Financial Analysis

"COMMITMENTS AND CONTINGENCIES Commitments The Company has contractual obligations and commitments primarily with regard to future purchases of aircraft, repayment of debt (see Note 6), and lease arrangements (see Note 7). During the year ended December 31, 2025, the Company entered into supplemental agreements with Boeing relating to its contractual order book for -7 and -8 aircraft. The Company's contractual order book with Boeing for -7 and -8 aircraft, which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility and optionality to manage its fleet gauge and size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize. The Company received 55 -8 aircraft deliveries from Boeing in 2025 and retired 48 -700 aircraft and seven -800 aircraft, including the sale of five -800 aircraft. During fourth quarter 2025, the Company exercised six -7 options for delivery in 2027, converted one 2025 -7 firm order into a 2025 -8 firm order, and converted 12 2026 -7 firm orders into 2026 -8 firm orders. Boeing continues to experience delays in fulfilling its commitments with regards to delivery of MAX aircraft to the Company and delays in achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer. During 2025, as a result of Boeing's ongoing delivery delays, the Company conservatively re-plann …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

"FINANCING ACTIVITIES (in millions) Maturity Dates December 31, 2025 December 31, 2024 Unsecured 1.25% Convertible Notes 2025 1,611 3.00% Notes 2026 300 300 7.375% Debentures 2027 104 107 3.45% Notes 2027 300 300 5.125% Notes 2027 1,727 1,727 4.375% Notes 2028 750 2.625% Notes 2030 500 500 1.000% Payroll Support Program Loan 2030 976 1.000% Payroll Support Program Loan 2031 566 1.000% Payroll Support Program Loan (a) 2031 426 526 5.25% Notes 2035 734 Finance leases 78 91 $ 4,919 $ 6,704 Less current maturities 324 1,630 Less debt discount and issuance costs 18 5 $ 4,577 $ 5,069 (a) The interest rate will change to Secured Overnight Financing Rate plus two percent on the fifth anniversary of the loan, which occurs in April 2026. Senior Unsecured Notes due through 2035 During November 2025, the Company issued $750 million senior unsecured notes due 2035. The notes bear interest at 5.250 percent. Interest is payable semi-annually in arrears on May 15 and November 15. Concurrently, the Company entered into a fixed-to-floating interest rate swap to convert the interest on these unsecured notes to a floating rate until their maturity. See Note 10 for further information on the interest-rate swap agreement. Additionally, the Company issued $750 million senior unsecured notes due 2028. The notes bear interest at 4.375 percent. Interest is payable semi-annually in arrears. The Company expects to use the net proceeds from this offering for general corporate purposes, which may include, …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

The following table provides the components of Passenger revenue recognized for the years ended December 31, 2025, 2024, and 2023: Year ended December 31, (in millions) 2025 2024 2023 Passenger non-loyalty $ 20,441 $ 20,467 $ 19,073 Passenger loyalty - air transportation 3,259 3,484 3,639 Passenger ancillary sold separately 1,835 1,029 925 Total passenger revenues $ 25,535 $ 24,980 $ 23,637

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"STOCK PLANS Share-based Compensation The Company accounts for share-based compensation utilizing fair value, which is determined on the date of grant for all instruments. The Consolidated Statement of Income for the years ended December 31, 2025, 2024, and 2023, reflects share-based compensation expense of $99 million, $45 million, and $86 million, respectively. The total tax impact recognized in earnings from share-based compensation arrangements for the years ended December 31, 2025, 2024, and 2023, was not material. As of December 31, 2025, there was $100 million of total unrecognized compensation cost related to share-based compensation arrangements, which is expected to be recognized over a weighted-average period of 1.9 years. The Company expects substantially all unvested shares associated with time-based restricted stock unit awards to vest. Restricted Stock Units and Stock Grants Under the Companys Amended and Restated 2007 Equity Incentive Plan (""2007 Equity Plan""), which was approved by Shareholders, the Company granted restricted stock units (""RSUs"") and performance-based restricted stock units (""PBRSUs"") to certain Employees during 2025, 2024, and 2023. The RSUs are scheduled to vest with respect to one-third of the shares covered thereby annually. Other than in connection with death or disability, vesting is subject to the individuals continued service as an Employee, Board member, or advisor through the vesting date. However, with respect to the RSUs gra …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

