What changed in this filing

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Item 1. Business

2025-02-07 compared with 2024-02-06 · 407 added, 352 removed, 445 unchanged (63% of the section changed)

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Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.

The airline industry has historically been an extremely volatile industry.

Among other things, it has been cyclical, energy intensive, labor intensive, capital intensive, technology intensive, highly regulated, heavily taxed, and extremely competitive.

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.

In 2023, the U.S.

airline industry continued to recover from the COVID-19 pandemic while facing challenges such as volatile fuel prices, inflationary cost pressures (particularly labor costs), delayed aircraft deliveries, labor availability (namely pilot availability), supply chain challenges, shifting travel demand patterns, economic uncertainty, disruptive weather events, and natural disasters such as the wildfires in Maui.

Overall, the U.S.

airline industry has experienced a strong recovery of domestic leisure travel demand since mid-2022, as reported COVID-19 cases declined throughout the United States and travel restrictions eased.

International travel demand largely recovered to pre-pandemic levels in summer 2023.

Business travel, while showing modest improvements over several years, remained at reduced levels throughout 2022 and 2023 compared with pre-pandemic levels, as corporate travel patterns continued to lag and evolve post-pandemic.

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 early 2024, as compared with 2023 and/or previously announced plans.

Historically, airline industry results have been particularly susceptible to fuel price volatility.

Although jet fuel prices were slightly lower in 2023 as compared with 2022, they remain at high levels and continue to be subject to extreme volatility based on a variety of factors.

Company Initiatives

As part of the Company's ongoing modernization efforts, during third quarter 2024, the Company announced several transformational initiatives designed to elevate the Customer Experience on its flights, improve financial performance, and drive Shareholder value, including:

• Assigned Seating :

Southwest will introduce an assigned seating model to better align with airline passenger preferences.

The Company expects to begin selling assigned seats in the second half of 2025, with its first flights operating with the new seating model in the first half of 2026.

• Premium Seating :

Southwest will offer extra legroom options with additional pitch while maintaining a standard economy seat pitch.

• Redesigned Boarding Model :

Southwest will evolve its boarding process with seat assignments while focusing on operational efficiency and improving the Customer Experience.

The updated boarding process will be designed to maintain Southwest's unique and popular approach in boarding through position numbers and signage displayed on stanchions within the gate area.

• Global Airline Partnerships :

Southwest is seeking partnerships with international carriers to expand its network and connect Customers with more global destinations to generate additional demand for travel across the Southwest network.

Icelandair will become Southwest's initial partner with an expected launch on February 13, 2025 through Baltimore-Washington International Airport, which will serve as its first U.S.

gateway for the carriers.

The Icelandair partnership is expected to add Denver and Nashville gateways during 2025, and Southwest intends to add at least one additional partner carrier in 2025.

• Getaways by Southwest™ :

In 2025, Southwest intends to launch a new product, Getaways by Southwest, offering vacation packages that are unique to the industry and come with Customer-friendly policies.

These customizable vacation bundles are expected to feature Southwest's generous cancellation policy and flexibility with its no change fees for flights extending to hotels and other elements of packaged vacations.

• 24-Hour Operations :

Southwest is scheduled to add 24-hour operation capabilities with the introduction of overnight (i.e., redeye) flights on February 13, 2025 in key markets to maximize aircraft utilization.

• Marketing & Distribution Evolution :

In order to attract new Customers and reach them where they are performing travel searches today, Southwest has expanded into new channels such as Google Flights, Kayak, and Skyscanner to broaden its Customer base and begin to engage them in its loyalty program.

• Service Modernization :

To drive efficiency and improvement in Customer Service, Southwest is transitioning to a digital-first model, offering more self-service options designed to augment the Company’s contact centers and airport experience.

Company Operations

Route Structure

Southwest has historically principally provided “point-to-point” service, rather than the “hub-and-spoke” service provided by most major U.S.

A point-to-point system enables airlines to connect directly to destinations without providing a connecting service.

Southwest primarily provides “point-to-point” service, rather than the “hub-and-spoke” service provided by most major U.S.

A point-to-point system enables airlines to connect directly to destinations without providing connecting service.

By contrast, the hub-and-spoke system concentrates most of an airline's operations at a limited number of central hub cities and serves most other destinations in the system by providing one-stop or connecting service through a hub.

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.

While the Company does not operate a traditional hub-and-spoke model, in recent years the Company has increasingly focused on designing its network around core stations in an effort to provide greater connectivity, and support operational reliability and recoverability.

Southwest’s 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.

Approximately 73 percent of the Company's Customers flew nonstop during 2023, compared with 74 percent during 2022 and 73 percent during 2021.

As of December 31, 2023, Southwest served 805 nonstop city pairs, compared with 825 as of December 31, 2022, and 788 as of December 31, 2021.

For 2023, the Company’s average aircraft trip stage length was 730 miles, with an average duration of approximately 2.0 hours, as compared with an average aircraft trip stage length of 728 miles and an average duration of approximately 2.0 hours in 2022, and an average aircraft trip stage length of 790 miles and an average duration of approximately 2.1 hours in 2021.

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.

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.

For example, Southwest currently offers 12 weekday roundtrips between Dallas Love Field and Houston Hobby (and an additional 3 to Houston Bush), 5 weekday roundtrips between Denver and Chicago Midway (and an additional 4 to Chicago O'Hare), 7 weekday roundtrips between Los Angeles International and Las Vegas, 8 weekday round trips between Burbank and Oakland, and 13 weekday roundtrips between Phoenix and Denver.

For example, Southwest currently offers 12 weekday roundtrips between Dallas Love Field and Houston Hobby, six weekday roundtrips between Denver and Chicago Midway, six weekday roundtrips between Los Angeles International and Las Vegas, eight weekday round trips between Burbank and Oakland, and ten weekday roundtrips between Phoenix and Denver.

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.

The Company continually works to 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.

In 2023, the Company focused its efforts towards restoring the depth and breadth of its pre-pandemic network by adding back frequency in existing markets and reconnecting markets that have historically served as points of strength for the network.

While the Company’s network and aircraft utilization were restored to pre-pandemic levels in late 2023, the network was not fully optimized for post-pandemic travel patterns.

The Company’s near-term optimization efforts focus on evaluating its short-haul routes as business travel continues to lag pre-pandemic levels, offering the right number of flights at the right times of day, and reducing certain weekday flights to better match capacity to demand.

In 2024, the United States Department of Transportation (“DOT”) approved the Company’s bid to offer nonstop round-trip flights between Las Vegas and Washington Reagan.

Service between Las Vegas and Washington Reagan begins February 13, 2025, with daily service beginning March 6, 2025.

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.

Booking of redeye flying on initial routes became available in July 2024, with the first redeye flights scheduled on February 13, 2025, in five initial nonstop markets:

Las Vegas to Baltimore and Orlando;

Los Angeles to Baltimore and Nashville;

and Phoenix to Baltimore.

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.

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.

In response to market conditions, the Company ceased service at Cozumel, Mexico;

Houston Bush Intercontinental;

and Bellingham in 2024.

Further, the Company redeployed underperforming capacity by significantly reducing service at Atlanta, Fort Lauderdale, and Chicago O’Hare, while expanding service at Nashville.

The Company is continuing to improve the connectivity and efficiency of its network through redesigns in smaller cities and the planned introduction of redeye flying.

Additionally, the Company is taking a cross-functional, methodical approach to market maturation efforts.

The Company’s unique route network allows for these adjustments without structurally disrupting its airports in core markets and other large cities.

The Company also remains focused on maturing newer markets introduced during the pandemic.

The Company entered 18 new destinations during 2020 and 2021, expanding its network to new Customer bases, leisure destinations, and geographic regions.

These services have created additional regional and international connectivity structured to grow the Company's presence in strategic markets that serve as cornerstones for its network and provide additional options for Customers to reach their final destinations.

To further improve international connectivity with its domestic network, the Company has announced its plans to shift the bulk of its international service in Fort Lauderdale to Orlando.

Further, in October 2023, the Company announced its plans to moderate capacity growth in 2024 to better match demand and Customer travel patterns, as well as to absorb its capacity growth from 2023.

To further improve international connectivity with its domestic network, as discussed under “Company Initiatives,” the Company is scheduled to begin operating as a partner with Icelandair on February 13, 2025 to provide for transatlantic connectivity and announced plans to add at least one more partner during 2025.

Cost Structure

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Southwest's use of a single aircraft type has historically allowed for simplified scheduling, maintenance, flight operations, safety management, and training activities.

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, Providence, and Ft.

Lauderdale-Hollywood.

These conveniently located airports are typically less congested than other airlines' hub airports, which has contributed to Southwest's ability to achieve high asset utilization because aircraft can be scheduled to minimize the amount of time they are on the ground.

This, in turn, has reduced the number of aircraft and gate facilities that would otherwise be required and is designed to allow for higher Employee productivity over a long period of time.

Given ever-evolving travel patterns and labor market challenges, the Company continues to focus on better optimizing its route network to support orderly, measured, and consistent growth, reducing inefficiencies, and improving Employee productivity and operational resilience.

The Company's focus on controlling costs also includes a continued commitment to pursuing, implementing, and enhancing initiatives to reduce fuel consumption and improve fuel efficiency (available seat miles per fuel gallon consumed).

Given ever-evolving travel patterns and labor market challenges, the Company continues to focus on better optimizing its route network, improving operational efficiency and reliability, and increasing Employee productivity.

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).

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.

These initiatives are designed to lower unit costs, as the Company is expected to be able to generate either the same number of available seat miles (“ASMs”) with fewer aircraft or produce more ASMs utilizing the same number of aircraft in its fleet.

These efforts are underway and are scheduled to be fully implemented by November 2025.

In addition, the Company is targeting other cost savings initiatives, including capitalizing on identified supply chain opportunities and improving its corporate efficiency through automation and better allocation of resources.

The Company focuses on minimizing fuel consumption and improving fuel efficiency through fleet modernization and other fuel initiatives.

For example, in 2023, the Company added 86 Boeing 737 MAX 8 (“-8”) aircraft to its fleet, with the goal of lowering operating costs, improving potential growth opportunities, restoring the Company's network to pre-pandemic levels, reducing carbon emissions per available seat mile, and further modernizing the Company's fleet with more fuel-efficient aircraft.

For example, in 2024, the Company added 22 Boeing 737 MAX 8 (“-8”) aircraft to its fleet, with the goal of lowering operating costs, improving potential growth opportunities, better optimizing the Company's network, reducing carbon emissions per ASM, and further modernizing the Company's fleet with more fuel-efficient aircraft.

Fuel and oil expense can be extremely volatile and unpredictable, and even a small change in market fuel prices can significantly affect profitability.

Although the Company’s jet fuel prices per gallon were slightly lower in 2023, as compared with 2022, they remain at high historical levels.

The Company’s Fuel and oil expense for 2023 increased compared with 2022, primarily due to increased gallons of fuel consumed, largely from increased trips.

Although the Company’s jet fuel prices per gallon were generally lower in 2024, as compared with 2023, they remain at high levels.

Fuel and oil expense remained the Company's second largest operating cost category for 2024.

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2023 $ 6,217 $ 2.89 24.0 %

2024 $ 5,812 $ 2.64 21.4 %

First Quarter 2024 $ 1,531 $ 2.92 22.8 %

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Fourth Quarter 2024 $ 1,264 $ 2.38 19.0 %

The Company’s fuel efficiency was aided in 2023, as compared with 2022, through the addition of 86 -8 aircraft to its fleet and by the retirement of 39 of its oldest, least fuel-efficient Boeing 737-700 (“-700”) aircraft.

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.

As of December 31, 2024, the Company had 245 -8 aircraft in its fleet.

The Company is also scheduled to begin receiving the Boeing 737 MAX -7 (“-7”) in 2024.

In fourth quarter 2023, 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 -7 aircraft (collectively, “MAX aircraft”).

Pursuant to the Supplements, the Company amended its order book delivery schedule to better allocate aircraft deliveries for orderly and measured growth, to extend its firm orders through 2031, and to add 108 firm orders and 108 MAX aircraft options.

The Company retired 39 Boeing -700 aircraft in 2023 and currently plans for 49 aircraft retirements in 2024.

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").

Pursuant to the Supplements, the Company amended its order book delivery schedule to better allocate aircraft deliveries to the Company’s network and capacity plans.

The Company held 180 remaining MAX options as of December 31, 2024, in addition to 492 firm orders of MAX aircraft to be delivered through 2031.

The Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts (e.g., through accelerated retirements of the Company's -700 aircraft) if growth opportunities do not materialize.

For further information regarding the Company’s aircraft contractual order

book see “Properties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The delivery schedule for the -7 is dependent on the Federal Aviation Administration (“FAA”) issuing required certifications and approvals to Boeing and the Company.

The Company previously announced plans to pursue opportunities to take advantage of current market conditions through the sale and/or sale-leaseback of certain aircraft, with the intention of replacing most, if not all, of such aircraft with new -8 and -7 aircraft from Boeing, at the favorable pricing available in the Company’s order book with Boeing, by the end of 2031, assuming that Boeing is able to meet aircraft delivery expectations.

During December 2024, the Company received gross proceeds of $871 million from the sale-leaseback of 35 aircraft (see Note 7 to the Consolidated Financial Statements for more details on the sale-leaseback transactions), which the Company expects to use in support of its capital allocation strategy, which includes funding future fleet modernization and providing Shareholder returns.

As a result of these efforts, the Company expects its net fleet capital expenditures during the near term to moderate significantly from recent levels, with the added benefit of further accelerating the modernization of the Company’s fleet.

For further information regarding the Company’s aircraft contractual order book see “Properties” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The delivery schedule for the -7 is dependent on the Federal Aviation Administration (“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.

The Company continues to undertake a number of other fuel conservation initiatives, which are discussed in detail under “Environmental Sustainability.”

The table below sets forth the Company's available seat miles produced per fuel gallon consumed (fuel-efficiency) over the last five years:

The table below sets forth the Company's ASMs produced per fuel gallon consumed (fuel-efficiency) over the last five years:

Year ended December 31,

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Available seat miles per fuel gallon consumed 80.8 79.5 77.3 79.2 81.3

The Company also enters into fuel derivative contracts to manage its risk associated with significant increases in fuel prices.

The Company has also entered into fuel derivative contracts to manage its risk associated with significant increases in fuel prices.

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.

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.

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The Company's ability to control labor costs is largely limited by the terms of its collective-bargaining agreements, and increased labor costs from recently ratified contracts and rate inflation have negatively impacted both the Company's low-cost structure and the overall airline industry’s costs.

During 2024, active full-time equivalent headcount decreased 2,356, or 3.1 percent, compared with year-end 2023, in an effort to right-size staffing to current operations.

The Company expects to continue these efforts in 2025 by minimizing hiring and improving corporate efficiency.

The Company's labor costs, and risks associated therewith, are discussed in more detail below under “Business—Employees,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Operational Disruption Action Plan

In late December 2022, the Company experienced a wide-scale operational disruption as historically extreme winter weather spread across a significant portion of the United States, impacting the Company’s operational plan and flight schedules.

After Winter Storm Elliott, the Company was challenged to realign flight crews, flight schedules, and aircraft for a period of several days during this peak demand travel period.

This disruption and subsequent recovery efforts resulted in the cancellation of more than 16,700 flights during the period from December 21 through December 31, 2022.

As discussed below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the December 2022 operational disruption had a significant negative impact on the Company’s results of operations in fourth quarter 2022 and first quarter 2023.

For first quarter 2023, these events created a deceleration in bookings, primarily isolated to January and February 2023, as well as increased expenses, primarily in the form of reimbursing Customers for costs incurred as a result of the flight cancellations.

Following these events, the Company conducted a thorough internal review, working with the Company's Board of Directors (the “Board”), and engaged respected aviation consulting firm Oliver Wyman for a third-party assessment.

To boost operational resiliency in key areas across the Company and to mitigate the risk of recurrence, the Company developed a three-part tactical action plan focused on improving winter operations, accelerating operational-related investments, and enhancing cross-team collaboration.

The Company’s action plan was released in March 2023 and key winter operations steps were completed as of October 2023.

Improve Winter Operations

During 2023, the Company reinforced its airport infrastructure, increased available equipment, and bolstered overall winter preparedness at key airports with the potential for severe winter weather.

The major initiatives included

increasing available equipment to manage the effects of winter weather, such as deicing trucks, deicing pads, and ground equipment;

storage capacity of deicing fluid at key airports;

and engine covers and heaters to protect aircraft and ground equipment in very low temperatures.

Additionally, the Company increased staffing across the network to support busy travel periods and to assist at airports where extreme cold requires rotating Employees working outside more frequently.

The Company also enhanced its winter operations training.

Further, the Company invested in tools and processes to support critical decision making during the winter season, such as improving its holdover capabilities (including introduction of a liquid water equivalent system to better gauge dynamic local weather conditions and provide more precise information for Pilots and Dispatchers) and refining ramp-cleaning procedures to better keep surfaces free of frozen precipitation.

Accelerate Operational Investments

Following the December 2022 operational disruption, the Company reprioritized its timeline for upgrading tools and technology expected to help recover operations faster during irregular operations.

During 2023, the Company completed multiple Crew technology enhancements, including upgrades to the software that reassigns Crews during disruptions and bolstered phone system call capacity to better handle large call volumes from both Flight Crews and Customers.

The Company is also improving the tool responsible for electronically notifying Flight Crews of their new flight assignments and allowing them to electronically acknowledge changes in their work plan.

Additionally, the Company is continuing to enhance the ways Customers stay informed about the location and status of their bags.

Enhance Cross-Team Collaboration

The Company has enhanced collaboration across its Teams and improved the tools and procedures to streamline communication and decision-making.

For instance, during 2023 the Company combined the Team who designs its flight schedule with the Team overseeing the network operations control in order to closely align network design and execution.

Further, the Company implemented enhanced real-time dashboards for increased visibility to better monitor the health of the network.

The Company also enhanced capabilities to alert, define, and escalate awareness of potential issues and established clearer lines of communication among the groups operating the airline.

Finally, the Company invested in new cross-collaboration processes and optimization tools focused on decision making associated with irregular operations adjustments.

While the Company completed the key items in its action plan, no assurance can be given that these efforts to boost operational resiliency in key areas across the Company will be successful in eliminating the risk of recurrence.

The Company continues to monitor and improve its operations, but it cannot ensure that the changes the Company has made, given the complexity of the airline network, would prevent significant operational disruptions in the future or allow the Company to perform as well as or better than its competitors.

See “ Risk Factors—Operational Risks” for additional information.

Fare Structure

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• “Wanna Get Away” fares are generally the lowest fares and are often subject to advance purchase requirements.

They are non-refundable, but, subject to Southwest’s No-Show Policy, flight credit for the fare paid for unused travel by the Customer (“flight credit”) may be applied towards future travel on

They are non-refundable, but, subject to Southwest’s No-Show Policy, flight credit for the fare paid for unused travel by the Customer (“flight credit”) may be applied towards future travel on Southwest.

Subject to Southwest’s No-Show Policy, Wanna Get Away fares also enable 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.

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For bookings through a Southwest Business (corporate travel) channel, a transfer may only be made to an employee of the same organization.

Subject to Southwest’s No-Show Policy, Wanna Get Away Plus 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.

Subject to Southwest’s No-Show Policy, Wanna Get Away Plus 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.

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 may be subject to advance purchase requirements.

• “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.

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Further, Anytime fares receive all of the benefits of Wanna Get Away Plus fares, including Transferable Flight Credit and same-day confirmed changes and standby.

• “Business Select” fares may be subject to advance purchase requirements.

• “Business Select” 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 this fare is purchased with non-refundable flight credit, then the resulting flight credit will be non-refundable if travel is canceled.

Business Select fares also include additional perks such as priority boarding with a boarding position in the first 15 boarding positions within boarding group “A,” 12 Rapid Rewards points per dollar spent on the base fare—the highest loyalty point multiplier of all Southwest fare products, one complimentary premium beverage coupon for the day of travel (Customers must be of legal drinking age to drink alcoholic beverages), and free Inflight Internet service on Wi-Fi enabled aircraft, where available.

Business Select fares also include additional perks such as priority boarding with a boarding position in the first 15 boarding positions within boarding group “A,” 12 Rapid Rewards points per dollar spent on the base fare—the highest loyalty point multiplier of all Southwest fare products, one complimentary premium beverage coupon for the day of travel on flights over 250 miles (Customers must be of legal drinking age to drink alcoholic beverages), and free inflight internet service, where available.

Business Select fares also receive all of the benefits of Anytime fares, including Priority Lane and Express Lane access through check-in and security lines where available, Transferable Flight Credit, and same-day confirmed changes and standby.

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In order to enhance and expand upon its already generous and flexible ticketing policies, the Company announced in July 2022 that flight credits will no longer expire.

The Company continues to expect that this policy change, combined with its other attractive brand attributes, will contribute to an increase in Customer loyalty.

Flight credits for non-refundable fares are issued as long as the reservation is cancelled more than ten minutes prior to the scheduled departure.

Flight credits or refunds for refundable fares are issued regardless of cancellation time.

Flight credits for non-refundable fa res are issued as long as the reservation is cancelled more than ten minutes prior to the scheduled departure.

Transferable Flight Credits or refunds for refundable fares are issued regardless of cancellation time.

Ancillary Services

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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).

In addition, A-List Preferred Members enjoy free inflight satellite internet service on WiFi-enabled aircraft, where available, and up to two complimentary premium drinks per flight on flights traveling 176 miles or more, added directly to their mobile boarding passes.

In addition, A-List Preferred Members enjoy free inflight internet service, where available, and up to two complimentary premium drinks per flight on flights traveling 250 miles or more, added directly to their mobile boarding passes.

Members who attain A-List or A-List Preferred status receive priority boarding privileges.

these Customers purchase travel at least 36 hours prior to flight time, they receive the best boarding position available (generally, an “A” boarding pass).

When these Customers purchase travel at least 36 hours prior to flight time, they receive the best boarding position available (generally, an “A” boarding pass).

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.

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The Member and designated Companion must travel together on the same flight.

In addition, the Company has announced that, beginning in early 2024, Members will be able to pay for their flights with a combination of cash and Rapid Rewards points—starting with as few as 1,000 points.

At launch, bookings paid for with a combination of points plus other forms of eligible payment will not earn Rapid Rewards points, tier qualifying points for A-List or A-List Preferred status, or Companion Pass qualifying points, but will earn tier qualifying segment credits.

In addition, since early 2024, Members are able to pay for their flights with a combination of cash and Rapid Rewards points—starting with as few as 1,000 points.

Bookings with flights completed before January 1, 2025, paid for with a combination of points plus other forms of eligible payment did not earn Rapid Rewards points, tier qualifying points for A-List or A-List Preferred status, or Companion Pass qualifying points, but did earn tier qualifying segment credits.

However, starting January 1, 2025, the cash portion of a cash plus points booking earns Rapid Rewards points, Rapid Rewards Business points, tier qualifying points for A-List or A-List Preferred status, and Companion Pass qualifying points.

During 2021, the Company added Rapid Rewards Business, giving businesses the ability to earn Rapid Rewards points.

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and (iii) strengthening the Company’s Rapid Rewards hotel, rental car, credit card, and other partnerships.

As part of the Company’s transformation initiatives announced in third quarter 2024, Southwest plans to update its Tier Benefits, giving A-List and A-List Preferred Members even better benefits, and has updated its credit card program to offer cardmembers more value through assigned seats and premium seating.

The Company also anticipates eventually providing Rapid Rewards Members more opportunities to earn and redeem points for longer-haul international destinations with the development of its airline partnerships and the evolution of its Getaways by Southwest product.

Year ended December 31,

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Investments in Customer Experience

In 2022, the Company announced its multi-year plan to modernize and transform the Customer Experience.

In 2022, the Company announced a multi-year plan to modernize and transform the Customer Experience.

These enhancements, expected to cost over $2 billion over a five-year period, include the Company’s plans to:

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During 2023, the Company completed the enhanced WiFi connectivity onboard its aircraft in order to improve WiFi speed, reliability, and bandwidth.

Its new -8 aircraft deliveries are equipped with latest-generation, upgraded WiFi hardware, and the Company completed its upgrade of the WiFi hardware on its existing fleet.

In late 2023, the

Company also began taking delivery of MAX aircraft with the latest-generation of onboard USB-A and USB-C power ports on every seat, with a space-saving system that maintains legroom.

Its new -8 aircraft deliveries are equipped with latest-generation WiFi hardware, and the Company completed its upgrade of the WiFi hardware on its existing fleet.

In late 2023, the Company also began taking delivery of MAX aircraft with the latest-generation of onboard USB-A and USB-C power ports on every seat, with a space-saving system that preserves legroom.

