What changed in this filing

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Item 1. Financial Statements

2025-07-24 compared with 2025-04-25 · 296 added, 281 removed, 453 unchanged (56% of the section changed)

3 unchanged sentences

(in millions)

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Current assets:

40 unchanged sentences

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Loss

Condensed Consolidated Statement of Comprehensive Income

(in millions, except per share amounts)

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2025 2024 2025 2024

OPERATING REVENUES:

11 unchanged sentences

Total operating expenses 7,019 6,956 13,670 13,677

OPERATING LOSS ( 223 ) ( 393 )

OPERATING INCOME 225 398 2 6

NON-OPERATING EXPENSES (INCOME):

4 unchanged sentences

Total non-operating income ( 55 ) ( 80 ) ( 86 ) ( 175 )

LOSS BEFORE INCOME TAXES ( 192 ) ( 298 )

BENEFIT FOR INCOME TAXES ( 43 ) ( 67 )

NET LOSS $ ( 149 ) $ ( 231 )

NET LOSS PER SHARE, BASIC $ ( 0.26 ) $ ( 0.39 )

NET LOSS PER SHARE, DILUTED $ ( 0.26 ) $ ( 0.39 )

COMPREHENSIVE LOSS $ ( 148 ) $ ( 212 )

INCOME BEFORE INCOME TAXES 280 478 88 181

PROVISION FOR INCOME TAXES 67 111 24 44

NET INCOME $ 213 $ 367 $ 64 $ 137

NET INCOME PER SHARE, BASIC $ 0.40 $ 0.61 $ 0.11 $ 0.23

NET INCOME PER SHARE, DILUTED $ 0.39 $ 0.58 $ 0.11 $ 0.23

COMPREHENSIVE INCOME $ 202 $ 359 $ 54 $ 148

WEIGHTED AVERAGE SHARES OUTSTANDING

14 unchanged sentences

Balance at March 31, 2025 $ 888 $ 4,210 $ 16,080 $ ( 24 ) $ ( 11,789 ) $ 9,365

Repurchase of common stock — — — — ( 1,515 ) (a) ( 1,515 )

Issuance of common and treasury stock pursuant to Employee stock plans — 12 — — 5 17

Share-based compensation — 25 — — — 25

Cash dividends, $ 0.18 per share

— — ( 94 ) — — ( 94 )

Comprehensive income (loss) — — 213 ( 11 ) — 202

Balance at June 30, 2025 $ 888 $ 4,247 $ 16,199 $ ( 35 ) $ ( 13,299 ) $ 8,000

(a) Includes excise tax incurred on share repurchases, net of issuances.

7 unchanged sentences

Balance at March 31, 2024 $ 888 $ 4,138 $ 15,959 $ 19 $ ( 10,808 ) $ 10,196

Issuance of common and treasury stock pursuant to Employee stock plans — 12 — — 5 17

Share-based compensation — 7 — — — 7

Cash dividends, $ 0.18 per share

— — ( 108 ) — — ( 108 )

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

Comprehensive income (loss) — — 367 ( 8 ) — 359

Balance at June 30, 2024 $ 888 $ 4,151 $ 16,218 $ 11 $ ( 10,803 ) $ 10,465

See accompanying notes.

2 unchanged sentences

(in millions)

Three months ended

Three months ended Six months ended

June 30, June 30,

2025 2024 2025 2024

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 149 ) $ ( 231 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income $ 213 $ 367 $ 64 $ 137

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 400 404 795 812

Impairment of long-lived assets 8 — 8 —

Unrealized/realized loss on fuel derivative instruments — 1 — 2

17 unchanged sentences

Other, net — 6 ( 3 ) ( 28 )

Net cash provided by (used in) investing activities 623 ( 585 )

Net cash used in investing activities ( 882 ) ( 206 ) ( 259 ) ( 791 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Payroll Support Program stock warrants repurchase — ( 6 ) — ( 6 )

Proceeds from Employee stock plans 15 15 32 30

3 unchanged sentences

Other, net 2 3 ( 10 ) ( 20 )

Net cash used in financing activities ( 858 ) ( 232 )

Net cash provided by (used in) financing activities ( 4,178 ) 4 ( 5,036 ) ( 227 )

NET CHANGE IN CASH AND CASH EQUIVALENTS ( 4,659 ) ( 225 ) ( 4,034 ) ( 1,146 )

12 unchanged sentences

Financial Derivative Instruments

Comprehensive Loss

Net Loss Per Share

Comprehensive Income (Loss)

Net Income Per Share

Fair Value Measurements

12 unchanged sentences

The accompanying unaudited Condensed Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended March 31, 2025 and 2024 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements as required in Form 10-K.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended June 30, 2025 and 2024 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

This includes all normal and recurring adjustments and elimination of significant intercompany transactions.

2 unchanged sentences

However, air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers and changes in consumer behavior, unemployment levels, corporate travel budgets, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, governmental actions, and other factors beyond the Company's control.

These and other factors, such as the price of jet fuel in some periods, the nature of the Company's fuel hedging program, and the periodic volatility of commodities used by the Company for hedging jet fuel, have created, and may continue to create, significant volatility in the Company's financial results.

See Note 3 for further information on fuel and the Company's fuel hedging program.

Operating results for the three months ended March 31, 2025, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2025.

These and other factors, such as the price of jet fuel in some periods, have created, and may continue to create, significant volatility in the Company's financial results.

Operating results for the three and six months ended June 30, 2025, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2025.

For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

Operating Segments and Related Disclosures

The Company's chief operating decision maker, the Company's President, Chief Executive Officer, & Vice Chairman of the Board of Directors, assesses performance for the Company's single reportable segment and decides how to allocate resources based on its Net income or loss (see the unaudited Condensed Consolidated Statement of Comprehensive Loss).

