What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-07 compared with 2024-02-06 · 371 added, 389 removed, 1103 unchanged (41% of the section changed)

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Retained earnings 16,332 16,297

Accumulated other comprehensive income — 344

Accumulated other comprehensive income (loss) ( 25 ) —

Treasury stock, at cost:

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Total operating revenues 27,483 26,091 23,814

OPERATING EXPENSES, NET:

OPERATING EXPENSES:

Salaries, wages, and benefits 12,240 11,152 9,376

Payroll support and voluntary Employee programs, net — — ( 2,960 )

Fuel and oil 5,812 6,217 5,975

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Other operating expenses 4,138 3,999 3,735

Total operating expenses, net 25,867 22,797 14,069

Total operating expenses 27,162 25,867 22,797

OPERATING INCOME 321 224 1,017

OTHER EXPENSES (INCOME):

NON-OPERATING EXPENSES (INCOME):

Interest expense 249 259 340

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Other (gains) losses, net 4 ( 62 ) 12

Total other expenses (income) ( 409 ) 289 396

Total non-operating expenses (income) ( 277 ) ( 409 ) 289

INCOME BEFORE INCOME TAXES 598 633 728

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NET INCOME $ 465 $ 465 $ 539

Unrealized gain (loss) on fuel derivative instruments, net of

Unrealized loss on fuel derivative instruments, net of

deferred taxes of ($ 14 ), ($ 103 ), and ($ 44 )

( 44 ) ( 337 ) ( 143 )

Unrealized gain on interest rate derivative instruments, net of

deferred taxes of $ 4 , $ 6 , and $ 2

Unrealized gain (loss) on defined benefit plan items, net of deferred

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Other, net of deferred taxes of $ 3 , $ 8 , and $ 6

( 4 ) — ( 47 )

OTHER COMPREHENSIVE INCOME (LOSS) $ ( 344 ) $ ( 44 ) $ 513

OTHER COMPREHENSIVE LOSS $ ( 25 ) $ ( 344 ) $ ( 44 )

COMPREHENSIVE INCOME $ 440 $ 121 $ 495

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Cumulative effect of adopting Accounting Standards Update No.

2016-01, Financial Instruments — — 20 ( 20 ) — —

2020-06, Debt — ( 300 ) 55 — — ( 245 )

Issuance of common and treasury stock pursuant to Employee stock plans — 29 — — 17 46

Share-based compensation — 84 — — — 84

Stock warrants — 45 — — — 45

Equity feature of partial extinguishment of convertible notes — ( 92 ) — — — ( 92 )

Comprehensive income $ — $ — $ 977 $ 513 $ — $ 1,490

Cash dividends, $ 0.18 per share

— — ( 107 ) — — ( 107 )

Comprehensive income (loss) $ — $ — $ 539 $ ( 44 ) $ — $ 495

Balance at December 31, 2022 $ 888 $ 4,037 $ 16,261 $ 344 $ ( 10,843 ) $ 10,687

Cumulative effect of adopting Accounting Standards Update No.

2020-06, Debt — ( 300 ) 55 — — ( 245 )

Issuance of common and treasury stock pursuant to Employee stock plans — 30 — — 20 50

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Balance at December 31, 2023 $ 888 $ 4,153 $ 16,297 $ — $ ( 10,823 ) $ 10,515

Repurchase of common stock — — — — ( 251 ) (a) ( 251 )

Issuance of common and treasury stock pursuant to Employee stock plans — 7 — — 30 37

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— — ( 430 ) — — ( 430 )

Stock warrants repurchase — ( 6 ) — — — ( 6 )

Comprehensive income (loss) $ — $ — $ 465 $ ( 25 ) $ — $ 440

Balance at December 31, 2024 $ 888 $ 4,199 $ 16,332 $ ( 25 ) $ ( 11,044 ) $ 10,350

(a) Includes excise tax incurred on share repurchases, net of issuances, payable in April 2025 .

See accompanying notes.

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Unrealized mark-to-market adjustment on available for sale securities — ( 4 ) 4

Unrealized/realized loss on fuel derivative instruments — ( 2 ) ( 15 )

Unrealized/realized gain on fuel derivative instruments — — ( 2 )

Deferred income taxes 132 159 228

Gain on sale-leaseback transactions ( 92 ) — —

Loss on extinguishment of debt 2 — 193

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Other liabilities ( 197 ) ( 137 ) ( 334 )

Cash collateral received from (provided to) derivative counterparties ( 56 ) ( 69 ) 141

Cash collateral provided to derivative counterparties ( 28 ) ( 56 ) ( 69 )

Other, net ( 88 ) ( 171 ) 28

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Capital expenditures ( 2,054 ) ( 3,520 ) ( 3,924 )

Proceeds from sale-leaseback transactions 871 — —

Assets constructed for others ( 26 ) ( 33 ) ( 22 )

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Proceeds from sales of short-term and other investments 5,995 7,591 5,792

Other, net ( 33 ) — —

Net cash used in investing activities ( 261 ) ( 2,932 ) ( 3,746 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from Payroll Support Program loan and warrants — — 1,136

Payroll Support Program stock warrants repurchase ( 6 ) — —

Proceeds from Employee stock plans 60 48 45

Repurchase of common stock ( 250 ) — —

Payments of long-term debt and finance lease obligations ( 1,337 ) ( 85 ) ( 2,437 )

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Other, net ( 17 ) 6 8

Net cash provided by (used in) financing activities ( 436 ) ( 3,032 ) 359

Net cash used in financing activities ( 1,980 ) ( 436 ) ( 3,032 )

NET CHANGE IN CASH AND CASH EQUIVALENTS ( 1,779 ) ( 204 ) ( 2,988 )

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Adoption of Accounting Standards Update 2020-06, Debt $ — $ — $ 245

Right-of-use assets acquired under operating leases $ 82 $ 58 $ 327

Flight equipment acquired against supplier credit memo $ — $ — $ 569

Assets constructed for others $ — $ — $ 309

Remeasurement of right-of-use asset and lease liability $ — $ — $ 343

Right-of-use assets acquired or modified under operating leases $ 377 $ 82 $ 58

Flight and ground equipment acquired or modified under finance leases $ 15 $ — $ —

See accompanying notes.

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Summary of Significant Accounting Policies

Worldwide Pandemic

New Accounting Pronouncements and Accounting Changes

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Fair Value Measurements

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income (Loss)

Employee Retirement Plans

Supplemental Financial Informatio n

Supplemental Financial Information

Report of Independent Registered Public Accounting Firm

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During fourth quarter 2023, the Company accrued an expense of $ 107 million associated with a settlement reached with the DOT in December 2023 based on their investigation into the disruption.

Other than this December 2023 charge, there were no material impacts to operating revenues or expenses as a result of this disruption beyond first quarter 2023.

Cash and Cash Equivalents

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As of December 31, 2024 and 2023, $ 22 million and $ 50 million, respectively, in cash collateral deposits were held by the Company from its fuel hedge counterparties.

As of December 31, 2023, the Company had no outstanding interest rate swap agreements and therefore no cash collateral deposits were provided by or held by the Company from interest rate hedge counterparties.

Additionally, as of December 31, 2022, no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements.

Cash collateral amounts provided or held associated with fuel and interest rate derivative instruments are not restricted in any way and earn interest income at an agreed upon rate that approximates the rates earned on short-term securities issued by the U.S.

Depending on the fair value of the Company’s fuel and interest rate derivative instruments, the amounts of collateral deposits held or provided at any point in time can fluctuate significantly.

As of December 31, 2024 and 2023, the Company had no outstanding interest rate swap agreements and therefore no cash collateral deposits were provided by or held by the Company from interest rate hedge counterparties.

Cash collateral amounts provided or held associated with fuel derivative instruments are not restricted in any way and earn interest income at an agreed upon rate that approximates the rates earned on short-term securities issued by the U.S.

Depending on the fair value of the Company’s fuel derivative instruments, the amounts of collateral deposits held or provided at any point in time can fluctuate significantly.

See Note 10 for further information on these collateral deposits and fuel derivative instruments.

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Accounts and other receivables are initially recorded at cost and are evaluated for collectability in every period.

They primarily consist of the amounts due from the Company's business partners and other suppliers, amounts due from credit card companies associated with sales of tickets for future travel, amounts due from business partners in the Company’s loyalty program, and tax receivables from overpayment or net operating losses that are allowed to be carried back to prior periods to claim refunds against prior taxes paid.

They primarily consist of the amounts due from the credit card companies associated with sales of tickets for future travel, amounts due from business partners in the Company’s loyalty program, and tax receivables from overpayment or net operating losses that are allowed to be carried back to prior periods to claim refunds against prior taxes paid.

See Note 15 for further information.

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If an asset group is deemed to be impaired, an impairment loss is recorded for the excess of the asset group's book value in relation to its estimated fair value.

During 2022 and 2021, the Company recorded impairment charges of $ 28 million and $ 12 million, respectively, associated with the accelerated retirement of 10 and 8 of its Boeing 737-700 ("-700") aircraft.

There were no material impairments in 2023 associated with the accelerated retirement of the Company's aircraft.

However, the Company identified certain -700 aircraft that were retired early in 2023 or are planned for early retirement in 2024.

This change in retirement dates, and the corresponding impact to depreciation expense, is considered a change in estimate and resulted in the following impact to expense in 2023:

(in millions, except per share amounts) December 31, 2023

During 2022, the Company recorded impairment charges of $ 28 million associated with the accelerated retirement of 10 of its Boeing 737-700 ("-700") aircraft.

There were no material impairments in 2024 or 2023 associated with the accelerated retirement of the Company's aircraft.

However, the Company identified certain -700 aircraft that were retired early in 2023 and 2024 or are planned for early retirement in 2025.

This change in retirement dates, and the corresponding impact to depreciation expense, is considered a change in estimate and resulted in the following impact to expense in 2024 and 2023:

Year ended December 31,

(in millions, except per share amounts) 2024 2023

Depreciation and amortization expense $ 57 $ 28

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The Company combines lease and non-lease components for all asset groups.

The Company's lease term includes any option to extend the lease when it is reasonably certain to be exercised based on considering all relevant economic factors.

The lease term includes any option to extend the lease when it is reasonably certain to be exercised based on considering all relevant economic factors.

Aircraft and Engine Maintenance

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The Company has maintenance agreements related to certain aircraft engines with external service providers, including agreements that effectively transfer the risk of performance of such work to the service provider.

Under the agreements where the risk of performance is deemed transferred to the counterparty, the appropriate expense is recorded commensurate with the period in which the corresponding level of service is provided.

For its engine

Under the agreements where the risk of performance is deemed transferred to the counterparty, expense is recorded commensurate with the period in which the corresponding level of service is provided.

For its engine maintenance

Notes to Consolidated Financial Statements

maintenance contracts that do not transfer risk to the service provider, the Company records expense on a time and materials basis when an engine repair event takes place.

contracts that do not transfer risk to the service provider, the Company records expense on a time and materials basis when an engine repair event takes place.

Modifications that significantly enhance the operating performance or extend the useful lives of aircraft or engines are capitalized and amortized over the remaining life of the asset.

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Amounts collected from passengers for ancillary services are also recognized when the service is provided, which is typically the flight date.

Initial breakage estimates for both tickets and flight credits available for future use are routinely adjusted based on the likelihood that the ticket or flight credit will be used or refunded back to the Customer.

During 2020 and in parts of 2021, the Company experienced a significantly higher number of Customer-driven flight cancellations as a result

During 2020 and in parts of 2021, the Company experienced a significantly higher number of Customer-driven flight cancellations as a result of the COVID-19 pandemic.

For all Customer flight credits created or that would have otherwise expired between March 1 and September 7, 2020, the Company previously extended the expiration

Notes to Consolidated Financial Statements

of the COVID-19 pandemic.

