What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-23 compared with 2025-07-24 · 225 added, 231 removed, 449 unchanged (50% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Relevant comparative operating statistics for the three and six months ended June 30, 2025 and 2024 are included below.

Relevant comparative operating statistics for the three and nine months ended September 30, 2025 and 2024 are included below.

The Company provides these operating statistics because they are commonly used in the airline industry and, as such, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers.

Three months ended June 30,

Three months ended September 30,

2025 2024 Change

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Aircraft at end of period 802 811 (1.1) %

Six months ended June 30,

Nine months ended September 30,

2025 2024 Change

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See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Three months ended June 30,

Three months ended September 30,

(in millions, except per share amounts)

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Net income per share, diluted $ 0.11 $ 0.15 (26.7) %

The Company's operating income and net income for the three months ended June 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period.

Operating revenues decreased by 1.5 percent as a result of a decline in travel demand versus the same prior year period, particularly in domestic leisure travel, where the Company is more heavily weighted than larger industry peers.

Operating expenses remained relatively flat, driven by higher Salaries, wages, and benefits expense, partially offset by lower Fuel and oil expense.

On a GAAP basis, the Company's Operating expenses increased 0.9 percent year-over-year.

Operating expenses for the three months ended June 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $20 million.

Six months ended June 30,

The Company recorded third quarter 2025 operating revenues of $6.9 billion, a third quarter Company record, despite year-over-year declines in load factor.

This increase in operating revenues was primarily driven by revenue initiatives, the largest of which related to the Company's policy change for certain Customers' first and second checked bags that became effective May 28, 2025.

This policy change excludes Business Select Customers, Rapid Rewards A-List Preferred Members, and Active-duty military members who all continue to receive both their first and second checked bags free and Rapid Rewards A-List Members and Rapid Rewards Credit Cardmembers who receive their first checked bag free.

This initiative led to a year-over-year increase in bag fee revenue, resulting in a year-over-year increase in Operating revenues of $79 million.

Despite the third quarter record revenue performance, the Company's operating income and net income for the three months ended September 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period.

On a GAAP basis, operating expenses increased by $82 million, or 1.2 percent, driven by higher Salaries, wages, and benefits expense, partially offset by lower Fuel and oil expense.

Nine months ended September 30,

(in millions, except per share amounts)

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Net income per share, diluted $ 0.21 $ 0.34 (38.2) %

Operating income $ 117 $ 28 n.m.

Operating income $ 159 $ 60 165.0 %

Net income $ 211 $ 241 (12.4) %

Net income per share, diluted $ 0.38 $ 0.40 (5.0) %

The Company's net income for the six months ended June 30, 2025, on a GAAP basis, decreased 53.3 percent compared to the same prior year period, while on a non-GAAP basis, net income remained relatively flat year-over-year.

While Operating revenues were flat year-over-year, an increase in Salaries, wages, and benefits expense was offset by the year-over-year decline in Fuel and oil expense.

The Company has implemented cost savings initiatives, including a reduction in its corporate workforce, resulting in a first quarter 2025 charge, but resulting in lower salaries, wages, and benefits on a go-forward basis.

See Note 11 to the unaudited Condensed Consolidated Financial Statements for further information.

Additionally, Net income was impacted by lower interest income driven by lower cash and investment balances, partially offset by lower interest expense as a result of debt repayments.

Company's operating income for the six months ended June 30, 2025, on a non-GAAP basis increased compared to the same prior year period primarily due to lower Fuel and oil expense, partially offset by higher Salaries, wages, and benefits expense.

Operating expense for the six months ended June 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $115 million, most notably $62 million related to severance and related professional fees associated with the Company's reduction in workforce.

The following tables provide select financial guidance for third quarter 2025 and full year 2025, and select full year 2025 and 2026 targets.

The Company's net income for the nine months ended September 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period.

While operating revenues and expenses remained relatively flat, year-over-year, interest income decreased by $220 million driven by lower cash and investment balances.

Company's operating income for the nine months ended September 30, 2025, on a GAAP basis, decreased compared to the same prior year period primarily due to higher Salaries, wages, and benefits expense and Landing fees and airport rentals.

These decreases were partially offset by lower Fuel and oil expense coupled with higher passenger revenue, driven primarily by an increase in bag fee revenue.

Operating expense for the nine months ended September 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $122 million, most notably $62 million related to severance and related professional fees associated with the Company's reduction in workforce in the first quarter 2025.

The following tables provide select financial guidance for fourth quarter 2025 and full year 2025, and select full year 2025 and 2026 targets.

4Q 2025 Estimation

RASM (a), year-over-year Down 2% to up 2%

ASMs (b), year-over-year ~Flat

Fuel cost per gallon (c) $2.40 to $2.50

ASMs per gallon (fuel efficiency) 82 to 84

CASM-X (d), year-over-year (e)(f) Up 3.5% to 5.5%

Scheduled debt repayments (millions) ~$6

Interest expense (millions) ~$35

ASMs (a), year-over-year Up ~6%

RASM (b), year-over-year Up 1% to 3%

CASM-X (c), year-over-year (d)(e) Up 1.5% to 2.5%

Fuel cost per gallon (f) $2.20 to $2.30

2025 Estimation

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EBIT (g) contribution from initiatives (billions) ~$1.8 ~$4.3

(a) Operating revenue per available seat mile ("RASM" or "unit revenues").

(b) Available seat miles ("ASMs" or "capacity").

Fuel cost per gallon includes fuel taxes and fuel hedging net premium expense of $0.07 per gallon related to terminated fuel derivative contracts.

See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

(d) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profit sharing ("CASM-X" or "unit costs").

(e) See Note Regarding Use of Non-GAAP Financial Measures for additional information on special items.

(a) Available seat miles ("ASMs" or "capacity").

This guidance includes approximately 2 points of additional capacity since July 2025 from the impact of shifting extra legroom seating retrofits of Boeing 737-700 ("-700") aircraft to January 2026, which delays the removal of six seats from each of these aircraft.

(b) Operating revenue per available seat mile ("RASM" or "unit revenues").

Fourth quarter 2024 RASM excluded special items related to a breakage revenue adjustment.

Please see the Company's Earnings Press Release furnished on January 30, 2025, for additional information.

(c) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profit sharing ("CASM-X" or "unit costs").

The Company's GAAP and non-GAAP results for fourth quarter 2024 included a $92 million gain from a sale-leaseback transaction.

Excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, the Company anticipates fourth quarter 2025 CASM-X to be in the range of flat to up 1 percent, year-over-year.

(d) See Note Regarding Use of Non-GAAP Financial Measures for additional information on special items.

In addition, information regarding special items and economic results is included in the accompanying table Reconciliation of Reported Amounts to Non-GAAP Measures (also referred to as "excluding special items").

(f) Projections do not reflect the potential impact of fuel and oil expense, special items, and profit sharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item.

(e) Projections do not reflect the potential impact of fuel and oil expense, special items, and profit sharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item.

Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for these projected results is not meaningful or available without unreasonable effort.

(f) Based on market prices as of October 15, 2025.

Fuel cost per gallon includes fuel taxes and fuel hedging net premium expense of $0.07 per gallon related to terminated fuel derivative contracts.

See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

(g ) Earnings before interest and taxes, excluding special items ("EBIT"), a non-GAAP financial measure, also excludes gains or losses from fleet transactions.

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The Company expects third quarter 2025 unit revenues to be in the range of down 2 percent to up 2 percent on roughly flat capacity, both on a year-over-year basis.

This guidance range assumes a modest sequential improvement in demand, as well as an estimated impact of approximately one point related to a temporary reduction in the conversion rate of basic economy bookings on the Company's website following the May 28, 2025 launch of its basic economy product.

The Company took swift action and refined its booking flow and marketing approach in an effort to reduce friction, as well as offer additional promotional activity, and bookings and conversion rates

quickly returned to expected levels.

Company-specific initiatives provide a unique offset to the broader industry revenue impact, and will continue to accelerate throughout third quarter 2025.

Third quarter 2024 RASM included approximately one point of positive year-over-year impact from the CrowdStrike industry event.