For single reportable segment-level financial information, total assets, revenues from external customers, depreciation and amortization expense, interest income and interest expense, provision for income taxes, other non-operating expenses, and significant non-cash transactions, see Item 1.

21 unchanged sentences

The Company has historically aimed to reduce volatility in operating expenses through its fuel hedging program.

Based on higher fuel hedging premium costs over time and other factors, the Company has discontinued its fuel hedging program and has no plans to add additional derivatives to its portfolio, which currently extends through 2027.

The Company has used financial derivative instruments for both short-term and long-term timeframes, and historically has used a mixture of purchased call options, collar structures (which include both a purchased call option and a sold put option), call spreads (which include a purchased call option and a sold call option), put spreads (which include a purchased put option and a sold put option), and fixed price swap agreements in its portfolio.

The Company does not purchase or hold any financial derivative instruments for trading or speculative purposes.

For the purpose of evaluating its net cash spend for jet fuel and for forecasting its future estimated jet fuel expense, the Company evaluates its hedge volumes strictly from an "economic" standpoint and, thus, does not consider whether the hedges have qualified or will qualify for hedge accounting.

The Company defines its "economic" hedge as the net volume of fuel derivative contracts held, including the impact of positions that have been offset through sold positions, regardless of whether those contracts qualify for hedge accounting.

The level at which the Company is economically hedged for a particular period is also dependent on current market prices for that period, as well as the types of derivative instruments held and the strike prices of those instruments.

For example, the Company has entered into "out-of-the-money" option contracts (including "catastrophic" protection, which the Company defines as prices significantly higher than historical average levels), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price.

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.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

As of March 31, 2025, the Company had fuel derivative contracts in place through 2027.

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

Maximum fuel hedged as of

March 31, 2025 Derivative underlying commodity type as of

Period (by year) (gallons in millions) (a) March 31, 2025

Remainder of 2025 775 Brent crude oil

2026 945 Brent crude oil

2027 277 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 fluctuate and if the Company's published flight schedule or capacity plans change.

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

Qualification is re-evaluated quarterly, and all periodic changes in fair value of the derivatives designated as hedges are recorded in Accumulated other comprehensive income ("AOCI") until the underlying jet fuel is consumed.

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 unaudited Condensed Consolidated Statement of Comprehensive Loss.

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 unaudited Condensed Consolidated Statement of Comprehensive Loss .

However, any changes in value related to hedges that were deferred as part of AOCI while designated as a hedge would remain until the originally forecasted transaction occurs.

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 unaudited Condensed Consolidated Statement of Comprehensive Loss.

In some situations, an entire commodity type used in hedging may cease to qualify for special hedge accounting treatment.

As an example, in certain prior periods, the Company's routine statistical analysis performed to determine which commodities qualified for special hedge accounting treatment on a prospective basis indicated that West Texas Intermediate ("WTI") crude oil-based derivatives no longer qualified for hedge accounting, 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 changes in fair value of all of the Company's derivatives based in WTI were recorded directly to Other (gains) losses on a prospective basis.

The Company's routine statistical analysis performed for the three months ended March 31, 2025, indicated that all commodities currently being utilized by the Company qualify for hedge accounting.

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

However, based on higher fuel hedging premium costs over time and other factors, the Company has discontinued its fuel hedging program in 2025 and does not intend to add additional fuel derivatives at this time.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio.

This resulted in the derecognition of all remaining related hedge assets in the unaudited Condensed Consolidated Balance Sheet.

The cash proceeds from this transaction totaled approximately $ 40 million, which will reduce future premium costs.

Approximately $ 36 million was reclassified from Accumulated Other Comprehensive Income ("AOCI") and recognized as an increase to Fuel and oil expense within the unaudited Condensed Consolidated Statement of Comprehensive Income during second quarter 2025, all of which is characterized as premium expense from fuel hedging activities, including amounts associated with terminated fuel hedge positions.

As of June 30, 2025, approximately $ 209 million remained in AOCI related to these closed positions.

This balance in AOCI does not include any tax impact, will also be characterized as premium expense and similarly reclassified as an increase to Fuel and oil expense in future periods when the originally forecasted transactions occur (through the end of 2027), and is net of the impact of the cash proceeds from the hedge terminations.

See Note 4 for additional information on AOCI.

All cash flows associated with purchasing and selling fuel derivatives (including terminations) are classified as Other operating cash flows in the unaudited Condensed Consolidated Statement of Cash Flows.

The following table presents the location of all assets and liabilities associated with the Company’s derivative instruments within the unaudited Condensed Consolidated Balance Sheet:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Asset derivatives

6 unchanged sentences

(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.

See discussion of credit risk and collateral following in this Note.

In addition, the Company had the following amounts associated with fuel derivative instruments and hedging activities in its unaudited Condensed Consolidated Balance Sheet:

Balance Sheet March 31, December 31,

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Balance Sheet June 30, December 31,

(in millions) location 2025 2024

2 unchanged sentences

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

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 unaudited Condensed 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 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 unaudited Condensed 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 fuel derivative instruments.

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

The types of derivative instruments the Company determined were subject to netting requirements in the accompanying unaudited Condensed Consolidated Balance Sheet are those in which the Company paid or received 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 netted such amounts against the fair value of the Company's derivative portfolio by each counterparty.

