience, and logo. New aircrafts will be delivered in the Heart livery while existing aircrafts are scheduled to receive this new livery within the aircrafts existing repainting schedule, thus allowing this launch to be cost neutral. Fare Structure Southwest offers fares split into three major categories: Wanna Get Away, Anytime, and Business Select. Figure 14: Southwest Marketing Efforts Wanna Get Away fares are generally the cheapest and subject to advance purchase requirements. Anytime fares can be refunded or changed, and funds can also be used towards future travel. These fares have a higher frequent flyer multiplier than Wanna get away fares that go towards Southwest s Rapid Rewards frequent flyer program. Business Select fares can be refunded or changed and funds can also be used towards future travel on Southwest. Business select allows for priority boarding within the first 15 positions, a higher frequent flyer point multiplier, priority security and ticket counter access and also one complimentary adult beverage coupon to be used on the day of travel. Southwest is currently the only major U.S. airline that does not charge customers for changing a flight reservation. Southwest emphasizes customer service by showing that they understand that plans can change and allow customers to change their flights up to 10 minutes prior to scheduled departure time. While a customer may be asked to pay the difference in airfare between tickets, they will not be charged a change fee. UOIG 6

7 University of Oregon Investment Group Figure 15: Southwest Fuel Costs Per Gallon Source: Southwest Financials Figure 16: Aircraft Fleet (2) Aircraft Owned Aircraft Leased Source: Southwest Financials Figure 18: Revenue by Location 1.21% Unlike most other competitors, Southwest does not charge additional fees for seat selection, fuel surcharges, snacks, curb-side check-in, or telephone reservations. Southwest also allows each customer to check a stroller and or car seat with no additional charge, in addition to two free checked bags. Southwest offers inflight Wi-Fi service on approximately 80 percent of its fleet. The arrangement made with the Wi-Fi provider allows for Southwest to control the pricing of the Wi-Fi service, which is currently at $8 a day per device. Southwest has improved entertainment options for customers on Wi-Fi enabled planes allowing free access to Southwest s live and on-demand television product. Revenues also come from movie options and limited Wi-Fi services. Route Structure Southwest generally utilizes a point-to-point service, rather than the hub-andspoke service provided by most major U.S. airlines. Because Southwest does not concentrate operations through one (or more) central transfer locations, Southwest has been able to provide more nonstop flights than a typical hub-andspoke service. The addition of s has allowed Southwest to adjust its route network in order to allow for more long-haul routes. The addition of these new planes also gives Southwest the ability to expand to new destinations, including extended routes over water, potentially flying to more distant markets such as Hawaii, Alaska, Canada, and other near-international locations. Fuel Derivatives Contracts The key to Southwest s profitability has been fuel hedging. At the end of 2014 Southwest had participated in over 1,100 financial derivative instruments related to fuel hedging programs for the years 2015 through The fair value of these contracts can vary based on changes in commodity prices. For example, during 2014, Brent crude oil was at an all-time high of approximately $115 per barrel and also hit a low price of approximately $57 per barrel Fourth Quarter economic fuel costs were $2.62 per gallon, including $.03 per gallon representing unfavorable cash settlements from hedging activities. This is compared to fourth quarter 2013 $3.05 per gallon, including a $.03 per gallon in favorable cash settlements from hedging activities. First quarter 2015 fuel costs are expected to be approximately $1.90 per gallon, based on the company s de-hedging of 2015 fuel contracts and market prices. Southwest has unhedged for 2015 fuel consumption by purchasing offsetting hedges that resulted in a liability of $.10 per gallon. The fair value of the Company s fuel derivative