The Company expects fourth quarter 2025 unit revenues to be in the range of up 1 percent to 3 percent, compared with fourth quarter 2024 unit revenues, excluding special items, on capacity up approximately 6 percent year-over-year, a sequential improvement from third quarter.

This guidance range assumes demand strength remains at current levels through the end of the quarter.

It also reflects the planned acceleration from the Company's initiatives, the recent observed impact of the government shutdown, and the approximate 2-point year-over-year increase in fourth quarter capacity since July.

This 2-point capacity increase is a result of shifting the extra legroom retrofit of the -700 fleet to January, as described below.

The Company expects to deliver an all-time quarterly record revenue performance in the fourth quarter.

The Company continues to expect to achieve its $370 million cost reduction target this year.

The Company anticipates third quarter 2025 CASM-X to increase in the range of 3.5 percent to 5.5 percent, on roughly flat capacity, both on a year-over-year basis.

This increase is driven primarily by the continuation of inflationary pressures, including those associated with labor contracts ratified in 2024, as well as approximately one point from the timing of engine overhaul expenses and one-half point from aircraft retrofit costs in advance of extra legroom seating launching in January 2026.

Excluding the impact of book gains from fleet transactions in the fourth quarter of both years, the Company continues to expect fourth quarter 2025 CASM-X to be up low-single digits, year-over-year.

Projections do not reflect the potential impact of fuel and oil expense, special items, and profit sharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item.

The Company anticipates fourth quarter 2025 CASM-X to be in the range of up 1.5 percent to 2.5 percent, or flat to up 1 percent when excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, on capacity up approximately 6 percent, all on a year-over-year basis.

Unit costs continue to be driven primarily by the continuation of inflationary pressures, including those associated with labor contracts ratified in 2024.

The Company remains focused on driving efficiencies to offset overall inflationary cost pressures and achieve its multi-year cost reduction targets.

The Company has provided full year 2025 EBIT guidance, which assumes further sequential improvement from third quarter 2025, driven by accelerating incremental revenue from Company-specific initiatives, the recovery of the temporary basic economy optimization impact, and anticipated improvement in domestic leisure travel trends.

The Company realized approximately one-third of its $1.8 billion 2025 initiative EBIT target in first half 2025 and remains highly confident in its ability to realize the remaining amount during second half 2025, as the value of initiatives are expected to accelerate throughout second half 2025 and more meaningfully into 2026.

Company Overview

Transformational Initiative Highlights

The Company is evolving rapidly, implementing its previously announced transformational initiatives, which are expected to enhance optionality for current and future Customers, improve financial performance, and drive Shareholder value.

During second quarter 2025, the Company:

• Introduced bag fees for most fare products for flights booked and ticketed or changed on or after May 28, 2025.

The Company continues to offer two free checked bags to Rapid Rewards® A-List Preferred Members and Customers traveling on Business Select fares and offers one free checked bag to A-List Members and co-brand Cardmembers under its credit card program (weight and size limitations apply);

• Introduced a basic fare product beginning on May 28, 2025, in lieu of its prior Wanna Get Away® fare product;

• Updated its flight credit policy for tickets purchased on or after May 28, 2025, with flight credits originating from a basic fare expiring six months from ticketing date and flight credits issued for other fares expiring one year from the date of ticketing;

• Announced plans to transition to new fare products, Choice Extra, Choice Preferred, and Choice (formerly Business Select, Anytime, and Wanna Get Away Plus), in conjunction with sales of assigned and premium seating with a sell date of July 29, 2025 for travel beginning January 27, 2026;

• Announced an international airline partnership with China Airlines, which is expected to launch in early 2026, creating the first trans-Pacific airline partnership for Southwest;

• Expanded its partnership with Icelandair, connecting Customers on dual-carrier itineraries through gateway airports Baltimore/Washington, Denver, and Nashville.

Third Quarter 2025 Transformational Initiative Highlights

The Company is evolving rapidly, implementing its previously announced transformational initiatives, which are expected to meet the needs of current and future Customers, improve financial performance, and drive Shareholder value.

During third quarter 2025, the Company:

• Launched Getaways by Southwest, an in-house packaged vacations product creating more opportunities for Customers to book their vacations

• Transitioned to new fare products, Choice Extra, Choice Preferred, and Choice (formerly Business Select, Anytime, and Wanna Get Away Plus), in conjunction with sales of assigned and premium seating on July 29, 2025, for travel beginning January 27, 2026;

• Announced free WiFi sponsored by T-Mobile for all Rapid Rewards® Members beginning October 24, 2025;

• Announced a new partnership with China Airlines, which is expected to launch in early 2026, creating the first trans-Pacific airline partnership for Southwest;

• Expanded the existing partnership with Icelandair, which began connecting Customers on dual-carrier itineraries through gateway airports Baltimore/Washington, Denver, and Nashville in February 2025.

Beginning July 14, 2025, Icelandair and Southwest added connecting service through Orlando, Pittsburgh, and Raleigh-Durham, providing more access between Europe and cities across the Company’s network;

• Announced a new partnership with EVA Air, a subsidiary of the Evergreen Group, that jointly will operate itineraries between North America and Asia connecting through the carriers' shared gateway airports in Los Angeles, San Francisco, Seattle-Tacoma, and Chicago.

These strategic moves add to the initiatives already underway at Southwest, including the implementation of assigned seating and extra legroom options.

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Such retrofits began during second quarter 2025 and are expected to continue through the rest of the year.

As of July 24, 2025, the Company has completed retrofits of more than 220 aircraft for extra legroom seating.

The Company expects its Boeing 737-700 ("-700") aircraft to receive necessary approvals and certifications later this year.

As of October 23, 2025, the Company has completed retrofits of more than 400 aircraft for extra legroom seating.

In July 2025, the Company received necessary approvals and certifications to begin retrofitting its Boeing 737-700 ("-700") aircraft, and the work is expected to begin in January 2026 and be completed prior to January 27, 2026, when assigned seating begins.

The Company has also continued to enhance its onboard offerings, with improvements such as faster WiFi, in-seat power, and larger overhead bins, and work is well underway on a refreshed cabin design, including new, more comfortable RECARO seats.

The first -8 aircraft with an updated cabin has been delivered and entered service on October 16, 2025.

Other Initiatives and Quarterly Developments

In second quarter 2025, the Company returned $1.6 billion to Shareholders through $103 million in dividend payments and a $1.5 billion accelerated share repurchase program, which was launched in April 2025 and which will be completed by the end of July 2025.

The Company has no amounts remaining under its September 2024 $2.5 billion share repurchase authorization.

On July 23, 2025, the Board approved a new $2.0 billion share repurchase authorization of the Company's common stock, which is expected to be completed over a period of up to two years.

In third quarter 2025, the Company returned $439 million to Shareholders through $189 million in dividend payments and a $250 million accelerated share repurchase program, which was launched in September 2025 and completed in October 2025.

The Company has $1.75 billion remaining under its $2.0 billion share repurchase authorization.

See "Liquidity and Capital Resources" below and Part II, Item 2 - Issuer Purchases of Equity Securities for further information on the Company's share repurchases.

On July 14, 2025, the Company announced its intention to commence new service at Cyril E.

The Company has announced its intention to commence new service at multiple locations in an effort to grow its network and provide more destinations for Customers.

These locations include:

King International Airport on St.

Thomas beginning early 2026;

On May 16, 2025, the Company's 35 Network Operations Control Customer Planners, added to the existing Passenger Service Employees craft or class to be represented by the International Association of Machinists and Aerospace Workers (“IAM”), entered into a tentative agreement as part of the accretion process to join an existing collective-bargaining agreement.

The vote to ratify a contract amendment with the Company failed, and the Company is continuing negotiations with the IAM.

In 2025, the Company and JPMorgan Chase Bank, N.A.

("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.

• McGhee Tyson Airport in Knoxville, Tennessee beginning March 5, 2026;

• Princess Juliana International Airport on St.

Maarten beginning April 7, 2026;

Schulz Sonoma County Airport in Santa Rosa, California beginning April 7, 2026;

• Ted Stevens Anchorage International Airport in Anchorage, Alaska beginning in the first half of 2026.

On July 31, 2025, the Company announced the resignation of Rakesh Gangwal from his position as independent Chair of the Board of Directors of the Company (the "Board") due to additional time commitments unrelated to the Company.