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

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 Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Offsetting of derivative assets

1 unchanged sentence

(i) (ii) (iii) = (i) + (ii) (i) (ii) (iii) = (i) + (ii)

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Description Balance Sheet location Gross amounts of recognized assets Gross amounts offset in the Balance Sheet Net amounts of assets presented in the Balance Sheet Gross amounts of recognized assets Gross amounts offset in the Balance Sheet Net amounts of assets presented in the Balance Sheet

Fuel derivative contracts Prepaid expenses and other current assets $ — $ — $ — $ 22 $ ( 4 ) $ 18

Fuel derivative contracts Other assets $ 71 $ — $ 71 (a) $ 108 $ ( 18 ) $ 90 (a)

Fuel derivative contracts Other assets $ — $ — $ — $ 108 $ ( 18 ) $ 90 (a)

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 8.

2 unchanged sentences

(i) (ii) (iii) = (i) + (ii) (i) (ii) (iii) = (i) + (ii)

March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Description Balance Sheet location Gross amounts of recognized liabilities Gross amounts offset in the Balance Sheet Net amounts of liabilities presented in the Balance Sheet Gross amounts of recognized liabilities Gross amounts offset in the Balance Sheet Net amounts of liabilities presented in the Balance Sheet

1 unchanged sentence

Fuel derivative contracts Other assets $ — $ — $ — $ 18 $ ( 18 ) $ — (a)

$ 18 $ ( 18 ) $ — (a)

(a) The net amounts of derivative assets and liabilities are reconciled to the individual line item amounts presented in the unaudited Condensed Consolidated Balance Sheet in Note 8.

The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Loss for the three months ended March 31, 2025 and 2024:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The following tables present the impact of derivative instruments, including terminations, within the unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2025 and 2024:

Location and amount recognized in income on cash flow hedging relationships

Three months ended March 31, 2025 Three months ended March 31, 2024

Three months ended June 30, 2025 Three months ended June 30, 2024

(in millions) Fuel and oil Other operating expenses Fuel and oil Other operating expenses

4 unchanged sentences

Amount of loss reclassified from AOCI into income — 2 — 2

(a) Includes amounts reclassified from Accumulated Other Comprehensive Income associated with hedges previously terminated.

Location and amount recognized in income on cash flow hedging relationships

Six months ended June 30, 2025 Six months ended June 30, 2024

(in millions) Fuel and oil Other operating expenses Fuel and oil Other operating expenses

Total $ 73 $ 3 $ 39 $ 4

Loss on cash flow hedging relationships

Commodity contracts:

Amount of loss reclassified from AOCI into income 73 (a)

Amount of loss reclassified from AOCI into income — 3 — 4

(a) Includes amounts reclassified from Accumulated Other Comprehensive Income associated with hedges previously terminated.

Derivatives designated and qualified in cash flow hedging relationships

(Gain) loss recognized in AOCI on derivatives, net of tax

Three months ended

(in millions) 2025 2024

Fuel derivative contracts $ 40 $ 23

Notes to Condensed Consolidated Financial Statements

3 unchanged sentences

(Gain) loss recognized in AOCI on derivatives, net of tax

Three months ended

Six months ended

(in millions) 2025 2024

5 unchanged sentences

Fuel derivative contracts $ — $ 2 Other (gains) losses, net

The Company also recorded expense associated with premiums paid for fuel derivative contracts that settled/expired during the three months ended March 31, 2025 and 2024.

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) losses, net.

The following table presents the impact of premiums paid for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Loss during the period the contract settles:

Premium expense recognized in income on derivatives

Three months ended Location of premium expense recognized in income on derivatives

Derivatives not designated as hedges

(Gain) loss recognized in income on derivatives

Six months ended Location of (gain) loss recognized in income on derivatives

(in millions) 2025 2024

Fuel derivative contracts $ — $ 3 Other (gains) losses, net

The Company also recorded expenses associated with net premiums paid for fuel derivative contracts that settled/expired and/or terminated during the three and six months ended June 30, 2025 and 2024.

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

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

The following tables present the expense impacts and their locations within the unaudited Condensed Consolidated Statement of Comprehensive Income during the periods the contracts settled or were scheduled to settle:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Expense (benefit) recognized in income on derivatives

Three months ended Location of expense (benefit) recognized in income on derivatives

(in millions) 2025 2024

Fuel derivative contracts designated as hedges $ 36 $ 40 Fuel and oil

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 losses from fuel hedges as of March 31, 2025, recorded in AOCI, were approximately $ 95 million in unrealized losses, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to March 31, 2025.

Fuel derivative contracts not designated as hedges — ( 1 ) Other (gains) losses, net

Expense (benefit) recognized in income on derivatives

Six months ended Location of expense (benefit) recognized in income on derivatives

(in millions) 2025 2024

Fuel derivative contracts designated as hedges $ 73 $ 79 Fuel and oil

Fuel derivative contracts not designated as hedges — ( 1 ) Other (gains) losses, net

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 March 31, 2025, or as of December 31, 2024.

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 June 30, 2025, or as of December 31, 2024.

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

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

At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements.

However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past.

To manage credit risk,

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty.

As of March 31, 2025, 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 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.

As of March 31, 2025, the Company had no cash collateral provided to or held from derivative counterparties.

The following table provides the fair values of fuel derivatives and applicable collateral posting threshold amounts as of March 31, 2025, at which such postings are triggered:

Counterparty (CP)

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

Fair value of fuel derivatives $ 22 $ 12 $ 13 $ 7 $ 9 $ 8 $ 8 $ 10 $ 3 $ 92

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

If credit rating is investment

grade, fair value of fuel

derivative level at which:

Cash is provided to CP >( 100 )

Cash is received from CP > 0 (b)

If credit rating is non-investment

grade, fair value of fuel derivative level at which:

Cash is received from CP (c)

(a) The Company has the option to substitute letters of credit for 100 percent of cash collateral requirement.

(b) Thresholds may vary based on changes in credit ratings within investment grade.

