What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-02-05 compared with 2025-02-07 · 466 added, 458 removed, 1016 unchanged (48% of the section changed)

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Retained earnings 16,388 16,332

Accumulated other comprehensive income (loss) ( 25 ) —

Accumulated other comprehensive loss ( 24 ) ( 25 )

Treasury stock, at cost:

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Interest income ( 205 ) ( 497 ) ( 583 )

Loss on extinguishment of debt 2 — 193

Other (gains) losses, net ( 43 ) 6 ( 62 )

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NET INCOME $ 441 $ 465 $ 465

Unrealized loss on fuel derivative instruments, net of

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

deferred taxes of $ 13 , ($ 14 ), and ($ 103 )

43 (a) ( 44 ) ( 337 )

Unrealized gain (loss) on defined benefit plan items, net of deferred taxes of ($ 14 ), $ 4 , and ($ 5 )

( 47 ) 14 ( 16 )

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

taxes of $ 4 , ($ 5 ), and $ 24

Other, net of deferred taxes of $ 1 , $ 3 , and $ 8

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

OTHER COMPREHENSIVE INCOME (LOSS) $ 1 $ ( 25 ) $ ( 344 )

COMPREHENSIVE INCOME $ 442 $ 440 $ 121

(a) Includes reclassification adjustments from Accumulated Other Comprehensive Income into Fuel and oil expense associated with hedges previously terminated.

See accompanying notes.

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

Cumulative effect of adopting Accounting Standards Update No.

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

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

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

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

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

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— — ( 430 ) — — ( 430 )

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

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

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— — ( 385 ) — — ( 385 )

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

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

Comprehensive income $ — $ — $ 441 $ 1 $ — $ 442

Balance at December 31, 2025 $ 888 $ 4,322 $ 16,388 $ ( 24 ) $ ( 13,593 ) $ 7,981

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

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

See accompanying notes.

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Impairment of long-lived assets 8 — —

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

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

Unrealized mark-to-market adjustment on forward contract ( 8 ) — —

Deferred income taxes 122 132 159

Gain on sale-leaseback transactions ( 3 ) ( 92 ) —

Loss on extinguishment of debt 2 — 193

Changes in certain assets and liabilities:

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CASH FLOWS FROM INVESTING ACTIVITIES:

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

Capital expenditures, net ( 2,673 ) ( 2,054 ) ( 3,520 )

Proceeds from sale-leaseback transactions 24 871 —

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

Purchases of short-term investments ( 470 ) ( 5,014 ) ( 6,970 )

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt 1,500 — —

Payroll Support Program stock warrants repurchase — ( 6 ) —

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Proceeds of terminated interest rate derivative instruments — — 23

Payments for repurchases and conversions of convertible debt — — ( 648 )

Other, net ( 26 ) ( 17 ) 6

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Interest, net of amount capitalized $ 108 $ 220 $ 228

Income taxes $ 9 $ 18 $ 20

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

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

Right-of-use assets acquired or modified under operating leases $ 48 $ 377 $ 82

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Supplemental Financial Information

Restructuring

Report of Independent Registered Public Accounting Firm

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These canceled flights resulted in a significant reduction in Passenger revenues during this period and also created a deceleration in bookings, primarily isolated to January and February 2023.

In addition, the Company incurred significant costs associated with this event and recorded these expenses during December 2022 and first quarter 2023, totaling approximately $ 390 million and $ 55 million, respectively, which are included in the accompanying Consolidated Statement of Income.

These estimated items included reimbursements to Customers impacted by the cancellations for costs they incurred, the estimated value of Rapid Rewards points offered as a gesture of goodwill to Customers that are expected to be redeemed, and additional premium pay and additional compensation for Employees directly or indirectly impacted by the cancellations and recovery efforts.

The financial impacts of the event to the Company also included lower fuel and oil and profitsharing expenses.

In addition, the Company incurred significant costs associated with this event, including approximately $ 55 million of additional expenses during first quarter 2023, which is included in the accompanying Consolidated Statement of Income.

Such costs were primarily related to expense reimbursements to Customers impacted by the cancellations and the value of Rapid Rewards points offered as a gesture of goodwill to impacted Customers.

Based on the Company's wide-scale operational disruption, the Company could be subject to fines and/or penalties resulting from investigations by government agencies as well as litigation from Customers and Shareholders.

On October 27, 2023, the Department of Transportation (the "DOT") notified the Company that it had determined the Company failed to provide adequate Customer Service assistance, prompt flight status notifications, and proper and prompt refunds and that the assessment of a civil penalty was warranted.

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

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

During fourth quarter 2023, the Company reached a settlement with the Department of Transportation (the "DOT") based on their investigation into the disruption, and the Company accrued an associated expense of $ 107 million.

On December 5, 2025, based on the Company's significant improvement to its ontime performance and completion factor since the time of the disruption, and as a result of its significant financial investment in its Network Operations Control function, the DOT waived the final settlement payment of $ 11 million, originally due January 2026.

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

Cash and Cash Equivalents

Cash in excess of that necessary for operating requirements is invested in short-term, highly liquid, income-producing investments.

Investments with original maturities of three months or less when purchased are classified as cash and cash equivalents, which primarily consist of certificates of deposit, money market funds, and investment grade commercial paper issued by major corporations and financial institutions.

Investments with original maturities of three months or less when purchased are classified as cash and cash equivalents, which primarily consist of money market funds and time deposits issued by major corporations and financial institutions.

Cash and cash equivalents are stated at cost, which approximates fair value.

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

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

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

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

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

Notes to Consolidated Financial Statements

As of December 31, 2025, the Company had no outstanding fuel derivative instruments and therefore no cash collateral deposits associated with its fuel hedge counterparties.

Additionally, there were no cash collateral deposits associated with its interest rate hedges as of December 31, 2025.

As of December 31, 2024, $ 22 million in cash collateral deposits were held by the Company from its fuel hedge counterparties, and the Company had no outstanding interest rate swap agreements and therefore no cash collateral deposits associated with its interest rate hedge counterparties.

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

See Note 10 for further information on fuel and interest rate derivative instruments.

Short-term and Noncurrent Investments

Notes to Consolidated Financial Statements

Short-term investments consist of investments with original maturities of greater than three months but less than twelve months when purchased.

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

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

They primarily consist of the amounts due from the credit card companies associated with sales of tickets for future travel and amounts due from business partners in the Company’s loyalty program.

See Note 15 for further information.

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Property and equipment is stated at cost.

Capital expenditures include payments made for aircraft, other flight equipment, purchase deposits related to future aircraft deliveries, airport and other facility construction projects, and ground and other property and equipment.

Capital expenditures, net include payments made for aircraft, other flight equipment, purchase deposits related to future aircraft deliveries, airport and other facility construction projects, and ground and other property and equipment.

Proceeds from the disposition of property and equipment that are retired from service are presented net against capital expenditures, and were immaterial as a component of total capital expenditures for each period presented.

Depreciation is provided by the straight-line method to estimated residual values over periods of approximately 25 years for flight equipment, and 5 to 30 years for ground property and equipment.

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The Company evaluates its long-lived assets used in operations for impairment when events and circumstances indicate that the undiscounted cash flows to be generated by that asset group are less than the carrying amounts of the asset group and may not be recoverable.

Factors that would indicate potential impairment include, but are not

Factors that would indicate potential impairment include, but are not limited to, significant decreases in the market value of the long-lived asset group, a significant change in the long-lived asset group’s physical condition, and operating or cash flow losses associated with the use of the long-lived asset group.

If an asset group is deemed to be impaired, an impairment loss is recorded for the excess of the asset

Notes to Consolidated Financial Statements

limited to, significant decreases in the market value of the long-lived asset group, a significant change in the long-lived asset group’s physical condition, and operating or cash flow losses associated with the use of the long-lived asset group.

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

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

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

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

group's book value in relation to its estimated fair value.

There were no material impairments in 2025, 2024, or 2023.

In 2024 and 2023, the Company identified certain -700 aircraft that were to be retired earlier than planned through 2025.

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

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* net of profitsharing benefit and income taxes

During third quarter 2025, the Company completed an annual review of the estimated residual values of its long-lived assets.

As a result of this review, the Company increased the estimated residual values for its Boeing 737-700 ("-700") airframe and -700, Boeing 737-800 ("-800"), and Boeing 737-8 ("-8") engine assets.

This change took into consideration third party valuation data and recent market transactions.

As this is considered a change in estimate, it has been accounted for on a prospective basis in accordance with Accounting Standards Codification ("ASC") 205, "Accounting Changes and Error Corrections" and thus the Company will record less depreciation expense over the remainder of the useful lives for each related asset.

