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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025


			or


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			For the transition period from ________ to ________

Commission File No. 1-7259

SOUTHWEST AIRLINES CO.

(Exact name of registrant as specified in its charter)


Texas		74-1563240
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
P.O. Box 36611
Dallas,	Texas	75235-1611
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (214) 792-4000

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock ($1.00 par value)	LUV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No x

Number of shares of Common Stock outstanding as of the close of business on October 22, 2025: 517,155,080

TABLE OF CONTENTS TO FORM 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheet as of September 30, 2025 and December 31, 2024

Condensed Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 2025 and 2024

Condensed Consolidated Statement of Stockholders' Equity as of September 30 , 2025 and 2024

Condensed Consolidated Statement of Cash Flows for the three and nine months ended September 30, 2025 and 2024

Notes to Condensed Consolidated Financial Statements

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Mine Safety Disclosures

Item 5. Other Information

Item 6. Exhibits

SIGNATURES

Table of Contents

SOUTHWEST AIRLINES CO.

FORM 10-Q

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Southwest Airlines Co.

Condensed Consolidated Balance Sheet

(in millions)

(unaudited)


	September 30, 2025		December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	2,902	$	7,509
Short-term investments	116		1,216
Accounts and other receivables	1,118		1,110
Inventories of parts and supplies, at cost	792		800
Prepaid expenses and other current assets	467		639
Total current assets	5,395		11,274

Property and equipment, at cost:
Flight equipment	26,009		25,202
Ground property and equipment	8,776		8,244
Deposits on flight equipment purchase contracts	402		413
Assets constructed for others	88		88
	35,275		33,947
Less allowance for depreciation and amortization	15,570		14,891
	19,705		19,056
Goodwill	970		970
Operating lease right-of-use assets	1,169		1,369
Other assets	1,073		1,081
	$	28,312	$	33,750

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,708	$	1,818
Accrued liabilities	2,091		2,206
Current operating lease liabilities	310		328
Air traffic liability	6,862		6,294
Current maturities of long-term debt	23		1,630
Total current liabilities	10,994		12,276

Long-term debt less current maturities	4,079		5,069
Air traffic liability - noncurrent	1,263		1,948
Deferred income taxes	2,210		2,167

Noncurrent operating lease liabilities	846		1,031
Other noncurrent liabilities	1,144		909
Stockholders' equity:
Common stock	888		888
Capital in excess of par value	4,283		4,199
Retained earnings	16,158		16,332
Accumulated other comprehensive loss	(6)		(25)
Treasury stock, at cost	(13,547)		(11,044)
Total stockholders' equity	7,776		10,350
	$	28,312	$	33,750

See accompanying notes.

Table of Contents

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Income

(in millions, except per share amounts)

(unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2025		2024		2025		2024
OPERATING REVENUES:
Passenger	$	6,313	$	6,250	$	18,751	$	18,673
Freight	42		43		127		131

Other	594		577		1,743		1,749
Total operating revenues	6,949		6,870		20,621		20,553

OPERATING EXPENSES:
Salaries, wages, and benefits	3,219		3,070		9,583		9,010

Fuel and oil	1,331		1,417		3,907		4,548
Maintenance materials and repairs	299		335		921		1,046

Landing fees and airport rentals	548		493		1,638		1,468
Depreciation and amortization	394		438		1,189		1,250
Other operating expenses	1,123		1,079		3,346		3,188
Total operating expenses	6,914		6,832		20,584		20,510

OPERATING INCOME	35		38		37		43

NON-OPERATING EXPENSES (INCOME):
Interest expense	35		63		120		191
Capitalized interest	(13)		(9)		(38)		(24)
Interest income	(34)		(121)		(172)		(392)

Other (gains) losses, net	(21)		16		(28)		(1)
Total non-operating income	(33)		(51)		(118)		(226)

INCOME BEFORE INCOME TAXES	68		89		155		269
PROVISION FOR INCOME TAXES	14		22		37		65

NET INCOME	$	54	$	67	$	118	$	204

NET INCOME PER SHARE, BASIC	$	0.10	$	0.11	$	0.21	$	0.34

NET INCOME PER SHARE, DILUTED	$	0.10	$	0.11	$	0.21	$	0.34

COMPREHENSIVE INCOME	$	83	$	19	$	137	$	167

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	523		599		548		598
Diluted	526		601		551		643

See accompanying notes.