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

The Company had no cash collateral posted or received as of June 30, 2025.

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

COMPREHENSIVE LOSS

Comprehensive income (loss) 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.

The differences between Net loss and Comprehensive loss for the three months ended March 31, 2025 and 2024 were as follows:

Three months ended March 31,

COMPREHENSIVE INCOME (LOSS)

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

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio.

The differences between Net income and Comprehensive income for the three and six months ended June 30, 2025 and 2024 were as follows:

Three months ended June 30,

(in millions) 2025 2024

NET LOSS $ ( 149 ) $ ( 231 )

Unrealized gain on fuel derivative instruments, net of

NET INCOME $ 213 $ 367

Unrealized loss on fuel derivative instruments, net of

deferred taxes of ($ 4 ) and ($ 3 )

( 12 ) ( 10 )

Other, net of deferred taxes of $ 1 and $ —

Total other comprehensive income $ 1 $ 19

COMPREHENSIVE LOSS $ ( 148 ) $ ( 212 )

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three months ended March 31, 2025:

Total other comprehensive loss $ ( 11 ) $ ( 8 )

COMPREHENSIVE INCOME $ 202 $ 359

Six months ended June 30,

(in millions) 2025 2024

NET INCOME $ 64 $ 137

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

deferred taxes of ($ 4 ) and $ 3

Other, net of deferred taxes of $ 1 and $ —

Total other comprehensive income (loss) $ ( 10 ) $ 11

COMPREHENSIVE INCOME $ 54 $ 148

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and six months ended June 30, 2025:

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

Balance at March 31, 2025 $ ( 193 ) $ 167 $ ( 6 ) $ 8 $ ( 24 )

Changes in fair value ( 52 ) — — 12 ( 40 )

Reclassification to earnings 36 — 2 ( 9 ) 29

Balance at June 30, 2025 $ ( 209 ) $ 167 $ ( 4 ) $ 11 $ ( 35 )

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

Balance at December 31, 2024 $ ( 193 ) $ 167 $ ( 7 ) $ 8 $ ( 25 )

1 unchanged sentence

Reclassification to earnings 74 — 3 ( 18 ) 59

Balance at March 31, 2025 $ ( 193 ) $ 167 $ ( 6 ) $ 8 $ ( 24 )

The following table illustrates the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2025:

Three months ended March 31, 2025

(in millions) Amounts reclassified from AOCI Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Loss

Balance at June 30, 2025 $ ( 209 ) $ 167 $ ( 4 ) $ 11 $ ( 35 )

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The following tables illustrate the significant amounts reclassified out of each component of AOCI for the three and six months ended June 30, 2025:

Three months ended June 30, 2025

(in millions) Amounts reclassified from AOCI Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income

AOCI components

4 unchanged sentences

Total reclassifications for the period $ 29 Net of tax

Six months ended June 30, 2025

(in millions) Amounts reclassified from AOCI Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income

AOCI components

Unrealized loss on fuel derivative instruments $ 74 Fuel and oil expense

$ 57 Net of tax

Other $ 3 Other operating expenses

$ 2 Net of tax

Total reclassifications for the period $ 59 Net of tax

Passenger Revenues

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

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

2 unchanged sentences

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow.

The following table provides the components of Passenger revenue recognized for the three months ended March 31, 2025 and 2024:

Three months ended March 31,

The following table provides the components of Passenger revenue recognized for the three and six months ended June 30, 2025 and 2024:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Three months ended June 30, Six months ended June 30,

(in millions) 2025 2024 2025 2024

3 unchanged sentences

Total passenger revenues $ 6,627 $ 6,712 $ 12,438 $ 12,424

As of March 31, 2025, and December 31, 2024, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

As of June 30, 2025, and December 31, 2024, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

Balance as of

(in millions) March 31, 2025 December 31, 2024

(in millions) June 30, 2025 December 31, 2024

Air traffic liability - passenger travel and ancillary passenger services $ 3,603 $ 3,393

3 unchanged sentences

These flight credits are typically created as a result of a prior ticket cancellation or exchange, and are recorded net of associated breakage.

Rollforwards of the Company's Air traffic liability - loyalty program for the three months ended March 31, 2025 and 2024 were as follows:

Three months ended March 31,

Rollforwards of the Company's Air traffic liability - loyalty program for the three and six months ended June 30, 2025 and 2024 were as follows:

Three months ended June 30, Six months ended June 30,

(in millions) 2025 2024 2025 2024

5 unchanged sentences

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date.

Rollforwards of the amounts included in Air traffic liability as of March 31, 2025 and 2024 were as follows:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Three months ended March 31,

Rollforwards of the amounts included in Air traffic liability as of June 30, 2025 and 2024 were as follows:

Six months ended June 30,

(in millions) 2025 2024

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

Under the Company's current policy, flight credits never expire.

However, as the Company believes that a portion of Customer flight credits issued will not be redeemed, it estimates and records breakage associated with such amounts.

Customer flight credits represent approximately 7 percent and 8 percent of the total Air traffic liability balance as of March 31, 2025, and December 31, 2024, respectively.

On March 11, 2025, the Company announced a change to its flight credit policy.

Flight credits issued for reservations booked and ticketed or changed on or after May 28, 2025, will have a specified expiration date.

The Company recognizes revenue related to the marketing, advertising, and other travel-related benefits of the cash receipts associated with various loyalty partner agreements including, but not limited to, its co-branded credit card agreement with Chase Bank USA, N.A.

For the three months ended March 31, 2025 and 2024, the Company recognized $ 569 million and $ 542 million of such revenue, respectively, the majority of which is within Other operating revenues.

Through the co-branded credit card agreement with Chase, the Company sells loyalty points, certain marketing benefits, 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, and other airline benefits.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

On May 28, 2025, the Company implemented a change to its flight credit policy.