For all Customer flight credits created or that would have otherwise expired between March 1 and September 7, 2020, associated with flight cancellations, the Company previously extended the expiration date to September 7, 2022.

On July 28, 2022, the Company modified its policy and announced that all unexpired flight credits as of that date, including flight credits previously extended as a result of the COVID-19 pandemic, will no longer have an expiration date and thus will be able to be redeemed by Customers indefinitely.

date to September 7, 2022.

On July 28, 2022, the Company modified its policy and announced that all unexpired flight credits as of that date, including flight credits previously extended as a result of the COVID-19 pandemic, no longer have an expiration date and thus will be able to be redeemed by Customers indefinitely.

This change in policy was considered a contract modification under ASC 606, and the Company accounted for such change prospectively in third quarter 2022.

Breakage estimates are based on the Company's Customers' historical travel behavior as well as assumptions about the Customers' future travel behavior.

Due to customer redemptions of these pre-policy change flight credits that were issued to Customers during 2022 and prior at a higher than projected rate throughout 2024, as well as currently projected redemptions beyond 2024, the Company determined that a reversal of a portion of prior recorded breakage revenue was warranted.

This change in breakage revenue, and the corresponding impact to Passenger revenue, is considered a change in estimate and resulted in the following impact to 2024 results:

Year ended December 31,

(in millions, except per share amounts) 2024

Breakage revenue adjustment $ ( 116 )

Net income * ( 76 )

Net income per basic share ( 0.13 )

Net income per diluted share ( 0.12 )

* net of profitsharing benefit and income taxes

Breakage estimates are based on the Company's Customers' historical travel behavior as well as assumptions about their future travel behavior.

Assumptions about the Customers' future travel behavior can be impacted by several factors including, but not limited to:

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and economic factors.

As a result of the Company's policy change for flight credits in 2022, as well as changes in Customer behavior during 2020 and 2021, the amount of breakage realized on a prospective basis is expected to be lower and more stable than it has been previously.

As a result of the Company's policy change for flight credits in 2022, as well as changes in Customer behavior during 2020 and 2021, the amount of breakage realized on a long term prospective basis has been and is expected to continue to be lower and more stable than it had been previously.

See Note 5 for further information.

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See Note 5 for further information.

Notes to Consolidated Financial Statements

Advertising costs are charged to expense as incurred.

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Financial Derivative Instruments

Notes to Consolidated Financial Statements

The Company accounts for financial derivative instruments at fair value and applies hedge accounting rules where appropriate.

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Costs incurred during the preliminary project or the post-implementation/operation stages of the project are expensed as incurred.

Capitalized computer software, included as a component of Ground property and equipment in the accompanying Consolidated Balance Sheet, net of accumulated depreciation, was $ 1 billion and $ 928 million as of December 31, 2023, and 2022, respectively.

Capitalized computer software, included as a component of Ground property and equipment in the accompanying Consolidated Balance Sheet, net of accumulated depreciation, was $ 1.1 billion and $ 1.0 billion as of December 31, 2024, and 2023, respectively.

Computer software depreciation expense was $ 271 million, $ 246 million, and $ 232 million for the years ended December 31, 2024, 2023, and 2022, respectively, and is included as a component of Depreciation and amortization expense in the accompanying Consolidated Statement of Income.

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The Company uses a combination of insurance and self-insurance mechanisms, including a wholly-owned captive insurance entity and participation in a reinsurance treaty, to provide for the potential liabilities associated with certain risks, including workers’ compensation, healthcare benefits, general liability, and aviation liability.

Liabilities associated with the risks that are retained by the Company are not discounted and are estimated, in part, by considering historical claims experience, demographics, exposure and severity factors and other actuarial assumptions.

Liabilities associated with the risks that are retained by the Company are not discounted and are estimated, in part,

Notes to Consolidated Financial Statements

by considering historical claims experience, demographics, exposure and severity factors and other actuarial assumptions.

The Company accounts for deferred income taxes utilizing an asset and liability method, whereby deferred tax assets and liabilities are recognized based on the tax effect of temporary differences between the financial statements and the tax basis of assets and liabilities, as measured by current enacted tax rates.

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The Company uses the portfolio approach for releasing income tax effects associated with amounts reclassified out of Accumulated other comprehensive income (loss).

Notes to Consolidated Financial Statements

The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such items as a component of Income (loss) before income taxes.

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Approximately 82 percent of the Company’s Employees are unionized and are covered by collective-bargaining agreements.

A portion of the Company's unionized Employees, including its Pilots, Flight Attendants, and Ramp Agents, which had contracts that became amendable on or before December 31, 2023, were in discussions on labor agreements as of December 31, 2023.

Those unionized Employee groups in discussions represented approximately 65 percent of the Company’s Employees as of December 31, 2023.

On January 22, 2024, the Company's nearly 11,000 Pilots, represented by the Southwest Airlines Pilots' Association ("SWAPA"), voted to ratify a five-year contract extension with the Company.

The newly ratified agreement becomes amendable in January 2029.

As of December 2024, all the Company's collective bargaining labor contracts subject to Section 6 of the Railway Labor Act are closed until October 2026 when the next labor contract becomes amendable.

The Company attempts to minimize its concentration risk with regards to its cash, cash equivalents, and its investment portfolio.

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The Boeing 737 MAX aircraft ("MAX") are crucial to the Company’s growth plans and fleet modernization initiatives.

Boeing has in the past experienced, and may continue to experience, delays in fulfilling its commitments with regards to delivery of the Boeing 737-8 ("-8") to the Company as a result of supply chain constraints.

Further, the Company's contractual delivery schedule for the Boeing 737-7 ("-7") is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.

Further, the Company's contractual delivery schedule for the Boeing 737-7 ("-7") is dependent on the FAA issuing required certifications and approvals to the Boeing Company ("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.

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In particular, if the Company’s growth were to be dependent upon the introduction of a new aircraft make and model to the Company’s fleet, the Company would need to, among other things, (i) develop and implement new maintenance, operating, and training programs, (ii) secure extensive regulatory approvals, and (iii) implement new technologies.

The requirements associated with operating a new aircraft make and model could take an extended period of time to fulfill and would likely impose substantial costs on the Company.

The requirements associated with

Notes to Consolidated Financial Statements

operating a new aircraft make and model could take an extended period of time to fulfill and would likely impose substantial costs on the Company.

A shift away from a single fleet type could also add complexity to the Company’s operations, present operational and compliance risks, and materially increase the Company's costs.

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The Company is also dependent on sole or limited suppliers for aircraft engines and certain other aircraft parts and services.

Therefore, it would also be materially adversely impacted in the event of the unavailability of engines,

Notes to Consolidated Financial Statements

parts and certain repair services, the inability to find adequate support at commercially reasonable terms, or mechanical or regulatory issues associated with such engines or other parts or services.

Therefore, it would also be materially adversely impacted in the event of the unavailability of engines, parts and certain repair services, the inability to find adequate support at commercially reasonable terms, or mechanical or regulatory issues associated with such engines or other parts or services.

The Company has historically entered into agreements with some of its co-brand, payment, and loyalty partners that contain exclusivity aspects which place certain confidential restrictions on the Company from entering into certain arrangements with other payment and loyalty partners.

These arrangements generally extend for the terms of the agreements, none of which currently extend beyond October 31, 2030.

These arrangements generally extend for the terms of the agreements, none of which extend beyond October 31, 2030 as of December 31, 2024.

Some of these agreements automatically renew on an annual basis, unless either party objects to such extension.

In January 2025, the Company reached an amended co-brand agreement with Chase Bank USA, N.A.

Among other items, the amendment includes enhanced Cardmember benefits associated with the Company's future assigned and premium seating initiative.

None of these agreements are more than 10 years in length.

The Company believes the financial benefits generated by the exclusivity aspects of these arrangements outweigh the risks involved with such agreements.

WORLDWIDE PANDEMIC

As a result of the rapid spread of the novel coronavirus, COVID-19, throughout the world, including into the United States, on March 11, 2020, the World Health Organization classified the virus as a pandemic.

The speed with which the effects of the COVID-19 pandemic changed the U.S.

economic landscape, outlook, and in particular the travel industry, was swift and unexpected.

The Company experienced significant disruptions in travel and reduced bookings throughout the remainder of 2020 and for the entirety of 2021 as a result of the pandemic and subsequent variants of COVID-19.

Following a significant negative impact to revenues and bookings in January and February 2022, which included increased trip cancellations and staffing challenges associated with the Omicron variant, the Company saw improvements in revenue trends in March 2022 and throughout the remainder of 2022 as COVID-19 cases significantly trended downward and bookings for summer travel accelerated.

Although there were no material noticeable impacts to revenues and bookings during 2023 associated with COVID-19, the Company continues to monitor demand for air travel and proactively adjust its published flight schedules and capacity in response to passenger travel patterns.

Since the start of the pandemic, the Company entered into definitive documentation with the United States Department of the Treasury ("Treasury") with respect to payroll funding support ("Payroll Support") pursuant to three separate Payroll Support programs:

the "PSP1 Payroll Support Program" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act");

the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021;

and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

As consideration for its receipt of funding under each of these Payroll Support programs, the Company issued a promissory note in favor of Treasury (classified as a component of Long term debt less current maturities in the Consolidated Balance Sheet) and entered into a warrant agreement with Treasury (classified as a component of Stockholders' equity in the Consolidated Balance Sheet).

The following table provides the details from the PSP1, PSP2 and PSP3 Payroll Support programs:

(dollars in millions, shares in thousands) Grant Promissory Note Warrants Total Payroll Support Proceeds Warrants (shares) as of December 31, 2023 Warrant Strike Price as of December 31, 2023 Promissory Note Maturity Date

PSP1 $ 2,337 $ 976 $ 40 $ 3,354 2,753 $ 35.45 /share

April 19, 2030

PSP2 $ 1,393 $ 566 $ 27 $ 1,987 1,258 $ 44.99 /share

January 15, 2031

PSP3 $ 1,310 $ 526 $ 18 $ 1,852 924 $ 56.88 /share

April 23, 2031

Total $ 5,040 $ 2,068 $ 85 $ 7,193 4,935

Notes to Consolidated Financial Statements

In connection with the receipt of Payroll Support, the Company was subject to certain restrictions, including the elimination of share repurchases and dividends through September 30, 2022 and limits on executive compensation until April 1, 2023.

Under each of the three Payroll Support programs, funds received were used solely to pay qualifying employee salaries, wages, and benefits.

As of December 31, 2022, all grant portions of the Payroll Support programs received had been allocated and classified as a contra-expense line item in the Consolidated Statement of Income.

Although there is no directly applicable U.S.

GAAP guidance related to such government assistance received, the Company analogized its facts and circumstances, and utilized the accounting principles within International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance, with respect to the Payroll Support funds received.

The Company has an option to prepay the promissory notes at any time without premium or penalty.

Warrants will be settled through net share settlement or net cash settlement, at the Company’s option.

The Company has also granted Treasury certain demand underwritten offering and piggyback registration rights with respect to the warrants and the underlying common stock.

The warrants do not have voting rights and include adjustments for below market issuances, payment of dividends, and other customary anti-dilution provisions.

Operating Segments and Related Disclosures

Operating segments are defined as components of an enterprise with separate financial information, which are evaluated regularly by the chief operating decision maker ("CODM") and are used in resource allocation and performance assessments.

The Company's CODM is considered to be the Company's President, Chief Executive Officer, & Vice Chairman of the Board of Directors.

The Company is managed as a single operating segment that provides air transportation for passengers and cargo.

Managing the Company as one segment allows the Company to benefit from the value of integrated revenue pricing and its route network.

