LUV 10-K & 10-Q changes, risk factors and insider trading

The Company’s operations and financial results are subject to various risks and uncertainties, including but not limited to those described below. Other risks are described in “Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations,” “Item 7A. Quantitative and Qualitative Disclosures About Market Risk,” and the Consolidated Financial Statements and related Notes thereto. The Company'sCompany’s business could also be affected by additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial. If any of these risks actually occur,occurs, it could materially harm the Company'sCompany’s business, financial condition, or results of operations, or impair the Company'sCompany’s ability to implement its strategic plans. In that case, the market price of the Company'sCompany’s common stock could decline. The following risk factors are summarized as financial; operational; information technologytechnology, cybersecurity, and data privacy; and legal, regulatory, compliance, and reputational.

•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 businessbusiness, strategic plans, and profitability can be significantly impactedaffected by the availability of jet fuel, fuel prices, and highvolatility and/or volatileof fuel prices, and the Company's operations are subject to disruption in the event of any delayed supply of fuel.

•The Company'sCompany’s low-cost structure has historically been one of its primarya competitive advantages,advantage, and many factors have adversely affected and could continue to adversely affect the Company'sCompany’s ability to control its costs.

•The Company'sCompany’s resultsbusiness, ofoperating operationsresults, and financial condition could be adversely impacted if it is unable to effectively execute its strategic plans.

•The Company is currently dependent on Boeing as the sole manufacturer of the Company'sCompany’s aircraft. If the MAX aircraft were to become unavailable for the Company'sCompany’s operations, or if the Company were tonot continueable to experienceprocure prolongedfuture deliveryaircraft delaysin ofa MAXtimely aircraft,manner or on favorable commercial terms, the Company'sCompany’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'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,support, (ii) if suppliers were unable to achieve and/or maintain required regulatory certifications or approvals of their parts or equipment,approvals, or (iii) in the event of a mechanical or regulatory issue associated with the Company'sCompany’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,hostilities could significantly harm the airline industry and the Company'sCompany’s operations.

•The Company is heavily dependent on technology to operate its business and continues to implement substantial changes to its information systems; any failure, disruption, breach, or delay in the Company’s information systems or in implementation of necessary changes could materially adversely affect its operations.

•The Company is increasingly exposed to cybersecurity attacks and data incidents impacting its IT Systems, orand those of the Company’s vendors or service providers. Such cybersecurity incidents or datasuch incidents could have a disruptive and material adverse effect on the Company’s business, financial position, or results of operations.

•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'sCompany’s operating costs, or otherwise limit the Company's ability to conduct business.costs.

•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'sCompany’s future results willmay suffer if it is unable to effectively manage its current and contemplated international operations and/or Extended Operations.

•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 finesCompany could adversely affect the Company'sCompany’s operating results.

•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.otherwise.

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 restrictedrestrict non-essential travel for their employees, which has keptimpacted the demand for business air travel below pre-pandemic levels.travel. In addition, to the extent business travel recoversdemand to pre-pandemic levels,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. However, offering low fares typically hampers the ability of airlines to counteract any increases in fuel, labor, and other costs. Consumer behavior related to traveling may be negatively impacted by adverse changes in the perceived or actual economic climate, including declines in income levels or disposable income, and/or loss of wealth resulting from the impact of economic conditions. Government foreign-relations actions, including tariffs and immigration policies, may also reduce the willingness of non-U.S. persons to travel to or within the United States, including by air. Any continuing or future U.S. or global economic uncertainty could further negatively affect the Company'sCompany’s results of operations and could cause the Company to further adjust its business strategies. Additionally, because a significant portion of expenses to operate a flight do not vary significantly with the number of passengers carried, a relatively small change in the number of passengers can have a disproportionate effect on an airline’s operating and financial results. Therefore, any general reduction in airline passenger traffic could adversely affect the Company'sCompany’s results of operations.

The Company's business can be significantly impactedaffected by the availability of jet fuel and high and/or volatilefuel, 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 impactedaffected by thefuel Company's ability to effectively address fuelavailability, price increasesincreases, and fuel price volatility and availability.volatility.