Flight credits created from reservations booked and ticketed or voluntarily changed on or after May 28, 2025, will have a specified expiration date of one year or less, depending on the type of fare purchased.

Flight credits issued between July 28, 2022, and May 28, 2025, including any future issuances associated with bookings made prior to the policy change on May 28, 2025, do not have an expiration date.

As the Company believes that a portion of Customer flight credits issued will not be redeemed, it estimates and records breakage associated with such amounts.

Customer flight credits represent approximately 6 percent and 8 percent of the total Air traffic liability balance as of June 30, 2025, and December 31, 2024, respectively.

For the three months ended June 30, 2025 and 2024, the Company recognized $ 567 million and $ 556 million of such revenue, respectively, the majority of which is within Other operating revenues.

For the six months ended June 30, 2025 and 2024, the Company recognized $ 1.1 billion in each period of such revenue.

Through the co-branded credit card agreement with Chase, the Company sells loyalty points, certain marketing benefits, which consist of the use of the Southwest Airlines brand and access to Rapid Rewards Member lists, licensing and advertising elements, the use of the Company’s resource team, and other airline benefits.

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

In first quarter 2025, the Company and Chase executed an amendment to the co-branded credit card agreement that extended the term of the agreement and added enhanced airline benefits for Cardmembers associated with the Company's planned assigned and premium seating initiative.

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

In 2025, the Company and Chase have amended the co-brand credit card agreement—in the first quarter to extend the term of the agreement and add enhanced airline benefits for Cardmembers associated with the Company's planned assigned seating and premium seating initiative, and again in the second quarter to add benefits to Cardmembers related to the Company's changes in its checked bag policy that went into effect on May 28, 2025.

For each change to the agreement, the Company estimated the selling prices and volumes over the term of the amended agreement in order to determine the allocation of proceeds to each of the three performance obligations identified in the agreement, which have been characterized as a transportation component, a marketing component, and an airline benefits component.

The Company records Passenger revenue related to loyalty point redemptions for air travel when the travel is delivered, the marketing elements are recognized as Other revenue when the performance obligations related to those services are satisfied, which is generally the same period consideration is received from Chase, and the airline benefits are recognized as Passenger revenue when they are provided.

NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss per share (in millions, except per share amounts).

Basic net loss per share is calculated by dividing net loss by the weighted average of shares outstanding during the period.

As a result of the amended co-brand agreement, a larger portion of the Company’s co-brand credit card benefits from Chase are now being classified within Passenger revenues during 2025.

NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in millions, except per share amounts).

Basic net income per share is calculated by dividing net income by the weighted average of shares outstanding during the period.

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.

For the three and six months ended June 30, 2025 and 2024, an immaterial number of shares related to the Company's restricted stock units were excluded from the denominator because inclusion of such shares would be antidilutive.

During second quarter 2025, the Company's remaining balance of 1.25 percent C onvertible Senior Notes due 2025 (the "Convertible Notes") of $ 1.6 billion was repaid, settling both principal and accrued interest.

Due to this maturity, the Convertible Notes did not have a dilutive impact on the net income per share calculation and interest expense was not added back to the numerator for second quarter 2025.

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

Three months ended March 31,

Net loss attributable to common stockholders $ ( 149 ) $ ( 231 )

Weighted-average shares outstanding, basic and diluted 584 597

NET LOSS PER SHARE:

Three months ended June 30, Six months ended June 30,

2025 2024 2025 2024

Net income $ 213 $ 367 $ 64 $ 137

Interest expense — 5 — 9

Net income attributable to common stockholders $ 213 $ 372 $ 64 $ 146

Weighted-average shares outstanding, basic 538 599 561 598

Dilutive effects of Convertible Notes — 43 — 43

Dilutive effect of restricted stock units 3 1 3 2

Weighted-average shares outstanding, diluted 541 643 564 643

NET INCOME PER SHARE:

Basic $ 0.40 $ 0.61 $ 0.11 $ 0.23

Diluted $ 0.39 $ 0.58 $ 0.11 $ 0.23

Antidilutive amounts excluded from calculations:

Convertible debt 44 43

Restricted stock units 3 3

Stock warrants — 2

FAIR VALUE MEASUREMENTS

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and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of March 31, 2025, the Company held certain items that are required to be measured at fair value on a recurring basis.

These included cash equivalents, short-term investments, fuel derivative contracts, and available-for-sale securities.

As of June 30, 2025, the Company held certain items that are required to be measured at fair value on a recurring basis.

These included cash equivalents, short-term investments, and available-for-sale securities.

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

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

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 have historically consisted solely of swap agreements.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio.

See Note 3 for further information on the Company’s derivative instruments and hedging activities.

The Company 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.

The option pricing model used by the Company is an industry standard model for valuing options and is a similar model used by the broker/dealer community (i.e., the Company’s counterparties).

The Company’s derivative instruments held in prior periods consisted of over-the-counter contracts, which were not traded on a public exchange.

Fuel derivative instruments historically consisted solely of option contracts, whereas interest rate derivatives have historically consisted solely of swap agreements.

The Company determined 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.

The option pricing model historically used by the Company is an industry standard model for valuing options and is a similar model used by the broker/dealer community (i.e., the Company’s counterparties).

The inputs to this option pricing model are the option strike price, underlying price, risk free rate of interest, time to expiration, and volatility.

Because certain inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company has categorized these option contracts as Level 3.

Volatility information is obtained from external sources, but is analyzed by the Company for reasonableness and compared to similar information received from other external sources.

The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled.

The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values.

To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compares its option valuations to third party

Because certain inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company categorized these option contracts as Level 3.

