What changed in this filing

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Item 1. Financial Statements

2026-07-23 compared with 2026-04-23 · 226 added, 125 removed, 452 unchanged (44% of the section changed)

3 unchanged sentences

(in millions)

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

Current assets:

33 unchanged sentences

Retained earnings 16,672 16,388

Accumulated other comprehensive loss ( 1 ) ( 24 )

Accumulated other comprehensive income (loss) 22 ( 24 )

Treasury stock, at cost ( 14,794 ) ( 13,593 )

3 unchanged sentences

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Income (Loss)

Condensed Consolidated Statement of Comprehensive Income

(in millions, except per share amounts)

Three months ended March 31,

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

2026 2025 2026 2025

OPERATING REVENUES:

11 unchanged sentences

Total operating expenses 8,147 7,019 15,067 13,670

OPERATING INCOME (LOSS) 330 ( 223 )

OPERATING INCOME 285 225 615 2

NON-OPERATING EXPENSES (INCOME):

4 unchanged sentences

Total non-operating expenses (income) ( 21 ) ( 55 ) 23 ( 86 )

INCOME (LOSS) BEFORE INCOME TAXES 285 ( 192 )

PROVISION (BENEFIT) FOR INCOME TAXES 58 ( 43 )

NET INCOME (LOSS) $ 227 $ ( 149 )

NET INCOME (LOSS) PER SHARE, BASIC $ 0.45 $ ( 0.26 )

NET INCOME (LOSS) PER SHARE, DILUTED $ 0.45 $ ( 0.26 )

COMPREHENSIVE INCOME (LOSS) $ 250 $ ( 148 )

INCOME BEFORE INCOME TAXES 306 280 592 88

PROVISION FOR INCOME TAXES 73 67 132 24

NET INCOME $ 233 $ 213 $ 460 $ 64

NET INCOME PER SHARE, BASIC $ 0.48 $ 0.40 $ 0.93 $ 0.11

NET INCOME PER SHARE, DILUTED $ 0.47 $ 0.39 $ 0.92 $ 0.11

COMPREHENSIVE INCOME $ 256 $ 202 $ 506 $ 54

WEIGHTED AVERAGE SHARES OUTSTANDING

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Balance at March 31, 2026 $ 888 $ 4,260 $ 16,526 $ ( 1 ) $ ( 14,798 ) $ 6,875

Issuance of common and treasury stock pursuant to Employee stock plans — 13 — — 4 17

Share-based compensation — 21 — — — 21

Cash dividends, $ 0.18 per share

— — ( 87 ) — — ( 87 )

Comprehensive income — — 233 23 — 256

Balance at June 30, 2026 $ 888 $ 4,294 $ 16,672 $ 22 $ ( 14,794 ) $ 7,082

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

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

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

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

Share-based compensation — 25 — — — 25

Cash dividends, $ 0.18 per share

— — ( 94 ) — — ( 94 )

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

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

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

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(in millions)

Three months ended

Three months ended Six months ended

June 30, June 30,

2026 2025 2026 2025

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 227 $ ( 149 )

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

Net income $ 233 $ 213 $ 460 $ 64

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 402 400 800 795

Impairment of long-lived assets — 8 — 8

Deferred income taxes 60 66 117 23

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Other, net — — ( 6 ) ( 3 )

Net cash provided by (used in) investing activities ( 445 ) 623

Net cash used in investing activities ( 560 ) ( 882 ) ( 1,004 ) ( 259 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Other, net ( 3 ) 2 ( 46 ) ( 10 )

Net cash used in financing activities ( 876 ) ( 858 )

Net cash provided by (used in) financing activities 493 ( 4,178 ) ( 383 ) ( 5,036 )

NET CHANGE IN CASH AND CASH EQUIVALENTS 463 ( 4,659 ) 560 ( 4,034 )

11 unchanged sentences

Financial Derivative Instruments

Comprehensive Income (Loss)

Net Income (Loss) Per Share

Comprehensive Income

Net Income Per Share

Fair Value Measurements

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

The unaudited Condensed Consolidated Financial Statements for the interim periods ended March 31, 2026 and 2025 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

The unaudited Condensed Consolidated Financial Statements for the interim periods ended June 30, 2026 and 2025 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods.