Airlines are inherently dependent upon energy to operate, and jet fuel and oil represented approximately 21.419 percent of the Company's operating expenses for 2024. As discussed under "Business - Cost Structure," although market jet fuel prices were volatile throughout the year, Fuel and oil expense for 2024 remained high, primarily due to an increase in fuel gallons consumed.2025. Even a small change in market fuel prices can significantly affect profitability. Furthermore, theThe cost of fuel can be extremely volatile and unpredictable and is subject to many external factors and market expectations that are beyond the Company'sCompany’s control. For example, fuel prices can be impacted by political,geopolitical, environmental (including those related to climate change), and economic factors, such as (i) dependency on foreign imports of crude oil and the potential foror 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 (vvi) changes in currency exchange rates. In addition, the occurrence of extreme weather events (regardless of cause), such as flooding, acute or prolonged winter storms, tropical storms, and hurricanes, can also disrupt the jet fuel supply chain and affect fuel prices.

The Company is also reliant upon the readily available supply and timely delivery of jet fuel to the airports that it serves. A disruption in thatrefinery production or related service and transportation operations affecting supply could present significant challenges to the Company'sCompany’s operations and could ultimately cause the cancellation of flights and/or hinder the Company’s ability to provide service to a particular airport. ForIn additionaladdition, discussionthe occurrence of theextreme availabilityweather events (regardless of cause), such as flooding, acute or prolonged winter storms, tropical storms, and hurricanes, can also disrupt the jet fuel andsupply SAF, please see “The Company is subject to risks related to its voluntary sustainability goalschain and disclosures, which may affect stakeholderfuel sentiment and the Company’s reputation and brand.”prices.

The Company'sCompany’s low-cost structure has been one of its primary competitive advantages, as it has generally enabled the Company to offer low fares, drive traffic volume, grow market share, and protect profits. 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 expense. The Company’s low-cost structure can also be negatively impacted by costs over which the Company has limited control. These include costs such as fuel, labor (especially union labor), airport, and regulatory compliance costs.

Salaries, wages, and benefits constituted approximately 45.1 percent of the Company's operating expenses during 2024. The Company'sCompany’s ability to control labor costs is limited by the terms of its collective-bargaining agreements. ThisThese limitedagreements controlinclude hasrequired negativelywork impactedrules and wage‑rate provisions, as well as other negotiated terms, that may restrict the Company'sCompany’s low-costoperational flexibility and result in increased staffing or scheduling inefficiencies, thereby pressuring its cost structure andrelative position.to Ascertain discussedcompetitors. furtherThe under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company'sCompany’s unionized workforce makes up approximately 8284 percent of its Employees and many have had pay scale increases as a result of contractual rate increases, which has put pressure onincreased the Company'sCompany’s labor costs. Further, in response to staffing challenges, the Company has increased the minimum pay for certain of its workforce and provided incentive pay in certain instances. If new or amended labor agreements include additional pay increases, work rule requirements, or other terms that further elevate costs, the Company’s competitive cost position could be adversely affected.

The Company is reliant upon third-party vendors and service providers, and the Company'sCompany’s low-costcompetitive advantageposition is dependent in part on its ability to obtain and maintain commercially reasonable terms with those parties. 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'sCompany’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. If a third-party vendor or service provider is unable to fulfill its commitments to the Company, the Company may be unable to replace that third-party vendor or service provider in a short period of time, or at competitive terms, which could have a material adverse effect on the Company'sCompany’s results of operations.

As discussed under "“Business - Insurance,"” the Company carries insurance of types customary in the airline industry. Although the Company has been able to purchase aviation, property, liability, pollution, cybersecurity, and D&O/fiduciary insurance via the commercial insurance marketplace, costs have generally increased, and it is more difficult and, in some cases not possible, to obtain insurance for certain activities and weather-related events. 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. Available commercial insurance could be more expensive in the future and/or have material differences in coverage than insurance that has historically been provided and may not be adequate to protect against the Company'sCompany’s risk of loss from future events, including acts of terrorism and severe weather events. With respect to any insurance claims, policy coverages and claims are subject to acceptance by the many insurers involved and may require arbitration, mediation, and/or litigation to effectively settle the claims over prolonged periods of time. The Company’s wholly-owned insurance captive uses actuarial services to determine the value of policies and reserves, which can be subject to fluctuation as past trends are not always indicative of future loss developments. In addition, an aircraft accident or other incident involving Southwest could result in costs in excess of its related insurance coverage, which costs could be substantial. Any aircraft accident or other incident involving Southwest,Southwest or Southwest’s strategic partners, even if fully insured, could also have a material adverse effect on the public'spublic’s perception of the Company, which could harm its reputation and business.