This change in estimated residual values, and the corresponding impact to depreciation expense resulted in the following impact to expense in the year ended December 31, 2025.

Year ended December 31,

(in millions, except per share amounts) 2025

Depreciation and amortization expense $ ( 44 )

Net income * 29

Net income per basic share 0.05

Net income per diluted share 0.05

* net of profitsharing benefit and income taxes

The Company determines if an arrangement is a lease at inception.

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Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, fees paid by the lessee to the owners of a special-purpose entity for restructuring the transaction, and probable amounts the lessee will owe under a residual value guarantee.

Lease payments do not include (i) variable lease payments other than those that depend on an index or rate, (ii) any guarantee by the lessee of the lessor’s debt, or (iii) any amount allocated to non-lease components, if such election was made upon adoption, per the provisions of the Accounting Standards Codification ("ASC") 842.

The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments, since the Company does not know the actual implicit rates in its leases.

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Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

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

The Company combines lease

Notes to Consolidated Financial Statements

and non-lease components for all asset groups.

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

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

For its engine maintenance

Notes to Consolidated Financial Statements

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

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

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

Goodwill and Intangible Assets

The Company applies a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets annually on October 1st, or more frequently if certain events or circumstances indicate that an impairment loss may have been incurred.

The Company applies a fair value-based impairment test to the carrying value of goodwill and indefinite-lived intangible assets annually on October 1, or more frequently if certain events or circumstances indicate that an impairment loss may have been incurred.

The Company assesses the value of goodwill and indefinite-lived intangible assets under either a qualitative or quantitative approach.

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The majority of the Company’s tickets sold are nonrefundable.

Southwest has a No-Show policy that applies to fares that are not canceled or changed by a Customer at least ten minutes prior to a flight's scheduled departure.

Nonrefundable tickets that are sold but not flown on the travel date, and are canceled in accordance with the No-Show policy, can be applied to future travel.

Southwest has a No-Show Policy that applies to fares that are not canceled or changed by a Customer at least 10 minutes prior to a flight's scheduled departure.

Nonrefundable tickets that are sold but not

Notes to Consolidated Financial Statements

flown on the travel date, and are canceled in accordance with the No-Show Policy, can be applied to future travel.

Refundable tickets that are sold but not flown on the travel date can also be applied to future travel.

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

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

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

Notes to Consolidated Financial Statements

date to September 7, 2022.

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

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

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

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

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

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

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

Year ended December 31,

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* net of profitsharing benefit and income taxes

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, will continue to have no expiration date.

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

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and economic factors.

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

See Note 5 for further information.

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The Company records a liability for the relative fair value of providing free travel under its loyalty program for all points earned from flight activity or sold to business partners participating in the Company’s Rapid Rewards loyalty program.

The loyalty liability represents performance obligations that will be satisfied when a Rapid Rewards loyalty member redeems points for travel or other goods and services.

Points earned from flight activity are valued at their relative standalone selling price by applying fair value based on historical redemption patterns.

Points earned from business partner activity, which primarily consist of points sold, along with related marketing services, to companies participating in the Rapid Rewards loyalty program, are valued using a relative fair value methodology based on the contractual rate which partners pay to Southwest to award Rapid Rewards points to the business partner’s customers.

For points that are expected to remain unused, the Company recognizes breakage in proportion to the pattern of points used by the Customer, which approximates the average period over which the population of Rapid Reward Members redeem their points.

The Company records passenger revenue related to air transportation when the transportation is delivered.

The marketing elements are recognized as Other - net revenue when earned.

The loyalty liability represents performance obligations that will be satisfied when a Rapid Rewards loyalty Member redeems points and travels or other goods and services are provided.

Points earned from flight activity are valued at their relative stand-alone selling price by applying fair value based on historical redemption

Notes to Consolidated Financial Statements

For points that are expected to remain unused, the Company recognizes breakage revenue in proportion to the pattern of points used by the Customer, which approximates the average period over which the population of Rapid Reward Members redeem their points.

The Company records Passenger revenue related to air transportation when the transportation is delivered, the marketing elements are recognized as Other - net revenue when earned, and the airline benefits are recognized as Passenger revenue when they are provided.

The Company’s liability for loyalty benefits includes a portion that is expected to be redeemed during the following twelve months (classified as a component of Air traffic liability), and a portion that is not expected to be redeemed during the following twelve months (classified as Air traffic liability - noncurrent).

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See Note 5 for further information.

Notes to Consolidated Financial Statements

Advertising costs are charged to expense as incurred.

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

The Company utilizes various derivative instruments, including jet fuel, crude oil, unleaded gasoline, and heating oil-based derivatives, in an attempt to reduce the risk of its exposure to jet fuel price increases.

These instruments are accounted for as cash flow hedges upon proper qualification.

At times, the Company can have interest rate swap agreements, the primary objective of which is to hedge forecasted debt issuances.

These interest rate hedges are appropriately designated as cash flow hedges.

Since the majority of the Company’s financial derivative instruments are not traded on a market exchange, the Company estimates their fair values.

Depending on the type of instrument, the values are determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets.

The Company has utilized various derivative instruments, including jet fuel, crude oil, unleaded gasoline, and heating oil-based derivatives, in an attempt to reduce the risk of its exposure to jet fuel price increases.

These instruments were accounted for as cash flow hedges upon proper qualification.

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 and program.

See Note 10 .

The Company also has interest rate swap agreements to convert a portion of its fixed-rate debt to floating rates.

These interest rate hedges are appropriately designated as fair value hedges.

Since the Company’s financial derivative instruments are not traded on a market exchange, the Company estimates their fair values.

Depending on the type of instrument, the values are determined by the use of present value methods or option value models with assumptions based on those observed in underlying markets.

All cash flows associated with purchasing and selling derivatives are classified as operating cash flows in the Consolidated Statement of Cash Flows, within Changes in certain assets and liabilities.

The Company classifies its cash collateral provided to or held from counterparties in a "net" presentation on the Consolidated Balance Sheet against the fair value of the derivative positions with those counterparties.

The Company classifies any cash collateral provided to or held from counterparties in a "net" presentation on the Consolidated Balance Sheet against the fair value of the derivative positions with those counterparties.

See Note 10 for further information.

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

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

Capitalized computer software, included as a component of Ground property and equipment in the

Notes to Consolidated Financial Statements

accompanying Consolidated Balance Sheet, net of accumulated depreciation, was $ 1.3 billion and $ 1.1 billion as of December 31, 2025, and 2024, respectively.

Computer software depreciation expense was $ 318 million, $ 271 million, and $ 246 million for the years ended December 31, 2025, 2024, and 2023, respectively, and is included as a component of Depreciation and amortization expense in the accompanying Consolidated Statement of Income.

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

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

Notes to Consolidated Financial Statements

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

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

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

The Company also evaluates the need for a valuation allowance to reduce deferred tax assets to estimated recoverable amounts.

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

The Company uses the portfolio approach for releasing income tax effects associated with amounts reclassified out of AOCI.

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

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See Note 14 for further information.

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 year ended December 31, 2025, nor did it materially change the Company's effective income tax rate for 2025.

Concentration Risk

Approximately 84 percent of the Company’s Employees are unionized and are covered by collective-bargaining agreements.

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

The Company's last open collective-bargaining labor contract subject to Section 6 of the Railway Labor Act was ratified in December 2024, and all of the Company's collective-bargaining labor contracts are closed until October 2026 when the next labor contract becomes amendable, subject to any early opening of renegotiations.

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

This is accomplished by diversifying and limiting amounts among different counterparties, the type of investment, and the amount invested in any individual security or money market fund.

To manage risk associated with financial derivative instruments held, the Company selects and will periodically review counterparties based on credit ratings, limits its exposure to a single counterparty, and monitors the market position of the program and its relative market position with each counterparty.

The Company also has agreements with counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount or credit ratings fall below certain levels.

Collateral deposits provided to or held from counterparties serve to decrease, but not totally eliminate, the credit risk associated with the Company’s hedging program.

See Note 10 for further information.

As of December 31, 2025, the Company operated an all-Boeing fleet, all of which are variations of the Boeing 737.

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

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

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

Boeing has in the past experienced, and may continue to experience, delays in fulfilling its commitments with regards to delivery of the -8 to the Company as a result of manufacturing challenges.

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

Notes to Consolidated Financial Statements

and approvals to the Boeing Company ("Boeing") and the Company.

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

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

The requirements associated with

Notes to Consolidated Financial Statements

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

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

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

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

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

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

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

("Chase")—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.

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

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

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

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

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

The CODM assesses performance for the Company's single reportable segment and decides how to allocate resources based on Net income.