Gangwal remains on the Board and serves as Chair of the newly formed Fleet Oversight Committee, designed to assist in the oversight of the Company's aircraft fleet acquisition strategy.

Additionally, the independent members of the Board appointed Doug Brooks as independent Chair of the Board effective August 1, 2025.

On September 3, 2025, the Company and Transport Workers of America Union Local 557 ("TWU 557"), representing the Company's approximately 216 Flight Instructors, reached a tentative agreement on a three year extension of their collective bargaining agreement from 2027 to 2030.

The vote to ratify the tentative agreement with the Company failed, and the Company is continuing negotiations with TWU 557.

In February 2025, the Company implemented a reduction in workforce that provided for the reduction of approximately 1,750 Employee roles, or 15 percent of corporate positions.

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As a result of The Boeing Company's ("Boeing") 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.

In second quarter 2025, the Company entered into a supplemental agreement to its purchase agreement with Boeing relating to the Company's purchase of -8 aircraft and Boeing 737-7 aircraft ("-7", and, together with -8, the "MAX aircraft").

The Company previously announced proactive capacity reductions in the second half of 2025 in an effort to better accommodate the current demand environment and capture associated cost savings, and continues to expect full year 2025 capacity to be up roughly 1 percent, year-over-year.

This modest growth is driven entirely by an increase in aircraft utilization provided by redeye flying and turn time reduction initiatives.

The Company has updated its fleet planning assumption to 47 -8 aircraft deliveries in 2025, from its prior estimate of 38 deliveries, as Boeing continues to ramp up production.

With these incremental deliveries, the Company now expects to retire approximately 55 aircraft in 2025, compared with its previous estimate of approximately 50 retirements this year.

This includes the sale of five -800 aircraft expected to occur in the second half of 2025.

The Company continues to expect additional new aircraft deliveries to facilitate the retirement of aircraft from its existing fleet in support of its fleet monetization and capital allocation strategies.

The Company ended second quarter 2025 with 810 Boeing 737 aircraft, including 273 -8 aircraft.

During second quarter 2025, the Company retired seven -700 aircraft and took delivery of 17 -8 aircraft.

As of July 24, 2025, during 2025 the Company has exercised a total of 21 -7 options for delivery in 2026.

The Company's order book with Boeing as of July 24, 2025, consists of a total of 510 MAX firm orders (303 -7 aircraft and 207 -8 aircraft), less 28 -8 deliveries to date in 2025, for the years 2025 through 2031, including 63 MAX aircraft that were contractually committed for 2024, but were not received, and 162 MAX options (-7s or -8s) for the years 2026 through 2031.

The Company now expects full year 2025 capacity to be up roughly 1.5 percent, year-over-year, including the capacity increase associated with shifting extra legroom seating retrofits of -700 aircraft to January 2026, which delays the removal of six seats from each of those aircraft.

This shift is expected to maximize revenue potential during the holiday travel period and still meet the Company's operate date milestone of January 27, 2026 for assigned and extra legroom seating, as the Company's Technical Operations Team has streamlined the timeline to complete this work.

The Company updated its fleet planning assumptions to 53 -8 aircraft deliveries in 2025, from its prior estimate of 47, as Boeing continues to ramp up production.

The Company continues to plan for 55 aircraft retirements in 2025, which includes the sale of one -800 aircraft in third quarter 2025 and the expected sale of four -800 aircraft to occur in fourth quarter 2025.

The Company ended third quarter 2025 with 802 Boeing 737 aircraft, including 281 -8 aircraft.

During third quarter 2025, the Company retired 16 aircraft (15 -700 aircraft and the sale of one -800 aircraft) and took delivery of eight -8 aircraft.

As of October 23, 2025, during 2025 the Company has exercised a total of 22 and 2 -7 options for delivery in 2026 and 2027, respectively.

The Company's order book with Boeing as of October 23, 2025, consists of a total of 516 MAX firm orders (272 -7 aircraft and 244 -8 aircraft), less 36 -8 deliveries to date in 2025, for the years 2025 through 2031, including 63 MAX aircraft that were contractually committed for 2024, but were not received, and 156 MAX options (-7s or -8s) for the years 2027 through 2031.

Material Changes in Results of Operations

Comparison of three months ended June 30, 2025 and June 30, 2024

Three months ended June 30,

Comparison of the three months ended September 30, 2025 and 2024

Three months ended September 30,

Increase (Decrease) Percent change

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Operating Revenues

Total operating revenues for second quarter 2025 decreased by $110 million, or 1.5 percent, year-over-year.

Passenger revenues for second quarter 2025 decreased by $85 million, or 1.3 percent, year-over-year, and Other revenues for second quarter 2025 decreased by $24 million, or 4.0 percent, year-over-year.

Second quarter 2025 RASM was 15.41 cents, finishing 3.1 percent lower than second quarter 2024.

The nominal Passenger revenue and unit revenue decreases were primarily due to a 4.1 point year-over-year decline in Load factor, partially offset by a 2.3 percent increase in yield.

The yield improvements were primarily due to revenue management actions and capacity moderation.

Additionally, second quarter 2025 RASM results include a nearly one-half point headwind due to a temporary reduction in the conversion rate of basic economy bookings on the Company's website that occurred following the May 28, 2025 launch of its basic economy product.

Total operating revenues for third quarter 2025 increased by $79 million, or 1.1 percent, year-over-year, to achieve an all-time third quarter Company record of $6.9 billion.

Passenger revenues for third quarter 2025 increased by $63 million, or 1.0 percent, year-over-year, driven primarily by the increase in bag fee revenue.

Other revenues for third quarter 2025 increased by $17 million, or 2.9 percent, year-over-year.

Third quarter 2025 RASM was 15.25 cents, finishing 0.4 percent higher than third quarter 2024.

The unit revenue increase was primarily due to a 2.1 percent increase in yield as a result of an increase in bag fee revenues.

These were partially offset by a 1.4 point year-over-year decline in Load factor.

Operating Expenses

Operating expenses for second quarter 2025 increased by $63 million, or 0.9 percent, compared with second quarter 2024, and capacity increase d 1.6 percent over the same prior year period.

Operating expenses for third quarter 2025 increased by $82 million, or 1.2 percent, compared with third quarter 2024, and capacity increased 0.8 percent over the same prior year period.

The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and Landing fees and airport rentals expense, partially offset by a year-over-year decrease in Fuel and oil expense.

Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by cha nges in capacity, or ASMs.

The following table presents the Company's Operating expenses per ASM for the second quarter of 2025 and 2024, followed by explanations of these changes on both a dollar and unit basis.

Three months ended June 30, Per ASM

Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs.

following table presents the Company's Operating expenses per ASM for the third quarter of 2025 and 2024, followed by explanations of these changes on both a dollar and unit basis.

Three months ended September 30, Per ASM

change Percent

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Total 15.17 ¢ 15.11 ¢ 0.06 ¢ 0.4 %

Operating expenses per ASM for second quarter 2025 decreased by 0.7 percent, compared with second quarter 2024, primarily due to a decrease in Fuel and oil expense, partially offset by increases in Salaries, wages, and benefits expense and Landing fees and airport rentals expense.

Op erating expenses per ASM for second quarter 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.7 percent, compared with second quarter 2024, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025.

Operating expenses per ASM for third quarter 2025 increased by 0.4 percent compared with third quarter 2024, primarily due to an increase in Salaries, wages, and benefits expense, which exceeded the year-over-year increase in capacity, partially offset by a decrease in fuel price per gallon.

Operating expenses per ASM for third quarter 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 2.5 percent, compared with third quarter 2024, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025.

See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for second quarter 2025 increased by $263 million, or 8.8 percent, compared with second quarter 2024.

On a per ASM basis, second quarter 2025 Salaries, wages, and benefits expense increased 7.3 percent, compared with second quarter 2024.

Salaries, wages, and benefits expense for third quarter 2025 increased by $149 million, or 4.9 percent, compared with third quarter 2024.

On a per ASM basis, third quarter 2025 Salaries, wages, and benefits expense increased 4.4 percent, compared with third quarter 2024.

On a dollar and per ASM basis, the majority of the increase was due to net step/pay rate increases and related benefits for certain workgroups.