The Company'sCompany’s resultsbusiness, ofoperating operationsresults, and financial condition could be adversely impacted if it is unable to effectively execute its strategic plans.

The Company is reliant on the success of its strategic plans and initiatives to increase revenues and help offset increasing costs. The execution of the Company'sCompany’s strategic plans washave significantlybeen and may again be negatively affected by themacroeconomic COVID-19conditions. pandemic.In Nevertheless,both 2024 and 2025, the Company has taken actions to address staffing and increase the starting wage rate for certain workgroups, manage its fleet and fleet order book, and better optimize its network. The Company has also announced plans forfor, and is in the process of implementing, certain transformational initiatives, such as changing to an assigned seating model, offering premium seating with extra legroom,legroom seating, formalizing partnerships with international carriers to expand its network, offering Getaways by Southwest, introducing 24-hour operations, and reducing the turn times between flights.flights, and introducing bag fees for most fare products. The Company’s transformational initiatives are discussed in more detail under “Business.” The Company made certain assumptions in developing its strategic plans and initiatives related to, for example, customer demand (in light of changing economic conditions), fuel costs, delivery of aircraft, aircraft certification approval timelines, labor market constraints and related costs, supply chain constraints, inflationary pressures, voluntary or mandatory groundings of aircraft, its network, competition, market consolidation, and other macroeconomic and geopolitical factors. The timely and effective execution of the Company'sCompany’s strategies is dependent upon, among other factors, (i) the Company'sCompany’s ability to balance its network schedule and capacity with the availability and location of its crew resources; (ii) the Company'sCompany’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'sCompany’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; (vvi) the Company’s ability to retain and broaden its Customer base; and (vivii) the Company'sCompany’s dependence on third parties with respect to the execution of its strategic plans. 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 thatNevertheless, these measures orand any future initiatives willmay hurt the Company’s competitive position and Customer loyalty rather than improve it and may not be successful in increasing revenues or offsetting costs. Furthermore, the execution of the Company’s strategic plans may exacerbate other risks described in this Form 10-K. Actual conditions may be different from the Company’s assumptions at any time and could cause the Company to further adjust its strategic plan. 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 Company'sCompany’s low-costhistorical 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. Additionally, most major U.S. airlines offer expanded cabin segmentation fare products, such as "“basic economy,"” "“premium economy,"” and "“first class"” products. The Company plans to move to an assigned seating model and will offer a premium economy fare product with extra legroom toTo meet Customer preferences and better compete with the major U.S. airlines.airlines, the Company has moved to a more segmented approach, offering a basic economy product and a premium economy fare product with extra legroom. The Company has also moved to an assigned seating model and now charges bag fees for most fare products. The competitiveness of the Company’s offerings could be adversely affected if it is unable to implement new initiatives in a timely and successful manner or if Customers are unwilling to accept the Company’s product and policy changes. If the Company cannot adequately retain and attract Customers or differentiate its product offerings from those of its competitors, then its business, financial condition, and results of operations could be materially adversely affected.

The Company'sCompany’s revenues are sensitive to the actions of other carriers with respect to pricing, routes, loyalty programs, scheduling, capacity, customer service, operational reliability, comfort and amenities, product offerings, cost structure, aircraft fleet, strategic alliances, and code-sharing and similar activities. Many of the Company’s competitors participate in joint ventures and international alliances, providing for increased financial resources and improved profit margins. Many major U.S. airlines also offer longer-haul, international routes through extensive global networks. In order to compete with these activities and expand its transatlantic and transpacific service offerings, the Company began to enter into international partnerships in 2025. Failure to successfully implement and manage international partnerships could result in financial losses and reputational harm. The airline industry also has been and may alsoagain be impacted by bankruptcies, mergers, acquisitions, or heightened financial pressures, or bankruptcies.pressures. Further consolidation in the airline industry generally could result in the reduction of fares by other airlines, which could in turn affect the Company’s profitability in existing and new markets. If the Company cannot compete with other airlines’ offerings or maintain its costs at a competitive level, then its business, financial condition, and results of operations could be materially adversely affected.