Table of Contents

Southwest Airlines Co.

Condensed Consolidated Statement of Stockholders' Equity

(in millions, except per share amounts)

(unaudited)



	Common Stock		Capital in excess of par value		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock			Total
Balance at December 31, 2024	$	888	$	4,199	$	16,332	$	(25)	$	(11,044)		$	10,350
Repurchase of common stock	—		—		—		—		(758)		(a)	(758)
Issuance of common and treasury stock pursuant to Employee stock plans	—		(10)		—		—		13			3
Share-based compensation	—		21		—		—		—			21
Cash dividends, $0.18 per share	—		—		(103)		—		—			(103)
Comprehensive income (loss)	—		—		(149)		1		—			(148)
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
Repurchase of common stock	—		—		—		—		(252)		(a)	(252)
Issuance of common and treasury stock pursuant to Employee stock plans	—		10		—		—		4			14
Share-based compensation	—		26		—		—		—			26
Cash dividends, $0.18 per share	—		—		(95)		—		—			(95)
Comprehensive income	—		—		54		29		—			83
Balance at September 30, 2025	$	888	$	4,283	$	16,158	$	(6)	$	(13,547)		$	7,776

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

Table of Contents



	Common Stock		Capital in excess of par value		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Total
Balance at December 31, 2023	$	888	$	4,153	$	16,297	$	—	$	(10,823)	$	10,515
Issuance of common and treasury stock pursuant to Employee stock plans	—		(25)		—		—		15		(10)
Share-based compensation	—		10		—		—		—		10
Cash dividends, $0.18 per share	—		—		(107)		—		—		(107)
Comprehensive income (loss)	—		—		(231)		19		—		(212)
Balance at March 31, 2024	$	888	$	4,138	$	15,959	$	19	$	(10,808)	$	10,196
Issuance of common and treasury stock pursuant to Employee stock plans	—		12		—		—		5		17
Share-based compensation	—		7		—		—		—		7
Cash dividends, $0.18 per share	—		—		(108)		—		—		(108)
Stock warrants repurchase	—		(6)		—		—		—		(6)
Comprehensive income (loss)	—		—		367		(8)		—		359
Balance at June 30, 2024	$	888	$	4,151	$	16,218	$	11	$	(10,803)	$	10,465
Issuance of common and treasury stock pursuant to Employee stock plans	—		10		—		—		5		15
Share-based compensation	—		19		—		—		—		19
Cash dividends, $0.18 per share	—		—		(107)		—		—		(107)
Comprehensive income (loss)	—		—		67		(48)		—		19
Balance at September 30, 2024	$	888	$	4,180	$	16,178	$	(37)	$	(10,798)	$	10,411

See accompanying notes.

Table of Contents

Southwest Airlines Co.

Condensed Consolidated Statement of Cash Flows

(in millions)

(unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2025		2024		2025		2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	54	$	67	$	118	$	204
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	394		438		1,189		1,250
Impairment of long-lived assets	—		—		8		—

Unrealized/realized loss on fuel derivative instruments	—		15		—		17
Deferred income taxes	14		19		37		62

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

Changes in certain assets and liabilities:
Accounts and other receivables	(83)		193		64		(80)
Other assets	3		(13)		359		4
Accounts payable and accrued liabilities	11		(196)		(209)		(1,668)
Air traffic liability	(172)		(377)		(117)		421
Other liabilities	16		(18)		(19)		(136)

Cash collateral provided to derivative counterparties	—		(8)		(22)		(28)
Other, net	50		(7)		142		(60)
Net cash provided by (used in) operating activities	287		113		1,547		(14)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(678)		(517)		(1,814)		(1,594)