The Company is also installing the in-seat power ports onboard its existing MAX fleet.

Retrofits for in-seat power have begun and are occurring at a pace of approximately five aircraft per month with a goal of ramping up the pace in 2024, barring any additional supply chain issues.

Retrofits for in-seat power have begun and occurred at a pace of approximately 11 aircraft per month in 2024.

As of December 31, 2024, the Company had 164 aircraft with in-seat power.

Further, the Company's new -8 aircraft will come equipped with larger overhead bin space, which is expected to result in faster boarding, fewer gate checked bags, and a better Customer experience.

As of December 31, 2023, the Company had approximately 69 aircraft with larger overhead bins.

Further, the Company's new -8 aircraft will come equipped with larger overhead bin space, which is

expected to result in better operational metrics, fewer gate checked bags, and an improved Customer Experience.

As of December 31, 2024, the Company had approximately 91 -8 aircraft with larger overhead bins, and plans to retrofit the remainder of its -8 fleet, as well as its -800 fleet, with larger overhead bins, beginning in 2025.

Additionally, in 2024, the Company also announced a refreshed cabin design, which includes new and more comfortable RECARO seats.

Southwest has also invested in modernizing its airport spaces by installing new lobby signage, which is expected to facilitate self-service, enhance the overall visual appeal of the lobbies, and make Customers’ travel journey easier.

Southwest offers inflight entertainment and connectivity service on WiFi-enabled aircraft.

Southwest’s suite of complimentary offerings onboard WiFi-enabled aircraft includes movies-on-demand, messaging, music, live and on-demand television, a flight tracker, and more.

These enhanced free inflight entertainment offerings include over 125 free movies-on-demand each month and free app messaging via iMessage or WhatsApp.

Southwest offers inflight entertainment and connectivity service.

Southwest’s suite of complimentary offerings includes, where available, movies-on-demand, messaging, live and on-demand television, a flight tracker, and more.

The free inflight entertainment offerings include over 125 free movies-on-demand each month and free app messaging via iMessage or WhatsApp.

The television product consists of at least 13 live channels and approximately 70 on-demand recorded episodes from popular television series.

The inflight entertainment service allows Customers to enjoy gate-to-gate entertainment directly on their personal wireless devices.

While on WiFi-enabled aircraft, Customers can also purchase satellite internet service while A-List Preferred Members and Business Select Customers receive complimentary internet access.

Customers can also purchase satellite internet service while A-List Preferred Members and Business Select Customers receive complimentary satellite internet service.

Activating internet service gives Customers the ability to stream videos, complete work tasks, and browse social media.

Digital Hospitality, Southwest.com, and Direct to Customer Distribution Approach

In third quarter of 2024, the Company announced its “Southwest.

Even Better.” transformation plan to evolve and improve its Customer Experience.

The plan includes the Company’s intentions to:

• introduce assigned seating and premium seating options with extra legroom;

• evolve its boarding process;

• formalize partnerships with international carriers to expand its network, beginning with a partnership with Icelandair that is expected to launch on February 13, 2025 through Baltimore-Washington International Airport;

• launch a new Getaways by Southwest vacation product;

• enhance its Rapid Rewards program and benefits.

These initiatives stem from continued monitoring of Customer feedback, travel patterns, and preferences.

The introduction of assigned seating is intended to address changes in Customer travel frequency and preferences for a seat assignment, particularly as the Company has increased its proportion of longer-haul flights in light of reduced demand for short-haul travel.

Research indicates that a vast majority of both existing Southwest Customers and potential Customers prefer an assigned seat.

In addition to assigning seats, the Company plans to offer a premium, extended legroom portion of the cabin that research shows many Customers also prefer.

The Company also plans to evolve its boarding process with the introduction of assigned seating and premium seating options, maintaining the Company’s unique approach in boarding through position numbers and signage displayed on stanchions within the gate area.

The move to assigned and premium seating will be a significant undertaking by the Company.

In addition to incorporating new technologies and procedures for a seamless transition, the new cabin layout will require approvals from the FAA along with other regulatory agencies and vendor partners.

The Company expects to make assigned seat and extended legroom bookings available in the second half of 2025, with related flights occurring in the first half of 2026.

Getaways by Southwest

Beginning in 2025, the Company plans to offer Customers an in-house vacation package product called “Getaways by Southwest”, replacing the outsourced product Southwest has historically offered.

This new vacation booking platform is expected to allow the Company to appeal directly to its broad existing Customer base with an enhanced offering that includes both lodging and excursions, which is designed to drive growth with leisure travelers and grow higher-margin revenues.

Distribution and Marketing Approach

The Company primarily offers its fare products directly to Customers through its Internet website, Southwest.com ® , and the Southwest App.

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This “direct to Customer” distribution approach has historically provided a cost advantage for the Company because it eliminates fees associated with the use of third-party distribution channels such as third-party online travel platforms.

The Company augments its direct to Customer distribution approach by offering a broad suite of digital platforms to support Customers' travel needs, including full featured websites and apps.

In light of changing travel patterns post-pandemic, in 2024 the Company focused on attracting new and less frequent Customers, in part, through new distribution channels and the launching of new ad campaigns.

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.

In April 2024, the Company launched “The Big Flex”:

a bold new brand marketing campaign showcasing the Company’s fun-loving personality and flexible and Customer-friendly policy points of difference on every fare, everywhere.

The campaign highlights choice and flexibility for the Company’s Customers delivered with the Hospitality for which the Company is famous.

Additionally, in May 2024, the Company launched “Wanna Go Wednesdays” on Southwest.com, a new weekly program that allows Customers to book the latest low fares on routes that are still available for last minute bookings.

The Company also invested in technology to support artificial intelligence ("AI")-based marketing efforts and more personalized marketing capabilities throughout 2024.

The Company supports its distribution approach by offering a broad suite of digital platforms to support Customers' travel needs, including full featured websites and apps.

These digital platforms help Customers book and manage their Southwest air travel and facilitate the purchase of the Company’s ancillary products, including Fare Upgrades, EarlyBird Check-In, Upgraded Boarding, vacation packages, rental car reservations, hotel reservations, and travel activities.

In addition, the digital platforms provide self-service tools for trip management and Customer support.

Digital Hospitality

The Company is committed to its goal of widening its Customer Service advantage by enhancing digital Hospitality.

The Company is amid a multi-year digital service modernization program designed to, among other things, provide better Customer Service at a lower cost.

Key focus areas of the digital service modernization program include contact center service modernization, airport service modernization, and disruptions management.

In 2023, the Company activated multiple digital service improvements including, among others, digital standard bag check-in, digital bag tracking, digital baggage claims, same-day self-service flight changes with support for free changes for premium fares and tier members on eligible trips, split booking capability, improved self-service rebooking options, improvements to the flight cancellation experience, improved flight status messaging, digital refund capabilities for cancellations, and return trip e-mail reminders.

The Company’s digital Help Center, Travel Advisory Center, and trip communications capabilities also underwent optimization to better prepare Customers for using the Company’s products and services.

The Company made improvements to trip messaging channels and activated a robust in-app messaging strategy, all of which now leverage more personalized data for increasing relevant trip communications to better provide airport and Customer specific trip information.

The Company also continues to explore and pursue generative artificial intelligence (“AI”) capabilities with a goal to improve Customer service and to drive lower cost while exceeding Customers’ Hospitality expectations.

In 2023, the Company experienced significantly fewer (i) contact center calls per flight and (ii) airport lobby transactions, each as compared with 2019, as well as strong app utilization on the day of travel.

These improvements helped reduce contact per trip in 2023 versus 2019.

Lobby autonomy, a measure of self-service efficiency at the airport, increased in 2023 versus 2019.

Key focus areas of the digital service modernization program include contact center service modernization, airport service modernization, Customer Service communications, and disruptions management.

In 2024, the Company implemented digital enhancements to empower Customer self-service and provide more efficient Customer Service.

Key updates included a revamped Help Center, an expanded chatbot for improved information access, and enhanced disruption management tools (such as options to rebook or cancel flights and access nearby airports).

In compliance with new DOT regulations, Southwest introduced automated ancillary refunds for canceled flights, additional flight rebooking flexibility for applicable schedule adjustments, and improved content to clearly communicate Customer options.

The Company added additional Customer Service capabilities, including improved error messaging for increased clarity and actionable options for Customers, improved booking options when booking trips with youth travelers on mobile devices, increased passenger capacity per reservation, self-service features that enable self-management of companion designations, inbound flight tracking, and increased travel flexibility with improved standby booking options for connecting flights.

In 2024, the Company introduced generative AI capabilities and automation tools with a goal to improve Customer Service, increase efficiency, and drive lower cost while exceeding Customers’ Hospitality expectations.

The Company continues to test the effectiveness of generative AI capabilities across the Customer journey.

During 2024, as a result of these efforts, the Company experienced fewer contact center calls per trip, while increasing app utilization on the day of travel, each as compared with 2023.

The Company’s digital service modernization program is expected to continue to deliver additional enhancements and efficiencies in 2025.

The Company also continues to improve digital revenue generating capabilities.

The Company activated a robust suite of optimizations designed to improve product performance for air sales, Upgraded Boarding, EarlyBird Check-In, and other ancillary products such as Cars, Hotels, and Vacations.

In 2023, the Company added, among other things, free Inflight Internet benefits for Business Select fares, up to two free drinks for A-List Preferred Customers with digital drink coupons on flights of 176 miles or more, free same-day standby travel for Wanna Get Away fares subject to conditions, nearby airport digital shopping capabilities, an improved digital route map with price points, overnight connection flight options, improved low fare promotion capabilities in the app, improved awareness of Buy Now Pay Later capabilities, a redesigned and improved Special Offers section, an enhanced push messaging marketing strategy, automated Rapid Rewards monthly statements, improved Rapid Rewards marketing content, improvements to account management, and more prominent Southwest Business brand awareness.

The Company also invested in new technology to support AI-based marketing efforts and more personalized marketing capabilities.

The Company continues to enhance digital revenue-generating capabilities through strategic investments and innovations.

The Company deployed a comprehensive suite of optimizations designed to improve product performance across air sales and ancillary offerings, including Upgraded Boarding, EarlyBird Check-In, Cars, Hotels, and Vacations.

These efforts are designed to drive incremental revenue while enhancing the Customer Experience.

The Company has made significant advancements in marketing automation, particularly on the mobile app.

Generative AI-powered copy testing has been introduced to refine marketing messages and optimize conversion rates, yielding increased sales per marketing effort.

The Company has also implemented enhanced Rapid Rewards acquisition techniques, promotional text message campaigns, increased push messaging marketing, and improved co-brand acquisition strategies to drive Customer engagement and loyalty.

The Company continues to test ongoing improvements to its digital shopping and booking experience to further increase fare upsells and booking conversion effectiveness.

Further, the Company has expanded its offerings to include overnight connection flight options, enhanced Rapid Rewards marketing content, and added the ability for Customers to pay for flights using cash plus points.

Improvements to account management tools underscore the Company’s commitment to meeting diverse customer needs and growing its market presence.

Southwest Business ® Initiatives

In addition to improvements in the Company's consumer-direct Southwest.com channel of distribution, 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.

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.

The Company employs a multi-channel distribution strategy for its corporate business travel, offering the ability for business travelers and travel decision makers to book Southwest fares within all major Global Distribution System platforms via Amadeus, Travelport, and Sabre channels, through third-party partners directly connected to the Company's host reservation system, or through the Company’s free corporate online booking tool, SWABIZ®.

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The Company also utilizes ATPCO Routehappy to provide detailed product information that supports robust shopping and selling processes in third-party booking channels.

In 2023, the Company launched Southwest Business Meetings, a new product for its corporate Customers that is designed to make it easier for meeting planners to manage travel on Southwest by streamlining the process to book group travel for meetings and conventions.

In 2022, the Company launched its new travel portal, Southwest Business Assist™.

The self-service tool enables corporate travel buyers, travel decision makers, and travel management companies to better manage their business travel on Southwest using dashboards, reports, automated processing of travel benefits, and Customer Service.

The Company offers Southwest Business Meetings, a product for its corporate Customers that is designed to make it easier for meeting planners to manage travel on Southwest by streamlining the process to book group travel for meetings and conventions.

In late 2024, the Company beta-launched a new group travel tool, Southwest Groups, designed to bring many self-service features to travel managers in early 2025.

The Company also offers Southwest Business Assist™, a travel portal that enables corporate travel buyers, travel decision makers, and travel management companies to better manage their business travel on Southwest using dashboards, reports, automated processing of travel benefits, and Customer Service.