FAIR VALUE MEASUREMENTS Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of December 31, 2025, the Company held certain items that are required to be measured at fair value on a recurring basis. These consisted of cash equivalents, but at other times the Company also holds short-term investments and available-for-sale securities. The majority of the Companys cash equivalents and short-term investments consist of instruments classified as Level 1. However, when the Company holds certificates of deposit and time deposits, they are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets. Equity securities primarily consist of investments with readily determinable market values associated with the Companys excess benefit plan and market-based cash balance plan. During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effecti …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities as of December 31, 2025 and 2024, are as follows: (in millions) 2025 2024 DEFERRED TAX LIABILITIES: Accelerated depreciation $ 3,655 $ 3,351 Prepaid insurance 329 282 Operating lease right-of-use assets 249 314 Other 99 99 Total deferred tax liabilities 4,332 4,046 DEFERRED TAX ASSETS: Accrued employee benefits 356 337 Loyalty program and flight credit liability 540 604 Operating lease liabilities 252 319 Net operating losses and tax credits (a) 644 352 Other 260 267 Valuation allowance (9) Total deferred tax assets 2,043 1,879 Net deferred tax liability $ 2,289 $ 2,167 (a) As of December 31, 2025 and 2024, the Company had approximately $66 million and $56 million, respectively, of state net operating loss carryforwards (tax effected) to reduce future state taxable income. These state net operating loss carryforwards will expire in years 2026 through 2046 if unused. As of December 31, 2025 and 2024, the Company had $504 million and $253 million, respectively, of federal net operating loss carryforwards (tax effected) that may be carried forward indefinitely. As of December 31, 2025 and 2024, the Company had $75 million and $53 million, respectively, of federal research and development tax credit carryforw …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

"LEASES The Company enters into leases for aircraft, property, and other types of equipment in the normal course of business. As allowed under ASC 842, Leases, the Company has elected a practical expedient to exclude from recognition lease assets and lease liabilities associated with leases that have an initial term of twelve months or less. Such expense was not material for the twelve months ended December 31, 2025, 2024, and 2023. As of December 31, 2025, the Company held aircraft leases with remaining terms extending up to eight years. The aircraft leases generally can be renewed for three months to three years at rates based on the fair market value at the end of the lease term. Residual value guarantees included in the Company's lease agreements are not material. The lease return costs incurred by the Company for returns completed in 2025 were $33 million, recognized as a component of Other operating expenses but were not material for all other periods presented. In fourth quarter 2024, the Company entered into an agreement with UMB Bank, N.A. (""UMB Bank"") involving the sale of 36 of the Companys -800 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance. Of the 36 -800 sale-leasebacks, 35 were executed in fourth quarter 2024 and one was executed in first quarter 2025. The Company sold the 35 -800 aircraft in fourth quarter 2024 to UMB Bank for $871 million, then immediately leased the aircraft back for approximately two to three y …

LesseeOperatingLeasesTextBlock · excerpt; the full note is in the filing

"On September 18, 2025, the Financial Accounting Standards Board (the ""FASB"") issued Accounting Standards Update (""ASU"") 2025-06, Accounting for and Disclosure of Software Costs. The new standard modernizes the guidance to reflect the software development approaches currently being used by removing all references to ""development stages"" from ASC 350-40 IntangiblesGoodwill and Other - Internal-Use Software. Under ASU 2025-06, only the following criteria in ASC 350-40-25-12(b) and (c) must be met for entities to begin capitalizing software costs: (i) management, with the relevant authority, implicitly or explicitly authorizes and commits to funding a computer software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the ""probable-to-complete recognition threshold""). This standard is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods, with early adoption permitted. Entities may apply the guidance prospectively, retrospectively, or via a modified prospective transition method. The Company is evaluating this new standard, but does not expect it to have a significant impact on its financial statement presentation or results. On November 4, 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220 …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