contracts was a net liability of $234 million. Southwest estimates 2015 economic jet fuel price per gallon to be between $1.95-$2.05. Business Growth Strategies 98.79% Foreign Operations Domestic Operations Steady Introduction into International Markets In 2014, Southwest airlines completed transition of AirTran international service into Southwest service. In January of 2014, Southwest began servicing AirTran s international routes to be flown by Southwest aircrafts. In 2014, Southwest launched its own international service to Jamaica, The Bahamas, Aruba, Mexico, and the Dominican Republic. Southwest plans to add more destinations in 2015 to Central America and Belize subject to government approval. Source: Southwest Financials UOIG 7

8 Figure 19: Aircraft Fleet Ownership In 2014 operating revenues from foreign operations, including revenues from AirTran operations were approximately $226 million while $18.4 billion in revenues were received from domestic operations within the US. 15% 2% Fleet Modernization In order to maintain low costs Southwest Airlines has multiple strategies involving fleet modernization. In order to maintain low maintenance costs Southwest Airlines has historically used the same model aircraft. After acquiring AirTran Southwest had to integrate AirTran models out of their fleet (Boeing 717s). Southwest s fleet consists of 665 Boeing 737s. Of these aircraft 500 are owned outright while 14 are on capital leases and 98 are under operating leases. 83% Operating Lease Capital Lease Owned Source: Southwest Financials Figure 20: Seats per Aircraft (2) Source: Southwest Financials Southwest is currently replacing classic Boeing 737s aircrafts with new Boeing s and pre-owned Boeing s. These new aircrafts are less maintenance intensive and more fuel-efficient. In 2014 Southwest completed the retirement of AirTran s. During 2014 the company s fleet decreased by 16 to 665 aircrafts. This reflects the retirement of 66 AirTran s as well as the retirement of 5 Boeing 737 Classics. Southwest received 33 new Boeing s and 22 pre-owned Boeing s. These new planes can also fly longer distances at a lower cost. Southwest Airlines can uses long-term fleet modernization effects in order to operate in varying economic conditions. Southwest s Rapid Rewards Frequent Flyer Program Southwest s Rapid Rewards program is designed to increase revenues by bringing in new customers, increasing business from existing customers, and strengthening the company s Rapid Rewards hotel, rental car and retail partnerships. Southwest s Rapid Rewards frequent flyer program allows consumers to earn points for every dollar spent. Points can be used to purchase future flights or provide upgrades from Wanna Get Away fares to Business select. Rapid rewards members can also earn points by buying items through purchases made with Rapid Rewards partners those of which in include car rental agencies, hotels, restaurants, and retail locations, or by using a Southwest branded chase visa credit card. Consumers under the Rapid Rewards program are able to redeem their points for every available seat, every day, on every flight, with no blackout dates. So long as the member has points-earning activity during the most recent 24 months Rapid Rewards points do not expire. Members who achieve A-List or A-List Preferred status can receive top tier benefits. These members can utilize Fly By priority check-in and security lanes, as well as free inflight Wi-Fi on equipped flights. Members who qualify can also receive a companion pass, which allows for unlimited free travel for one year to any destination available on Southwest for a designated companion of the qualifying Rapid Rewards member. Revenue attributable to Rapid Rewards was approximately $400 million for the fiscal year The Wright Amendment The Wright Amendment, Section 29 of the International Air Transportation Competition Act of 1979, prohibited nonstop and through passengers on commercial flights between Dallas Love Field and all states outside of Texas, with the exception of the Wright Amendment States ; Alabama, Arkansas, Kansas, Louisiana, Mississippi, Missouri, New Mexico, and Oklahoma In 2006, Southwest Airlines, the City of Dallas, the City of Fort Worth, American Airlines, Inc., and the DFW International Airport Board, sought to UOIG 8