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

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

Operating results for the three months ended March 31, 2026, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2026.

Operating results for the three and six months ended June 30, 2026, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2026.

For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

Breakage Revenue

During second quarter 2026, in association with its former policy in which flight credits (funds that may be applied towards future travel) did not expire, the Company determined that a reversal of a portion of previously recognized, prior years' breakage revenue was warranted.

Following the Company's prior policy decision in July 2022 to eliminate the expiration date on flight credits issued, approximately $ 7.9 billion in non-expiring flight credits were issued by the Company between July 2022 and December 2025, and the Company had previously estimated, based on both historical and projected redemption behavior at that time, approximately 23 percent of those non-expiring flight credits would not be redeemed by Customers, and correspondingly recorded estimated breakage revenue for those amounts over the time period July 2022 through December 2025.

Based on the most recent flight credit redemption trends and updated projections of future redemptions for the remaining available non-expiring flight credits, the Company now believes that approximately 20 percent of the non-expiring flight credits originally issued between July 2022 and December 2025 will not be redeemed by Customers.

Approximately $ 1.8 billion of such flight credits remain available as of June 30, 2026.

As a result of this change in estimate, the Company is recording a second quarter 2026 reversal of breakage revenue of $ 285 million.

No breakage revenue related to this population of non-expiring flight credits was recognized in first half 2026;

thus, the entire amount of the second quarter 2026 breakage revenue reversal relates to years 2022 through 2025.

The timing of this adjustment in the second quarter 2026 was impacted by a combination of quantitative trends and qualitative factors affecting Customer behavior, including the Company's recent significant business transformation initiatives, changes to fare products and distribution channels, and changes to its flight credit policies.

These factors altered historical Customer redemption patterns and reduced the predictive value of historical information observed during the period in which the credits were issued.

As a result, management determined that Customer behavior

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

observed through the second quarter of 2026 provided a more reliable basis for estimating the ultimate level of unredeemed flight credits than had previously been determined.

The Company implemented a change to its flight credit policy, in which flight credits created from reservations booked and ticketed or voluntarily changed on or after May 28, 2025, will typically have a specified expiration date of one year or less, depending on the type of fare purchased and form of payment used.

However, some non-expiring flight credits continued to be issued subsequent to May 28, 2025, primarily due to reservations for future travel that were already in place as of that date that were subsequently modified or cancelled .

This second quarter 2026 breakage revenue adjustment, and its corresponding increase to Air Traffic Liability, resulted in the following impact to results:

Three months ended June 30,

(in millions, except per share amounts) 2026

Breakage revenue adjustment $ ( 285 )

Net income* ( 185 )

Net income per basic share ( 0.38 )

Net income per diluted share ( 0.37 )

* net of profit-sharing benefit and income taxes

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

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

fare increases;

changes to the Company's ticketing policies;

changes to the Company’s refund, exchange, and unused flight credit policies;

seat availability;

economic factors;

and the Company's observations about changes in actual Customer use of flight credits.

See Note 5 for further information.

Operating Segments and Related Disclosures

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

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

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NEW ACCOUNTING PRONOUNCEMENTS

On September 18, 2025, the Financial Accounting Standards Board ("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 ("Accounting Standards Codification") 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.

On May 19, 2026, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2026‑02, Environmental Credits and Environmental Credit Obligations (Topic 818), which establishes a new accounting model for environmental credits and related obligations.

ASU 2026-02 provides guidance on the recognition, measurement, presentation, and disclosure of environmental credits, as well as obligations that may be settled using such credits.

Under ASU 2026-02, environmental credits are recognized as assets when it is probable they will be used to satisfy a compliance obligation, transferred, or otherwise utilized in a qualifying manner.

The accounting for these credits, including subsequent measurement, depends on whether they are expected to be used for compliance or noncompliance purposes.

ASU 2026-02 also requires entities to recognize environmental credit obligations as activities occur that give rise to a regulatory requirement and introduces a measurement approach that is generally linked to the cost basis of credits expected to be used to settle such obligations.

This standard is effective for public business entities for annual reporting periods beginning after December 15, 2027, including

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

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

interim periods within those annual periods, with early adoption permitted.