"EMPLOYEE RETIREMENT PLANS Defined Contribution Plans The Company has defined contribution plans covering substantially all Employees. Contributions to these plans are primarily based on Employee elective deferrals as well as their eligible compensation and Company performance. The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as amended. The Southwest Airlines Pilots Retirement Saving Plan has non-elective Company contributions. In the Southwest Airlines Co. Retirement Savings Plan (the ""Retirement Savings Plan""), non-elective contributions are allowed for certain eligible workgroups that have negotiated such items as part of ratified collective-bargaining contracts, Company matching contributions are made for eligible Employees contributing to their 401(k) accounts, and the Company contributes a percentage of its annual net profits, as defined. Amounts associated with the Company's defined contribution plans expensed in 2025, 2024, and 2023, reflected as a component of Salaries, wages, and benefits, were $1.0 billion, $825 million, and $941 million respectively. Defined Benefit Plan In 2024, the Company began offering a market based cash balance defined benefit plan covering eligible Pilots. The Company's funding obligation for the qualified plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA) and any applicable regulations. The plan provides pension credits equal to 1 percent of eligible wage …

PensionAndOtherPostretirementBenefitsDisclosureTextBlock · excerpt; the full note is in the filing

RESTRUCTURING In February 2025, the Company implemented a reduction in its workforce designed to reduce operating costs, increase efficiency, and create a leaner and more agile organization as part of its transformational plan. The workforce reduction of approximately 1,750 Employee roles was focused almost entirely on corporate overhead and leadership positions and represented approximately 15 percent of corporate positions, including senior leadership. Separations were substantially completed by the end of second quarter 2025. As a result of this workforce reduction, the Company recorded a one-time expense of $62 million in first quarter 2025, which is included on the Consolidated Statement of Income as part of Salaries, wages, and benefits and Other operating expenses . Substantially all of the expense is due to Employee severance payments and related professional fees and was substantially paid in first and second quarter 2025, with no amounts remaining on the Consolidated Balance Sheet as of December 31, 2025. The Company does not expect to incur any material additional costs in connection with this reduction in workforce. …

RestructuringAndRelatedActivitiesDisclosureTextBlock · excerpt; the full note is in the filing

"REVENUE Passenger Revenues The Companys contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability. Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided. Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow. The following table provides the components of Passenger revenue recognized for the years ended December 31, 2025, 2024, and 2023: Year ended December 31, (in millions) 2025 2024 2023 Passenger non-loyalty $ 20,441 $ 20,467 $ 19,073 Passenger loyalty - air transportation 3,259 3,484 3,639 Passenger ancillary sold separately 1,835 1,029 925 Total passenger revenues $ 25,535 $ 24,980 $ 23,637 Passenger non-loyalty includes all revenues recognized from Passengers for flights purchased primarily with credit card. Passenger loyalty - air transportation primarily consists of the revenue associated with award flights taken by loyalty program Members upon redemption of loyalty points. Passenger ancillary sold separately includes any revenue associated with ancillary fees charged separately, such as in-flight purchases, baggage fees, EarlyBird Check-In , and Upgraded Boarding. In order to determine the value of each loyalty point in a flight transaction, certain assumptions must be made at the time of measurement, wh …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing

"COMMON STOCK The Company has one class of capital stock, its common stock. Holders of shares of common stock are entitled to receive dividends when and if declared by the Board of Directors and are entitled to one vote per share on all matters submitted to a vote of the Shareholders. As of December 31, 2025, the Company had 80 million shares of common stock reserved for issuance pursuant to Employee equity plans (of which 21 million shares had not been granted) through various share-based compensation arrangements. See Note 9 for information regarding the Company's equity plans. Repurchase of Common Stock Under an accelerated share repurchase program entered into by the Company with third-party financial institutions in first quarter 2025 (the First Quarter 2025 ASR Program), the Company paid $750 million and received an initial delivery of 19,867,550 shares during February 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the First Quarter 2025 ASR Program. This share amount was based on the $30.20 closing price of the Companys common stock on February 19, 2025. Final settlement of the First Quarter 2025 ASR Program occurred in April 2025 and was based on a discount to the volume-weighted average price per share of the Companys common stock during a calculation period completed in April 2025. Upon settlement, the third-party financial institutions delivered 4,242,267 additional shares of the Companys common stock to the Company. U …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing

"COMMITMENTS AND CONTINGENCIES Commitments The Company's contractual order book with The Boeing Company (""Boeing"") for 737-7 (""-7"") and 737-8 (""-8"") aircraft (together, the ""MAX aircraft""), which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility and optionality to manage its fleet gauge and size, including opportunities to accelerate fleet modernization efforts. The Company received 13 -8 aircraft deliveries from Boeing in second quarter 2026 and retired 10 aircraft (including five 737-700 (""-700"") aircraft and the sale of one -700 aircraft and four 737-800 (""-800"") aircraft). In addition, during second quarter 2026, the Company exercised six -7 options for delivery in 2027. During the six months ended June 30, 2026, the Company converted 19 2026 deliveries from -7 to -8 firm orders. Boeing continues to experience delays in fulfilling its commitments with regards to delivery of MAX aircraft to the Company, primarily as a result of manufacturing challenges and delays in achieving Federal Aviation Administration (""FAA"") certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer. As a result of Boeing's delivery delays, the Company has previously replanned its capacity and delivery expectations multiple times and will continue to closely monitor the ongoing aircraft delivery delays with Boeing and further adjust expectations as …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

"DEBT Convertible Notes On May 1, 2020, the Company completed the public offering of $2.3 billion aggregate principal amount of Convertible Notes, bearing interest at a rate of 1.25 percent, payable semi-annually in arrears. The Company repurchased $689 million during the two year period ending December 31, 2022, and the remaining $1.6 billion principal amount of the Convertible Notes was repaid at maturity during second quarter 2025 utilizing available cash on hand. An immaterial amount of Convertible Note conversions settled at maturity. Payroll Support Program Loan due 2031 During 2020 and 2021, the Company entered into definitive documentation with the United States Department of the Treasury (""Treasury"") with respect to payroll funding support (""Payroll Support"") pursuant to three separate Payroll Support programs: the ""PSP1 Payroll Support Program"" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act; the ""PSP2 Payroll Support Program in January 2021 under the Consolidated Appropriations Act, 2021; and the ""PSP3 Payroll Support Program"" in April 2021 under the American Rescue Plan Act of 2021. As consideration for its receipt of funding under each of these Payroll Support programs, the Company issued promissory notes in favor of Treasury (each initially classified as a component of Long-term debt less current maturities in the unaudited Condensed Consolidated Balance Sheet). The note associated with the PSP1 Payroll Support Program was ori …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