Fuel and oil expense for second quarter 2025 decreased by $273 million, or 17.1 percent, compared with second quarter 2024.

On a per ASM basis, second quarter 2025 Fuel and oil expense decreased 18.2 percent.

Fuel and oil expense for third quarter 2025 decreased by $86 million, or 6.1 percent, compared with third quarter 2024.

On a per ASM basis, third quarter 2025 Fuel and oil expense decreased 7.0 percent.

On a dollar and per ASM basis, the decrease was primarily attributable to lower jet fuel prices.

The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging net premium expense and fuel derivative contract settlements:

Three months ended June 30,

Three months ended September 30,

Economic fuel costs per gallon $ 2.40 $ 2.55

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See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

The Company's second quarter 2025 available seat miles per gallon ("fuel efficiency") increased 2.9 percent, year-over-year, primarily due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet.

The Company's third quarter 2025 available seat miles per gallon ("fuel efficiency") increased 2.4 percent, year-over-year, primarily due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet.

The continued deliveries of MAX aircraft are expected to remain critical to the Company's efforts to modernize its fleet.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts to effectively close its fuel hedging portfolio.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts to effectively close its fuel hedging portfolio and does not intend to add additional fuel derivatives to its portfolio.

As of September 30, 2025, the Company did not have any outstanding fuel derivative contracts to hedge its future fuel consumption.

See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

Therefore, as of June 30, 2025, the Company did not have any outstanding fuel derivative contracts to hedge its future fuel consumption.

The Company does not intend to add additional fuel derivatives to its portfolio.

As such, the Company will be fully exposed to fluctuations in jet fuel prices, which are expected to remain volatile.

See Part II, Item 1A.

Risk Factors – “ The Company’s business can be significantly affected by the availability of jet fuel, fuel prices, and volatility of fuel prices, and the Company’s operations are subject to disruption in the event of any delayed supply of fuel;

therefore, the Company’s strategic plans and future profitability are likely to be affected by the Company’s ability to address fuel availability, price increases, and volatility.

Risk Factors in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 for additional risk factors.

As a result of applying hedge accounting in prior periods, the Company has amounts in Accumulated other comprehensive income ("AOCI") that will be recognized in the unaudited Condensed Consolidated Statement of Comprehensive Income in the periods the originally forecasted transactions occur.

See Note 4 to the unaudited Condensed Consolidated Financial Statements for additional information on AOCI.

The following table displays the Company's deferred amounts in AOCI as of June 30, 2025, and the future periods in which these items will be recognized in the unaudited Condensed Consolidated Statement of Comprehensive Income (in millions):

Year Amount of gains (losses) deferred in AOCI at June 30, 2025

The following table displays the Company's deferred amounts in AOCI as of September 30, 2025, and the future periods in which these items will be recognized in the unaudited Condensed Consolidated Statement of Comprehensive Income (in millions):

Year Amount of gains (losses) deferred in AOCI at September 30, 2025

Remainder of 2025 $ (36)

Total $ (173)

Maintenance materials and repairs expense for second quarter 2025 decreased by $19 million, or 5.4 percent, compared with second quarter 2024.

On a per ASM basis, Maintenance materials and repairs expense decreased 7.9 percent compared with second quarter 2024.

On a dollar and per ASM basis, approximately $26 million of the decrease was due to fewer airframes in routine heavy check compared to 2024 and approximately $18 million of the decrease was due to fewer routine bulk purchases of materials for the Company's seat refurbishment efforts.

These decreases were partially offset by an increase of approximately $26 million due to engine shop visits associated with the Company's -700 fleet.

Landing fees and airport rentals expense for second quarter 2025 increased by $56 million, or 11.0 percent, compared with second quarter 2024.

On a per ASM basis, Landing fees and airport rentals expense increased 8.0 percent, compared with second quarter 2024.

On a dollar and per ASM basis, approximately 80 percent of the increase was primarily attributable to an increase in airport rental expense throughout the network driven by the higher rates charged by airports for leased space.

The remainder of the increase was primarily due to receiving fewer favorable settlements and credits from various airports in second quarter 2025.

Depreciation and amortization expense for second quarter 2025 decreased by $4 million, or 1.0 percent, compared with second quarter 2024.

On a per ASM basis, Depreciation and amortization expense decreased 2.3 percent compared with second quarter 2024 .

Maintenance materials and repairs expense for third quarter 2025 decrease d by $36 million, or 10.7 percent, compared with third quarter 2024.

On a per ASM basis, Maintenance materials and repairs expense decreased 10.8 percent compared with third quarter 2024.

On a dollar and per ASM basis, the decrease was due to fewer routine heavy checks for airframes compared to the same period in 2024 as a result of timing for required checks.

Landing fees and airport rentals expense for third quarter 2025 increased by $55 million, or 11.2 percent, compared with third quarter 2024.

On a per ASM basis, Landing fees and airport rentals expense increased 10.1 percent, compared with third quarter 2024.

On a dollar and per ASM basis, approximately 40 percent of the increase was primarily attributable to an increase in airport rental expense throughout the network driven by the higher rates charged by airports for leased space, 30 percent of the increase was primarily due to receiving fewer favorable settlements and credits from various airports, and 25 percent due to higher landing fees throughout the network driven by higher rates.

Depreciation and amortization expense for third quarter 2025 decreased by $44 million, or 10.0 percent, compared with third quarter 2024.

On a per ASM basis, Depreciation and amortization expense decreased 11.3 percent compared with third quarter 2024 .

On a dollar and per ASM basis, the decrease was primarily due to accelerating depreciation for fewer -700 aircraft planned for early retirement in 2025 compared to 2024.

This decrease was

partially offset by the acquisition of 40 -8 aircraft and new assets for technology and ground equipment being placed into service since second quarter 2024.

Other operating expenses for second quarter 2025 increased by $40 million, or 3.7 percent, compared with second quarter 2024.

Included within this line item was aircraft rentals expense in the amounts of $80 million and $49 million for the three-month periods ended June 30, 2025 and 2024, respectively.

On a per ASM basis, Other operating expenses increased 2.1 percent, compared with second quarter 2024.

On a dollar and per ASM basis, the increase was primarily due to (i) a $31 million increase in aircraft rentals expense associated with recent fleet transactions, (ii) a $21 million increase in maintenance agreement expense driven by expanded cloud-based services, and (iii) a $19 million increase as a result of per diem rates paid to Flight crews.

These increases were partially offset by a $38 million decrease in advertising and promotional campaign costs.

This decrease was partially offset by the acquisition of 39 -8 aircraft and new assets for technology being placed into service since third quarter 2024.

Other operating expenses for third quarter 2025 increased by $44 million, or 4.1 percent, compared with third quarter 2024.

Included within this line item was aircraft rentals expense in the amounts of $76 million and $52 million for the three-month periods ended September 30, 2025 and 2024, respectively.

On a per ASM basis, Other operating expenses increased 2.5 percent, compared with third quarter 2024.

On a dollar basis, the increase was primarily due to (i) a $24 million increase in aircraft rentals expense associated with recent fleet transactions, (ii) a $23 million increase driven by higher travel expenses due to inflation in lodging rates and utilization of rooms as a result of redeye flying in 2025, and (iii) a $16 million increase in third party software maintenance agreement expense driven by expanded cloud-based services.

These increases were partially offset by a $22 million decrease in external consulting services related to non-recurring Company-wide initiatives.

Non-Operating Expenses (Income)

Interest expense for second quarter 2025 decreased by $24 million, or 38.1 percent, compared with second quarter 2024, primarily due to significant debt repayments since second quarter 2024.

Interest expense for third quarter 2025 decreased by $28 million, or 44.4 percent, compared with third quarter 2024, primarily due to significant debt repayments since third quarter 2024.

S ee Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Interest income for second quarter 2025 decreased by $76 million, or 58.5 percent, compared with second quarter 2024, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

The following table displays the components of Other (gains) losses, net, for the three months ended June 30, 2025 and 2024:

Three months ended June 30,

Interest income for third quarter 2025 decreased by $87 million, or 71.9 percent, compared with third quarter 2024, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

The following table displays the components of Other (gains) losses, net, for the three months ended September 30, 2025 and 2024:

Three months ended September 30,

(in millions) 2025 2024

Mark-to-market impact from fuel contracts settling in current and future periods $ — $ 29

Premium benefit of fuel contracts not designated as hedges — (1)

Premium cost of fuel contracts not designated as hedges — 5

Mark-to-market impact on deferred compensation plan investments (23) (17)

The Company's effective tax rate was 23.9 percent in second quarter 2025, compared with 23.2 percent in second quarter 2024.