The Boeing MAX aircraft are crucial to the Company’s ability to operate and grow its business and fleet modernization initiatives. The Company operates the -8 out of the MAX family of aircraft and is awaiting delivery of the -7 out of the MAX family of aircraft. Deliveries of MAX aircraft from Boeing to the Company are subject to Boeing'sBoeing’s production schedules and volumes. Boeing has in the past, and may continue to, experience delays in fulfilling its commitments with regards to delivery of the -8 to the Company as a result of manufacturing challenges. In January 2024, the FAA announced that it had informed Boeing that the FAA would not (i) agree to any request from Boeing for an expansion in production or (ii) approve additional production lines for the MAX aircraft until the FAA is satisfied that any applicable Boeing quality control issues are resolved. Further, the Company'sCompany’s contractual delivery schedule for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. In January 2024, Boeing announced plans to withdraw an exemption request with the FAA and incorporate an engineering solution as part of the -7 certification process. 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.

The Company currently operates a higher percentageproportion 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.carriers with more diversified fleets. 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'sCompany’s operations would be materially adversely affected. Further, if the -7 certification is not completed in a timely manner, the Company’s growth and network plans could be restricted unless and until it could procure and operate other types of aircraft from Boeing or another manufacturer, seller, or lessor. 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. The requirements associated with operating a new aircraft make and model could take an extended period of time to fulfill and would likely impose substantial costs on the Company. A shift away from a single fleet type could also add complexity to the Company’s operations, present operational and compliance risks, and materially increase the Company's costs. Any of these events would have a material, adverse effect on the Company's business, operating results, and financial condition. The Company could also be materially adversely affected if the pricing or operational attributes of its aircraft were to become less competitive.

The airline business is labor intensive, and for the year ended December 31, 2024,2025, Salaries, wages, and benefits expense represented approximately 45.147 percent of the Company's operating expenses. As of December 31, 2024,2025, approximately 8284 percent of the Company'sCompany’s Employees were represented for collective bargainingcollective-bargaining purposes by labor unions, making the Company particularly exposed in the event of labor-related job actions. Employment-related matters (some of which relate to negotiated items) that have impacted the Company'sCompany’s results of operations include hiring/retention rates, attendance, pay rates, outsourcing, work rules, health care costs, and retirement benefits. Although the Company has reached final labor agreements with its twelve unionized Employee groups, the next of which becomes amendable in October 2026, general wage inflation has resulted, and is expected to continue to result, in pressure on the Company'sCompany’s low-cost structure. Renegotiating labor agreements or entering into new labor agreements can require significant costs and extensive bargaining and, in some instances, may not be successful. The Company’s results could be materially adversely affected in the event of conflicts or failures to successfully negotiate necessary terms or agreements with its Employees or its Employees’ representatives.

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'sCompany’s ability to staff appropriately when demand for leisure travel returned. Although the Company surpassed pre-pandemic staffing levels in 2023, Boeing aircraft delivery delays, network optimization efforts, and cost control initiatives have also required the Company to re-evaluate its hiring needs in 2024 and beyond and moderate staffing in line with demand. As a result, the Company offered a voluntary separation program to certain Employees in 2024, and the Company implemented a reduction in workforce in 2025. Staffing-related challenges, particularly any unpredictability in required staffing levels, could continue to occur in certain areas and limit the Company'sCompany’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.

The Company is also dependent on third-party vendors and service providers. TheAdverse COVID-19 pandemic and current economicmacroeconomic 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 operations of the Company’s third-party vendors and service providers could also be affected by the policies, procedures, and performance of their suppliers, and the Company may not have visibility into this multi-tiered supply chain. 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.