The Company's flight equipment, which are all variations of the Boeing 737 series of aircraft, forms one fleet that is deployed through a single route scheduling system to maximize its value.

The Company's tangible assets consist primarily of flight equipment, which are mobile across geographic markets and, therefore, have not been allocated.

Financial information and annual operational plans and forecasts are prepared and reviewed by the CODM at the consolidated level.

The CODM assesses performance for the Company's single reportable segment and decides how to allocate resources based on Net income (see the Consolidated Statement of Income).

When making operational decisions, the CODM is indifferent to the results on a geographic region basis.

The Company's objective in making resource allocation decisions is to optimize the consolidated financial results.

For single reportable segment-level financial information, total assets, and significant non-cash transactions, see Item 8.

Financial Statements.

NEW ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES

On December 14, 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740):

On November 4, 2024, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This standard responds to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements.

This standard is effective for all entities that are subject to Subtopic 220-40, for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027, but early adoption is permitted.

The Company is

Notes to Consolidated Financial Statements

evaluating this new standard but does not expect it to have a significant impact on its financial statement disclosures.

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

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This standard is effective for all entities that are subject to Topic 740, Income Taxes for annual periods beginning after December 15, 2024, but early adoption is permitted.

The Company is evaluating this new standard but does not expect it to have a significant impact on its financial statement presentation or results.

The Company has evaluated this new standard and does not expect it to have a significant impact on its financial statement disclosures.

The Company will adopt this standard as of January 1, 2025, utilizing the retrospective application as permitted in the standard.

See Note 14 for further information on the Company's income taxes.

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This standard improves reportable segment disclosures by adding and enhancing interim disclosure requirements, clarifying circumstances in which entities can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and adding other disclosure requirements.

This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, but early adoption is permitted.

The Company is evaluating this new standard but does not expect it to have a significant impact on its financial statement presentation or results.

On November 17, 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.

The standard increases transparency of government assistance by focusing on the types of assistance given, an entity's accounting for the assistance, and the effect of the assistance on the entity's financial statements to allow for more comparable information for investors and other financial statement users.

This standard was effective for all entities under the scope for financial statements issued for annual periods beginning after December 15, 2021, but early adoption was permitted.

The Company adopted the standard early as of December 31, 2021.

See Note 2 for further information on the Company's treatment of government assistance received.

On May 3, 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.

This standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call

Notes to Consolidated Financial Statements

options (such as warrants) that remain equity classified after modification or exchange.

This standard was effective for fiscal years beginning after December 15, 2021, and the standard was adopted and applied prospectively by the Company as of January 1, 2022, but the adoption and application did not have a significant impact on the Company's financial statements and disclosures, including interim periods.

This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

This standard is applicable to the Company due to the single reportable segment requirement.

The Company has included all required disclosures within its Form 10-K for the year ended December 31, 2024.

See Note 1 for further information on segment disclosures.

On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848).

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The Company had no material LIBOR-related contract modifications during the twelve months ended December 31, 2024.

On August 5, 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

This new standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock, made targeted improvements to the disclosures for convertible instruments and earnings-per-share ("EPS") guidance, and amended the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.

This standard was effective for fiscal years beginning after December 15, 2021, and the Company adopted this standard as of January 1, 2022, utilizing the modified retrospective method.

Under the modified approach, the Company applied guidance to all financial instruments that were outstanding as of the beginning of the year of adoption with the cumulative effect recognized as an adjustment to the opening balance of retained earnings.

Upon adoption, the Company reclassified the remaining equity component of $ 300 million, from Additional paid-in capital to Long-term debt associated with its 1.25 % Convertible Senior Notes due 2025 (the "Convertible Notes"), and no longer records amortization of the debt discount to Interest expense.

The cumulative effect from prior period amortization of the debt discount that has been recorded to Interest expense, offset by reductions to Capital in excess of par value related to the requisition of the equity component through previous repurchases, resulted in a $ 55 million adjustment to the opening balance of Retained earnings upon adoption.

The new standard requires the use of the if-converted method to calculate diluted EPS, which is generally more dilutive, rather than the treasury stock method as was the Company's policy pre-adoption.

NET INCOME PER SHARE

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Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

An immaterial number of shares related to the Company's restricted stock units and stock warrants were excluded from the denominator for the fiscal years ended December 31, 2023, 2022, and 2021 because inclusion of such shares would

An immaterial number of shares related to the Company's restricted stock units were excluded from the denominator for the fiscal years ended December 31, 2024, 2023, and 2022 because inclusion of such shares would be antidilutive.

The Company paid approximately $ 6 million during second quarter 2024 to repurchase and terminate its outstanding stock warrants, previously issued in connection with three separate payroll funding support ("Payroll Support") programs entered into with the United States Department of the Treasury ("Treasury") in 2020 and 2021.

See Note 6 to the Consolidated Financial Statements for information regarding the Company's participation in the Payroll Support Program.

Notes to Consolidated Financial Statements

be antidilutive.

Year ended December 31,

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Net income $ 465 $ 465 $ 539

Interest expense (a) 19 22 —

Interest expense 20 19 22

Net income attributable to common stockholders $ 485 $ 484 $ 561

Weighted-average shares outstanding, basic 598 595 593

Dilutive effects of convertible notes (a) (b) 43 47 15

Dilutive effects of stock warrants — — 1

Dilutive effects of convertible notes 43 43 47

Dilutive effect of restricted stock units 2 2 2

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Diluted $ 0.76 $ 0.76 $ 0.87

(a) As of January 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method.

The standard requires the Company to apply the if-converted method for purposes of diluted net income per share, which requires the Company to assume that all Convertible Notes were converted and outstanding for the entire period.

Using this method, the numerator is affected by adding back interest expense and the denominator is affected by including the effect of potential share settlement, if the effect is more dilutive, regardless of the type of settlement.

For the year ended December 31, 2023, all shares issuable on conversion were included in the denominator.

See Notes 3 and 7 for further information regarding the Convertible Notes.

(b) Prior to the adoption of ASU 2020-06, the Convertible Notes were accounted for using the treasury stock method for the purposes of Net income per share.

For the year ended December 31, 2021, the average market price of the Company's common stock exceeded the conversion price per share of $ 38.48 and as such, the common shares underlying the Convertible Notes were included in the diluted calculation.

COMMITMENTS AND CONTINGENCIES

The Company has contractual obligations and commitments primarily with regard to future purchases of aircraft, repayment of debt (see Note 6), and lease arrangements (see Note 7).

During the year ended December 31, 2023, the Company entered into supplemental agreements with The Boeing Company ("Boeing") relating to its contractual order book for -7 and -8 aircraft.

The revised agreement, which extends the order book to 2031, supports the Company's growth and fleet modernization plans, while also providing significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

The Company received 86 -8 aircraft deliveries from Boeing in 2023 and retired 39 -700 aircraft.

The Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

Boeing continues to experience delays in fulfilling its commitments with regards to delivery of certain MAX aircraft to the Company, as a result of both supply chain constraints as well as achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer.

During fourth quarter 2023, the Company exercised eight -7 options for delivery in 2025, accelerated one 2024 -8 firm order into 2023, converted and shifted three 2025 -7 firm orders to three 2024 -8 firm orders, and shifted an additional three 2025 -8 firm orders into 2024.

Therefore, as of December 31, 2023, the Company had the following firm orders and options for future periods:

Notes to Consolidated Financial Statements

The Boeing Company

-7 Firm Orders -8 Firm Orders -7 or -8 Options Total

2024 27 58 — 85 (c)

2025 59 — 15 74

2026 59 — 26 85

2027 19 46 25 90

2028 15 50 25 90

2029 38 34 18 90

2030 45 — 45 90

2031 45 — 45 90

307 (a) 188 (b) 199 694

(a) The delivery timing for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.

The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.

(b) The Company has flexibility to designate firm orders or options as -7s or -8s, upon written advance notification as stated in the contract.

During the year ended December 31, 2024, the Company entered into supplemental agreements with Boeing relating to its contractual order book for -7 and -8 aircraft.

The Company's contractual order book with Boeing for -7 and -8 aircraft, which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility and optionality to manage its fleet gauge and size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

The Company received 22 -8 aircraft deliveries from Boeing in 2024 and retired 34 -700 aircraft and 2 Boeing 737-800 ("-800") aircraft.

In addition, during fourth quarter 2024, the Company exercised eight -7 options for delivery in 2025 and five -7 options for delivery in 2026.

Boeing continues to experience delays in fulfilling its commitments with regards to delivery of MAX aircraft to the Company, as a result of manufacturing and labor challenges, and delays in achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer.

During 2024, as a result of Boeing's ongoing delivery delays, the Company conservatively re-planned its capacity and delivery expectations for 2025.

The Company will continue to closely monitor the ongoing aircraft delivery delays with Boeing and adjust expectations as needed.

Based on the Company's current agreement with Boeing, capital commitments associated with its firm orders as of December 31, 2024, were:

$ 2.2 billion in 2024, $ 1.7 billion in 2025, $ 1.9 billion in 2026, $ 2.6 billion in 2027, $ 2.9 billion in 2028, and $ 5.3 billion thereafter.

(in billions) 2025 2026 2027 2028 2029 2030 and thereafter Total

Payments for capital commitments $ 3.4 (a) $ 2.0 $ 2.5 $ 2.8 $ 2.5 $ 2.8 $ 16.0

(a) Capital commitments associated with the Company's firm orders in 2025 of $ 3.4 billion include approximately $ 2.1 billion primarily related to the existing scheduled 73 MAX aircraft to be delivered in 2025 and $ 1.3 billion related to 63 MAX aircraft ( 27 -7s and 36 -8s) that were contractually committed for 2024, but were not received.

Los Angeles International Airport

Notes to Consolidated Financial Statements

In April 2023, the Company executed a lease agreement with Los Angeles World Airports ("LAWA"), which owns and operates Los Angeles International Airport ("LAX"), for the ground lease and construction of a new concourse.

In this agreement, the Company will manage the development, design, financing, and construction of nine new gates, along with additional features, at LAX.

Construction of the concourse is estimated to be complete in late 2028 or early 2029 at a cost not to exceed $ 2.3 billion.

Construction of the concourse is estimated to not exceed $ 2.3 billion.

During 2024, leadership met with LAWA and agreed to pause the project, with plans to restart it in 2026.

The Company expects to commence construction in 2028 with construction to be completed in 2032.

Funding for this project will flow through a credit facility and the outstanding loans are expected to be paid off directly by LAWA to the credit facility at project completion, thus reimbursing the Company on all costs drawn on the credit facility.

As of December 31, 2023, the credit facility has yet to be put into place and is expected to be established closer to the beginning of construction, which is anticipated to occur in 2025.

As of December 31, 2024, the credit facility has yet to be put into place and is expected to be established closer to the beginning of construction in 2028.

The Company is expected to be reimbursed by the credit facility on prior payments made once in place.

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The project is currently estimated to be completed in 2027 at a cost of at least $ 470 million.

The Company will provide initial funding for the majority of the project, but is expected to be reimbursed for such funding from the City on a monthly basis and therefore the project should not significantly impact the Company’s liquidity.

Notes to Consolidated Financial Statements

plans to fund these reimbursements utilizing rates and charges collected from current and future Hobby occupants, including the Company.

The Company is providing initial funding for the majority of the project, but is being reimbursed for such funding from the City on a monthly basis and therefore the project has not and is not expected to significantly impact the Company’s liquidity.

The City plans to fund these reimbursements utilizing rates and charges collected from current and future Hobby occupants, including the Company.

Based on the MOA, as well as a terminal lease amendment expected to be finalized prior to the beginning of significant construction, the Company has determined that it does not control the assets during the construction period for accounting purposes, and thus will record the amounts funded for the project as a receivable until reimbursed by the City, and the balance is derecognized.