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

On September 18, 2025, the FASB issued 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 Accounting Standards Codification ("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:

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 July 30, 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326):

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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 does not change the presentation of expense information or expense captions reported on the face of the income statement.

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 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 presentation or results.

FINANCIAL DERIVATIVE INSTRUMENTS

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The Company does not intend to add additional fuel derivatives.

The Company recorded expenses associated with fuel derivative contracts that settled during the three months ended March 31, 2025, and for amounts that remain in Accumulated Other Comprehensive Income ("AOCI") associated with previously terminated hedges during the three months ended March 31, 2026.

These expenses are reflected as a component of Aircraft fuel and related taxes within the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss):

Location and amount reclassified from AOCI into income on cash flow hedging relationships

Income Statement Three months ended Three months ended

(in millions) location March 31, 2026 March 31, 2025

Fuel derivative contracts (gross) Aircraft fuel and related taxes $ 29 $ 38

The Company recorded expenses associated with fuel derivative contracts that settled during the three and six months ended June 30, 2025 and for amounts that remain in Accumulated Other Comprehensive Income ("AOCI") associated with previously terminated hedges during the three and six months ended June 30, 2026 and 2025.

These expenses are reflected as a component of Aircraft fuel and related taxes expense within the unaudited Condensed Consolidated Statement of Comprehensive Income:

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

Location and amount reclassified from AOCI into income on cash flow hedging relationships

Three months ended Six months ended

Income Statement June 30, June 30,

(in millions) location 2026 2025 2026 2025

Fuel derivative contracts (gross) Aircraft fuel and related taxes $ 29 $ 36 $ 58 $ 73

Derivatives designated and qualified in cash flow hedging relationships

Loss recognized in AOCI on derivatives, net of tax

Three months ended

Three months ended Six months ended

June 30, June 30,

(in millions) 2026 2025 2026 2025

Fuel derivative contracts $ — $ 40 $ — $ 69

As of March 31, 2026, approximately $ 108 million remained in AOCI related to these previously closed positions, with approximately $ 86 million to be recognized in the remainder of 2026 and $ 22 million to be recognized in 2027.

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 Aircraft fuel and related taxes 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.

As of June 30, 2026, approximately $ 79 million remained in AOCI related to these previously closed positions, with approximately $ 58 million to be recognized in the remainder of 2026 and $ 21 million to be recognized in 2027.

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 Aircraft fuel and related taxes expense in future periods when the originally forecasted transactions occur (through the end of 2027) and is net of the impact of the cash proceeds from the hedge terminations.

See Note 4 for additional information on AOCI.

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The following table presents the location of the Company’s interest rate derivative instruments within the unaudited Condensed Consolidated Balance Sheet:

Derivatives designated as hedges

Liability derivatives

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(in millions) location 6/30/2026 12/31/2025

Derivatives designated as hedges

Interest rate derivative contracts Other noncurrent liabilities 28 16

Total derivatives designated as hedges $ 20 $ 16

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

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

Credit Risk and Collateral

The Company had no cash collateral posted or received as of March 31, 2026.

The Company had no cash collateral posted or received as of June 30, 2026.

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME

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

The Company terminated its remaining portfolio of fuel hedging contracts during second quarter 2025, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio and program.

The differences between Net income (loss) and Comprehensive income (loss) for the three months ended March 31, 2026 and 2025 were as follows:

Three months ended March 31,

The differences between Net income and Comprehensive income for the three and six months ended June 30, 2026 and 2025 were as follows:

Three months ended June 30,

(in millions) 2026 2025

NET INCOME (LOSS) $ 227 $ ( 149 )

Unrealized loss on fuel derivative instruments, net of

NET INCOME $ 233 $ 213

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

deferred taxes of $ 7 and ($ 4 )

22 (a) ( 12 ) (a)

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

Total other comprehensive income $ 23 $ 1

COMPREHENSIVE INCOME (LOSS) $ 250 $ ( 148 )

(a) Includes reclassification adjustments from AOCI into Aircraft fuel and related taxes associated with hedges previously terminated.

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three months ended March 31, 2026:

Total other comprehensive income (loss) $ 23 $ ( 11 )

COMPREHENSIVE INCOME $ 256 $ 202

(a) Includes reclassification adjustments from AOCI into Aircraft fuel and related taxes expense associated with hedges previously terminated.