Significant expenses that are regularly provided to the CODM for the Company's one reportable segment are presented in the Consolidated Statement of Income and are included within the operational measure of Net income.

There are no additional significant expenses beyond the Consolidated Statement of Income provided to the CODM on a recurring basis.

When making operational decisions, the CODM

Notes to Consolidated Financial Statements

is indifferent to the results on a geographic region basis.

The Company's objective in making resource allocation decisions is to optimize the consolidated financial results, such as deciding whether to reinvest profits into parts of the entity, including fleet and network planning, or for other general Corporate purposes, such as shareholder returns.

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

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NEW ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES

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

On September 18, 2025, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2025-06, Accounting for and Disclosure of Software Costs.

The new standard modernizes the guidance to reflect the software development approaches currently being used by removing all references to "development stages" from ASC 350-40 Intangibles—Goodwill and Other - Internal-Use Software.

Under ASU 2025-06, only the following criteria in ASC 350-40-25-12(b) and (c) must be met for entities to begin capitalizing software costs:

(i) management, with the relevant authority, implicitly or explicitly authorizes and commits to funding a computer software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the "probable-to-complete recognition threshold").

This standard is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods, with early adoption permitted.

Entities may apply the guidance prospectively, retrospectively, or via a modified prospective transition method.

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

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

Disaggregation of Income Statement Expenses.

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

This standard requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to the financial statements.

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

The Company is

Notes to Consolidated Financial Statements

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

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

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

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

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

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

The Company adopted this standard as of January 1, 2025, utilizing the retrospective application as permitted in the standard and has included all required disclosures within this Form 10-K for the year ended December 31, 2025.

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

On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

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

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

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

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

See Note 1 for further information on segment disclosures.

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

This standard provides optional temporary guidance for entities transitioning away from London Interbank Offered Rate ("LIBOR") to new reference interest rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions with Topic 848.

These amendments do not apply to any contract modifications made after December 31, 2024, any new hedging relationships entered into after December 31, 2024, or to existing hedging relationships evaluated for effectiveness existing as of December 31, 2024, that apply certain optional practical expedients.

This standard was effective immediately and may be applied (i) on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or (ii) on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued.

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

NET INCOME PER SHARE

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

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

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

There were no antidilutive restricted stock units for the fiscal year ended December 31, 2025.

During second quarter 2025, the Company's remaining balance of 1.25 percent Convertible Senior Notes due 2025 (the "Convertible Notes") of

Notes to Consolidated Financial Statements

$ 1.6 billion was repaid, settling both principal and accrued interest.

Since they were outstanding for a portion of the period prior to repayment, the Convertible Notes had a weighted-average dilutive impact on the net income per share calculation for the year ended December 31, 2025.

Year ended December 31,

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Net income $ 441 $ 465 $ 465

Interest expense 20 19 22

Interest expense (a) 6 20 19

Unrealized mark-to market adjustment on forward contract (a)(b) ( 5 ) — —

Net income attributable to common stockholders $ 442 $ 485 $ 484

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Diluted $ 0.79 $ 0.76 $ 0.76

(a) Net of profitsharing benefit and income taxes

(b) See Note 8 for further information

COMMITMENTS AND CONTINGENCIES

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

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

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

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

The Company received 55 -8 aircraft deliveries from Boeing in 2025 and retired 48 -700 aircraft and seven -800 aircraft, including the sale of five -800 aircraft.

During fourth quarter 2025, the Company exercised six -7 options for delivery in 2027, converted one 2025 -7 firm order into a 2025 -8 firm order, and converted 12 2026 -7 firm orders into 2026 -8 firm orders.

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

During 2025, as a result of Boeing's ongoing delivery delays, the Company conservatively re-planned its capacity and delivery expectations for 2026.

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

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

(in billions) 2026 2027 2028 2029 2030 2031 Total

Payments for capital commitments $ 4.2 (a) $ 2.7 $ 2.7 $ 2.5 $ 1.5 $ 1.2 $ 14.8

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

Los Angeles International Airport

Notes to Consolidated Financial Statements

(a) Capital commitments associated with the Company's firm orders in 2026 of $ 4.2 billion include approximately $ 2.5 billion primarily related to the existing scheduled 86 MAX aircraft to be delivered in 2026 and $ 1.7 billion related to 81 MAX aircraft ( 27 -7s and 54 -8s) that were contractually committed for 2024 and 2025, but were not received.

In addition, subsequent to December 31, 2025, and through February 5, 2026, the Company exercised four -7 options for delivery in 2027, resulting in an increase of the Company's 2027 capital commitments to $ 2.8 billion.

Los Angeles International Airport

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

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

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

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

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

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

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

There were no material amounts recorded in the accompanying Consolidated Balance Sheet as of December 31, 2024.

Dallas Love Field

During 2008, the City of Dallas approved the Love Field Modernization Project ("LFMP"), a project to reconstruct Dallas Love Field with modern, convenient air travel facilities.

Pursuant to a Program Development Agreement with the City of Dallas and the Love Field Airport Modernization Corporation (or the "LFAMC," a Texas non-profit "local government corporation" established by the City of Dallas to act on the City of Dallas' behalf to facilitate the development of the LFMP), the Company managed this project.

Major construction was effectively completed in 2014.

During second quarter 2017, the City of Dallas approved using the remaining bond funds for additional terminal construction projects, which were effectively completed in 2018.

Although the City of Dallas received commitments from various sources that helped to fund portions of the LFMP project, including the FAA, the Transportation Security Administration, and the City of Dallas' Aviation Fund, the majority of the funds used were from the issuance of bonds.

The Company guaranteed principal and interest payments on bonds issued by the LFAMC, of which only the "Series 2012" bonds remain outstanding.

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

Notes to Consolidated Financial Statements

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

The net present values of the future principal and interest payments associated with the bonds were $ 52 million and $ 65 million as of December 31, 2024 and 2023, respectively, and were reflected as part of the Company's operating lease right–of–use assets and lease obligations in the Consolidated Balance Sheet.

Based on the MOA, as well as an amendment to the terminal lease agreement signed in August 2023, the Company has determined that it does not control the assets during the construction period for accounting purposes, and thus is recording the amounts funded for the project as a receivable until reimbursed by the City, at which time the balance is derecognized.

A balance of $ 88 million was reflected within Accounts and other receivables in the accompanying Consolidated Balance Sheet as of December 31, 2025.

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.

The United States District Court for the Northern District of California previously issued an order to

Notes to Consolidated Financial Statements

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.

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

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

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

On February 13, 2025, the parties filed a notice of settlement advising the Court that they reached a settlement in principle, and the parties made a stipulated request for the Court to vacate the case schedule, including the hearing on the Company's decertification motion, and to set a deadline of June 19, 2025, for the filing of either a motion for preliminary approval of the class settlement or a status update about the timing of the remaining steps in the settlement process.

The Court granted the stipulation on February 14, 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.

On September 25, 2025, plaintiffs filed a motion for preliminary approval of the settlement class.

The settlement includes an $ 18.5 million settlement fund and prospective relief that includes a differential pay benefit for up to 10 days of military leave per year, which will remain in place for at least five years once initiated.

On December 11, 2025, the Court granted preliminary approval of the settlement and set the final approval hearing for May 14, 2026.

The proposed settlement is fully accrued as of December 31, 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 granted on July 25, 2025.

Judgment was entered in favor of the Company on September 2, 2025, and Plaintiffs filed a notice of appeal on September 4, 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.

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The following table provides the components of Passenger revenue recognized for the years ended December 31, 2025, 2024, and 2023:

Notes to Consolidated Financial Statements

Year ended December 31,

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

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

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

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

Notes to Consolidated Financial Statements

Company's website.

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

In order to determine the value of each loyalty point, certain assumptions must be made at the time of measurement, which include the following:

• Allocation of Passenger Revenue - Revenues from Passengers, related to travel, who also earn Rapid Rewards Points have been allocated between flight (recognized as revenue when transportation is provided) and Rapid Rewards Points (deferred until points are redeemed) based on each obligation’s relative standalone selling price.

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

In order to determine the value of each loyalty point in a flight transaction, certain assumptions must be made at the time of measurement, which include the following:

• Allocation of Passenger Revenue - Revenues from Passengers, related to travel, who also earn Rapid Rewards points have been allocated between flight (recognized as revenue when transportation is provided) and loyalty (deferred until points are redeemed) based on each obligation’s relative stand-alone selling price.

The Company utilizes historical earning patterns to assist in this allocation.

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The mixture of these fare classes and changes in the coefficients used by the Company could cause the fair value per point to fluctuate.