Volatility information was obtained from external sources, but was analyzed by the Company for reasonableness and compared to similar information

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

If any significant differences were to be noted, they would be researched in order to determine the reason.

However, historically, no significant differences have been noted.

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.

received from other external sources.

The fair value of option contracts considered both the intrinsic value and any remaining time value associated with those derivatives that had not yet settled.

The Company also considered counterparty credit risk and its own credit risk in its determination of all estimated fair values.

To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compared its option valuations to third party valuations.

Any significant differences noted were researched in order to determine the reason.

However, historically, no significant differences were noted.

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

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.

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Assets related to the funded portions of the deferred compensation plans are held in a rabbi trust, and the Company remains liable to these participants for the unfunded portion of the plans.

The Company records changes in the fair value of plan obligations and plan assets, which net to zero, within the Salaries, wages, and benefits line and Other (gains) losses, net line, respectively, of the unaudited Condensed Consolidated Statement of Comprehensive Loss.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2025, and December 31, 2024:

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2025, and December 31, 2024:

Fair value measurements at reporting date using:

Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs

Description March 31, 2025 (Level 1) (Level 2) (Level 3)

Quoted prices in active markets for identical assets Significant other observable inputs

Description June 30, 2025 (Level 1) (Level 2)

Assets (in millions)

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Commercial paper 180 — 180

Time deposits 300 — 300 —

Short-term investments:

Certificates of deposit 64 — 64

Fuel derivatives:

Option contracts (b) 92 — — 92

Time deposits 300 — 300

Equity Securities 394 394 —

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

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

Notes to Condensed Consolidated Financial Statements

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

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2025, or the year ended December 31, 2024.

The following table presents the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2025:

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2025, or the year ended December 31, 2024.

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 the three and six months ended June 30, 2025:

Fair value measurements using significant unobservable inputs (Level 3)

(in millions) Fuel derivatives

Balance as of December 31, 2024 $ 130

Total loss for the period

Included in other comprehensive loss ( 38 )

Balance as of March 31, 2025 $ 92

The amount of total losses for the period

included in other comprehensive loss attributable to the

change in unrealized gains or losses relating

to assets still held as of March 31, 2025

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

Holding other inputs constant, an increase (decrease) in implied volatility would have resulted in a higher (lower) fair value measurement, respectively, for the Company’s derivative option contracts.

The following table presents a range and weighted average of the unobservable inputs utilized in the fair value measurements of the Company’s fuel derivatives classified as Level 3 as of March 31, 2025:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Quantitative information about Level 3 fair value measurements

Valuation technique Unobservable input Period (by year) Range Weighted Average (a)

Fuel derivatives Option model Implied volatility Second quarter 2025 17 - 32 %

Third quarter 2025 24 - 30 %

Fourth quarter 2025 24 - 27 %

2026 22 - 31 %

2027 21 - 25 %

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

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 March 31, 2025, are presented in the table below.

Total loss for the period

Included in other comprehensive income ( 52 )

Proceeds from portfolio termination ( 40 )

Balance as of June 30, 2025 $ —

Fair value measurements using significant unobservable inputs (Level 3)

(in millions) Fuel derivatives

Balance at December 31, 2024 $ 130

Total loss for the period

Included in other comprehensive income ( 90 )

Proceeds from portfolio termination ( 40 )

Balance at June 30, 2025 $ —

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

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All privately held debt agreements are categorized as Level 3.

The Company has determined the estimated fair value of this debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable.

The Company has determined the estimated fair value of this debt to be Level 3, as certain inputs used to determine the

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

fair value of these agreements are unobservable.

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) Maturity Date Carrying value Estimated fair value Fair value level hierarchy

1.25 % Convertible Notes (a)

2026 300 294 Level 2

2026 300 292 Level 2

7.375 % Debentures

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2030 500 456 Level 2

1.000 % Payroll Support Program Loan (b)

2030 976 994 Level 3

1.000 % Payroll Support Program Loan (b)

1.000 % Payroll Support Program Loan (a)

2031 566 562 Level 3

1.000 % Payroll Support Program Loan (b)

1.000 % Payroll Support Program Loan (a)

2031 526 516 Level 3

(a) The maturity date for the convertible notes occurs in May 2025.

(b) 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 would have occurred on April 20, 2025;

however, the Company prepaid this tranche in full on April 17, 2025.

(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 second and third tranches will occur in January and April 2026, respectively.

See Note 10 for further information.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

SUPPLEMENTAL FINANCIAL INFORMATION

(in millions) March 31, 2025 December 31, 2024

(in millions) June 30, 2025 December 31, 2024

Trade receivables $ 60 $ 47

Credit card receivables 144 143

Business partners and other suppliers 622 573

Business partners 648 573

Taxes receivable 10 11

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Accounts and other receivables $ 1,013 $ 1,110

(in millions) March 31, 2025 December 31, 2024

(in millions) June 30, 2025 December 31, 2024

Derivative contracts $ — $ 90

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Other assets $ 1,006 $ 1,081

(in millions) March 31, 2025 December 31, 2024

(in millions) June 30, 2025 December 31, 2024

Accounts payable trade $ 278 $ 339

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Accounts payable $ 1,811 $ 1,818

(in millions) March 31, 2025 December 31, 2024

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(in millions) June 30, 2025 December 31, 2024

Voluntary Separation Program and severance pay $ 20 $ 48

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Accrued liabilities $ 2,040 $ 2,206

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(in millions) March 31, 2025 December 31, 2024

June 30, 2025 December 31, 2024

Postretirement obligation $ 260 $ 256

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COMMITMENTS AND CONTINGENCIES

The Company's contractual order book with The Boeing Company ("Boeing") for 737-7 ("-7") and 737-8 ("-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 11 -8 aircraft deliveries from Boeing in first quarter 2025 and retired 12 737-700 ("-700") aircraft and two 737-800 ("-800") aircraft.