9 Figure 21: Dallas Love Field Airport amend the Wright Amendment. Congress passed the Wright Amendment Reform Act which enabled the purchase of a single ticket between Dallas Love Field and any destination, but the customer still had to stop within a Wright Amendment State. On October 13, 2014, the amendment was completely repealed, allowing airlines to fly from Love Field to any city in America. However nonstop international service to or from Dallas Love Field will continue to be prohibited. Since the lifting of the Wright Amendment, Southwest has launched 17 destinations from the newly renovated Dallas Love Field. Dallas ASM capacity was up over 80% for fourth quarter 2014 compared to year over year fourth quarter These new routes have also been exceeding approximately a 90% load factor. Management and Employee Relations Figure 23: Aircraft Delivery Schedule Source: Southwest One Report Gary C. Kelly Chairman of the Board, President, & Chief Executive Office In 1986 Gary Kelly joined Southwest Airlines as its controller. In 1989 Kelly served as Chief financial officer and Vice president of Finance until 2001 where he became Executive Vice President. Kelly was named Chief Executive Officer in July In May of 2008, Kelly became the Company s Chairman of the Board and during July became President. Robert E Jordan Executive Vice President & Chief Commercial Officer In 1988 Jordan joined Southwest Airlines as a programmer and since then has worked his way through the different roles of; Director Revenue Accounting (though 1997), Vice President of Purchasing (2002), Senior Vice President Enterprise Spend Management (2006), Executive Vice President Strategy & Technology (2008), where he finally moved to the president of AirTran after Southwest acquired the company in May Robert Jordan now serves as the company s Executive Vice President and Chief Commercial Officer since September Tammy Romo Senior Vice President Finance & Chief Financial Officer Tammy Romo joined the company as the manager of Financial Reporting in September of 1991 where she was then promoted to Director of Investor Relations in Romo also served many positions including; Senior Director of Investor Relations (2004), Vice President Treasurer (2006), Vice President Controller (2008), and Vice President of Financial Planning (2010). In 2010 Romo became Senior Vice President of Finance and Chief Financial officer in Management Guidance Because the airline industry is extremely volatile due to external factors management forecasts only the near future. Southwest management guidance has historically been in line with actuals. For 2014 management forecasted a target of 15% ROIC. Actual ROIC for 2014 was 21.2% primarily due to a decrease in fuel costs. For first quarter 2015 management predicts a 6% increase in passenger revenues in line with similar ASM growth. So far this year travel demand has remained UOIG 9

10 2.5 2 Figure 24: Customer Complaint Levels strong based on Southwest s current booking trends. While it is too early to provide revenue guidance for the full year 2015 Southwest management aims to keep revenue growth in line with capacity growth. Recent News Southwest Airlines Reports February Traffic Southwest Investor Relations - March 11, Southwest Airlines announced February RPMs at 7.6billion, a 6% increase compared to last February. ASM increased 3.6% and the load factor was up 1.8% in comparison to last February s numbers. Year to date numbers have also increased with a 7.3% increase in RPMS, and a 7% increase in ASMs. Overall load factor has also increased by.2% Southwest Airlines Alaska Airlines Delta Airlines JetBlue Airlines American Airlines Source: Southwest One Report United Airlines Southwest Adjusts Fuel Hedges as Oil Rout Adds Uncertainty Bloomberg Business December 14, 2014 Southwest Airlines is adjusting their hedges in order to capitalize on volatile fuel costs. Due to the decline in oil prices Southwest will save approximately $1 billion in 2015 even after accounting for losses from de-hedging. Southwest currently utilizes hedging in order to manage risk in the energy market. Southwest Airlines (LUV) Stock Rises Today as Airline Stocks Advance, Oil Declines Yahoo Finance March 27, 2014 Southwest share prices are