The on-demand self-service tool provides access to real-time information and reporting.

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SWABIZ is designed for business Customers who prefer a self-service and low-cost solution for booking their air travel on Southwest.

The site also facilitates car and hotel bookings.

The site also facilitates car and hotel bookings and offers a suite of reports for travel managers.

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.

Technology Initiatives

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The Company has committed, and plans to continue to commit, significant resources to technology improvements in support of its ongoing operations and initiatives.

introduced Customer bag tracking, enhanced Customer digital self-service capabilities, and launched Southwest Business Meetings.

During 2022, among other things, the Company added technology for (i) a new fare product launch;

During 2024, among other things, the Company (i) replaced its legacy flight planning system;

(ii) expanded its distribution channels via multiple search engine partnerships;

(iii) improved communication tools for Employees;

(iv) delivered better visual and real-time information to assist both Customers and Employees;

(v) leveraged AI to expedite support and call resolution time for Customer Service agents;

(iv) worked towards moving to a fully digital (i.e., paperless) turn process;

and (v) enabled Rapid Rewards Members to pay for their flights with a combination of cash and Rapid Rewards points.

During 2023, among other things, the Company invested in technology and tools that are expected to enhance resiliency and improve its recovery during irregular operations, implemented a new revenue management system, introduced Customer bag tracking, enhanced Customer digital self-service capabilities, and launched Southwest Business Meetings.

During 2022, the Company added technology for (i) a new fare product launch;

(ii) a new human resources and payroll system;

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and (iv) enhanced cyber controls and monitoring.

During 2021, the Company achieved the significant milestone of getting all its aircraft into a single system for aircraft maintenance and record-keeping.

The Company continues to invest significantly in technology resources including, among others, the Company's systems related to (i) flight planning and scheduling designed to improve operating efficiency;

(ii) daily flight schedule management designed to improve fleet utilization at lower incremental costs;

(iii) aircraft turn capabilities designed to improve operating efficiency;

(iv) crew mobility and scheduling designed to improve operating quality and resiliency;

(v) foundational operating systems;

(vi) ancillary products, including vacation packages;

(vii) financial planning;

(viii) Customer Service Agent mobility;

(ix) technology infrastructure and cybersecurity;

(x) digital Customer Service modernization;

and (xi) and Customer bookings using a combination of cash and Rapid Rewards points.

The Company continues to invest significantly in technology resources including, among others, the Company's systems related to (i) new assigned seating, premium seating, and boarding processes;

(ii) industry standard interline and codeshare capabilities;

(iii) 24-hour operations;

(iv) flight planning and scheduling designed to improve operating efficiency;

(v) daily flight schedule management designed to improve fleet utilization at lower incremental costs;

(vi) aircraft turn capabilities designed to improve operating efficiency;

(vii) crew mobility and scheduling designed to improve operating quality and resiliency;

(viii) foundational airline operating systems;

(ix) ancillary products, including vacation packages such as the announced Getaways by Southwest platform;

(x) financial planning;

(xi) Customer Service Agent mobility;

(xii) technology infrastructure and cybersecurity;

and (xiii) digital Customer Service modernization.

The move to assigned and premium seating, airline partnerships, and 24-hour operations represent significant undertakings by the Company and will require the incorporation of new technologies and procedures for a seamless transition.

Environmental Sustainability

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Over the years, the Company has undertaken a number of initiatives that have a direct impact on its fuel conservation and emissions-related reduction efforts, such as the following:

• introduction of the MAX aircraft into the Company's fleet, which is more fuel-efficient and releases fewer CO₂ emissions per available seat mile than the Company's previous generation of 737 aircraft;

• introduction of the MAX aircraft into the Company's fleet, which is more fuel-efficient and releases fewer CO₂ emissions per ASM than the Company's previous generation of 737 aircraft;

• installation of winglets, which reduce drag and increase fuel efficiency, on all aircraft in the Company's fleet;

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• implementation of fuel planning initiatives to safely reduce loading of excess fuel;

• retrofitting of aircraft cabin interiors to reduce weight;

• implementation of procedures to reduce aircraft engine idle speed while on the ground, which also increases engine life;

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The Company participates in Required Navigation Performance (“RNP”) operations as part of the FAA's Performance Based Navigation program, a key component of the Next Generation Transportation System (“NextGen”), which is intended to modernize the U.S.

air traffic system by addressing limitations on air

transportation capacity and making more efficient use of airspace.

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 emissions.

RNP approaches, which are published by the FAA, are currently available at 66 of the airports Southwest serves.

The Company's use of RNP approaches is currently limited, and it continues to work with the FAA to develop and seek more use of RNP approaches and to evolve air traffic control rules to support greater utilization of RNP.

air traffic system by addressing limitations on air transportation capacity and making more efficient use of airspace.

RNP approaches, which are published by the FAA, are currently available at a limited number of the airports Southwest serves, but the Company continues to work with the FAA to develop and seek more use of RNP approaches and to evolve air traffic control rules to support greater utilization of RNP.

In 2021, the Company announced near- and long-term environmental sustainability goals, in addition to a series of actions and initiatives designed to assist the Company in achieving these goals.

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and (iv) technological innovation.

During 2022, the Company invested in SAFFiRE Renewables, LLC (“SAFFiRE”), a company formed by D3MAX, LLC, as part of a Department of Energy (“DOE”)-backed project to develop and produce scalable SAF.

Funded with a DOE grant matched by the Company's investment, SAFFiRE intends to utilize technology developed by the DOE's National Renewable Energy Laboratory to convert corn stover, a widely available waste feedstock in the United States, into renewable ethanol that then would be upgraded into SAF.

During 2023, the Company formed Southwest Airlines Renewable Ventures LLC, a wholly owned subsidiary of the Company, to manage its investment in SAFFiRE and engage in other similar activities in support of the Company's SAF goals, initiatives, and strategies.

As part of its commitment to corporate sustainability, the Company has published the Southwest One Report describing the Company's environmental sustainability goals, actions, initiatives, and strategies, which include the foregoing and other efforts to address greenhouse gas emissions and other environmental matters such as energy and water conservation, waste minimization, and recycling.

As part of its corporate sustainability efforts, the Company has published the Southwest One Report describing the Company's environmental sustainability goals, actions, initiatives, and strategies, which include the foregoing and other efforts to address GHG emissions and other environmental matters such as energy and water conservation, waste minimization, and recycling.

Information contained in the Southwest One Report is not incorporated by reference into, and does not constitute a part of, this Form 10-K.

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Regulations affecting the Company and/or the airline industry that have been or may be imposed by several of these governmental agencies and legislative bodies include, but are not limited to, those discussed below.

In 2024, Congress is expected to enact an FAA Reauthorization bill.

This major piece of legislation could result in new regulatory mandates and/or tax increases imposed on airlines.

This bill is also likely to be a vehicle for Congress to address issues related to the operations and modernization of the air traffic control system;

the federal government’s regulatory oversight of airlines, airline manufacturers, and other aviation stakeholders (including directing one or more federal agencies to promulgate new rulemakings);

and long-term work force issues affecting pilots, aviation mechanics, and air traffic controllers.

In May 2024, Congress enacted the FAA Reauthorization Act of 2024 (the “2024 Reauthorization Act”).

This statute authorizes funding for the FAA through federal fiscal year 2028 and provides direction to various FAA and DOT offices and programs over the next several years.

The 2024 Reauthorization Act resulted in changes in federal law that will impact commercial air carriers.

For example, the 2024 Reauthorization Act mandates that the DOT or the FAA promulgate numerous new rulemakings (or standards setting actions), including:

(i) rulemakings regarding

passenger accessibility, including training, aircraft accessibility, airport announcements and communications, and online portal accessibility, and (ii) mandates for the FAA, including for flight data recovery from overwater operations, modernization and improvements to aircraft evacuations, minimum qualifications for overseas mechanics working on U.S.

registered aircraft, crewmember self-defense training, cybersecurity, and cabin air safety.

Some notable rulemakings and a summary of other major initiatives being pursued by the DOT and the FAA related to the airline industry are described below.

With the change of presidential administrations in January 2025, it is unclear which of these initiatives will be fully implemented, and whether the DOT, the FAA, and other agencies will pursue new initiatives for regulating airlines.

Economic and Consumer Protection Regulation

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Department of Transportation

Department of Transportation (“DOT”) regulates economic operating authority for air carriers and consumer protection for airline passengers.

The DOT may take legal enforcement action against air carriers for violating their statutes or regulations by imposing civil penalties up to $40,272 per occurrence.

The DOT regulates economic operating authority for air carriers and consumer protection for airline passengers.

The DOT may take legal enforcement action against air carriers for violating the DOT’s statutes or regulations by imposing civil penalties up to $75,000 per occurrence.

In January 2023, the DOT issued a notice stating that, going forward, it intends to seek higher civil penalties, and the DOT’s recent enforcement actions have reflected significant increases in the level of civil penalties assessed for violations.

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.

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The DOT's consumer protection and enforcement authority is derived primarily from a federal statutory prohibition on “unfair or deceptive practices or unfair methods of competition” by air carriers.

A new DOT rule took effect in January 2021, codifying the definitions for the terms “unfair” and “deceptive” in the DOT’s regulations by adopting the definitions used by the Federal Trade Commission, and amending and clarifying the procedures the DOT will follow when engaging in aviation consumer protection rulemaking and enforcement.

The purpose of this new rule is to help establish clear and consistent criteria for unfair or deceptive practices while aligning DOT’s oversight of aviation entities with other government agencies’ oversight of other sectors of the economy regarding unfair or deceptive practices.

In January 2021, the DOT codified the definitions for the terms “unfair” and “deceptive” by adopting the definitions used by the Federal Trade Commission and amended and clarified the procedures the DOT will follow when engaging in aviation consumer protection rulemaking and enforcement.

The purpose of this rule is to help establish clear and consistent criteria for unfair or deceptive practices while aligning the DOT’s oversight of aviation entities with other government agencies’ oversight of other sectors of the economy regarding unfair or deceptive practices.

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.

For example, under the DOT's tarmac delay rule and subject to limited exceptions, air carriers must not allow an aircraft to remain on the tarmac for more than 3 hours (for domestic delays) or more than 4 hours (for international delays), without allowing passengers to deplane.

In addition, the Passenger Protection Rules require airlines to (i) display ontime performance on their websites;

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(vi) pay compensation to each passenger denied boarding involuntarily from an oversold flight;

(vii) refund any checked bag fee for permanently lost luggage;

(viii) prominently disclose all potential fees for optional ancillary services on their websites;

and (ix) refund passenger fees paid for ancillary services if a flight cancels or oversells and a passenger is unable to take advantage of such services.

and (vii) prominently disclose all potential fees for optional ancillary services on their websites.

The Passenger Protection Rules also require that (i) advertised fares include all government-mandated taxes and fees;

(ii) passengers be allowed to either hold a reservation for up to 24 hours without making a payment or cancel a paid reservation without penalty for 24 hours after the reservation is made, as long as the reservation is made at least seven days in advance of travel;

(ii) passengers be allowed to either hold a reservation for up to 24 hours without making a payment or cancel a

paid reservation without penalty for 24 hours after the reservation is made, as long as the reservation is made at least seven days in advance of travel;

(iii) fares may not increase after purchase;

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and (vii) passengers must be promptly notified in the event of delays of more than 30 minutes or if there is a cancellation or diversion of their flight.

As discussed below, in 2024, the DOT may finalize two new passenger protection rules for which the DOT initiated rulemakings in 2022.

The Company does not expect either proposed rule, if finalized, to have a significant impact on the Company given its existing policies and practices with respect to refunds, travel credits, and critical ancillary services.

First, the DOT may finalize its proposed rule on refunds of airline tickets and unused ancillary fees.

The anticipated final rule would codify existing guidance that requires air carriers and ticket agents to provide requested refunds to passengers when a carrier cancels or significantly changes a flight to, from, or within the United States.

According to the DOT, this rulemaking would also (a) clarify that the refunds must be prompt;

(b) provide definitions of “cancellation” and “significant change;” (c) address protections for consumers who are unable to travel due to government restrictions;

(d) require airlines to refund checked baggage fees when the airline fails to deliver the bags in a timely manner;

and (e) require airlines to promptly provide a refund to a passenger of any ancillary fees paid for services that the passenger did not receive.

Second, the DOT may finalize its proposed rule on enhancing the transparency of airline ancillary fees.