In addition, during first quarter 2025, the Company exercised nine -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 challenges, delays in achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer, and a work stoppage that took place during September through November 2024.

The Company's contractual order book with The Boeing Company ("Boeing") for 737-7 ("-7") and 737-8 ("-8") aircraft (together, the "MAX aircraft"), which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility and optionality to manage its fleet gauge and size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

The Company received 17 -8 aircraft deliveries from Boeing in second quarter 2025 and retired seven 737-700 ("-700") aircraft.

In addition, during second quarter 2025, the Company exercised nine -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, primarily as a result of manufacturing challenges and delays in achieving Federal Aviation Administration ("FAA") certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer.

As a result of Boeing's delivery delays, the Company has previously replanned its capacity and delivery expectations multiple times and will continue to closely monitor the ongoing aircraft delivery delays with Boeing and further adjust expectations as needed.

As of March 31, 2025, the Company had the following firm orders and options for future periods:

As of June 30, 2025, the Company had the following firm orders and options for future periods:

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The Boeing Company

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314 (a) 196 (b) 162 672

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

(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.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

In addition, the Company has included the remaining 63 of its 2024 contractual but undelivered aircraft ( 27 -7s and 36 -8s) within its 2025 contractual commitments.

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2025 Combined Contractual Total 70 66 136

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of March 31, 2025, were:

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of June 30, 2025, were:

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

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(a) Capital commitments associated with the Company's firm orders in 2025 of $ 2.9 billion include approximately $ 1.6 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.

Subsequent to March 31, 2025, and through April 24, 2025, the Company exercised three -7 options for delivery in 2026, resulting in an immaterial change to the Company's 2026 capital commitments.

Subsequent to June 30, 2025, and through July 24, 2025, the Company converted eleven 2025 -7 firm orders into 2025 -8 firm orders, resulting in an immaterial change to the Company's capital commitments noted above.

Contingencies

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The Company is a defendant in class action litigation asserting it has not provided paid short-term military leave to certain employees, in violation of the federal Uniformed Services Employment and Reemployment Rights Act (“USERRA”).

The United States District Court for the Northern District of California previously issued an order to effectively stay the action, pending an appeal from an order by the United States District Court for the Eastern District of Washington granting summary judgment in favor of an airline in a separate case involving substantially the same claims at issue in this action.

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

District of Washington granting summary judgment in favor of an airline in a separate case involving substantially the same claims at issue in this action.

On February 1, 2023, the Ninth Circuit reversed the district court’s grant of summary judgment and remanded the separate airline case to the District Court.

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The Court granted the stipulation on February 14, 2025.

The proposed settlement is fully accrued as of March 31, 2025.

On June 20, 2025, the Court granted the parties’ stipulated request to continue the deadline for filing a motion for preliminary approval of the class settlement and the Court reset the deadline for August 21, 2025.

The proposed settlement is fully accrued as of June 30, 2025.

On December 27, 2019, a former customer service agent at Oakland International Airport, filed a putative class action complaint in the Superior Court of California, for the County of Santa Clara, against the Company alleging the following seven claims under the California Labor Code and Business & Professions Code:

(1) failure to provide meal periods;

(2) failure to provide rest periods;

(3) failure to pay hourly wages;

(4) failure to provide accurate wage statements;

(5) failure to timely pay all final wages;

(6) unfair competition;

and (7) civil penalties for the foregoing.

Plaintiff filed a First Amended Complaint on October 15, 2021, that asserted the same causes of action and added a named plaintiff.

The First Amended Complaint primarily seeks unpaid wages, interest thereon, and associated civil and statutory penalties, along with attorneys’ fees and costs.

On February 26, 2025, the Court granted class certification as to the first cause of action for failure to provide meal periods, denied certification on the second through fourth causes of action, and granted certification on the fifth and sixth causes of action only insofar as they are predicated on the first cause of action.

The certified class consists of all of the Company’s non-exempt ground employees in California who worked a shift in excess of five hours for the time period between October 24, 2014, forward.

On April 17, 2025, the Company filed a summary judgment motion arguing that Plaintiffs’ first cause of action, and all causes of action predicated thereon, failed as a matter of law.

The motion was argued on July 9, 2025, and the Court has not yet issued a final order.

Trial is currently set for August 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.

FINANCING ACTIVITIES

Convertible Notes due 2025

On May 1, 2020, the Company completed the public offering of $ 2.3 billion aggregate principal amount of the Convertible Notes, bearing interest at a rate of 1.25 percent, payable semi-annually in arrears.

The Company repurchased $ 689 million during the two year period ending December 31, 2022, and the remaining $ 1.6 billion principal amount of the Convertible Notes was repaid at maturity during second quarter 2025 utilizing available cash on hand.

An immaterial amount of Convertible Note conversions settled at maturity.

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

FINANCING ACTIVITIES

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").

The Convertible Notes bear interest at a rate of 1.25 percent and will mature on May 1, 2025.

Interest on the notes is payable semi-annually in arrears.

Holders may convert their Convertible Notes at their option on or after February 1, 2025, and prior to the close of business on April 29, 2025, as stated in the offering documents.

The Company has elected to settle conversions 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).

However, based on the Company's most recent cash dividends declared in February 2025, the bond conversion rate changed, and was 27.5005 as of March 31, 2025.

The Company repurchased $ 689 million in principal of its Convertible Notes during the years ended December 31, 2021 and 2022, and the net carrying amount and principal amount of the Convertible Notes was $ 1.6 billion as of March 31, 2025, and December 31, 2024.