The year-over-year increase in the tax rate was primarily due to an increase in state taxes.

Comparison of six months ended June 30, 2025 and June 30, 2024

Six months ended June 30,

The Company's effective tax rate was 21.0 percent in third quarter 2025, compared with 24.0 percent in third quarter 2024.

The year-over-year decrease in the tax rate was primarily due to a third quarter 2024 deferred tax liability adjustment combined with a decrease in third quarter 2025 non-deductible expenses.

On July 4, 2025, the One Big Beautiful Bill Act, was signed into law.

The legislation did not have a material impact on the Company's income tax expense for the quarter ending September 30, 2025, and the Company does not expect it to materially change its effective income tax rate for 2025.

Comparison of the nine months ended September 30, 2025 and 2024

Nine months ended September 30,

Increase (Decrease) Percent change

12 unchanged sentences

Operating Revenues

Passenger revenues for the six months ended June 30, 2025, increased by $14 million, or 0.1 percent, compared with the first six months of 2024.

On a unit basis, Passenger revenues remained flat, year-over-year.

The dollar increase was primarily due to average yields increasing 5.7 percent due to revenue management actions, partially offset by a 6.9 percent decrease in revenue Passengers carried.

Other revenues for the six months ended June 30, 2025, decreased by $24 million, or 2.0 percent, year-over-year.

On a dollar basis, approximately 50 percent of the decrease was due to a larger portion of the Company’s co-brand credit card benefits from Chase being classified within Passenger revenues during 2025, as a result of the amended co-brand agreement effective in January 2025.

See Note 5 to the unaudited Condensed Consolidated Financial Statements for further information.

The majority of the remainder of the year-over-year decline was due to a reduction in other partner sales attributable to softer travel demand.

Passenger revenues for the nine months ended September 30, 2025, increased by $78 million, or 0.4 percent, compared with the first nine months of 2024, driven primarily by an increase in bag fee revenue.

On a unit basis, Passenger revenues remained relatively flat, year-over-year.

The dollar increase was primarily due to an increase in bag fee revenues driven by the Company's policy change, coupled with an increase in the portion of the Company's co-brand credit card benefits that are now classified within Passenger Revenues, as a result of the amended and restated co-brand agreement in 2025.

This was partially offset by a 5.5 percent decrease in Revenue Passengers carried coupled with a decrease in loyalty revenue due to fewer loyalty program points redeemed.

Operating Expenses

Operating expenses for the six months ended June 30, 2025, decreased by $7.0 million, or 0.1 percent, compared with the first six months of 2024, and capacity decreased 0.1 percent over the same prior year period.

The vast majority of the dollar decrease was due to a year-over-year decrease in Fuel and oil expense, partially offset by higher Salaries, wages, and benefits expense and higher Landing fees and airport rentals expense.

Operating expenses for the nine months ended September 30, 2025, increased by $74 million, or 0.4 percent, compared with the first nine months of 2024, and capacity increased 0.2 percent over the same prior year period.

The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and higher Landing fees and airport rentals expense, partially offset by a decrease in Fuel and oil expense .

Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs.

The following table presents the Company's Operating expenses per ASM for the first six months of 2025 and 2024, followed by explanations of these changes on a dollar basis.

Six months ended June 30, Per ASM Percent

The following table presents the Company's Operating expenses per ASM for the first nine months of 2025 and 2024, followed by explanations of these changes on a dollar basis.

Nine months ended September 30, Per ASM Percent

(in cents, except for percentages) 2025 2024 change change

6 unchanged sentences

Total 15.36 ¢ 15.34 ¢ 0.02 ¢ 0.1 %

Operating expenses per ASM for the first six months of 2025 was flat, compared with the first six months of 2024, primarily due to a decrease in the Company's fuel cost per gallon being offset by increases in Salaries, wages, and benefits expense, Other operating expenses, and Landing fees and airport rentals expense.

Operating expenses per ASM for the first six months of 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.6 percent, year-over-year, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025.

Operating expenses per ASM for the first nine months of 2025 increased 0.1 percent, compared with the first nine months of 2024, primarily due to an increase in the Company's Salaries, wages, and benefits expense along with an increase in Landing fees and airport rentals expense, offset by a decrease in Fuel and oil expense.

Operating expenses per ASM for the first nine months of 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.0 percent, year-over-year, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025.

See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for the first six months of 2025 increased by $425 million, or 7.2 percent, compared with the first six months of 2024.

On a per ASM basis, Salaries, wages, and benefits expense for the first six months of 2025 increased 7.1 percent, compared with the first six months of 2024.

On a dollar and per ASM basis, approximately 60 percent of the increase was due to step/pay rate increases and related benefits for certain workgroups.

Additionally, approximately 10 percent of the increase was due to a one-time severance cost as a result of the workforce reduction in February 2025, which was considered a special item and excluded from the Company's non-GAAP financials.

Salaries, wages, and benefits expense for the first nine months of 2025 increased by $573 million, or 6.4 percent, compared with the first nine months of 2024.

On a per ASM basis, Salaries, wages, and benefits expense for the first nine months of 2025 increased 6.2 percent, compared with the first nine months of 2024.

On a dollar and per ASM basis, approximately 70 percent of the increase was due to net step/pay rate increases and related benefits for certain workgroups, and approximately 10 percent of the increase was due to a one-time severance cost as a result of the workforce reduction in February 2025, which was considered a special item and excluded from the Company's non-GAAP financials.

See Note 11 to the unaudited Condensed Consolidated Financial Statements for additional detail regarding the reduction in workforce, and Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Fuel and oil expense for the first six months of 2025 decreased by $555 million, or 17.7 percent, compared with the first six months of 2024.

On a per ASM basis, Fuel and oil expense for the first six months of 2025 decreased 17.8 percent.

Fuel and oil expense for the first nine months of 2025 decreased by $641 million, or 14.1 percent, compared with the first nine months of 2024.

On a per ASM basis, Fuel and oil expense for the first nine months of 2025 decreased 14.4 percent.

On a dollar and per ASM basis, the decrease was primarily attributable to a decrease in the Company's fuel cost per gallon.

The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:

Six months ended June 30,

Nine months ended September 30,

Economic fuel costs per gallon $ 2.40 $ 2.74

6 unchanged sentences

See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Maintenance materials and repairs expense for the first six months of 2025 decreased by $88 million, or 12.4 percent, compared with the first six months of 2024.

On a per ASM basis, Maintenance materials and repairs expense decreased 12.5 percent, compared with the first six months of 2024.

On a dollar and per ASM basis, the decrease was primarily due to (i) a $45 million decrease in engine shop visits and various other engine expenses for the Company's -800 fleet, (ii) a $42 million decrease driven by fewer airframes in routine heavy check compared to the same period in 2024, and (iii) a $19 million reduction in routine bulk purchases of materials for the Company's seat refurbishment efforts.

These decreases were partially offset by a $32 million increase in engine shop visits and various other engine expenses associated with the Company's -700 fleet.

Landing fees and airport rentals expense for the first six months of 2025 increased by $115 million, or 11.8 percent, compared with the first six months of 2024.

On a per ASM basis, Landing fees and airport rentals expense increased 11.8 percent, compared with the first six months of 2024.

On a dollar and per ASM basis, approximately

75 percent of the increase was largely due to an increase in airport rental expense throughout the network driven by higher rates charged by airports for leased space.

The remainder of the increase was primarily due to receiving fewer favorable settlements and credits from various airports.

Depreciation and amortization expense for the first six months of 2025 decreased by $17 million, or 2.1 percent, compared with the first six months of 2024.

On a per ASM basis, Depreciation and amortization expense decreased 2.2 percent, compared with the first six months of 2024.

On a dollar and per ASM basis, the decrease was primarily due to accelerating depreciation for fewer -700 aircraft planned for early retirement in 2025 compared to 2024.