Assets constructed for others	—		(10)		—		(26)
Proceeds from sale-leaseback transactions	—		—		23		—
Purchases of short-term investments	(100)		(636)		(470)		(3,845)
Proceeds from sales of short-term and other investments	350		1,621		1,577		5,160
Other, net	—		—		(3)		(29)
Net cash provided by (used in) investing activities	(428)		458		(687)		(334)

CASH FLOWS FROM FINANCING ACTIVITIES:






Payroll Support Program stock warrants repurchase	—		—		—		(6)
Proceeds from Employee stock plans	14		15		46		46


Repurchase of common stock	(250)		—		(2,500)		—
Payments of long-term debt and finance lease obligations	(6)		(11)		(2,603)		(27)



Payments of cash dividends	(189)		(216)		(399)		(431)




Other, net	(1)		2		(11)		(19)
Net cash used in financing activities	(432)		(210)		(5,467)		(437)

NET CHANGE IN CASH AND CASH EQUIVALENTS	(573)		361		(4,607)		(785)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	3,475		8,142		7,509		9,288

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,902	$	8,503	$	2,902	$	8,503

CASH PAYMENTS FOR:
Interest, net of amount capitalized	$	3	$	14	$	67	$	124
Income taxes	$	—	$	—	$	5	$	7

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Right-of-use assets acquired or modified under operating leases	$	4	$	23	$	38	$	42
Flight and ground equipment acquired or modified under finance leases	$	6	$	17	$	6	$	16

See accompanying notes.

Table of Contents

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

2. New Accounting Pronouncements

3. Financial Derivative Instruments

4. Comprehensive Income

5. Revenue

6. Net Income Per Share

7. Fair Value Measurements

8. Supplemental Financial Information

9. Commitments and Contingencies

10. Financing Activities

11. Restructuring


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

1. BASIS OF PRESENTATION

Basis of Presentation

Southwest Airlines Co. (the "Company" or "Southwest") operates Southwest Airlines, a major passenger airline that provides scheduled air transportation in the United States and near-international markets. The unaudited Condensed Consolidated Financial Statements include accounts of the Company and its wholly owned subsidiaries.

The accompanying unaudited Condensed Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements as required in Form 10-K. The unaudited Condensed Consolidated Financial Statements for the interim periods ended September 30, 2025 and 2024 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. This includes all normal and recurring adjustments and elimination of significant intercompany transactions. Financial results for the Company and airlines in general can be seasonal in nature. For example, absent other factors, travel demand is generally higher during the summer period, or the Company’s second and third fiscal quarters. However, air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers and changes in consumer behavior, unemployment levels, corporate travel budgets, global pandemics, extreme or severe weather and natural disasters, fears of terrorism or war, governmental actions, and other factors beyond the Company's control. These and other factors, such as the price of jet fuel in some periods, have created, and may continue to create, significant volatility in the Company's financial results. Operating results for the three and nine months ended September 30, 2025, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2025. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.

On July 4, 2025, the One Big Beautiful Bill Act, was signed into law. The legislation did not have a material impact on the Company's income tax expense for the quarter ending September 30, 2025, nor is it expected to materially change the Company's effective income tax rate for 2025.

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. The effect of this change in estimate was an immaterial change to depreciation expense for the three and nine months ended September 30, 2025.

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).

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. Financial Statements.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

2. NEW ACCOUNTING PRONOUNCEMENTS

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

On December 14, 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard increases transparency and decision usefulness of income tax disclosures for investors by requiring information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This standard requires entities to provide enhanced disclosures related to the income tax rate reconciliation and income taxes paid. 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 include all required disclosures within its Form 10-K for the year ended December 31, 2025, utilizing the retrospective application as permitted in the standard.