Six months ended June 30,

(in millions) 2026 2025

NET INCOME $ 460 $ 64

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

deferred taxes of $ 14 and ($ 4 )

44 (a) ( 12 ) (a)

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

Total other comprehensive income (loss) $ 46 $ ( 10 )

COMPREHENSIVE INCOME $ 506 $ 54

(a) Includes reclassification adjustments from AOCI into Aircraft fuel and related taxes expense associated with hedges previously terminated.

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and six months ended June 30, 2026:

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

Balance at December 31, 2025 $ ( 137 ) $ 106 $ ( 1 ) $ 8 $ ( 24 )

Reclassification to earnings 29 — 1 ( 7 ) 23

Balance at March 31, 2026 $ ( 108 ) $ 106 $ — $ 1 $ ( 1 )

The following table illustrates the significant amounts reclassified out of each component of AOCI for the three months ended March 31, 2026:

Three months ended March 31, 2026

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

Reclassification to earnings 29 — 1 ( 7 ) 23

Balance at June 30, 2026 $ ( 79 ) $ 106 $ 1 $ ( 6 ) $ 22

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

Balance at December 31, 2025 $ ( 137 ) $ 106 $ ( 1 ) $ 8 $ ( 24 )

Reclassification to earnings 58 — 2 (a) ( 14 ) 46

Balance at June 30, 2026 $ ( 79 ) $ 106 $ 1 $ ( 6 ) $ 22

Notes to Condensed Consolidated Financial Statements

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

The following tables illustrate the significant amounts reclassified out of each component of AOCI for the three and six months ended June 30, 2026:

Three months ended June 30, 2026

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

AOCI components

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Total reclassifications for the period $ 23 Net of tax

Six months ended June 30, 2026

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

AOCI components

Unrealized loss on fuel derivative instruments $ 58 Aircraft fuel and related taxes

$ 44 Net of tax

Other $ 3 Other operating expenses

( 1 ) Interest expense

$ 2 Net of tax

Total reclassifications for the period $ 46 Net of tax

Passenger Revenues

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

Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided.

For air travel on Southwest, the amount of tickets (which includes flight credits—also referred to as partial tickets) that will go unused, referred to as breakage, is estimated and recognized in Passenger revenue once the scheduled flight date has passed, in proportion to the pattern of rights exercised by the Customer.

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

The following tables provide the components of Passenger revenue and Other revenue recognized for the three and six months ended June 30, 2026 and 2025:

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

Passenger Revenues

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

Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided.

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

The following tables provide the components of Passenger revenue and Other revenue recognized for the three months ended March 31, 2026 and 2025:

Three months ended March 31,

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

(in millions) 2026 2025 2026 2025

Passenger non-loyalty $ 5,188 $ 4,766

Passenger non-loyalty $ 6,104 (a) $ 5,448 $ 11,292 (a) $ 10,214

Passenger loyalty - air transportation 766 870 1,454 1,670

Passenger ancillary sold separately (a) 715 245

Passenger ancillary sold separately (b) 875 309 1,591 554

Total passenger revenues $ 7,745 $ 6,627 $ 14,337 $ 12,438

(a) The increase in Passenger ancillary sold separately in first quarter 2026 as compared to first quarter 2025 was due to the Company's initiative to implement new ancillary products—bag fees for most fare products beginning May 28, 2025, and operating assigned and extra legroom seating for travel beginning January 27, 2026, which includes the co-brand impact associated with those initiatives.

Three months ended March 31,

(a) Includes a reversal of previously recognized breakage revenue of approximately $ 285 million, related to the periods July 2022 through December 2025.

See Note 1 for further information.

(b) The increase in Passenger ancillary sold separately in the three and six months ended June 30, 2026 as compared with the respective prior periods was due to the Company's initiative to implement new ancillary products—bag fees for most fare products beginning May 28, 2025, and operating assigned and extra legroom seating for travel beginning January 27, 2026, which includes the co-brand impact associated with those initiatives.

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

(in millions) 2026 2025 2026 2025

Loyalty program $ 578 $ 536 $ 1,135 $ 1,081

Other 59 37 117 67

Total other revenues $ 637 $ 573 $ 1,252 $ 1,148

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The Company defers revenue for points earned by Customers through the Co-brand Agreement and subsequently records Passenger revenue related to loyalty point redemptions for air travel when the travel is delivered.