The DOT may issue a final rule to amend its aviation consumer protection regulations to require that consumers have ancillary fee information, including baggage fees, change fees, cancellation fees, and seat fees that impact families traveling with children at the time of ticket purchase.

The final rule may require fees for certain ancillary services to be disclosed at the first point in a search process where a fare is listed, rather than on the purchase page.

The DOT may also initiate two new rulemakings on topics related to passenger protections in 2024.

First, the DOT has announced that it plans to initiate rulemaking on family seating in air transportation.

The potential rule would require airlines to seat children aged 13 and under adjacent to an accompanying adult at no additional cost, subject to limited conditions.

Second, the DOT may initiate new rulemaking to codify the amenities that airlines must provide when there is a cancellation or significant delay that is caused by factors “within the airline’s control.” The proposed rule may require U.S.

and foreign air carriers to adopt and adhere to customer service plans identifying essential services (e.g., meals, rebooking, hotel, and transportation to or from hotel).

In addition, the proposed rule may also require air carriers to provide cash compensation to mitigate passenger inconveniences when the cause of a cancellation or delay for flights to, within, and from the United States, was due to circumstances within the airline's control.

The DOT also has statutory authority to prohibit discrimination by airlines against consumers on the basis of (i) disability;

and (ii) race, religion, national origin, sex, or ancestry.

On August 1, 2023, the DOT finalized its rule on accessible lavatories.

The rule requires airlines to have one accessible (larger) lavatory on new narrow-body aircraft in the future.

Air carriers must comply with these measures with respect to new aircraft that the air carrier operates that were (i) originally ordered after October 3, 2033, (ii) delivered after October 2, 2035, or (iii) are part of a new type-certificated design filed with the FAA or a foreign carrier’s safety authority after October 2, 2024.

In 2024, the DOT was active in airline consumer protection, proposing or finalizing several new rules.

For example, the DOT finalized a new rule addressing airline ticket refunds which is in effect and being implemented by the Company and other airlines.

The rule requires airlines to provide a full ticket refund, which may include ancillary fees in addition to the base fare, if a passenger chooses not to accept a rebooking following a cancellation or significant delay.

The DOT also finalized a new rule designed to enhance protections for passengers who use wheelchairs and assistive devices.

The DOT has also issued a new final rule related to when and how air carriers must disclose ancillary service fees.

The final rule was scheduled to take effect on July 1, 2024.

However, in May 2024, various airlines and airline associations challenged the rule in federal court, and the U.S.

Court of Appeals for the Fifth Circuit stayed the final rule.

Additionally, in August 2024, the DOT issued a proposed rule on family seating that would require U.S.

and foreign air carriers to seat children aged 13 and under adjacent to at least one accompanying adult at no additional cost beyond the fare, subject to limited exceptions.

This rule is pending, but as of January 28, 2025, is subject to the Executive Order “Regulatory Freeze Pending Review.”

In December 2024, the DOT issued a preliminary proposed rule on airline passenger rights.

The DOT was soliciting comments on whether, in the event of a significant flight disruption due to causes within an airline’s control, airlines should be required to provide passengers with a graduated level of cash compensation, free rebooking, and amenities such as meals, lodging for overnight delays, and transportation to and from lodging.

As of January 28, 2025, this proposed rule is subject to the Executive Order “Regulatory Freeze Pending Review.”

The DOT additionally has statutory authority to prohibit discrimination by airlines against consumers on the basis of (i) disability and (ii) race, color, religion, national origin, sex, or ancestry.

In August 2023, the DOT finalized its rule on accessible lavatories.

The rule requires airlines to have one accessible (i.e., larger) lavatory on new narrow-body aircraft going forward.

Specifically, air carriers must comply with these measures with respect to new aircraft that an air carrier operates that are (i) originally ordered after October 3, 2033, (ii) delivered after October 2, 2035, or (iii) part of a new type-certificated design filed with the FAA or a foreign carrier’s safety authority after October 2, 2024.

The new rule does not require a retrofit of existing aircraft.

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The statutory authority for the federal government to collect most types of aviation taxes, which are used, in part, to finance programs administered by the FAA, must be periodically reauthorized by the U.S.

The FAA Reauthorization Act of 2018 (the “2018 Reauthorization Act”) extended most commercial aviation taxes through September 30, 2023.

As of January 2024, Congress has passed a series of short-term extensions of these taxes as it works to enact a multi-year FAA Reauthorization bill.

The two principal FAA-related taxes that need to be reauthorized periodically are the 7.5% excise tax (applied to the base fare of an airline ticket as well as any mandatory passenger fees charged by the airline) and the domestic segment tax ($4.80 per passenger segment).

The domestic segment tax, as well as the international arrival/departure tax, are annually adjusted for inflation by the Internal Revenue Service.

In addition to FAA-related taxes, there are additional federal taxes related to the U.S.

The 2024 Reauthorization Act extended, but did not modify, most commercial aviation taxes through September 30, 2028.

This includes the two principal FAA-related taxes paid by airline consumers when purchasing an airline ticket:

(i) the 7.5% excise tax (applied to the base fare of an airline ticket as well as any mandatory passenger fees charged by the airline) and (ii) the domestic segment tax ($5.00 per passenger segment), capped at two segments each way.

The domestic segment tax is adjusted annually for inflation by the Internal Revenue Service.

Air carriers also directly pay the commercial jet fuel tax (4.3 cents per gallon).

In addition to FAA-related taxes, there are federal taxes related to the U.S.

Department of Homeland Security.

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Congress has set the Transportation Security Fee paid by passengers at $5.60 per one-way passenger trip originating in the United States.

In addition, international

passengers arriving in the United States are subject to U.S.

immigration and customs fees that are indexed to inflation.

Additionally, international passengers arriving in the United States are subject to U.S.

immigration and customs fees that are indexed to

These fees are used to support the operations of U.S.

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The maximum PFC is $4.50 per passenger enplanement.

New or higher aviation taxes or user fees (including but not limited to the PFC), as well as new legislative mandates, may be imposed by Congress.

One major piece of legislation that Congress is expected to address in 2024 is FAA reauthorization.

Congress is expected to pass an FAA reauthorization bill in 2024.

This legislation could be the vehicle for increases in one or more of the taxes and fees discussed above, as well as new mandates on the DOT, FAA, and/or the Transportation Security Administration (the “TSA”) to begin or complete rulemakings that could impact airline operations and/or finances.

New or higher aviation taxes or user fees on air carriers and/or their customers may be imposed by Congress at any time, including during Congress’s anticipated consideration of comprehensive budget and tax legislation in 2025.

Operational and Safety Regulation

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In response, the FAA could impose temporary flight restrictions until the agency believes any safety concerns are resolved.

The FAA could also require mitigations from aircraft operators (e.g., aircraft retrofits) as a means to avoid any potential interference.

The FAA could also require mitigations from aircraft operators (e.g., aircraft retrofits) to avoid any potential interference.

With respect to airline operations, the FAA has rules in effect with respect to crew flight, duty, and rest times.

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and (iii) impose pilot “flight time” and "duty time” limitations based upon report times, the number of scheduled flight segments, and other operational factors.

The FAA has established flight attendant duty period limitations and rest requirements based on the length of a flight attendant’s scheduled duty period, number of flight attendants assigned to a flight, and other operational factors.

On October 12, 2022, the FAA finalized new rules requiring that flight attendants scheduled to a duty period of 14 hours or less be given a scheduled rest period of at least 10 consecutive hours and that the rest period is not reduced under any circumstances.

Previous rules required a scheduled rest period of at least nine consecutive hours, and allowed for a reduction to eight consecutive hours under certain circumstances.

In anticipation of the final rules, the Company voluntarily implemented the new minimum rest requirements on July 1, 2022.

On June 14, 2023, the FAA finalized a new rule requiring that airlines have an installed physical secondary barrier to provide additional protection against unauthorized access to an aircraft’s flight deck.

The FAA’s final rule provides a two-year compliance period from the effective date after which any transport category airplane

manufactured and used in regularly scheduled passenger-carrying operations would be required to have installed physical secondary barrier meeting the requirements of the rule.

Compliance with the rule could impose substantial costs on the Company.

The 2018 Reauthorization Act contains provisions directing the FAA to examine whether to issue new regulations establishing minimum dimensions for seat size based on safety considerations.

In August 2022, the FAA began soliciting stakeholder comments on the topic.

The FAA has imposed similar duty and rest time requirements for flight attendants.

The FAA also manages the nation’s air traffic control (“ATC”) system, a major focus of the 2024 Reauthorization Act.

The congressional appropriations committees, as well as FAA leadership are addressing persistent shortages of fully licensed and trained air traffic controllers.

Controller shortages at key FAA-managed ATC facilities have been the cause of air carrier delays and cancellations, especially when controller shortages are combined with severe weather in places like Florida and the New York/New Jersey/Philadelphia corridor.

Moreover, the increase in commercial space operations in some areas of the country and the expected introduction of advanced air mobility aircraft, could further degrade the FAA’s ability to provide consistently efficient and reliable ATC services.

The FAA is also the safety regulator of airplane manufacturers and oversees the aircraft certification process.

The certification of the -7 is stalled due in part to the FAA’s heightened oversight of aircraft manufacturers and control over the aircraft certification process.

The FAA’s oversight of the Company’s original equipment manufacturers and the rate of production of new planes are outside of the Company’s control.

In June 2023, the FAA finalized a new rule requiring that airplane manufacturers install a physical secondary barrier between the aircraft’s flight deck and cabin in order to provide additional protection against unauthorized access to the flight deck.

The final rule provided a two-year compliance period through August 25, 2025, after which a physical secondary barrier meeting the requirements of the rule is required for any transport category airplane manufactured and used in regularly scheduled passenger-carrying operations.

Compliance with this rule could impose substantial costs on the Company.

Per the 2024 Reauthorization Act, the FAA convened an Aviation Rulemaking Committee (“ARC”) in the fall of 2024 to explore additional requirements to retrofit a secondary barrier on existing mainline airliners.

Depending on the ARC’s recommendations, the FAA may initiate rulemaking on a retrofit mandate in 2025, which could apply to the Company’s current fleet.

In addition, the 2024 Reauthorization Act, like the FAA Reauthorization Act of 2018, contains provisions directing the FAA to examine whether to issue new regulations establishing minimum dimensions for seat size based on safety and evacuation considerations.

Since 2022, the FAA has examined the issue and solicited stakeholder feedback on the topic.

The FAA has not yet issued a proposed rule.

If the FAA issues a rule with minimum dimensions that exceed the Company’s current seat dimensions, the Company could incur substantial compliance costs.

Further, the 2018 Reauthorization Act expanded human trafficking training requirements beyond flight attendants to include several public-facing Employee work groups, as well as requires air carriers to implement a plan and develop training with protocols for preventing and responding to verbal or physical assault committed against customer service agents.

Human trafficking training is required for the Company’s frontline Employees and recommended as voluntary curriculum for other Employees.

The Company has also implemented an Employee Assault Prevention and Response Plan that includes training to de-escalate hostile situations, written protocols for dealing with hostile situations, and reporting of relevant incidents to appropriate authorities.

During 2023, the Company implemented the Southwest Airlines Combating Trafficking in Persons Compliance Plan reflecting the Company's strong commitment to anti-human trafficking priorities.

In addition to its role as safety regulator, the FAA operates the nation’s air traffic control system and has continued its lengthy and ongoing effort to implement a multi-faceted, airspace modernization program, NextGen.

In addition to its day-to-day management of the nation’s air traffic control system, the FAA has continued its lengthy and ongoing effort to implement a multi-faceted, airspace modernization program, NextGen.

According to the U.S.

government, NextGen will help contribute to a safer, more efficient, and more predictable system, which may potentially contribute to reduced fuel burn, emissions, and noise.

government, once fully implemented, NextGen is expected to improve airspace capacity and contribute to a safer, more efficient, and more predictable system, which may potentially contribute to reduced fuel burn, emissions, and noise.

As part of the NextGen initiative, in 2010 the FAA published rules requiring most commercial aircraft operating in the national airspace system to be equipped with Automatic Dependent Surveillance - Broadcast (“ADS-B”) technology by January 1, 2020.

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government announced an Aviation Climate Action Plan to reduce emissions by, among other initiatives and efforts, operationalizing NextGen to realize the full potential of modernized infrastructure and systems, and enhancing data quality and information distribution to enable operators to fly more fuel-efficient trajectories.

However, with the new presidential administration, this initiative may be postponed.

The Air Traffic Organization (“ATO”) is the operational arm of the FAA.

