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What changed in Southwest Airlines's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Southwest Airlines's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+723 added−884 removedSource: 10-K (2026-02-05) vs 10-K (2025-02-07)

Top changes in Southwest Airlines's 2025 10-K

723 paragraphs added · 884 removed · 472 edited across 10 sections

Item 1. Business

Business — how the company describes what it does

163 edited+97 added−169 removed47 unchanged
Biggest changeThe Company continuously reviews the effectiveness of its Customer policies in achieving its commercial objectives. • The Company offers up to two free checked bags (subject to weight and size limits) for all ticketed Customers; • The Company offers competitively low fares and does not charge change fees (although fare differences may apply) or cancellation fees (subject to the Company’s No Show policy); • The Company offers free same-day standby listings (subject to conditions); • Customers can pay with a combination of cash and Rapid Rewards points; • Rapid Rewards points do not expire; • Flight credits do not expire; and • There are no additional fees for items such as soft drinks and snacks where available, curb-side check-in where available, and telephone reservations. 27 Table of Contents Balance Sheet Health The Company has maintained its investment-grade rating by all three major credit agencies (Moody’s, S&P Global, and Fitch), and is one of only two major U.S. passenger airlines with an investment-grade rating by all three major credit agencies.
Biggest changeThe Company believes its Customer Service and policies (including those listed below) continue to positively differentiate it from many of its competitors. • The Company offers free in-flight Wi-Fi for all Rapid Rewards Members through a partnership with T-Mobile; • The Company offers competitive fares and does not charge change fees for most fare products (although fare differences may apply) or cancellation fees (subject to the Company’s No Show policy); • The Company offers free same-day standby listings (subject to conditions); • Customers can pay with a combination of cash and Rapid Rewards points; and • Rapid Rewards points do not expire.
The airline industry has also been particularly susceptible to detrimental events such as economic recessions, jet fuel price volatility, unscheduled maintenance disruptions, outbreaks of disease and/or pandemics, supply chain challenges, U.S. government shutdowns, acts of terrorism or war, geopolitical unrest, severe weather, and natural disasters.
The airline industry has also been particularly susceptible to detrimental events such as U.S. government shutdowns, economic recessions, jet fuel price volatility, unscheduled maintenance disruptions, outbreaks of disease and/or pandemics, supply chain challenges, acts of terrorism or war, geopolitical unrest, severe weather, and natural disasters.
In an effort to advance these initiatives, the Company’s DEIB priorities include the following: • Maintaining a culture of Belonging through the promotion of inclusion and meaningful connections among Employees; • Continued focus on a Leadership bench diverse in skills, experience, and perspective; and • Supporting the Company’s commitment to provide all Employees with equal opportunity for learning and personal growth.
In an effort to advance these initiatives, the Company’s inclusion priorities include the following: • Maintaining a culture of Belonging through the promotion of inclusion and meaningful connections among Employees; • Continued focus on a Leadership bench diverse in skills, experience, and perspective; and • Supporting the Company’s commitment to provide all Employees with equal opportunity for learning and personal growth.
References to the Company's website in this Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Form 10-K. 31 Table of Contents DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION This Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
References to the Company's website in this Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website, and such information should not be considered part of this Form 10-K. 26 Table of Contents DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION This Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
As of December 31, 2024, Southwest had a total of 803 Boeing 737 aircraft in its fleet and served 117 destinations in 42 states, the District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.
As of December 31, 2025, Southwest had a total of 803 Boeing 737 aircraft in its fleet and served 117 destinations in 42 states, the District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.
In general, government efforts at the international, federal, state, or local levels to address worldwide climate change, manage GHG emissions, and reduce aircraft noise, to the extent pursued or implemented, could affect the Company, aircraft operators, original equipment manufacturers, producers and sellers of aviation fuel, and other third parties on which the Company is dependent.
Government efforts at the international, federal, state, or local levels to address worldwide climate change, manage GHG emissions, and reduce aircraft noise, to the extent pursued or implemented, could affect the Company, aircraft operators, original equipment manufacturers, producers and sellers of aviation fuel, and other third parties on which the Company is dependent.
In addition, the active full-time equivalent Employees figure includes an adjustment to count all part-time Employees as a 0.5 full-time equivalent Employee. When considering total 28 Table of Contents demographics of Employees, however, the Company looks at total headcount, active and on-leave Employees, irrespective of part-time or full-time status.
In addition, the active full-time equivalent Employees figure includes an adjustment to count all part-time Employees as a 0.5 full-time equivalent Employee. When considering total 23 Table of Contents demographics of Employees, however, the Company looks at total headcount, active and on-leave Employees, irrespective of part-time or full-time status.
Southwest complements its high-frequency short-haul routes with mid-range and long-haul nonstop service, including flights between Hawaii and California, Las Vegas, and Phoenix, and between markets such as Los Angeles and Nashville, New York LaGuardia and Houston, Los Angeles and Baltimore, Oakland and Houston, and San Diego and Baltimore.
Southwest complements its high-frequency short-haul routes with mid-range and long-haul nonstop service, including flights between Hawaii and California, Las Vegas, and Phoenix, and between markets such as Las Vegas and Washington Reagan, Los Angeles and Nashville, New York LaGuardia and Houston, Los Angeles and Baltimore, Oakland and Houston, and San Diego and Baltimore.
To provide passenger transportation in the United States, a domestic airline is required to hold a Certificate of Public Convenience and Necessity from the DOT. A Certificate of Public Convenience and Necessity is unlimited in duration, and the Company’s certificate generally permits it to operate among any points within the United States and its territories and possessions.
Department of Transportation To provide passenger transportation in the United States, a domestic airline is required to hold a Certificate of Public Convenience and Necessity from the DOT, which is unlimited in duration. The Company’s certificate generally permits it to operate among any points within the United States and its territories and possessions.
In addition to its reports filed or furnished with the SEC, the Company publicly discloses material information from time to time in its press releases, at annual meetings of Shareholders, in publicly accessible conferences and Investor presentations, and through its website (principally in its Press Room and Investor Relations pages).
In addition to its reports filed or furnished with the SEC, the Company publicly discloses material information from time to time in its press releases, at annual meetings of Shareholders, in publicly accessible conferences and Investor presentations, and through its website (principally in its Newsroom and Investor Relations pages).
Southwest’s Rapid Rewards loyalty program has been designed to drive more revenue by (i) bringing in new Customers, including new Members, as well as new holders of Southwest’s co-branded Chase Visa credit cards; (ii) increasing business from existing Customers; and (iii) strengthening the Company’s Rapid Rewards hotel, rental car, credit card, and other partnerships.
Southwest’s Rapid Rewards loyalty program has been designed to drive more revenue by (i) bringing in new Customers, including new Members, as well as new holders of Southwest’s co-branded Chase Visa credit cards and Southwest Airlines Rapid Rewards Debit Card; (ii) increasing business from existing Customers; and (iii) strengthening the Company’s Rapid Rewards hotel, rental car, credit card, debit card, and other partnerships.
Southwest Business ® Initiatives In addition to improvements in the Company's consumer-direct Southwest.com channel of distribution and new flight search engine partnerships, in recent years the Company has taken significant action, including investments in Employees, processes, and technology, in order to grow its corporate travel business with the goal of making it easier for corporate travel Customers and travel management companies to do business with Southwest.
Southwest Business ® Initiatives In addition to improvements in the Company's consumer-direct Southwest.com channel of distribution and new distribution partnerships, in recent years the Company has taken significant action, including investments in Employees, processes, and technology, in order to grow its corporate travel business with the goal of making it easier for corporate travel Customers and travel management companies to do business with Southwest.
The policies principally provide coverage for public and passenger liability, property damage, pollution, D&O/fiduciary, cargo and baggage liability, loss or damage to aircraft, engines, and 25 Table of Contents spare parts, and workers’ compensation.
The policies principally provide coverage for public and passenger liability, 20 Table of Contents property damage, pollution, D&O/fiduciary, cargo and baggage liability, loss or damage to aircraft, engines, and spare parts, and workers’ compensation.
The DOT defines major U.S. airlines as those airlines with annual revenues of at least $1 billion; there are currently 15 passenger airlines offering scheduled service, including Southwest, that meet this standard.
The DOT defines major U.S. airlines as those airlines with annual revenues of at least $1 billion; there are currently 14 passenger airlines offering scheduled service, including Southwest, that meet this standard.
Moreover, listing PFAS compounds under CERCLA may give rise to strict, joint and several liability for removal, remedial, response, and other costs, the costs of which could be material. The federal government and the United Nations’ International Civil Aviation Organization (“ICAO”) have agreed to a series of measures to reduce GHG emissions within the aviation sector.
Moreover, listing PFAS compounds under CERCLA may give rise to strict, joint and several liability for removal, remedial, response, and other costs, the costs of which could be material. Members of the United Nations’ International Civil Aviation Organization (“ICAO”) have agreed to a series of measures to reduce GHG emissions within the aviation sector.
Additionally, there are emerging regulations and state laws around AI, including those in California and Colorado, that may soon require companies that develop or deploy AI systems to establish formal governance structures and 24 Table of Contents internal controls, including designated oversight personnel, documented risk assessment procedures, and regular compliance reviews of their AI systems.
Additionally, there are emerging regulations and state laws around AI, including those in California and Colorado, that may soon require companies that develop or deploy AI systems to establish formal governance structures and internal controls, including designated oversight personnel, documented risk assessment procedures, and regular compliance reviews of their AI systems.
Southwest’s unique route network, low fares, and famous Hospitality continue to make the Company an attractive choice for Customers in cities across the United States and near-international destinations.
Southwest’s unique route network, competitive fares, and famous Hospitality continue to make the Company an attractive choice for Customers in cities across the United States and near-international destinations.
Southwest’s No-Show Policy applies if a Customer does not change or cancel a flight segment at least ten minutes prior to scheduled departure and the Customer does not travel on the scheduled flight.
Southwest’s No-Show Policy applies if a Customer does not change or cancel a flight segment at least 10 minutes prior to scheduled departure and the Customer does not travel on the scheduled flight.
The Company works collaboratively with the TSA, foreign national governments, and airports to provide risk-based security measures at international locations served by the Company. The Company has also made significant investments in facilities, equipment, and technology to process Customers, checked baggage, and cargo efficiently in compliance with applicable security regulations.
The Company works collaboratively with the TSA, CBP, foreign governments, and airports to provide risk-based security measures at international locations served by the Company. The Company has also made significant investments in facilities, equipment, and technology to inspect and process Customers, checked baggage, and cargo efficiently in compliance with applicable security regulations.
By not concentrating operations exclusively through one or more central transfer points, Southwest's route structure has allowed for more direct nonstop routing than a traditional hub-and-spoke service. To provide greater connectivity and support operational reliability and recoverability, in recent years the Company has increasingly focused on designing its network around core stations.
By not concentrating operations exclusively through one or more central transfer points, 3 Table of Contents Southwest's route structure has allowed for more direct nonstop routing than a traditional hub-and-spoke service. To provide greater connectivity and support operational reliability and recoverability, in recent years the Company has increasingly focused on designing its network around core stations.
Until the timing, scope, and extent of such future developments become known, the Company cannot predict their effect on the Company’s cost structure or its operating results.
However, until the timing, scope, and extent of such future developments become known, the Company cannot accurately predict their effect on the Company’s cost structure or its operating results.
Environmental Regulation The Company is subject to various federal laws and regulations relating to the protection of the environment, including the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), as well as state and local laws and regulations.
Environmental Regulation The Company is subject to various federal laws and regulations relating to the protection of the environment, including the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), as 17 Table of Contents well as state and local laws and regulations.
The ATSA and subsequent TSA regulations and procedures implementing the ATSA and related statutes address, among other things, (i) flight deck security; (ii) the use of federal air marshals onboard flights; (iii) airport and aircraft access security; (iv) airline crew security training; (v) security screening of passengers, baggage, cargo, mail, employees, and vendors; (vi) training and qualifications of security screening personnel; (vii) provision of passenger data to CBP; (viii) background checks; and (ix) certain cybersecurity requirements.
TSA regulations and procedures address, among other things, (i) flight deck security; (ii) the use of federal air marshals onboard flights; (iii) airport and aircraft access security; (iv) airline crew security training; (v) security screening of passengers, baggage, cargo, mail, employees, and vendors; (vi) training and qualifications of security screening personnel; (vii) provision of passenger data to CBP; (viii) background checks; and (ix) certain cybersecurity requirements.
For the years ended December 31, 2024, and December 31, 2023, approximately 81 percent and 82 percent, respectively, of the Company’s Passenger revenues originated from Southwest.com or the Southwest App (including revenues from SWABIZ®, the Company's online booking tool designed for business Customers who prefer a self-service and low-cost solution for booking their air travel on Southwest).
For the years ended December 31, 2025, and December 31, 2024, approximately 78 percent and 81 percent, respectively, of the Company’s Passenger revenues originated from Southwest.com or the Southwest App (including revenues from SWABIZ ® , the Company's online booking tool designed for business Customers who prefer a self-service and low-cost solution for booking their air travel on Southwest).
Diversity, Equity, Inclusion & Belonging (“DEIB”) The Company is committed to being an equal opportunity employer and prohibits all forms of unlawful discrimination in accordance with applicable law. DEIB is a part of the Company’s culture that not only supports its workforce but is fundamental to the Company’s efforts to support the communities that it serves.
Inclusion & Belonging The Company is committed to being an equal opportunity employer and prohibits all forms of unlawful discrimination in accordance with applicable law. Inclusion is a part of the Company’s culture that not only supports its workforce but is fundamental to the Company’s efforts to support the communities that it serves.
As a result, depending on the nature of the specific alliance or code-sharing arrangement, a participating airline may be able to, among other things, (i) offer its customers access to more destinations than it would be able to serve on its own, (ii) gain exposure in markets it does not otherwise serve, and (iii) increase the perceived frequency of its flights on certain routes.
Depending on the nature of the specific alliance, code-sharing arrangement, or capacity purchase agreement, a participating airline may be able to, among other things, (i) offer its customers access to more destinations than it would be able to serve on its own, (ii) gain exposure in markets it does not otherwise serve, and (iii) increase the perceived frequency of its flights on certain routes.
Routes, Loyalty Programs, and Schedules The Company also competes with other airlines based on markets served, loyalty opportunities, and flight schedules. While the Company has a robust route network in the United States, some major airlines have more extensive global route structures than Southwest, including more extensive international networks.
Routes, Loyalty Programs, and Schedules 21 Table of Contents The Company also competes with other airlines based on markets served, loyalty opportunities, and flight schedules. While the Company has a robust route network in the United States, some major airlines have more extensive global route structures than Southwest, including more extensive international networks.
The table below sets forth data regarding the Company's nonstop service, aircraft stage length, and trip duration over the last three years: Year ended December 31, 2024 2023 2022 Percentage of Customers flying nonstop 74% 73% 74% Nonstop city pairs 850 805 825 Average stage length (miles) 763 730 728 Average trip duration (hours) 2.0 2.0 2.0 The Company continually works to better optimize its route network and schedule through the adjustment of flights in its existing markets and the addition of new markets and itineraries, while also pruning less profitable flights from its schedule.
The table below sets forth data regarding the Company's nonstop service, aircraft stage length, and trip duration over the last three years: Year ended December 31, 2025 2024 2023 Percentage of Customers flying nonstop 74% 74% 73% Nonstop city pairs 871 850 805 Average stage length (miles) 780 763 730 Average trip duration (hours) 2.1 2.0 2.0 The Company continually works to better optimize its route network and schedule through the adjustment of flights in its existing markets and the addition of new markets and itineraries, while also pruning less profitable flights from its schedule.
The Company regularly conducts Employee surveys to assess job satisfaction of its Employees and uses information from the surveys to improve the Company’s ability to attract, develop, and retain talented Employees who will help advance the Company.
The Company 25 Table of Contents regularly conducts Employee surveys to assess job satisfaction of its Employees and uses information from the surveys to improve the Company’s ability to attract, develop, and retain talented Employees who will help advance the Company.
The Company has consistently utilized active full-time equivalent Employees to determine various metrics that measure productivity and efficiency, so it has chosen to not include on-leave Employees in the figure, which totaled an additional 4,546 Employees as of December 31, 2024.
The Company has consistently utilized active full-time equivalent Employees to determine various metrics that measure productivity and efficiency, so it has chosen to not include on-leave Employees in the figure, which totaled an additional 4,607 Employees as of December 31, 2025.
If an A-List or A-List Preferred Member’s plans change, subject to Southwest’s No Show Policy, they are entitled to same-day confirmed change, free of airline charges, if there is an open seat on another flight that departs on the same day as the original flight and is between the same origin and destination airports, but the Customer is required to pay any additional government taxes and fees associated with changes in their itinerary.
If an A-List or A-List Preferred Member’s plans change, subject to Southwest’s No Show Policy, they are entitled to a same-day standby listing, free of airline charges, if there is another flight that departs on the same day as the original flight and is between the same origin and destination airports, but the Customer is required to pay any additional government taxes and fees associated with voluntary changes in their itinerary.
These communication alternatives have bec ome particularly prevalent post-pandemic. Pricing and Cost Structure Pricing is a significant competitive factor in the airline industry, and the availability of fare information on the Internet allows travelers to easily compare fares and identify competitor promotions and discounts. During 2024, the Company continued to experience a highly competitive fare environment.
These communication alternatives have become particularly prevalent post-pandemic. Pricing and Cost Structure Pricing is a significant competitive factor in the airline industry, and the availability of fare information on the Internet allows travelers to easily compare fares and identify competitor promotions and discounts. During 2025, the Company continued to experience a highly competitive fare environment.
Company Operations Route Structure 3 Table of Contents Southwest primarily provides “point-to-point” service, rather than the “hub-and-spoke” service provided by most major U.S. airlines. A point-to-point system enables airlines to connect directly to destinations without providing connecting service.
Company Operations Route Structure Southwest primarily provides “point-to-point” service, rather than the “hub-and-spoke” service provided by most major U.S. airlines. A point-to-point system enables airlines to connect directly to destinations without providing connecting service .
However, the Company is not able to predict the impact, if any, t hat any new security measures or TSA resource limitations at certain airports will have on Passenger revenues and the Company’s costs, either in the short-term or the long-term.
However, the Company is not able to predict the impact, if any, that any new security measures or TSA or CBP resource limitations at certain airports will have on Passenger revenues and the Company’s costs, either in the short-term or the long-term.
Technology Initiatives 13 Table of Contents The Company is focused on the prioritization and execution of its technology investments through an evolving multi-year plan, with the goal of developing stronger, more adaptable, more efficient, and more reliable technology systems to support the Company's strategic priorities.
Technology Initiatives The Company is focused on the prioritization and execution of its technology investments through an evolving multi-year plan, with the goal of developing stronger, more adaptable, more efficient, more secure, and more reliable technology systems to support the Company's strategic priorities.
In addition, many competitors have entered into significant commercial relationships with other airlines, such as strategic 26 Table of Contents alliances, code-sharing, and capacity purchase agreements, which increase the airlines' opportunities to expand their route offerings.
In addition, many competitors have entered into significant commercial relationships with other airlines, such as strategic alliances, code-sharing, and capacity purchase agreements, which increase the airlines' opportunities to expand their route offerings.
If there is no open seat on this different flight, a traveler may request to be added to the standby list for that flight. • “Anytime” fares are often subject to advance purchase requirements. They are refundable if canceled, subject to Southwest’s No-Show Policy, or flight credit may be applied towards future travel on Southwest.
If there is no open seat on this different flight, a traveler may request to be added to the standby list for that flight. • “Choice Preferred” fares may be subject to advance purchase requirements. They are refundable if canceled, subject to Southwest’s No-Show Policy, or a Transferable Flight Credit may be applied towards future travel on Southwest.
The reporting obligations of the CCDAA, CRFRA, VCMDA, and other state or federal laws or rules requiring the disclosure of climate-related risks may cause the Company to incur increased costs with respect to modifying existing disclosure controls, financial reporting practices, and the gathering and reporting of emissions data.
The reporting obligations of state or federal laws or rules requiring the disclosure of climate-related risks may cause the Company to incur increased costs with respect to modifying existing disclosure controls, financial reporting practices, and the gathering and reporting of emissions data.
In some cases, such laws and regulations can be enforced by private parties in addition to regulators. The Company processes, stores, or transmits sensitive data that includes information such as Customer or Employee data, credit card numbers, and other personally identifiable information for a variety of business purposes.
In some cases, such laws and regulations can be enforced by private parties in addition to regulators. The Company processes, stores, and transmits sensitive data that includes information such as Customer and Employee data, credit card numbers, sensitive security information, and other regulated information for a variety of business purposes.
While the Company believes that the disclosures contained in the Southwest One Report and other voluntary disclosures regarding environmental, social, and governance (“ESG”) matters are responsive to various areas of investor interest, the Company believes that certain of these disclosures do not currently address matters that are material to the Company’s operations, strategy, financial condition, or financial results, although this view may change in the future based on new information that could materially alter the estimates, assumptions, or timelines used to create these disclosures.
While the Company believes that its voluntary disclosures regarding environmental, social, and governance matters are responsive to various areas of investor interest, the Company believes that certain of these disclosures do not currently address matters that are material to the Company’s operations, strategy, financial condition, or financial results, although this view may change in the future based on new information that could materially alter the estimates, assumptions, or timelines used to create these disclosures.
Other Forms of Competition Technology advancements have provided alternatives to air travel, such as videoconferencing, business communication platforms, and the Internet, and these alternatives significantly increased in scope during the COVID-19 pandemic. There is risk that the significantly increased use of these alternatives could result in permanent changes to consumer behavior and thereby negatively affect demand for air travel.
Other Forms of Competition Technology advancements have provided alternatives to air travel, such as videoconferencing, business communication platforms, and the Internet, and these alternatives have significantly increased in scope in recent years. There is risk that the significantly increased use of these alternatives could result in permanent changes to consumer behavior and thereby negatively affect demand for air travel.
The Company's fuel hedging activities, as well as the risks associated with high and/or volatile fuel prices, are discussed in more detail below under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 10 to the Consolidated Financial Statements.
The risks associated with high and/or volatile fuel prices are discussed in more detail below under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 10 to the Consolidated Financial Statements.
Members can also earn points through qualifying purchases with Rapid Rewards Partners (which include, for example, car rental agencies, hotels, and restaurants), as well as by using Southwest’s co-branded Chase® Visa credit cards.
Members can also earn points through qualifying purchases with Rapid Rewards Partners (which include, for example, car rental agencies, hotels, and restaurants), as well as by using Southwest’s co-branded Chase ® Visa credit cards or Southwest Airlines Rapid Rewards Debit Card.
The following table sets forth the Company's Employee groups subject to collective bargaining and the status of their respective collective-bargaining agreements as of December 31, 2024: 29 Table of Contents Employee Group Approximate Number of Full-time Equivalent Employees Representatives Status of Agreement Southwest Pilots 10,548 Southwest Airlines Pilots' Association (“SWAPA”) Amendable January 2029 Southwest Flight Attendants 19,518 Transportation Workers of America, AFL-CIO, Local 556 (“TWU 556”) Amendable May 2028 Southwest Material Specialists (formerly known as Stock Clerks) 484 International Brotherhood of Teamsters, Local 19 (“IBT 19”) Amendable October 2026 Southwest Ramp, Operations, Provisioning, Freight Agents 16,940 Transport Workers Union Local 555 (“TWU 555”) Amendable March 2029 Southwest Flight Simulator Technicians 53 IBT 19 Amendable September 2028 Southwest Flight Crew Training Instructors 227 Transportation Workers of America, AFL-CIO, Local 557 (“TWU 557”) Amendable January 2027 Southwest Dispatchers 519 Transportation Workers of America, AFL-CIO, Local 550 (“TWU 550”) Amendable June 2027 Southwest Aircraft Appearance Technicians 212 AMFA Amendable July 2027 Southwest Mechanics & Related Employees 3,011 Aircraft Mechanics Fraternal Association (“AMFA”) Amendable August 2027 Southwest Facilities Maintenance Technicians 49 AMFA Amendable November 2027 Southwest Customer Service Agents, Customer Representatives, and Source of Support Representatives 7,265 International Association of Machinists and Aerospace Workers, AFL-CIO (“IAM 142”) Amendable December 2027 Southwest Meteorologists 15 TWU 550 Amendable May 2028 Human Capital Objectives and Programs The Company’s hiring, development, and retention of a talented workforce is a priority that includes: (i) providing opportunities for learning, development, career growth, and movement within the Company; (ii) evaluating compensation and benefits, and rewarding performance; (iii) investing in physical, emotional, and financial health of Employees; (iv) obtaining Employee feedback; (v) maintaining and enhancing Company culture; (vi) communicating with the Board on a routine basis on key topics, including executive succession planning; and (vii) ongoing commitments to equal employment opportunity within the workplace.
The following table sets forth the Company's Employee groups subject to collective bargaining and the status of their respective collective-bargaining agreements as of December 31, 2025: 24 Table of Contents Employee Group Approximate Number of Full-time Equivalent Employees Representatives Status of Agreement Southwest Pilots 10,321 Southwest Airlines Pilots' Association (“SWAPA”) Amendable January 2029 Southwest Flight Attendants 21,197 Transportation Workers of America, AFL-CIO, Local 556 (“TWU 556”) Amendable May 2028 Southwest Material Specialists (formerly known as Stock Clerks) 474 International Brotherhood of Teamsters, Local 19 (“IBT 19”) Amendable October 2026 Southwest Ramp, Operations, Provisioning, Freight Agents 17,565 Transport Workers Union Local 555 (“TWU 555”) Amendable March 2029 Southwest Flight Simulator Technicians 53 IBT 19 Amendable September 2028 Southwest Flight Crew Training Instructors 205 Transportation Workers of America, AFL-CIO, Local 557 (“TWU 557”) Amendable January 2027 Southwest Dispatchers 508 Transportation Workers of America, AFL-CIO, Local 550 (“TWU 550”) Amendable June 2027 Southwest Aircraft Appearance Technicians 209 AMFA Amendable July 2027 Southwest Mechanics & Related Employees 2,999 Aircraft Mechanics Fraternal Association (“AMFA”) Amendable August 2027 Southwest Facilities Maintenance Technicians 45 AMFA Amendable November 2027 Southwest Customer Service Agents, Customer Representatives, and Source of Support Representatives 6,798 International Association of Machinists and Aerospace Workers, AFL-CIO (“IAM 142”) Amendable December 2027 Southwest Meteorologists 15 TWU 550 Amendable May 2028 Human Capital Objectives and Programs The Company’s hiring, development, and retention of a talented workforce is a priority that includes: (i) providing opportunities for learning, development, career growth, and movement within the Company; (ii) evaluating compensation and benefits, and rewarding performance; (iii) investing in physical, emotional, and financial health of Employees; (iv) obtaining Employee feedback; (v) maintaining and enhancing Company culture; (vi) communicating with the Board on a routine basis on key topics, including executive succession planning; and (vii) ongoing commitments to equal employment opportunity within the workplace.