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

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

In 2025, the Company and Chase amended the Co-brand 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 Co-brand Agreement, the Company estimated the selling prices and volumes over the term of the Co-brand Agreement in order to determine the allocation of proceeds to each of the three performance obligations identified in the Co-brand Agreement, which have been characterized as a transportation component, a marketing component, and an airline benefits component.

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

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 primarily within Passenger revenue when those performance obligations are satisfied.

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

Notes to Consolidated Financial Statements

The Company utilizes historical behavioral data to develop a predictive statistical model to analyze the amount of breakage expected for points sold to business partners and earned through flight.

The Company utilizes historical behavioral data to develop a predictive statistical model to analyze the amount of expected breakage for points sold to business partners and earned through flight.

The Company continues to evaluate expected breakage annually and applies appropriate adjustments in the fourth quarter of each year, or other times, if significant changes in Customer behavior are detected.

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

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

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

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

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

The Company records Passenger revenue related to loyalty point redemptions for air travel when the travel is delivered, and 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.

As performance obligations to Customers are satisfied, the related revenue is recognized.

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

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

Notes to Consolidated Financial Statements

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

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

• Loyalty Points Redeemed for Goods and/or Services Other Than Travel - Rapid Rewards Members have the option to redeem points for goods and services offered through a third-party vendor, who acts as principal.

The performance obligation related to the purchase of these goods and services is satisfied when the good and/or service is delivered to the Customer.

• Marketing Royalties - As part of its Agreement with Chase, Southwest provides certain deliverables, including use of the Southwest Airlines’ brand, access to Rapid Rewards Member lists, advertising elements, and the Company’s resource team.

These performance obligations are satisfied each month that the Agreement is active.

The performance obligation related to the purchase of these goods and services is satisfied when the good and/or service is delivered to the Customer as a component of Other revenue.

• Marketing Royalties - As part of its Co-brand Agreement with Chase, Southwest provides certain deliverables, including use of the Southwest Airlines’ brand, access to Rapid Rewards Member lists, advertising elements, and the Company’s resource team.

These performance obligations are satisfied each month that the Co-brand Agreement is active and are recognized as a component of Other revenue.

• Travel-Related Services - Travel-related services are primarily composed of services performed in conjunction with a passenger’s flight, including checked baggage, seat, and other on-board benefits.

The Company recognizes Passenger revenue for these services when the related transportation service is provided.

As of the years ended December 31, 2025 and 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 Consolidated Balance Sheet were as follows:

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Rollforwards of the Company's Air traffic liability - loyalty program for the years ended December 31, 2025 and 2024 were as follows (in millions):

Notes to Consolidated Financial Statements

Year ended December 31,

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

Prior to this change,

Notes to Consolidated Financial Statements

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

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

This announcement was considered a contract modification under applicable accounting guidance and the Company accounted for such change prospectively in third quarter 2022.

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

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

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

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

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

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

The Company determined a $ 116 million reversal of a portion of prior breakage revenue was warranted for the twelve months ended December 31, 2024.

This was due to continued redemptions for flight credits issued prior to the modification date during 2024 as well as projected redemptions at that time.

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

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

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.

The Company also began to issue vacation travel credits for cancelled bookings resulting from the launch of the new Getaways by Southwest™ ("Getaways") product, and these credits will have an 18-month expiration period from original booking date.

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

The amount of Customer flight credits represents approximately 5 percent and 8 percent of the total Air traffic liability balance as of December 31, 2025, and December 31, 2024, respectively.

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

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

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

Notes to Consolidated Financial Statements

Company's policy change on flight credit expirations for any reservations booked and ticketed or voluntarily changed on or after May 28, 2025, will generally have satisfied the performance obligation duration of twelve months or less.

For all other flight credits created under the prior policy, the Company currently does not expect the amount of flight credits that will be redeemed beyond twelve months to be material as a percentage of the Air traffic liability as of the financial statement date.

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

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therefore, the Company has elected to not disclose the amount of the remaining transaction price and its expected timing of recognition for such services provided.

The Company recognized revenue related to the marketing, advertising, and other travel-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, the Agreement with Chase, within Other operating revenues.

The Company recognized revenue related to the marketing, advertising, and other travel-related benefits of the cash flows associated with various loyalty partner agreements including, but not limited to, the Co-brand Agreement with Chase, the majority of which is within Other operating revenues.

For the years ended December 31, 2025, 2024, and 2023 the Company recognized $ 2.6 billion, $ 2.2 billion, and $ 2.1 billion, respectively.

The increase in revenue recognized in 2025 was primarily driven by immediate recognition of a larger portion of revenues (and thus lower revenue deferred) associated with the Company's aforementioned co-brand agreement with Chase from 2025 modifications to the agreement, which has also resulted in a lower balance in Air traffic liability as of December 31, 2025, as compared to the prior year.

The Company is also required to collect certain taxes and fees from Customers on behalf of government agencies and remit these back to the applicable governmental entity on a periodic basis.

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These items are collected from Customers at the time they purchase their tickets, are excluded from the contract transaction price, and are therefore not included in Passenger revenue.

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

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

Notes to Consolidated Financial Statements

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(in millions) Maturity Dates December 31, 2025 December 31, 2024

2025 $ — $ 1,302

1.25 % Convertible Notes

2025 1,611 1,611

7.375 % Debentures

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4.375 % Notes

1.000 % Payroll Support Program Loan (a)

2.625 % Notes

1.000 % Payroll Support Program Loan

1.000 % Payroll Support Program Loan (a)

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$ 4,577 $ 5,069

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

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

(a) The interest rate will change to Secured Overnight Financing Rate plus two percent on the fifth anniversary of the loan, which occurs in April 2026.

Senior Unsecured Notes due through 2035

During November 2025, the Company issued $ 750 million senior unsecured notes due 2035.

The notes bear interest at 5.250 percent.

Interest is payable semi-annually in arrears on May 15 and November 15.

Concurrently, the Company entered into a fixed-to-floating interest rate swap to convert the interest on these unsecured notes to a floating rate until their maturity.

See Note 10 for further information on the interest-rate swap agreement.

Additionally, the Company issued $ 750 million senior unsecured notes due 2028.

The notes bear interest at 4.375 percent.

Interest is payable semi-annually in arrears.

The Company expects to use the net proceeds from this offering for general corporate purposes, which may include, but are not limited to, repayment or redemption of indebtedness or other corporate obligations.

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

The notes bear interest at 5.125 %.

The notes bear interest at 5.125 percent.

Interest is payable semi-annually in arrears.

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

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

The Company made early prepayments on the notes of $ 273 million throughout 2022, utilizing available cash on hand.

During 2020, the Company issued $ 1.55 billion of unsecured notes due 2025, of which $ 1.25 billion was issued May 4, 2020 (the “$ 1.25 billion 2025 Notes”) and $ 300 million was issued July 31, 2020 (the “$ 300 million 2025 Notes”), bearing interest at 5.250 % with interest payable semi-annually in arrears.

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

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

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

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

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Interest is payable semi-annually.

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

Notes to Consolidated Financial Statements

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

Convertible Notes due 2025

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

The Convertible Notes bear interest at a rate of 1.25 % 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 at any time prior to the close of business on the business day immediately preceding February 1, 2025, in the event certain conditions are met, as stated in the offering documents.

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

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

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

However, based on the Company's most recent cash dividends declared in November 2024, the bond conversion rate changed, and was 27.3384 as of December 31, 2024.

As of December 31, 2024, the if-converted value of the Convertible Notes was less than the principal amount by $ 130 million, using the Company's closing stock price.

Upon issuance, the Company bifurcated the Convertible Notes for accounting purposes between a liability component and an equity component utilizing applicable guidance.

The liability component was determined by estimating the fair value of a hypothetical issuance of an identical offering excluding the conversion feature of the Convertible Notes.

The initial carrying amount of the equity component was calculated as the difference between the liability component and the face amount of the Convertible Notes.

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

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

Notes to Consolidated Financial Statements

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 .

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

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Total interest expense $ 10 $ 30

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 related to the Convertible Notes for the year ended December 31, 2024.

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

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

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 Loans due through 2031

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

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

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

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

Notes to Consolidated Financial Statements

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

D uring 2020 and 2021, the Company entered into definitive documentation with the United States Department of the Treasury ("Treasury") with respect to payroll funding support ("Payroll Support") pursuant to three separate Payroll Support programs:

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

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

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

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

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 was originally due in April 2030 but was redeemed early on April 17, 2025, in the amount of $ 976 million.

The note associated with the PSP2 Payroll Support Program was originally due in January 2031 but was redeemed early on December 29, 2025, in the amount of $ 566 million.

The note associated with the PSP3 Payroll Support Program is due in April 2031.