The ATO is responsible for providing safe and efficient air navigation services to all of the United States and large portions of the Atlantic and Pacific Oceans and the Gulf of Mexico.

The ATO is responsible for providing safe and efficient air navigation services to all of the United States and large portions of the Atlantic and Pacific Oceans.

The Company is subject to any operational changes imposed by the FAA/ATO as they relate to the NextGen program, as well as the day-to-day management of the air traffic control system.

Passenger and Occupational Health Regulation

The Company is subject to various other federal, state, and local laws and regulations relating to health and occupational safety, including Department of Health and Human Services, Centers for Disease Control and Prevention (“CDC”), Occupational Safety and Health Administration, and Food and Drug Administration regulations.

The Company is subject to various other federal, state, and local laws and regulations relating to health and occupational safety, including Department of Health and Human Services, Centers for Disease Control and Prevention, Occupational Safety and Health Administration, and Food and Drug Administration regulations.

In response to the COVID-19 pandemic, federal, state, and local government authorities implemented directives, orders, and regulations intended to mitigate the spread of the virus, and in response, the Company modified its practices, policies, and procedures, as appropriate.

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Security Regulation

Pursuant to the Aviation and Transportation Security Act (“ATSA”), the TSA, a federal agency of the U.S.

Department of Homeland Security, is responsible for certain civil aviation security matters.

ATSA and subsequent TSA regulations and procedures implementing ATSA and related statutes address, among other things, (i) flight deck security;

Pursuant to the Aviation and Transportation Security Act (“ATSA”), the Transportation Security Administration (“TSA”), a federal agency of the U.S.

Department of Homeland Security, is responsible for certain civil aviation

security matters.

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;

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(vii) provision of passenger data to CBP;

and (viii) background checks.

Under ATSA, substantially all security officers at airports are federal employees, and significant other elements of airline and airport security are overseen and performed by federal employees, including federal security managers, federal law enforcement officers, and federal air marshals.

(viii) background checks;

and (ix) certain cybersecurity requirements.

Under the ATSA, substantially all security officers at airports are federal employees, and significant other elements of airline and airport security are overseen and performed by federal employees, including federal security managers, federal law enforcement officers, and federal air marshals.

TSA personnel and TSA-mandated security procedures can affect the Company's operations, costs, and Customer Experience.

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The program expedites flight crew member access to sterile areas of airports.

The Company works collaboratively with TSA, foreign national governments, and airports to provide risk-based security measures at international locations served by the Company.

The Company has made significant investments in facilities, equipment, and technology to process Customers, checked baggage, and cargo efficiently in compliance with applicable security regulations;

however, the Company is not able to predict the impact, if any, that various 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.

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.

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.

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.

These laws and regulations govern aircraft drinking water, emissions,

storm water discharges from operations, and the disposal of materials such as jet fuel, chemicals, hazardous waste, and aircraft deicing fluid.

These laws and regulations govern aircraft drinking water, emissions, storm water discharges from operations, and the disposal of materials such as jet fuel, chemicals, hazardous waste, and aircraft deicing fluid.

Additionally, in conjunction with airport authorities, other airlines, and state and local environmental regulatory agencies, the Company, as a normal course of business, undertakes voluntary investigation or remediation of soil or groundwater contamination at various airport sites.

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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, the U.S.

Environmental Protection Agency (the “EPA”) is expected to finalize a rule listing two specific types of PFAS, perfluorooctanoic acid and perfluorooctanesulfonic acid, which may be found in AFFF, as hazardous substances under CERCLA and has separately issued an advanced notice of proposed rulemaking seeking comments on other types of PFAS that should be listed as hazardous substances under CERCLA.

The evolving legal and regulatory activity surrounding PFAS could lead to an inadequate supply of FAA-certified AFFF throughout the aviation system and/or increased operating costs at certain airports.

In addition, in April 2024, the U.S.

Environmental Protection Agency (the “EPA”) issued a final rule listing two specific types of PFAS, perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”), which may be found in AFFF, as hazardous substances under CERCLA and requiring entities to report releases that meet or exceed the reportable quantity immediately to the EPA’s National Response Center, and any other applicable state or local agencies.

Accompanying the final rule, the EPA also separately issued an enforcement discretion policy that describes how the EPA intends to generally seek to impose liability under CERCLA on those responsible for releasing or exacerbating the spread of PFAS into the environment, such as those who have manufactured PFAS or used PFAS in the manufacturing process, and other industrial parties.

At this time, the Company cannot predict to what extent, if any, this enforcement discretion may ultimately provide any relief from potential PFAS liability.

Furthermore, while the new presidential administration is expected to generally pursue a deregulatory agenda, the Company cannot predict what actions the new administration may take with respect to PFAS regulation and the timing and scope of any such changes.

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.

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 implemented legislative and regulatory proposals and introduced voluntary measures to address climate change by reducing greenhouse gas emissions.

At the federal level, in July 2016, the EPA issued a final endangerment finding for greenhouse gas emissions from certain types of aircraft engines, which the agency determined contribute to pollution that causes climate change and endangers public health and the environment.

Following this endangerment finding, per the federal Clean Air Act, the EPA adopted aircraft greenhouse gas emissions standards in December 2020.

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.

At the federal level, in July 2016, the EPA issued a final endangerment finding for GHG emissions from certain types of aircraft engines, which the agency determined contribute to pollution that causes climate change and endangers public health and the environment.

Following this endangerment finding, per the federal Clean Air Act, the EPA adopted aircraft GHG emissions standards in December 2020.

These standards apply to airframe and aircraft engine manufacturers and align with the standards previously adopted by ICAO.

On November 15, 2021, the EPA affirmed the agency will not reconsider the rule adopting the standards.

Several states and non-government organizations subsequently filed legal petitions challenging the EPA’s adoption of the rule;

however, in June 2023, the U.S.

Court of Appeals for the D.C.

Circuit upheld the EPA’s rules.

The Company does not expect to incur any material costs related to the EPA’s GHG aircraft rules at this time, and the rules are not expected to adversely impact the Company's current aircraft fleet;

however, the Company cannot guarantee that more stringent standards will not be adopted by the EPA in the future that could require material capital expenditures to modernize or replace its aircraft fleet or incur other costs related to GHG emissions from its aircraft.

The Company has not and does not expect to incur any material costs related to the EPA’s aircraft GHG emissions rules at this time, and the rules are not expected to adversely impact the Company's current aircraft fleet;

however, the Company cannot guarantee that more stringent standards will not be adopted by Congress, the FAA, or the EPA in the future that could require material capital expenditures to modernize or replace its aircraft fleet or incur other costs related to GHG emissions from its aircraft.

In addition to aircraft emissions standards, ICAO implemented a “global market-based measure” framework in an effort to control carbon dioxide emissions from international aviation.

The focal point of this framework is a carbon offsetting system applicable to aircraft operators designed to cap the growth of emissions related to international aviation.

ICAO's Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”) program is a global market-based measure intended to cap carbon emissions from international civil aviation at their 2019 levels from 2021 to 2023 and 85 percent of their 2019 levels from 2024 to 2035, addressing carbon emissions from the growth of international air traffic by requiring that international aviation emissions above these levels be offset or reduced through the use of CORSIA Eligible Fuel, such as a CORSIA sustainable aviation fuel, or CORSIA Eligible Emissions Units.

federal government has opted to participate in the voluntary phases of the CORSIA program from 2021-2026 (additional phases extend through 2035).

As part of the CORSIA program, the

Company is currently monitoring its international emissions for reporting purposes.

However, it is unclear at this time whether the new presidential administration will take action to limit the implementation of the mandatory phases beginning in 2027.

For example, on January 20, 2025, President Trump issued an Executive Order withdrawing from the Paris Agreement and, at this time, it is unclear what impact this action may have on the United States’ participation in CORSIA in the short term.

As part of the CORSIA program, the Company is currently monitoring its international emissions for reporting purposes.

Data collected from applicable international flight activity in 2019 forms the baseline and is used in the calculations to determine subsequent carbon offsetting requirements under the CORSIA program.

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To date, the Company has not incurred any material costs related to its compliance with CORSIA;

however, the Company could experience material costs as a result of any future expansion of its international operations, which would increase its compliance obligations under CORSIA, the need to purchase additional carbon offsets or volumes of SAF than what the Company has currently projected based on any changes to the CORSIA program, or other unforeseeable reasons given the evolving nature of climate-change-related laws, regulations, and programs.

however, the Company could experience material costs as a result of any future expansion of its international operations, which would increase its compliance obligations under CORSIA, the need to purchase additional carbon offsets or volumes of SAF than what the Company has currently projected based on any changes to the CORSIA program, any similar program, or other unforeseeable reasons given the evolving nature of climate-change-related laws, regulations, and programs.

Regardless of the method of regulation or application of CORSIA, further policy changes with regard to climate change are possible, which could significantly increase operating costs in the airline industry and, as a result, adversely affect operations.

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There are additional areas of rulemaking occurring at the state and federal levels with respect to climate-change-related matters that could also increase the Company’s compliance obligations and costs and expenditures related to the same.

In addition, to the extent these rules mandate that the Company make additional disclosure on matters related to climate change, it is possible that such disclosures may result in reputational harm or impact lending or investment decisions of third parties, and consequently the Company could face greater restrictions on or increased costs of access to capital if the Company is not perceived as meeting any climate change-related standards established by such third parties.

For example, on March 21, 2022, the U.S.

Securities and Exchange Commission (“SEC”) proposed The Enhancement and Standardization of Climate-Related Disclosures for Investors.

The proposed rule amendments would require a domestic or foreign registrant to include certain climate-related information in its registration statements and periodic reports, such as on Form 10-K, including:

climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook;

the registrant’s governance of climate-related risks and relevant risk management processes;

the registrant’s greenhouse gas emissions, which for accelerated and large accelerated filers and with respect to certain emissions, would be subject to assurance;

certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements;

and information about climate-related targets and goals, and transition plan, if any.

A final rule is expected in 2024.

Additionally, the state of California recently enacted a number of climate-disclosure related laws, including the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”) in October 2023.

While there have been a number of federal efforts to require the disclosure of certain climate-related information in recent years, and there may be similar efforts to require such disclosures in the future, the new presidential administration is expected to repeal or otherwise reverse these efforts.

Moreover, on his first day in office, on January 20, 2025, President Trump issued an Executive Order reversing many of the climate-related actions of the previous administration.

However, to the extent any future rules mandate that the Company make additional disclosure on matters related to climate change, it is possible that such disclosures may result in reputational harm or impact lending or investment decisions of third parties.

If the Company is not perceived as meeting any climate change-related standards established by such third parties, the Company could face greater restrictions on or increased costs of access to capital.

For example, in March 2024, the U.S.

Securities and Exchange Commission (“SEC”) adopted a new rule called, “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” This rule is being challenged legally in the U.S.

Court of Appeals for the Eighth Circuit and implementation of the rule has been voluntarily stayed by the SEC pending the outcome of the legal challenge;

moreover, the SEC may seek to repeal or revise the rule, though the Company cannot predict whether or how such action would occur or its timing.

Should the rule be implemented as finalized, however, the rule would place new requirements on Southwest and other large publicly-traded corporations.

For instance, the rule requires a domestic or foreign registrant to include certain climate-related information in its registration statements and periodic reports, such as on Form 10-K, including:

(i) climate-related risks and their actual or likely material impacts on the registrant’s business, strategy, and outlook;

(ii) the registrant’s governance of climate-related risks and relevant risk management processes;

(iii) the registrant’s GHG emissions, which for accelerated and large accelerated filers and with respect to certain emissions would be subject to assurance;

(iv) certain climate-related financial statement metrics and related disclosures in a note to its audited financial statements;

and (v) information about climate-related targets and goals, and transition plan, if any.

Additionally, in 2023, the State of California enacted a number of climate-disclosure related laws, including the Climate Corporate Data Accountability Act (“CCDAA”) and Climate-Related Financial Risk Act (“CRFRA”).

The CCDAA requires both public and private U.S.

companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scope 1, 2 and 3 greenhouse gas emissions.

companies that are “doing business in California” and that have a total annual revenue of $1 billion to publicly disclose and verify, on an annual basis, Scopes 1, 2 and 3 GHG emissions.

The CRFRA requires the disclosure of a climate-related financial risk report (in line with the Task Force on the Climate-related Financial Disclosures recommendations or equivalent disclosure requirements under the International Sustainability Standards Board’s climate-related disclosure standards) every other year for public and private companies that are “doing business in California” and have total annual revenue of $500 million.