Southwest’s unique network blends intentional connectivity offered by hub-and-spoke models and point-to-point nonstops, allowing the Company to capture nonstop demand and provide reliable one-stop itinerary options. Southwest’s unique route network has also enabled it to provide its markets with frequent, conveniently timed flights and low fares.
By blending intentional connectivity offered by hub-and-spoke models and point-to-point nonstops, the Company is able to capture nonstop demand and provide reliable one-stop itinerary options. Southwest’s unique route network has also enabled it to provide its markets with frequent, conveniently timed flights and competitive fares.
The Companion Pass is valid for the remainder of the calendar year in which status is earned and for the following full calendar year to any destination available on Southwest for a designated Companion of the qualifying Member.
The Companion Pass is valid for the remainder of the calendar year in which status is earned and for the following full calendar year to any destination available on Southwest for a designated Companion of the qualifying Member. The Member and designated Companion must travel together on the same flight.
The Company expects to further increase asset utilization through its introduction of redeye flights and its initiatives to decrease the amount of time it takes to turn an aircraft (the time needed to unload Passengers from an arriving flight and load Passengers on the same aircraft for its subsequent flight).
In 2025, the Company increased asset utilization through its introduction of redeye flights and its initiatives to decrease the amount of time it takes to turn an aircraft (the time needed to unload Passengers from an arriving flight and load Passengers on the same aircraft for its subsequent flight).
The Company has additionally developed a new data-sharing API channel, Southwest Business TravelTrack®, that provides business travel Customers and third-party partners more visibility into the business they do with Southwest.
The Company has additionally developed a data-sharing application programming interface channel, Southwest Business TravelTrack ® , that provides business travel Customers and third-party partners more visibility into the business they do with Southwest.
The Company requests extensions of such authorities and approvals when and as appropriate. To the extent the Company seeks to serve additional foreign destinations in the future, or to renew its authority to serve certain routes, it may be required to obtain necessary authority from the DOT and/or approvals from the FAA, as well as any applicable foreign government entity.
To the extent the Company seeks to serve additional foreign destinations in the future, or to renew its authority to serve certain routes, it may be required to obtain necessary authority from the DOT and/or approvals from the FAA, as well as any applicable foreign government entity.
During 2024, the Company sought to restructure and better optimize its network to better match capacity to demand and adjust for post-pandemic Customer travel patterns by reducing short-haul trips, redistributing resources to longer-haul trips in more profitable markets, and reducing flying on weekdays and at off-peak times with lower travel demand.
The Company also sought to enhance connectivity and better optimize its network to match capacity to demand and adjust for Customer travel patterns by reducing short-haul trips, redistributing resources to longer-haul trips in more profitable markets, and reducing flying on weekdays and at off-peak times with lower travel demand.
Some airports have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of operations.
Some airports have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of operations. Foreign governments may enact or allow airports to enact similar restrictions.
Under the above-described authority, the DOT has adopted so-called “Passenger Protection Rules,” which address a wide variety of matters, including flight delays on the tarmac, chronically delayed flights, denied boarding compensation, baggage liability requirements, ticket refunds, and advertising of airfares, among others.
The 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, baggage liability requirements, ticket refunds, disabled passenger transportation, and advertising of airfares, among others.
The evolving legal and regulatory activity surrounding PFAS could lead to an inadequate supply of FAA-certified AFFF throughout the aviation system, additional costs associated with transitioning away from AFFF products containing PFOA and PFOS, potential environmental incident prevention or cleanup costs, and/or increased operating costs at certain airports.
The evolving legal and regulatory activity surrounding PFAS could lead to an inadequate supply of FAA-certified firefighting foam throughout the aviation system, additional costs associated with transitioning away from products containing PFAS, potential environmental incident prevention or cleanup costs for historic use of hazardous substances, and/or increased operating costs at certain airports.
As a result, the Company must comply with a developing set of cybersecurity requirements, including but not limited to incident and other reporting, internal and external coordination, affirmative risk‑management obligations, compliance, and technical requirements related to information technology systems and operational technology systems.
The Company must comply with a developing set of cybersecurity requirements, including, but not limited to, reporting obligations, technical security measures, internal and external coordination, cyber-related risk‑management and governance obligations, and other compliance requirements related to information technology systems and operational technology systems.
Such investments include moving to a fully digital (i.e., paperless) process, improved communication tools for Employees, and better visual and real-time information to assist both Customers and Employees.
Such investments included moving to a digital (i.e., paperless) process, improving communication tools for Employees, and launching better visual and real-time information to assist both Customers and Employees.
Regulation The airline industry is heavily regulated, especially by the federal government, and there are a significant number of governmental agencies and legislative bodies that have the ability to directly or indirectly affect the Company and/or the airline industry financially and/or operationally.
Regulation General The airline industry is heavily regulated domestically and internationally, especially by the federal government, and there are a significant number of governmental agencies, offices, and legislative bodies that could directly or indirectly affect the Company and the airline industry financially and operationally.
Under the Railway Labor Act, collective-bargaining agreements between an airline and a labor union generally do not expire, but instead become amendable as of an agreed date.
The Railway Labor Act establishes the right of airline employees to organize and bargain collectively. Under the Railway Labor Act, collective-bargaining agreements between an airline and a labor union generally do not expire, but instead become amendable as of an agreed date.
In response to ever-evolving travel patterns, the Company and several other U.S. airlines have announced route network changes and slower capacity growth for 2025, as compared with 2024. Competition within the airline industry is intense and highly unpredictable, and Southwest has historically competed with other airlines on virtually all of its scheduled routes.
In response to ever-evolving travel patterns, the Company and several other U.S. airlines implemented route network changes and evaluated capacity. Competition within the airline industry is intense and highly unpredictable, and Southwest has historically competed with other airlines on virtually all of its scheduled routes.
As a result, the program provides Members significant flexibility and options for earning and redeeming rewards. For example, Members can earn more points (and achieve tier status such as A-List, A-List Preferred, or a Companion Pass® faster) by purchasing higher fare tickets.
Under the program, Members continue to accumulate points until the time they decide to redeem them. As a result, the program provides Members significant flexibility and options for earning and redeeming rewards. For example, Members can earn more points (and achieve tier status such as A-List, A-List Preferred, or a Companion Pass ® faster) by purchasing higher fare tickets.
The Company expanded its distribution channels through partnerships with flight meta search engines, including Google Flights, Kayak, and Skyscanner, to increase visibility and drive traffic for bookings to Southwest.com.
The Company has expanded its distribution channels through partnerships with flight meta search engines, including Google Flights, Kayak, Skyscanner, and, in 2025, online travel agencies Expedia and Priceline, to increase visibility and drive traffic for bookings to Southwest.com.
Rapid Rewards Loyalty Program Southwest’s Rapid Rewards loyalty program enables program members (“Members”) to earn points for every dollar spent on Southwest base fares, also including purchases paid with LUV Vouchers, gift cards, or flight credit, with no portion of the purchase price paid with Rapid Rewards points.
Rapid Rewards Loyalty Program Southwest’s Rapid Rewards loyalty program enables program members (“Members”) to earn points for every dollar spent on Southwest base fares, also generally including purchases paid with LUV Vouchers, gift cards, or flight credits.
As a result, in many cases, the Company's results of operations reflect this seasonality. Factors that could alter this seasonality include, among others, the price of fuel, general economic conditions, changes in consumer behavior, governmental action, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, or changes in the competitive environment.
Factors that could alter this seasonality include, among others, the price of fuel, general economic conditions, changes in consumer behavior, governmental action, including shutdowns, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, or changes in the competitive environment.
Given the estimates, assumptions and timelines used to create the Southwest One Report and other voluntary disclosures, the materiality of these disclosures is inherently difficult to assess in advance.
Given the estimates, assumptions, and timelines used to create such disclosures, the materiality of these disclosures is inherently difficult to assess in advance.
The amount of points earned under the program is based on the base fare and fare class purchased, with higher fare products (e.g., Business Select) earning more points than lower fare products (e.g., Wanna Get Away).
The amount of points earned under the program is based on the base fare and fare class purchased, with higher fare products (e.g., Choice Extra) earning more points than lower fare products (e.g., Basic).
Human Capital Resources Employees As of December 31, 2024, the Company had 72,450 active full-time equivalent Employees, consisting of 30,771 air operations (including Pilots, Flight Attendants, Dispatchers, Flight Simulator Technicians, Flight Crew Training Instructors, and Meteorologists), 21,435 ground operations (including Ramp, Operations, Provisioning, Freight Agents, and Customer Service Agents), 2,770 Customer Representatives and Source of Support Representatives, 3,756 maintenance and engineering (including Material Specialists, Mechanics, Aircraft Appearance Technicians, and Facilities Maintenance Technicians), and 13,718 additional “noncontract” Employees.
Human Capital Resources Employees As of December 31, 2025, the Company had 72,790 active full-time equivalent Employees, consisting of 32,214 air operations (including Pilots, Flight Attendants, Dispatchers, Flight Simulator Technicians, Flight Crew Training Instructors, and Meteorologists), 21,734 ground operations (including Ramp, Operations, Provisioning, Freight Agents, and Customer Service Agents), 2,629 Customer Representatives and Source of Support Representatives, 3,727 maintenance and engineering (including Material Specialists, Mechanics, Aircraft Appearance Technicians, and Facilities Maintenance Technicians), and 12,486 additional “noncontract” Employees.
These types of restrictions can cause curtailments in service or increases in operating costs, limit the ability of air carriers to expand operations at the affected airports, and result in civil fines when operators violate curfews or noise limitations.
These types of restrictions can cause curtailments in service or increases in operating costs, limit the ability of air carriers to expand operations at the affected airports, block access for new entrants, impede the implementation or use of more efficient flight paths, and result in civil fines when operators violate curfews or noise limitations.
Subject to Southwest’s No-Show Policy, Wanna Get Away Plus fares also enable a same-day confirmed change, free of airline charges, 7 Table of Contents if there is an open seat on another flight that departs on the same day as the original flight and is between the same origin and destination airports, but the Customer is required to pay any additional government taxes and fees associated with voluntary changes in their itinerary.
Choice fares also enable a same-day confirmed change, free of airline charges, if there is an open seat on another flight that departs on the same day as the original flight and is between the same origin and destination airports, but the Customer is required to pay any additional government taxes and fees associated with voluntary changes in their itinerary (refunds may be provided).
Both A-List and A-List Preferred Members enjoy benefits such as priority check-in and security lane access, where available, as well as dedicated phone lines, standby priority, and an earnings bonus on eligible revenue flights (25 percent for A-List and 100 percent for A-List Preferred).
Both A-List and A-List Preferred Members enjoy benefits such as free Wi-Fi sponsored by T-Mobile, priority check-in and security lane access, where available, dedicated phone lines, standby priority, and 9 Table of Contents an earnings bonus on eligible revenue flights (25 percent for A-List and 100 percent for A-List Preferred).
The TSA has expressed its plans to leverage advanced transportation security screening technologies, including biometric solutions, to improve security effectiveness and operational efficiency, while also enhancing the passenger experience. The advanced technologies have prompted privacy, cost, and legal concerns from air carriers, travelers, and advocacy groups, which could affect the timing and viability of the TSA's plans.
The TSA has expressed its plans to leverage advanced transportation security screening technologies, including biometric solutions, to improve security effectiveness and operational efficiency. The advanced technologies have prompted privacy, cost, and legal concerns from air carriers, travelers, and advocacy groups.
As the domestic travel market has matured and structural changes have reduced the demand for short-haul travel, especially post-pandemic, the Company has increased its proportion of longer-haul flights. Further, during 2024, the Company announced 24-hour operation capabilities with the introduction of redeye flights.
As the domestic travel market has matured and structural changes have reduced the demand for short-haul travel, the Company has increased its proportion of longer-haul flights. Further, the Company introduced 24-hour operation capabilities in 2025 with the commencement of redeye flights.
As of December 31, 2024, the Company had 245 -8 aircraft in its fleet. In second and fourth quarter 2024, the Company entered into supplemental agreements (the “Supplements”) to its purchase agreement with The Boeing Company (“Boeing”) relating to the Company's purchase of -8 and Boeing 737-7 ("-7", and, together with -8, the "MAX aircraft").
In the second and fourth quarters of 2025, the Company entered into supplemental agreements (the “Supplements”) to its purchase agreement with The Boeing Company (“Boeing”) relating to the Company's purchase of -8 and Boeing 737-7 ("-7", and, together with -8, the "MAX aircraft").
These new initiatives are designed to elevate the Customer Experience and enable the Company to better compete with other airlines’ product offerings and passenger amenities. The anticipated offering of overnight ( i.e. redeye) flights, airline partnerships aimed at delivering international connectivity, and an in-house vacation package product further expand the Company’s competitive product offerings .
The Company has further expanded its competitive product offerings with redeye flights, airline partnerships aimed at delivering international connectivity, and an in-house vacation package through Getaways. These initiatives are designed to elevate the Customer Experience and enable the Company to better compete with other airlines’ product offerings and passenger amenities.
The table below shows the Company's average cost of jet fuel inclusive of fuel taxes and fuel hedging impacts, for each year beginning in 2011 and during each quarter of 2024. 5 Table of Contents Year Cost (Millions) Average Cost Per Gallon Percentage of Operating Expenses 2011 $ 5,751 $ 3.25 38.2 % 2012 $ 6,156 $ 3.32 37.3 % 2013 $ 5,823 $ 3.19 35.3 % 2014 $ 5,355 $ 2.97 32.6 % 2015 $ 3,740 $ 1.96 23.6 % 2016 $ 3,801 $ 1.90 22.7 % 2017 $ 4,076 $ 1.99 23.0 % 2018 $ 4,616 $ 2.20 24.6 % 2019 $ 4,347 $ 2.09 22.3 % 2020 $ 1,849 $ 1.45 14.4 % 2021 $ 3,310 $ 1.98 23.5 % 2022 $ 5,975 $ 3.10 26.2 % 2023 $ 6,217 $ 2.89 24.0 % 2024 $ 5,812 $ 2.64 21.4 % First Quarter 2024 $ 1,531 $ 2.92 22.8 % Second Quarter 2024 $ 1,599 $ 2.76 23.0 % Third Quarter 2024 $ 1,417 $ 2.52 20.7 % Fourth Quarter 2024 $ 1,264 $ 2.38 19.0 % The Company’s fuel efficiency was aided in 2024, as compared with 2023, through the addition of 22 -8 aircraft to its fleet and by the retirement of 34 of its oldest, least fuel-efficient Boeing 737-700 (“-700”) aircraft and the retirement of two Boeing 737-800 ("-800") aircraft.
The table below shows the Company's average cost of jet fuel inclusive of fuel taxes and fuel hedging impacts, for each year beginning in 2011 and during each quarter of 2025. 5 Table of Contents Year Cost (Millions) Average Cost Per Gallon Percentage of Operating Expenses 2011 $ 5,751 $ 3.25 38.2 % 2012 $ 6,156 $ 3.32 37.3 % 2013 $ 5,823 $ 3.19 35.3 % 2014 $ 5,355 $ 2.97 32.6 % 2015 $ 3,740 $ 1.96 23.6 % 2016 $ 3,801 $ 1.90 22.7 % 2017 $ 4,076 $ 1.99 23.0 % 2018 $ 4,616 $ 2.20 24.6 % 2019 $ 4,347 $ 2.09 22.3 % 2020 $ 1,849 $ 1.45 14.4 % 2021 $ 3,310 $ 1.98 23.5 % 2022 $ 5,975 $ 3.10 26.2 % 2023 $ 6,217 $ 2.89 24.0 % 2024 $ 5,812 $ 2.64 21.4 % 2025 $ 5,240 $ 2.41 19.0 % First Quarter 2025 $ 1,249 $ 2.49 18.8 % Second Quarter 2025 $ 1,327 $ 2.32 18.9 % Third Quarter 2025 $ 1,331 $ 2.40 19.3 % Fourth Quarter 2025 $ 1,333 $ 2.45 18.9 % As of December 31, 2025, the Company had 300 Boeing 737-8 (“-8”) aircraft in its fleet.
Moreover, regulatory authorities at the federal, state, and local levels are moving forward with prohibitions on the manufacturing, use, or sale of PFAS-based AFFF, as well as costly remediation efforts at airports to address groundwater contamination. In addition, in April 2024, the U.S.
PFAS are a key component in foam used to fight petroleum-based fires at both commercial and military aviation facilities. Regulatory authorities at the federal, state, and local levels are moving forward with prohibitions on the manufacturing, use, or sale of PFAS-based foam, as well as costly remediation efforts at airports to address groundwater contamination. In April 2024, the U.S.
RNP combines the capabilities of advanced aircraft avionics, satellite navigation (instead of less precise ground-based navigation), and new flight procedures to enhance navigational and operational capabilities, improve fuel efficiency, and minimize greenhouse gas (“GHG”) emissions.
The Company participates in Required Navigation Performance (“RNP”) operations as part of the FAA's Performance Based Navigation program. RNP combines the capabilities of advanced aircraft avionics, satellite navigation (instead of less efficient ground-based navigation), and new flight procedures to enhance navigational and operational capabilities, improve fuel efficiency, and minimize greenhouse gas (“GHG”) emissions.
The new rule does not require a retrofit of existing aircraft. The Company anticipates that this rule could impose substantial costs on the Company and have a material effect on the Company's capital expenditures, earnings, and competitive position.
The Company anticipates that this rule could impose substantial 15 Table of Contents costs on the Company and have a material effect on the Company's capital expenditures, earnings, and competitive position.
Southwest's route structure includes service to and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore-Washington International, Burbank, Manchester, Oakland, San Jose, and Providence.
The Company's low-cost strategy includes, among other elements, the Company's route structure, which includes 4 Table of Contents service to and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore-Washington International, Burbank, Manchester, Oakland, San Jose, and Providence.
Members also have significant flexibility in redeeming points, such as the opportunity to book in advance to take advantage of a lower fare ticket (including many fare sales) requiring fewer points, or by being able to redeem at the last minute, if seats are still available for sale.
Members also have significant flexibility in redeeming points, such as the opportunity to take advantage of many fare sales, requiring fewer points, or by redeeming points for close-in bookings, if seats are still available for sale.
The Company has implemented many programs designed to achieve these priorities, including strong Employee training and benefits programs. The Company's vast Employee training and development opportunities address, among other things, leadership development; the competency of Belonging; and communication skills. The Company rewards Employees with competitive compensation and benefits packages, including attractive medical plans, the Southwest Airlines Co.
The Company has implemented many programs designed to achieve these priorities, including strong Employee training and benefits programs. The Company rewards Employees with competitive compensation and benefits packages, including attractive medical plans, the Southwest Airlines Co.
In 2024, the U.S. airline industry continued to face challenges such as inflationary cost pressures (particularly labor costs), delayed aircraft deliveries, shifting travel demand patterns, economic uncertainty, disruptive weather events, and natural disasters.
In 2025, the U.S. airline industry continued to face challenges such as the historically prolonged government shutdown (which impacted key functions such as TSA and the ATC system and mandated industry capacity reductions), inflationary cost pressures (particularly labor costs), delayed aircraft deliveries, shifting travel demand patterns, economic uncertainty, disruptive weather events, and natural disasters.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeLegal, Regulatory, Compliance, and Reputational Risks • The Company is subject to extensive government regulation that may disrupt or necessitate modifications to the Company’s operations, business plans, and strategies, increase the Company's operating costs, or otherwise limit the Company's ability to conduct business. • Airport capacity constraints and air traffic control inefficiencies have limited and could continue to limit the Company's growth. • The Company is subject to various environmental requirements and risks, including increased regulation, changing consumer preferences, physical, environmental, and climate risks, and risks associated with climate change; the cost of compliance with more stringent environmental regulations, failure to comply with environmental regulations, or failure to otherwise manage the risks of climate change effectively could have a material adverse effect on the Company’s results of operations. • The Company is subject to risks related to its sustainability goals and disclosures, which may affect stakeholder sentiment and the Company’s reputation and brand. • The Company's future results will suffer if it is unable to effectively manage its international operations and/or Extended Operations. • The Company’s plans to develop commercial relationships with airlines in other parts of the world may not produce the results or returns it expects. • The Company is currently subject to regulatory actions and pending litigation, and if judgment, penalties, or fines were to be rendered against the Company, such judgment, penalties, or fines could adversely affect the Company's operating results. 33 Table of Contents • Conflicting federal, state, and local laws and regulations may impose additional requirements and restrictions on the Company’s operations, which could increase the Company’s operating costs, result in service disruptions, and increase litigation risk. • The Company’s reputation and brand could be harmed if it were to experience significant negative publicity through social media or otherwise, including with respect to the Company's voluntary or mandatory ESG-related goals and disclosures. • The Company’s business has been, and could in the future be, negatively affected as a result of actions of activist shareholders, and such activism could adversely affect the strategic direction and business results of the Company. • The Company’s Bylaws designate specific courts as the exclusive forum for certain legal actions between the Company and its Shareholders, which could increase costs to bring a claim, discourage claims, or limit the ability of the Company’s Shareholders to bring a claim in a judicial forum viewed by the Shareholders as more favorable for disputes with the Company or the Company’s directors, officers, or other Employees.
Biggest changeLegal, Regulatory, Compliance, and Reputational Risks • The Company is subject to extensive government regulation that may disrupt or necessitate modifications to the Company’s operations, business plans, and strategies, or increase the Company’s operating costs. • Airport capacity constraints and air traffic control inefficiencies have limited and could continue to limit the Company’s growth. • The Company is subject to various environmental requirements and risks; the cost of compliance with more stringent environmental regulations, failure to comply with environmental regulations, or failure to otherwise manage the risks of climate change effectively could have a material adverse effect on the Company’s results of operations. • The Company is subject to risks related to its sustainability goals and disclosures, which may affect stakeholder sentiment and the Company’s reputation and brand. • The Company’s future results may suffer if it is unable to effectively manage its current and contemplated international operations or Extended Operations. • The Company’s plans to develop commercial relationships with airlines in other parts of the world may not produce the results or returns it expects. 28 Table of Contents • The Company is currently subject to regulatory actions and pending litigation, and judgment, penalties, or fines rendered against the Company could adversely affect the Company’s operating results. • Conflicting federal, state, and local laws and regulations may impose additional requirements and restrictions on the Company’s operations, which could increase the Company’s operating costs, result in service disruptions, and increase litigation risk. • The Company’s reputation and brand could be harmed if it were to experience significant negative publicity through social media or otherwise. • The Company’s business has been, and could in the future be, negatively affected as a result of actions of activist shareholders, and such activism could adversely affect the strategic direction and business results of the Company. • The Company has adopted certain provisions in its Bylaws that could increase costs to bring a claim, discourage claims, limit the ability of the Company’s Shareholders to bring a claim, or limit the ability of the Company’s Shareholders to bring a claim in certain judicial forums.
The Company’s systems and security measures require ongoing monitoring and updating as technologies change, and security could be compromised, personal or confidential information could be misappropriated, or system disruptions could occur. The Company may also incur significant costs to modify, upgrade, or enhance its cybersecurity measures to protect and defend against such attacks and breaches.
The Company’s systems and cybersecurity measures require ongoing monitoring and updating as technologies change, and security could be compromised, personal or confidential information could be misappropriated, or system disruptions could occur. The Company may also incur significant costs to modify, upgrade, or enhance its cybersecurity measures to protect and defend against such attacks and breaches.
Additional terrorist attacks or other hostilities, even if not made directly on the airline industry, or the fear of such attacks or other hostilities (including elevated national threat warnings, government travel warnings to certain destinations, travel restrictions, or selective cancellation or redirection of flights due to terror threats) would likely have a further significant negative impact on the Company and the airline industry.
Additional terrorist attacks, war, or other hostilities, even if not made directly on the airline industry, or the fear of such attacks or other hostilities (including elevated national threat warnings, government travel warnings to certain destinations, travel restrictions, or selective cancellation or redirection of flights due to terror threats) would likely have a further significant negative impact on the Company and the airline industry.
Disruptions to capital markets, shortages of skilled personnel, supply chain disruptions, increased regulation, geopolitical developments, and/or adverse economic conditions could subject certain of the Company's third-party vendors and service providers to significant financial pressures, which could lead to delays and other performance issues, ceased operations, or even bankruptcies among these third-party vendors and service providers.
Disruptions to capital markets, shortages of skilled personnel, supply chain disruptions, increased regulation, geopolitical developments, tariffs, and/or adverse economic conditions could subject certain of the Company’s third-party vendors and service providers to significant financial pressures, which could lead to delays and other performance issues, ceased operations, or even bankruptcies among these third-party vendors and service providers.
Additionally, the implementation of these initiatives may create logistical challenges that could harm the operational performance of the airline or result in decreased demand for air travel on Southwest.
Additionally, the implementation of these initiatives may create logistical or reputational challenges that could harm the operational performance of the airline or result in decreased demand for air travel on Southwest.
If the Company does not successfully execute its transformational initiatives or other strategic plans, or if actual results vary significantly from its expectations, the Company’s business, operating results, and financial condition may be adversely affected. The airline industry is intensely competitive. As discussed in more detail under "Business—Competition," the airline industry is intensely competitive.
If the Company does not successfully execute its transformational initiatives or other strategic plans, or if actual results vary significantly from its expectations, the Company’s business, operating results, and financial condition may be adversely affected. The airline industry is intensely competitive. As discussed in more detail under “Business—Competition,” the airline industry is intensely competitive.
These IT Systems are essential for daily operations but are exposed to risks like programming errors, software malfunctions, unauthorized access, accidental leaks of sensitive information, denial of service attacks, ransomware, data corruption, business disruptions, outages, security breaches, computer viruses, data loss, scams, theft, and human errors.
These IT Systems are essential for daily operations but are exposed to risks like programming errors, software malfunctions, unauthorized access, accidental leaks of sensitive information, denial of service attacks, ransomware, data corruption, business disruptions, outages, security breaches, computer viruses, data loss, scams, theft, insider threats, and human errors.