There were no partial extinguishments of debt during the three months ended March 31, 2025 and 2024.

An immaterial amount of Convertible Note conversions were initiated during the first quarter of 2025.

The Convertible Notes will settle in the second quarter of 2025.

As a result, the balance as of March 31, 2025, and December 31, 2024, is classified as Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet.

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

(in millions) 2025 2024 2025 2024

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Total interest expense $ 3 $ 8 $ 10 $ 15

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 with regards to the Convertible Notes during the three months ended March 31, 2025.

The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three months ended March 31, 2025.

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

The Company had no changes to contingencies with regards to the Convertible Notes through the settlement date, May 1, 2025.

Payroll Support Program Loan due 2030

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As consideration for its receipt of funding under each of these Payroll Support programs, the Company issued promissory notes in favor of Treasury (each initially classified as a component of Long-term debt less current maturities in the unaudited Condensed Consolidated Balance Sheet).

The note associated with the PSP1 Payroll Support Program is due in April 2030.

The note associated with the PSP1 Payroll Support Program was originally due in April 2030 but was redeemed early on April 17, 2025 in the amount of $ 976 million, utilizing available cash on hand.

The notes associated with the PSP2 and PSP3 Payroll Support Programs are due in January and April 2031, respectively.

On the day after the fifth anniversary of each of the PSP2 and PSP3 Notes, the applicable interest rates are scheduled to change to the Secured Overnight Financing Rate plus two percent.

Revolving Credit Facility

As of June 30, 2025, the Company had access to $ 1.0 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement"), which expires in August 2028.

On July 22, 2025, the Company exercised the accordion feature under the Amended Credit Agreement, increasing the size of the facility to $ 1.5 billion.

For the six months ended June 30, 2025 and 2024, there were no amounts outstanding under the Amended Credit Agreement.

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

On the day after the fifth anniversary of each note, the interest rate is scheduled to change to the Secured Overnight Financing Rate plus two percent.

During first quarter 2025, the Company made the decision to prepay the first Payroll Support Program Loan in advance of the fifth anniversary date of April 20, 2025.

As a result, the balance as of March 31, 2025, is classified as Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet.

On April 17, 2025, the Company made an early prepayment in full of this loan of $ 976 million, utilizing available cash on hand.

Revolving Credit Facility

The Company has access to $ 1.0 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement"), which expires in August 2028.

For the three months ended March 31, 2025 and 2024, there were no amounts outstanding under the Amended Credit Agreement.

Sale-Leaseback

As more fully described in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, 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 -800 aircraft that qualified as sale-leaseback arrangements under applicable accounting guidance.

In first quarter 2025, the Company completed the agreement through the sale of one additional -800 aircraft to UMB Bank for $ 24 million, and then immediately leased the aircraft back for approximately three years .

This resulted in a recognized gain of $ 3 million in first quarter 2025, reflected within Other operating expenses, net in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Loss.

Repurchase of Common Stock

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Upon completion of the First Quarter 2025 ASR Program in April 2025, the average purchase price per share for the 24,109,817 shares repurchased was $ 31.11 .

Additionally, in January 2025, a third-party financial institution delivered 1,010,663 additional shares of the Company's common stock to the Company upon settlement of an accelerated share repurchase program entered into by the Company with the third-party financial institution in fourth quarter 2024 (the "Fourth Quarter 2024 ASR Program").

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 under the program was $ 32.02 .

Under an accelerated share repurchase program entered into by the Company with third-party financial institutions in second quarter 2025 (the "Second Quarter 2025 ASR Program"), the Company paid $ 1.5 billion and received an initial delivery of 45,300,111 shares during April 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the Second Quarter 2025 ASR Program.

This share amount was based on the $ 26.49 closing price of the Company's common stock on April 25, 2025.

Final settlement of the Second Quarter 2025 ASR Program is scheduled to occur by the end of July 2025 and will be based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period to be completed at time of settlement.

On July 23, 2025, the Board approved a new $ 2.0 billion share repurchase authorization of the Company's common stock.

Notes to Condensed Consolidated Financial Statements

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The workforce reduction of approximately 1,750 Employee roles was focused almost entirely on corporate overhead and leadership positions and represented approximately 15 percent of corporate positions, including senior leadership.

Separations are expected to be substantially complete by the end of second quarter 2025.

As a result of this workforce reduction, the Company recorded a one-time expense of $ 62 million in first quarter 2025, which is included on the unaudited Condensed Consolidated Statement of Comprehensive Loss as part of Salaries, wages, and benefits and Other operating expenses.

Substantially all of the expense is due to Employee severance payments and related professional fees and is expected to be substantially paid in second quarter 2025.

Separations were substantially complete by the end of second quarter 2025.

As a result of this workforce reduction, the Company recorded a one-time expense of $ 62 million in first quarter 2025, which is included on the unaudited Condensed Consolidated Statement of Comprehensive Income as part of Salaries, wages, and benefits and Other operating expenses.

Substantially all of the expense is due to Employee severance payments and related professional fees and was substantially paid in first and second quarter 2025.

The Company does not expect to incur any material additional costs in connection with this reduction in workforce.

Additionally, as of March 31, 2025, $ 43 million of this one-time expense is included as part of Accrued liabilities on the unaudited Condensed Consolidated Balance Sheet .

Amounts paid in first quarter 2025 totaled approximately $ 19 million and primarily relate to salary and benefits paid to Employees during their respective notice period in accordance with the Worker Adjustment and Retraining Notification Act.

Additionally, as of June 30, 2025, $ 6 million of this one-time expense is included as part of Accrued liabilities on the unaudited Condensed Consolidated Balance Sheet .

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-Q

Item 1. Financial Statements