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Given the Company’s guarantee associated with the Series 2012 bonds, the remaining debt service amount is considered a minimum lease payment under ASC Topic 842, Leases, and therefore remains a lease liability with a corresponding right-of-use asset within the Company’s Consolidated Balance Sheet.

Notes to Consolidated Financial Statements

As of December 31, 2024, $ 49 million of principal remained outstanding associated with the Series 2012 bonds.

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The Ninth Circuit’s decision may adversely affect the Company’s defenses in the USERRA proceeding and may give rise to additional litigation in this or other areas.

On October 29, 2024, the Company filed a motion to decertify the class.

The motion is fully briefed and a hearing on the motion is set for February 27, 2025.

The Court has set a trial date of September 11, 2025.

The Company is currently not able to estimate a range of possible loss with regards to the litigation to which it is a defendant.

Passenger Revenues

Notes to Consolidated Financial Statements

The Company’s contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability.

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Total passenger revenues $ 24,980 $ 23,637 $ 21,408

Passenger non-loyalty includes all revenues recognized from Passengers for flights purchased primarily with cash or credit card.

Passenger non-loyalty includes all revenues recognized from Passengers for flights purchased primarily with credit card.

All Customers purchasing a ticket on Southwest Airlines are generally able to check up to two bags at no extra charge (with certain exceptions as stated in the Company's published Contract of Carriage), and the Company also does not charge a fee for a Customer to make a change to their flight after initial purchase, although fare differences may apply.

Passenger loyalty - air transportation primarily consists of the revenue associated with award flights taken by loyalty program members upon redemption of loyalty points.

In 2024, the Company launched Cash + Points where Customers can use a mixture of cash (or equivalent) and loyalty points to purchase flights on the

Notes to Consolidated Financial Statements

Company's website.

Passenger ancillary sold separately includes any revenue associated with ancillary fees charged separately, such as in-flight purchases, EarlyBird Check-In ® , and Upgraded Boarding.

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• Fair Value of Rapid Rewards Points - Determined from the base fare value of tickets which were purchased using prior point redemptions for travel and other products and services, which the Company believes to be indicative of the fair value of points as perceived by Customers and representative of the value of each point at the time of redemption.

The Company’s booking site allows a Customer to toggle between fares utilizing either cash or point redemptions, which provides the Customer with an approximation of the equivalent value of their points.

The Company’s booking site allows a Customer to toggle between fares utilizing either cash (or equivalent) or point redemptions, which provides the Customer with an approximation of the equivalent value of their points.

The value can differ, however, based on demand, the amount of time prior to the flight, and other factors.

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Changes to breakage estimates impact revenue recognition prospectively.

Due to the size of the Company’s liability for loyalty benefits,

Notes to Consolidated Financial Statements

changes in Customer behavior and/or expected future redemption patterns could result in significant variations in Passenger revenue.

Due to the size of the Company’s liability for loyalty benefits, changes in Customer behavior and/or expected future redemption patterns could result in significant variations in Passenger revenue.

The Company allocates consideration received to performance obligations based on the relative fair value of those obligations.

The Company has a co-branded credit card agreement (“Agreement”) with Chase Bank USA, N.A.

(“Chase”), through which the Company sells loyalty points and certain marketing components, which consist of the use of the Southwest Airlines brand and access to Rapid Rewards Member lists, licensing and advertising elements, and the use of the Company’s resource team.

In fourth quarter 2021, Chase and the Company executed a multi-year extension of the Agreement, extending the decades-long relationship between the parties.

The Company estimated the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the two performance obligations identified in the Agreement, which have been characterized as a transportation component and a marketing component.

The Company maintains a decades-long relationship with and has a co-branded credit card agreement (“Agreement”) with Chase, through which the Company sells loyalty points and certain marketing components, which consist of the use of the Southwest Airlines brand and access to Rapid Rewards Member lists, licensing and advertising elements, and the use of the Company’s resource team.

The Company estimates the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the two performance obligations identified in the Agreement, which have been characterized as a transportation component and a marketing component.

The allocations utilized are reviewed to determine if adjustment is necessary any time there is a modification to the Agreement.

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The events that result in revenue recognition that are associated with performance obligations identified as a part of the Rapid Rewards Program are as follows:

• Tickets and Rapid Rewards Points - When a flight occurs, the related performance obligation is satisfied and the related value provided by the Customer, whether from purchased tickets or Rapid Rewards Points, is recognized as revenue.

• Tickets and Rapid Rewards Points - When a flight occurs, the related performance obligation is satisfied and the related value provided by the Customer, whether from purchased tickets, Rapid Rewards Points, or a combination thereof, is recognized as revenue.

Notes to Consolidated Financial Statements

• Loyalty points redeemed for goods and/or services other than travel - Rapid Rewards Members have the option to redeem points for goods and services offered through a third party vendor, who acts as principal.

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Rollforwards of the Company's Air traffic liability - loyalty program for the years ended December 31, 2024 and 2023 were as follows (in millions):

Notes to Consolidated Financial Statements

Year ended December 31,

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Rollforwards of the amounts included in Air traffic liability as of December 31, 2024 and 2023 were as follows (in millions):

Air traffic liability

Balance at December 31, 2022 $ 8,250

Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty) 23,766

Revenue from amounts included in contract liability opening balances ( 5,031 )

Revenue from current period sales ( 18,706 )

Balance at December 31, 2023 $ 8,279

Air traffic liability

Balance at December 31, 2021 $ 7,725

Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty) 22,012

Year ended December 31,

(in millions) 2024 2023

Air traffic liability - beginning balance $ 8,279 $ 8,250

Current period sales (a) 25,057 23,766

Revenue from amounts included in contract liability opening balances ( 5,082 ) ( 5,031 )

Revenue from current period sales ( 20,012 ) ( 18,706 )

Balance at December 31, 2022 $ 8,250

On July 28, 2022, the Company announced that all existing Customer flight credits as of that date, as well as any future flight credits issued, will no longer expire and will thus remain redeemable by Customers.

Prior to this change, flight credits would expire twelve months from the original fare purchase date.

Air traffic liability - ending balance $ 8,242 $ 8,279

(a) Current period sales include passenger travel, ancillary services, flight loyalty, and partner loyalty

On July 28, 2022, the Company announced that all existing Customer flight credits as of that date, as well as any future flight credits issued, no longer expire and will thus remain redeemable by Customers.

Prior to this change,

Notes to Consolidated Financial Statements

flight credits would expire twelve months from the original fare purchase date.

Flight credits for non-refundable fares will be issued as long as the flight is cancelled more than 10 minutes prior to the scheduled departure.

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The Company’s balance of existing Customer flight credits as of the modification date was approximately $ 1.9 billion, including a portion of the extended flight credits issued during the early portion of the COVID-19 pandemic, that had been set to expire on September 7, 2022.

See Note 2 for further information.

As the Company continues to believe that a portion of Customer flight credits issued after July 28, 2022, will not be redeemed, it continues to estimate and record breakage associated with such amounts.

The amount of breakage realized on a prospective basis, however, is expected to be lower and more stable than it has been during the pandemic as a result of this policy change.

The amount of Customer flight credits represents approximately 8 percent and 9 percent of the total Air traffic liability balance as of December 31, 2023, and December 31, 2022, respectively, compared to approximately 2 percent of the Air traffic liability balance as of December 31, 2019.

Recognition of revenue associated with the Company’s loyalty liability can be difficult to predict, as the number of award seats available to Members is not currently restricted and they could choose to redeem their points at any time that a seat is available.

The amount of breakage realized on a prospective basis, however, has been and is expected to continue to be lower and more stable as a percentage of Passenger revenues than it had been historically as a result of this policy change.

Due to Customer redemptions throughout 2024 on the flight credits issued prior to the modification date, as well as currently projected redemptions beyond 2024, the Company determined a reversal of a portion of this prior breakage revenue of $ 116 million was warranted for the twelve months ended December 31, 2024.

This change in breakage revenue, and the corresponding impact to passenger revenue, is considered a change in estimate (see Note 1 to the Consolidated Financial Statements for further information).

The amount of Customer flight credits represents approximately 8 percent of the total Air traffic liability balance as of December 31, 2024, and December 31, 2023, respectively.

Recognition of revenue associated with the Company’s loyalty liability can be difficult to predict, as the number of award seats available to Members is not currently restricted and Members could choose to redeem their points at any time that a seat is available.

The performance obligations classified as a current liability related to the Company’s loyalty program were estimated based on expected redemptions utilizing historical redemption patterns, and forecasted flight availability and fares.

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Based on historical experience as well as current forecasted redemptions, the Company expects the majority of loyalty points to be redeemed within approximately one year of the date the points are issued.

Notes to Consolidated Financial Statements

Despite the Company's policy change with regards to flight credits, it has not experienced significant flight credit redemptions beyond twelve months and it currently does not expect the amount of flight credits that will be redeemed beyond twelve months to be material as of the financial statement date.

All performance obligations related to freight services sold are completed within twelve months or less;

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The Company records a liability upon collection from the Customer and relieves the liability when payments are remitted to the applicable governmental agency.

Notes to Consolidated Financial Statements

FINANCING ACTIVITIES

(in millions) December 31, 2023 December 31, 2022

5.25 % Notes due 2025

(in millions) Maturity Dates December 31, 2024 December 31, 2023

2025 $ — $ 1,302

1.25 % Convertible Notes due 2025

3.00 % Notes due 2026

7.375 % Debentures due 2027

3.45 % Notes due 2027

5.125 % Notes due 2027

2.625 % Notes due 2030

1.000 % Payroll Support Program Loan due 2030 (See Note 2)

1.000 % Payroll Support Program Loan due 2031 (See Note 2)

1.25 % Convertible Notes

2025 1,611 1,611

7.375 % Debentures

5.125 % Notes

2027 1,727 1,727

2.625 % Notes

1.000 % Payroll Support Program Loan (a)

Finance leases 91 104

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$ 5,069 $ 7,978

(a) The interest rate will change to Secured Overnight Financing Rate plus two percent on the fifth anniversary of the loans.

The fifth anniversary for the first tranche occurs in April 2025.

Senior Unsecured Notes due through 2030

During 2020, the Company issued $ 2.0 billion of unsecured notes due 2027, of which $ 1.3 billion was issued June 8, 2020 (the “$ 1.3 billion 2027 Notes”) and $ 700 million was issued July 31, 2020 (the “$ 700 million 2027 Notes”).

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The $ 700 million 2027 Notes were offered as an additional issuance of the Company’s $ 1.3 billion 2027 Notes issued on June 8, 2020.

The $ 700 million 2027 Notes were issued at a premium and this premium has been included within Capitalized financing items in the Consolidated Statement of Cash Flows.

The $ 700 million 2027 Notes were issued at a premium.

The Company made early prepayments on the notes of $ 272 million throughout 2022, utilizing available cash on hand.

Notes to Consolidated Financial Statements

During 2020, the Company issued $ 1.55 billion of unsecured notes due 2025, of which $ 1.25 billion was issued May 4, 2020 (the “$ 1.25 billion 2025 Notes”) and $ 300 million was issued July 31, 2020 (the “$ 300 million 2025 Notes”).

The notes bear interest at 5.250 %.

Interest is payable semi-annually in arrears.

The $ 300 million 2025 Notes were offered as an additional issuance of the Company’s $ 1.25 billion 2025 Notes issued on May 4, 2020.

The $ 300 million 2025 Notes were issued at a premium and this premium has been included within Capitalized financing items in the Consolidated Statement of Cash Flows.

The Company made early prepayments on the notes of $ 248 million throughout 2022, utilizing available cash on hand.

