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Kathy Panagopouloskathy.panagopoulos@morningstar.com
Southwest Airlines Soars with Morningstar's CEO of the Year Award

CHICAGO, Jan 04, 2002 – Morningstar, Inc. today announced that Jim Parker and Herb Kelleher, the current and former CEOs of Southwest Airlines (LUV), have been named joint winners of the Morningstar CEO of the Year Award for 2001.

"Southwest has trounced its competition in every possible financial metric–growth, profitability, financial health and shareholder returns," said Pat Dorsey, director of stock analysis for Morningstar. "Herb Kelleher, who founded the airline 30 years ago and managed it until his retirement in July, always said that employees come first, customers second, and shareholders third. Shareholders certainly haven't suffered, with Southwest's stock outperforming its peers and the market." 

Dorsey added, "Jim Parker, who assumed the CEO role in June, has been decisive during the unprecedented industry downturn that resulted from the Sept. 11 attacks. While his counterparts at the major airline carriers were cutting flights right and left, Parker decided to resume Southwest's full schedule. This proved to be a wise move because the airline still turned a profit in the third quarter while the industry was awash in red ink."

The Morningstar CEO of the Year Award was created to reward a chief executive who has put his or her stamp on an industry, thinks independently, and turns corporate success into greater wealth for shareholders. 

Under Kelleher's and Parker's leadership, Southwest Airlines dominates a downtrodden industry: 

  • The airline has not suffered an annual loss in the past 28 years, a remarkable accomplishment in a cyclical industry that regularly suffers billion dollar losses.
  • The company's annualized total stock return during the past 10 years is 23.64 percent, higher than the negative 0.74 percent average of its Big Three rivals – American (AMR), United Airlines (UAL), and Delta (DAL). The S&P 500 index returned only 12.93 percent annually during that time.     
  • While the three largest carriers – American, United and Delta – laid off nearly 50,000 employees in 2001 alone, Southwest, the industry's fourth-largest airline stood firm with its "no-layoffs" policy. 
  • Many companies have suffered a decrease in passenger traffic of 20 percent or more, but Southwest's traffic has bounced back to its pre-Sept. 11 levels. 
  • Compared to 2000, Southwest's revenue passenger miles – a measure of passenger traffic – remained flat in November 2001; industrywide, revenue passenger miles were down almost 18 percent. 
  • Southwest is the most efficient airline, with unit costs 30 percent lower than its average peer in 2001. 
  • Despite having only one tenth of the annual combined sales of American, United, and Delta Airlines, Southwest's market capitalization is almost twice as large as the Big Three put together. 

Southwest not only cut costs, but it is also returning to a growth strategy in 2002 – an extraordinary feat to undertake so quickly after the terrorist attacks. While rivals are busy cutting flights and capacity, the airline is accepting delivery of two new Boeing 737s. The market appears to agree with Kelleher's and Parker's decisions. Since the markets reopened on Sept. 17, Southwest stock has increased 42 percent, while the leading airline index is up 26 percent. For 2001, Southwest's stock is down just 17.25 percent, compared with a 47 percent loss for the airline index. 

"Kelleher handpicked Jim Parker as his successor – someone who continues to nurture Southwest's unique culture while maintaining its remarkable financial and operating performance," Dorsey said. "Although Kelleher is better known of the two, we believe both men have earned this award." 

Herb Kelleher and Rollin King founded Southwest Airlines, which began service in 1971. Jim Parker joined the company in 1986 and became vice president–general counsel before assuming the role of CEO in June 2001. Starting with intrastate flights to Houston, Dallas, and San Antonio, the commercial three-jet airline has grown to include freight transportation and passenger service to nearly 60 U.S. cities in 30 states. Specializing in short-haul routes, Southwest's fleet consists of 358 Boeing 737 aircraft with more than 2,700 departures daily. Known for his irreverent sense of humor and commitment to employees, Kelleher was the first airline CEO to institute a profit-sharing plan in the industry. Southwest has been consistently named one of the best companies to work for in America by Fortune magazine. The airline has won the industry's monthly Triple Crown Award – Best On-time Record, Best Baggage Handling, and Fewest Customer Complaints more than 30 times, as well as five annual Triple Crowns between 1992 and 1996. 

Morningstar said finalists for the CEO of the Year Award for 2001 were Meg Whitman of eBay (EBAY), Michael Dell of Dell Computer (DELL), and Richard Schulze of Best Buy (BBY). They helped their companies flourish during difficult market conditions in extremely competitive and struggling industries. Whitman helped increase eBay's margins from 12.6 percent in the third quarter of 2000 to 16.8 percent in the third quarter of 2001. Dell continues to steal market share from his rivals as he increases shareholder wealth – during the past 10 years, Dell shares' average annual returns have grown more than 60 percent. Schulze has doubled his company's top line and has grown the bottom line fivefold during the past few years – making Best Buy the most profitable consumer-electronics business. 

The Morningstar CEO of the Year Award, first introduced in January 2000, rewards leaders who maximize shareholder value and demonstrate independent thinking. Winners are chosen by Morningstar analysts, editors and senior management, based on the company's own research. Charles R. Schwab and David Pottruck, co-CEO's of Charles Schwab, were the first recipients of the Morningstar CEO of the Year for 1999. Jorma Ollila, CEO of Nokia was the 2000 winner. 

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About Morningstar, Inc.

Morningstar, Inc. is a leading provider of investment information and analytical tools. The company provides financial data, research, online advice, consulting services and investment solutions for individuals, financial advisors, institutions, and the media worldwide. Morningstar is a trusted source of investment information and analysis for stocks, mutual funds, exchange-traded funds, closed-end funds, and variable annuities. Morningstar employs 800 people in the United States, Canada, Japan, Europe, Australia, New Zealand, and Asia. The company tracks nearly 100,000 investment products worldwide.

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¬ 2002 Morningstar, Inc. All rights reserved.

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