All information processed, stored, and retained by Company or on behalf of Company is subject to the continually evolving risk of intrusion, tampering, theft, or deletion. The Company has a dedicated cybersecurity team and program, along with support from legal partners and other resources, focused on current and emerging data security matters.
All information processed, stored, and retained by Company or on behalf of Company is subject to the continually evolving risk of intrusion, tampering, theft, or deletion. The Company has a dedicated cybersecurity team and program, along with support from legal advisors and other resources, focused on current and emerging data security matters.
The Company's low-cost position has been challenged by the removal of fare floors for certain routes by other carriers, leading to a lower fare offering across the industry, as well as “unbundled” service offerings by some carriers, which appeal to price-sensitive travelers through promotion to consumers of relatively low base fare options.
The Company’s historical low-fare position has been challenged by the removal of fare floors for certain routes by other carriers, leading to a lower fare offering across the industry, as well as “unbundled” service offerings by some carriers, which appeal to price-sensitive travelers through promotion to consumers of relatively low base fare options.
Certain regulators, such as the SEC and various state agencies, as well as nongovernmental organizations and other private actors have filed lawsuits under various securities and consumer protection laws alleging that certain ESG statements, goals, or standards were misleading, false, or otherwise deceptive.
Certain regulators, such as the SEC and various state agencies, as well as nongovernmental organizations and other private actors have filed lawsuits under various securities and consumer protection laws alleging that certain sustainability statements, goals, or standards were misleading, false, or otherwise deceptive.
Terrorist attacks or other crimes and hostilities, actual and threatened, have from time to time materially adversely affected the demand for air travel and have necessitated increased safety and security measures and related costs for the Company and the airline industry generally.
Terrorist attacks, war, or other hostilities, actual and threatened, have from time to time materially adversely affected the demand for air travel and have necessitated increased safety and security measures and related costs for the Company and the airline industry generally.
Airport capacity constraints and air traffic control inefficiencies have limited and could continue to limit the Company's growth. Almost all commercial service airports are owned and/or operated by units of local or state governments. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost.
Airport capacity constraints and air traffic control inefficiencies have limited and could continue to limit the Company's growth. 40 Table of Contents Almost all commercial service airports are owned and/or operated by units of local or state governments. Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity at an affordable cost.
Similarly, the Company has experienced operational challenges in connection with severe weather events and associated crew scheduling, such as during and subsequent to Winter Storm Elliott. Any future system interruptions or delays or operational disruptions or delays could reduce the Company’s operating revenues and the attractiveness of its services, as well as increase the Company’s costs.
Similarly, the Company has 37 Table of Contents experienced operational challenges in connection with severe weather events and associated crew scheduling, such as during and subsequent to Winter Storm Elliott. Any future system interruptions or delays or operational disruptions or delays could reduce the Company’s operating revenues and the attractiveness of its services, as well as increase the Company’s costs.
If individuals with a specific agenda are elected or appointed to the Board, it may adversely affect the Company’s ability to effectively and timely implement its strategic plan to maximize value for Shareholders.
If individuals with a specific agenda are elected or appointed to the Board, it may adversely affect the Company’s ability to effectively and timely implement its strategic plans to maximize value for Shareholders.
The Company's strategic plans and results of operations could be negatively affected by changes in law and future actions taken by domestic and foreign governmental agencies having jurisdiction over the Company’s operations, including, but not limited to: • increases in airport rates and charges; • limitations on airport gate capacity or use of other airport facilities; • limitations on route authorities; • actions and decisions that create difficulties in obtaining access at slot-controlled airports (a "slot" is the right of an air carrier, pursuant to regulations of the FAA or local authorities, to operate a takeoff or landing at certain airports); • actions and decisions that create difficulties in obtaining operating permits and approvals; • changes to environmental regulations; • mandates that affect the usage of SAF; • enhanced emissions and climate reporting obligations; 44 Table of Contents • mandates on and regulation of existing products and services; • new or increased taxes or fees, such as with respect to potential increases to the federal corporate income tax rate, and such as those contained in the Inflation Reduction Act, including a potential corporate alternative minimum tax or taxes imposed on share repurchases, which may affect the Company’s decisions with respect to capital markets; • changes to laws that affect the services that can be offered by airlines in particular markets and at particular airports; • restrictions on competitive practices; • changes in laws that increase costs for safety, security, compliance, or other Customer Service standards; • changes in laws that may limit the Company's ability to enter into fuel derivative contracts to hedge against increases in fuel prices; • changes in laws that may limit or regulate the Company's ability to promote the Company’s business or fares; • changes in laws that could affect the value of the Company’s existing contracts or agreements, such as its co-branded credit card agreement; • airspace closures or restrictions, such as restrictions on operations in markets where certain wireless telecommunications systems may cause interference with certain aircraft avionics; • grounding of commercial air traffic by the FAA; • the adoption of more restrictive locally imposed noise regulations; and • expanded compliance burdens, costs, and enforcement risks related to evolving data privacy and cybersecurity laws and regulations.
The Company’s strategic plans and results of operations could be negatively affected by changes in law and future actions taken by domestic and foreign governmental agencies having jurisdiction over the Company’s operations, including, but not limited to: • increases in airport rates and charges; • limitations on airport gate capacity or use of other airport facilities; • limitations on route authorities; • actions and decisions that create difficulties in obtaining access at slot-controlled airports (a “slot” is the right of an air carrier, pursuant to regulations of the FAA or local authorities, to operate a takeoff or landing at certain airports); • actions and decisions that create difficulties in obtaining operating permits and approvals; • changes to environmental regulations, including mandates affecting the usage of SAF and enhanced emissions and climate reporting obligations; • mandates on and regulation of existing products and services; • new or increased taxes or fees, such as with respect to potential increases to the federal corporate income tax rate, and such as those contained in the Inflation Reduction Act, including a potential corporate alternative minimum tax or taxes imposed on share repurchases, which may affect the Company’s decisions with respect to capital markets; • changes to laws that affect the services that can be offered by airlines in particular markets and at particular airports; • restrictions on competitive practices; • changes in laws that increase costs for safety, security, compliance, or other Customer Service standards; • changes in laws that may limit or regulate the Company’s ability to promote the Company’s business or fares; • changes in laws that could affect the value of the Company’s existing contracts or agreements, such as its co-branded credit card agreement; • airspace closures or restrictions, such as restrictions on operations in markets where certain wireless telecommunications systems may cause interference with certain aircraft avionics; • grounding of commercial air traffic by the FAA; • the adoption of more restrictive locally imposed noise regulations; and • expanded compliance burdens, costs, and enforcement risks related to evolving data privacy and cybersecurity laws and regulations.
The continuation of these air traffic control constraints or the FAA's inability to meet staffing needs on a long-term basis may have a material adverse effect on the Company's operations.
The continuation of these air traffic control disruptions and constraints or the FAA’s inability to meet staffing needs on a long-term basis may have a material adverse effect on the Company’s operations.
As discussed below under "Legal Proceedings," the Company is subject to regulatory actions and pending litigation. Regardless of merit, these litigation matters and any potential future claims against the Company may be both time consuming and disruptive to the Company's operations and cause significant expense and diversion of management attention.
As discussed below under “Legal Proceedings,” the Company is subject to regulatory actions and pending litigation. Regardless of merit, these litigation matters and any potential future claims against the Company may be both time consuming and disruptive to the Company’s operations and cause significant expense and diversion of management attention.
For example, emerging regulations and state laws around AI may require companies that develop or deploy AI systems to establish formal governance structures and internal controls, including designated oversight personnel, documented risk assessment procedures, and regular compliance reviews of their AI systems.
For example, emerging regulations, state laws, and other proposed legislation around AI may require companies that develop or deploy AI systems to establish formal governance structures and internal controls, including designated oversight personnel, documented risk assessment procedures, and regular compliance reviews of their AI systems.
Any of these events 42 Table of Contents could cause system interruptions, delays, and loss of critical data, and could prevent the Company from processing Customer transactions or providing services, which could make the Company's business and services less attractive and subject the Company to liability. Any of these events could damage the Company's reputation and be expensive to remedy.
Any of these events could cause system interruptions, delays, and loss of critical data, and could prevent the Company from processing Customer transactions or providing services, which could make the Company’s business and services less attractive and subject the Company to liability. Any of these events could damage the Company’s reputation and be expensive to remedy.
The Company may not be able to anticipate, detect, or prevent cyber-attacks, security breaches, or data incidents, particularly because the methodologies used by threat actors change frequently or may not be recognized until such attack is launched or for a substantial period thereafter, and because threat actors are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection.
The Company may not be able to anticipate, detect, or prevent cyber-attacks, security breaches, or data incidents, particularly because the methodologies used by threat actors change frequently or may not be recognized until such attack is launched or for a substantial period thereafter, and because threat 38 Table of Contents actors are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection.
Staffing-related challenges, particularly any unpredictability in required staffing levels, could continue to occur in certain areas and limit the Company's ability to optimally adjust capacity. The inability to recruit and retain skilled personnel or the unexpected loss of key skilled personnel could continue to adversely affect the Company’s operations.
Staffing-related challenges, particularly any unpredictability in required staffing levels, could continue to occur in certain areas and limit the Company’s ability 34 Table of Contents to optimally adjust capacity. The inability to recruit and retain skilled personnel or the unexpected loss of key skilled personnel could continue to adversely affect the Company’s operations.
The performance, reliability, and security of the Company's IT Systems are critical to the Company's operations and initiatives. Any failure, disruption, or delay in implementation of the Company’s IT Systems could 41 Table of Contents limit or even curtail its growth, delay strategic initiatives, increase its compliance costs, harm its reputation, or reduce its competitive advantage.
The performance, reliability, and security of the Company’s IT Systems are critical to the Company’s operations and initiatives. Any failure, disruption, or delay in implementation of the Company’s IT Systems could limit or even curtail its growth, delay strategic initiatives, increase its compliance costs, harm its reputation, or reduce its competitive advantage.
The Company is subject to changing federal, state, local, and international laws and regulations relating to the protection of the environment, including those relating to aircraft and ground-based emissions, discharges to water 45 Table of Contents systems, safe drinking water, and the management of hazardous substances and waste materials.
The Company is subject to changing federal, state, local, and international laws and regulations relating to the protection of the environment, including those relating to aircraft and ground-based emissions, discharges to water systems, safe drinking water, and the management of hazardous substances and waste materials.
As discussed under "Business - Regulation," the airline industry is heavily regulated, and the Company's regulatory compliance costs are subject to potentially significant increases from time to time based on actions by regulatory agencies that are out of the Company's control.
As discussed under “Business - Regulation,” the airline industry is heavily regulated, and the Company’s regulatory compliance costs are subject to potentially significant increases from time to time based on actions by regulatory agencies that are out of the Company’s control.
The FAA's protracted transition to modernized air traffic control systems and newer technologies could adversely impact airspace capacity and the overall efficiency of the system, resulting in limited opportunities for the Company to grow, longer scheduled flight times, increased delays and cancellations, and increased fuel consumption and aircraft emissions.
The FAA’s protracted transition to modernized air traffic control systems and newer technologies has and may continue to adversely impact airspace capacity and the overall efficiency of the system, resulting in limited opportunities for the Company to grow, longer scheduled flight times, increased delays and cancellations, and increased fuel consumption and aircraft emissions.
Failure to successfully implement and manage international partnerships could result in financial losses and reputational harm. The airline industry may also be impacted by mergers, acquisitions, heightened financial pressures, or bankruptcies.
Failure to successfully implement and manage international partnerships could result in financial losses and reputational harm. The airline industry also has been and may again be impacted by bankruptcies, mergers, acquisitions, or heightened financial pressures.
See “Business—Regulation—Data Privacy and Cybersecurity Regulation.” 43 Table of Contents In the ordinary course of its business, the Company also provides certain confidential, proprietary, and personal information, intellectual property, and safety information to third parties.
See “Business—Regulation—Data Privacy and Cybersecurity Regulation.” In the ordinary course of its business, the Company also provides certain confidential, proprietary, and personal information, intellectual property, and safety information to third parties.
The Company’s plans to develop commercial relationships with airlines in other parts of the world may not produce the results or returns it expects. The Company recently announced a new initiative to expand its network and develop strategic relationships with a number of airlines through interline agreements and potentially other forms of cooperation and support.
The Company’s plans to develop commercial relationships with airlines in other parts of the world may not produce the results or returns it expects. The Company continues its initiative to expand its network and develop strategic relationships with a number of airlines through interline agreements, and potentially other forms of cooperation and support.
Failures of suppliers, third-party vendors, or service providers to timely provide adequate products or support for their 39 Table of Contents products, or otherwise fulfill their commitments to the Company, could materially adversely affect the Company’s operations.
Failures of suppliers, third-party vendors, or service providers to timely provide adequate products or support for their products, or otherwise fulfill their commitments to the Company, could materially adversely affect the Company’s operations.
As discussed below under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company 35 Table of Contents has experienced significant inflationary cost pressure, particularly with respect to Salaries, wages, and benefits expense. The Company's low-cost structure can also be negatively impacted by costs over which the Company has limited control.
As discussed below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company has experienced significant inflationary cost pressure, particularly with respect to Salaries, wages, and benefits 30 Table of Contents expense. The Company’s low-cost structure can also be negatively impacted by costs over which the Company has limited control.
Increases in insurance costs or reductions in insurance coverage may adversely impact the Company’s operations and financial results. As discussed under "Business - Insurance," the Company carries insurance of types customary in the airline industry.
Increases in insurance costs or reductions in insurance coverage may adversely impact the Company’s operations and financial results. As discussed under “Business - Insurance,” the Company carries insurance of types customary in the airline industry.
Operational Risks 32 Table of Contents • The Company is currently dependent on Boeing as the sole manufacturer of the Company's aircraft.
Operational Risks 27 Table of Contents • The Company is currently dependent on Boeing as the sole manufacturer of the Company’s aircraft.
Although the Company believes it diligently evaluates, tests, and deploys a limited amount of AI-related technologies, the Company could face numerous AI-related challenges, such as cybersecurity vulnerabilities, algorithmic biases or errors, evolving regulatory requirements across jurisdictions, and potential competitive disadvantage if the Company’s competitors deploy AI technologies more quickly or more successfully.
Although the Company believes it diligently evaluates, governs, tests, and deploys AI-related technologies, the Company could face numerous AI-related challenges, such as cybersecurity vulnerabilities, algorithmic biases or errors, evolving regulatory requirements across jurisdictions, and potential competitive disadvantage if the Company’s competitors deploy AI technologies more quickly or more successfully.
Legal, Regulatory, Compliance, and Reputational Risks The Company is subject to extensive government regulation that may disrupt or necessitate modifications to the Company’s operations, business plans, and strategies, increase the Company’s operating costs, or otherwise limit the Company’s ability to conduct business.
Legal, Regulatory, Compliance, and Reputational Risks 39 Table of Contents The Company is subject to extensive government regulation that may disrupt or necessitate modifications to the Company’s operations, business plans, and strategies, increase the Company’s operating costs, or otherwise limit the Company’s ability to conduct business.
For instance, the cost of insurance premiums related to hail and wind damage has increased for certain facilities, and 36 Table of Contents certain flood insurance is no longer available.
For instance, the cost of insurance premiums related to hail and wind damage has increased for certain facilities, and certain flood insurance is no longer available.
In addition to the unpredictable economic conditions and fuel costs previously discussed, the Company, like the airline industry in general, is affected by conditions that are largely unforeseeable and outside of its control, including, among others: • adverse weather and natural disasters and the associated effects on the Company's operations, which have, in certain circumstances, such as Winter Storm Elliott, impacted the Company's operational recovery to a greater degree than other airlines; • changes in consumer preferences, perceptions, spending patterns, or demographic trends (including, for example, changes in travel patterns due to economic conditions, weather, government restrictions, sequestration, or shutdowns); • actual or potential disruptions in the air traffic control system (including, for example, as a result of FAA system outages or inadequate FAA staffing levels, as the United States has recently seen a shortage of air traffic controllers); • actual or perceived delays at various airports resulting from government restrictions (including, for example, longer wait-times at TSA checkpoints due to inadequate TSA staffing levels); • changes in the competitive environment due to industry consolidation, industry bankruptcies, and other factors; • delays in deliveries of new aircraft (including, for example, due to delays in the manufacturing process, in FAA certification, or due to the closure of the FAA's aircraft registry during government restrictions or shutdowns); • collective bargaining requirements and demands; • reliance on third-party facilities, goods, and/or services essential to its operations and/or business such as airports, de-icing services, fuel supply and delivery, software, and weather data and other critical information; • outbreaks of disease such as the COVID-19 pandemic; and • actual or threatened war, terrorist attacks, government travel warnings to certain destinations, travel restrictions, and political instability.
In addition to the unpredictable economic conditions and fuel costs previously discussed, the Company, like the airline industry in general, is affected by conditions that are largely unforeseeable and outside of its control, including, among others: • adverse weather and natural disasters and the associated effects on the Company’s operations, which have, in certain circumstances, such as Winter Storm Elliott, impacted the Company’s operational recovery to a greater degree than other airlines; • changes in consumer preferences, perceptions, spending patterns, or demographic trends (including, for example, changes in travel patterns due to economic conditions, weather, government restrictions, sequestration, or shutdowns); • actual or potential disruptions in the air traffic control system (including, for example, as a result of FAA system outages or inadequate FAA staffing levels, as the United States has recently seen a shortage of air traffic controllers, resulting in more frequent and prolonged flight delays, limitations on the number of offered flights, and disrupting travel plans across the entire network); • actual or perceived delays at various airports resulting from government restrictions (including, for example, longer wait-times at TSA checkpoints due to inadequate TSA staffing levels); • changes in the competitive environment due to industry consolidation, industry bankruptcies, and other factors; • delays in deliveries of new aircraft (including, for example, due to delays in the manufacturing process, in FAA certification, or due to the closure of the FAA’s aircraft registry during government restrictions or shutdowns); • collective-bargaining requirements and demands; 36 Table of Contents • reliance on third-party facilities, goods, and/or services essential to its operations and/or business such as airports, de-icing services, fuel supply and delivery, software, and weather data and other critical information; • outbreaks of disease such as the COVID-19 pandemic; • laws and regulations, which may change or which may be inconsistent across various jurisdictions; and • actual or threatened war, terrorist attacks, government travel warnings to certain destinations, travel restrictions, and political instability.
Financial Risks • The airline industry is particularly sensitive to changes in economic conditions, and continued or future unfavorable economic conditions could negatively affect the Company’s results of operations and require the Company to adjust its business strategies. • The Company's business can be significantly impacted by the availability of jet fuel and high and/or volatile fuel prices, and the Company's operations are subject to disruption in the event of any delayed supply of fuel. • The Company's low-cost structure has historically been one of its primary competitive advantages, and many factors have adversely affected and could continue to adversely affect the Company's ability to control its costs. • Increases in insurance costs or reductions in insurance coverage may adversely impact the Company’s operations and financial results. • The Company's results of operations could be adversely impacted if it is unable to effectively execute its strategic plans. • The airline industry is intensely competitive.
Financial Risks • The airline industry is particularly sensitive to changes in economic conditions, and continued or future unfavorable economic conditions or economic uncertainty could negatively affect the Company’s results of operations and require the Company to adjust its business strategies. • The Company's business, strategic plans, and profitability can be significantly affected by the availability of jet fuel, fuel prices, and volatility of fuel prices, and the Company's operations are subject to disruption in the event of any delayed supply of fuel. • The Company’s low-cost structure has historically been a competitive advantage, and many factors have and could continue to adversely affect the Company’s ability to control its costs. • Increases in insurance costs or reductions in insurance coverage may adversely impact the Company’s operations and financial results. • The Company’s business, operating results, and financial condition could be adversely impacted if it is unable to effectively execute its strategic plans. • The airline industry is intensely competitive.
In addition, to the extent business travel recovers to pre-pandemic levels, businesses may require the purchase of less expensive tickets to reduce costs. This, in turn, can result in a decrease in average revenue per seat. During unfavorable economic conditions, low fares are often used to stimulate traffic.
In addition, to the extent business travel demand increases, businesses may require the purchase of less expensive tickets to reduce costs. This, in turn, can result in a decrease in average revenue per seat. During unfavorable economic conditions, low fares are often used to stimulate traffic.
As discussed under "Business - Regulation," airlines are also subject to other extensive regulatory requirements. These requirements often impose substantial costs on airlines.
As discussed under “Business - Regulation,” airlines are also subject to other extensive regulatory requirements. These requirements often impose substantial costs on airlines.
While the Company expects its AI adoption to enhance its operations, there can be no assurance of its effectiveness. Furthermore, the Company’s use of AI could result in reputational damage, legal exposure, or loss of Customer confidence if not properly deployed or managed.
While the Company expects its AI adoption to enhance its operations, there can be no assurance of its effectiveness or that it will deliver the anticipated benefits. Furthermore, the Company’s use of AI could result in reputational damage, legal exposure, or loss of Customer confidence if not properly deployed or managed.
Although the Company has not experienced cyber incidents that are individually, or in the aggregate, material, the Company and certain of its vendors and service providers have experienced cyber-attacks and cybersecurity incidents in the past, which have thus far been mitigated by preventative, detective, and responsive measures.
Although the Company has not experienced cyber incidents that are, individually or in the aggregate, material, the Company and certain of its vendors and service providers have experienced cyber-attacks and cybersecurity incidents in the past, which have thus far been mitigated by preventative, detective, and responsive measures. The Company is expanding its use of AI and machine-learning.
The Company’s Bylaws provide, to the fullest extent permitted by law, that, unless the Company consents in writing to the selection of an alternative forum, the United States District Court for the Northern District of Texas or, if such court lacks jurisdiction, the state district court of Dallas County, Texas, will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other Employee of the Company to the Company or the Company’s Shareholders; (c) any action asserting a claim against the Company or any director, officer, or other Employee of the Company pursuant to any provision of the Company’s Restated Certificate of Formation or Bylaws (as either may be amended from time to time) or the Texas Business Organizations Code; and (d) any action asserting a claim against the Company or any director, officer, or other Employee of the Company governed by the internal affairs doctrine.
The Company’s Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the United States District Court for the Northern District of Texas or, if such court lacks jurisdiction, the Texas Business Court located in Dallas County, Texas, will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other Employee of the Company to the Company or the Company’s Shareholders; (c) any action asserting a claim against the Company or any director, officer, or other Employee of the Company pursuant to any provision of the Company’s Restated Certificate of Formation or Bylaws (as either may be amended from time to time) or the Texas Business Organizations Code (“TBOC”); and (d) any other action asserting a claim against the Company or any director, officer, or other Employee of the Company constituting an “internal entity claim” under the TBOC.
Significant interruptions or disruptions in service at one or more of the Company’s core stations (such as Denver or Chicago-Midway), resulting from air traffic control systems, weather incidents, performance by third-party service providers, interruption of the Company’s technology, the availability and location of the Company’s crew resources, fuel supplies, or otherwise, have resulted, and could again in the future result, in the cancellation or delay of a significant portion of the Company’s flights and, as a result, have had, and could again in the future have, a severe impact on its business, results of operations and financial condition.
Significant interruptions or disruptions in service at one or more of the Company’s core stations (such as Denver or Chicago-Midway), resulting from air traffic control systems, weather incidents, performance by third-party service providers, interruption of the Company’s technology, the availability and location of the Company’s crew resources, fuel supplies, or otherwise, have resulted, and could again in the future result, in the cancellation or delay of a significant portion of the Company’s flights and, as a result, have had, and could again in the future have, a severe impact on its business, results of operations and financial condition. 35 Table of Contents The Company’s operations have been, and in the future may again be, materially and adversely disrupted by extreme weather events.
The Company's fuel hedging arrangements and the various potential impacts of hedge accounting on the Company's financial position, cash flows, and results of operations are discussed in more detail under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative and Qualitative Disclosures About Market Risk," and in Note 1 and Note 10 to the Consolidated Financial Statements.
The Company’s prior period fuel hedging arrangements and the various potential impacts of hedge accounting on the Company’s financial position, cash flows, and results of operations are discussed in more detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures About Market Risk,” and in Note 1 and Note 10 to the Consolidated Financial Statements.
The Company is reliant upon third-party vendors and service providers, and the Company's low-cost advantage is dependent in part on its ability to obtain and maintain commercially reasonable terms with those parties.
The Company is reliant upon third-party vendors and service providers, and the Company’s competitive position is dependent in part on its ability to obtain and maintain commercially reasonable terms with those parties.
For example, fuel prices can be impacted by political, environmental (including those related to climate change), and economic factors, such as (i) dependency on foreign imports of crude oil and the potential for hostilities or other conflicts in oil producing areas; (ii) limitations and/or disruptions in domestic refining or pipeline operations or capacity due to weather, natural disasters, or other factors; (iii) worldwide demand for fuel, particularly in developing countries, which can result in inflated energy prices; (iv) changes in U.S. governmental policies on fuel production, transportation, taxes, and marketing; and (v) changes in currency exchange rates.
For example, fuel prices can be impacted by geopolitical, environmental (including those related to climate change), and economic factors, such as (i) dependency on foreign imports of crude oil and potential or actual hostilities or other conflicts in oil producing areas or along global trade routes; (ii) limitations and/or disruptions in domestic refining or pipeline operations or capacity due to weather, natural disasters, or other factors; (iii) worldwide demand for fuel, particularly in developing countries, which can result in inflated energy prices; (iv) changes in U.S. governmental policies on fuel production, transportation, taxes, and marketing; (v) imposition of economic sanctions on oil-producing countries or specific industry participants; and (vi) changes in currency exchange rates.
While the Company operates across a diverse geographic footprint, its operations at times have been adversely and materially impacted by severe weather, such as Hurricanes Harvey and Irma in 2017, Winter Storm Elliott in December 2022, and Hurricane Milton in October 2024.
While the Company operates across a diverse geographic footprint, its operations at times have been adversely and materially impacted by severe weather, such as Winter Storm Fern in January 2026, Hurricane Milton in October 2024, and Winter Storm Elliott in December 2022.
Future policy, legal, regulatory, or other market developments could require the Company to reduce its emissions, increase its usage of SAF and other forms of lower carbon energy, modify its supply chain practices or aspects of its operations, make capital investments to purchase specific types of equipment or technologies, secure carbon offset credits, disclose or report additional GHG information, or otherwise incur additional costs related to climate objectives or because of the Company’s GHG emissions.