On December 30, 2025, the Company made a partial prepayment on the note associated with the PSP3 Payroll Support Program in the amount of $ 100 million.

All payments were made utilizing available cash on hand.

On the day after the fifth anniversary of the note associated with the PSP3 Payroll Support Program during April 2026, the applicable interest rate is scheduled to change to SOFR plus two percent.

Revolving Credit Facility

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

As of December 31, 2025, the Company has access to $ 1.5 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement"), which expires in August 2028, reflecting the Company's exercise of the accordion feature to increase the size of the facility on July 22, 2025.

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

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The underlying SOFR rate is subject to a floor of 1 percent per annum and the “alternate base rate” is subject to a floor of 1 percent per annum.

The Amended Credit Agreement has an accordion feature that would allow the Company, subject to, among other things, the procurement of incremental commitments, to increase the size of the facility to $ 1.5 billion.

Notes to Consolidated Financial Statements

The facility contains a financial covenant requiring a minimum coverage ratio of adjusted pre-tax income to fixed obligations, as defined.

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Total $ 4,929

Notes to Consolidated Financial Statements

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

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Such expense was not material for the twelve months ended December 31, 2025, 2024, and 2023.

As of December 31, 2024, the Company held aircraft leases with remaining terms extending up to 9 years.

As of December 31, 2025, the Company held aircraft leases with remaining terms extending up to eight years .

The aircraft leases generally can be renewed for three months to three years at rates based on the fair market value at the end of the lease term.

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

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

The lease return costs incurred by the Company for returns completed in 2025 were $ 33 million, recognized as a component of Other operating expenses but were not material for all other periods presented.

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

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

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

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

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

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

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

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

The -800 sale-leaseback transaction resulted in a recognized gain of $ 92 million and operating lease right-of-use assets and liabilities of $ 319 million in fourth quarter 2024 and resulted in a recognized gain of $ 3 million and operating lease right-of-use assets and liabilities of $ 9 million in first quarter

Notes to Consolidated Financial Statements

These gains were reflected within Other operating expenses, net in the accompanying Consolidated Statement of Comprehensive Income.

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

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

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

As of December 31, 2025, the Company has 82 operating and 15 finance leased aircraft remaining in its fleet.

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

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

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

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

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

The Company paid the lessor $ 365 million and $ 88 million in fourth quarter 2022 and first quarter 2023, respectively, as part of this transaction, of which $ 191 million and $ 50 million were recorded as the elimination of

Notes to Consolidated Financial Statements

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

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

In first quarter 2023, the Company completed the purchase of eight -700 aircraft from an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase a total of 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms.

The Company completed the purchase of the other 31 of these aircraft during fourth quarter 2022.

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

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

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

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

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

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

Certain leases can be renewed to one year .

Notes to Consolidated Financial Statements

Lease-related assets and liabilities recorded on the Consolidated Balance Sheet were as follows:

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The components of lease costs, included in the Consolidated Statement of Income, were as follows:

(in millions) Year ended December 31, 2024 Year ended December 31, 2023 Year ended December 31, 2022

Year ended December 31,

(in millions) 2025 2024 2023

Operating lease cost - aircraft (a) $ 291 $ 186 $ 186

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Variable lease cost 2,130 1,916 1,733

Amortization of finance lease liabilities 35 44 106

Amortization of finance lease assets 29 35 44

Interest on finance lease liabilities 3 4 5

Total net lease cost $ 2,529 $ 2,220 $ 2,059

(a) Net of sublease income of $ 1 million, $ 7 million, and $ 17 million for the years ended December 31, 2024, 2023, and 2022.

(a) Net of sublease income of $ 1 million and $ 7 million for the years ended December 31, 2024 and 2023

Supplemental cash flow information related to leases, included in the Consolidated Statement of Cash Flows, was as follows:

Notes to Consolidated Financial Statements

Year ended December 31,

( in millions )

Year ended December 31, 2024 Year ended December 31, 2023 Year ended December 31, 2022

2025 2024 2023

Cash paid for amounts included in the measurement of lease liabilities:

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Financing cash flows for finance leases 22 26 32

Notes to Consolidated Financial Statements

As of December 31, 2025, maturities of lease liabilities were as follows:

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As of December 31, 2025, the Company had 80 million shares of common stock reserved for issuance pursuant to Employee equity plans (of which 21 million shares had not been granted) through various share-based compensation arrangements.

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

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

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

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

This share amount was based on the

See Note 9 for information regarding the Company's equity plans.

Repurchase of Common Stock

Under an accelerated share repurchase program entered into by the Company with third-party financial institutions in first quarter 2025 (the “First Quarter 2025 ASR Program”), the Company paid $ 750 million and received an initial delivery of 19,867,550 shares during February 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the First Quarter 2025 ASR Program.

This share amount was based on the $ 30.20 closing price of the Company’s common stock on February 19, 2025.

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

Upon settlement, the third-party financial institutions delivered 4,242,267 additional shares of the Company’s common stock to the Company.

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 .

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

Notes to Consolidated Financial Statements

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

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

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 occurred in August 2025 and was based on a discount to the volume-weighted average price per share of the Company’s common stock during a calculation period completed in July 2025.

Upon settlement, the third-party financial institutions delivered 934,237 additional shares of the Company’s common stock to the Company in July 2025, and 388,662 additional shares of the Company’s common stock to the Company in August 2025.

Upon completion of the Second Quarter 2025 ASR Program in August 2025, the average purchase price per share for the 46,623,010 shares repurchased was $ 32.17 .

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

Under an accelerated share repurchase program entered into by the Company with a third-party financial institution in third quarter 2025 (the “Third Quarter 2025 ASR Program”), the Company paid $ 250 million and received an initial delivery of 6,368,213 shares during September 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the Third Quarter 2025 ASR Program.

This share amount was based on the $ 31.39 and $ 31.43 closing price of the Company’s common stock on September 5, 2025 and September 15, 2025, respectively.

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

Upon settlement, the third-party financial institution delivered 1,409,551 additional shares of the Company’s common stock to the Company.

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

Upon completion of the Third Quarter 2025 ASR Program in October 2025, the average purchase price per share for the 7,777,764 shares repurchased was $ 32.14 .

Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2025 (the "Fourth Quarter 2025 ASR Program"), the Company paid $ 50 million and received an initial delivery of 1,224,740 shares during November 2025, representing an estimated 80 percent of the shares to be purchased by the Company under the Fourth Quarter 2025 ASR Program.

This share amount was based on the $ 32.66 closing price of the Company's common stock on November 10, 2025.

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

Upon settlement, the third party financial institution delivered 106,178 additional shares of the Company’s common stock to the Company.

Upon completion of the Fourth Quarter 2025 ASR Program in December 2025, the average purchase price per share for the 1,330,918 shares repurchased was $ 37.57 .

Under a forward contract entered into by the Company with a third-party financial institution in fourth quarter 2025, the Company committed $ 750 million for an accelerated share repurchase program that was both funded and completed in January 2026 (the "January 2026 ASR Program").

Final settlement of the accelerated share repurchase program was based on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period completed in January 2026.

Upon completion of the January 2026 ASR Program in January 2026, the third-party financial institution delivered 17,965,193 shares of the Company’s common stock to the Company at an average purchase price per share repurchased of $ 41.75 .

During December 2025, the forward purchase agreement was accounted for as a freestanding financial instrument and was marked to market value through earnings, resulting in an $ 8 million gain within Other gains/(losses) in the accompanying Consolidated Statement of Income for 2025.

This non-cash gain also resulted in the Company recording a current asset of $ 8 million within Other current assets in the accompanying Consolidated Balance Sheet as of December 31, 2025, which was netted into Treasury stock upon completion of the January 2026 ASR Program in January 2026.

Under an accelerated share repurchase program entered into by the Company with a third party financial institution in January 2026 (the "First Quarter 2026 ASR Program"), the Company paid $ 400 million and received an initial delivery of 6,597,939 shares during January 2026, representing approximately 80 percent of the shares to be purchased by the Company under the First Quarter 2026 ASR Program.

This share amount was based on the $ 48.50 closing price of the Company's common stock on January 29, 2026.

Final settlement of the First Quarter 2026 ASR Program is scheduled to occur by the end of April 2026 and will be based on a discount to the volume-weighted

Notes to Consolidated Financial Statements

average price per share of the Company's common stock during a calculation period to be completed at the time of settlement.

Share-based Compensation

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

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

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

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

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

Adjusted ROIC for the Performance Period is the average of the ROIC, using an assumed federal tax rate of 24 percent, over the three full fiscal years within the Performance Period (2023, 2024, and 2025), and vesting is also subject generally to the individual’s continued employment or service.