This decrease was partially offset by an increase due to technology projects being placed into service since second quarter 2024.

Other operating expenses for the first six months of 2025 increased by $113 million, or 5.4 percent, compared with the first six months of 2024.

Included within this line item was aircraft rentals expense in the amount of $167 million and $101 million for the six months ended June 30, 2025 and 2024, respectively.

On a per ASM basis, Other operating expenses increased 5.9 percent, compared with the first six months of 2024.

On a dollar and per ASM basis, the increase was primarily due to (i) a $66 million increase in aircraft rental expense associated with recent fleet transactions, (ii) a $40 million increase due to higher maintenance agreement expense driven by expanded cloud-based service, (iii) a $30 million increase due to higher professional fees driven by professional advisory fees related to the Company's implementation of its transformational plan, and (iv) a $26 million increase due to an increase in per diem rates paid to Flight crews.

Maintenance materials and repairs expense for the first nine months of 2025 decreased by $125 million, or 12.0 percent, compared with the first nine months of 2024.

On a per ASM basis, Maintenance materials and repairs expense decreased 11.5 percent, compared with the first nine months of 2024.

On both a dollar and per ASM basis, the decrease was primarily due to (i) a $73 million decrease driven by fewer airframes in routine heavy check compared to the same period in 2024, (ii) a $35 million decrease in engine shop visit expenses and various other engine expenses associated with the Company's -800 fleet, and (iii) a $25 million reduction in routine bulk purchases of materials for the Company's seat refurbishment efforts.

Landing fees and airport rentals expense for the first nine months of 2025 increased by $170 million, or 11.6 percent, compared with the first nine months of 2024.

On a per ASM basis, Landing fees and airport rentals expense increased 10.9 percent, compared with the first nine months of 2024.

On a dollar and per ASM basis, approximately 50 percent of the increase was due to an increase in airport rental expense throughout the network driven by higher rates charged by airports for leased space, 25 percent of the increase was due to higher landing fees throughout the network driven by higher rates, and 25 percent was due to receiving fewer favorable settlements and credits from various airports.

Depreciation and amortization expense for the first nine months of 2025 decreased by $61 million, or 4.9 percent, compared with the first nine months of 2024.

On a per ASM basis, Depreciation and amortization expense decreased 4.3 percent, compared with the first nine months of 2024.

T hese decreases were primarily due to accelerating depreciation of fewer -700 aircraft planned for early retirement in 2025 compared to 2024.

This decrease was partially offset by technology and ground property assets being placed into service since third quarter 2024 and the acquisition of 39 -8 aircraft since third quarter 2024.

Other operating expenses for the first nine months of 2025 increased by $158 million, or 5.0 percent, compared with the first nine months of 2024.

Included within this line item was aircraft rentals expense in the amount of $243 million and $153 million for the nine months ended September 30, 2025 and 2024, respectively.

On a per ASM basis, Other operating expenses increased 4.2 percent, compared with the first nine months of 2024.

On both a dollar and a per ASM basis, the increases were primarily due to (i) a $90 million increase in aircraft rental expense associated with recent fleet transactions, (ii) a $57 million increase driven by higher maintenance agreement expense driven by expanded cloud-based service, and (iii) a $47 million increase driven by higher travel expenses due to inflation in lodging rates and utilization of rooms as a result of redeye flying in 2025.

These increases were partially offset by a $62 million decrease in advertising and promotional campaigns.

Other expenses (income)

Interest expense for the first six months of 2025 decreased by $43 million, or 33.6 percent, compared with the first six months of 2024, primarily due to significant debt repayments since second quarter 2024.

Non-Operating Expenses (Income)

Interest expense for the first nine months of 2025 decreased by $71 million, or 37.2 percent, compared with the first nine months of 2024, primarily due to significant debt repayments since third quarter 2024.

S ee Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Capitalized interest for the first six months of 2025 increased by $9 million, or 60.0 percent, compared with the first six months of 2024, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.

Interest income for the first six months of 2025 decreased by $133 million, or 49.1 percent, compared with the first six months of 2024, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

The following table displays the components of Other (gains) losses, net, for the six months ended June 30, 2025 and 2024:

Six months ended June 30,

Capitalized interest for the first nine months of 2025 increased by $14 million, or 58.3 percent, compared with the first nine months of 2024, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.

Interest income for the first nine months of 2025 decreased by $220 million, or 56.1 percent, compared with the first nine months of 2024, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

The following table displays the components of Other (gains) losses, net, for the nine months ended September 30, 2025 and 2024:

Nine months ended September 30,

(in millions) 2025 2024

Mark-to-market impact from fuel contracts settling in current and future periods $ — $ 31

Premium benefit of fuel contracts not designated as hedges — (1)

Premium cost of fuel contracts not designated as hedges — 5

Mark-to-market impact on deferred compensation plan investment (34) (40)

The Company's effective tax rate was approximately 27.4 percent for the first six months of 2025, compared with 24.4 percent for the first six months of 2024.

The year-over-year increase in the tax rate was primarily due to additional federal tax credits recorded in 2024 and the impact of changes in pre-tax book income on the effective tax rate.

The Company's effective tax rate was approximately 24.6 percent for the first nine months of 2025, compared with 24.3 percent for the first nine months of 2024.

The year-over-year increase in the tax rate was primarily due to the impact of year-to-date lower pre-tax book income on discrete tax items.

Reconciliation of Reported Amounts to Non-GAAP Financial Measures (excluding special items) (unaudited)

(in millions, except per share amounts and per ASM amounts)

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

Three months ended September 30, Percent Nine months ended September 30, Percent

2025 2024 Change 2025 2024 Change

4 unchanged sentences

Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b) — 14 — 14

Premium benefit of fuel contracts not designated as hedges — (1) — (1)

Premium cost of fuel contracts not designated as hedges — 5 — 5

Fuel and oil expense, excluding special items (economic) $ 1,331 $ 1,436 (7.3) $ 3,907 $ 4,567 (14.5)

2 unchanged sentences

Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b) — 14 — 14

Premium benefit of fuel contracts not designated as hedges — (1) — (1)

Premium cost of fuel contracts not designated as hedges — 5 — 5

Impairment of long-lived assets — — (8) —

11 unchanged sentences

Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b) — (14) — (14)

Premium benefit of fuel contracts not designated as hedges — 1 — 1

Premium cost of fuel contracts not designated as hedges — (5) — (5)

Impairment of long-lived assets — — 8 —

4 unchanged sentences

Operating income, excluding special items $ 42 $ 32 31.3 $ 159 $ 60 165.0

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

Three months ended September 30, Percent Nine months ended September 30, Percent

2025 2024 Change 2025 2024 Change

Other gains, net, as reported $ (27) $ (5) $ (9) $ (17)

Other (gains) losses, net, as reported $ (21) $ 16 $ (28) $ (1)

Mark-to-market impact from fuel contracts settling in future periods (b) — (29) — (31)

Premium benefit of fuel contracts not designated as hedges — 1 — 1

Other gains, net, excluding special items $ (27) $ (6) n.m.

$ (9) $ (19) (52.6)%

Premium cost of fuel contracts not designated as hedges — (5) — (5)

Other gains, net, excluding special items $ (21) $ (18) 16.7 $ (28) $ (37) (24.3)

Income before income taxes, as reported $ 68 $ 89 $ 155 $ 269

22 unchanged sentences

Net income, excluding special items $ 58 $ 89 (34.8) $ 211 $ 241 (12.4)

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

Three months ended September 30, Percent Nine months ended September 30, Percent

2025 2024 Change 2025 2024 Change

1 unchanged sentence

Impact of special items 0.02 0.01 0.22 0.06

Net impact of net income above from fuel contracts divided by dilutive shares — 0.02 — 0.03

Net income tax impact of special items (d) (0.01) — (0.05) (0.03)

GAAP to Non-GAAP diluted weighted average shares difference (e) — 0.01 — —

Net income per share, diluted, excluding special items $ 0.11 $ 0.15 (26.7) $ 0.38 $ 0.40 (5.0)

10 unchanged sentences

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

(e) Adjustment related to GAAP and Non-GAAP diluted weighted average shares difference due to the Convertible Notes

being anti-dilutive for GAAP but dilutive for Non-GAAP for the three months ended September 30, 2024.

