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GLOBAL AIRLINES

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

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  1. ADNAN BRKIC KAREN GUAN BHUPINDER KAUR CANDICE ZHOU GLOBAL AIRLINES

  2. AGENDA INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  3. 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

  4. AIRLINE CATEGORIES INTERNATIONAL NATIONAL REGIONAL CARGO INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  5. AIRLINE ALLIANCES INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  6. 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

  7. OTHER FACTORS INFLUENCING COSTS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  8. INDUSTRY PROFITABILITY INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  9. 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

  10. LOAD FACTOR INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  11. PASSENGER AND CARGO STATISTICS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  12. MAJOR RISKS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  13. 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

  14. 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

  15. SOUTHWEST AIRLINES INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  16. COMPANY OVERVIEW INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  17. 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

  18. FINANCIALS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  19. INCOME STATEMENT INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  20. QUARTERLY INCOME STATEMENT INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  21. QUARTERLY INCOME STATEMENT INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  22. QUARTERLY INCOME STATEMENT INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  23. BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  24. BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  25. QUARTERLY BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  26. QUARTERLY BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  27. QUARTERLY BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  28. QUARTERLY BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  29. QUARTERLY BALANCE SHEET INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  30. QUARTERLY CASH FLOW INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  31. CASH FLOW INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  32. QUARTERLY CASH FLOW INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  33. QUARTERLY CASH FLOW INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  34. QUARTERLY CASH FLOW INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  35. GENERAL RISK FACTORS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  36. 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

  37. HEDGING GOVERNANCE STRUCTURE INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  38. 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

  39. TYPES OF RISKS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  40. JET FUEL EXPENSE INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  41. 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

  42. 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

  43. FUEL HEDGING • NOT WIDELY TRADED ON FUTURES EXCHANGES INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  44. 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

  45. 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

  46. 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

  47. DERIVATIVES SOUTHWEST FUEL DERIVATIVE CONTRACTS AS OF OCTOBER 17, 2011 INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  48. DERIVATIVES SOUTHWEST FUEL DERIVATIVE CONTRACTS AS OF OCTOBER 17, 2011 INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  49. DERIVATIVES THE LOCATION OF ALL ASSETS AND LIABILITIES ASSOCIATED WITH THE COMPANY’S HEDGING INSTRUMENTS INDUSTRY OVERVIEW SOUTHWEST AIRLINES SINGAPORE AIRLINES

  50. 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

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