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

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

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

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

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

Adjusted ROIC for the Performance Period is the average of the ROIC, using an assumed federal tax rate of 24 percent, over the three full fiscal years within the Performance Period (2024, 2025, and 2026), and vesting is also subject generally to the individual’s continued employment or service.

However, in the event the Company's average Adjusted ROIC is greater than zero and exceeds the median (i.e., 50th percentile) return on invested capital of certain of the Company's Peer Group of domestic mainline carriers subject to the Securities and Exchange Commission's reporting requirements, the minimum number of

Notes to Consolidated Financial Statements

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

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

PBRSUs that will vest, as of the vesting date, will be equal to the grant amount times 50 percent.

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

Under the 2025 grants, the number of PBRSUs vesting on the vesting date will be interpolated based on the Company's Adjusted ROIC performance, as defined, and ranges from zero to 200 percent of granted PBRSUs, only after a minimum performance level has been achieved.

Adjusted ROIC for the Performance Period is the average of the ROIC, using an assumed federal tax rate of 23.5 percent, over the three full fiscal years within the Performance Period (2025, 2026, and 2027), and vesting is also subject generally to the individual’s continued employment or service.

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With respect to PBRSUs granted in 2022, 2023, and 2024, provided that the individual's service has terminated no earlier than 12 months after the date of grant, in the event of a “qualified retirement,” such individual’s PBRSUs will remain outstanding as if the individual’s service has not terminated and will otherwise be settleable in accordance with the notice of grant and applicable terms and conditions;

Under the 2025 Southwest Even Better ("SEB") grants, the number of PBRSUs vesting on the vesting date will be based on the Company's Adjusted EBIT (as defined) for the years 2026 and 2027 and ranges from zero percent of granted PBRSUs to 200 percent of granted PBRSUs, only after a minimum performance level has been achieved.

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

With respect to PBRSUs granted in 2023, 2024, and 2025, not including the SEB grants, provided that the individual's service has terminated no earlier than 12 months after the date of grant, in the event of a “qualified retirement,” such individual’s PBRSUs will remain outstanding as if the individual’s service has not terminated and will otherwise be settleable in accordance with the notice of grant and applicable terms and conditions;

however, the number of shares received upon settlement will be prorated based on the individual’s number of days of service between the date of grant and the end of the performance period.

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Outstanding December 31, 2025 8,790 31.56

(a) Includes 700 thousand PBRSUs

(a) Includes 1.1 million PBRSUs

(b) Includes 1.7 million PBRSUs

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Furthermore, jet fuel and oil typically represents one of the largest operating expenses for airlines.

The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through its fuel hedging program.

Although the Company may periodically enter into jet fuel derivatives for short-term timeframes, because jet fuel is not widely traded on an organized futures exchange, there are limited opportunities to hedge directly in jet fuel for time horizons longer than approximately 24 months into the future.

However, the Company has found that financial derivative instruments in other commodities, such as West Texas Intermediate ("WTI") crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility.

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

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.

Although the use of collar structures and swap agreements can reduce the overall cost of hedging, these instruments carry more risk than purchased call options in that the Company could end up in a liability position when the collar structure or swap agreement settles.

With the use of purchased call options and call spreads, the Company cannot be in a liability position at settlement, but does not have coverage once market prices fall below the strike price of the purchased call option.

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 may enter 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.

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

Based on the current geopolitical and market dynamics, higher premium costs over time, and aggressive cost reductions underway, the Company does not intend to add new hedging positions to its current hedge book.

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

Maximum fuel hedged as of

December 31, 2024 Derivative underlying commodity type as of

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

2025 1,033 Brent crude oil

2026 945 Brent crude oil

2027 277 Brent crude oil

Notes to Consolidated Financial Statements

(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 AOCI until the underlying jet fuel is consumed.

If a derivative initially does not qualify or ceases to qualify for hedge accounting, any change in the fair value of derivative instruments since the last reporting period would be recorded in Other (gains) losses, net in the Consolidated Statement of Income in the period of the change;

however, any amounts previously recorded to AOCI would remain there until such time as the original forecasted transaction occurs, at which time these amounts would be reclassified to Fuel and oil expense.

Factors that have and may continue to lead to the loss of hedge accounting include:

significant fluctuation in energy prices or volumes of fuel purchased, significant weather events affecting refinery capacity and the production of refined products, and the volatility of the different types of products the Company uses in hedging.

Certain types of derivative instruments do not qualify for hedge accounting, including those that result in a net sold position (sold gallons exceeding purchased gallons).

Increased volatility in certain commodity markets for an extended period of time, especially if such volatility were to worsen, could cause the Company to lose hedge accounting altogether for the commodities used in its fuel hedging program, which would create further volatility in the Company’s GAAP financial results.

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

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

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

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 Consolidated Statement of Income.

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

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.

For the purpose of evaluating its net cash spend for jet fuel and for forecasting its future estimated jet fuel expense, the Company has historically evaluated its hedge volumes strictly from an "economic" standpoint and thus did not consider whether the hedges had qualified or would qualify for hedge accounting.

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

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

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

Subsequent to this termination, approximately $ 96 million that was previously expended on hedge positions in prior periods was reclassified from AOCI and recognized as an increase to Fuel and oil expense within the Consolidated Statement of Income during 2025, all of which is characterized as premium expense from terminated fuel hedging positions.

As of December 31, 2025, approximately $ 137 million remained in AOCI related to these closed positions.

This balance in AOCI, which 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 12 for additional information on AOCI.

Historically, upon proper qualification, the Company accounted for its fuel derivative instruments as cash flow hedges.

Qualification was re-evaluated quarterly, and all periodic changes in fair value of the derivatives designated as hedges were recorded in AOCI until the underlying jet fuel was consumed.

If a derivative initially did not qualify or ceased to qualify for hedge accounting, any change in the fair value of derivative instruments since the last reporting period was recorded in Other (gains) losses, net in the Consolidated Statement of Income in the period of the change;

however, any amounts previously recorded to AOCI remained there until such time as the original forecasted transaction occurred, at which time these amounts were reclassified to Fuel and oil expense.

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

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

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

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

Notes to Consolidated Financial Statements

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

All cash flows associated with purchasing and selling fuel derivatives (including terminations) are classified as Other operating cash flows in the 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 Consolidated Balance Sheet:

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

Interest rate derivative contracts Other noncurrent liabilities — — 16 —

Total derivatives designated as hedges $ — $ 130 $ 16 $ —

(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 Consolidated Balance Sheet:

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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 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 Consolidated Balance Sheet.

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

All of the Company's prior period fuel derivative instruments and current period interest rate swaps 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 determined were subject to netting requirements in the accompanying 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 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:

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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 ) (b) $ 18 $ 86 $ ( 15 ) $ 71

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

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

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 Consolidated Balance Sheet in Note 15.

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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

Fuel derivative contracts Prepaid expenses and other current assets $ 4 $ ( 4 ) (b) $ — $ 15 $ ( 15 ) $ —

Fuel derivative contracts Other assets $ 18 $ ( 18 ) $ — (a) $ 35 $ ( 35 ) $ — (a)

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

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

Interest rate derivative contracts Other noncurrent liabilities $ 16 $ — $ 16 $ — $ — $ —

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

Notes to Consolidated Financial Statements

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

The following tables present the impact of derivative instruments, including terminations, within the Consolidated Statement of Income for the years ended December 31, 2025 and 2024:

Location and amount recognized in income on cash flow hedging relationships

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Total $ 145 $ 6 $ 72 $ 8

(Gain) loss on cash flow hedging relationships

Loss on cash flow hedging relationships

Commodity contracts:

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

Amount of loss reclassified from AOCI into income 145 (a) — 72 —

Amount of loss reclassified from AOCI into income — 6 — 8

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

Derivatives designated and qualified in cash flow hedging relationships

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Fuel derivative contracts $ 69 $ 99

Other — ( 7 )

Total $ 99 $ 231

Derivatives not designated as hedges

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Fuel derivative contracts $ — $ 34 Other (gains) losses, net

The Company also recorded expense (benefit) associated with premiums paid (received) for fuel derivative contracts that settled/expired during 2024, 2023 and 2022.

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 (received) for fuel derivative contracts and their location within the Consolidated Statement of Income during the period the contract settles:

The Company also recorded expenses associated with net premiums paid for fuel derivative contracts that settled/expired and/or terminated during 2025, 2024, and 2023.