3. FINANCIAL DERIVATIVE INSTRUMENTS

Fuel Contracts

Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes in jet fuel prices. Furthermore, jet fuel typically represents one of the largest operating expenses for airlines. 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 discontinued its fuel hedging program in 2025 and does not intend to add additional fuel derivatives at this time.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio. This resulted in the derecognition of all remaining related hedge assets in the unaudited Condensed Consolidated Balance Sheet. The cash proceeds from this transaction totaled approximately $40 million, which will reduce future premium costs. Approximately $36 million that was previously expended on hedge positions in prior periods was reclassified from Accumulated Other Comprehensive Income ("AOCI") and recognized as an increase to Fuel and oil expense within the unaudited Condensed Consolidated Statement of Comprehensive Income during third quarter 2025, all of which is characterized as premium expense from terminated fuel hedging positions. As of September 30, 2025,


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

approximately $173 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 4 for additional information on AOCI.

All cash flows associated with purchasing and selling fuel derivatives (including terminations) are classified as Other operating cash flows in the unaudited Condensed Consolidated Statement of Cash Flows. The following table presents the location of all assets and liabilities associated with the Company’s derivative instruments within the unaudited Condensed Consolidated Balance Sheet:


		Asset derivatives
	Balance Sheet	Fair value at		Fair value at
(in millions)	location	9/30/2025		12/31/2024
Derivatives designated as hedges (a)
Fuel derivative contracts (gross)	Prepaid expenses and other current assets	$	—	$	22
Fuel derivative contracts (gross)	Other assets	—		108






Total derivatives designated as hedges		$	—	$	130

(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.

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


	Balance Sheet	September 30,		December 31,
(in millions)	location	2025		2024
Cash collateral deposits held from counterparties for fuel contracts - current	Offset against Prepaid expenses and other current assets	$	—	$	4
Cash collateral deposits held from counterparties for fuel contracts - noncurrent	Offset against Other assets	—		18




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

All of the Company's prior period fuel derivative instruments were subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging. The types of derivative instruments the Company determined were subject to netting requirements in the accompanying unaudited Condensed Consolidated Balance Sheet are those in which the Company paid or received cash for transactions with the same counterparty and in the same currency via one net payment or receipt. For cash collateral held by the Company or provided to counterparties, the Company netted such amounts against the fair value of the Company's derivative portfolio by each counterparty. The Company elected to utilize netting for its prior period fuel derivative instruments and also classified such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the unaudited Condensed Consolidated Balance Sheet.

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


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


Offsetting of derivative assets
(in millions)
		(i)		(ii)		(iii) = (i) + (ii)		(i)		(ii)		(iii) = (i) + (ii)
		September 30, 2025						December 31, 2024
Description	Balance Sheet location	Gross amounts of recognized assets		Gross amounts offset in the Balance Sheet		Net amounts of assets presented in the Balance Sheet		Gross amounts of recognized assets		Gross amounts offset in the Balance Sheet		Net amounts of assets presented in the Balance Sheet
Fuel derivative contracts	Prepaid expenses and other current assets	$	—	$	—	$	—	$	22	$	(4)	$	18
Fuel derivative contracts	Other assets	$	—	$	—	$	—	$	108	$	(18)	$	90	(a)

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


Offsetting of derivative liabilities
(in millions)
		(i)		(ii)		(iii) = (i) + (ii)		(i)		(ii)		(iii) = (i) + (ii)
		September 30, 2025						December 31, 2024
Description	Balance Sheet location	Gross amounts of recognized liabilities		Gross amounts offset in the Balance Sheet		Net amounts of liabilities presented in the Balance Sheet		Gross amounts of recognized liabilities		Gross amounts offset in the Balance Sheet		Net amounts of liabilities presented in the Balance Sheet
Fuel derivative contracts	Prepaid expenses and other current assets	$	—	$	—	$	—	$	4	$	(4)	$	—
Fuel derivative contracts	Other assets	$	—	$	—	$	—	$	18	$	(18)	$	—	(a)

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

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


Location and amount recognized in income on cash flow hedging relationships
	Three months ended September 30, 2025			Three months ended September 30, 2024
(in millions)	Fuel and oil			Other operating expenses		Fuel and oil		Other operating expenses
Total	$	36		$	2	$	15	$	2