Terrorist attacksattacks, war, 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. Safety and security measures can create delays and inconveniences, which in turn can reduce the Company'sCompany’s competitiveness against surface transportation for short-haul routes and alternatives to transportation such as videoconferencing, business communication platforms, and the Internet. Additional terrorist attacksattacks, 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.

While the Company operates across a diverse geographic footprint, its operations at times have been adversely and materially impacted by severe weather, such as HurricanesWinter HarveyStorm and IrmaFern in 2017,January 2026, Hurricane Milton in October 2024, and Winter Storm Elliott in December 2022, and Hurricane Milton in October 2024.2022. Depending on location, the Company’s assets and route network have been or could be exposed to ongoing risks arising from a variety of adverse weather conditions or localized natural or manmade disasters such as earthquakes, volcanoes, wildfires (such as the 2023 Maui wildfires and the 2025 Los Angeles wildfires), hurricanes, tropical storms, tornadoes, floods, sea-level rise, severe winter weather, sustained or extreme cold or heat, drought, or other disturbances, actual or threatened. Extreme weather conditions, including increases in the frequency, severity, or duration of severe weather events (whether or not caused by anthropogenic climate change), can disrupt air travel from time to time, ground planes, damage equipment and increase maintenance costs, cause delays and cancellations or other network disruptions, require implementation of weight limitations due to increased temperatures, increase turbulence-related injuries, cause disruptions in staffing, cause increases in fuel consumption to avoid such weather, disrupt the Company’s supply chains (including fuel, parts, and service provider disruptions), and otherwise adversely affect the Company’s assets, operations, and infrastructure. TheseThe eventsCompany cancould decreaseincur revenue,significant increasecosts costs,to improve the resiliency of its operations, infrastructure, and adverselysupply impactchain, and otherwise prepare for, respond to, and mitigate the Company’spotential financialacute condition.and chronic physical effects of climate change. The Company is not able to predict accurately the materiality of any potential losses or costs associated with the extreme weather events. 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. 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.

•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 controllerscontrollers, resulting in more frequent and prolonged flight delays, limitations on the number of offered flights, and disrupting travel plans across the entire network);

•collective bargainingcollective-bargaining requirements and demands;

•outbreaks of disease such as the COVID-19 pandemic; and

The Company’s business depends on both internal and external IT Systems. 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. These IT Systems may be subject to increasingly significant attacks by hackers, cybercriminals, nation-states, insiders, or other third parties. Advances in computer capabilities, AI-enhanced attacks, social engineering, phishing, cryptography, inadequate facility security, insider threats, or other technological developments may result in a compromise or breach of the Company’s critical operations systems, physical assets, or technology the Company uses to safeguard confidential, personal, or proprietary information. A compromise of the Company’s IT Systems or physical assets, or those of a vendor or service provider, could lead to safety incidents, damage to the Company’s assets, significant remediation costs and liability, regulatory actions, privacy or securities law violations and related fines, loss of contracts, significant and long-lasting reputational harm, or a failure to meet the Company’s contractual obligations. Incidents impacting one system can impact other interconnected systems. For example, cybersecurity incidents impacting the Company'sCompany’s IT Systems or those provided by a vendor or service provider could disrupt the Company’s operations and even impact the safe operation of physical assets like aircraft. Any of these outcomes could significantly harm the Company’s operations, financial health, and business results.

The Company has a dedicated cybersecurity team and program, along with support from legal partnersadvisors and other resources, focused on current and emerging data security matters. The Company’s systems and securitycybersecurity 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 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. Moreover, even with the efforts and investments to protect against cyber-attacks, the Company may not be able to prevent a data breach involving sensitive data. A successful breach of the Company’s IT Systems could erode Customer confidence in the Company’s digital platforms, security measures, data protection, resiliency, and services. Beyond operational disruptions, such incidents could result in reputational damage, loss of Customer trust, regulatory investigations and fines, or individual or class action lawsuits, all of which could have a material adverse effect on the Company’s financial condition and results of operations. See “Business—Regulation—Data Privacy and Cybersecurity Regulation.”