up, along with most other airline stocks, as oil prices decline. Even though oil prices are declining consumers are still paying the same amount for a ticket as before the decline in oil prices. This is because an airlines cash is currently being used to reinvest in the company and improve operations. Fuel savings are also going towards rewarding investors with stock buybacks and dividend payments. Catalysts Figure 25: New Plane Paint Design Upside Decreased Energy Costs Increased Consumer Disposable Income Increased Corporate Profits Expansion to International Markets Demand for Non-Stop Flights Southwest s Brand for Great Customer Service Fleet Modernization Rapid Rewards Repeal of Wright Amendment Source: Southwest.com Downside Government Regulation Volatility in Energy Costs Terrorist Attacks UOIG 10

11 Labor Negotiations Political Instability Figure 26: Alaska Logo Figure 27: Alaska Plane Figure 28: Spirit Logo Figure 29: Allegiant Logo Comparable Analysis Alaska Air Group Inc. 35% Based in Seattle Washington, Alaska Air Group, Inc. provides passengers and cargo air transportation services primarily in the United States. It serves approximately 100 cities in Alaska, the Lower 48, Hawaii, Canada, and Mexico. As of December 31, 2014 the company s fleet consisted of 137 Boeing 737 jet aircraft; and 51 Bombardier Q400 turboprop aircraft. Yahoo Finance. Alaska was weighted the most due to the similarities in their business model in relation to Southwest. Alaska s Aircraft fleet is predominately made up of Boeing Aircrafts and also receives the majority of revenues from domestic operations. Like Southwest, Alaska is a low cost airline that stresses the importance of employee customer relationships. While Southwest is a larger company than Alaska they are both subject to similar industry risks because of equal target markets. Spirit Airlines Inc. 20% Headquartered in Miramar Florida, Spirit Airlines Inc. provides low-fare airline services. As of February 17, 2015, it operated approximately 325 daily flights to 57 destinations in the United States, Caribbean, and Latin America. As of December 31, 2014, the company had a fleet of 65 Airbus single-aisle aircraft comprising 29 A319s, 34 A320s, and 2 A321s. Yahoo finance Spirit Airlines is also a low cost airline that operates in the same industry as Southwest. They run a similar business model of trying to maintain low costs in order to support ultra-low fares. Unlike Southwest, Spirit receives a significant portion of revenues from ancillary products in order to support ultra-low fare costs. Spirit also is subject to similar industry risk factors as its routes are primarily domestic and nearby international markets. Southwest competes with Spirit on most of its routes. Allegiant Travel Company 15% Allegiant Travel Company focuses on the provision of travel services and products to residents of under-served cities in the United States. The company offers scheduled air transportation on limited frequency nonstop flights between under-served cities and leisure destinations. As of February 2, 2015, it operated a fleet of 53 MD-80 aircraft, 4 Airbus A319 aircraft, 9 Airbus 320 aircraft and 6 Boeing aircraft provided services on 229 routes to 94 cities. The company also provides air-related services and products in conjunction with air transportation, including use of its call center for purchases, baggage fees, advance seat assignments, travel protection products, change fees, priority boarding, food and beverage purchases on board, and other air-related services. In addition, it offers third party travel products, such as hotel rooms, ground transportation, and attractions; and air transportation services through fixed fee agreements and charter service on a seasonal and ad-hoc basis. Yahoo finance While allegiant is smaller and have different growth rates than Southwest airlines it was weighted 15% due to similar business models. Allegiant is a low cost airline like Southwest however it also receives a significant portion of revenue from ancillary product offerings. Allegiant also operates primarily in the US subjecting it to similar industry risk factors. UOIG 11