The marketing elements are recognized as Other revenue and the airline benefits are recognized as Passenger revenue

The marketing elements are recognized as Other revenue and the airline benefits are recognized as Passenger revenue when the performance obligations related to those services are satisfied, which is generally the same period consideration is received from Chase.

As a result of the 2025 amendments to the Co-brand Agreement, a larger portion of the Company's co-brand Chase ® Visa credit card benefits from Chase are now being classified within Passenger revenues commensurate with the Company's ability to satisfy the associated performance obligations, which began in mid-2025 associated with its change in policy for checked bags, and in first quarter 2026 associated with its implementation of assigned and extra legroom seating initiatives.

As of June 30, 2026, and December 31, 2025, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

when those performance obligations related to those services are satisfied, which is generally the same period consideration is received from Chase.

As of March 31, 2026, and December 31, 2025, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

Balance as of

(in millions) March 31, 2026 December 31, 2025

(in millions) June 30, 2026 December 31, 2025

Air traffic liability - passenger travel and ancillary passenger services $ 4,010 $ 2,830

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

Rollforwards of the Company's Air traffic liability - loyalty program for the three months ended March 31, 2026 and 2025 were as follows:

Three months ended March 31,

Rollforwards of the Company's Air traffic liability - loyalty program for the three and six months ended June 30, 2026 and 2025 were as follows:

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

(in millions) 2026 2025 2026 2025

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Air traffic liability - loyalty program - ending balance $ 4,174 $ 4,693 $ 4,174 $ 4,693

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

Rollforwards of the amounts included in Air traffic liability as of March 31, 2026 and 2025 were as follows:

Three months ended March 31,

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied.

Rollforwards of the amounts included in Air traffic liability as of June 30, 2026 and 2025 were as follows:

Six months ended June 30,

(in millions) 2026 2025

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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

During second quarter 2026, in association with its former policy in which flight credits did not expire, the Company determined that a reversal of a portion of previously recognized breakage revenue was warranted.

Approximately $ 7.9 billion in non-expiring flight credits were issued by the Company between July 2022 and December 2025.

The Company had estimated a portion of those non-expiring flight credits would not be redeemed by Customers, and correspondingly recorded estimated breakage for those amounts over those periods.

Due to higher-than-projected Customer redemptions of these non-expiring flight credits, along with updated projections of future redemptions, the Company has revised its estimates with regard to the remaining non-expiring flight credits that remain available for redemption.

The Company determined that a reversal of a portion of previously recognized

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

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 the original booking date.

breakage revenue of $ 285 million was warranted and recorded this adjustment during the three months ended June 30, 2026.

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

The Company issues vacation travel credits for cancelled bookings resulting from the Getaways by Southwest™ ("Getaways") product, and these credits have an 18-month expiration period from the 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 travel credits represent approximately 4 percent and 5 percent of the total Air traffic liability balance as of March 31, 2026, and December 31, 2025, respectively.

NET INCOME (LOSS) PER SHARE

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

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

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

The amount of Customer travel credits represents approximately 6 percent and 5 percent of the total Air traffic liability balance as of June 30, 2026, and December 31, 2025, respectively.

NET INCOME PER SHARE

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

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

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

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

There were no antidilutive restricted stock units for the three and six months ended June 30, 2026.

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

For the three months ended March 31, 2025, the Convertible Notes were determined to be antidilutive.

Three months ended March 31,

Net income (loss) attributable to common stockholders $ 227 $ ( 149 )

For the three and six months ended June 30, 2025, the weighted-average impact for the outstanding portion of the Convertible Notes was immaterial.

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

2026 2025 2026 2025

Net income attributable to common stockholders $ 233 $ 213 $ 460 $ 64

Weighted-average shares outstanding, basic 489 538 494 561

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Weighted-average shares outstanding, diluted 493 541 498 564

NET INCOME (LOSS) PER SHARE:

NET INCOME PER SHARE:

Basic $ 0.48 $ 0.40 $ 0.93 $ 0.11

Diluted $ 0.47 $ 0.39 $ 0.92 $ 0.11

Antidilutive amounts excluded from calculations:

Convertible debt — 44

Restricted stock units — 3

FAIR VALUE MEASUREMENTS

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

As of March 31, 2026, the Company held certain items that are required to be measured at fair value on a recurring basis, including cash equivalents.