For more detail, see “Business–Regulation–Environmental Regulation.” Future policy, legal, regulatory, or other market developments could require the Company to reduce its emissions, increase its usage of SAF and other forms of lower carbon energy, modify its supply chain practices or aspects of its operations, make capital investments to purchase specific types of equipment or technologies, secure carbon offset credits, disclose or report additional GHG information, or otherwise incur additional costs related to regulatory compliance and climate objectives.
The Company’s reputation or brand, as well as its Customer and other stakeholder relationships, could be adversely impacted as a result of, among other things, (i) any failure to meet its ESG plans or goals or any modifications to such goals; (ii) Customer perceptions of the 50 Table of Contents Company’s advertising campaigns, sponsorship arrangements or marketing programs; (iii) Customer perceptions of the Company’s use of social media; (iv) Customer and other stakeholder perceptions of statements made by the Company, its Employees and executives, agents, any industry trade associations, or other third parties; or (v) public pressure from investors or policy groups to change the Company's policies.
The Company’s reputation or brand, as well as its Customer and other stakeholder relationships, could be adversely impacted as a result of, among other things, (i) Customer perceptions of the Company’s strategic initiatives; (ii) Customer perceptions of the Company’s advertising campaigns, sponsorship arrangements or marketing programs; (iii) Customer perceptions of the Company’s use of social media; (iv) Customer and other stakeholder perceptions of statements made by the Company, its Employees and executives, agents, any industry trade associations, or other third parties; or (v) public pressure from certain investors or policy groups to change the Company’s policies.
These events can decrease revenue, increase costs, and adversely impact the Company’s financial condition. Prolonged interruptions or disruptions at airports can and do also adversely impact the Company’s business and results of operations. The Company also may incur significant costs to reestablish or relocate affected business functions, aircraft, and Employees.
Prolonged interruptions or disruptions at airports can and do also adversely impact the Company’s business and results of operations. The Company also may incur significant costs to reestablish or relocate affected business functions, aircraft, and Employees.
The Company's business can be significantly impacted by the availability of jet fuel and high and/or volatile fuel prices, and the Company's operations are subject to disruption in the event of any delayed supply of fuel; therefore, the Company's strategic plans and future profitability are likely to be impacted by the Company's ability to effectively address fuel price increases and fuel price volatility and availability.
The Company's business can be significantly affected by the availability of jet fuel, fuel prices, and volatility of fuel prices and the Company's operations are subject to disruption in the event of any delayed supply of fuel; therefore, the Company's strategic plans and future profitability are likely to be affected by fuel availability, price increases, and fuel price volatility.
Alternatively, the Company could face criticism from certain “anti-ESG” parties for making environmental or social commitments or pursuing certain environmental or social initiatives that are alleged to be political or polarizing in nature and could subject the Company to pressure in the media or through other means, which could adversely affect the Company’s reputation, business, financial performance, market access, and growth.
Alternatively, the Company could face criticism from 42 Table of Contents certain “anti-ESG” parties for making environmental or social commitments or pursuing certain environmental or social initiatives that are alleged to be political or polarizing in nature, which could adversely affect the Company’s reputation, business, financial performance, market access, and growth.
The forum selection provision may increase costs to bring a claim, discourage claims, or limit a Shareholder’s ability to bring a claim in a judicial forum that such Shareholder finds favorable for disputes with the Company or the Company’s directors, officers, or other Employees, which may discourage such lawsuits against the Company or the Company’s directors, officers, and other Employees.
The forum selection, waiver of jury trial, and derivative proceedings threshold provisions may increase costs to bring a claim, discourage claims, limit a Shareholder’s ability to bring a claim, or limit a Shareholder’s ability to bring a claim in a judicial forum that such Shareholder finds favorable for disputes with the Company or the Company’s directors, officers, or other Employees, which may discourage such lawsuits against the Company or the Company’s directors, officers, and other Employees.
Alternatively, if a court were to find the forum selection provision contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company could incur additional costs associated with resolving such action in other jurisdictions. Item 1B. Unresolved Staff Comments None.
Alternatively, if a court were to find any of the provisions contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company could incur additional costs associated with resolving such actions. Item 1B. Unresolved Staff Comments None.
The Company’s transformational initiatives are discussed in more detail under “Business.” The timely and effective execution of the Company's strategies is dependent upon, among other factors, (i) the Company's ability to balance its network schedule and capacity with the availability and location of its crew resources; (ii) the Company's ability to effectively balance its investment of incremental operating expenses and capital expenditures related to its strategies against the need to effectively control costs; (iii) the Company's ability to timely and effectively implement, transition, and maintain related information technology systems and infrastructure; (iv) the Company’s ability to maintain satisfactory relations with its Employees or its Employees’ representatives; (v) the Company’s ability to broaden its Customer base; and (vi) the Company's dependence on third parties with respect to the execution of its strategic plans.
The timely and effective execution of the Company’s strategies is dependent upon, among other factors, (i) the Company’s ability to balance its network schedule and capacity with the availability and location of its crew resources; (ii) the Company’s ability to effectively balance its investment of incremental operating expenses and capital expenditures related to its strategies against the need to effectively control costs; (iii) the Company’s ability to timely and effectively implement, transition, and maintain related information technology systems and infrastructure; (iv) the Company’s ability to secure labor agreements or modifications necessary to support certain operational or strategic initiatives; (v) the Company’s ability to maintain satisfactory relations with its Employees or its Employees’ representatives; (vi) the Company’s ability to retain and broaden its Customer base; and (vii) the Company’s dependence on third parties with respect to the execution of its strategic plans.
If the MAX aircraft were to become unavailable for the Company's operations, or if the Company were to continue to experience prolonged delivery delays of MAX aircraft, the Company's business plans, strategies, and results of operations could be materially and adversely affected. • The Company's business is labor intensive, with most Employees represented by labor unions; therefore, the Company could be materially adversely affected in the event of conflict with its Employees or its Employees' representatives or if the Company were unable to employ and retain appropriate numbers of qualified Employees to maintain its operations. • The Company is currently dependent on a single engine supplier, as well as single suppliers of certain other aircraft parts and equipment; therefore, the Company could be materially adversely affected (i) if it were unable to obtain timely or sufficient delivery of aircraft parts or equipment or adequate maintenance or other support from any of these suppliers at commercially reasonable terms, (ii) if suppliers were unable to achieve and/or maintain required regulatory certifications or approvals of their parts or equipment, or (iii) in the event of a mechanical or regulatory issue associated with the Company's aircraft parts or equipment. • The airline industry has faced on-going security concerns and related cost burdens; further threatened or actual terrorist attacks, war, or other hostilities, even if not made directly on the airline industry, could significantly harm the airline industry and the Company's operations. • Interruptions or disruptions in service at one of the Company’s core stations have had, and could in the future have, a material adverse impact on its operations. • The Company’s operations have been, and in the future may again be, materially and adversely disrupted by extreme weather events.
If the MAX aircraft were to become unavailable for the Company’s operations, or if the Company were not able to procure future aircraft in a timely manner or on favorable commercial terms, the Company’s business plans, strategies, and results of operations could be materially and adversely affected. • Introducing a new aircraft manufacturer or fleet type could impose significant operational complexities, regulatory requirements, and costs on the Company. • The Company could be materially adversely affected in the event of conflict with its Employees or its Employees’ representatives or if the Company were unable to employ and retain appropriate numbers of qualified Employees to maintain its operations. • The Company is currently dependent on a single engine supplier, as well as single suppliers of certain other aircraft parts and equipment; therefore, the Company could be materially adversely affected (i) if it were unable to obtain timely or sufficient delivery of aircraft parts or equipment or adequate maintenance or other support, (ii) if suppliers were unable to achieve and/or maintain required regulatory certifications or approvals, or (iii) in the event of a mechanical or regulatory issue associated with the Company’s aircraft parts or equipment. • The airline industry has faced on-going security concerns and related cost burdens; further threatened or actual terrorist attacks, war, or other hostilities could significantly harm the airline industry and the Company’s operations. • Interruptions or disruptions in service at one of the Company’s core stations have had, and could in the future have, a material adverse impact on its operations. • The Company’s operations have been, and in the future may again be, materially and adversely disrupted by extreme weather events.
The COVID-19 pandemic and current economic conditions have resulted, and could continue to result, in delays and other performance issues, ceased operations, or even bankruptcies among suppliers, third-party vendors, and service providers.
Adverse macroeconomic conditions have resulted, and could continue to result, in delays and other performance issues, ceased operations, or even bankruptcies among suppliers, third-party vendors, and service providers.
The Company currently operates a higher percentage of the Boeing 737 aircraft than other air carriers in the industry, and therefore may encounter novel hazards, age-related maintenance issues, or airworthiness issues associated with 737 aircraft to a larger degree than other carriers. Boeing no longer manufactures versions of the 737 other than the MAX family of aircraft.
The Company currently operates a higher proportion of the Boeing 737 aircraft than other air carriers in the industry, and therefore may encounter novel hazards, age-related maintenance issues, or airworthiness issues associated with 737 aircraft to a larger degree than other carriers with more diversified fleets.
The Company’s success depends on its ability to attract and retain appropriate levels of skilled personnel. In connection with the drastic reduction in travel demand due to the pandemic, in 2020 the Company offered voluntary separation and extended time-off programs to Employees. This negatively impacted the Company's ability to staff appropriately when demand for leisure travel returned.
In connection with the drastic reduction in travel demand due to the pandemic, in 2020 the Company offered voluntary separation and extended time-off programs to Employees. This negatively impacted the Company’s ability to staff appropriately when demand for leisure travel returned.
Operational Risks The Company is currently dependent on Boeing as the sole manufacturer of the Company's aircraft. If the MAX aircraft were to become unavailable for the Company's operations, or if the Company were to continue to experience prolonged delivery delays of MAX aircraft, the Company's business plans, strategies, and results of operations could be materially and adversely affected.
If the MAX aircraft were to become unavailable for the Company's operations, or if the Company were to continue to experience prolonged delivery delays of MAX aircraft, the Company's business plans, strategies, and results of operations could be materially and adversely affected.
The complex and evolving legal landscape surrounding AI technologies, particularly regarding intellectual property rights and data privacy, creates additional compliance challenges and potential liability.
The complex and evolving regulatory landscape surrounding AI technologies, including regarding violations of intellectual property rights and data privacy concerns, creates additional compliance challenges and potential liability.
Businesses and other travelers are able to forego air travel by using other communications such as videoconferencing, business communication platforms, and the Internet. Further, some businesses have continued to allow their employees to work remotely following the COVID-19 pandemic and/or have restricted non-essential travel for their employees, which has kept demand for business air travel below pre-pandemic levels.
Businesses and other travelers are able to forego air travel by using other communications such as videoconferencing, business communication platforms, and the Internet. Further, some businesses allow their employees to work remotely and/or restrict non-essential travel for their employees, which has impacted the demand for business air travel.
The Company’s Bylaws designate specific courts as the exclusive forum for certain legal actions between the Company and its Shareholders, which could increase costs to bring a claim, discourage claims, or limit the ability of the Company’s Shareholders to bring a claim in a judicial forum viewed by the Shareholders as more favorable for disputes with the Company or the Company’s directors, officers, or other Employees.
The Company has adopted certain provisions in its Bylaws that could increase costs to bring a claim, discourage claims, limit the ability of the Company’s Shareholders to bring a claim, or limit the ability of the Company’s Shareholders to bring a claim in a judicial forum viewed by the Shareholders as more favorable for disputes with the Company or the Company’s directors, officers, or other Employees.
In addition, while the Company cannot predict what requirements may be imposed in the future, federal, state, local, and international legislative and regulatory bodies in recent years have generally increased focus on climate change and reducing GHG, including CO2 emissions, and have generally continued to do so.
In addition, while the Company cannot predict what requirements may be imposed in the future or the timing with respect to the same, federal, state, local, and international legislative and regulatory bodies in recent years have generally increased focus on climate change and reducing GHG, including by requiring disclosure of emissions and climate-related risks, and may continue to do so.
The Company has also announced plans for certain transformational initiatives, such as changing to an assigned seating model, offering premium seating with extra legroom, formalizing partnerships with international carriers to expand its network, offering Getaways by Southwest, introducing 24-hour operations, and reducing the turn times between flights.
In both 2024 and 2025, the Company announced plans for, and is in the process of implementing, certain transformational initiatives, such as changing to an assigned seating model, offering extra legroom seating, formalizing partnerships with international carriers to expand its network, offering Getaways by Southwest, introducing 24-hour operations, reducing the turn times between flights, and introducing bag fees for most fare products.
The Company has historically attempted to manage its risk associated with volatile jet fuel prices by utilizing over-the-counter fuel derivative instruments to hedge a portion of its future jet fuel purchases. However, energy prices can fluctuate significantly in a relatively short amount of time.
Historically, the Company attempted to manage its risk associated with volatile jet fuel prices by utilizing over-the-counter fuel derivative instruments to hedge a portion of its future jet fuel purchases.
If any of these risks actually occur, it could materially harm the Company's business, financial condition, or results of operations, or impair the Company's ability to implement its strategic plans. In that case, the market price of the Company's common stock could decline. The following risk factors are summarized as financial; operational; information technology; and legal, regulatory, compliance, and reputational.
If any of these risks actually occurs, it could materially harm the Company’s business, financial condition, or results of operations, or impair the Company’s ability to implement its strategic plans. In that case, the market price of the Company’s common stock could decline.
The Company’s results could be materially adversely affected in the event of conflicts with its Employees or its Employees’ representatives. The Company’s business is labor intensive; therefore, the Company has been, and could in the future be, adversely affected if it were unable to employ and retain appropriate numbers of qualified Employees to maintain its operations.
The Company’s business is labor intensive; therefore, the Company has been, and could in the future be, adversely affected if it were unable to employ and retain appropriate numbers of qualified Employees to maintain its operations. The Company’s success depends on its ability to attract and retain appropriate levels of skilled personnel.
The Company could also be materially adversely affected if the pricing or operational attributes of its aircraft were to become less competitive. 38 Table of Contents The Company's business is labor intensive, with most Employees represented by labor unions; therefore, the Company could be materially adversely affected in the event of conflict with its Employees or its Employees' representatives.
The Company's business is labor intensive, with most Employees represented by labor unions; therefore, the Company could be materially adversely affected in the event of conflict with its Employees or its Employees' representatives.
The Company’s commercial and operational initiatives are designed to meet evolving Customer preferences, increase revenue opportunities, mitigate cost pressures, and modernize processes. However, the Company cannot offer any assurances that these measures or any future initiatives will be successful in increasing revenues or offsetting costs.
The Company’s commercial and operational initiatives are designed to meet evolving Customer preferences, increase revenue opportunities, mitigate cost pressures, and modernize processes. Nevertheless, these measures and any future initiatives may hurt the Company’s competitive position and Customer loyalty rather than improve it and may not be successful in increasing revenues or offsetting costs.
If the Company’s operations or growth were to be dependent upon the introduction of a new aircraft make and model to the Company’s fleet, the Company would need to, among other things, (i) develop and implement new maintenance, operating, and training programs; (ii) secure extensive regulatory approvals; and (iii) implement new technologies.
If the Company’s operations, growth, or strategic initiatives were to be dependent upon the introduction of a new aircraft make and model to the Company’s fleet, the Company would need to, among other things, (i) develop and implement new maintenance, operating, and training programs; (ii) procure new simulators, tooling, spares, and facilities; (iii) secure extensive regulatory approvals; (iv) implement new technologies; (v) negotiate new supplier, parts-support, and maintenance arrangements; and (vi) negotiate pay and work rules with certain labor unions.
Furthermore, if individuals are elected or appointed to the Board who do not agree with the Company’s strategic plan, the ability of the Board to function effectively could be adversely affected.
Furthermore, if individuals are elected or appointed to the Board who do not agree with the Company’s strategic plan, the ability of the Board to function effectively could be adversely affected. As a result, activist shareholder campaigns could adversely affect the Company’s business, results of operations, financial condition, and share price.
If the MAX aircraft were to become unavailable for the Company’s flight operations, the Company's operations would be materially adversely affected.
Boeing no longer manufactures versions of the 737 other than the MAX family of aircraft. If the MAX aircraft were to become unavailable for the Company’s flight operations, the Company’s operations would be materially adversely affected.
The cost to transition to SAF could be prohibitively expensive without appropriate government support, policies, and incentives in place (including tax credits). Further, SAF incentives that are currently in place could expire or be repealed, and the Company may have binding SAF purchase commitments that extend beyond various incentives currently in place.
The cost of SAF may be prohibitively expensive without appropriate government support, policies, and incentives (including tax credits). The Company may have binding SAF purchase commitments that extend beyond various incentives currently in place, and the presidential administration may take action to revise, repeal, or otherwise modify existing SAF incentives, which could impact the Company’s operations.
The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.
Further, the Company’s contractual delivery schedule for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.
Moreover, application of these state and local laws may result in operational disruption, increased litigation risk, and negative effects on the Company’s collective bargaining agreements. Adverse litigation results in any of these cases could adversely impact the Company’s operational flexibility and result in the imposition of damages and fines, which could potentially be significant.
Moreover, application of these state and local laws may result in operational disruption, increased litigation risk, and negative effects on the Company’s collective-bargaining agreements.
In some cases, these derivative instruments could result in hedging losses, which could result in the Company effectively paying higher than market prices for fuel, thus creating additional volatility in the Company's earnings.
In certain cases, the type of derivative instruments utilized could result in hedging losses, which could result in the Company effectively paying higher than market prices for fuel, thus creating additional volatility in the Company’s earnings. The Company’s ability to enter into fuel derivative instruments in the future could also be limited by market conditions.
The airline industry is made up of inherently complex systems and is affected by many conditions that are beyond its control, which can impact the Company's business strategies and results of operations.
Moreover, any resulting economic dislocations could adversely affect demand for the Company’s services, resulting in an adverse effect on its business, results of operations, and financial condition. The airline industry is made up of inherently complex systems and is affected by many conditions that are beyond its control, which can impact the Company's business strategies and results of operations.
Other states could propose or adopt similar obligations in the future. Until the timing, scope, and extent of such future policy, legal, regulatory, or other market developments become known, the Company cannot predict their effect on the Company’s cost structure or its operating results.
Until the timing, scope, and extent of such future policy, legal, regulatory, or other market developments become known, the Company cannot predict their effect on the Company’s cost structure or its operating results. Violations of environmental and climate change-related laws and regulations could lead to significant fines and penalties and reputational harm.
As of December 31, 2024, approximately 82 percent of the Company's Employees were represented for collective bargaining purposes by labor unions, making the Company particularly exposed in the event of labor-related job actions.
The airline business is labor intensive, and for the year ended December 31, 2025, Salaries, wages, and benefits expense represented approximately 47 percent of the Company's operating expenses. As of December 31, 2025, approximately 84 percent of the Company’s Employees were represented for collective-bargaining purposes by labor unions, making the Company particularly exposed in the event of labor-related job actions.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeFor a detailed discussion of the Company’s cybersecurity related risks, see “Item 1A Risk Factors—Information Technology, Cybersecurity, and Data Privacy Risks.” Cybersecurity Governance Board Oversight The Board is responsible for overseeing management’s assessments of major risks facing the Company and for reviewing options to mitigate such risks.
Biggest changeRisk Factors—Information Technology, Cybersecurity, and Data Privacy Risks.” Cybersecurity Governance Board Oversight The Board is responsible for overseeing management’s assessments of major risks facing the Company and for reviewing options to mitigate such risks. The Board’s oversight of major risks, including cybersecurity risks, occurs at both the full Board level and at the Board committee level through the Audit Committee.
The Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, members of senior management, and other personnel and advisors, as requested by the Board, report on the Company’s financial, operating, and commercial strategies, as well as major related risks, which may include cybersecurity risks, at regularly scheduled meetings of the Board.
The Board . The Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, members of senior management, and other personnel and advisors, as requested by the Board, report on the Company’s financial, operating, and commercial strategies, as well as major related risks, which may include cybersecurity risks, at regularly scheduled meetings of the Board.
Incident Response The Company has a dedicated cybersecurity incident response team responsible for managing and coordinating the Company’s cybersecurity incident response efforts. This team collaborates closely with other internal teams as well as with external legal advisors, communication specialists, and other key stakeholders, as appropriate, in identifying, protecting from, detecting, responding to, and recovering from cybersecurity incidents.
Incident Response The Company has a dedicated cybersecurity incident response team responsible for managing and coordinating the Company’s cybersecurity incident response efforts. This team collaborates closely with other internal teams as well as with external experts such as legal advisors, communication specialists, and other key stakeholders, as appropriate, in identifying, protecting from, detecting, responding to, and recovering from cybersecurity incidents.
The incident response plan includes standard processes for reporting and escalating cybersecurity incidents, as appropriate, to senior management, the Audit Committee, and the Board. Additionally, the Company conducts at least one cybersecurity tabletop exercise on an annual basis, where members of a cross-functional team engage in a simulated cybersecurity incident scenario.
The incident response plan includes standard processes for reporting and 47 Table of Contents escalating cybersecurity incidents, as appropriate, to senior management, the Audit Committee, and the Board. Additionally, the Company conducts at least one cybersecurity tabletop exercise on an annual basis, where members of a cross-functional team engage in a simulated cybersecurity incident scenario.
The CISO has served in various roles in cybersecurity for over 15 years. The CISO earned a Bachelor of Business Administration in Management Information Systems from The University of Oklahoma and holds a Certified Information Systems Security Professional certification.
The CISO has served in various roles in cybersecurity for over 19 years. The CISO earned a Bachelor of Business Administration in Management Information Systems from The University of Oklahoma and holds a Certified Information Systems Security Professional certification.
Cybersecurity topics are presented to the Audit Committee on a quarterly basis and generally highlight any significant cybersecurity incidents, the cyber threat landscape, cybersecurity program enhancements, cybersecurity risks and related mitigation activities, and any other relevant cybersecurity topics.
Cybersecurity topics are presented to the Audit Committee on a periodic basis and generally highlight any significant cybersecurity incidents, the cyber threat landscape, cybersecurity program enhancements, cybersecurity risks and related mitigation activities, and any other relevant cybersecurity topics.
Management believes that this regular cadence of reporting helps to provide the Audit Committee with an informed understanding of the Company’s dynamic cybersecurity program and threat landscape. As needed, the Audit Committee reviews with 54 Table of Contents management the Company’s business continuity and disaster recovery plans and capabilities and the effectiveness of the Company’s escalation procedures.
Management believes that this regular cadence of reporting helps to provide the Audit Committee with an informed understanding of the Company’s dynamic cybersecurity program and threat landscape. As needed, the Audit Committee reviews with management the Company’s business continuity and disaster recovery plans and capabilities and the effectiveness of the Company’s escalation procedures.
The Company’s incident response team also coordinates, as needed, with external legal advisors, communication specialists, and other key stakeholders. 55 Table of Contents
The Company’s incident response team also coordinates, as needed, with external legal advisors, communication specialists, and other key stakeholders. 49 Table of Contents
Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy Risk Assessment and Management The Company is increasingly dependent on the use of complex technology and systems to run its operations and support its strategic objectives.
Item 1C. Cybersecurity Cybersecurity Risk Management and Strategy 46 Table of Contents Risk Assessment and Management The Company is increasingly dependent on the use of complex technology and systems to run its operations and support its strategic objectives.
The CIO holds an undergraduate degree from Cornell and has served in various roles in information technology for over 20 years, including Vice President, Senior Director, Manager and Consultant. • The CISO is responsible for leading the Company’s cybersecurity strategy and department while ensuring the protection of data and assets across the Company’s facilities, airports, and aircraft.
The CIO holds an undergraduate degree from Cornell University and has served in various roles in information technology for over 20 years, including Senior Vice President, Vice President, Senior Director, Manager, and Consultant. • The CISO is responsible for leading the Company’s cybersecurity strategy and department, as well as the protection of data and assets across the Company’s facilities, airports, and aircraft.
These technologies and systems include, among others, the Company's website and 52 Table of Contents reservation system; mobile application; flight dispatch and tracking systems; flight simulators; check-in kiosks; aircraft maintenance, planning, and record keeping systems; telecommunications systems; flight planning and scheduling systems; crew scheduling systems; human resources systems; and financial planning, management, and accounting systems.
These technologies and systems include, among others, the Company's website and reservation system; mobile application; flight dispatch and tracking systems; flight simulators; check-in kiosks; aircraft maintenance, planning, and record keeping systems; telecommunications systems; flight planning and scheduling systems; crew scheduling systems; human resources systems; and financial planning, management, and accounting systems.
The Audit Committee reviews with management the Company’s technology and cybersecurity frameworks, policies, programs, opportunities, and risk profile as needed at its regularly scheduled meetings. The Company’s CIO, CISO, members of the cybersecurity team, or other advisors, as requested by the Audit Committee, report quarterly on the Company’s technology, data protection, and cybersecurity strategies and risks.
The Audit Committee reviews with management the Company’s technology and cybersecurity frameworks, policies, programs, opportunities, and risk profile as needed at its regularly scheduled meetings. The Company’s CIO, CISO, members of the cybersecurity team, or other advisors, as requested by the Audit Committee, report periodically on the Company’s technology, data protection, and cybersecurity strategies 48 Table of Contents and risks.
The responsibilities and relevant experience of each of the Cybersecurity Leaders are listed below: • The CIO provides leadership for the Company’s technology department.
The responsibilities and relevant experience of each of the Cybersecurity Leaders are listed below: • The Executive Vice President and CIO provides leadership for the Company’s technology department.
This preparedness exercise is intended to provide hands-on training for the participants and helps the Company assess its cybersecurity response plan and its processes and capabilities in addressing cybersecurity threats. 53 Table of Contents Use of Third Parties Cybersecurity Service Providers and Third-Party Consultants .
This preparedness exercise is intended to provide hands-on training for the participants and helps the Company assess its cybersecurity response plan and its processes and capabilities in addressing cybersecurity threats. Use of Third Parties Cybersecurity Service Providers and Third-Party Consultants . The Company engages cybersecurity consultants, assessors, and other third parties to assess and enhance its cybersecurity practices.
Although the Company has not experienced cybersecurity incidents that are individually, or in the aggregate, material, the Company and its service providers have experienced cyber-attacks in the past, which the Company believes have thus far been mitigated by preventative, detective, and responsive measures put in place.
Although the Company has not experienced cybersecurity incidents that are individually, or in the aggregate, material, the Company and its service providers have experienced cyber-attacks in the past, which the Company believes have thus far been mitigated by preventative, detective, and responsive measures put in place. For a detailed discussion of the Company’s cybersecurity related risks, see “Item 1A.