12 Figure 30: JetBlue Logo JetBlue Airways Corporation 15% JetBlue Airways Corporation, a passenger carrier company, provides air transportation services. As of December 31, 2014, the company operated a fleet of 13 Airbus A321 aircrafts, 130 Airbus A320 aircrafts, and 60 EMBRAER 190 aircrafts. It also served 87 destinations in 27 states in the United States, the District of Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, and 17 countries in the Caribbean and Latin America. JetBlue Airways operates in the same markets as Southwest airlines however the company is smaller and offers less daily flights than Southwest. JetBlue utilizes fuel derivative contracts to manage fuel prices like Southwest. JetBlue Airways receives 8% of revenue from ancillary products and offers which is similar to Southwest s 4%. Because JetBlue operates in most domestic and near international markets it is exposed to the same market risks as Southwest. Figure 31: United Logo Figure 31: Allegiant Logo United Continental Holdings 10% United Continental Holdings, Inc., together with its subsidiaries, provides air transportation services in North America, the Asia-Pacific, Europe, the Middle East, Africa, and Latin America. It transports people and cargo through its mainline operations, which use jet aircraft with at least 118 seats, and its regional operations. As of December 31, 2014, the company operated a fleet of 1,257 aircraft. It also sells fuel; and provides maintenance, ground handling, and catering services for third parties. The company was formerly known as UAL Corporation and changed its name to United Continental Holdings, Inc. in October Yahoo Finance United Airlines is larger than Southwest and also operates in more markets. However, United s use of larger planes is similar to Southwest s fleet model and they also offer a lot of the same domestic routes as Southwest. United international market operates exposes the company to different industry risk factors and market growth rates, however it is important to offset the weightings of other small comparable companies. Delta Air Lines Inc. 5% Delta Air Lines, Inc. provides scheduled air transportation for passengers and cargo worldwide. The company operates in two segments, Airline and Refinery. Its route network comprises various gateway airports in Amsterdam, Detroit, Los Angeles, Minneapolis-St. Paul, New York-LaGuardia, New York-JFK, Paris-Charles de Gaulle, Salt Lake City, Seattle, and Tokyo-Narita. Delta also provides maintenance and repair services for third parties, as well as offers staffing services, professional security and training services, and aviation solutions; vacation packages; and aircraft charters, and aircraft management and programs. The company operates approximately 900 aircrafts. Yahoo Finance Delta is a legacy airline that operates on a hub and spoke business model. While Southwest competes with Delta daily on domestic routes, Delta was only weighted 5% because Delta operates in numerous international markets thus exposing it to a different industry. Delta is most comparable in Southwest to size, but not many other factors. Delta s weighting does offset the weighting of smaller domestic airlines. UOIG 12

13 University of Oregon Investment Group Figure 32: Projected ASMs Source: Southwest Spreads Discounted Cash Flow Analysis Revenue Model Passenger Revenue In order to most accurately project passenger revenue regressions were run in order to correlate the relationship between ASM and other variables. Some of these variables include; consumer spending, US domestic tips, Consumer Income, GDP, % change in consumer spending, and also % change in US trips (which were compared to % change in ASMs). ASMs were projected off of both US domestic trips and consumer spending through a multi-variable regression. Using ASMs and a slightly increasing load factor RPMS were projected. In order to get passenger revenue RPMs were multiplied by yield per passenger mile. Freight Revenues Since the acquisition and integration of AirTran freight revenues increased due to new and maturing markets. Going forward Freight is projected to grow at a decreasing rate as Southwest does not market this effort due to its low revenue segment. Figure 33: Beta Calculation Beta SE Weighting 3 Year Daily % 3 Year Weekly % Vasicek - ETF % Hamada - Comps % Hamada - ETF % Southwest Airlines Beta 0.90 Source: Southwest Spreads Figure 35: Boeing 737 Landing at Dallas Love Other Revenues Due to the final integration of AirTran other revenues are projected to decline caused by a decrease in ancillary revenues. A significant portion of other revenues came from checked baggage fees associated with AirTran. Southwest offers more customer friendly fee policies such as no checked bag fees and no charge for seat selection thus decreasing other revenues. Beta Beta was calculated by running regressions against the S&P 500. Hamada and Vasicek betas were weighted in order to capture the different capital structure of Southwest and also to show convergence towards the industry mean. Regressions were run for the 1-year, 3-year, and 5-year time frames with both daily and weekly prices for those time frames. Operating Expenses Southwest currently implements numerous strategies at cost containment in order to maintain their low cost model. Operating expense line items were calculated to trend slightly lower than historical averages (excluding energy costs). Fuel Costs Energy Costs are projected to increase after Southwest de-hedged all fuel derivative contracts for 2015 thus allowing it to capture current low fuel prices. Southwest currently has fuel derivative contracts in place for a portion of fuel purchases through 2018 thus allowing Southwest s fuel and oil price growth to remain more neutral in volatile markets. Oil expense as a percentage of ASMs is trending towards the historical average. Tax Rate Aviation taxes are relatively high because the federal government uses much of those taxes to fund programs administered by the FAA (Federal Aviation Administration). Historically Southwest has had a tax rate between 37%-39% and management currently projects a tax rate of 38% going forward. UOIG 13

14 Figure 36: Final Valuation Method Implied Price Weight Discounted Cash Flow % Forward Comparables % Implied Price Current Price Undervalued 16.92% Source: Southwest Spreads Capital Expenditures Capital expenditures include payments made for aircraft, flight equipment, purchase deposits related to future aircraft deliveries, and ground and other property and equipment. Capital expenditures following the AirTran acquisition were high as Southwest continued to remove AirTran aircraft from their fleet and purchase new Boeing s. In the future capital expenditures are projected to grow at a decreasing rate as Southwest acquires and maintains a strong Boeing fleet to manage capacity growth. Net Working Capital Historically net working capital for Southwest Airlines is negative. In order to effectively project a positive net change in working capital in the terminal year current assets were projected higher than industry averages for the year 2023 while liabilities were lower for that year. Negative net working capital is due to high air traffic liability and low current assets as most of Southwest assets are held in long term PPE. Recommendation I am recommending a buy for Southwest Airlines in all 3 portfolios. While Southwest has strong growth potential long term, decreased oil prices make Southwest a good investment for the Dadco portfolio. Southwest s unique business model allows it to charge moderately priced fares with approximately no other fees necessary for a consumer. Customers looking for a low cost airline find Southwest attractive due to ticket price, amenities, and refund ability for tickets purchased. As consumer income and corporate profit increases the demand for domestic air fare is also predicted to increase giving Southwest an extremely strong position to capitalize on this growth. UOIG 14

15 April 3 rd, 2015 Appendix 1 Relative Valuation Comparables Analysis LUV ALK SAVE ALGT JBLU United UAL DAL Southwest Alaska Air Spirit Airlines Allegiant Travel JetBlue Airways Continental Delta Air Lines ($ in millions) Airlines Group Inc. Inc. Company Corporation Holdings Inc. Stock Characteristics Max Min Median Weight Avg % 20.00% 15.00% 15.00% 10.00% 5.00% Current Price $ $19.36 $67.20 $80.08 $44.58 $66.20 $78.30 $ $19.36 $68.19 $45.56 Beta Size Short-Term Debt 1, , Long-Term Debt 10, , , , , , , Cash and Cash Equivalent 4, , , , Non-Controlling Interest Preferred Stock Diluted Basic Shares Market Capitalization 37, , , , , , , , , , , Enterprise Value 45, , , , , , , , , , , Growth