The following tables provide the components of Passenger revenue and Other revenue recognized for the three and six months ended June 30, 2026 and 2025: Three months ended June 30, Six months ended June 30, (in millions) 2026 2025 2026 2025 Passenger non-loyalty $ 6,104 (a) $ 5,448 $ 11,292 (a) $ 10,214 Passenger loyalty - air transportation 766 870 1,454 1,670 Passenger ancillary sold separately (b) 875 309 1,591 554 Total passenger revenues $ 7,745 $ 6,627 $ 14,337 $ 12,438 (a) Includes a reversal of previously recognized breakage revenue of approximately $285 million, related to the periods July 2022 through December 2025. See Note 1 for further information. (b) The increase in Passenger ancillary sold separately in the three and six months ended June 30, 2026 as compared with the respective prior periods was due to the Company's initiative to implement new ancillary productsbag fees for most fare products beginning May 28, 2025, and operating assigned and extra legroom seating for travel beginning January 27, 2026, which includes the co-brand impact associated with those initiatives. Three months ended June 30, Six months ended June 30, (in millions) 2026 2025 2026 2025 Loyalty program $ 578 $ 536 $ 1,135 $ 1,081 Other 59 37 117 67 Total other revenues $ 637 $ 573 $ 1,252 $ 1,148 …

DisaggregationOfRevenueTableTextBlock · excerpt; the full note is in the filing

FAIR VALUE MEASUREMENTS Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of June 30, 2026, the Company held certain items that are required to be measured at fair value on a recurring basis, including cash equivalents. The Company may also from time to time hold short-term investments and available-for-sale securities. The majority of the Companys cash equivalents consist of instruments classified as Level 1. However, the Company classifies any certificates of deposit and time deposits it holds as Level 2 due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets. Equity securities primarily consist of investments with readily determinable market values associated with the Companys excess benefit plan. The Companys interest rate derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. Interest rate derivatives currently consist solely of swap agreements. See Note 3 for further information o …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

"On May 19, 2026, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2026-02, Environmental Credits and Environmental Credit Obligations (Topic 818), which establishes a new accounting model for environmental credits and related obligations. ASU 2026-02 provides guidance on the recognition, measurement, presentation, and disclosure of environmental credits, as well as obligations that may be settled using such credits. Under ASU 2026-02, environmental credits are recognized as assets when it is probable they will be used to satisfy a compliance obligation, transferred, or otherwise utilized in a qualifying manner. The accounting for these credits, including subsequent measurement, depends on whether they are expected to be used for compliance or noncompliance purposes. ASU 2026-02 also requires entities to recognize environmental credit obligations as activities occur that give rise to a regulatory requirement and introduces a measurement approach that is generally linked to the cost basis of credits expected to be used to settle such obligations. This standard is effective for public business entities for annual reporting periods beginning after December 15, 2027, including interim periods within those annual periods, with early adoption permitted. The Company is evaluating this new standard, but does not expect it to have a significant impact on its financial statement presentation or results. On September 18, 2025, the FASB issued ASU …

NewAccountingPronouncementsPolicyPolicyTextBlock · excerpt; the full note is in the filing

"REVENUE Passenger Revenues The Companys contracts with its Customers primarily consist of ticket sales, which are initially deferred as Air traffic liability. Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided. For air travel on Southwest, the amount of tickets (which includes flight creditsalso referred to as partial tickets) that will go unused, referred to as breakage, is estimated and recognized in Passenger revenue once the scheduled flight date has passed, in proportion to the pattern of rights exercised by the Customer. Revenue is categorized by revenue source as the Company believes this best depicts the nature, amount, timing, and uncertainty of revenue and cash flow. The following tables provide the components of Passenger revenue and Other revenue recognized for the three and six months ended June 30, 2026 and 2025: Three months ended June 30, Six months ended June 30, (in millions) 2026 2025 2026 2025 Passenger non-loyalty $ 6,104 (a) $ 5,448 $ 11,292 (a) $ 10,214 Passenger loyalty - air transportation 766 870 1,454 1,670 Passenger ancillary sold separately (b) 875 309 1,591 554 Total passenger revenues $ 7,745 $ 6,627 $ 14,337 $ 12,438 (a) Includes a reversal of previously recognized breakage revenue of approximately $285 million, related to the periods July 2022 through December 2025. See Note 1 for further information. (b) The increase in Passenger anc …

RevenueFromContractWithCustomerTextBlock · excerpt; the full note is in the filing