The Company engages cybersecurity consultants, assessors, and other third parties to assess and enhance its cybersecurity practices. These third parties conduct assessments, penetration testing, and vulnerability evaluations to help identify potential weaknesses and recommend improvements.
These third parties conduct assessments, penetration testing, and vulnerability evaluations to help identify potential weaknesses and recommend improvements.
Removed
The Board’s oversight of major risks, including cybersecurity risks, occurs at both the full Board level and at the Board committee level through the Audit Committee. The Board .

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe delivery schedule below reflects contractual commitments, although the timing of future deliveries could be affected by any potential or prolonged delays in the manufacturing process or with the -7 certification. The Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.
Biggest changeThese agreements provide flexibility in support of the Company's growth plans and fleet modernization and include certain confidential credits and other concessions provided to the Company by Boeing. The delivery schedule below reflects contractual commitments, although the timing of future deliveries could be affected by any potential or prolonged delays in the manufacturing process or with the -7 certification.
Item 2. Properties Aircraft Southwest operated a total of 803 Boeing 737 aircraft as of December 31, 2024, of which 88 and 18 were under operating and finance leases, respectively.
Item 2. Properties Aircraft Southwest operated a total of 803 Boeing 737 aircraft as of December 31, 2025, of which 82 and 15 were under operating and finance leases, respectively.
The 2025 contractual detail is as follows: 56 Table of Contents The Boeing Company -7 Firm Orders -8 Firm Orders Total 2024 Contractual Deliveries 27 36 63 2025 Contractual Deliveries 43 30 73 2025 Combined Contractual Total 70 66 136 Ground Facilities and Services Southwest either leases or pays a usage fee for terminal passenger service facilities at each of the airports it serves, to which various leasehold improvements have been made.
The 2026 contractual detail is as follows: 50 Table of Contents The Boeing Company -7 Firm Orders -8 Firm Orders Total 2024 Contractual Deliveries 27 — 27 2025 Contractual Deliveries — 54 54 2026 Contractual Deliveries 74 12 86 2026 Combined Contractual Total 101 66 167 Ground Facilities and Services Southwest either leases or pays a usage fee for terminal passenger service facilities at each of the airports it serves, to which various leasehold improvements have been made.
As of December 31, 2024, the Company had firm deliveries and options for -7 and -8 aircraft as follows: The Boeing Company -7 Firm Orders -8 Firm Orders -7 or -8 Options Total 2025 70 66 — 136 (c) 2026 64 — 22 86 2027 19 46 25 90 2028 15 50 25 90 2029 38 34 18 90 2030 45 — 45 90 2031 45 — 45 90 296 (a) 196 (b) 180 672 (a) The delivery timing for the -7 is dependent on the Federal Aviation Administration ("FAA") issuing required certifications and approvals to Boeing and the Company.
As of December 31, 2025, the Company had firm deliveries and options for -7 and -8 aircraft as follows: The Boeing Company -7 Firm Orders -8 Firm Orders -7 or -8 Options Total 2026 101 66 — 167 (c) 2027 25 46 19 90 2028 15 50 25 90 2029 38 34 18 90 2030 45 — 45 90 2031 45 — 45 90 269 (a) 196 (b) 152 (b) 617 (a) The delivery timing for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.
(c) The Company has included the remaining 63 of its 2024 contractual but undelivered aircraft (27 -7s and 36 -8s) within its 2025 contractual commitments. As Boeing continues to ramp up production and works to certify the -7, the Company is currently using a planning assumption of 38 -8 aircraft deliveries in 2025.
(c) The Company has included the remaining 81 of its 2024 and 2025 contractual but undelivered aircraft (27 -7s and 54 -8s) within its 2026 contractual commitments. As Boeing continues to ramp up production and works to certify the -7, the Company expects 66 -8 aircraft deliveries in 2026.
The following table details information on the 803 aircraft as of December 31, 2024: Type Seats Average Age (Yrs) Number of Aircraft Number Owned Number Leased (a) 737-700 143 19 353 326 27 737-800 175 9 205 155 50 737 -8 175 3 245 216 29 Totals 12 803 697 106 (a) See Note 7 to the Consolidated Financial Statements for more information on the Company's lease transactions.
The following table details information on the 803 aircraft as of December 31, 2025: Type Seats Average Age (Yrs) Number of Aircraft Number Owned Number Leased (a) 737-700 143(b) 20 305 286 19 737-800 175 10 198 149 49 737 -8 175 3 300 271 29 Totals 11 803 706 97 (a) See Note 7 to the Consolidated Financial Statements for more information on the Company's lease transactions.
In second quarter and fourth quarter 2024, the Company entered into supplemental agreements with Boeing relating to its contractual order book for -7 and -8 aircraft. These agreements provide flexibility in support of the Company's growth plans and fleet modernization.
(b) In January 2026, the Company completed retrofits on its -700 fleet to reduce the number of seats to 137 in connection with its implementation of extra legroom seating. In second quarter and fourth quarter 2025, the Company entered into supplemental agreements with Boeing relating to its contractual order book for -7 and -8 aircraft.
The Company also leases a warehouse and engine repair facility in Atlanta. The Company has begun construction on a new aircraft maintenance facility, expected to be completed in 2025, at Baltimore-Washington International Airport. In 2024, the Company completed a multi-year, $100 million project, which nearly doubled the size of the Company’s maintenance hangar at Phoenix Sky Harbor.
The Company also leases a warehouse and engine repair facility in Atlanta. The Company completed construction on a new 129,000 square foot aircraft maintenance facility at Baltimore-Washington International Airport in the second quarter of 2025.
Removed
The 90,000 square foot expansion added three new aircraft bays to the facility.
Added
The Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe case remains stayed, and there has been no effort either to lift the stay or to further pursue the asserted claims following the dismissal of the Sherman Complaint. The Company denies all allegations of wrongdoing, believes the plaintiffs' positions are without merit, and intends to vigorously defend itself in all respects.
Biggest changeThe parties' respective briefing on these issues has been completed and the matter remains pending for a decision by the Court. The Company denies all allegations of wrongdoing in the complaint, believes the plaintiffs' positions are without merit, and intends to vigorously defend itself in all respects.
The Company’s management does not expect that the outcome in any of its currently ongoing legal proceedings or the outcome of any proposed adjustments presented to date by the Internal Revenue Service and state and local income tax authorities, individually or collectively, will have a material adverse effect on the Company’s financial 61 Table of Contents condition, results of operations, or cash flow.
The Company’s management does not expect that the outcome in any of its currently ongoing legal proceedings or the outcome of any proposed adjustments presented to date by the Internal Revenue Service and state and local 56 Table of Contents income tax authorities, individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flow.
On June 15, 2023, a second shareholder derivative suit was filed against certain of the Company’s current and former officers and directors in the United States District Court for the Northern District of Texas, asserting claims under Section 14(a) of the Exchange Act and for damages from alleged breach of fiduciary duty, indemnification, and unjust enrichment derivatively on the Company’s behalf against the individual defendants based on similar factual allegations as contained in the demand letters and in the federal class action complaints.
On June 15, 2023, a second shareholder derivative suit was filed against certain of the Company’s current and former officers and directors in the United States District Court for the Northern District of Texas, asserting claims under Section 14(a) of the Exchange Act 54 Table of Contents and for damages from alleged breach of fiduciary duty, indemnification, and unjust enrichment derivatively on the Company’s behalf against the individual defendants based on similar factual allegations as contained in the demand letters and in the federal class action complaints.
Based on the Company's wide-scale operational disruption, which led to the cancelation of a significant number of flights between December 21 and December 29, 2022, the Company has been subject to inquiries and investigations by governmental agencies (including with respect to a December 2023 settlement with the DOT) and could be subject to fines and/or penalties resulting from those inquiries and investigations, as well as litigation from Customers and Shareholders.
Based on the Company's wide-scale operational disruption, which led to the cancelation of a significant number of flights between December 21 and December 29, 2022, the Company has been subject to inquiries and investigations by governmental agencies (including with respect to a December 2023 settlement with the DOT) and could be 55 Table of Contents subject to fines and/or penalties resulting from those inquiries and investigations, as well as litigation from Customers and Shareholders.
Two complaints alleging violations of federal securities laws and seeking certification as a class action have been filed (on January 10, 2023, and March 13, 2023, respectively) against the Company and certain of its officers in the United States District Court for the Southern District of Texas in Houston.
Two complaints alleging violations of federal securities laws and seeking certification as a class action were filed (on January 10, 2023, and March 13, 2023, respectively) against the Company and certain of its officers in the United States District Court for the Southern District of Texas in Houston.
On December 26, 2024, the Board received a seventh demand letter, and on January 31, 2025, received an eighth demand letter, each containing allegations substantially similar to those presented in certain of the prior Derivative Actions and Demands, which will be addressed consistent with applicable Texas law governing such demands.
On December 26, 2024, the Board received a seventh demand letter, and on January 31, 2025, received an eighth demand letter, each containing allegations substantially similar to those presented in certain of the prior Derivative Actions and Demands, which are being addressed consistent with applicable Texas law governing such demands.
Since about January 24, 2023, the Company’s senior officers and the Board have received multiple derivative demand letters from legal counsel for purported Southwest Shareholders demanding that the Board investigate claims, initiate legal action, and take remedial measures in connection with the service disruptions occurring in December 2022.
Starting on or about January 24, 2023, the Company’s senior officers and the Board received multiple derivative demand letters from legal counsel for purported Southwest Shareholders demanding that the Board investigate claims, initiate legal action, and take remedial measures in connection with the service disruptions occurring in December 2022.
On November 20, 2023, the Company and the individual defendants filed a motion to dismiss the amended complaint for failure to state a claim. Plaintiffs filed an opposition brief on January 26, 2024. The 59 Table of Contents Company and the individual defendants filed a reply brief on February 23, 2024.
On November 20, 2023, the Company and the individual defendants filed a motion to dismiss the amended complaint for failure to state a claim. Plaintiffs filed an opposition brief on January 26, 2024. The Company and the individual defendants filed a reply brief on February 23, 2024.
The deadline in the first of these two cases to file a motion seeking appointment of lead plaintiff was March 13, 2023; four separate motions were filed, and three of the parties seeking appointment have continued to contest the issue.
The deadline in the first of these two cases to file a motion seeking appointment of lead plaintiff was March 13, 2023; four separate motions were filed, and three of the parties seeking appointment contested the issue.
The Derivative Actions and Demands have all been stayed, formally or by agreement, pending the outcome of the investigation by the Special Litigation Committee.
The Derivative Actions and Demands were all stayed, formally or by agreement, pending the outcome of the investigation by the Special Litigation Committee.
Further, on July 1, 2015, a complaint was filed in the United States District Court for the Southern District of New York on behalf of putative classes of consumers alleging collusion among the Company, American Airlines, Delta Air Lines, and United Airlines to limit capacity and maintain higher fares in violation of Section 1 of the Sherman Act.
The Company is cooperating fully with the DOJ CID and the state inquiry. 51 Table of Contents Further, on July 1, 2015, a complaint was filed in the United States District Court for the Southern District of New York on behalf of putative classes of consumers alleging collusion among the Company, American Airlines, Delta Air Lines, and United Airlines to limit capacity and maintain higher fares in violation of Section 1 of the Sherman Act.
The state court cases have been consolidated into one case, and a motion is pending to consolidate the federal cases into one federal case. 60 Table of Contents As described above, pursuant to the applicable Texas statutes governing derivative demands and litigation, the Special Litigation Committee was duly appointed to conduct an inquiry regarding the claims and allegations asserted in the Derivative Actions and Demands.
The state court cases have been consolidated into one state court case, and the federal cases were later consolidated into one federal case. As described above, pursuant to the applicable Texas statutes governing derivative demands and litigation, the Special Litigation Committee was duly appointed to conduct an inquiry regarding the claims and allegations asserted in the Derivative Actions and Demands.
The Company denies all allegations of wrongdoing, believes the plaintiff’s positions are without merit, and intends to vigorously defend itself in all respects. 58 Table of Contents On June 22, 2020, a derivative action for breach of fiduciary duty was filed in the United States District Court for the Northern District of Texas naming the members of the Company's Board of Directors (the “Board”) as defendants and the Company as a nominal defendant (the “Derivative Action”).
On June 22, 2020, a derivative action for breach of fiduciary duty was filed in the United States District Court for the Northern District of Texas naming the members of the Company's Board of Directors (the “Board”) as defendants and the Company as a nominal defendant (the “Derivative Action”).
In June 2015, 57 Table of Contents the Company also received a letter from the Connecticut Attorney General requesting information about capacity. The Company is cooperating fully with the DOJ CID and the state inquiry.
In June 2015, the Company also received a letter from the Connecticut Attorney General requesting information about capacity.
On October 29, 2024, the Company filed a motion to decertify the class. The motion is fully briefed and a hearing on the motion is set for February 27, 2025. The Court has set a trial date of September 11, 2025.
On October 29, 2024, the Company filed a motion to decertify the class, which was then fully briefed and set for hearing.
The plaintiffs oppose that relief but have not yet filed their opposition brief. The Company denies all allegations of wrongdoing in the complaint, believes the plaintiffs' positions are without merit, and intends to vigorously defend itself in all respects.
The Company continues to deny all allegations of wrongdoing, believes the plaintiffs' positions are without merit, and intends to vigorously defend itself against the appeal.
Removed
In that regard, on December 15, 2023, the plaintiffs in the two state court derivative cases filed an unopposed motion to consolidate the two state derivative cases, to appoint lead counsel, and to stay the consolidated state court derivative case pending the outcome of the ongoing inquiry of the Special Litigation Committee.
Added
On February 13, 2025, the parties filed a notice of settlement advising the Court that they reached a settlement in principle, and the parties made a stipulated request for the Court to vacate the case schedule, including the hearing on the Company's decertification motion, and to set a deadline of June 19, 2025, for the filing of either a motion for preliminary approval of the class settlement or a status update about the timing of the remaining steps in the settlement process.
Removed
Further, in light of the ongoing inquiry of the Special Litigation Committee, on December 19, 2023, the Company filed an unopposed motion to extend a stay of the federal derivative case until at least February 26, 2024.
Added
The Court granted the stipulation on February 14, 2025. On June 20, 2025, the Court granted the parties’ stipulated request to continue the deadline for filing a motion for preliminary approval of the class settlement and the Court reset the deadline for 52 Table of Contents August 21, 2025.
Removed
On February 26, 2024, the Company filed a second unopposed motion to extend the stay of the federal derivative case until at least April 26, 2024. On April 26, 2024, the Company filed a third motion to extend the stay of the federal derivative case until at least June 25, 2024.
Added
On September 25, 2025, plaintiffs filed a motion for preliminary approval of the settlement class. The class proposed in the settlement modifies the class definition to use an end date of January 1, 2026 (rather than treating the date of judgment as the end date).
Removed
On July 2, 2024, the Company filed a fourth motion to extend the stay of the federal derivative case until at least July 25, 2024. On July 27, 2024, the Company filed an additional motion to further extend the stay until September 23, 2024.
Added
The settlement includes an $18.5 million settlement fund and prospective relief that includes a differential pay benefit for up to ten days of military leave per year, which will remain in place for at least five years once initiated.
Removed
The Company and its counsel intend to take steps on behalf of the Company to implement the resolution of the Special Litigation Committee, including making appropriate motions in accordance with applicable Texas law governing derivative demands and litigation procedure.
Added
On December 11, 2025, the Court granted preliminary approval of the settlement and set the final approval hearing for May 14, 2026.
Added
On December 27, 2019, a former customer service agent at Oakland International Airport, filed a putative class action complaint in the Superior Court of California, for the County of Santa Clara, against the Company alleging the following seven claims under the California Labor Code and Business & Professions Code: (1) failure to provide meal periods; (2) failure to provide rest periods; (3) failure to pay hourly wages; (4) failure to provide accurate wage statements; (5) failure to timely pay all final wages; (6) unfair competition; and (7) civil penalties for the foregoing.
Added
Plaintiff filed a First Amended Complaint on October 15, 2021, that asserted the same causes of action and added a named plaintiff. The First Amended Complaint primarily seeks unpaid wages, interest thereon, and associated civil and statutory penalties, along with attorneys’ fees and costs.
Added
On February 26, 2025, the Court granted class certification as to the first cause of action for failure to provide meal periods, denied certification on the second through fourth causes of action, and granted certification on the fifth and sixth causes of action only insofar as they are predicated on the first cause of action.
Added
The certified class consists of all of the Company’s non-exempt ground employees in California who worked a shift in excess of five hours for the time period between October 24, 2014, forward.
Added
On April 17, 2025, the Company filed a summary judgment motion arguing that Plaintiffs’ first cause of action, and all causes of action predicated thereon, failed as a matter of law. The motion was granted on July 25, 2025.
Added
Judgment was entered in favor of the Company on September 2, 2025, and Plaintiffs filed a notice of appeal on September 4, 2025. The Company intends to continue to vigorously defend itself in all respects.
Added
Following more recent communications by the parties regarding the status of the stay, the Court directed the parties to file a joint status report, which was filed on February 24, 2025, with the 53 Table of Contents Company renewing its request that the case be dismissed for lack of standing and lack of subject matter jurisdiction in light of the Fifth Circuit’s decision regarding the Sherman Complaint, which the plaintiffs opposed.
Added
On March 11, 2025, the Court heard argument of the parties’ respective positions on the Company’s request for dismissal for lack of standing and lack of subject matter jurisdiction. On June 9, 2025, the Court issued an order dismissing the case for lack of standing and lack of subject matter jurisdiction and entered final judgment in favor of the Company.
Added
On July 9, 2025, the plaintiffs in the case filed a notice of appeal to the Fifth Circuit Court of Appeals. The appeal has now been fully briefed by the parties. No oral argument has been set.
Added
On April 3, 2025, the United States District Court for the Southern District of Texas conducted a hearing on the Company’s motion for reconsideration and requested the parties to confer and submit an agreed post-hearing briefing schedule in order for the Court to evaluate and determine the sufficiency of the allegations in Plaintiffs’ amended complaint in accordance with the Private Securities Litigation Reform Act.
Added
On April 1, 2025, the Company filed a motion to dismiss or stay the consolidated state court derivative actions based on the forum selection clause in the Company’s bylaws and the pendency of the related federal derivative cases.
Added
In May 2025, the Company and the plaintiffs in the state court derivative actions filed a joint stipulation and proposed order to stay the state court derivative actions and, among other things, to make a ruling on a motion to dismiss in the federal derivative case binding upon the state court derivative actions.
Added
On June 18, 2025, the Company filed a motion to lift the stay in the consolidated federal derivative actions and an accompanying motion to dismiss based on the Special Litigation Committee's report, conclusions, and resolution.
Added
The parties have submitted to the Court a stipulation with a proposed schedule pertaining to further briefing and related proceedings in connection with the motion to dismiss. The stipulation has not yet been signed by the Court.
Added
On April 29, 2025, the Company received a demand letter addressed to the Board, dated April 28, 2025, from a purported Southwest Shareholder contending that the Company’s directors and senior officers breached their fiduciary duties in connection with the Board’s decision to end Southwest’s Bags Fly Free policy and to begin charging passengers for bags.
Added
The letter demanded that the Board investigate the circumstances surrounding the policy change and bring suit against individual directors and officers who allegedly breached their duties to the Company. On June 27, 2025, the Company sent a response to the demand letter on behalf of the Board rejecting the allegations and denying them and any other form of wrongdoing.
Added
The response letter also noted that the Board approved an amendment and restatement of the Company’s bylaws that, among other things, established a minimum ownership threshold of three percent of Southwest’s outstanding shares in order for a Southwest shareholder to institute or maintain a derivative proceeding, consistent with the provisions in Texas Senate Bill 29, which was signed into law on May 14, 2025.
Added
The response letter further noted that the purported shareholder who sent the demand letter claims to hold only 100 shares of the Company’s stock and thus fell well short of the three percent threshold.
Added
On July 10, 2025, the shareholder who sent the demand filed a shareholder derivative complaint in the United States District Court for the Northern District of Texas against various directors and officers of the Company based on the contentions asserted in the demand letter.
Added
The suit asserts, among other things, that the decision to change Southwest’s Bags Fly Free policy conflicts with the Company’s prior views regarding the policy and is detrimental to the Company’s business, and that the Company’s directors approved the policy to accede to pressure from large shareholder Elliott Investment Management L.P., to preserve their Board seats, or both, rather than to serve the Company’s interests.
Added
The complaint also asserts that the amendment and restatement of the Company’s bylaws is ineffective.
Added
On August 25, 2025, the Company and its Board moved to dismiss the derivative complaint and all claims on the grounds, among others, that the suit is barred by Texas Senate Bill 29 and the Company's bylaw passed pursuant thereto requiring a three percent ownership threshold in order for Company shareholders to bring derivative claims.
Added
The plaintiff opposed the motion, claiming the purportedly retroactive application of Texas Senate Bill 29 and the Company bylaw are unconstitutional; and the Company filed a reply in support of its motion to dismiss.
Added
Additionally, multiple entities sought and were granted leave to file three separate amicus curiae briefs in support of the Company's motion to dismiss and Texas Senate Bill 29; those included one amicus brief each by: (i) the Chamber of Commerce of the United States of America and the Texas Association of Business, (ii) the Alliance for Corporate Excellence, and (iii) Texans for Lawsuit Reform.
Added
Finally, in light of the constitutional challenge to Texas Senate Bill 29, on October 3, 2025, the State of Texas, represented by the Office of the Attorney General of Texas, filed a motion to intervene in the case and its own accompanying motion to dismiss the plaintiff's derivative suit and all claims therein as barred by Texas Senate Bill 29.
Added
The State of Texas’s motion to intervene was granted, and its motion to dismiss has been fully briefed by both the State and the plaintiff. The motions to dismiss of both the Company and the State of Texas remain pending and awaiting decision by the Court.
Added
The Company and its Board deny all allegations of wrongdoing, believe the plaintiffs' positions are without merit, and intend to vigorously defend themselves in all respects.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

8 edited+2 added−3 removed4 unchanged
Biggest changeGreen also served as Executive Vice President Commercial Transformation from July to November 2024, Executive Vice President & Chief Commercial Officer from October 2022 to July 2024, Senior Vice President & Chief Marketing Officer from February 2019 to October 2022, Vice President & Chief Marketing Officer from April 2017 to February 2019, Vice President Marketing from February 2016 to April 2017, Managing Director Customer Strategy and Development from October 2013 to February 2016, Senior Director Loyalty & Partnerships from July 2010 to October 2013, Director Customer Loyalty from November 2007 to July 2010, Senior Manager Loyalty Marketing from January 2007 to November 2007, and Manager Business Development from July 2004 to January 2007.
Biggest changeRoach also served as Senior Vice President & Chief Customer Officer from December 2022 to March 2025, Vice President Customer Experience & Customer Relations from May 2021 to December 2022, Managing Director Customer Experience from June 2020 to May 2021, Managing Director Marketing from September 2019 to June 2020, Senior Director Customer Experience from September 2018 to September 2019, Director Customer Experience from January 2017 to September 2018, Senior Manager in the Marketing Department from February 2014 to January 2017, and Manager in the Marketing Department from December 2010 to February 2014.
Jordan has served as the Company's Chief Executive Officer since February 2022 and as its President since January 2023. Mr. Jordan has been a member of the Board since February 2022. Mr.
Robert E. Jordan has served as the Company's Chief Executive Officer since February 2022 and as its President since January 2023. Mr. Jordan has been a member of the Board since February 2022. Mr.
Item 4. Mine Safety Disclosures Not applicable. 62 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following information regarding the Company’s executive officers is as of February 5, 2025. Name Position Age Robert E. Jordan President & Chief Executive Officer 64 Andrew M. Watterson Chief Operating Officer 58 Ryan C.
Item 4. Mine Safety Disclosures Not applicable. 57 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following information regarding the Company’s executive officers is as of February 5, 2026. Name Position Age Robert E. Jordan President & Chief Executive Officer 65 Andrew M.
Mr. Green joined the Company in 2002 in the Marketing Department. Justin Jones has served as the Company’s Executive Vice President Operations since December 2023. Mr.
Justin Jones has served as the Company’s Executive Vice President Operations since December 2023. Mr.
Mr. Jones joined the Company in 2001 in the Revenue Management Department. Tammy Romo has served as the Company's Executive Vice President & Chief Financial Officer since July 2015. Ms.
Mr. Jones joined the Company in 2001 in the Revenue Management Department. Tony Roach has served as the Company's Executive Vice President & Chief Customer & Brand Officer since March 2025. Mr.
Ryan C. Green has served as the Company’s Executive Vice President & Chief Transformation Officer since November 2024. Mr.
Tom Doxey has served as the Company’s Executive Vice President & Chief Financial Officer since March 2025. Mr.
Green Executive Vice President & Chief Transformation Officer 48 Justin Jones Executive Vice President Operations 46 Tammy Romo Executive Vice President & Chief Financial Officer 62 Linda B. Rutherford Chief Administration Officer 58 Set forth below is a description of the background of each of the Company’s executive officers. Robert E.
Watterson Chief Operating Officer 59 Tom Doxey Executive Vice President & Chief Financial Officer 46 Justin Jones Executive Vice President Operations 47 Tony Roach Executive Vice President & Chief Customer & Brand Officer 46 Lauren Woods Executive Vice President & Chief Information Officer 49 Set forth below is a description of the background of each of the Company’s executive officers.
Romo also served as Senior Vice President Finance & Chief Financial Officer from September 2012 to July 2015, Senior Vice President of Planning from February 2010 to September 2012, Vice President of Financial Planning from September 2008 to February 2010, Vice President Controller from February 2006 to August 2008, Vice President Treasurer from September 2004 to February 2006, Senior Director of Investor Relations from March 63 Table of Contents 2002 to September 2004, Director of Investor Relations from December 1994 to March 2002, Manager of Investor Relations from September 1994 to December 1994, and Manager of Financial Reporting from September 1991 to September 1994.
Woods also served as Senior Vice President & Chief Information Officer from February 2023 to December 2025, Vice President Technology from August 2021 to February 2023, Managing Director Technology from February 2019 to August 2021, Senior Director Technology from April 2016 to February 2019, Director in the Corporate Delivery Department from November 2014 to April 2016, Senior Manager Technology from October 2012 to November 2014, and Manager Technology from March 2010 to October 2012. 59 Table of Contents PART II
Removed
The Company has announced Ms. Romo’s resignation from her position of Executive Vice President & Chief Financial Officer effective April 1, 2025. Linda B. Rutherford has served as the Company’s Chief Administration Officer since October 2022. Ms.