Although the Company has not experienced cyber incidents that areare, individually,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 had a record full year 2024 revenue performance,performance in 2025, producing operating revenues of $27.5$28.1 billion, due in part to continued demandstrong strengthdomestic andtravel thedemand, benefitsas fromwell as the execution of tacticaltransformational actionsinitiatives, relatedwhich tohas initiatives announced by the Companyresulted in 2024 designed to elevate the Customer Experience on its flights, improvestrong financial performance,performance and drivedriven incremental Shareholder value. Additional drivers included record ancillary revenue and passengers carried.

The decision to update the seating and boarding model is part of the Company's continued modernization and Customer Experience transformation. Following a Customer study regarding the inflight experience, the Company has also continued to enhance its onboard offerings during the past two yearsofferings, with both completed and ongoing improvements being made, such as faster WiFi, in-seat power, and larger overhead bins.bins, Workand 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.

Relevant comparative operating statistics for the three and six months ended MarchJune 31,30, 2026 and 2025 are included below. The Company provides these operating statistics because they are commonly used in the airline industry and, as such, 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 Company ishas focusedalso continued to enhance its onboard offerings, with improvements such as in-seat power, larger overhead bins, and upgraded WiFi, with the first Starlink-equipped aircraft entering service on executingJune its22, previously2026, announcedmarking transformationalthe initiatives,beginning whichof were planned and designed to attracta new Customers and improve both the Company's operational and financial performance. The Company began operationera of assignedinflight andconnectivity extraat legroomSouthwest. seatingWork flightsis well underway on Januarya 27,refreshed cabin design, including new, more comfortable RECARO seats. As of July 22, 2026, which required retrofitting 780107 aircraft inretrofitted thewith monthsRECARO leadingseats uphave tobeen theplaced change.into service. In addition, the Company entered into a new partnershippartnerships with AllSingapore Nippon Airways,Airlines, which will enable jointly operated itineraries connecting through the carriers' shared gateway airports in Honolulu,Los Angeles, Seattle-Tacoma, and San Francisco, Seattle-Tacoma,and with Air Premia, which will enable travel across the Pacific with interline connections at the carriers' shared gateway airports in Honolulu, Los Angeles, and LosSan Angeles.Francisco. Since February 13, 2025, the Company has implemented and/or announced strategic partnerships with a total of sevennine carriers, through which Customers can book itineraries that connect the Company's vast domestic network to destinations around the world.

The escalation ofongoing geopolitical developments in the Middle East hascontinue impactedto impact the market prices of products that are derived from crude oil, including jet fuel. The Company’s firstsecond quarter Aircraft fuel and related taxes expense was $2.2 billion, or $3.92 per gallon, compared with the first quarter Aircraft fuel and related taxes expense of $1.4 billion, or $2.73 per gallon, which was approximately $164 million higher than it had originally forecasted for the period. However, since the rapid rise primarily took place in March, the impacts to second quarter 2026 results and beyond could be more significant if prices remain elevated.gallon. The forward curve on AprilJuly 16,17, 2026 implied a secondthird quarter 2026 fuel cost per gallon, including related taxes, between $4.10$3.70 and $4.15.$3.75. The Company currently expects to utilize approximately 555532 million gallons of jet fuel during secondthird quarter 2026.

In firstsecond quarter 2026, the Company returnedalso overpaid $1.3$88 billionmillion to Shareholders through a combination of share repurchases and dividends. See "Liquidity and Capital Resources" below and Part II, Item 2 - Issuer Purchases of Equity Securities for further information on the Company's share repurchases.information.

To further improve its financial performance, the Company has also intensified its network optimization efforts. InEffective firstJune quarter4, 2026, the Company announced plans to suspendsuspended operations at Chicago O'Hare International Airport and Washington Dulles International Airport and reducereduced staffing at Hartsfield-Jackson Atlanta International Airport, Fort Lauderdale-Hollywood International Airport, and Philadelphia International Airport, effective June 4, 2026.Airport. A majority of affected Employees were offered the abilityable to bidtransfer forto vacantsimilar positions across the Company's network and were able to remain employed by the Company.Southwest.