Reporting under the CCDAA and CRFRA is scheduled to take effect beginning in 2026.

The ultimate impact of these laws on the Company remains uncertain—the Governor of California has directed further consideration of the implementation deadlines for each of the laws, and the scope of both laws may be subject to legal challenges.

Reporting under the CCDAA and CRFRA is scheduled to take effect

beginning in 2026.

The ultimate impact of these laws on the Company remains uncertain and the California Air Resources Board (“CARB”) is presently soliciting comments on certain of the rule’s details, so the specific final requirements may not be known for some time.

Furthermore, each of these laws has been subject to legal challenge.

While the outcome of such challenge is uncertain at this time, the judge in the case has declined to grant a temporary injunction of the laws while the litigation moves forward.

Additionally, in October 2023, California also enacted the Voluntary Carbon Markets Disclosure Act (“VCMDA”) which creates new reporting obligations related to voluntary carbon offsets.

The VCMDA requires business entities that (1) market or sell voluntary carbon offsets in California, (2) purchase or use voluntary carbon offsets sold in California that make emissions-related claims, or (3) make claims that an entity or product has eliminated or made significant reductions to its carbon dioxide or GHG emissions to make certain public disclosure on the business entity’s website.

The VCMDA requires business entities that (i) market or sell voluntary carbon offsets in California, (ii) purchase or use voluntary carbon offsets sold in California that make emissions-related claims, or (iii) make claims that an entity or product has eliminated or made significant reductions to its carbon dioxide or GHG emissions to make certain public disclosure on the business entity’s website.

Furthermore, climate-related laws are presently being developed in the legislatures of several U.S.

states and the timing and scope of such legislation, if passed into law, is uncertain at this time.

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.

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The Company could also face increased risks of litigation resulting from any enhanced disclosure requirements related to climate change.

further discussion of the risks relating to these reporting obligations, see “Risk Factors—Legal, Regulatory, Compliance, and Reputational Risks.”

Separately, on November 10, 2022, the Biden-Harris Administration proposed the Federal Supplier Climate Risks and Resilience Rule, which would require major federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets verified by the Science-Based Target initiative and in accordance with third-party standards that preclude the use of carbon offsets to achieve emission reduction goals.

The Company is currently monitoring the proposed rule;

however, compliance with the rule as proposed could require the Company to incur increased costs in the form of increased reporting obligations, modify its operations to meet emission reduction targets, accelerate its fleet replacement plans, or otherwise revise or restate its existing sustainability goals.

For further discussion of the risks relating to these reporting obligations, see “Risk Factors—Legal, Regulatory, Compliance, and Reputational Risks.”

On November 12, 2022, the Biden-Harris Administration proposed the Federal Supplier Climate Risks and Resilience Rule, which would require major federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets verified by the Science-Based Target initiative and in accordance with third-party standards that preclude the use of carbon offsets to achieve emission reduction goals.

On January 13, 2025, the proposed rule was withdrawn.

However, there may be similar efforts to require such disclosures in the future and compliance with similar rules could require the Company to incur increased costs due to increased reporting obligations, modify its operations to meet emissions reduction targets, accelerate its fleet replacement plans, or otherwise revise or restate its existing sustainability goals.

In addition to climate change, aircraft noise continues to be an environmental focus, especially as the FAA implements new flight procedures as part of its NextGen airspace modernization program discussed above.

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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.

These types of restrictions can cause curtailments in service or increases in operating costs and can limit the ability of air carriers to expand operations at the affected airports.

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.

At the federal level, the FAA has committed to inform and involve the public, engage with communities, and give meaningful consideration to community concerns and views when developing new flight procedures, and there is a possibility that Congress may enact legislation in the future to address local noise concerns at one or more commercial airports in the United States.

In addition, the 2018 Reauthorization Act requires the FAA to consider community noise concerns when proposing a new navigation departure procedure or amending an existing navigation procedure that would direct aircraft over noise sensitive areas.

In addition, the FAA Reauthorization Act of 2018 requires the FAA to consider community noise concerns when proposing a new navigation departure procedure or amending an existing navigation procedure that would direct aircraft over noise sensitive areas.

This requirement could delay or otherwise impede the implementation or use of more efficient flight paths.

In general, government efforts at the international, federal, state, or local levels to address worldwide climate change, manage greenhouse gas 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 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.

Additional legislative or regulatory activity in this area could require modifications to the Company’s equipment, operations, and strategy, and have a material effect on the Company's capital expenditures, earnings, or competitive position.

Data Privacy and Cybersecurity Regulation

The Company is subject to federal, state, and foreign laws relating to the collection, processing, use, retention, protection, and transfer of personal information.

The regulatory landscape has become increasingly complex with a growing patchwork of privacy and cybersecurity legal obligations that require engaging with a number of different regulators.

Additionally, the interpretation and application of many data privacy and cybersecurity legal obligations is rapidly evolving.

The Company continues to monitor a growing set of data privacy and cybersecurity legal requirements, including with respect to consumer and employee access and control over personal information and protection of such personal information.

The Company has experienced heightened legislative and regulatory focus on cybersecurity, both from a critical infrastructure perspective, which includes airlines and other transportation providers, and broadly applicable cybersecurity legal obligations.

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, and technical requirements related to information technology systems and operational technology systems.

For example, in December 2023, the SEC’s rules on cybersecurity risk management, strategy, governance, and incident disclosure became effective.

These rules require the Company to disclose on Form 8-K any material cybersecurity incident and describe the material aspects of the incident’s nature,

scope, and timing.

The Company must also disclose the material impact or reasonably likely material impact of the incident on the Company, including on its financial condition and results of operations.

Further, the new SEC rules require the Company to describe, in its Annual Report on Form 10-K, its processes for assessing, identifying, and managing material risks from cybersecurity threats and whether cybersecurity risks have materially affected or are reasonably likely to materially affect the Company.

The SEC rules also require the Company to describe the Board's oversight of cybersecurity risks and management’s role and expertise in assessing and managing material cybersecurity risks.

For additional information, see Item 1C – “Cybersecurity.”

The Company expects federal, state, and other governments to assess and implement increasingly challenging data privacy and cybersecurity legal obligations, which could result in expanded compliance burdens, costs, and enforcement risks for the Company.

The data privacy and cybersecurity regulatory landscape has become increasingly complex with a growing patchwork of legal obligations that require engaging with an increasing number of regulators.

Additionally, the interpretation and application of many data privacy and cybersecurity legal obligations is rapidly evolving, non-uniform, and may be subject to significant change.

Interpretation of data privacy and cybersecurity legal obligations may also be applied inconsistently across jurisdictions.

The Company continues to monitor a growing set of data privacy and cybersecurity legal requirements from a growing number of applicable authorities and regulators.

For further discussion of the risks relating to data privacy and cybersecurity, see “Risk Factors—Information Technology, Cybersecurity, and Data Privacy Risks.”

Regulators and certain jurisdictions, including the European Union, the U.K., and numerous states within the United States, have passed laws relating to the notice, collection, processing, use, retention, protection, and transfer of personal information as well as the protection of sensitive information and critical systems.

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.

The Company, therefore, is subject to various risks and costs associated with such activities, including costs associated with compliance with U.S.

and foreign data collection and privacy laws and various contractual obligations.

The Company must also comply with evolving payment card association and network operating rules, including data security rules, certification requirements, and rules governing electronic fund transfers.

For example, the Company must comply with evolving Payment Card Industry Data Security Standards (“PCI DSS”), which impose stringent requirements on how the Company processes and protects payment card data.

Failure to maintain PCI DSS compliance or the compromise of cardholder data that the Company processes, stores, or transmits could result in costs, fees, fines, penalties, and restrictions on the Company’s ability to process payment card transactions, which could materially impact operations and Customer Experience.

Furthermore, as the Company enters into airline partnerships with international carriers, the Company will need to comply with foreign laws like the EU's General Data Protection Regulation in certain scenarios, which could impose additional data privacy and security requirements upon the Company along with significant compliance obligations and substantial penalties for non-compliance.

The Company has experienced heightened legislative and regulatory focus on cybersecurity from a critical infrastructure perspective, a federal contractor perspective, and broadly applicable cybersecurity legal obligations.

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.

For example, in March 2023, the TSA issued emergency cybersecurity program changes applicable to TSA-regulated airport and aircraft operators, including the requirement to develop a TSA-approved cybersecurity implementation plan describing measures taken to improve cybersecurity and to assess the effectiveness of those measures on an ongoing basis.

The TSA also continues to make significant cybersecurity program changes.

In December 2023, the SEC’s new rules on cybersecurity risk management, strategy, governance, and incident disclosure became effective.

For additional information, see Item 1C – “Cybersecurity.” The 2024 Reauthorization Act required the FAA to create a Civil Aviation Cybersecurity Rulemaking Committee by May 2025 to conduct reviews, develop findings, and make recommendations on cybersecurity standards for civil aircraft, aircraft ground support information systems, airports, air traffic control mission systems, and aeronautical products and articles.

Depending on the rulemaking committee's recommendations, the FAA could issue additional cybersecurity rulemaking directly applicable to air carriers, aircraft and product manufacturers, and other industry stakeholders.

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.

The Company expects federal, state, and other governments to assess and implement increasingly complex data privacy and cybersecurity legal obligations, which could result in expanded compliance burdens, costs, and enforcement risks for the Company.

International Regulation

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The Company carries insurance of types customary in the airline industry and in amounts the Company deems adequate to protect the Company and its property and to comply both with applicable regulations and certain of the Company's credit and lease agreements.

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 spare parts, and workers’ compensation.

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

spare parts, and workers’ compensation.

In addition, the Company carries a cybersecurity insurance policy with regards to data protection and business interruption associated with both security breaches from malicious parties and from certain system failures.

The Company also manages insured risk through the use of reinsurance programs, pooling mechanisms, and a wholly-owned captive insurance subsidiary.

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.

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 the Company'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.

In addition, an aircraft accident or other incident involving Southwest could result in substantial costs in excess of its related insurance coverage.

Any aircraft accident or other incident involving Southwest, even if fully insured, could also have a material adverse effect on the public's perception of the Company, which could harm its reputation and business.

For a discussion of the risks related to the Company’s insurance coverage, see “Risk Factors.”

Industry and Competition

Historically, the airline industry has been an extremely volatile industry.

Among other things, it has been cyclical, energy intensive, labor intensive, capital intensive, technology intensive, highly regulated, heavily taxed, and extremely competitive.

government shutdowns, acts of terrorism or war, geopolitical unrest, severe weather, and natural disasters.

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 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.

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there are currently 15 passenger airlines offering scheduled service, including Southwest, that meet this standard.

Key competitive factors within the airline industry have historically included (i) pricing and cost structure;

Key competitive factors within the airline industry include (i) pricing and cost structure;

(ii) routes, loyalty programs, and schedules;

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Airlines, including Southwest, also compete for customers with alternatives to air travel, such as driving, videoconferencing, and business communication platforms.

These communication alternatives have become particularly prevalent as a result of the COVID-19 pandemic.

These communication alternatives have bec ome particularly prevalent post-pandemic.

Pricing and Cost Structure

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Pricing can be driven by a variety of factors.

For example, airlines may discount fares to drive traffic in new markets, stimulate traffic in existing markets, and/or grow market share in existing markets.

For example, airlines may discount fares to stimulate traffic in new markets, increase traffic in existing markets, and/or grow market share in existing markets.

Some airlines have been able to offer more competitive fares through measures designed to lower operating costs.

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The Company believes its low-cost operating structure has historically provided it with an advantage over many of its airline competitors by enabling it to continue to charge competitively low fares.

In addition, the Company believes its low-cost operating structure provided it with a significant financial competitive advantage relative to many of its competitors in responding to the financial impact of the COVID-19 pandemic.

Routes, Loyalty Programs, and Schedules

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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.

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.

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.

An alliance or code-sharing agreement enables an airline to offer flights that are operated by another airline and allows the airline’s customers to book travel that includes segments on different airlines through a single reservation or ticket.

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A capacity purchase agreement enables an airline to expand its route structure by paying another airline (e.g., a regional airline with smaller aircraft) to operate flights on its behalf in markets that it does not, or cannot, serve itself.

The Company opened 18 new destinations during the COVID-19 pandemic, which has significantly increased its domestic route network, and it continues to evaluate and implement initiatives to better enable itself to offer additional itineraries.

In 2024, the Company announced it will pursue partnerships with other airlines in order to further expand the reach of the Company’s network and connect Customers with more global destinations.