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 table presents the expense impacts and their location within the Consolidated Statement of Income during the period the contracts settled or were scheduled to settle:

Notes to Consolidated Financial Statements

Premium expense (benefit) recognized in income on derivatives

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

Expense recognized in income on derivatives

Year ended December 31, Location of expense recognized in income on derivatives

(in millions) 2025 2024 2023

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Fuel derivative contracts not designated as hedges $ — $ 9 $ — Other (gains) losses, net

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

Interest Rate Swaps

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

Interest Rate Derivatives

The Company is at times party to certain interest rate swap agreements that are accounted for as either fair value hedges or cash flow hedges, as defined in the applicable accounting guidance for derivative instruments and hedging.

The Company did not have any interest rate swap agreements designated as cash flow hedges during the periods presented.

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

During fourth quarter 2025, the Company entered into interest rate swap agreements as a hedge related to its $ 750 million 5.25 % Notes due 2035.

The primary objective for the Company's use of this interest rate hedge was to hedge against changes in the fair value of the debt instrument caused by changes in market interest rates, specifically SOFR.

The hedge strategy is to eliminate the changes in fair value of the debt by converting the fixed rate interest of the debt to a floating rate.

Under these interest rate swap agreements, the Company pays SOFR plus a margin every six months on the notional amount of the debt, and receives payments based on the fixed stated rate of the notes every six months until the date the notes become due.

These interest rate swap agreements collectively qualify as a fair value hedge.

As a result of the fixed-to-floating interest rate swap agreements in place, the average floating rate recognized during 2025 was approximately 5.44 percent, based on actual and forward rates as of December 31, 2025.

The fair values of the interest rate swap agreements, which are adjusted regularly, have been aggregated by counterparty for classification in the Consolidated Balance Sheet.

Agreements totaling a net liability of $ 16 million, are fair value hedges, and are classified as components of Other noncurrent liabilities.

The corresponding offsetting adjustment related to the net asset (or liability) associated with the Company’s fair value hedges is to Long-term debt less current maturities.

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

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

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

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

Following the issuance of the Company's $ 750 million 5.25 % Notes due 2035 in fourth quarter 2025, the deferred gain of $ 23 million associated with these terminated swaps is now being amortized to Interest expense over the life of the notes.

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

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

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

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

Notes to Consolidated Financial Statements

Counterparty (CP)

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

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

Cash collateral held from CP 22 — — — — — — — — 22

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

N/A (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 December 31, 2025.

Notes to Consolidated Financial Statements

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As of December 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 (primarily treasury bills), fuel derivative contracts, and available-for-sale securities.

These consisted of cash equivalents, but at other times the Company also holds 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.

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

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

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

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

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

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

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

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

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

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

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

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

In prior periods, 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 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 valuations.

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.

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 received from other external sources.

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 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.

However, no significant differences were noted.

The Company has 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 previously 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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Fair value measurements at reporting date using:

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

Description December 31, 2024 (Level 1) (Level 2) (Level 3)

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

Description December 31, 2025 (Level 1) (Level 2)

Assets (in millions)

2 unchanged sentences

Time deposits 400 — 400

Short-term investments:

Treasury bills 1,094 1,094 — —

Certificates of deposit 122 — 122 —

Fuel derivatives:

Option contracts (b) 130 — — 130

Equity securities 457 457 —

Total assets $ 3,688 $ 3,288 $ 400

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

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

Interest rate derivatives (see Note 10) $ ( 16 ) $ — $ ( 16 )

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

Fair value measurements at reporting date using:

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

Commercial paper 135 — 135 —

Certificates of deposit 21 — 21 —

Time deposits 300 — 300 —

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Balance as of December 31, 2024 $ 130

Total gains (losses) for the period

Included in earnings ( 34 ) (a)

Total loss for the period

Included in other comprehensive income ( 90 )

Purchases 123 (b)

Settlements ( 52 )

Proceeds from portfolio termination ( 40 )

Balance as of December 31, 2025 $ —

The amount of total losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held as of December 31, 2024 $ 131

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

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

Fair value measurements using significant unobservable inputs (Level 3)

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

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 December 31, 2024:

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 2025 24 - 34 %

2026 22 - 29 %

2027 22 - 24 %

(a) Implied volatility weighted by the notional amount (barrels of underlying commodity) that will settle in 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 December 31, 2025, are presented in the table below.

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

Notes to Consolidated Financial Statements

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;

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

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date Carrying value Estimated fair value Fair value level hierarchy

1.25 % Convertible Notes

2026 $ 300 $ 297 Level 2

2026 300 290 Level 2

7.375 % Debentures

2027 104 108 Level 2

3.450 % Notes

2027 300 296 Level 2

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2028 750 752 Level 2

1.000 % Payroll Support Program Loan (a)

2.625 % Notes

2030 500 465 Level 2

1.000 % Payroll Support Program Loan (a)

5.250 % Notes

2035 734 719 Level 2

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2031 426 433 Level 3

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

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

(a) The interest rate will change to Secured Overnight Financing Rate plus two percent in April 2026.

See Note 6 for further information.

Notes to Consolidated Financial Statements

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

See Note 10 .

A rollforward of the amounts included in AOCI, net of taxes, is shown below for 2025 and 2024:

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$ 112 Net of tax

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

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

$ 5 Net of tax

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

Before May 31, 2024, the Southwest Airlines Co.

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

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

Employee contributions to the ProfitSharing Plan were not permitted.

Effective May 31, 2024, the Profitsharing

In the Southwest Airlines Co.

Retirement Savings Plan (the "Retirement Savings Plan"), non-elective contributions are allowed for certain eligible workgroups that have negotiated such items as part of ratified collective-bargaining

Notes to Consolidated Financial Statements

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

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

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

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

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

contracts, Company matching contributions are made for eligible Employees contributing to their 401(k) accounts, and the Company contributes a percentage of its annual net profits, as defined.

Amounts associated with the Company's defined contribution plans expensed in 2025, 2024, and 2023, reflected as a component of Salaries, wages, and benefits, were $ 1.0 billion, $ 825 million, and $ 941 million respectively.

Defined Benefit Plan

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

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

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

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

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

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

The plan provides pension credits equal to 1 percent of eligible wages for qualifying participants, which are credited based on in a designated portfolio of equity and fixed income assets.

For payroll periods ending on or after January 1, 2026, each pension credit shall be equal to 2 percent of eligible wages for qualifying participants.

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

Participants' benefits consist of the sum of the pension credits and the returns (or losses) accrued on the hypothetical invested contributions.

Amounts exceeding the limits established under the Internal Revenue Code will be provided through a separate unfunded arrangement or paid in cash.

As a defined benefit plan, participants are guaranteed a distribution equivalent to no less than the sum of the original pension credits.

For married participants, the default form of payment is a 50 percent qualified joint and survivor annuity payable over the joint lives of the participant and spouse unless the spouse consents to an alternative form.

For unmarried participants, the default form is a single life annuity.

Other annuity forms may be available as described in the plan document.

Postretirement Benefit Plans

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Fair value of plan assets at end of period $ 71 $ 31 $ — $ —

During 2025, the Company recorded $ 59 million in combined actuarial losses as an increase to the market based cash balance and postretirement benefit plans with an offset to AOCI.

These 2025 actuarial losses are reflected

Notes to Consolidated Financial Statements

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

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

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

above and resulted from changes in certain key assumptions used to determine the Company’s year-end obligation.

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

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

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2029 16 24 40

2030 20 25 45

Next 5 yrs thereafter 180 151 331

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

The following table reconciles the funded status of the postretirement benefit plans to the accrued benefit plan cost recognized in Other noncurrent liabilities on the Company’s Consolidated Balance Sheet as of December 31, 2025 and 2024.

(in millions) 2025 2024

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Interest cost 2 — 15 14 12

Expected Return on Plan Assets ( 2 ) — — — —

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

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Weighted-average discount rate 5.65 % 5.25 % 5.40 % 5.65 % 5.20 %

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

Assumed healthcare cost trend rate (a) n/a n/a 8.35 % 8.15 % 6.25 %

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

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

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

This rate for postretirement benefits decreased during 2025 due to market conditions.

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

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Other 260 267

Valuation allowance ( 9 ) —

Total deferred tax assets 2,043 1,879

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As of December 31, 2025 and 2024, the Company had $ 504 million and $ 253 million, respectively, of federal net operating loss carryforwards (tax effected) that may be carried forward indefinitely.

As of December 31, 2025 and 2024, the Company had $ 75 million and $ 53 million, respectively, of federal research and development tax credit carryforwards subject to expiration beginning in 2043 if unused.

A valuation allowance is recorded when it is more likely than not that some portion of deferred tax assets will not be realized.

During 2025, the Company established deferred tax assets related to Texas research and development tax credits.