The $ 300 million 2025 Notes were issued at a premium.

The Company made early prepayments on the notes of $ 248 million throughout 2022, and prepaid the remaining notes in full in December 2024, utilizing available cash on hand.

During February 2020, the Company issued $ 500 million senior unsecured notes due 2030.

The notes bear interest at 2.625 percent.

Interest is payable semi-annually in arrears.

During November 2017, the Company issued $ 300 million senior unsecured notes due 2027.

The notes bear interest at 3.45 percent.

Interest is payable semi-annually in arrears.

During November 2016, the Company issued $ 300 million senior unsecured notes due 2026.

The notes bear interest at 3.00 percent.

Interest is payable semi-annually in arrears.

On February 28, 1997, the Company issued $ 100 million of senior unsecured 7.375 percent debentures due March 1, 2027.

Interest is payable semi-annually.

The debentures may be redeemed, at the option of the Company, in whole at any time or in part from time to time, at a redemption price equal to the greater of the principal amount of the debentures plus accrued interest at the date of redemption or the sum of the present values of the remaining

Notes to Consolidated Financial Statements

scheduled payments of principal and interest thereon, discounted to the date of redemption at the comparable treasury rate plus 20 basis points, plus accrued interest at the date of redemption.

Convertible Notes due 2025

On May 1, 2020, the Company completed the public offering of $ 2.3 billion aggregate principal amount of Convertible Senior Notes (the “Convertible Notes”).

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Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2025, in the event certain conditions are met, as stated in the offering documents.

The Convertible Notes did not meet the criteria to be converted as of the date of the financial statements, and thus are classified as Long-term debt in the accompanying Consolidated Balance Sheet as of December 31, 2023.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election.

The Company intends to settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value settled in cash or shares of common stock.

The Convertible Notes did not meet the criteria to be converted as of December 31, 2024, but are classified within Current maturities of long-term debt in the accompanying Consolidated Balance Sheet due to their maturity on May 1, 2025.

Upon conversion, the Company will settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value also settled in cash.

The initial conversion rate was 25.9909 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $ 38.48 per share of common stock).

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The Company adopted ASU 2020-06, as of January 1, 2022, utilizing the modified retrospective method approach.

See Note 3 for further information.

Upon adoption, the Company reclassified the remaining equity component, of $ 300 million, from Additional paid-in capital to Long-term debt associated with its Convertible Notes, and no longer records amortization of the debt discount to Interest expense.

The net carrying amount and principal amount of the Convertible Notes was $ 1.6 billion as of December 31, 2023 and 2022.

The Company recognized interest expense associated with the Convertible Notes as follows:

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The unamortized debt issuance costs are being recognized as non-cash interest expense based on the 5 -year term of the notes, through May 1, 2025, less amounts that were or will be required to be accelerated immediately upon conversion or repurchases.

The Company had no changes to contingencies for the year ended December 31, 2023.

The Company had no changes to contingencies related to the Convertible Notes for the year ended December 31, 2024.

The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the year ended December 31, 2024.

There were no Convertible Note prepayments or conversions exercised or settled during 2023 or 2024.

Payroll Support Program Loans due through 2031

The speed with which the effects of the COVID-19 pandemic changed the U.S.

economic landscape, outlook, and in particular the travel industry, was swift and unexpected.

Notes to Consolidated Financial Statements

The following table presents the impact of the partial extinguishment of the Company's Convertible Notes and early prepayment of debt (excluding payments on finance leases) for the year ended December 31, 2022.

No such instances of partial extinguishment or early prepayment of debt occurred for the year ended December 31, 2023.

Additionally, there were no Convertible Note conversions exercised or settled during 2022 or 2023.

Year ended December 31, 2022

(in millions) Cash paid for debt and interest Principal repayment Loss on extinguishment Non-cash amortization of debt discount and (issuance) costs Accrued Interest

1.25 % Convertible Notes due 2025

$ 649 $ 486 $ 171 $ ( 9 ) $ 1

5.125 % Notes due 2027

285 272 7 2 4

4.75 % Notes due 2023

1,278 1,250 9 — 19

5.25 % Notes due 2025

258 248 6 — 4

Total $ 2,470 $ 2,256 $ 193 $ ( 7 ) $ 28

The Company has access to $ 1.0 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement").

In August 2023, this facility was amended to (i) extend the maturity to August 4, 2028, (ii) release all aircraft and other assets constituting collateral securing the loans made under the Amended Credit Agreement, (iii) delete all provisions and terminate all agreements, in each case, relating to the grant of such collateral, (iv) eliminate the role of “Collateral Agent” under the Amended Credit Agreement after giving effect to the amendment, terminations, and releases, (v) eliminate the minimum liquidity covenant, (vi) add a Coverage Ratio financial covenant, (vii) amend the Collateral Coverage Test covenant requiring that a pool of lien-free specified aircraft and related assets have a minimum aggregate appraised value, and add certain covenants with respect to such pool of assets, (viii) amend the pricing and fees, (ix) increase certain materiality thresholds, (x) grant longer grace periods for certain defaults, and (xi) update and amend certain other provisions.

The Company entered into definitive documentation with Treasury with respect to payroll funding support ("Payroll Support") pursuant to three separate Payroll Support programs:

the "PSP1 Payroll Support Program" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act");

the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021;

and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

The Company paid approximately $ 6 million during second quarter 2024 to repurchase and terminate its outstanding stock warrants, previously issued in connection with the Payroll Support programs entered into with Treasury in 2020 and 2021.

Revolving Credit Facility

The Company has access to $ 1.0 billion under the Amended Credit Agreement, which expires in August 2028.

For the twelve months ended December 31, 2024 and 2023 there were no amounts outstanding under the Amended Credit Agreement.

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As of December 31, 2024, the Company was in compliance with this covenant and all other covenants in the Amended Credit Agreement.

During February 2020, the Company issued $ 500 million senior unsecured notes due 2030.

The notes bear interest at 2.625 percent.

Interest is payable semi-annually in arrears.

During November 2017, the Company issued $ 300 million senior unsecured notes due 2027.

The notes bear interest at 3.45 percent.

Interest is payable semi-annually in arrears.

During November 2016, the Company issued $ 300 million senior unsecured notes due 2026.

The notes bear interest at 3.00 percent.

Interest is payable semi-annually in arrears.

On February 28, 1997, the Company issued $ 100 million of senior unsecured 7.375 percent debentures due March 1, 2027.

Interest is payable semi-annually.

The debentures may be redeemed, at the option of the Company, in whole at any time or in part from time to time, at a redemption price equal to the greater of the principal amount

Notes to Consolidated Financial Statements

of the debentures plus accrued interest at the date of redemption or the sum of the present values of the remaining scheduled payments of principal and interest thereon, discounted to the date of redemption at the comparable treasury rate plus 20 basis points, plus accrued interest at the date of redemption.

The Company is required to provide standby letters of credit to support certain obligations that arise in the ordinary course of business.

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The Company had no assets pledged as collateral for its borrowings as of December 31, 2024.

The net book value of the assets pledged as collateral for the Company's secured borrowings, primarily aircraft, was $ 2.0 billion as of December 31, 2022.

This included aircraft with net book values of approximately $ 296 million, in which the associated debt had been repaid as of December 31, 2022, but for which the liens were formally removed in 2023.

As of December 31, 2024, aggregate annual principal maturities of debt and finance leases (not including amounts associated with interest on finance leases) are as follows:

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Total $ 6,697

Notes to Consolidated Financial Statements

The Company enters into leases for aircraft, property, and other types of equipment in the normal course of business.

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Residual value guarantees included in the Company's lease agreements are not material.

In fourth quarter 2022, the Company signed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms.

Any lease return costs incurred by the Company are recognized as a component of Other operating expenses but were not material for all periods presented.

In fourth quarter 2024, the Company entered into an agreement with UMB Bank, N.A.

("UMB Bank") involving the sale of 36 of the Company’s Boeing -800 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance.

Of the 36 -800 sale-leasebacks, 35 were executed in fourth quarter 2024 and one was finalized in late January 2025.

The Company sold the 35 -800 aircraft in fourth quarter 2024 to UMB Bank for $ 871 million, then immediately leased the aircraft back for approximately two to three years .

In first quarter 2025, the Company sold one -800 aircraft to UMB Bank for $ 24 million, then immediately leased the aircraft back for approximately three years .

As such, 35 aircraft were de-recognized from Property and equipment at their remaining net book values at the time of sale.

All of the leases from the sale-leasebacks are accounted for as operating leases, and thus are now reflected as part of the Company’s Operating lease right-of-use assets and operating lease liabilities in the accompanying Consolidated Balance Sheet.

The -800 sale-leaseback transaction resulted in a recognized gain of $ 92 million and operating lease right-of-use assets and liabilities of $ 319 million in fourth quarter 2024 and will result in a recognized gain of $ 3 million in first quarter 2025, reflected within Other operating expenses, net in the accompanying Consolidated Statement of Comprehensive Income.

Throughout 2024, the Company entered into agreements with third parties to purchase two -700 aircraft, both of which were already in the Company's fleet under finance lease terms, one -800 aircraft, and the airframe of one -800 aircraft, both of which were already in the Company's fleet under operating lease terms.

The Company paid the lessors $ 45 million in 2024, of which $ 3 million was recorded as the elimination of the Company's remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows and $ 2 million was recorded as the elimination of the Company's remaining operating lease obligation for the aircraft, and which was also reflected within Changes in Other noncurrent assets in the accompanying Consolidated Statement of Cash Flows.

The remaining $ 40 million was the net purchase price of the aircraft and is included as part of the Company's Capital expenditures for 2024.

There was no gain or loss recorded as a result of these transactions.

As of December 31, 2024, the Company has 88 operating and 18 finance leased aircraft remaining.

In second and third quarter 2023, the Company also entered into additional transactions with third parties to purchase four -700 aircraft, all of which were already in the Company's fleet under finance lease terms.

The Company paid the lessors $ 44 million in 2023, of which $ 3 million was recorded as the elimination of the Company's remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows.

The remaining $ 41 million was the net purchase price of the aircraft and is included as part of the Company's Capital expenditures for 2023.

There was no gain or loss recorded as a result of these transactions.

In fourth quarter 2022, the Company executed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms.

As each aircraft purchase was finalized, the Company relieved its related lease liability and continued to recognize the cost of the aircraft within Property a nd equipment section in the Consolidated Balance Sheet.

The Company completed the purchase of 31 of these aircraft during fourth quarter 2022, and the remaining eight aircraft during first quarter 2023.

The Company paid the lessor $ 365 million and $ 88 million in fourth quarter 2022 and first quarter 2023, respectively, as part of this transaction, of which $ 191 million and $ 50 million were recorded as the elimination of the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows.

The remaining $ 174 million and $ 38 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for fourth quarter 2022 and first quarter 2023, respectively.

Notes to Consolidated Financial Statements

long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows.

The remaining $ 41 million was the net purchase price of the aircraft and is included as part of the Company's Capital expenditures for 2023.

the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying Consolidated Statement of Cash Flows.

There was no gain or loss recorded as a result of these transactions.

As of December 31, 2023, the Company has 24 finance leased aircraft remaining.

At each airport where the Company conducts flight operations, the Company has lease agreements, generally with a governmental unit or authority, for the use of airport terminals, airfields, office space, cargo warehouses, gates, and/or maintenance facilities.

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Because of the variable nature of these rates, these leases are not recorded as a right-of-use asset or a lease liability on the Consolidated Balance Sheet.

The Company also leases certain technology assets, fuel storage tanks, and various other equipment that qualify as leases under the applicable accounting guidance with lease terms extending up to three years .

Certain leases can be renewed from six months to one year .