The Company may also from time to time hold short-term investments and available-for-sale securities.

The majority of the Company’s cash equivalents consist of instruments classified as Level 1.

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

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

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

As of June 30, 2026, the Company held certain items that are required to be measured at fair value on a recurring basis, including cash equivalents.

The Company may also from time to time hold short-term investments and available-for-sale securities.

The majority of the Company’s cash equivalents consist of instruments classified as Level 1.

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

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

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

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

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2026, and December 31, 2025:

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2026, and December 31, 2025:

Fair value measurements at reporting date using:

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

Description March 31, 2026 (Level 1) (Level 2)

Description June 30, 2026 (Level 1) (Level 2)

Assets (in millions)

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Interest rate derivatives (see Note 3)

$ ( 28 ) $ — $ ( 28 )

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

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Interest rate derivatives (see Note 3)

$ ( 16 ) $ — $ ( 16 )

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

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis, or on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2026, or the year ended December 31, 2025.

The carrying amounts and estimated fair values of the Company’s short-term and long-term debt (including current maturities), as well as the applicable fair value hierarchy tier, as of March 31, 2026, are presented in the table below.

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis, or on a recurring basis using significant unobservable inputs (Level 3) during the six months ended June 30, 2026, or the year ended December 31, 2025.

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

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2030 500 463 Level 2

1.000 % Payroll Support Program Loan (a)

2031 426 430 Level 3

5.250 % Notes

2035 722 697 Level 2

(a) The interest rate would have changed to SOFR plus two percent on April 24, 2026;

however, the Company prepaid this loan in full on April 22, 2026.

See Note 10 for further information.

Notes to Condensed Consolidated Financial Statements

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SUPPLEMENTAL FINANCIAL INFORMATION

(in millions) March 31, 2026 December 31, 2025

(in millions) June 30, 2026 December 31, 2025

Trade receivables $ 78 $ 98

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Accounts and other receivables $ 1,218 $ 1,149

(in millions) March 31, 2026 December 31, 2025

(in millions) June 30, 2026 December 31, 2025

Intangible assets, net $ 296 $ 296

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Other assets $ 1,075 $ 1,112

(in millions) March 31, 2026 December 31, 2025

(in millions) June 30, 2026 December 31, 2025

Accounts payable trade $ 368 $ 389

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Accounts payable $ 2,072 $ 1,991

(in millions) March 31, 2026 December 31, 2025

(in millions) June 30, 2026 December 31, 2025

Profit-sharing and savings plans $ 162 $ 157

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Notes to Condensed Consolidated Financial Statements

(in millions) March 31, 2026 December 31, 2025

(in millions) June 30, 2026 December 31, 2025

Postretirement obligation $ 321 $ 321

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Other Operating Expenses

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, certain technology-related costs, other operating costs, and any gains or losses on asset sales, none of which individually exceeded 10 percent of Total operating expenses.

Other operating expenses consist of aircraft rentals, distribution costs, advertising expenses, personnel expenses, professional fees, certain technology-related costs, other operating costs, and any gains or losses on the disposition of assets, none of which individually exceeded 10 percent of Total operating expenses.

For the three and six months ended June 30, 2026, gains on the disposition of assets totaled $ 105 million and $ 187 million, respectively.

COMMITMENTS AND CONTINGENCIES

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

The Company received 10 -8 aircraft deliveries from Boeing in first quarter 2026 and retired 13 aircraft (including eight 737-700 ("-700") aircraft and the sale of three -700 aircraft and two 737-800 ("-800") aircraft).

In addition, during first quarter 2026, the Company exercised six -7 options for delivery in 2027 and converted 19 2026 deliveries from -7 to -8 firm orders.

The Company received 13 -8 aircraft deliveries from Boeing in second quarter 2026 and retired 10 aircraft (including five 737-700 ("-700") aircraft and the sale of one -700 aircraft and four 737-800 ("-800") aircraft).

In addition, during second quarter 2026, the Company exercised six -7 options for delivery in 2027.

During the six months ended June 30, 2026, the Company converted 19 2026 deliveries from -7 to -8 firm orders.