Added
Doxey also served as President of Breeze Airways from May 2022 to August 2024, Senior Vice President of Technical Operations at United Airlines from May 2019 to April 2022, Chief Financial Officer of Operations at United Airlines from December 2016 to May 2019, Vice President of Fleet and Corporate Finance at Allegiant Air from March 2013 to December 2016, in other fleet and finance-related roles at Allegiant Air from July 2009 to March 2013, and in various Finance roles at US Airways from October 2006 to July 2009.
Removed
Rutherford also served as Chief Communications Officer from October 2022 to December 2023, Executive Vice President People & Communications from June 2021 to October 2022, Senior Vice President & Chief Communications Officer from October 2017 to June 2021, Vice President & Chief Communications Officer from January 2016 to October 2017, Vice President Communications & Strategic Outreach from April 2007 to January 2016, Vice President Public Relations & Community Affairs from December 2005 to April 2007, Director Public Relations from May 2001 to December 2005, Senior Manager Public Relations from February 1999 to May 2001, and Manager Public Relations from February 1997 to February 1999.
Added
Mr. Roach joined the Company in 2001 in the Marketing Department. 58 Table of Contents Lauren Woods has served as the Company’s Executive Vice President & Chief Information Officer since December 2025. Ms.
Removed
Ms. Rutherford joined the Company in 1992 as a Public Relations Coordinator. The Company has announced Ms. Rutherford’s resignation from her position of Chief Administration Officer effective April 1, 2025. 64 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+10 added−0 removed1 unchanged
Biggest changeCOMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG SOUTHWEST AIRLINES CO., S&P 500 INDEX, AND NYSE ARCA AIRLINE INDEX 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Southwest Airlines Co. $ 100 $ 87 $ 80 $ 63 $ 55 $ 66 S&P 500 $ 100 $ 118 $ 152 $ 125 $ 157 $ 197 NYSE ARCA Airline $ 100 $ 76 $ 74 $ 48 $ 63 $ 63 66 Table of Contents Issuer Repurchases Issuer Purchases of Equity Securities (1) (a) (b) (c) (d) Period Total number of shares purchased Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum dollar value of shares that may yet be purchased under the plans or programs October 1, 2024 through October 31, 2024 6,795,787 $ — (3) 6,795,787 $ 2,250,000,000 November 1, 2024 through November 30, 2024 — $ — — $ 2,250,000,000 December 1, 2024 through December 31, 2024 — $ — — $ 2,250,000,000 Total 6,795,787 6,795,787 (1) On May 15, 2019, the Board authorized the repurchase of up to $2.0 billion of the Company’s common stock, of which approximately $899 million remained as of September 2024.
Biggest changeCOMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG SOUTHWEST AIRLINES CO., S&P 500 INDEX, AND NYSE ARCA AIRLINE INDEX 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 Southwest Airlines Co. $ 100 $ 92 $ 72 $ 64 $ 76 $ 95 S&P 500 $ 100 $ 129 $ 105 $ 133 $ 166 $ 196 NYSE ARCA Airline $ 100 $ 98 $ 64 $ 83 $ 83 $ 88 61 Table of Contents Issuer Repurchases Issuer Purchases of Equity Securities (1) (a) (b) (c) (d) Period Total number of shares purchased Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum dollar value of shares that may yet be purchased under the plans or programs October 1, 2025 through October 31, 2025 1,409,551 $ — (3) 1,409,551 $ 1,750,000,000 November 1, 2025 through November 30, 2025 1,224,740 $ — (4) 1,224,740 $ 1,700,000,000 December 1, 2025 through December 31, 2025 106,178 $ — (4) 106,178 $ 1,700,000,000 (5)(6) Total 2,740,469 2,740,469 (1) On September 25, 2024, the Board authorized the repurchase of up to $2.5 billion of the Company’s common stock, of which no amounts remained as of the end of second quarter 2025.
The comparison assumes $100 was invested on December 31, 2019, in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.
The comparison assumes $100 was invested on December 31, 2020, in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.
The following graph compares the cumulative total Shareholder return on the Company’s common stock over the five-year period ended December 31, 2024, with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the NYSE ARCA Airline Index.
The following graph compares the cumulative total Shareholder return on the Company’s common stock over the five-year period ended December 31, 2025, with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the NYSE ARCA Airline Index.
As of February 5, 2025, there were approximately 10,623 holders of record of the Company’s common stock. 65 Table of Contents Stock Performance Graph The following Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
As of February 3, 2026, there were approximately 10,253 holders of record of the Company’s common stock. 60 Table of Contents Stock Performance Graph The following Performance Graph and related information shall not be deemed "soliciting material" or "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
(3) Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2024 (the "Fourth Quarter 2024 ASR Program"), the Company paid $250 million and received an initial delivery of 6,795,787 shares during October 2024, representing an estimated 80 percent of the shares to be purchased by the Company under the Fourth Quarter 2024 ASR Program.
(3) Under an accelerated share repurchase program entered into by the Company with a third-party financial institution in third quarter 2025 (the "Third Quarter 2025 ASR Program"), the Company paid $250 million and received an initial delivery of 6,368,213 shares during September 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the Third Quarter 2025 ASR Program.
This share amount was based on the $29.43 closing price of the Company's common stock on October 25, 2024. Final settlement of the Fourth Quarter 2024 ASR Program occurred in January 2025 and was based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period completed in January 2025.
This share amount was based on the $32.66 closing price of the Company's common stock on November 10, 2025. Final settlement of the Fourth Quarter 2025 ASR Program occurred in December 2025 and was based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period completed in December 2025.
(2) Excludes immaterial amount of excise tax on share repurchases, net of issuances, payable in April 2025.
(2) Excludes immaterial amount of excise tax on share repurchases, net of issuances.
On September 25, 2024, the Board terminated and replaced this previous share repurchase authorization with a new $2.5 billion share repurchase authorization of the Company’s common stock. Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions.
On July 23, 2025, the Board approved a $2.0 billion share repurchase authorization of the Company's common stock. Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions.
Upon settlement, the third party financial institution delivered 1,010,663 additional shares of the Company’s common stock to the Company. Upon completion of the Fourth Quarter 2024 ASR Program in January 2025, the average purchase price per share for the 7,806,450 shares repurchased was $32.02.
Upon settlement, the third party financial institution delivered 106,178 additional shares of the Company’s common stock to the Company. Upon completion of the Fourth Quarter 2025 ASR Program in December 2025, the average purchase price per share for the 1,330,918 shares repurchased was $37.57.
Added
This share amount was based on the $31.39 and $31.43 closing price of the Company's common stock on September 5, 2025 and September 15, 2025, respectively.
Added
Upon settlement, the third-party financial institution delivered 1,409,551 additional shares of the Company’s common stock to the Company in October 2025 based on a discount to the volume-weighted average price per share of the Company's common stock during the calculation period.
Added
Upon completion of the Third Quarter 2025 ASR Program in October 2025, the average purchase price per share for the 7,777,764 shares repurchased was $32.14.
Added
(4) Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2025 (the "Fourth Quarter 2025 ASR Program"), the Company paid $50 million and received an initial delivery of 1,224,740 shares during November 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the Fourth Quarter 2025 ASR Program.
Added
(5) In addition, under a forward contract entered into by the Company in December 2025, the Company committed $750 million for an accelerated share repurchase program with a third party financial institution (the “January 2026 ASR Program”) under which the Company paid $750 million in January 2026 and received total delivery of 17,965,193 shares as settlement in full.
Added
Upon completion of the January 2026 ASR Program in January 2026, the average purchase price per share of the 17,965,193 shares repurchased was $41.75. The $750 million paid in January correspondingly reduced the maximum dollar value of shares that may yet be purchased under the repurchase program to $950 million.
Added
(6) Under an accelerated share repurchase program entered into by the Company with a third party financial institution in January 2026 (the "First Quarter 2026 ASR Program"), the Company paid $400 million and received an initial delivery of 6,597,939 shares during January 2026, representing an estimated 80 percent of the shares to be purchased by the Company under the First Quarter 2026 ASR Program.
Added
This share amount was based on the $48.50 closing price of the Company's 62 Table of Contents common stock on January 29, 2026.
Added
Final settlement of the First Quarter 2026 ASR program is scheduled to occur by the end of April 2026 and will be based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period to be completed at time of settlement.
Added
The $400 million paid in first quarter 2026 correspondingly reduced the maximum dollar value of shares that may yet be purchased under the repurchase program to $550 million.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

107 edited+64 added−162 removed42 unchanged
Biggest changeThe year-over-year decrease in the tax rate is primarily due to the DOT settlement, which was treated as a disallowed tax deduction in 2023. 2023 Compared with 2022 The Company's comparison of 2023 results to 2022 results is included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 80 Table of Contents Reconciliation of Reported Amounts to Non-GAAP Financial Measures (excluding special items) (unaudited) (in millions, except per share amounts and per ASM amounts) Year ended December 31, Percent 2024 2023 Change Fuel and oil expense, unhedged $ 5,750 $ 6,346 Add: Premium cost of fuel contracts designated as hedges 148 121 Deduct: Fuel hedge gains included in Fuel and oil expense, net (86) (250) Fuel and oil expense, as reported $ 5,812 $ 6,217 Add (Deduct): Fuel hedge contracts settling in the current period, but for which (gains) losses were reclassified from AOCI (a) 34 (16) Add: Premium cost of fuel contracts not designated as hedges 9 — Fuel and oil expense, excluding special items (economic) $ 5,855 $ 6,201 (5.6) % Total operating expenses, as reported $ 27,162 $ 25,867 Deduct: Voluntary Employee programs (5) — Deduct: Labor contract adjustment (b) (9) (180) Deduct: SWAPA Labor contract adjustment (c) — (354) Add (Deduct): Fuel hedge contracts settling in the current period, but for which (gains) losses were reclassified from AOCI (a) 34 (16) Add: Premium cost of fuel contracts not designated as hedges 9 — Deduct: DOT settlement — (107) Deduct: Litigation settlements (7) (12) Deduct: Professional advisory fees (37) — Deduct: Transformation costs (5) — Total operating expenses, excluding special items $ 27,142 $ 25,198 7.7 % Deduct: Fuel and oil expense, excluding special items (economic) (5,855) (6,201) Operating expenses, excluding Fuel and oil expense and special items $ 21,287 $ 18,997 12.1 % Deduct: Profitsharing expense (103) (110) Operating expenses, excluding Fuel and oil expense, special items, and profitsharing $ 21,184 $ 18,887 12.2 % Operating income, as reported $ 321 $ 224 Add: Breakage revenue adjustment (d) 116 — Add: Voluntary Employee programs 5 — Add: Labor contract adjustment (b) 9 180 Add: SWAPA contract adjustment (c) — 354 Add (Deduct): Fuel hedge contracts settling in the current period, but for which (gains) losses were reclassified from AOCI (a) (34) 16 Deduct: Premium cost of fuel contracts not designated as hedges (9) — Add: DOT settlement — 107 Add: Litigation settlements 7 12 Add: Professional advisory fees 37 — Add: Transformation costs 5 — Operating income, excluding special items $ 457 $ 893 (48.8) % Other (gains) losses, net, as reported $ 4 $ (62) Add (Deduct): Mark-to-market impact from fuel contracts settling in current periods (a) (34) 17 Deduct: Premium cost of fuel contracts not designated as hedges (9) — Add: Unrealized mark-to-market adjustment on available for sale securities — 4 Other gains, net, excluding special items $ (39) $ (41) (4.9) % Income before income taxes, as reported $ 598 $ 633 Add: Breakage revenue adjustment (d) 116 — Add: Voluntary Employee programs 5 — Add: Labor contract adjustment (b) 9 180 Add: SWAPA contract adjustment (c) — 354 Add (Deduct): Fuel hedge contracts settling in the current period, but for which (gains) losses were reclassified from AOCI (a) (34) 16 Add (Deduct): Mark-to-market impact from fuel contracts settling in current periods (a) 34 (17) Deduct: Unrealized mark-to-market adjustment on available for sale securities — (4) Add: DOT settlement — 107 Add: Litigation settlements 7 12 Add: Professional advisory fees 37 — Add: Transformation costs 5 — Income before income taxes, excluding special items $ 777 $ 1,281 (39.3) % Provision for income taxes, as reported $ 133 $ 168 Add: Net income tax impact of fuel and special items (e) 47 133 Provision for income taxes, net, excluding special items $ 180 $ 301 (40.2) % Net income, as reported $ 465 $ 465 Add: Breakage revenue adjustment (d) 116 — Add: Voluntary Employee programs 5 — Add: Labor contract adjustment (b) 9 180 Add: SWAPA contract adjustment (c) — 354 Add (Deduct): Fuel hedge contracts settling in the current period, but for which (gains) losses were reclassified from AOCI (a) (34) 16 Add (Deduct): Mark-to-market impact from fuel contracts settling in current periods (a) 34 (17) Deduct: Unrealized mark-to-market adjustment on available for sale securities — (4) Add: DOT settlement — 107 Add: Litigation settlements 7 12 Add: Professional advisory fees 37 — Add: Transformation costs 5 — Deduct: Net income tax impact of special items (e) (47) (133) Net income, excluding special items $ 597 $ 980 (39.1) % Net income per share, diluted, as reported $ 0.76 $ 0.76 Add: Impact of special items 0.27 1.01 Deduct: Net income tax impact of special items (e) (0.07) (0.21) Net income per share, diluted, excluding special items $ 0.96 $ 1.56 (38.5) % Operating expenses per ASM (cents), as reported 15.32 ¢ 15.19 ¢ Deduct: Impact of special items (0.04) (0.38) Deduct: Fuel and oil expense divided by ASMs (3.27) (3.65) Deduct: Profitsharing expense divided by ASMs (0.06) (0.07) Operating expenses per ASM, excluding Fuel and oil expense, profitsharing, and special items (cents) 11.95 ¢ 11.09 ¢ 7.8 % (a) See Note 10 to Consolidated Financial Statements for further information.
Biggest changeThe tax rate decrease was partially offset by a reduction in federal tax credits generated in 2025. 2024 Compared with 2023 The Company's comparison of 2024 results to 2023 results is included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 70 Table of Contents Reconciliation of Reported Amounts to Non-GAAP Financial Measures (excluding special items) (unaudited) (in millions, except per share amounts and per ASM amounts) Year ended December 31, Percent 2025 2024 Change Fuel and oil expense, unhedged $ 5,095 $ 5,750 Add: Premium cost of fuel contracts designated as hedges (a) 145 148 Deduct: Fuel hedge gains included in Fuel and oil expense, net — (86) Fuel and oil expense, as reported $ 5,240 $ 5,812 Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b) — 34 Add: Premium cost of fuel contracts not designated as hedges — 9 Fuel and oil expense, excluding special items (economic) $ 5,240 $ 5,855 (10.5) % Total operating expenses, as reported $ 27,635 $ 27,162 Deduct: Voluntary Employee programs — (5) Deduct: Labor contract adjustment — (9) Deduct: Contract Termination Charge (7) — Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b) — 34 Add: Premium cost of fuel contracts not designated as hedges — 9 Add: DOT settlement waiver 11 — Deduct: Impairment of long-lived assets (8) — Deduct: Litigation accruals (19) (7) Add (Deduct): Professional advisory fees/reimbursement 7 (37) Deduct: Transformation costs (33) (5) Deduct: Severance and related costs (c) (62) — Total operating expenses, excluding special items $ 27,524 $ 27,142 1.4 % Deduct: Fuel and oil expense, excluding special items (economic) (5,240) (5,855) Operating expenses, excluding Fuel and oil expense and special items $ 22,284 $ 21,287 4.7 % Deduct: Profit-sharing expense (97) (103) Operating expenses, excluding Fuel and oil expense, special items, and profit sharing $ 22,187 $ 21,184 4.7 % Operating income, as reported $ 428 $ 321 Add: Breakage revenue adjustment (d) — 116 Add: Voluntary Employee programs — 5 Add: Labor contract adjustment — 9 Add: Contract Termination Charge 7 — Deduct: Fuel hedge contracts settling in the current period, but for which gains were reclassified from AOCI (b) — (34) Deduct: Premium cost of fuel contracts not designated as hedges — (9) Deduct: DOT settlement waiver (11) — Add: Impairment of long-lived assets 8 — Add: Litigation accruals 19 7 Add (Deduct): Professional advisory fees/reimbursement (7) 37 Add: Transformation costs 33 5 Add: Severance and related costs (c) 62 — Operating income, excluding special items $ 539 $ 457 17.9 % Other (gains) losses, net, as reported $ (43) $ 4 Deduct: Mark-to-market impact from fuel contracts settling in current periods — (34) Deduct: Premium cost of fuel contracts not designated as hedges — (9) Add: Unrealized mark-to-market adjustment on forward contract 8 — Other gains, net, excluding special items $ (35) $ (39) (10.3) % Income before income taxes, as reported $ 563 $ 598 Add: Breakage revenue adjustment (d) — 116 Add: Voluntary Employee programs — 5 Add: Labor contract adjustment — 9 Add: Contract Termination Charge 7 — Deduct: Fuel hedge contracts settling in the current period, but for which gains were reclassified from AOCI (b) — (34) Add: Mark-to-market impact from fuel contracts settling in current periods — 34 Deduct: DOT settlement waiver (11) — Add: Impairment of long-lived assets 8 — Add: Litigation accruals 19 7 Add (Deduct): Professional advisory fees/reimbursement (7) 37 Add: Transformation costs 33 5 Add: Severance and related costs (c) 62 — Deduct: Unrealized mark-to-market adjustment on forward contract (8) — Income before income taxes, excluding special items $ 666 $ 777 (14.3) % Provision for income taxes, as reported $ 122 $ 133 Add: Net income tax impact of fuel and special items (e) 32 47 Provision for income taxes, net, excluding special items $ 154 $ 180 (14.4) % Net income, as reported $ 441 $ 465 Add: Breakage revenue adjustment (d) — 116 Add: Voluntary Employee programs — 5 Add: Labor contract adjustment — 9 Add: Contract termination charge 7 — Deduct: Fuel hedge contracts settling in the current period, but for which gains were reclassified from AOCI (b) — (34) Add: Mark-to-market impact from fuel contracts settling in current periods — 34 Deduct: DOT settlement waiver (11) — Add: Impairment of long-lived assets 8 — Add: Litigation accruals 19 7 Add (Deduct): Professional advisory fees/reimbursement (7) 37 Add: Transformation costs 33 5 Add: Severance and related costs (c) 62 — Deduct: Unrealized mark-to-market adjustment on forward contract (8) — Year ended December 31, Percent 2025 2024 Change Deduct: Net income tax impact of special items (e) (32) (47) Net income, excluding special items $ 512 $ 597 (14.2) % Net income per share, diluted, as reported $ 0.79 $ 0.76 Add: Impact of special items 0.20 0.27 Deduct: Net income tax impact of special items (e) (0.06) (0.07) Net income per share, diluted, excluding special items $ 0.93 $ 0.96 (3.1) % Operating expenses per ASM (cents), as reported 15.35 ¢ 15.32 ¢ Deduct: Impact of special items (0.06) (0.04) Deduct: Fuel and oil expense divided by ASMs (2.91) (3.27) Deduct: Profit-sharing expense divided by ASMs (0.06) (0.06) Operating expenses per ASM, excluding Fuel and oil expense, profitsharing, and special items (cents) 12.32 ¢ 11.95 ¢ 3.1 % (a) Includes amounts reclassified from Accumulated Other Comprehensive Income associated with hedges previously terminated.
Air traffic liability primarily represents tickets sold for future travel dates, flight credits that are expected to be used in the future, and loyalty benefits that are expected to be redeemed in the future. Air traffic liability typically fluctuates throughout the year based on seasonal travel patterns, fare sale activity, and activity associated with the Company’s loyalty program.
Air traffic liability primarily represents tickets sold for future travel dates, flight credits that are expected to be used in the future, and loyalty program benefits that are expected to be redeemed in the future. Air traffic liability typically fluctuates throughout the year based on seasonal travel patterns, fare sale activity, and activity associated with the Company’s loyalty program.
Operating cash inflows are historically primarily derived from providing air transportation to Customers. The vast majority of tickets are purchased prior to the day on which travel is provided and, in some cases, several months before the anticipated travel date. Operating cash outflows are related to the recurring expenses of airline operations.
Operating cash inflows are historically primarily derived from selling tickets and providing air transportation to Customers. The vast majority of tickets are purchased prior to the day on which travel is provided and, in some cases, several months before the anticipated travel date. Operating cash outflows are related to the recurring expenses of airline operations.
Under its current program, Southwest estimates the portion of loyalty points that will not be redeemed. In estimating the breakage, the Company takes into account the Member’s past behavior, as well as several factors related to the Member’s account that are expected to be indicative of the likelihood of future point redemption.
Under its current program, Southwest estimates the portion of loyalty points that will not be redeemed. In estimating breakage revenue, the Company takes into account the Member’s past behavior, as well as several factors related to the Member’s account that are expected to be indicative of the likelihood of future point redemption.
The Company believes it has obtained sufficient historical behavioral data to develop a predictive statistical model to analyze the amount of breakage expected for all loyalty points. The Company updates this model at least annually, and applies the new breakage rates effective October 1st each year, or more frequently if required by changes in the business.
The Company believes it has obtained sufficient historical behavioral data to develop a predictive statistical model to analyze the amount of breakage expected for all loyalty points. The Company updates this model at least annually, and applies the new breakage rates effective October 1 each year, or more frequently if required by changes in the business.
Estimating the amount of tickets that will ultimately go unused involves some level of subjectivity and judgment. The majority of the Company's tickets sold are nonrefundable, although flight credits created when a Customer cancels or modifies an existing flight itinerary can be applied towards the purchase of future travel. Unused flight credits are the primary source of breakage.
Estimating the amount of tickets that will ultimately go unused involves some level of subjectivity and judgment. A significant amount of the Company's tickets sold are nonrefundable, although flight credits created when a Customer cancels or modifies an existing flight itinerary can be applied towards the purchase of future travel. Unused flight credits are the primary source of breakage.
The majority of these flight credits were issued during the COVID-19 pandemic as the Company was making significant changes to its flight schedules based on fluctuating demand, which made it difficult to estimate future redemption patterns when compared against historical Customer behavior; 83 Table of Contents 2.
The majority of these flight credits were issued during the COVID-19 pandemic as the Company was making significant changes to its flight schedules based on fluctuating demand, which made it difficult to estimate future redemption patterns when compared against historical Customer behavior; 72 Table of Contents 2.
The Company expects to be able to continue to meet such obligations utilizing cash and investments on hand, as well as cash generated from its ongoing operations. 88 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s Consolidated Financial Statements have been prepared in accordance with GAAP.
The Company expects to be able to continue to meet such obligations utilizing cash and investments on hand, as well as cash generated from its ongoing operations. 77 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s Consolidated Financial Statements have been prepared in accordance with GAAP.
For the periods presented, in addition to the items discussed above, special items include: 1. Reversal of breakage revenue recorded in prior years related to a portion of flight credits issued to Customers during 2022 and prior that have either been redeemed or are expected to be redeemed in future periods.
For the periods presented, in addition to the items discussed above, special items include: 1. Reversal of breakage revenue previously recorded related to a portion of flight credits issued to Customers during 2022 and prior that have either been redeemed or are expected to be redeemed in future periods.
Since the Company purchases the majority of the aircraft it acquires, it has been able to utilize accelerated depreciation methods (including bonus depreciation) available under the Internal Revenue Code of 1986, as amended, in 2024 and in previous years, which has enabled the Company to accelerate cash tax benefits of depreciation.
Since the Company purchases the majority of the aircraft it acquires, it has been able to utilize accelerated depreciation methods (including bonus depreciation) available under the Internal Revenue Code of 1986, as amended, in 2025 and in previous years, which has enabled the Company to accelerate cash tax benefits of depreciation.
A discussion of the Company's most significant drivers impacting cash flow for 2022 are included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023, under Part II Item 7, Liquidity and Capital Resources.
A discussion of the Company's most significant drivers impacting cash flow for 2023 are included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, under Part II Item 7, Liquidity and Capital Resources.
At that time, based on historical Customer behavior, the Company estimated that redemptions of these flight credits would have been reduced to an immaterial amount during 2024 and recognized breakage revenue in prior periods for these flight credits accordingly; however, based on actual Customer redemptions throughout 2024, as well as currently projected redemptions beyond 2024, the Company determined a reversal of a portion of this prior breakage revenue was warranted in the current period.
At that time, based on historical Customer behavior, the Company estimated that redemptions of these flight credits would have been reduced to an immaterial amount during 2024 and recognized breakage revenue in prior periods for these flight credits accordingly; however, based on actual Customer redemptions throughout 2024, as well as projected redemptions beyond 2024, the Company determined a reversal of a portion of this prior breakage revenue was warranted in 2024.
See Note 5 to the Consolidated Financial Statements for further information on determining the estimated fair value of each loyalty point. The majority of the points sold to business partners are through the Southwest co-branded credit card agreement ("Agreement") with Chase. Consideration received as part of this Agreement is subject to ASC 606.
See 79 Table of Contents Note 5 to the Consolidated Financial Statements for further information on determining the estimated fair value of each loyalty point. The majority of the points sold to business partners are through the Southwest co-branded credit card agreement ("Agreement") with Chase. Consideration received as part of this Agreement is subject to ASC 606.
Given that Member behavior may fluctuate over time, the Company expects the current estimates may change in future periods. However, the Company believes its current estimates are reasonable given current facts and circumstances. 93 Table of Contents
Given that Member behavior may fluctuate over time, the Company expects the current estimates may change in future periods. However, the Company believes its current estimates are reasonable given current facts and circumstances. 80 Table of Contents
Also referred to as "unit costs" or "cost per available seat mile" or "CASM," this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies. (j) Included three Boeing 737 Next Generation aircraft in temporary storage as of December 31, 2024.
Also referred to as "unit costs" or "cost per available seat mile" or "CASM," this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies. 64 Table of Contents (j) Included three Boeing 737 Next Generation aircraft in temporary storage as of December 31, 2024.
A one percent increase or decrease in the Company's estimate of the standalone selling prices, implemented as of January 1, 2024, causing a change to the allocation of proceeds to air transportation would not have had a material impact on the Company's Operating revenues for the year ended December 31, 2024.
A hypothetical one percent increase or decrease in the Company's estimate of the standalone selling prices, implemented as of January 1, 2025, causing a change to the allocation of proceeds to air transportation would not have had a material impact on the Company's Operating revenues for the year ended December 31, 2025.