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Financing cash flows for finance leases 26 32 78

Right-of-use assets obtained in exchange for lease obligations:

Operating leases 82 58 327

As of December 31, 2024, maturities of lease liabilities were as follows:

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As of December 31, 2024, the Company had 80 million shares of common stock reserved for issuance pursuant to Employee equity plans (of which 28 million shares had not been granted) through various share-based compensation arrangements.

Additionally, as part of the consideration for its receipt of funding under the Payroll Support programs, the Company entered into warrant agreements with Treasury.

Warrants will be settled through net share settlement or net cash settlement, at the Company's option.

The warrants do not have voting rights and include adjustments for below market issuances, payment of dividends, and other customary anti-dilution provisions.

Additionally, as part of the consideration for its receipt of funding under the Payroll Support programs, the Company entered into warrant agreements with Treasury (classified as a component of Stockholders' equity in the Consolidated Balance Sheet).

The Company paid $ 6 million during second quarter 2024 to repurchase and terminate the outstanding stock warrants.

See Notes 6 and 9 to the Consolidated Financial Statements for information regarding the Company's warrant agreements and equity plans, respectively.

Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2024 (the "Fourth Quarter 2024 ASR Program"), the Company paid $ 250 million and received an initial delivery of 6,795,787 shares during October 2024, representing an estimated 80 percent of the shares to be purchased by the Company under the Fourth Quarter 2024 ASR Program.

This share amount was based on the

Notes to Consolidated Financial Statements

$ 29.43 closing price of the Company's common stock on October 25, 2024.

Final settlement of the Fourth Quarter 2024 ASR Program occurred in January 2025 and was based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period completed in January 2025.

Upon settlement, the third party financial institution delivered 1,010,663 additional shares of the Company’s common stock to the Company.

Upon completion of the Fourth Quarter 2024 ASR Program in January 2025, the average purchase price per share for the 7,806,450 shares repurchased was $ 32.02 .

Share-based Compensation

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and (c) the individual has not been terminated for cause.

With respect to PBRSUs granted in 2021, the number of PBRSUs vesting on the vesting date will be interpolated based on the Company's cumulative Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the years 2022 and 2023 and ranges from 10 percent of granted PBRSUs to 300 percent of granted PBRSUs, only after a minimum performance level has been achieved.

Vesting is also subject generally to the individual's continued employment or service.

However, in the event the Company's pre-tax average return on invested capital for 2021 and 2022 exceeds the median (i.e., 50th percentile) average return on invested capital of certain of the Company's peer group of domestic mainline carriers subject to the Securities and Exchange Commission's reporting requirements, the minimum number of PBRSUs that will vest, as of the vesting date, will be equal to the grant amount times 50 percent.

Based on cumulative EBITDA for the years 2022 and 2023, the number of PBRSUs expected to vest for the 2021 grants is equal to approximately 276 percent of the PBRSUs granted.

Under the 2022 grants, the number of PBRSUs vesting on the vesting date will be interpolated based on the Company's Adjusted ROIC performance, as defined, and ranges from zero PBRSUs to 300 percent of granted PBRSUs, only after a minimum performance level has been achieved.

Adjusted ROIC for the Performance Period is the average of the ROIC over the three full fiscal years within the Performance Period (2022, 2023, and 2024), and vesting is also subject generally to the individual’s continued employment or service.

However, in the event the Company's average Adjusted ROIC is greater than zero and exceeds the median (i.e., 50th percentile) return on invested capital of certain of the Company's peer group of domestic mainline carriers subject to the Securities and Exchange Commission's reporting requirements, the minimum number of PBRSUs that will vest, as of the vesting date, will be equal to the grant amount times 50 percent.

However, in the event the Company's average Adjusted ROIC is greater than zero and exceeds the median (i.e., 50th percentile) return on invested capital of certain of the Company's peer group of domestic mainline carriers subject to the Securities and Exchange Commission's reporting requirements ("Peer Group"), the minimum number of PBRSUs that will vest, as of the vesting date, will be equal to the grant amount times 50 percent.

If the Company's relative Adjusted ROIC ranks highest compared to the Company's Peer Group, the minimum number of PBRSUs that will vest, as of the vesting date, will be equal to the grant amount times 100 percent.

Under the 2023 grants, the number of PBRSUs vesting on the vesting date will be interpolated based on the Company's Adjusted ROIC performance, as defined, and ranges from zero PBRSUs to 200 percent of granted PBRSUs, only after a minimum performance level has been achieved.

Adjusted ROIC for the Performance Period is the average of the ROIC, using an assumed federal tax rate of 24 percent, over the three full fiscal years within the

Notes to Consolidated Financial Statements

Performance Period (2023, 2024, and 2025), and vesting is also subject generally to the individual’s continued employment or service.

However, in the event the Company's average Adjusted ROIC is greater than zero and exceeds the median (i.e., 50th percentile) return on invested capital of certain of the Company's Peer Group of domestic mainline carriers subject to the Securities and Exchange Commission's reporting requirements, the minimum number of PBRSUs that will vest, as of the vesting date, will be equal to the grant amount times 50 percent.

Under the 2024 grants, the number of PBRSUs vesting on the vesting date will be interpolated based on the Company's Adjusted ROIC performance, as defined, and ranges from zero PBRSUs to 200 percent of granted PBRSUs, only after a minimum performance level has been achieved.

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For all RSU and PBRSU grants, the Company recognizes all expense on a straight-line basis over the vesting period, as adjusted for qualified retirement provisions, with any changes in expense due to the number of RSUs and PBRSUs expected to vest being modified on a prospective basis.

Notes to Consolidated Financial Statements

Aggregated information regarding the Company’s RSUs and PBRSUs is summarized below:

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(a) Includes 700 thousand PBRSUs

(b) Includes 700 thousand PBRSUs

(b) Includes 1.1 million PBRSUs

In addition, the Company granted approximately 73 thousand shares of unrestricted stock at a weighted average grant price of $ 30.12 in 2023, approximately 42 thousand shares at a weighted average grant price of $ 44.23 in

Notes to Consolidated Financial Statements

2022, and approximately 27 thousand shares at a weighted average grant price of $ 60.39 in 2021, to members of its Board of Directors.

In addition, the Company granted approximately 108 thousand shares of unrestricted stock at a weighted average grant price of $ 28.77 in 2024, approximately 73 thousand shares at a weighted average grant price of $ 30.12 in 2023, and approximately 42 thousand shares at a weighted average grant price of $ 44.23 in 2022, to members of its Board of Directors.

A remaining balance of up to 14 million shares of the Company’s common stock may be issued pursuant to grants under the 2007 Equity Plan.

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(a) The weighted-average fair value of each purchase right under the ESPP granted is equal to a ten percent discount from the market value of the Common Stock at the end of each monthly purchase period.

Notes to Consolidated Financial Statements

Grants of RSUs result in the creation of a deferred tax asset, which is a temporary difference, until the time the RSU vests.

All excess tax benefits and tax deficiencies are recorded through the income statement.

All excess tax benefits and tax deficiencies are recorded through the Consolidated Statement of Income.

Due to the treatment of RSUs for tax purposes, the Company’s effective tax rate from year to year is subject to variability.

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Therefore, even though the Company may have an economic hedge in place for a particular period, that hedge may not produce any hedging gains at settlement and may even produce hedging losses depending on market prices, the types of instruments held, and the strike prices of those instruments.

As of December 31, 2023, the Company had fuel derivative instruments in place to provide coverage at varying price levels.

The following table provides information about the Company’s volume of fuel hedging on an economic basis:

As of December 31, 2024, the Company has fuel derivative contracts in place through 2027.

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 is providing the following information about the Company’s volume of fuel hedging on an economic basis:

Maximum fuel hedged as of

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Period (by year) (gallons in millions) (a) December 31, 2024

2024 1,265 WTI crude oil and Brent crude oil

2025 1,033 Brent crude oil

2026 945 Brent crude oil

(a) Due to the types of derivatives utilized by the Company and different price levels of those contracts, these volumes represent the maximum economic hedge in place and may vary significantly as market prices and the Company's flight schedule fluctuate.

2027 277 Brent crude oil

Notes to Consolidated Financial Statements

Upon proper qualification, the Company accounts for its fuel derivative instruments as cash flow hedges.

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However, even though certain derivatives may not qualify for hedge accounting, the Company continues to hold the instruments as management believes they continue to afford the Company the opportunity to stabilize jet fuel costs.

When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel derivative instrument portfolio, any subsequent changes in fair value of those positions are marked to market through earnings.

When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel hedging portfolio, any subsequent changes in fair value of those positions are marked to market through the Consolidated Statement of Income.

Likewise, any changes in fair value of those positions that were offset by entering into the sold positions and were de-designated as hedges are concurrently marked to market through the Consolidated Statement of Income.

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In a situation where it becomes probable that a fuel hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into the Consolidated Statement of Income.

The Company did not have any such situations where a derivative ceased to qualify for hedge accounting during 2022 and 2023.

During third quarter 2024, the routine statistical analysis performed by the Company to determine which commodities qualify for special hedge accounting treatment on a prospective basis indicated that WTI crude oil-based derivatives no longer qualified for hedge accounting.

This change was primarily due to the fact that the correlation between WTI crude oil prices and jet fuel prices during recent periods had not been as strong as in the past, and therefore the Company could no longer demonstrate that derivatives based on WTI crude oil prices would result in effective hedges on a prospective basis.

As such, all WTI-based instruments were de-designated from their hedging relationships and the change in fair value of all of the Company's derivatives based in WTI was recorded to Other (gains) losses for third and fourth quarter 2024.

All WTI crude oil based derivatives in the Company's portfolio have settled as of December 31, 2024.

The change in fair value of the Company's WTI derivative contracts during the second half of 2024 was a decrease of $ 37 million, which resulted in a corresponding loss in the Consolidated Statement of Income.

Any amounts previously recorded to AOCI remained there until the original forecasted transaction occurred in accordance with hedge accounting requirements.

Accounting pronouncements pertaining to derivative instruments and hedging are complex with stringent requirements, including the documentation of a Company hedging strategy, statistical analysis to qualify a commodity for hedge accounting both on a historical and a prospective basis, and strict contemporaneous documentation that is required at the time each hedge is designated by the Company.

This statistical analysis involves utilizing regression analyses that compare changes in the price of jet fuel to changes in the prices of the commodities used for hedging purposes .

Notes to Consolidated Financial Statements

All cash flows associated with purchasing and selling fuel derivatives are classified as Other operating cash flows in the Consolidated Statement of Cash Flows.

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Fuel derivative contracts (gross) Other assets 108 137 — —

Interest rate derivative contracts Other assets — 14 — —

Total derivatives designated as hedges $ 130 $ 223 $ — $ —

Notes to Consolidated Financial Statements

(a) Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties.

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Receivable from third parties for fuel contracts Accounts and other receivables 1 12

All of the Company's fuel derivative instruments and interest rate swaps are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging.

All of the Company's fuel derivative instruments are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging.

The types of derivative instruments the Company has determined are subject to netting requirements in the accompanying Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt.

For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty.

The Company has elected to utilize netting for both its fuel derivative instruments and interest rate swap agreements and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the Consolidated Balance Sheet.

If its fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments.

As of December 31, 2023, the Company had no outstanding interest rate swap agreements and therefore no cash collateral deposits provided or held.

The Company has elected to utilize netting for its fuel derivative instruments and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the Consolidated Balance Sheet.

If the Company's fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments.

The Company had the following recognized financial assets and financial liabilities resulting from those transactions that meet the scope of the disclosure requirements as necessitated by applicable accounting guidance for balance sheet offsetting:

Notes to Consolidated Financial Statements

Offsetting of derivative assets

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Fuel derivative contracts Other assets $ 108 $ ( 18 ) $ 90 (a) $ 137 $ ( 35 ) $ 102 (a)

Interest rate derivative contracts Other assets $ — $ — $ — (a) $ 14 $ — $ 14 (a)

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the Consolidated Balance Sheet in Note 15.