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

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

As of March 31, 2026, the Company had the following firm orders and options for future periods:

As of June 30, 2026, the Company had the following firm orders and options for future periods:

The Boeing Company

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

In addition, the Company has included 81 of its 2024 and 2025 contractual but undelivered aircraft ( 27 -7s and 54 -8s) within its 2026 contractual commitments.

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2026 Combined Contractual Total 82 85 167

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of March 31, 2026, were:

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of June 30, 2026, were:

(in billions) Remainder of 2026 2027 2028 2029 2030 2031 Total

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(a) Capital commitments associated with the Company's firm orders in 2026 of $ 3.9 billion include approximately $ 2.7 billion primarily related to the existing remaining scheduled 86 MAX aircraft to be delivered in 2026 and $ 1.2 billion related to 58 MAX aircraft ( 27 -7s and 31 -8s) that were contractually committed for 2024 and 2025, but were not received.

Subsequent to March 31, 2026, and through April 23, 2026, the Company exercised two -7 options for delivery in 2027, resulting in the Company's 2027 capital commitments increasing to $ 2.9 billion.

Subsequent to June 30, 2026, and through July 23, 2026, the Company exercised two -7 options for delivery in 2027, resulting in an immaterial change to the Company's capital commitments noted above.

Contingencies

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

On May 6, 2026, Plaintiffs filed their opening appellate brief.

The Company’s answering brief is due on August 4, 2026.

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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An immaterial amount of Convertible Note conversions settled at maturity.

In first quarter 2025, the Company recognized $ 8 million total interest expense associated with the Convertible Notes, including $ 3 million of non-cash amortization of debt issuance costs and $ 5 million of contractual coupon interest.

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.

Payroll Support Program Loan due 2031

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On April 22, 2026, the Company made an early prepayment of the outstanding loan balance of $ 426 million, utilizing available cash on hand.

As of March 31, 2026, the note associated with the PSP3 Payroll Support Program was classified as Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet.

Term Loan Credit Agreement

On March 11, 2026, the Company entered into a new term loan credit agreement (the "Term Loan Credit Agreement") with a third-party bank, providing for a $ 500 million senior secured term loan credit facility (the "Term Loan Facility") that was drawn in full on the closing date.

The Term Loan Facility matures in full on March 11, 2029, and the Company has the right at any time to prepay the loans, in whole or in part, without premium or penalty, upon at least three business days’ prior written notice to the Agent.

Amounts prepaid under the Term Loan Credit Agreement may not be reborrowed.

Additionally, the Term Loan Facility includes an uncommitted incremental term loan feature allowing up to $ 1 billion in incremental term loan commitments to be established from time to time in accordance with the terms and conditions set forth in the Term Loan Credit Agreement.

On May 19, 2026, the Company executed an upsize of the Term Loan Facility for $ 1 billion of incremental term loan commitments, and amended the incremental term loan feature to allow for an additional $ 1 billion more of available uncommitted funds.

As of June 30, 2026, the Company had a total outstanding loan balance of $ 1.5 billion related to the Term Loan Credit Agreement.

The Term Loan Facility is secured by a grant of a security interest in certain aircraft and related assets.

Generally, amounts outstanding under the Term Loan Facility bear interest at interest rates based on either the Term SOFR (as defined in the Term Loan Credit Agreement) for designated interest periods selected by the Company or the Alternate Base Rate (as defined in the Term Loan Credit Agreement), plus an applicable margin.

The underlying

Notes to Condensed Consolidated Financial Statements

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Notes to Condensed Consolidated Financial Statements

The underlying Term SOFR is subject to a floor of 0.00 % per annum, and the Alternate Base Rate is subject to a floor of 1.00 % per annum.

Term SOFR is subject to a floor of 0.00 % per annum, and the Alternate Base Rate is subject to a floor of 1.00 % per annum.

Revolving Credit Facility

As of March 31, 2026, the Company had 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 three months ended March 31, 2026 and 2025, there were no amounts outstanding under the Amended Credit Agreement.

As of June 30, 2026, the Company had 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 six months ended June 30, 2026 and 2025, there were no amounts outstanding under the Amended Credit Agreement.

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

What changed 10-Q

Item 1. Financial Statements