Non-GAAP Return on Invested Capital (ROIC) (in millions) (unaudited)

Twelve months ended Twelve months ended

June 30, 2025 June 30, 2024

September 30, 2025 September 30, 2024

Operating income (loss), as reported $ 315 $ (361)

3 unchanged sentences

TWU 555 contract adjustment — 9

TWU 556 contract adjustment — 95

SWAPA contract adjustment — 354

24 unchanged sentences

The current period impact of these gains and/or losses is reflected in the Net impact from fuel contracts in the numerator.

(d) The GAAP twelve month rolling tax rate as of June 30, 2025, was 22.3 percent, and the Non-GAAP twelve month rolling tax rate was 22.6 percent.

(d) The GAAP twelve month rolling tax rate as of September 30, 2025, was 21.8 percent, and the Non-GAAP twelve month rolling tax rate was 22.4 percent.

See Note Regarding Use of Non-GAAP Financial Measures for additional information.

(e) The GAAP twelve month rolling tax rate as of June 30, 2024, was 41.0 percent, and the Non-GAAP twelve month rolling tax rate was 23.8 percent.

(e) The GAAP twelve month rolling tax rate as of September 30, 2024, was (186.0) percent, and the Non-GAAP twelve month rolling tax rate was 24.3 percent.

The GAAP twelve month rolling tax rate as of September 30, 2024 is negative primarily due to the Company's pre-tax book loss for the twelve months ended September 30, 2024.

See Note Regarding Use of Non-GAAP Financial Measures for additional information.

9 unchanged sentences

Adjusted Operating income, non-GAAP;

Other (gains) losses, net, non-GAAP;

Other gains, net, non-GAAP;

Income before income taxes, non-GAAP;

17 unchanged sentences

Incremental expense associated with contract ratification bonuses for various workgroups related to additional compensation for services performed by Employees outside the applicable fiscal period;

Charges associated with tentative litigation settlements regarding paid short-term military leave to certain Employees, certain California state meal-and-rest break regulations for Flight Attendants, and an arbitration award in favor of the Company's Pilots relating to a collective-bargaining matter;

Charges associated with tentative litigation settlements regarding paid short-term military leave to certain Employees and an arbitration award in favor of the Company's Pilots relating to a collective-bargaining matter;

Expenses associated with professional advisory fees related to the Company's implementation of its comprehensive transformational plan;

13 unchanged sentences

Adjusted Operating income, non-GAAP;

Other (gains) losses, net, non-GAAP;

Other gains, net, non-GAAP;

Income before income taxes, non-GAAP;

3 unchanged sentences

Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profit sharing (cents);

EBIT, non-GAAP;

and Return on invested capital, non-GAAP.

8 unchanged sentences

Liquidity and Capital Resources

Net cash provided by operating activities was $401 million for the three months ended June 30, 2025, compared with $23 million used in operating activities in the same prior year period.

Net cash provided by operating activities was $1.3 billion for the six months ended June 30, 2025 compared with $128 million used in the same prior year period.

N et cash provided by operating activities was $287 million for the three months ended September 30, 2025, compared with $113 million provided by operating activities in the same prior year period.

Net cash provided by operating activities was $1.5 billion for the nine months ended September 30, 2025 compared with $14 million used in operating activities in the same prior year period.

Historically, operating cash inflows are primarily derived from selling tickets for future flights and providing air transportation to Customers.

1 unchanged sentence

Operating cash outflows are related to the recurring expenses of airline operations.

The operating cash flows for the six months ended June 30, 2025, were largely impacted by the Company's net results (as adjusted for noncash item s, primarily Depreciation and amortization), a $103 million profit-sharing contribution for 2024 pursuant to the Company's Retirement Savings Plan, and a $55 million increase in Air traffic liability driven by higher ticket sales despite a softness in bookings.

The operating cash flows for the six months ended June 30, 2024, were largely impacted by the Company's net results (as adjusted for noncash items, primarily Depreciation and amortization), the approxima tely $1.9 billion paid to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with 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 ;

and the $105 million payout of the Company's Profitsharing Plan contribution for the 2023 Plan year.

These decreases were partially offset by a $798 million increase in Air traffic liability driven by higher ticket sales related to an increase in capacity.

The operating cash flows for the nine months ended September 30, 2025, were largely impacted by the Company's net results (as adjusted for noncash items, primarily Depreciation and amortization), a $103 million profit-sharing contribution for 2024 pursuant to the Company's Retirement Savings Plan, and a $117 million decrease in Air traffic liability driven by a decrease in flight points earned and more flight credits redeemed by Customers.

The operating cash flows for the nine months ended September 30, 2024, were largely impacted by the Company's net results (as adjusted for noncash items, primarily Depreciation and amortization), the approximately $1.9 billion paid to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with 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;

and a $98 million decrease related to the purchase of fuel derivative instruments, which is included within Other, net operating cash flows in the accompanying unaudited Condensed Consolidated Statement of Cash Flows.

These decreases were partially offset by a $421 million increase in Air traffic liability driven by higher ticket sales.

Net cash provided by operating activities is primarily used to finance capital expenditures, repay debt, provide Shareholder returns, and provide working capital.

Net cash used in investing activities totaled $882 million during the three months ended June 30, 2025, compared with $206 million used in investing activities in the same prior year period.

Net Cash used in investing activities totaled $259 million during the six months ended June 30, 2025, compared with $791 million used in investing activities in the same prior year period.

Net cash used in investing activities totaled $428 million during the three months ended September 30, 2025, compared with $458 million provided by investing activities in the same prior year period.

Net Cash used in investing activities totaled $687 million during the nine months ended September 30, 2025, compared with $334 million used in investing activities in the same prior year period.

Investing activities in both years included Capital expenditures and changes in the balance of the Company's short-term and noncurrent investments.

During the six months ended June 30, 2025 and 2024, Capital expenditures were $1.1 billion.

The Company continues to expect its 2025 capital spending to be in the range of $2.5 billion to $3.0 billion, including the additional aircraft deliveries now expected, as well as the impact of the expected sale of five -800 aircraft this year.

Net cash used in financing activities was $4.2 billion during the three months ended June 30, 2025, compared with $4 million provided by financing activities for the same prior year period.

Net cash used in financing activities was $5.0 billion during the six months ended June 30, 2025, compared with $227 million used in financing activities for the same prior year period.

During the six months ended June 30, 2025, the Company paid $210 million in cash dividends to Shareholders related to the first quarter 2025 and fourth quarter 2024 declarations.

Additionally, the Company expended $2.25 billion to repurchase the Company's outstanding common stock through authorized share repurchases during the six months ended June 30, 2025.

During the nine months ended September 30, 2025, Capital expenditures were $1.8 billion, compared with $1.6 billion in the same prior year period.

Capital expenditures increased, year-over-year, largely due to an increase in average delivery payment balances for scheduled future aircraft deliveries during the nine months ended September 30, 2025, compared to the same prior year period.

Net cash used in financing activities was $432 million during the three months ended September 30, 2025, compared with $210 million used in financing activities for the same prior year period.

Net cash used in financing activities was $5.5 billion during the nine months ended September 30, 2025, compared with $437 million used in financing activities for the same prior year period.

During the nine months ended September 30, 2025, the Company paid $399 million in cash dividends to Shareholders related to the first, second, and third quarter 2025 and fourth quarter 2024 declarations.

Additionally, the Company expended $2.5 billion to repurchase the Company's outstanding common stock through authorized share repurchases during the nine months ended September 30, 2025.

The repurchases of common stock amounts in the unaudited Consolidated Statement of Cash Flows may differ from the unaudited Consolidated Statement of Stockholder's Equity due to the timing of excise taxes incurred and subsequent payment on share repurchases, net of issuances.

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See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information on the Convertible Notes, PSP1 Payroll Support Program loan, and future debt maturities.

During the six months ended June 30, 2024, the Company paid $215 million in cash dividends to Shareholders for the fourth quarter 2023 and first quarter 2024 declarations, and the Company repaid $16 million in finance lease obligations.

During the nine months ended September 30, 2024, the Company paid $431 million in cash dividends to Shareholders and the Company repaid $27 million in finance lease obligations.