Comparison of the three months ended MarchJune 31,30, 2026 and 2025

Total operating revenues for firstsecond quarter 2026 increased by $821$1.2 million,billion, or 12.816.4 percent, year-over-year, to achieve aan firstall-time quarterquarterly Company record of $7.2$8.4 billion.billion, despite a $285 million decrease related to a breakage adjustment, which was treated as a special item and excluded from the Company's presentation of non-GAAP results. See Note Regarding Use of Non-GAAP Financial Measures and see Notes 1 and 5 to the unaudited Condensed Consolidated Financial Statements for further information. Passenger revenues for firstsecond quarter 2026 increased by $780$1.1 million,billion, or 13.416.9 percent, year-over-year, driven primarily by additionala ancillaryhigher revenuespercentage of Customers purchasing higher fare categories as a result of the Company'senhanced transformationalfare initiatives,structure, coupled with an increase in new ancillary products implemented by the Company, including the implementation of bag feesfee revenues for mostfirst fare products beginning inand second quarterchecked bags for tickets purchased on or after May 28, 2025, and the operation ofoperating assigned and extra legroom seating for travel beginning on January 27, 2026.2026, which includes the co-brand impact associated with those initiatives. Other revenues for firstsecond quarter 2026 increased by $38$64 million, or 6.611.2 percent, year-over-year.year-over-year, Firstdriven primarily by improved retail spend on the Company's co-branded credit cards. Second quarter 2026 RASM was 17.2417.91 cents, finishing 11.216.2 percent higher than firstsecond quarter 2025. The unit revenue increase was primarily due to ana 11.515.4 percent increase in yield as a result of broad-basedbroad demand strength acrossand strong Customer engagement with the networkCompany's andenhanced initiativeproduct contributions,offering, including an increase in ancillary revenues, along with a 0.20.8 point year-over-year increase in Load factor. Second quarter 2026 RASM, excluding special items, was 18.51 cents, finishing 20.1 percent higher than second quarter 2025. See Reconciliation of Reported Amounts to Non-GAAP Financial Measures and Note Regarding Use of Non-GAAP Financial Measures for further information.

Operating expenses for firstsecond quarter 2026 increased by $268$1.1 million,billion, or 4.016.1 percent, compared with firstsecond quarter 2025, and capacity increased 1.50.2 percent over the same prior year period. Operating expenses, excluding special items, increased $1.1 billion, or 16.2 percent, compared with second quarter 2025. The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and Aircraft fuel and related taxes expense and Salaries, wages, and benefits expense. The following table presents the Company's Operating expenses per ASM for the firstsecond quarter of 2026 and 2025, followed by explanations of these changes on both a dollar and unit basis.

Operating expenses per ASM for firstsecond quarter 2026 increased by 2.615.8 percent compared with firstsecond quarter 2025, primarily due to an increase in Aircraft fuel and related taxes expense and Salaries, wages, and benefits expense, which exceeded the year-over-year increase in capacity.expense. Operating expenses per ASM for firstsecond quarter 2026, excluding Aircraft fuel and related taxes expense, profit sharing, and special items (a non-GAAP financial measure), increased 2.33.4 percent, compared with firstsecond quarter 2025, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2026. 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.

Salaries, wages, and benefits expense for firstsecond quarter 2026 increased by $195$237 million, or 6.37.3 percent, compared with firstsecond quarter 2025. On a per ASM basis, firstsecond quarter 2026 Salaries, wages, and benefits expense increased 4.77.2 percent, compared with firstsecond quarter 2025. On a dollar and per ASM basis, the majority of the increase was due to contractual step/pay rate increases and related benefits for the Company's workforce.

Aircraft fuel and related taxes expense for firstsecond quarter 2026 increased by $107$889 million, or 8.667.0 percent, compared with firstsecond quarter 2025. On a per ASM basis, firstsecond quarter 2026 Aircraft fuel and related taxes expense increased 7.366.1 percent. On a dollar and per ASM basis, the increase was primarily attributable to increased jet fuel prices, mainly due to increases during the month of March, particularly due to recent market disruptions and worldwide geopolitical events. The following table provides more information on the Company's economic fuel costs per gallon, including the impact of fuel hedging net premium expense associated with previously terminated fuel derivative contracts:

The Company's firstsecond quarter 2026 available seat miles per gallon ("fuel efficiency") increased 2.41.3 percent, year-over-year, with the improvement primarily 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.