The gross deferred tax asset totaled $ 13 million, of which approximately $ 12 million is not expected to be realized based on current projections of taxable income and applicable utilization limitations.

Accordingly, as of December 31, 2025, the Company recorded a valuation allowance of approximately $ 12 million against these assets.

The change in the valuation allowance during the year reflects the initial recognition of the deferred tax assets and updated assessments of future utilization.

Foreign pretax income, income tax expense, and income taxes paid were immaterial for all periods presented.

As a result, foreign amounts have not been separately disaggregated.

The provision (benefit) for income taxes is composed of the following:

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Federal $ ( 2 ) $ — $ ( 10 )

State 1 19 ( 3 )

Total current — 1 9

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Total deferred 122 132 159

Income tax provision (benefit) $ 133 $ 168 $ 189

Income tax provision $ 122 $ 133 $ 168

Notes to Consolidated Financial Statements

The effective tax rate on Income (loss) before income taxes differed from the federal income tax statutory rate for the following reasons:

(in millions) 2024 2023 2022

Tax at statutory U.S.

tax rates $ 126 $ 133 $ 153

State income taxes, net of federal benefit 20 30 12

Nondeductible per diem 9 8 1

Convertible debt repurchases — — 31

The following table presents the differences between the Company's income tax provision and the amounts computed at the federal statutory income tax rate, on both a dollar and percentage basis:

(dollars in millions) 2025 2024 2023

federal statutory tax $ 118 21.0 % $ 126 21.0 % $ 133 21.0 %

State and local income taxes, net of federal income tax effect (1) 13 2.3 % 20 3.3 % 30 4.7 %

Foreign tax effects — — % — — % — — %

Effect of changes in tax laws or rates enacted in the current period — — % — — % — — %

Effect of cross-border tax laws — — % — — % — — %

Research and development tax credits ( 23 ) ( 4.1 ) % ( 30 ) ( 5.0 ) % ( 14 ) ( 2.2 ) %

Other credits ( 2 ) ( 0.4 ) % ( 3 ) ( 0.4 ) % ( 5 ) ( 0.8 ) %

Changes in valuation allowances — — % — — % — — %

Nontaxable or nondeductible items

Per diem 10 1.8 % 9 1.5 % 8 1.3 %

Compensation 8 1.4 % 13 2.2 % 6 0.9 %

DOT settlement ( 7 ) ( 1.2 ) % ( 3 ) ( 0.6 ) % 22 3.6 %

Federal tax credits ( 33 ) ( 19 ) ( 13 )

Other, net 14 ( 6 ) 5

Total income tax provision (benefit) $ 133 $ 168 $ 189

The only periods subject to examination for the Company’s federal tax return are tax years 2020-2024.

Other 6 1.1 % 5 0.9 % 2 0.2 %

Changes in unrecognized tax benefits — — % — — % — — %

Other adjustments ( 1 ) ( 0.2 ) % ( 4 ) ( 0.7 ) % ( 14 ) ( 2.2 ) %

Total income tax provision $ 122 21.7 % $ 133 22.2 % $ 168 26.5 %

(1) State taxes in California, New York City, and Hawaii for 2023;

California, Texas, and Hawaii for 2024;

and Florida, Maryland, California, Colorado, and Arizona for 2025 represented the majority (greater than 50%) of the tax effect within this category.

The total cash paid for income taxes (net of refunds) is composed of the following:

(in millions) 2025 2024 2023

federal $ ( 2 ) $ ( 19 ) $ ( 96 )

State* 1 ( 2 ) 9

Total cash paid for income taxes (net of refunds) $ ( 1 ) $ ( 21 ) $ ( 87 )

* Some jurisdictions met the 5% disaggregation threshold;

however, the related amounts were immaterial.

The amount of, and changes to, the Company's uncertain tax positions were not material in any of the periods presented.

Additionally, the Company does not expect significant changes to the total amount of unrecognized tax benefits within the next 12 months.

The only periods subject to examination for the Company’s federal tax return are tax years 2020, 2024, and 2025.

The Company is also subject to various examinations from state and local income tax jurisdictions in the ordinary course of business.

These examinations are not expected to have a material effect on the financial results of the Company.

Notes to Consolidated Financial Statements

SUPPLEMENTAL FINANCIAL INFORMATION

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Credit card receivables 152 143

Business partners and other suppliers 573 501

Business partners 739 573

Taxes receivable 6 11

Fuel hedging and receivables — 1

Reinsurance receivable 168 145

Other 167 157

Reinsurance receivable and losses recoverable 89 168

Accounts and other receivables $ 1,149 $ 1,110

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

Voluntary Separation Program $ 48 $ 65

Profitsharing and savings plans 151 141

Voluntary Separation Program and severance pay $ — $ 48

Profit-sharing and savings plans 157 151

Vacation pay 684 657

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Interest 27 23

Bonus and incentive pay (a) 208 2,022

Reinsurance payable 249 190

Deferred supplier credits 24 —

Bonus pay 147 208

Reinsurance payable and losses payable 175 249

Aircraft maintenance 85 92

Advances and deposits 142 69

Other 387 286

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

Voluntary Separation Program $ 20 $ 61

Postretirement obligation 321 256

Other deferred compensation 512 412

Other 221 293

Deferred co-brand revenue 429 164

Other noncurrent liabilities $ 1,306 $ 909

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

Also includes non-contract incentive pay.

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

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

For further information on derivative instruments, see Note 10.

Other Operating Expenses

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

RESTRUCTURING

In February 2025, the Company implemented a reduction in its workforce designed to reduce operating costs, increase efficiency, and create a leaner and more agile organization as part of its transformational plan.

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 were substantially completed 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 Consolidated Statement of 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, with no amounts remaining on the Consolidated Balance Sheet as of December 31, 2025.

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

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Southwest Airlines Co.

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

(the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with U.S.

generally accepted accounting principles.

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Notes to Consolidated Financial Statements

Valuation of fuel derivative instruments

Description of the Matter As described in Notes 1, 10, and 11 to the consolidated financial statements, the Company’s fuel derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange and require the Company to estimate their fair values.

The fair value of fuel option contracts is determined using option pricing models with inputs such as commodity prices, strike prices, risk-free interest rates, term 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 fair value measures.

The Company analyzes volatility information for reasonableness and compares it to similar information received from external sources and limited observable market data.

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

Auditing the fair value measurement of fuel option contracts is complex and requires significant judgment in order to evaluate the application of the option pricing model and evaluating the reasonableness of the unobservable input of implied volatility used in the fair value measurement of the Company’s fuel option contracts.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process to calculate the fair value of fuel option contracts, including controls that related to the volatility input.

To test the valuation of fuel derivative instruments, our audit procedures included, among others, involving internal valuation specialists to assist in the testing of the significant inputs into the option pricing model by comparing the market data inputs, including volatility, to external sources.

With the support of our specialists, we also tested the application of and the computational accuracy of the option pricing model by performing independent corroborative calculations.

Additionally, we compared the Company’s fuel option contract valuations to the counterparty valuations, which were independently obtained as part of our audit procedures.

Valuation of co-brand marketing component

Description of the Matter As described in Note 5 to the consolidated financial statements, the Company executed an amendment to its co-branded credit card agreement (“Agreement”) with Chase Bank USA, N.A.

(“Chase”) in June 2025, through which the Company sells Chase loyalty points, the use of its brand and access to its Rapid Rewards Member lists (“the marketing component”), and certain ancillary benefits for Chase cardholders.

The Company estimated the selling prices over the term of the Agreement to determine the allocation of proceeds to the identified performance obligations.

The Company estimated the standalone selling price of each of the performance obligations to determine the allocation of proceeds to each of the performance obligations based upon their relative selling prices.

The Company applies the relative selling price allocation to the performance obligations in each period through the term of the arrangement.

Auditing the valuation of the marketing component of the co-brand agreement with Chase was complex and highly judgmental due to the absence of observable standalone selling prices.

A change in the estimated selling price of the marketing component could have a material impact on the timing of revenue recognition.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s determination of the estimated standalone selling price of the marketing component and the completeness and accuracy of the data underlying the estimate.

To test the estimated selling price of the marketing component, our audit procedures included, among others, involving a valuation specialist to assist in testing the methodology used to develop the estimated standalone selling price of the marketing component and assessing the reasonableness of the royalty rate used to develop the estimate.

Additionally, we assessed the sensitivity of the Company’s recognized revenue to changes in the inputs used to estimate the standalone selling price of the marketing component.

/s/ Ernst & Young LLP

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Southwest Airlines Co.

as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”) of the Company and our report dated February 7, 2025 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes and our report dated February 5, 2026 expressed an unqualified opinion thereon.

Basis for Opinion

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data