The Company completed its September 2024 $2.5 billion share repurchase authorization in second quarter 2025, repurchasing $1.5 billion of its outstanding common stock through an accelerated share repurchase program.

Final settlement of the second quarter 2025 accelerated share repurchase program is expected to occur by the end of July 2025.

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

common stock, which is expected to be completed over a period of up to two years.

The Company received a total of 46,623,010 million shares under the second quarter 2025 accelerated share repurchase program, which was completed in August 2025.

On July 23, 2025, the Board approved a $2.0 billion share repurchase authorization of the Company's common stock, which is expected to be completed over a period of up to two years.

The Company repurchased $250 million of its outstanding common stock through an accelerated share repurchase program entered into in third quarter 2025 under its current $2.0 billion authorization, which also impacted net cash used in financing activities.

The Company received a total of 7,777,764 million shares under the third quarter 2025 accelerated share repurchase program, which was completed in October 2025.

These purchases were recorded as treasury share repurchases for purposes of calculating earnings per share.

Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated repurchase transactions from time to time, depending on market conditions.

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The Company intends to use the proceeds from any future securities sales off this shelf registration statement for general corporate purposes.

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.

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

On July 22, 2025, the Company exercised the accordion feature under its amended and restated revolving credit facility (the "Amended Credit Agreement"), increasing the size of the facility to $1.5 billion.

As of September 30, 2025, the Company had access to $1.5 billion under the Amended Credit Agreement, which expires in August 2028.

See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

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.

There were no amounts outstanding under the Amended Credit Agreement as of July 24, 2025.

As of June 30, 2025, the Company carried a working capital deficit of approximately $4.8 billion, in which its current liabilities exceed its current assets.

There were no amounts outstanding under the Amended Credit Agreement as of October 23, 2025.

As of September 30, 2025, the Company carried a working capital deficit of approximately $5.6 billion, in which its current liabilities exceed its current assets.

This is common within the airline industry and is primarily due to the nature of the Air traffic liability account, which is related to advance ticket sales, unused flight credits available to Customers, and loyalty deferred revenue, which are performance obligations for future Customer flights, do not require future settlement in cash, and are mostly nonrefundable.

See Note 5 to the unaudited Condensed Consolidated Financial Statements for further information.

The Company believes it has various options available to meet its capital and operating commitments, including unrestricted cash and short-term investments of $3.8 billion as of June 30, 2025, and anticipated future internally generated funds from operations.

The Company believes it has various options available to meet its capital and operating commitments, including unrestricted cash and short-term investments of $3.0 billion as of September 30, 2025, and anticipated future internally generated funds from operations.

The Company continues to have a large base of unencumbered aircraft and primarily aircraft-related assets with a net book value of approximately $16.8 billion.

In addition, the Company continues to maintain investment-grade credit ratings by all three major credit agencies (Moody's, S&P Global, and Fitch).

As of July 24, 2025, for the years 2025 through 2031, the Company has firm orders with Boeing for 510 aircraft (less 28 -8 aircraft received to date in 2025), and options for an additional 162 aircraft.

The contractual order book as of July 24, 2025 does not include the impact of delivery delays and is subject to change based on ongoing discussions with Boeing and their production capability.

As of October 23, 2025, for the years 2025 through 2031, the Company has firm orders with Boeing for 516 aircraft (less 36 -8 aircraft received to date in 2025), and options for an additional 156 aircraft.

The contractual order book as of October 23, 2025 does not include the impact of delivery delays and is subject to change based on ongoing discussions with Boeing and their production capability.

See Note 9 to the unaudited Condensed Consolidated Financial Statements for further information.

The following table details information on the aircraft in the Company's fleet as of June 30, 2025:

The following table details information on the aircraft in the Company's fleet as of September 30, 2025:

Age (Yrs) Number

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Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, statements related to the following:

• the Company’s plans and expectations with respect to cost reductions;

• the Company’s financial targets for 2025 and 2026 and factors that could impact the Company’s financial results;

• the Company’s financial guidance for third quarter and full year 2025 and factors that could impact the Company’s financial results;

• the Company’s financial guidance for fourth quarter and full year 2025 and factors that could impact the Company’s financial results;

• the Company’s capacity guidance and expectations;

• the Company’s estimated fuel costs and fuel efficiency and the assumptions underlying the Company’s fuel-related expectations and estimates;

• the Company’s plans and expectations for the repayment of debt and its interest expense;

• the Company's expectations with respect to fleet transactions;

• the Company’s expectations regarding passenger demand, revenue management, revenue trends, and bookings;

• the Company’s focus areas, goals, opportunities, and initiatives, including with respect to flight credit expiration, checked bag fees, creating efficiencies, the Company’s fare structure, airline partnerships, financial performance, and the Company’s co-brand credit card agreement with Chase;

• the Company’s focus areas, goals, opportunities, and initiatives, including with respect to checked bag fees, creating efficiencies, Getaways by Southwest, the Company’s fare structure, the Company’s delivery of WiFi, airline partnerships, and the Company’s co-brand credit card agreement with Chase;

• the Company’s expectations with respect to cost reductions;

• the Company’s plans and expectations with respect to assigned and extended legroom seating, cabin design and seating, redesigned boarding model, aircraft turn times, and redeye flying;

• the Company’s plans and expectations with respect to capital allocation, capital deployment, infrastructure investments, leverage, and Shareholder returns;

• the Company’s plans and expectations with respect to improving financial performance, driving Shareholder value, capital allocation, capital deployment, infrastructure investments, leverage, and Shareholder returns;

• the Company’s fleet plans and expectations, including with respect to fleet modernization, fleet retrofits, fleet utilization, flexibility, fleet strategy and extracting value from the fleet and the fleet order book, and expected fleet deliveries and retirements, and underlying expectations and dependencies;

• the Company’s network plans and expectations;

• the Company’s labor plans and expectations including with respect to the Company’s reduction in force;

• the Company’s financial targets and goals, including with respect to leverage, liquidity, balance sheet goals, and cost mitigation;

• the Company’s financial expectations, targets and goals, including with respect to fuel prices, income taxes, leverage, liquidity, balance sheet goals, and cost mitigation;

• the Company’s short-term and long-term financial and operational goals;

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Factors that could cause these differences include, among others:

• the impact of consumer perception, consumer uncertainties with respect to trade policies (including the imposition of tariffs), economic conditions, banking conditions, fears or actual outbreaks of diseases, extreme or severe weather and natural disasters, actions of competitors (including, without limitation, pricing, scheduling, capacity, and network decisions, and consolidation and alliance activities), socio-demographic trends, and other factors beyond the Company's control on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results;

• the impact of consumer perception, consumer uncertainties with respect to government shutdowns or trade policies (including the imposition of tariffs), economic conditions, banking conditions, fears or actual outbreaks of diseases, extreme or severe weather and natural disasters, actions of competitors (including, without limitation, pricing, scheduling, capacity, and network decisions, and consolidation and alliance activities), socio-demographic trends, and other factors beyond the Company's control on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results;

• the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives;

• the impact of governmental regulations and other governmental actions, including with respect to government shutdowns, as well as the Company's ability to obtain any required governmental approvals, on the Company's plans, strategies, financial results, and operations;

• the Company's dependence on Boeing, Boeing’s suppliers, and the FAA with respect to the Company's fleet plans and deliveries, capacity and operational plans, assigned and extended legroom seating plans, and other operational plans, strategies, and goals;

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• the Company's ability to obtain and maintain adequate infrastructure and equipment to support its operations and initiatives;

• the impact of governmental regulations and other governmental actions, as well as the Company's ability to obtain any required governmental approvals, on the Company's plans, strategies, financial results, and operations;

• the Company's dependence on its workforce, including its ability to employ and retain sufficient numbers of qualified Employees to effectively and efficiently maintain its operations;

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• the cost and effects of the actions of activist shareholders;

• other factors as set forth in the Company's filings with the Securities and Exchange Commission (the "SEC"), including the detailed factors discussed under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.

Caution should be taken not to place undue reliance on the Company's forward-looking statements, which represent the Company's views only as of the date this report is filed.

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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-Q

Item 2. Management’s Discussion and Analysis