Notes to Consolidated Financial Statements

Offsetting of derivative liabilities

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(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the Consolidated Balance Sheet in Note 15.

Notes to Consolidated Financial Statements

The following tables present the impact of derivative instruments and their location within the Consolidated Statement of Income for the years ended December 31, 2024 and 2023:

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Commodity contracts:

Amount of gain reclassified from AOCI into income ( 128 ) — ( 832 ) —

Interest contracts:

Amount of (gain) loss reclassified from AOCI into income 72 — ( 128 ) —

Amount of loss reclassified from AOCI into income — 8 — 7

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Fuel derivative contracts $ 99 $ 238

Interest rate derivatives ( 7 ) ( 14 )

Other — ( 7 )

Total $ 99 $ 231

Notes to Consolidated Financial Statements

Derivatives not designated as hedges

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Gains and/or losses associated with fuel derivatives that qualify for hedge accounting are ultimately recorded to Fuel and oil expense.

Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other (gains) and losses, net.

Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other (gains) losses, net.

The following table presents the impact of premiums paid (received) for fuel derivative contracts and their location within the Consolidated Statement of Income during the period the contract settles:

Premium (benefit) expense recognized in income on derivatives

Year ended December 31, Location of premium (benefit) expense recognized in income on derivatives

Notes to Consolidated Financial Statements

Premium expense (benefit) recognized in income on derivatives

Year ended December 31, Location of premium expense (benefit) recognized in income on derivatives

(in millions) 2024 2023 2022

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The fair values of the derivative instruments, depending on the type of instrument, were determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets or provided by third parties.

Included in the Company’s cumulative unrealized gains from fuel hedges as of December 31, 2023, recorded in AOCI, were approximately $ 55 million in unrealized losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to December 31, 2023.

Included in the Company’s cumulative unrealized loss from fuel hedges as of December 31, 2024, recorded in AOCI, were approximately $ 96 million in unrealized losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to December 31, 2024.

Interest Rate Swaps

The Company is at times party to certain interest rate swap agreements that are accounted for as cash flow hedges, but had none in place as of December 31, 2024.

The Company did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented.

During the periods presented, all of the Company's interest rate swap agreements have qualified for the "shortcut" or "critical terms match" methods of accounting for hedges, which dictate that the hedges were assumed to be perfectly effective at origination, and, thus, there was no ineffectiveness to be recorded in the Consolidated Statement of Income.

During fourth quarter 2023, the Company terminated $ 150 million notional value of forward-starting interest rate swap agreements.

During fourth quarter 2023, the Company terminated $ 150 million notional value of forward-starting interest rate swap agreements associated with the Company's forecasted issuance of debt.

These swap agreements had been classified as cash flow hedges, and all fair market value changes were recorded to AOCI prior to their termination.

The effect of this termination is that the value of the swaps originally recorded in AOCI, a gain of $ 23 million, will be amortized to Interest expense over the life of the debt, which will be within the years 2024-2027.

The effect of this termination is that the value of the swaps originally recorded in AOCI, a gain of $ 23 million, will be amortized to Interest expense over the life of new debt instruments, which could be issued through 2027.

The Company also did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented.

Credit Risk and Collateral

Notes to Consolidated Financial Statements

Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company at the reporting date.

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As of December 31, 2024, the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty's credit rating.

The Company also had agreements with counterparties in which cash deposits and letters of credit were required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds.

The Company also had agreements with counterparties in which cash deposits and letters of credit may be required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds.

In certain cases, the Company has the ability to substitute among these different forms of collateral at its discretion.

The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of December 31, 2024, at which such postings are triggered:

Notes to Consolidated Financial Statements

Counterparty (CP)

(in millions) A B C D E F G H Total

(in millions) A B C D E F G H I Total

Fair value of fuel derivatives $ 30 $ 17 $ 18 $ 10 $ 14 $ 11 $ 13 $ 13 $ 4 $ 130

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Option to substitute LC for cash N/A N/A (a)

N/A (a) N/A (a)

If credit rating is investment

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(d) Cash collateral is not required based on the current credit rating.

Notes to Consolidated Financial Statements

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The majority of the Company’s cash equivalents and short-term investments consist of instruments classified as Level 1.

However, the Company has certificates of deposit, commercial paper, and time deposits that are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets.

However, the Company has certificates of deposit and time deposits that are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets.

Equity securities primarily consist of investments with readily determinable market values associated with the Company’s excess benefit plan.

The Company’s fuel and interest rate derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange.

The Company’s derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange.

Fuel derivative instruments currently consist solely of option contracts, whereas interest rate derivatives consist solely of swap agreements.

See Note 10 for further information on the Company’s derivative instruments and hedging activities.

The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets.

Therefore, the Company has categorized these swap contracts as Level 2.

The Company’s Treasury Department, which reports to the Chief Financial Officer, determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts.

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The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

Included in Other available-for-sale securities are the Company's investments associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available.

Included in Equity securities are the Company's investments primarily associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available.

These plans are non-qualified deferred compensation plans designed to hold contributions in excess of limits established by the Internal Revenue Code of 1986, as amended.

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Cash equivalents (a) $ 7,209 $ 7,209 $ — $ —

Commercial paper 135 — 135 —

Certificates of deposit 21 — 21 —

Time deposits 300 — 300 —

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Certificates of deposit 203 — 203 —

Time deposits 450 — 450 —

Fuel derivatives:

Option contracts (b) 223 — — 223

Interest rate derivatives (see Note 11) $ 14 $ — $ 14 $ —

Equity securities 280 280 — —

Total assets $ 11,977 $ 11,295 $ 459 $ 223

(a) Cash equivalents are primarily composed of money market investments.

(a) Cash equivalents are primarily composed of money market investments and treasury bills.

(b) In the Consolidated Balance Sheet amounts are presented as an asset.

Notes to Consolidated Financial Statements

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2024 or 2023.

The following tables present the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for 2024 and 2023:

Notes to Consolidated Financial Statements

Fair value measurements using significant unobservable inputs (Level 3)

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Balance as of December 31, 2022 $ 512

Total gains for the period

Total gains (losses) for the period

Included in earnings 17 (a)

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Balance as of December 31, 2023 $ 223

The amount of total gains for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2022 $ 122

The amount of total losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2023 $ 209

(a) Included in Other (gains) losses, net, within the Consolidated Statement of Income.

(b) The purchase and sale of fuel derivatives is recorded on a gross basis based on the structure of the derivative instrument and whether a contract with multiple derivatives was purchased as a single instrument or separate instruments.

(b) The purchase of fuel derivatives is recorded on a gross basis based on the structure of the derivative instrument and whether a contract with multiple derivatives was purchased as a single instrument or separate instruments.

The significant unobservable input used in the fair value measurement of the Company’s derivative option contracts is implied volatility.

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(a) Implied volatility weighted by the notional amount (barrels of underlying commodity) that will settle in respective period.

Notes to Consolidated Financial Statements

The carrying amounts and estimated fair values of the Company’s short-term and long-term debt (including current maturities), as well as the applicable fair value hierarchy tier, as of December 31, 2024, are presented in the table below.

The fair values of the Company’s publicly held long-term debt are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets;

Notes to Consolidated Financial Statements

therefore, the Company has categorized these agreements as Level 2.

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The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.

(in millions) Carrying value Estimated fair value Fair value level hierarchy

5.25 % Notes due 2025

1,302 1,303 Level 2

1.25 % Convertible Notes due 2025

(in millions) Maturity

date Carrying value Estimated fair value Fair value level hierarchy

1.25 % Convertible Notes

2025 $ 1,611 $ 1,664 Level 2

3.00 % Notes due 2026

2026 300 290 Level 2

7.375 % Debentures due 2027

7.375 % Debentures

2027 107 112 Level 2

3.45 % Notes due 2027

2027 300 289 Level 2

5.125 % Notes due 2027

5.125 % Notes

2027 1,727 1,736 Level 2

2.625 % Notes due 2030

2.625 % Notes

2030 500 444 Level 2

1.000 % Payroll Support Program Loan due 2030 (a)

1.000 % Payroll Support Program Loan (a)

2030 976 991 Level 3

1.000 % Payroll Support Program Loan due 2031 (a)

1.000 % Payroll Support Program Loan (a)

2031 566 553 Level 3

1.000 % Payroll Support Program Loan due 2031 (a)

1.000 % Payroll Support Program Loan (a)

2031 526 508 Level 3

(a) The interest rate will change to Secured Overnight Financing Rate plus two percent on the fifth anniversary of the loans.

The fifth anniversary for the first tranche occurs in April 2025.

Notes to Consolidated Financial Statements

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting and actuarial gains/losses arising from the Company’s postretirement benefit obligation.

A rollforward of the amounts included in AOCI, net of taxes, is shown below for 2024 and 2023:

(in millions) Fuel derivatives Interest rate derivatives Defined benefit plan items Deferred tax impact Accumulated other

comprehensive income

(in millions) Fuel derivatives Defined benefit plan items Other Deferred tax impact Accumulated other

comprehensive income (loss)

Balance at December 31, 2022 $ 305 $ 170 $ ( 32 ) $ ( 99 ) $ 344

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AOCI components

Unrealized (gain) on fuel derivative instruments $ ( 128 ) Fuel and oil expense

$ ( 99 ) Net of tax

Unrealized loss on interest rate derivative instruments 7 Other operating expenses

Unrealized loss on fuel derivative instruments $ 72 Fuel and oil expense

$ 55 Net of tax

Unrealized (gain) on defined benefit plan $ ( 7 ) Other (gains) losses, net

$ ( 3 ) Less:

$ ( 5 ) Net of tax

Other $ — Other

Other 8 Other operating expenses

$ 5 Net of tax

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Defined Contribution Plans

The Company has defined contribution plans covering substantially all of its Employees.

Contributions under all defined contribution plans are primarily based on Employee compensation and performance of the Company.

The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as

The Company has defined contribution plans covering substantially all Employees.

Contributions to these plans are primarily based on Employee elective deferrals as well as their eligible compensation and Company performance.

The Company sponsors Employee savings plans under section 401(k) of the Internal Revenue Code of 1986, as amended.

The Southwest Airlines Pilots Retirement Saving Plan has non-elective Company contributions.

Before May 31, 2024, the Southwest Airlines Co.

401(k) Plan (the "401(k) Plan") included Company matching contributions and the Southwest Airlines Co.

ProfitSharing Plan (the "ProfitSharing Plan") was a defined contribution plan under which the Company contributed a percentage of its annual net profits annually, as defined.

Employee contributions to the ProfitSharing Plan were not permitted.

Effective May 31, 2024, the Profitsharing

Notes to Consolidated Financial Statements

The Southwest Airlines Co.

401(k) Plan includes Company matching contributions and the Southwest Airlines Pilots Retirement Saving Plan has non-elective Company contributions.

In addition, the Southwest Airlines Co.

ProfitSharing Plan (the "ProfitSharing Plan") is a defined contribution plan to which the Company may contribute a percentage of its eligible pre-tax profits, as defined, on an annual basis.

No Employee contributions to the ProfitSharing Plan are allowed.

Plan's net assets were transferred and merged into the 401(k) Plan, which was subsequently renamed the Southwest Airlines Co.

Retirement Savings Plan (the "Retirement Savings Plan").

As of the time of the merger, participants can now elect to invest in the Southwest Airlines Company Stock Fund for future investment contributions - including deferrals, matching contributions, or profitsharing contributions, within specified limits.