Expectations % Revenue Growth 2015E 20.40% 0.70% 6.40% 8.54% 6.59% 4.70% 20.40% 9.10% 8.10% 0.70% 3.30% % Revenue Growth 2016E 23.10% 3.30% 8.40% 10.85% 4.85% 7.40% 23.10% 11.20% 9.40% 3.30% 4.30% % EBITDA Growth 2015E 78.60% 27.00% 64.60% 58.63% 49.77% 39.90% 76.80% 64.90% 78.60% 64.30% 27.00% % EBITDA Growth 2016E 18.00% -3.07% 4.45% 6.10% -3.07% 1.30% 18.00% 1.40% 6.90% 2.00% 12.00% % EPS Growth 2015E % 44.70% 71.15% 75.50% 94.36% 47.00% 61.20% 81.10% % % 44.70% % EPS Growth 2016E 18.10% % 5.15% 6.19% % 4.40% 13.00% 2.40% 5.90% -1.00% 18.10% Profitability Margins Gross Margin 0.00% 0.00% 0.00% 0.00% EBIT Margin 27.96% 13.97% 20.39% 22.52% 18.85% 23.43% 26.45% 27.96% 17.35% 13.97% 16.75% EBITDA Margin 37.79% 18.86% 26.82% 29.03% 23.89% 29.94% 31.83% 37.79% 23.71% 18.86% 21.44% Net Margin 16.47% 9.24% 12.62% 13.71% 11.13% 14.37% 16.47% 16.20% 9.24% 10.86% 9.56% Credit Metrics Interest Expense $ $2.75 $80.50 $ $ $28.00 $2.75 $21.21 $ $ $ Debt/EV Leverage Ratio Interest Coverage Ratio Operating Results Revenue $41, $1, $5, $9, $19, $5, $2, $1, $6, $39, $41, EBIT $6, $ $1, $1, $3, $1, $ $ $1, $5, $6, EBITDA $8, $ $1, $2, $4, $1, $ $ $1, $7, $8, EBITDAR $9, $ $1, $2, $5, $1, $ $ $1, $8, $9, Net Income $4, $ $ $1, $2, $ $ $ $ $4, $3, Capital Expenditures $2, $11.54 $ $ $1, $ $ $11.54 $ $2, $2, Multiples EV/Revenue 3.14x 0.83x 1.46x 1.83x 1.59x 1.67x 2.24x 3.14x 1.26x 0.83x 1.09x EV/EBIT 11.24x 5.96x 7.19x 7.88x 8.44x 7.13x 8.47x 11.24x 7.25x 5.96x 6.49x EV/EBITDA 8.31x 4.42x 5.44x 6.10x 6.66x 5.58x 7.04x 8.31x 5.31x 4.42x 5.07x EV/(EBITDA-Capex) 98.34x 7.21x 8.88x 27.11x 11.37x 9.24x 98.34x 8.52x 12.23x 7.37x 7.21x EV/EBITDAR 8.31x 4.04x 5.28x 5.74x 6.07x 5.44x 5.82x 8.31x 5.12x 4.04x 5.03x Market Cap/Net Income = P/E 16.89x 6.16x 10.56x 11.91x 13.65x 10.76x 14.88x 16.89x 10.36x 6.16x 9.42x Multiple Implied Price Weight EV/Revenue % EV/EBIT % EV/EBITDA % EV/(EBITDA-Capex) % EV/EBITDAR % Market Cap/Net Income = P/E % Price Target $48.47 Current Price Undervalued 8.72% UOIG 15

16 April 3 rd, 2015 Appendix 2 Discounted Cash Flows Valuation Discounted Cash Flow Analysis Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ($ in millions) 2009A 2010A 2011A 2012A 2013A 03/31/2014A 06/30/2014A 09/30/2014A 12/31/2014A 2014A 03/31/2015E 06/30/2015E 09/30/2015E 12/31/2015E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Total Revenue $10, $12, $15, $17, $17, $4, $5, $4, $4, $18, $4, $5, $5, $5, $19, $20, $22, $23, $25, $26, $27, $28, $30, % YoY Growth (6.11%) 16.95% 29.36% 9.13% 3.58% 2.01% 7.93% 5.61% 4.52% 5.12% 6.85% 4.25% 6.11% 9.40% 6.59% 4.85% 9.11% 5.59% 4.58% 5.05% 4.91% 4.92% 4.88% Operating Expense Salaries,Wages, and Benefits 3, , , , , , , , , , , , , , , , , , , , , , , %Change 3.83% 6.81% 18.01% 8.65% 6.02% 7.78% 8.32% 7.24% 17.50% 7.92% 6.97% 5.56% 7.88% 11.72% 8.05% 4.35% 8.59% 5.08% 4.08% 4.54% 4.40% 4.41% 4.37% % Revenue 33.51% 30.60% 27.92% 27.79% 28.45% 30.60% 28.06% 28.40% 30.03% 29.21% 30.64% 28.41% 28.87% 30.67% 29.61% 29.47% 29.32% 29.18% 29.04% 28.90% 28.76% 28.62% 28.48% Fuel and Oil 3, , , , , , , , , , , , , , , , , , , , , , %Change (18.02%) 18.92% 55.91% 8.43% (5.83%) (9.81%) (4.30%) (4.41%) (19.90%) (8.16%) (35.10%) (25.05%) (12.51%) (11.50%) (21.29%) 9.78% 14.07% 9.91% 8.49% 4.25% 4.10% 4.10% 4.05% %ASM 3.11% 3.68% 4.68% 4.78% 4.42% 4.31% 4.18% 4.10% 3.57% 4.04% 2.64% 3.03% 3.44% 2.93% 3.02% 3.19% 3.36% 3.53% 3.70% 3.71% 3.73% 3.74% 3.75% Maintenance, Materials and Repairs , , , , , , , , , , %Change (.28%) 4.45% 27.16% 18.53% (4.59%) (14.09%) (16.01%) (8.49%) (23.02%) (9.44%) (1.44%) (.05%) (2.45%) (1.47%) (3.39%) 6.47% 11.74% 8.07% 6.87% 7.18% 6.84% 7.11% 6.74% %Flight Equipment 5.24% 5.37% 6.14% 6.92% 6.38% 1.46% 1.34% 1.38% 1.21% 5.29% 1.38% 1.29% 1.27% 1.08% 4.80% 4.92% 5.05% 5.17% 5.30% 5.42% 5.54% 5.67% 5.79% Aircraft Rentals %Change 20.78% (3.23%) 71.11% 15.26% 1.69% (12.90%) (18.48%) (22.83%) (26.88%) (18.28%) 52.77% 40.01% 72.88% 60.09% 56.05% 1.85% 5.90% 2.38% 1.31% 1.66% 1.41% 1.29% 1.13% %Revenue 1.80% 1.49% 1.97% 2.08% 2.04% 1.94% 1.50% 1.48% 1.47% 1.59% 2.78% 2.01% 2.41% 2.15% 2.32% 2.25% 2.19% 2.12% 2.06% 1.99% 1.92% 1.86% 1.79% Landing Fees and Other Rentals , , , , , , , , , , , , %Revenue 6.94% 6.67% 6.12% 6.10% 6.23% 6.39% 5.89% 6.02% 5.66% 5.97% 6.02% 6.15% 6.04% 6.03% 6.06% 6.07% 6.07% 6.08% 