On a GAAP basis, the Company’s results for the year ended December 31, 2024, included a reversal of $116 million of breakage revenue recorded in prior years related to a portion of flight credits issued to Customers during 2022 and prior that have either been redeemed or are expected to be redeemed in future periods.
Additionally, on a GAAP basis, the Company’s results for the year ended December 31, 2024, included a reversal of $116 million of breakage revenue recorded in prior years related to a portion of flight credits issued to Customers during 2022 and prior that either were redeemed or are expected to be redeemed in future periods.
Also referred to as "operating unit revenues" or "RASM," this is a measure of operating revenue production based on the total available seat miles flown during a particular period. 69 Table of Contents (h) Calculated as passenger revenue divided by available seat miles.
Also referred to as "operating unit revenues" or "RASM," this is a measure of operating revenue production based on the total available seat miles flown during a particular period. (h) Calculated as passenger revenue divided by available seat miles.
For the year ended December 31, 2024, based on actual redemptions of points sold to business partners and earned through flights, a hypothetical one percentage point change in the estimated breakage rate would have resulted in a change to Passenger revenue of approximately $252 million (an increase in breakage would have resulted in an increase in revenue and a decrease in breakage would have resulted in a decrease in revenue).
For the year ended December 31, 2025, based on actual redemptions of points sold to business partners and earned through flights, a hypothetical one percentage point change in the estimated breakage rate would have resulted in a change to Passenger revenue of approximately $256 million (an increase in breakage would have resulted in an increase in revenue and a decrease in breakage would have resulted in a decrease in revenue).
The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profitsharing; Operating income, non-GAAP; Other gains, net, non-GAAP; Income before income taxes, non-GAAP; Income tax rate, non-GAAP; Provision for income taxes, net, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents).
The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profit sharing; Operating income, non-GAAP; Other gains, net, non-GAAP; Income before income taxes, non-GAAP; Provision for income taxes, net, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profit sharing (cents).
Agreements with Chase have the following multiple elements: travel points to be awarded, use of the Southwest Airlines’ brand and access to Rapid Rewards Member lists, advertising elements, and the Company’s resource team.
Agreements with Chase have the following multiple elements: travel points to be awarded, use of the Southwest Airlines’ brand and access to Rapid Rewards Member lists, advertising elements, the use of the Company’s resource team, and other airline benefits.
(f) Projections do not reflect the potential impact of fuel and oil expense, special items, and profitsharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item.
Projections do not reflect the potential impact of fuel and oil expense, special items, and profit sharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item.
Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in Note 10 to the Consolidated Financial Statements.
Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments, and (iv) the Company's termination of its remaining fuel hedge derivative instruments is included in Note 10 to the Consolidated Financial Statements.
The liabilities recorded represent the total number of points expected to be redeemed by Members, regardless of whether the Members may have enough to qualify for a full travel award. As of December 31, 2024, the loyalty liabilities were approximately $4.8 billion, including $2.9 billion classified within Air traffic liability and $1.9 billion classified as Air traffic liability – noncurrent.
The liabilities recorded represent the total number of points expected to be redeemed by Members, regardless of whether the Members may have enough to qualify for a full travel award. As of December 31, 2025, the loyalty liabilities were approximately $4.3 billion, including $3.1 billion classified within Air traffic liability and $1.2 billion classified as Air traffic liability – noncurrent.
Baa1 BBB BBB+ The following discussion includes various short-term and long-term material cash requirements from known contractual and other obligations, but does not include amounts that are contingent on events or other factors that are uncertain or unknown at this time.
The following discussion includes various short-term and long-term material cash requirements from known contractual and other obligations, but does not include amounts that are contingent upon events or other factors that are uncertain or unknown at this time.
Operating Statistics The Company provides the operating data below for the years ended December 31, 2024 and 2023 because these statistics are commonly used in the airline industry and, therefore, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers.
Operating Statistics 63 Table of Contents The Company provides the operating data below for the years ended December 31, 2025 and 2024 because these statistics are commonly used in the airline industry and, therefore, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers.
The operating cash flows for 2024 were largely impacted by the Company's net income (as adjusted for noncash items, primarily Depreciation and amortization and the gain on the sale-leaseback transaction), the approximately $1.9 billion paid to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with SWAPA, TWU 556, and TWU 555, respectively, and a $123 million decrease related to the purchase of fuel derivative instruments, which is included within Other, net operating cash flows in the accompanying Consolidated Statement of Cash Flows (see Note 10 to the Consolidated Financial Statements for further information).
Operating cash flows for 2024 were largely impacted by the Company's net results (as adjusted for noncash items, primarily Depreciation and amortization and the gain on the sale-leaseback transaction), the approximately $1.9 billion paid to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with SWAPA, TWU 556, and TWU 555, respectively, and a $123 million decrease related to the purchase of fuel derivative instruments, which is included within Other, net operating cash flows in the accompanying Consolidated Statement of Cash Flows.
The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profitsharing; Operating income, non-GAAP; Other gains, net, non-GAAP; Income before income taxes, non-GAAP; Income tax rate, non-GAAP; Provision for income taxes, net, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profitsharing (cents).
The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profit sharing; Operating income, non-GAAP; Other gains, net, non-GAAP; Income before income taxes, non-GAAP; Provision for income taxes, net, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profit sharing (cents).
Interest income for 2024 decreased by $86 million, or 14.8 percent compared with 2023, primarily due to lower cash and investment balances and a lower interest rate in the total investment portfolio. Other (gains) losses, net, primarily includes amounts recorded as a result of the Company's deferred compensation and hedging activities.
Interest income for 2025 decreased by $292 million, or 58.8 percent compared with 2024, primarily due to lower cash and investment balances and a lower interest rate in the Company's total investment portfolio. Other (gains) losses, net, primarily includes amounts recorded as a result of the Company's deferred compensation and hedging activities.
Under the program, (i) Members are able to 91 Table of Contents redeem their points for every available seat, every day, on every flight, with no blackout dates; and (ii) points do not expire.
Under the program, (i) Members are able to redeem their points for every available seat, every day, on every flight, with no blackout dates; and (ii) points do not expire.
In addition, the Company continues to maintain investment-grade credit ratings by all three major credit agencies (Moody's, S&P Global, and Fitch). As of December 31, 2024, the Company had the following corporate credit ratings: Moody's S&P Global Fitch Southwest Airlines Co.
In addition, the Company continues to maintain investment-grade credit ratings by all three major credit agencies (Moody's, S&P Global, and Fitch). As of December 31, 2025, the Company had the following corporate credit ratings: 75 Table of Contents Moody's S&P Global Fitch Southwest Airlines Co.
The Company's opportunities to lower net capital spending from its fleet monetization strategy are dependent on aircraft market conditions and Boeing's ability to deliver aircraft pursuant to the Company's contractual order book. Net cash used in financing activities for 2024 was $2.0 billion, and net cash used in financing activities for 2023 was $436 million.
The Company's opportunities to lower net capital spending from its fleet monetization strategy are dependent on aircraft market conditions and Boeing's ability to deliver aircraft pursuant to the Company's contractual order book. Net cash used in financing activities for 2025 was $4.7 billion, and net cash used in financing activities for 2024 was $2.0 billion.
Net cash provided by operating activities is primarily used to finance capital expenditures, repay debt, provide Shareholder returns, and provide working capital. Net cash used in investing activities for 2024 was $261 million, and net cash used in investing activities for 2023 was $2.9 billion.
Net cash provided by operating activities is primarily used to finance capital expenditures, repay debt, provide Shareholder returns, and provide working capital. Net cash used in investing activities for 2025 was $1.4 billion, and net cash used in investing activities for 2024 was $261 million.
The Company's economic Fuel and oil expense results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within Fuel and oil expense in the period of settlement.
For periods in which fuel hedge contracts are utilized, the Company's economic Fuel and oil expense results may differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within Fuel and oil expense in the period of settlement.
Changes in the breakage rates applied annually in recent years have not had a material impact on Passenger 92 Table of Contents revenues.
Changes in the breakage rates applied annually in recent years have not had a material impact on Passenger revenues.
See Note 5 to the Consolidated Financial Statements for further information. The Company believes it has various options available to meet its capital and operating commitments, including unrestricted cash and short-term investments of $8.7 billion as of December 31, 2024, and anticipated future internally generated funds from operations.
See Note 5 to the Consolidated Financial Statements for further information. The Company believes it has various options available to meet its capital and operating commitments, including unrestricted cash and cash equivalents of $3.2 billion as of December 31, 2025, and anticipated future internally generated funds from operations.
The Company's order book with Boeing as of January 30, 2025, consists of a total of 496 MAX firm orders (300 Boeing 737-7 ("-7") aircraft and 196 -8 aircraft) for the years 2025 through 2031, including 63 MAX aircraft that were contractually committed for 2024, but were not received, and 176 MAX options (-7s or -8s) for the years 2026 through 2031.
The Company's order book with Boeing as of January 29, 2026, consists of a total of 467 MAX firm orders (271 Boeing 737-7 ("-7") aircraft and 196 -8 aircraft) for the years 2026 through 2031, including 27 -7 aircraft that were contractually committed for 2024, and 54 -8s that were contractually committed for 2025, but were not received, and 150 MAX options (-7s or -8s) for the years 2027 through 2031.
Capitalized interest for 2024 increased by $12 million, or 52.2 percent, compared with 2023, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.
Capitalized interest for 2025 increased by $19 million, or 54.3 percent, compared with 2024, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.
The Company's 2024 average economic fuel cost of $2.66 per gallon is net of approximately $53 million in cash settlements from hedging 77 Table of Contents activities compared with an average economic fuel cost of $2.89 per gallon, which was net of approximately $267 million in cash settlements from hedging activities in 2023.
The Company's 2025 average economic fuel cost was $2.41 per gallon with no cash settlements from hedging activities compared with an average economic fuel cost of $2.66 per gallon, which was net of approximately $53 million in cash settlements from hedging activities, in 2024.
The following table presents the Company's Operating expenses per ASM for 2024 and 2023, followed by explanations of these changes on a dollar basis. 76 Table of Contents Year ended December 31, Per ASM Percent (in cents, except for percentages) 2024 2023 change change Salaries, wages, and benefits 6.91 ¢ 6.55 ¢ 0.36 ¢ 5.5 % Fuel and oil 3.27 3.65 (0.38) (10.4) Maintenance materials and repairs 0.76 0.70 0.06 8.6 Landing fees and airport rentals 1.11 1.05 0.06 5.7 Depreciation and amortization 0.93 0.89 0.04 4.5 Other operating expenses 2.34 2.35 (0.01) (0.4) Total 15.32 ¢ 15.19 ¢ 0.13 ¢ 0.9 % Operating expenses per ASM for 2024 increased by 0.9 percent, compared with 2023.
The following table presents the Company's Operating expenses per ASM for 2025 and 2024, followed by explanations of these changes on a dollar basis. 67 Table of Contents Year ended December 31, Per ASM Percent (in cents, except for percentages) 2025 2024 change change Salaries, wages, and benefits 7.21 ¢ 6.91 ¢ 0.30 ¢ 4.3 % Fuel and oil 2.91 3.27 (0.36) (11.0) Maintenance materials and repairs 0.68 0.76 (0.08) (10.5) Landing fees and airport rentals 1.21 1.11 0.10 9.0 Depreciation and amortization 0.87 0.93 (0.06) (6.5) Other operating expenses 2.47 2.34 0.13 5.6 Total 15.35 ¢ 15.32 ¢ 0.03 ¢ 0.2 % Operating expenses per ASM for 2025 increased by 0.2 percent, compared with 2024, primarily driven by higher Salaries, wages, and benefits expense, offset by the decrease in the Company's fuel cost per gallon.
Landing fees and airport rentals expense for 2024 increased by $173 million, or 9.7 percent, compared with 2023. On a per ASM basis, Landing fees and airport rentals expense increased 5.7 percent, compared with 2023.
Landing fees and airport rentals expense for 2025 increased by $216 million, or 11.0 percent, compared with 2024. On a per ASM basis, Landing fees and airport rentals expense increased 9.0 percent, compared with 2024.
Average length of passenger haul (miles) 1,018 993 2.5 % Average aircraft stage length (miles) 763 730 4.5 % Trips flown 1,443,866 1,459,427 (1.1) % Seats flown (000s) (d) 230,187 231,409 (0.5) % Seats per trip (e) 159.4 158.6 0.5 % Average passenger fare (k) $ 178.40 $ 172.18 3.6 % Passenger revenue yield per RPM (cents) (f)(k) 17.53 17.35 1.0 % Operating revenues per ASM (cents) (g)(k) 15.51 15.32 1.2 % Passenger revenue per ASM (cents) (h)(k) 14.09 13.88 1.5 % Operating expenses per ASM (cents) (i) 15.32 15.19 0.9 % Operating expenses per ASM, excluding fuel (cents) 12.05 11.54 4.4 % Operating expenses per ASM, excluding fuel and profitsharing (cents) 11.99 11.47 4.5 % Fuel costs per gallon, including fuel tax $ 2.64 $ 2.89 (8.7) % Fuel costs per gallon, including fuel tax, economic $ 2.66 $ 2.89 (8.0) % Fuel consumed, in gallons (millions) 2,194 2,143 2.4 % Active full-time equivalent Employees 72,450 74,806 (3.1) % Aircraft at end of period (j) 803 817 (1.7) % (a) A revenue passenger mile is one paying passenger flown one mile.
Average length of passenger haul (miles) 1,040 1,018 2.2 % Average aircraft stage length (miles) 780 763 2.2 % Trips flown 1,415,822 1,443,866 (1.9) % Seats flown (000s) (d) 228,193 230,187 (0.9) % Seats per trip (e) 161.2 159.4 1.1 % Average passenger fare (k) $ 190.41 $ 178.40 6.7 % Passenger revenue yield per RPM (cents) (f)(k) 18.31 17.53 4.4 % Operating revenues per ASM (cents) (g)(k) 15.59 15.51 0.5 % Passenger revenue per ASM (cents) (h)(k) 14.18 14.09 0.6 % Operating expenses per ASM (cents) (i) 15.35 15.32 0.2 % Operating expenses per ASM, excluding fuel (cents) 12.44 12.05 3.2 % Operating expenses per ASM, excluding fuel and profit sharing (cents) 12.38 11.99 3.3 % Fuel costs per gallon, including fuel tax $ 2.41 $ 2.64 (8.7) % Fuel costs per gallon, including fuel tax, economic $ 2.41 $ 2.66 (9.4) % Fuel consumed, in gallons (millions) 2,169 2,194 (1.1) % Active full-time equivalent Employees 72,790 72,450 0.5 % Aircraft at end of period (j) 803 803 — % (a) A revenue passenger mile is one paying passenger flown one mile.
(k) The 2024 Passenger and Operating revenue metrics include the impact of the $116 million breakage revenue adjustment recorded as a change in estimate and reduction in Passenger revenue during fourth quarter 2024.
(k) The 2024 Passenger and Operating revenue metrics include the impact of the $116 million breakage revenue adjustment recorded as a change in estimate and reduction in Passenger revenue during fourth quarter 2024. See Note 1 to the Consolidated Financial Statements for further information.
Accordingly, the actual results may vary materially from the amounts discussed herein. 86 Table of Contents Debt As detailed in Note 6 to the Consolidated Financial Statements, in connection with the major negative impact of COVID-19 on air carriers, the Company received significant financial assistance from Treasury in the form of payroll support, and this assistance had a significant impact on the Company's reported GAAP financial results.
Debt As detailed in Note 6 to the Consolidated Financial Statements, in connection with the major negative impact of COVID-19 on air carriers, the Company received significant financial assistance from the United States Department of the Treasury ("Treasury") in the form of payroll support, and this assistance had a significant impact on the Company's reported GAAP financial results through 2021.
Capital expenditures during 2024 also included approximately $22 million associated with the Company's purchase of finance leased aircraft, compared to approximately $174 million associated with finance leased aircraft purchased during 2023. See Note 7 to the Consolidated Financial Statements for further information.
Capital expenditures during 2024 included approximately $22 million associated with the Company's purchase of finance leased aircraft. The Company also raised $871 million in 2024 from the sale-leaseback of 35 aircraft. See Note 7 to the Consolidated Financial Statements for further information.
See Note 1 to the Consolidated Financial Statements for further information regarding this adjustment.
See Note 1 to the Consolidated Financial Statements for further information regarding this adjustment and Note 5 to the Consolidated Financial Statements for further information regarding these extended flight credits.
The following table displays the components of Other (gains) losses, net, for 2024 and 2023: Year ended December 31, (in millions) 2024 2023 Mark-to-market impact from fuel contracts settling in current period $ 34 $ (17) Premium cost of fuel contracts not designated as hedges 9 — Unrealized mark-to-market adjustment on available for sale securities — (4) Mark-to-market impact on deferred compensation plan investments (36) (39) Other (3) (2) $ 4 $ (62) Income Taxes The Company's annual 2024 effective tax rate was 22.2 percent, compared with 26.5 percent in 2023.
The following table displays the components of Other (gains) losses, net, for 2025 and 2024: Year ended December 31, (in millions) 2025 2024 Mark-to-market impact from fuel contracts settling in current period $ — $ 34 Premium cost of fuel contracts not designated as hedges — 9 Mark-to-market impact from deferred compensation plan investments (33) (36) Mark-to-market impact from forward contract (8) — Other (2) (1) $ (43) $ 6 Income Taxes The Company's annual 2025 effective tax rate was 21.7 percent, compared with 22.2 percent in 2024.
(d) Represents a change in breakage revenue estimate related to flight credits the Company issued to Passengers during 2022 and prior.
See Note 16 to the Consolidated Financial Statements for further information. (d) Represents a change in breakage revenue estimate related to flight credits the Company issued to Passengers during 2022 and prior.
Depreciation and amortization expense for 2024 increased by $135 million, or 8.9 percent, compared with 2023. On a per ASM basis, Depreciation and amortization expense increased by 4.5 percent, compared with 2023.
Depreciation and amortization expense for 2025 decreased by $97 million, or 5.9 percent, compared with 2024. On a per ASM basis, Depreciation and amortization expense decreased by 6.5 percent, compared with 2024.
Year ended December 31, 2024 2023 Change Operating Data: Revenue passengers carried (000s) 140,023 137,279 2.0 % Enplaned passengers (000s) 175,466 171,817 2.1 % Revenue passenger miles (RPMs) (in millions) (a) 142,515 136,256 4.6 % Available seat miles (ASMs) (in millions) (b) 177,250 170,323 4.1 % Load factor (c) 80.4 % 80.0 % 0.4 pts.
Year ended December 31, 2025 2024 Change Operating Data: Revenue passengers carried (000s) 134,110 140,023 (4.2) % Enplaned passengers (000s) 168,334 175,466 (4.1) % Revenue passenger miles (RPMs) (in millions) (a) 139,443 142,515 (2.2) % Available seat miles (ASMs) (in millions) (b) 180,046 177,250 1.6 % Load factor (c) 77.4 % 80.4 % (3.0) pts.
However, future cash flows will be impacted through the portion of payroll support that was in the form of loans that remain outstanding and will have to be repaid to Treasury. See Note 6 to the Consolidated Financial Statements for further detail on the Company's debt and the timing of expected and future principal payments.
During 2025, cash flows were impacted through the early repayment of payroll support loans. The Company has approximately $426 million in such loans that will have to be repaid to Treasury in future periods. See Note 6 to the Consolidated Financial Statements for further detail on the Company's debt and the timing of expected and future principal payments.
Expenses associated with incremental professional advisory fees related to activist investor activities, which were not budgeted by the Company, are not associated with the ongoing operation of the airline, and are difficult to predict in future periods; 5. A charge associated with a settlement reached with the DOT as a result of the Company's December 2022 operational disruption; 6.
Expenses and/or reimbursements for incremental professional advisory fees related to activist investor activities, which were not budgeted by the Company, are not associated with the ongoing operation of the airline, and are difficult to predict in future periods; 6.
The Company has federal and state operating loss carryforwards, $253 million and $56 million (tax-effected), respectively, to reduce taxable income in future periods. See Note 14 to the Consolidated Financial Statements for further information. The Company has paid in the past, and will continue to pay in the future, cash taxes to the various taxing jurisdictions where it operates.
See Note 14 to the Consolidated Financial Statements for further information. The Company has paid in the past, and will continue to pay in the future, cash taxes to the various taxing jurisdictions where it operates.
See Note 7 to the Consolidated Financial Statements for further detail. Aircraft purchase commitments The Company is required to make cash deposits toward the purchase of aircraft in advance.
Leases The Company enters into leases for aircraft, airports and other real property, and other types of equipment in the normal course of business. See Note 7 to the Consolidated Financial Statements for further detail. Aircraft purchase commitments The Company is required to make cash deposits toward the purchase of aircraft in advance.
Each fare type is associated with a points earning multiplier, and points for flights are calculated by multiplying the fare amount for the flight by the fare type multiplier. Likewise, the amount of points required to be redeemed for a flight can differ based on the fare type purchased.
Each fare type is associated with a points earning multiplier, and points for flights are calculated by multiplying the fare amount for the flight by the fare type multiplier.
The Company's 2024 available seat miles per gallon ("fuel efficiency") improved 1.6 percent, year-over-year, due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet.
The Company's 2025 available seat miles per gallon ("fuel efficiency") improved 2.7 percent, year-over-year, due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet. The continued deliveries of MAX aircraft are expected to remain critical to the Company's efforts to modernize its fleet.
Charges associated with tentative litigation settlements regarding certain California state meal-and-rest-break regulations for flight attendants and an arbitration award in favor of the Company's Pilots relating to a collective-bargaining matter; 7. Expenses associated with professional advisory fees related to the Company's implementation of its comprehensive three-year "Southwest. Even Better." transformational plan; and 8.
Charges associated with tentative litigation settlements regarding paid short-term military leave to certain Employees and an arbitration award in favor of the Company's Pilots relating to a collective-bargaining matter; 7. Expenses associated with professional advisory fees related to the Company's implementation of its comprehensive transformational plan; 8.
The Company estimates the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the multiple performance obligations. The Company records revenue related to air transportation when the transportation is delivered and revenue related to marketing elements when the performance obligation is satisfied.
The Company estimates the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the multiple performance obligations.
These estimates primarily include the liability associated with Rapid Rewards loyalty member ("Member") account balances that are expected to be redeemed for travel or other products at a future date. Loyalty account balances include points earned through flights taken, points sold to Customers, or points earned through business partners participating in the loyalty program.
Loyalty Accounting The Company utilizes estimates in the recognition of revenues and liabilities associated with its loyalty program. These estimates primarily include the liability associated with Rapid Rewards loyalty member ("Member") account balances that are expected to be redeemed for travel or other products at a future date.
Based on the Company’s scheduled future 87 Table of Contents aircraft deliveries from Boeing and existing tax laws in effect, the Company will continue to accelerate the cash income tax benefits related to aircraft purchases.
Based on the Company’s scheduled future aircraft deliveries from Boeing and existing tax laws in effect, the Company will continue to accelerate the cash income tax benefits related to aircraft purchases. The Company has federal and state operating loss carryforwards of $504 million and $66 million (tax-effected), respectively, to reduce taxable income in future periods.
Year ended December 31, Increase (Decrease) Percent change (in millions) 2024 2023 Passenger $ 24,980 $ 23,637 $ 1,343 5.7 Freight 175 175 — — Other 2,328 2,279 49 2.2 Total operating revenues $ 27,483 $ 26,091 $ 1,392 5.3 Salaries, wages, and benefits $ 12,240 $ 11,152 $ 1,088 9.8 Fuel and oil 5,812 6,217 (405) (6.5) Maintenance materials and repairs 1,353 1,188 165 13.9 Landing fees and airport rentals 1,962 1,789 173 9.7 Depreciation and amortization 1,657 1,522 135 8.9 Other operating expenses 4,138 3,999 139 3.5 Total operating expenses $ 27,162 $ 25,867 $ 1,295 5.0 Operating Revenues Passenger revenues for 2024 increased by $1.3 billion, or 5.7 percent, compared with 2023, to achieve an all-time full year Company record of $25.0 billion.
Year ended December 31, Increase (Decrease) Percent change (in millions) 2025 2024 Passenger $ 25,535 $ 24,980 $ 555 2.2 Freight 171 175 (4) (2.3) Other 2,357 2,328 29 1.2 Total operating revenues $ 28,063 $ 27,483 $ 580 2.1 Salaries, wages, and benefits $ 12,963 $ 12,240 $ 723 5.9 Fuel and oil 5,240 5,812 (572) (9.8) Maintenance materials and repairs 1,227 1,353 (126) (9.3) Landing fees and airport rentals 2,178 1,962 216 11.0 Depreciation and amortization 1,560 1,657 (97) (5.9) Other operating expenses 4,467 4,138 329 8.0 Total operating expenses $ 27,635 $ 27,162 $ 473 1.7 Operating Revenues Passenger revenues for 2025 increased by $555 million, or 2.2 percent, compared with 2024, to achieve an all-time full year Company record of $25.5 billion.
There were no amounts outstanding under the Amended Credit Agreement as of December 31, 2024. See Note 6 to the Consolidated Financial Statements for further information. As of December 31, 2024, the Company carried a working capital deficit of approximately $1 billion, in which its current liabilities exceed its current assets.
As of December 31, 2025, the Company had access to $1.5 billion under the Amended Credit Agreement, which expires in August 2028. There were no amounts outstanding under the Amended Credit Agreement as of December 31, 2025. See Note 6 to the Consolidated Financial Statements for further information.
For periods presented in the Consolidated Financial Statements, the most recent instance in which the Agreement was amended was in fourth quarter 2021. In January 2025, the Company reached an amended co-brand agreement with Chase.
For periods presented in the Consolidated Financial Statements, the most recent instance in which the Agreement was amended was in 2025.
On a dollar and per ASM basis, the increase was primarily attributable to an increase in airport rental expense and higher landing fees throughout the network driven by higher rates charged by airports, partially offset by more favorable settlements and credits from various airports received in 2024.
On a dollar and per ASM basis, approximately 50 percent of the increase was primarily attributable to an increase in airport rental expense throughout the network driven by higher rates charged by airports for leased space, 30 percent of the increase was primarily due to higher landing fees throughout the network, primarily driven by increased usage of the heavier -8 aircraft and higher rates, and 20 percent of the increase was due to receiving fewer favorable settlements and credits from various airports in 2025.