The Company launched its first such partnership in first quarter 2025 with Icelandair to provide transatlantic connectivity and expects to begin selling and operating interlining flights in February 2025.

The Company plans to add at least one more partner during 2025.

Customer Service, Operational Reliability, Product Offerings, and Amenities

Southwest also competes with other airlines with respect to customer service, operational reliability (such as ontime performance), product offerings, and passenger amenities.

According to statistics published by the DOT, Southwest has historically ranked at or near the top among domestic marketing carriers in Customer Satisfaction for having the lowest customer complaint ratio.

Following the December 2022 operational disruption, the Company experienced an increase in its customer complaint ratio.

Southwest competes with airlines that have more seating options and associated passenger amenities, including first class, business class, and other premium seating and related amenities, which can appeal in particular to business customers.

Some of the Company’s competitors have added, and may continue to add, passenger amenities not offered by the Company and premium seating, including through new aircraft types and configurations.

Despite these various product and amenity offerings at other airlines, the Company believes the introduction of its fares in the Global Distribution Systems provides an opportunity to increase the Company’s market share of business customers.

The Company believes the introduction of its fares in the Global Distribution Systems, as well as the introduction of assigned and additional legroom seating, provides an opportunity to increase the Company’s market share of business customers.

New and different types of aircraft flown by competitors could have operational attributes and passenger amenities that could be considered more attractive to certain consumers than those associated with the Company’s existing fleet.

In response to the COVID-19 pandemic, carriers are increasingly focusing on customer-friendly policies as opportunities to win and retain customers.

Some of the Company’s competitors have added, and may continue to add, passenger amenities not offered by the Company, including through new aircraft types and configurations.

While Southwest has been known for its open seating model, in 2024 the Company announced its intention to assign seats, offer premium seating options with extra leg room, and evolve its boarding processes.

The Company also announced a refreshed cabin design, including new, more comfortable RECARO seats .

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 .

C arriers are also increasingly focusing on customer-friendly policies as opportunities to win and retain customers.

However, the Company believes its Customer Service and Customer-friendly policies (including those listed below) continue to positively differentiate it from many of its competitors.

The 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;

• There are no additional fees for items such as seat selection, soft drinks, and snacks where available, curb-side check-in where available, and telephone reservations.

• There are no additional fees for items such as soft drinks and snacks where available, curb-side check-in where available, and telephone reservations.

Balance Sheet Health

The Company believes it emerged from the COVID-19 pandemic with a strengthened financial position relative to its competitors in the U.S.

airline industry, which has put the Company in a better position of financial health to

manage higher levels of debt and support future growth plans.

Further, the Company has maintained its investment-grade rating by all three major credit agencies (Moody’s, S&P Global, and Fitch), and is currently the only major U.S.

passenger airline with an investment-grade rating by all three major credit agencies.

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.

The Company believes its strong balance sheet and focus on prudent capital deployment will support its strategic plans and initiatives.

The Company intends to preserve the strength of its balance sheet with manageable debt maturities, with the goal of retaining investment-grade ratings.

Finally, the Company intends to return value back to its Shareholders through dividends and share repurchases, and will continually review its return of capital program based in large part upon the Company's free cash flow and leverage, and fleet monetization strategy, with an eye to maintaining investment-grade ratings.

Other Forms of Competition

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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 airline industry is also subject to varying degrees of competition from other forms of transportation, including surface transportation by automobiles, buses, and trains.

The airline industry is also subject to varying degrees of competition from other forms of transportation, including public charter operators and surface transportation by automobiles, buses, and trains.

Inconveniences and delays associated with air travel security measures can increase surface competition.

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The Company's business is ordinarily seasonal.

Generally, in most markets the Company serves, demand for air travel is greater during the summer months, and, therefore, revenues in the airline industry tend to be stronger in the second (April 1 - June 30) and third (July 1 - September 30) quarters of the year than in the first (January 1 - March 31) and fourth (October 1 - December 31) quarters of the year.

In most markets the Company serves, demand for air travel is greater during the summer months, and, therefore, revenues in the airline industry tend to be stronger in the second (April 1 - June 30) and third (July 1 - September 30) quarters of the year than in the first (January 1 - March 31) and fourth (October 1 - December 31) quarters of the year.

As a result, in many cases, the Company's results of operations reflect this seasonality.

Factors that could alter this seasonality include, among others, global pandemics such as COVID-19, the price of fuel, general economic conditions, changes in consumer behavior, governmental action, 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, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, or changes in the competitive environment.

Therefore, the Company's quarterly operating results are not necessarily indicative of operating results for the entire year, and historical operating results in a quarterly or annual period are not necessarily indicative of future operating results.

Human Capital Resources

As of December 31, 2023, the Company had 74,806 active full-time equivalent Employees, consisting of 31,339 air operations (including Pilots, Flight Attendants, Dispatchers, Flight Simulator Technicians, Flight Crew Training Instructors, and Meteorologists), 22,882 ground operations (including Ramp, Operations, Provisioning, and Freight Agents, and Customer Service Agents), 3,183 Customer Representatives and Source of Support Representatives, 3,736 maintenance and engineering (including Material Specialists, Mechanics, Aircraft Appearance Technicians, and Facilities Maintenance Technicians), and 13,666 additional “noncontract” Employees.

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 inactive Employees in the figure, which totaled an additional 3,954 Employees as of December 31, 2023.

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.

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.

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 demographics of Employees, however, the Company looks at total headcount, active and inactive Employees, irrespective of part-time or full-time status.

When considering total

demographics of Employees, however, the Company looks at total headcount, active and on-leave Employees, irrespective of part-time or full-time status.

Labor Union Activity

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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.

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.

By the amendable date, if either party wishes to modify the terms of the agreement, it must notify the other party in the manner required by the Railway Labor Act and/or described in the agreement.

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Southwest Pilots 10,548 Southwest Airlines Pilots' Association (“SWAPA”)

In negotiations at December 31, 2023.

Pilots ratified a new agreement in January 2024, which is now amendable January 2029.

Amendable January 2029

Southwest Flight Attendants 19,518 Transportation Workers of America, AFL-CIO, Local 556 (“TWU 556”)

In mediation/negotiations

Amendable May 2028

Southwest Material Specialists (formerly known as Stock Clerks) 484 International Brotherhood of Teamsters, Local 19 (“IBT 19”)

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Southwest Ramp, Operations, Provisioning, Freight Agents 16,940 Transport Workers Union Local 555 (“TWU 555”)

In negotiations

Southwest Flight Simulator Technicians 54 International Brotherhood of Teamsters (“IBT”)

Amendable May 2024.

In negotiations

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”)

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Southwest Aircraft Appearance Technicians 212 AMFA Amendable July 2027

Southwest Mechanics 2,979 Aircraft Mechanics Fraternal Association (“AMFA”)

Southwest Mechanics & Related Employees 3,011 Aircraft Mechanics Fraternal Association (“AMFA”)

Amendable August 2027

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Human Capital Objectives and Programs

The Company’s hiring, development, and retention of a diverse and talented workforce is a priority that includes:

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;

(iii) investing in physical, emotional, and financial health of Employees;

(iv) obtaining Employee feedback;

(v) maintaining and enhancing Company culture;

and (vi) communicating with the Board on a routine basis on key topics, including executive succession planning.

(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 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;

diversity, equity, and inclusion (“DEI”);

the competency of Belonging;

and communication skills.

The Company rewards Employees with competitive compensation and benefits packages, including attractive medical plans, a 401(k) plan with a dollar-for-dollar match for Employees other than Pilots (subject to vesting requirements and certain compensation limits), a 401(k) plan with a non-elective contribution for Pilots, and a profitsharing plan.

The Company rewards Employees with competitive compensation and benefits packages, including attractive medical plans, the Southwest Airlines Co.

Retirement Savings Plan that resulted from the merger of the Company’s former 401(k) plan having a dollar-for-dollar match for Employees other than Pilots (subject to vesting requirements and certain compensation limits) and the Company's former profitsharing plan, and a 401(k) plan with a non-elective Company contribution for Pilots.

The Southwest Airlines Co.

Retirement Savings Plan also has non-elective contributions for certain eligible workgroups that have negotiated such items as part of ratified collective bargaining contracts.

The Company encourages its People to pursue their passions by leveraging the Company’s resources to achieve their career aspirations.

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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.

For many years, the bonus opportunity for the Company's senior leadership group, including its executive officers, has been tied to the Company's performance relative to multiple pre-established performance metrics, which have from time to time included the Company’s DEI initiatives and/or the Company's voluntary turnover rate for Employees.

In addition to bonus opportunities for the Company’s senior leadership group, the Company has implemented performance-based compensation programs for other non-contract Employee leaders, including managers, supervisors, team leads, and certain other Employees.

During 2023 the Company hired approximately 8,100 Employees, net of attrition.

The Company's number of active full-time equivalent Employees increased by 12.2 percent, year-over-year, in 2023, to support the Company's capacity growth, primarily driven by the restoration of its route network after emerging from the pandemic.

The Company has made additional investments to attract and retain talent, including raising the Company's starting hourly pay rates for certain of its workgroups, subject, in each case, to acceptance of such change by the applicable union.

Diversity, Equity, and Inclusion

DEI is an integral part of the Company’s culture and processes that support recruitment, hiring, training, retention, advancement, and belonging.

In an effort to advance these initiatives, the Company has established the following goals:

• Evolve hiring and development practices to support diversity goals, including posting all open Leadership positions (Supervisor to Vice President) and requiring diverse candidate slates for each role;

• Measure progress in increasing diversity in Senior Leadership (as compared to 2020);

• Double the percentage of racial diversity and increase gender diversity in the Company’s Senior Management Committee by 2025 (as compared to 2020);

• Engaging the Company’s breadth of community partners to leverage relationships in sourcing diverse talent.

Additionally, the Board is seeking to increase its diverse representation by 2025 (as compared to 2020).

The Company has a dedicated DEI Department that provides regular updates to the Compensation Committee of the Board.

To advance the Company's goals with respect to inclusion, the DEI Department has launched a multi-year training plan to increase the cultural competency of the Company's workforce.

The DEI Department established a five-year enterprise strategic plan to continue advancing DEI efforts throughout the organization.

The Company has taken tangible steps to update the required infrastructure, processes, and

practices to meet these objectives.

The DEI Department formed an Executive Steering Committee to support the strategic direction of this progress.

In addition, the Company evolved its talent acquisition processes by requiring diverse candidate pools for leadership positions, and deploying inclusion training for all hiring Leaders.

The Company also works with community partners in support of its efforts to continue developing diverse and inclusive talent pipelines and expanding recruiting efforts.

The Company also recently launched a formal Sponsorship and Mentorship Program.

In addition to current initiatives, the DEI Department has established a five-year enterprise strategic plan to continue advancing DEI efforts throughout the organization.

The Company's motivation is to be a healthy organization where Employees thrive, feel appreciated, valued, and have an authentic sense of belonging.

In May 2023, the Company published its DEI Report.

A companion piece to the Southwest One Report, the DEI Report takes a deeper dive into the Company's DEI goals and initiatives and highlights the expected path forward.

Information contained in the DEI Report is not incorporated by reference into, and does not constitute a part of, this Form 10-K.

While the Company believes that the disclosures contained in the DEI Report and other voluntary disclosures regarding 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 in the near term 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.

Given the estimates, assumptions, and timelines used to create the DEI Report and other voluntary disclosures, the materiality of these disclosures is inherently difficult to assess in advance.

The Company's number of active full-time equivalent Employees decreased by 3.1 percent, year-over-year, in 2024, as the Company minimized hiring in order to right-size staffing to current operations and lower costs.

Since October 2022, each of the 12 union-represented workgroups, that collectively represent approximately 82 percent of the Company's Employees, have ratified new contracts.

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.

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;

• Supporting the Company’s commitment to provide all Employees with equal opportunity for learning and personal growth.

The Company provides regular DEIB updates to the Compensation Committee of the Board, which assists the Board with its oversight of human resources policies and practices, and has developed a multi-year training plan to support the cultural competency of the Company's workforce.

The Company formed an Executive Advisory Board to review and support the Company's strategies for advancing DEIB throughout the organization.

The Company also works with community partners in support of expanded recruiting efforts and continued development of diverse and inclusive talent pipelines.

The Company also recently launched a formal Sponsorship and Mentorship Program open to all Employees Companywide and offering opportunities to work toward shared goals.

The Company's motivation is to be a healthy organization where Employees thrive, feel appreciated and valued, and have an authentic sense of Belonging.

Additional Information About the Company

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business