6.08% 6.09% 6.09% 6.10% 6.10% Depreciation and Amortization , , , , , , , , % of Equipment 3.94% 3.90% 3.98% 4.50% 4.42% 1.11% 1.12% 1.14% 1.18% 4.40% 1.15% 1.12% 1.14% 1.14% 5.03% 5.06% 5.09% 5.11% 5.14% 5.17% 5.20% 5.22% 5.25% Other Operating Expenses 1, , , , , , , , , , , , , , , % Revenue 12.92% 11.78% 12.00% 11.93% 12.01% 12.63% 10.64% 11.83% 12.47% 11.85% 12.54% 12.31% 12.24% 12.34% 12.35% 12.30% 12.25% 12.19% 12.14% 12.09% 12.04% 11.98% 11.93% Acquisition and Integration %Revenue 0.00% 0.00%.86% 1.07%.49%.43%.76%.48% 1.04%.68% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Operating Income $ $ $ $ $1, $ $ $ $ $2, $ $1, $ $ $3, $3, $3, $3, $3, $3, $4, $4, $4, Gross Margin 2.53% 8.16% 4.43% 3.65% 7.22% 5.16% 15.47% 12.79% 13.85% 11.96% 17.97% 21.62% 16.93% 18.71% 18.85% 17.30% 16.41% 15.59% 14.82% 15.15% 15.50% 15.82% 16.17% Other Gains or Losses (Gains) (54.00) (181.00) (32.00) (53.00) % of Revenue (.52%).88% 1.26% (1.06%) (.18%) (1.27%).06% 1.38% 6.33% 1.66%.34%.34%.34%.34%.34%.34%.34%.34%.34%.34%.34%.34%.34% Interest Expense % Revenue 1.80% 1.38% 1.24%.86%.74%.79%.68%.65%.69%.70%.90%.75%.68%.64%.74%.75%.75%.75%.75%.75%.75%.75%.75% Interest (Income) (13.00) (12.00) (10.00) (7.00) (6.00) (2.00) (2.00) (2.00) (1.00) (7.00) % Revenue (.13%) (.10%) (.06%) (.04%) (.03%) (.05%) (.04%) (.04%) (.02%) (.04%) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Capitalized Interest (21.00) (18.00) (12.00) (21.00) (24.00) (7.00) (6.00) (6.00) (5.00) (23.00) % Revenue (.20%) (.15%) (.08%) (.12%) (.14%) (.17%) (.12%) (.13%) (.11%) (.12%) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Earnings Before Taxes , , , , , , , , , , , , % Revenue 1.58% 6.15% 2.06% 4.01% 6.83% 5.86% 14.89% 10.94% 6.96% 9.76% 16.73% 20.53% 15.91% 17.73% 17.78% 16.21% 15.32% 14.50% 13.73% 14.06% 14.41% 14.73% 15.08% Less Taxes (Benefits) , , , , , , , , , Tax Rate 39.63% 38.39% 44.89% 38.54% 37.63% 37.70% 37.67% 37.33% 34.47% 37.44% 38.00% 38.00% 38.00% 38.00% 38.00% 37.98% 37.97% 37.95% 37.94% 37.92% 37.90% 37.89% 37.87% Net Income $99.00 $ $ $ $ $ $ $ $ $1, $ $ $ $ $2, $2, $2, $2, $2, $2, $2, $2, $2, Net Margin.96% 3.79% 1.14% 2.46% 4.26% 3.65% 9.28% 6.85% 4.56% 6.11% 10.37% 12.73% 9.87% 10.99% 11.02% 10.05% 9.51% 9.00% 8.52% 8.73% 8.95% 9.15% 9.37% Add Back: Depreciation and Amortization , , , , , , , , Add Back: Interest Expense*(1-Tax Rate) Operating Cash Flow $ $1, $ $1, $1, $ $ $ $ $2, $ $ $ $ $3, $3, $3, $3, $3, $3, $4, $4, $4, % Revenue 7.99% 9.83% 6.39% 7.93% 9.62% 9.45% 14.25% 12.22% 10.44% 11.58% 16.29% 17.73% 15.24% 16.73% 16.51% 16.30% 15.77% 15.28% 14.83% 15.04% 15.26% 15.47% 15.69% Current Assets , , , , , , , , , , , , , , , , , , , , , % Revenue 7.39% 6.12% 7.67% 7.36% 7.37% 31.59% 26.40% 29.69% 30.60% 7.61% 24.85% 24.64% 25.75% 26.64% 6.80% 6.85% 6.60% 6.71% 6.80% 6.85% 6.89% 6.93% 6.98% Current Liabilities 2, , , , , , , , , , , , , , , , , , , , , , , % Revenue 24.02% 23.13% 24.84% 25.63% 28.52% % % % % 30.45% % % % % 27.20% 26.81% 26.50% 26.34% 26.05% 25.84% 25.59% 25.32% 24.51% Net Working Capital ($1,721.00) ($2,059.00) ($2,688.00) ($3,122.00) ($3,743.00) ($4,483.00) ($5,099.00) ($4,414.00) ($4,249.00) ($4,249.00) ($7,234.63) ($4,032.93) ($4,036.47) ($4,045.89) ($4,045.89) ($4,149.86) ($4,515.63) ($4,704.39) ($4,823.73) ($4,996.12) ($5,161.39) ($5,325.28) ($5,325.11) % Revenue (16.63%) (17.01%) (17.17%) (18.27%) (21.15%) (107.61%) (101.76%) (91.96%) (91.81%) (22.84%) (162.53%) (77.20%) (79.25%) (79.91%) (20.40%) (19.96%) (19.90%) (19.64%) (19.25%) (18.98%) (18.69%) (18.38%) (17.53%) Change in Working Capital $ (338.00) $ (629.00) $ (434.00) $ (621.00) $ (740.00) $ (616.00) $ $ $ (506.00) $ (2,985.63) $ 3, $ (3.54) $ (9.42) $ $ (103.98) $ (365.77) $ (188.76) $ (119.33) $ (172.40) $ (165.26) $ (163.90) $ 0.17 Capital Expenditures , , , , , , , , , , , , % Revenue 5.65% 4.07% 6.18% 7.89% 8.18% 9.77% 9.98% 9.23% 10.09% 9.40% 9.02% 9.54% 10.41% 10.54% 9.90% 9.53% 9.15% 8.77% 8.40% 8.02% 7.65% 7.27% 6.89% Acquisitions % Revenue 0.00% 0.00%.22% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Unlevered Free Cash Flow $ $ 1, $ $ $ $ $ $ (541.57) $ (149.03) $ $ 3, $ (2,773.73) $ $ $ 1, $ 1, $ 1, $ 1, $ 1, $ 2, $ 2, $ 2, $ 2, Discounted Free Cash Flow $ 3, $ (2,674.18) $ $ $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, $ 1, UOIG 16