( in millions ) December 31, 2024 December 31, 2023 Cash and cash equivalents $ 7,509 $ 9,288 Short-term investments 1,216 2,186 Undrawn facilities 1,000 1,000 Total available liquidity 9,725 $ 12,474 The Company has access to $1.0 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement").
( in millions ) December 31, 2025 December 31, 2024 Cash and cash equivalents $ 3,231 $ 7,509 Short-term investments — 1,216 Undrawn facilities 1,500 1,000 Total available liquidity 4,731 $ 9,725 On July 22, 2025, the Company exercised the accordion feature under its amended and restated revolving credit facility (the "Amended Credit Agreement"), increasing the size of the facility to $1.5 billion.
See Part I, Item 2 for a complete table of the Company's contractual firm deliveries and options for -7 and -8 aircraft, and Note 4 to the Consolidated Financial Statements for the financial commitments related to these firm deliveries.
See Part I, Item 2 for a complete table of the Company's contractual firm deliveries and options for -7 and -8 aircraft, and Note 4 to the Consolidated Financial Statements for the financial commitments related to these firm deliveries. 76 Table of Contents Other The Company's other material cash requirements primarily consist of outlays associated with normal operating expenses of the airline, including payroll, fuel, airport costs, etc.
The objective is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis.
Significant management judgment was used to estimate the selling price of each of the performance obligations in the Agreement at inception, including each time in which the Agreement has been materially amended. The objective is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis.
The Company is currently using a planning assumption of 38 -8 aircraft deliveries in 2025, which differs from its contractual order book, as Boeing continues to ramp up production and works to certify the -7.
The Company expects 66 -8 aircraft deliveries in 2026, which differs from its contractual order book, as Boeing continues to ramp up production and works to certify the -7. This expectation supports the Company's plans to retire approximately 60 aircraft in 2026.
As of December 31, 2024, future interest payments associated with its fixed rate debt (excluding interest associated with finance leases) were $138 million in 2025, $128 million in 2026, $71 million in 2027, $13 million in 2028, $13 million in 2029, and $7 million thereafter.
The Company also has significant future obligations associated with fixed interest payments associated with its debt. As of December 31, 2025, future interest payments associated with its fixed rate unsecured notes were $162 million in 2026, $104 million in 2027, $46 million in 2028, $13 million in 2029, and $7 million in 2030.
The Company may engage in early debt repurchases from time to time at its discretion; however, any early future repurchases are not included in the Company's current maturities of long-term debt. The Company paid $428 million in cash dividends to Shareholders and repaid $85 million in finance lease obligations during the year ended December 31, 2023.
The Company may engage in early debt repurchases from time to time at its discretion; however, no potential early future repurchases are included in the Company's current maturities of long-term debt as of December 31, 2025.
These elements are combined into two performance obligations, transportation and marketing, and consideration from the Agreement is allocated based on the relative selling price of each performance obligation. Significant management judgment was used to estimate the selling price of each of the performance obligations in the Agreement at inception, including each time in which the Agreement has been materially amended.
These elements are combined into three performance obligations: transportation, marketing, and airline benefits, and consideration from the Agreement is allocated based on the relative selling price of each performance obligation.
See Note 1 for further information on early retirement dates and the corresponding impact to depreciation expense. Other operating expenses for 2024 increased by $139 million, or 3.5 percent, compared with 2023. Included within this line item was aircraft rentals expense in the amount of $220 million and $198 million for 2024 and 2023, respectively.
Included within this line item was aircraft rentals expense in the amount of $322 million and $220 million for 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 5.6 percent, compared with 2024.
The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts: Year ended December 31, 2024 2023 Economic fuel costs per gallon $ 2.66 $ 2.89 Fuel hedging premium expense (in millions) $ 157 $ 121 Fuel hedging cash settlement gain (in millions) $ 53 $ 267 Fuel hedging premium expense per gallon $ 0.07 $ 0.06 Fuel hedging cash settlement gains per gallon $ 0.03 $ 0.12 See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts: Year ended December 31, 2025 2024 Economic fuel costs per gallon $ 2.41 $ 2.66 Fuel hedging premium expense (in millions) $ 145 (a) $ 157 Fuel hedging cash settlement gain (in millions) $ — $ 53 Fuel hedging premium expense per gallon $ 0.07 (a) $ 0.07 Fuel hedging cash settlement gains per gallon $ — $ 0.03 68 Table of Contents (a) Includes amounts reclassified from Accumulated Other Comprehensive Income associated with hedges previously terminated.
Under the Southwest Rapid Rewards loyalty program, Members earn points for every dollar spent on eligible Southwest fare purchases. The amount of points earned under the program is based on the fare amount and fare type, with higher fare types (e.g., Business Select) earning more points than lower fare types (e.g., Wanna Get Away).
The amount of points earned under the program is based on the fare amount and fare type, with higher fare types (e.g., Choice Extra) earning more points than lower fare types (e.g., Basic).
See Note 5 to the Consolidated Financial Statements for further information regarding these extended flight credits. Subsequently, on July 28, 2022, the Company modified its policy and announced that all unexpired flight credits as of that date, including these extended flight credits, will no longer have an expiration date and thus will be able to be redeemed by Customers indefinitely.
On July 28, 2022, the Company modified its flight credit policy and announced that all $1.9 billion of unexpired flight credits outstanding as of that date, the majority of which were associated with travel disruptions during the COVID-19 pandemic, would no longer have an expiration date and thus will be able to be redeemed by Customers indefinitely.
At the time of the Company's policy change, based on historical Customer behavior, the Company estimated that redemptions of these pre-policy change issued flight credits would have been reduced to an immaterial amount during 2024 and recognized breakage revenue in prior periods for these flight credits accordingly; however, based on actual Customer redemptions throughout 2024, as well as currently projected redemptions beyond 2024, the Company determined a reversal of a portion of this prior breakage revenue in the amount of $116 million was warranted in the current period.
Based on actual Customer redemptions of these flight credits throughout 2024, as well as projected redemptions beyond 2024, the Company determined a reversal of a portion of this prior breakage revenue in the amount of $116 million was warranted in fourth quarter 2024.
Following a Customer study regarding the inflight experience, the Company has continued to enhance its onboard offerings during the past two years with both completed and ongoing 71 Table of Contents improvements being made, such as faster WiFi, in-seat power, and larger overhead bins. Work is well underway on a refreshed cabin design, including new, more comfortable RECARO seats.
The Company has also continued to enhance its onboard offerings, with improvements such as faster WiFi, in-seat power, and larger overhead bins, and work is well underway on a refreshed cabin design, including new, more comfortable RECARO seats. The first Boeing 737-8 (“-8”) aircraft with an updated cabin was delivered and entered service on October 16, 2025.
See Part II, Item 5 for further information on the Company's share repurchase authorizations. The Company recorded results for 2024 and 2023, on an accounting principles generally accepted in the United States ("GAAP") and non-GAAP basis, as noted in the following tables.
The Company recorded results for 2025 and 2024, on an accounting principles generally accepted in the United States ("GAAP") and non-GAAP basis, as noted in the following tables. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.
On September 25, 2024, the Board terminated and replaced this previous share repurchase authorization with a new $2.5 billion share repurchase authorization of the Company’s common stock. Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions.
Final settlement is scheduled to occur by the end of April 2026, and the Company will have $550 million remaining under its $2.0 billion authorization. Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated repurchase transactions from time to time, depending on market conditions.
The Company paid $430 million in cash dividends to Shareholders and repaid $1.3 billion in debt and finance lease obligations, primarily as a prepayment for all of its outstanding 5.25% Notes due 2025 during the year ended December 31, 2024.
See Note 6 to the Consolidated Financial Statements for further information on the Company's debt repayments, issuances, and future debt maturities. The Company paid $430 million in cash dividends to Shareholders and repaid $1.3 billion in debt and finance lease obligations during the year ended December 31, 2024.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 67 Liquidity and Capital Resources 85 Critical Accounting Policies and Estimates 89 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 94 Item 8. Financial Statements and Supplementary Data 98 Southwest Airlines Co. Consolidated Balance Sheet 98 Southwest Airlines Co.
Biggest changeItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 63 Liquidity and Capital Resources 74 Critical Accounting Policies and Estimates 78 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 81 Item 8. Financial Statements and Supplementary Data 84 Southwest Airlines Co. Consolidated Balance Sheet 84 Southwest Airlines Co.
Consolidated Statement of Income 99 Southwest Airlines Co. Consolidated Statement of Comprehensive Income 100 Southwest Airlines Co. Consolidated Statement of Stockholders’ Equity 101 Southwest Airlines Co. Consolidated Statement of Cash Flows 102 Notes to Consolidated Financial Statements 103
Consolidated Statement of Income 85 Southwest Airlines Co. Consolidated Statement of Comprehensive Income 86 Southwest Airlines Co. Consolidated Statement of Stockholders’ Equity 87 Southwest Airlines Co. Consolidated Statement of Cash Flows 88 Notes to Consolidated Financial Statements 89

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAt such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. As of December 31, 2024, the Company had nine counterparties for which the derivatives held were an asset and none in a loss position.
Biggest changeThe Company’s credit exposure related to derivative instruments in prior periods was represented by the fair value of contracts that were in an asset position to the Company. At such times, these outstanding instruments exposed the Company to credit loss in the event of nonperformance by the counterparties to the agreements.
Credit card processors have financial risk associated with tickets purchased for travel because the processor generally forwards the cash related to the purchase to the Company soon after the purchase is completed, but the air travel generally occurs after that time; therefore, the processor will have liability if the Company does not ultimately provide the air travel.
Credit card processors have financial risk associated with tickets purchased for air travel because the processor generally forwards the cash related to the purchase to the Company soon after the purchase is completed, but the air travel generally occurs after that time; therefore, the processor will have liability if the Company does not ultimately provide the air travel.
Should chargebacks processed by Chase Paymentech reach a certain level, proceeds from advance ticket sales could be held back and used to establish a reserve account to cover such chargebacks and any other disputed charges that might occur. Additionally, cash reserves are required to be established if the Company’s credit rating falls to specified levels below investment grade.
Should Customer chargebacks processed by Chase Paymentech reach a certain level, cash proceeds from advance ticket sales could be held back and used to establish a reserve account to cover such chargebacks and any other Customer-disputed charges that might occur. Additionally, cash reserves are required to be established if the Company’s credit rating falls to specified levels below investment grade.
Under these processing agreements, and based on specified conditions, increasing amounts of cash reserves could be required to be posted with the counterparty. There was no cash reserved for this purpose as of December 31, 2024. A majority of the Company’s sales transactions are processed by Chase Paymentech.
Under these processing agreements, and based on specified conditions, increasing amounts of cash reserves could be required to be posted with the counterparty. There was no cash reserved for this purpose as of December 31, 2025. A majority of the Company’s sales transactions are processed by Chase Paymentech.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company has at times had interest rate risk in its interest rate swaps, commodity price risk in jet fuel required to operate its aircraft fleet, and market risk in the derivatives used to manage its fuel hedging program and in the form of fixed-rate debt instruments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company has at times had interest rate risk in its floating-rate debt obligations and interest rate swaps, commodity price risk in jet fuel required to operate its aircraft fleet, and market risk in the derivatives used to manage its fuel hedging program and in the form of fixed-rate debt instruments.
Cash reserve requirements are based on the Company’s public debt rating and a corresponding percentage of the Company’s Air traffic liability. As of December 31, 2024, no holdbacks were in place. As of December 31, 2024, the Company was in compliance with all credit card processing agreements.
Cash reserve requirements are based on the Company’s public debt rating and a corresponding percentage of the Company’s Air traffic liability. As of December 31, 2025, no cash holdbacks were in place. As of December 31, 2025, the Company was in compliance with all credit card processing agreements.
The Company believes that it will be able to continue to renew its existing credit card processing agreements or will be able to enter into new credit card processing agreements with other processors in the future. 97 Table of Contents
The Company believes that it will be able to continue to renew its existing credit card processing agreements or will be able to enter into new credit card processing agreements with other processors in the future. 83 Table of Contents
The $100 million 7.375% debentures due 2027 had at one point been converted to a floating rate, but the Company subsequently terminated the fixed-to-floating interest rate swap agreements related to it. The effect of this 95 Table of Contents termination was that the interest associated with this debt prospectively reverted back to its original fixed rate.
The $100 million 7.375% debentures due 2027 had at one point been converted to a floating rate, but the Company subsequently terminated the fixed-to-floating interest rate swap agreements related to it. The effect of this termination was that the interest associated with this debt prospectively reverted back to its original fixed rate.
See Note 10 to the Consolidated Financial Statements for further information. 96 Table of Contents The Company currently has agreements with organizations that process credit card transactions arising from purchases of air travel tickets by its Customers utilizing American Express, Discover, and MasterCard/VISA.
See Note 10 to the Consolidated Financial Statements for further information. The Company currently has agreements with organizations that process credit card transactions arising from purchases of air travel tickets by its Customers utilizing American Express, Discover, and MasterCard/VISA.
As of December 31, 2024, the Company was in compliance with this covenant and there were no amounts outstanding under the Amended Credit Agreement.
As of December 31, 2025, the Company was in compliance with this covenant and there were no amounts outstanding under the Amended Credit Agreement.
The fair values of the derivative instruments, depending on the type of instrument, were determined by use of present value methods or standard option value models with assumptions about commodity prices based on those observed in underlying markets.
The fair values of the derivative instruments held in prior periods, depending on the type of instrument, were determined by use of present value methods or standard option value models with assumptions about commodity prices based on those observed in underlying markets.
A hypothetical 10 percent change in market interest rates as of December 31, 2024, would have resulted in an approximate $46 million change in the fair value of the Company’s fixed-rate debt instruments. See Note 11 to the Consolidated Financial Statements for further information on the fair value of financial instruments.
A hypothetical 10 percent change in market interest rates as of December 31, 2025, would have resulted in an approximate $32 million change in the fair value of the Company’s fixed-rate debt instruments. See Note 11 to the Consolidated Financial Statements for further information on the fair value of financial instruments.
Assuming floating market rates in effect as of December 31, 2024 were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have resulted in an approximate $36 million impact on the Company’s net earnings and cash flows.
Assuming floating market rates in effect as of December 31, 2025, were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have resulted in an immaterial impact on the Company’s net earnings and cash flows.
Utilizing these assumptions and considering the Company’s cash balance (excluding the impact of cash collateral deposits held from or provided to counterparties, if applicable) and short-term investments outstanding as of December 31, 2024, an increase in rates would have a net negative effect on the Company’s earnings and cash flows, while a decrease in rates would have a net positive effect on the Company’s earnings and cash flows.
Utilizing these assumptions and considering the Company’s cash balance (excluding the impact of cash collateral deposits held from or provided to counterparties, if applicable) and floating-rate debt outstanding as of December 31, 2025, an increase in rates would have a net positive effect on the Company’s earnings and cash flows, while a decrease in rates would have a net negative effect on the Company’s earnings and cash flows.
See Note 6 to the Consolidated Financial Statements for more information on the material terms of the Company’s short-term and long-term debt. The Company's senior unsecured notes outstanding as of December 31, 2024 are all fixed-rate obligations. See Note 6 to the Consolidated Financial Statements for further information.
See Note 6 to the Consolidated Financial Statements for more information on the material terms of the Company’s short-term and long-term debt. 81 Table of Contents All the Company's senior unsecured notes outstanding as of December 31, 2025 were issued as fixed-rate obligations. See Note 6 to the Consolidated Financial Statements for further information.
The Company also at times has agreements with each of its counterparties associated with its outstanding interest rate swap agreements in which cash collateral may be required based on the fair value of outstanding derivative instruments, as well as the Company’s and its counterparty’s credit ratings.
The Company has agreements with a majority of its counterparties associated with its outstanding interest rate swap agreements in which cash collateral may be required based on the fair value of outstanding derivative instruments, as well as the Company’s and its counterparties' credit ratings.
A change in market interest rates could, however, have a corresponding effect on earnings and cash flows associated with the Company’s invested cash (excluding cash collateral deposits held, if applicable) and short-term investments because of the floating-rate nature of these items.
A change in market interest rates could, however, have a corresponding effect on earnings and cash flows associated with the Company’s debt that has been converted to a floating interest rate and invested cash (excluding cash collateral deposits held, if applicable) because of the floating-rate nature of these items.
The Company currently expects to consume approximately 2.2 billion gallons of jet fuel in 2025. Based on this anticipated usage, a change in jet fuel prices of just one cent per gallon would impact the Company’s Fuel and oil expense by approximately $22 million for 2025, excluding any impact associated with fuel derivative instruments held.
The Company currently expects to consume approximately 2.2 billion gallons of jet fuel in 2026. Based on this anticipated usage, a change in jet fuel prices of one cent per gallon would impact the Company’s Fuel and oil expense by approximately $22 million for 2026.
The Company's total debt divided by total assets was 19.8 percent as of December 31, 2024. The Company also has some risk associated with changing interest rates due to the short-term nature of its invested cash, which totaled $7.5 billion, and short-term investments, which totaled $1.2 billion as of December 31, 2024.
The Company's total debt divided by total assets was 16.9 percent as of December 31, 2025. The Company also has some risk associated with changing interest rates due to the short-term nature of its invested cash, which totaled $3.2 billion, as of December 31, 2025. See Notes 1 and 11 to the Consolidated Financial Statements for further information.
Because of the short-term nature of these investments, the returns earned parallel closely with short-term floating interest rates. The Company has not undertaken any additional actions to cover interest rate market risk and is not a party to any other material market interest rate risk management activities.
The Company has not undertaken any additional actions to cover interest rate market risk and is not a party to any other material market interest rate risk management activities.
The Company’s long-term strategy is to maintain a conservative balance sheet and generate adequate profits and returns on capital, while growing capacity steadily under the right conditions. While the Company uses financial leverage, it strives to maintain a strong balance sheet and has investment grade credit ratings with all three major credit rating agencies as of December 31, 2024.
While the Company uses financial leverage, it strives to maintain a strong and efficient balance sheet and has investment grade credit ratings with all three major credit rating agencies as of December 31, 2025.
The Company is also subject to a financial covenant included in its Amended Credit Agreement, and is subject to credit rating triggers related to its credit card transaction processing agreements, the pricing related to any funds drawn under its Amended Credit Agreement, and some of its hedging counterparty agreements.
However, a hypothetical 10 percent change in market rates would not impact the Company’s earnings or cash flow associated with the Company’s publicly traded fixed-rate debt. 82 Table of Contents The Company is also subject to a financial covenant included in its Amended Credit Agreement, and is subject to credit rating triggers related to its credit card transaction processing agreements, the pricing related to any funds drawn under its Amended Credit Agreement, and some of its hedging counterparty agreements.
The Company does not purchase or hold any derivative financial instruments for trading purposes. See Note 10 to the Consolidated Financial Statements for information on the Company’s accounting for its hedging program and for further details on the Company’s financial derivative instruments.
Therefore, the Company's leases are not considered market sensitive financial instruments and, therefore, are not included in the interest rate sensitivity analysis below. The Company does not purchase or hold any derivative financial instruments for trading purposes. See Note 10 to the Consolidated Financial Statements for information on the Company’s financial derivative instruments.
As of December 31, 2024, the Company had no outstanding interest rate swap agreements and therefore no cash collateral deposits provided or held.
As of December 31, 2025, no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements. Financial Market Risk The vast majority of the Company’s tangible assets are aircraft, which are long-lived.
See Notes 1 and 11 to the Consolidated Financial Statements for further information. The Company currently invests available cash in certificates of deposit, highly rated money market instruments, treasury securities, U.S. government agency securities, and other highly rated financial instruments, depending on market conditions and operating cash requirements.
The Company currently invests available cash in time deposits, highly rated money market instruments, and other highly rated financial instruments, depending on market conditions and operating cash requirements. Because of the short-term nature of these investments, the returns earned parallel closely with short-term floating interest rates.
The effect of this termination is that the value of the swaps originally recorded in AOCI, a gain of $23 million, will be amortized to Interest expense over the life of new debt instruments, which could be issued through 2027. See Note 10 to the Consolidated Financial Statements for further information.
Following the issuance of the Company's $750 million 5.25% Notes due 2035 in fourth quarter 2025, the deferred gain of $23 million associated with these terminated swaps is now being amortized as a reduction to Interest expense over the life of the notes. See Note 10 to the Consolidated Financial Statements for further information.
As of December 31, 2024, the Company operated a total of 106 aircraft under operating and finance leases.
As of December 31, 2025, the Company also operated a total of 97 aircraft under operating and finance leases. The Company previously operated a small number of aircraft that had lease payments that fluctuated based in part on changes in market interest rates. The last fluctuating lease expired in July 2025.
Removed
However, except for a small number of aircraft that have lease payments that fluctuate based in part on changes in market interest rates, the remainder of the leases are not considered market sensitive financial instruments and, therefore, are not included in the interest rate sensitivity analysis below.
Added
Hedging and Aircraft Fuel Risk Changes in fuel prices could materially affect the Company’s results of operations. As discussed in Note 10 to the Consolidated Financial Statements, the Company discontinued its fuel hedging program in 2025.
Removed
Hedging The Company purchases jet fuel at prevailing market prices, but seeks to manage market risk through execution of a documented hedging strategy. The Company utilizes financial derivative instruments, on both a short-term and a long-term basis, as a form of insurance against the potential for significant, or catastrophic, increases in fuel prices.
Added
During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio and program. Consequently, the Company is fully exposed to fluctuations in fuel prices like most of its competitors.
Removed
As of December 31, 2024, the Company held a net position of fuel derivative instruments that represented a hedge for a portion of its anticipated jet fuel purchases for future periods through 2027.
Added
The Company’s long-term strategy is to maintain an investment grade balance sheet and generate adequate profits and returns on capital, while growing capacity steadily under the right conditions.
Removed
The Company may increase or decrease the volume of fuel hedged based on its expectation of future market prices and its forecasted fuel consumption levels, while considering the significant premium cost that can be associated with different types of hedging strategies.
Added
During fourth quarter 2025, the Company entered into interest rate swap agreements as a hedge related to its $750 million 5.25% Notes due 2035. The primary objective for the Company's use of this interest rate hedge was to hedge against changes in the fair value of the debt instrument caused by changes in market interest rates, specifically SOFR.
Removed
Based on the current geopolitical and market dynamics, higher premium costs over time, and aggressive cost reductions underway, the Company does not intend to add new hedging positions to its current hedge book. See Note 10 to the Consolidated Financial Statements for further information.
Added
The hedge strategy is to eliminate the changes in fair value of the debt by converting the fixed rate interest of the debt to a floating rate.
Removed
The gross fair value of outstanding financial derivative instruments related to the Company’s jet fuel market price risk as of December 31, 2024, was an asset of $130 million. In addition, $22 million in cash collateral deposits were held by the Company in connection with these instruments based on their fair value as of December 31, 2024.
Added
Under these interest rate swap agreements, the Company pays SOFR plus a margin every six months on the notional amount of the debt, and receives payments based on the fixed stated rate of the notes every six months until the date the notes become due. These interest rate swap agreements collectively qualify as a fair value hedge.
Removed
An immediate 10 percent increase or decrease in underlying fuel-related commodity prices from prices as of December 31, 2024 would correspondingly change the fair value of the commodity derivative instruments in place by approximately $100 million.
Added
As a result of the fixed-to-floating interest rate swap agreements in place, the average floating rate recognized during 2025 was approximately 5.44 percent, based on actual and forward rates as of December 31, 2025.
Removed
Fluctuations in the related commodity derivative instrument cash flows may change by more or less than this amount based upon further fluctuations in futures prices, as well as related income tax effects.
Removed
In addition, this does not consider changes in cash or letters of credit utilized as collateral provided to or by counterparties, which would fluctuate in an amount equal to or less than this amount, depending on the type of collateral arrangement in place with each counterparty.
Removed
This sensitivity analysis uses industry standard valuation models and holds all inputs constant as of December 31, 2024, levels, except underlying futures prices. The Company’s credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are in an asset position to the Company.
Removed
To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty.
Removed
However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any open derivative contracts with the counterparty could be subject to early termination, which could result in substantial losses for the Company.
Removed
As of December 31, 2024, the Company had agreements with all of its active counterparties containing early termination 94 Table of Contents rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty’s credit rating.
Removed
The C ompany also had agreements with counterparties in which cash deposits and letters of credit may be required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds.
Removed
Refer to the counterparty credit risk and collateral table provided in Note 10 to the Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of December 31, 2024, at which such postings are triggered.
Removed
The Company is also subject to the risk that the fuel derivatives it uses to hedge against fuel price volatility do not provide adequate protection. For example, historically, a portion of the fuel derivatives in the Company's hedge portfolio have been based on the market price of WTI crude oil.
Removed
As mentioned above in "Critical Accounting Policies and Estimates", since the Company could no longer demonstrate that derivatives based on WTI crude oil prices would result in effective hedges on a prospective basis, the change in fair value of all of the Company's derivatives based in WTI have been recorded to Other (gains) losses during the second half of 2024.
Removed
The Company currently has no WTI-based derivatives that settle beyond 2024. In recent years, jet fuel prices have been more closely correlated with changes in the price of Brent crude oil, and therefore the Company has attempted to mitigate some of this risk by entering into more fuel hedges based on Brent crude.
Removed
The Company has found that financial derivative instruments in commodities, such as WTI crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility.
Removed
In addition, to add further protection, the Company has in the past periodically entered into jet fuel derivatives for short-term timeframes. Jet fuel is not widely traded on an organized futures exchange and, therefore, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately 24 months into the future.
Removed
Due to the significance of the Company’s current fuel hedging program and the historical emphasis that the Company has placed on utilizing fuel derivatives to reduce its fuel price risk, the Company has created a system of governance and management oversight and has put in place a number of internal controls designed so that procedures are properly followed and accountability is present at the appropriate levels.
Removed
For example, the Company has put in place controls designed to: (i) create and maintain a comprehensive risk management policy; (ii) provide for proper authorization by the appropriate levels of management; (iii) provide for proper segregation of duties; (iv) maintain an appropriate level of knowledge regarding the execution of and the accounting for derivative instruments; and (v) have key performance indicators in place in order to adequately measure the performance of its hedging activities.
Removed
The Company believes the governance structure that it has in place is adequate given the size and sophistication of its hedging program. Financial Market Risk The vast majority of the Company’s tangible assets are aircraft, which are long-lived.
Removed
However, a 10 percent change in market rates would not impact the Company’s earnings or cash flow associated with the Company’s publicly traded fixed-rate debt.

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