Maintenance materials and repairs expense for firstsecond quarter 2026 decreased by $33$37 million, or 11.311.2 percent, compared with firstsecond quarter 2025. On a per ASM basis, Maintenance materials and repairs expense decreased 11.4 percent compared with firstsecond quarter 2025. On a dollar and per ASM basis, the decrease was primarily due to a decrease in -700 engine shop visits.

Landing fees and airport rentals expense for firstsecond quarter 2026 increased by $50$69 million, or 9.612.2 percent, compared with firstsecond quarter 2025. On a per ASM basis, Landing fees and airport rentals expense increased 7.911.6 percent, compared with firstsecond quarter 2025. On a dollar and per ASM basis, approximately 6550 percent of the increase was attributable to an increase in airport rental expense throughout the network driven by the higher rates charged by airports for leased space, approximately 25 percent of the increase was due to higher landing fees throughout the network driven by increased usage of the heavier -8 aircraft as well as higher rates, and the remaining increase was primarily due to receiving fewer favorable settlements and credits from various airports in 2026.

Depreciation and amortization expense for firstsecond quarter 2026 increased by $2 million, or 0.5 percent, compared with firstsecond quarter 2025. On a per ASM basis, Depreciation and amortization expense decreasedremained 1.0 percentflat compared with firstsecond quarter 2025. On a dollar basis, this increase was primarily due to aapproximately $24$40 million increasein drivenincreased by new assets for technology, ground equipment, and leasehold improvements being placed into service since first quarter 2025 and a $14 million increasedepreciation as a result of thenew acquisitionassets ofacquired 54 -8 aircraft beingand placed into serviceservice, sinceincluding firstaircraft, quartertechnology, 2025.and Theseground increasesequipment, werewhich partiallywas mostly offset by a $28$25 million decrease duein todepreciation as a result of a change in estimate for the residual values of certain airframesairframe and engine assets asdue a result ofto prevailing market conditions and ana $18$16 million decreasereduction due to certain Next Generation aircraft and enginerelated assets beingthat were retired and/or becomingbecame fully depreciated since firstsecond quarter 2025.

Other operating expenses for firstsecond quarter 2026 decreased by $53$32 million, or 4.92.8 percent, compared with firstsecond quarter 2025. Included within this line item was aircraft rentals expense in the amounts of $76$75 million and $87$80 million for the three-month periods ended MarchJune 31,30, 2026 and 2025, respectively. On a per ASM basis, Other operating expenses decreased 6.52.9 percent, compared with firstsecond quarter 2025. On a dollar and per ASM basis, the largest component of the year-over-year decrease was a focused Companywide effort to reduce discretionary expenses, the largest of which was a significant reduction in external consulting spendprimarily due to higher year-over-year gains on the completiondisposition of variousassets, transformationalprimarily initiativespreviously sinceretired firstengines quarterand 2025.aircraft, partially offset by an increase in revenue-related expenses driven by increased credit card transactions, the Company's free inflight WiFi offering, and higher Employee-related expenses driven by redeye flying.

Interest expense for firstsecond quarter 2026 increased by $8$25 million, or 17.464.1 percent, compared with firstsecond quarter 2025, primarily due to various debt financing transactions executed since firstsecond quarter 2025. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Interest income for firstsecond quarter 2026 decreased by $61$21 million, or 72.638.9 percent, compared with firstsecond quarter 2025, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

(a) Includes amounts reclassified from AOCIAccumulated Other Comprehensive Income associated with hedges previously terminated. See NoteNotes 3 and 4 to the unaudited Condensed Consolidated Financial Statements for further information.information on the Company's derivative instruments and AOCI, respectively.

(bc) Represents Employee severance paymentsand andother related professional feespayments resulting from thecorporate workforce reduction in February 2025 ($53 million in Salaries, wages, and benefits and $9 million in Other operating expenses).reductions.

(cd) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.