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

Amounts associated with the Company's defined contribution plans expensed in 2024, 2023, and 2022, reflected as a component of Salaries, wages, and benefits, were $ 843 million, $ 941 million, and $ 793 million, respectively.

Defined Benefit Plan

In 2024, the Company began offering a market based cash balance defined benefit plan covering eligible Pilots.

The Company's funding obligation for the qualified plan is governed by the Employee Retirement Income Security Act of 1974 (ERISA) and any applicable regulations.

The plan provides pay credits equal to 1 percent of eligible wages for qualifying participants, which are invested in a designated portfolio with a conservative allocation of 40 percent equity and 60 percent fixed income assets.

Participants’ hypothetical account balances reflect market-based interest credits, calculated monthly based on the actual returns (positive or negative) of the designated portfolio.

Participants' benefits consist of the sum of the pay credits and the market-based returns (or losses) accrued on the invested contributions.

Any accrued amounts exceeding IRS-defined limits are paid in cash to eligible participants.

As a defined benefit plan, participants are guaranteed a distribution equivalent to no less than the sum of the original pay credits to be distributed in the form of a single life annuity, if unmarried, or 50 percent joint and survivor, if married.

Postretirement Benefit Plans

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Employees meeting these requirements, as defined, may use accrued unused sick time to pay for medical and dental premiums from the age of retirement until age 65 .

The following table shows the change in the accumulated postretirement benefit obligation ("APBO") for the years ended December 31, 2023 and 2022:

The following table shows the change in the accumulated market based cash balance plan and postretirement benefit obligations for the years ended December 31, 2024 and 2023:

Market Based Cash Balance Plan Postretirement Benefits

December 31, December 31,

(in millions) 2024 2023 2024 2023

APBO at beginning of period $ 241 $ 330

Accumulated Benefit Obligation at beginning of period $ — $ — $ 269 $ 241

Service cost 31 — 16 14

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Actuarial (gain) loss ( 1 ) — ( 35 ) 11

APBO at end of period $ 269 $ 241

During 2023, the Company recorded an $ 11 million actuarial loss as an increase to the APBO with an offset to AOCI.

This 2023 actuarial loss is reflected above and resulted from changes in certain key assumptions used to determine the Company’s year-end obligation.

The assumption change that resulted in the largest portion of the actuarial loss was a decrease in the discount rate used.

All plans are unfunded, and benefits are paid as they become due.

Estimated future benefit payments expected to be paid are $ 15 million in 2024, $ 18 million in 2025, $ 19 million in 2026, $ 20 million in 2027, $ 21 million in 2028, and $ 127 million for the next five years thereafter.

The following table reconciles the funded status of the plans to the accrued postretirement benefit cost recognized in Other noncurrent liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2023 and 2022.

Plan Amendments — — 11 —

Accumulated Benefit Obligation at end of period $ 30 $ — $ 257 $ 269

Fair value of plan assets at beginning of period — — — —

Actual gain/(loss) on plan assets — — — —

Employer contributions 31 — 20 9

Benefits paid $ — $ — $ ( 20 ) $ ( 9 )

Fair value of plan assets at end of period $ 31 $ — $ — $ —

Notes to Consolidated Financial Statements

During 2024, the Company recorded $ 36 million in combined actuarial gains as a decrease to the market based cash balance and postretirement benefit plans with an offset to AOCI.

These 2024 actuarial gains are reflected above and resulted from changes in certain key assumptions used to determine the Company’s year-end obligation.

The assumption change that resulted in the largest portion of the actuarial gains was an increase in the discount rate used.

Benefits earned under the market based cash balance plan are expected to be paid from funded benefit plan assets, while the postretirement benefits are funded from current assets.

The following table shows the estimated future benefit payments expected to be paid:

Market Based Cash Balance Plan Postretirement Benefits Total

(in millions)

2025 $ 1 $ 16 $ 17

2028 12 20 32

2029 18 21 39

Next 5 yrs thereafter 147 126 273

The following table reconciles the combined funded status of the market based cash balance and postretirement benefit plans to the accrued benefit plan cost recognized in Other noncurrent liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2024 and 2023.

(in millions) 2024 2023

Funded status $ ( 256 ) $ ( 269 )

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Consolidated Balance Sheet liability $ ( 257 ) $ ( 269 )

Notes to Consolidated Financial Statements

The consolidated periodic postretirement benefit cost for the years ended December 31, 2023, 2022, and 2021, included the following:

The consolidated periodic benefit cost for the years ended December 31, 2024, 2023, and 2022, included the following:

Market Based Cash Balance Plan Postretirement Benefits

(in millions) 2024 2024 2023 2022

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Amortization of net gain — ( 7 ) ( 10 ) ( 2 )

Net periodic postretirement benefit cost $ 16 $ 26 $ 35

Net periodic benefit cost $ 11 $ 23 $ 16 $ 26

Service cost is recognized within Salaries, wages, and benefits expense, and all other costs are recognized in Other (gains) losses, net in the Consolidated Statement of Income.

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Actuarial gains are amortized utilizing the minimum amortization method.

The following actuarial assumptions were used to account for the Company’s postretirement benefit plans at December 31, 2023, 2022, and 2021:

The following actuarial assumptions were used to account for the Company’s market based cash balance and postretirement plans at December 31, 2024, 2023, and 2022:

Notes to Consolidated Financial Statements

Market Based Cash Balance Plan Postretirement Benefits

2024 2024 2023 2022

Weighted-average discount rate 5.25 % 5.65 % 5.20 % 5.60 %

Assumed healthcare cost trend rate (a) 6.25 % 6.50 % 6.25 %

Assumed healthcare cost trend rate (a) n/a 8.15 % 6.25 % 6.50 %

Weighted average expected long-term rate of return 5.25 % n/a n/a n/a

(a) The assumed healthcare cost trend rate is expected to be 8.15 % for 2025, then decline gradually to 4.5 % by 2034 and remain level thereafter.

The selection of a discount rate is made annually and is selected by the Company based upon comparison of the expected future cash flows associated with the Company’s future payments under its consolidated postretirement obligations to a yield curve created using high quality bonds that closely match those expected future cash flows.

This rate decreased during 2023 due to market conditions.

The assumed healthcare trend rate is also reviewed at least annually and is determined based upon both historical experience with the Company’s healthcare benefits paid and expectations of how those trends may or may not change in future years.

The selection of a discount rate is made annually and is selected by the Company based upon comparison of the expected future cash flows associated with the Company’s future payments under its consolidated benefit obligations to a yield curve created using high quality bonds that closely match those expected future cash flows.

This rate for postretirement benefits increased during 2024 due to market conditions.

The assumed healthcare trend rate is also reviewed at least annually and is determined based upon both historical experience with the Company’s benefits paid and expectations of how those trends may or may not change in future years.

The expected long-term rate of return on plan assets is based on historical market and volatility data and expected market conditions, reflecting a target asset allocation of 40 percent equities and 60 percent fixed income.

The Company reviews the rate of return on plan assets assumption annually.

The annual investment performance for one particular year does not, by itself, significantly influence the Company's evaluation.

Notes to Consolidated Financial Statements

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State 1 19 ( 3 )

Change in federal statutory rate — — ( 2 )

Total current 1 9 ( 39 )

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State income taxes, net of federal benefit 20 30 12

Change in federal statutory tax rate — — ( 2 )

Nondeductible per diem 9 8 1

Convertible debt repurchases — — 31

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Fuel hedging and receivables 1 12

Reinsurance receivable 168 145

Other 167 157

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Dividends payable 107 107

Customer reimbursements and refunds (a) 8 311

Accrued third party services 269 196

Third party services 176 269

Other payable 223 218

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(in millions) December 31, 2024 December 31, 2023

Voluntary Separation Program (c) 65 72

Voluntary Separation Program $ 48 $ 65

Profitsharing and savings plans 151 141

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Interest 23 34

Bonus and incentive pay (b) 2,022 563

Bonus and incentive pay (a) 208 2,022

Reinsurance payable 249 190

Aircraft maintenance 92 26

Other 355 253

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(in millions) December 31, 2024 December 31, 2023

Voluntary Separation Program (c) 61 147

Voluntary Separation Program $ 20 $ 61

Postretirement obligation 256 269

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Other noncurrent liabilities $ 909 $ 981

(a) As of December 31, 2022, included customer reimbursement expenses due to the Company's December 2022 operational disruption and refund submissions that had yet to be processed.

As of December 31, 2023, amounts primarily consist of normal current activity.

(b) Primarily consists of anticipated contract labor ratification bonuses and/or accruals.

(a) Balance as of December 31, 2023 primarily consists of contract labor ratification bonuses and/or accruals.

Also includes non-contract incentive pay.

Included in Salaries, wages and benefits expense for the year ended December 31, 2023, are incremental expenses of $ 180 million for changes in estimate related to the contract ratification bonus for the Company’s Flight Attendants, and $ 354 million related to the contract ratification bonus for the Company's Pilots.

The cumulative $ 534 million is included in the balance as of December 31, 2023.

The Company began accruing for these open labor contracts on April 1, 2022.

The incremental $ 180 million expense related to the contract ratification bonuses for Flight Attendants extends the timeframe covered by the ratification bonus to the date the contract became amendable on November 1, 2018.

The incremental $ 354 million expense related to the contract ratification bonuses for Pilots is primarily to increase pay rates for all periods to the date the contract became amendable, which was September 1, 2020.

These bonuses for both Flight Attendants and Pilots serve to compensate for missed wage increases over these time periods.

(c) The purpose of Voluntary Separation Program and Extended ETO was to maintain a reduced workforce to operate at reduced capacity relative to the Company's operations prior to the COVID-19 pandemic.

In accordance with the accounting guidance in Accounting Standards Codification Topic 712 (Compensation — Nonretirement Postemployment Benefits), the Company accrued charges related to the special termination benefits described above upon Employees accepting Voluntary Separation Program or Extended ETO offers.

The Company accrued expenses totaling $ 1.4 billion for its Voluntary Separation Program and Extended ETO program in 2020, which are being reduced as program benefits are paid.

For both the Voluntary Separation Program and Extended ETO programs combined, approximately $ 93 million and $ 109 million of the liability balances were relieved during 2023 and 2022, respectively, through payments to Employees.

During 2021, the Company determined that it was no longer probable that the remaining portion of the Employees on Extended ETO would remain on such leave for their entire elected term.

Therefore, a portion of the accruals previously recorded were reversed, resulting in a net $ 140 million credit to expense during 2021, and the entire liability was fully relieved at March 31, 2022.

Both the initial charge and the partial reversal were classified within Payroll support and voluntary Employee programs, net, in the accompanying Consolidated Statement of Income, and are in addition to the allocation of the PSP2 Payroll Support Program and PSP3 Payroll Support Program funds utilized to fund salaries, wages, and benefits, which totaled $ 2.7 billion for the year ended December 31, 2021.

Approximately $ 1.9 billion was paid in the year ended December 31, 2024 to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with the Southwest Airlines Pilots Association ("SWAPA"), Transport Workers of America Union Local 556 ("TWU 556"), and the Transport Workers Union Local 555 ("TWU 555"), respectively.

For further information on fuel derivative and interest rate derivative contracts, see Note 10.

Notes to Consolidated Financial Statements

Other Operating Expenses

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, and other operating costs, none of which individually exceed 10 percent of Total operating expenses, net.

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, certain technology-related costs, and other operating costs, none of which individually exceed 10 percent of Total operating expenses.

Notes to Consolidated Financial Statements

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 7, 2025 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for convertible debt instruments in 2022 due to the adoption of ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Basis for Opinion

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(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Notes to Consolidated Financial Statements

audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of fuel derivative instruments

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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 8. Financial Statements and Supplementary Data