Loss on cash flow hedging relationships
Commodity contracts:
Amount of loss reclassified from AOCI into income	36		(a)			15




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

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


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


Location and amount recognized in income on cash flow hedging relationships
	Nine months ended September 30, 2025			Nine months ended September 30, 2024
(in millions)	Fuel and oil			Other operating expenses		Fuel and oil		Other operating expenses
Total	$	110		$	5	$	54	$	6

Loss on cash flow hedging relationships
Commodity contracts:
Amount of loss reclassified from AOCI into income	110		(a)	—		54		—




Other:
Amount of loss reclassified from AOCI into income	—			5		—		6

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


Derivatives designated and qualified in cash flow hedging relationships
	(Gain) loss recognized in AOCI on derivatives, net of tax
	Three months ended
	September 30,
(in millions)	2025		2024
Fuel derivative contracts	$	—	$	61


Derivatives designated and qualified in cash flow hedging relationships
	(Gain) loss recognized in AOCI on derivatives, net of tax
	Nine months ended
	September 30,
(in millions)	2025		2024
Fuel derivative contracts	$	69	$	83


Derivatives not designated as hedges
	(Gain) loss recognized in income on derivatives

	Three months ended				Location of (gain) loss recognized in income on derivatives
	September 30,
(in millions)	2025		2024
Fuel derivative contracts	$	—	$	29	Other (gains) losses, net


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


Derivatives not designated as hedges
	(Gain) loss recognized in income on derivatives

	Nine months ended				Location of (gain) loss recognized in income on derivatives
	September 30,
(in millions)	2025		2024
Fuel derivative contracts	$	—	$	31	Other (gains) losses, net

The Company also recorded expenses associated with net premiums paid for fuel derivative contracts that settled/expired and/or terminated during the three and nine months ended September 30, 2025 and 2024. Gains and/or losses associated with fuel derivatives that qualified for hedge accounting were ultimately recorded to Fuel and oil expense. Gains and/or losses associated with fuel derivatives that did not qualify for hedge accounting were recorded to Other (gains) losses, net. The following tables present the expense impacts and their locations within the unaudited Condensed Consolidated Statement of Comprehensive Income during the periods the contracts settled or were scheduled to settle:


	Expense (benefit) recognized in income on derivatives

	Three months ended				Location of expense (benefit) recognized in income on derivatives
	September 30,
(in millions)	2025		2024
Fuel derivative contracts designated as hedges	$	36	$	34	Fuel and oil
Fuel derivative contracts not designated as hedges	—		5		Other (gains) losses, net


	Expense (benefit) recognized in income on derivatives

	Nine months ended				Location of expense (benefit) recognized in income on derivatives
	September 30,
(in millions)	2025		2024
Fuel derivative contracts designated as hedges	$	110	$	114	Fuel and oil
Fuel derivative contracts not designated as hedges	—		5		Other (gains) losses, net

Interest Rate Swaps

The Company is at times party to certain interest rate swap agreements that are accounted for as cash flow hedges, but had none in place as of September 30, 2025, or as of December 31, 2024. The Company also did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented.

Credit Risk and Collateral

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


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

4. COMPREHENSIVE INCOME

Comprehensive income (loss) includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting and actuarial gains/losses arising from the Company’s postretirement benefit obligation. During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio. See Note 3. The differences between Net income and Comprehensive income for the three and nine months ended September 30, 2025 and 2024 were as follows:


	Three months ended September 30,
(in millions)	2025			2024
NET INCOME	$	54		$	67
Unrealized gain (loss) on fuel derivative instruments, net of deferred taxes of $8 and ($14)	28		(a)	(50)

Other, net of deferred taxes of $1 and $—	1			2
Total other comprehensive income (loss)	$	29		$	(48)
COMPREHENSIVE INCOME	$	83		$	19

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


	Nine months ended September 30,
(in millions)	2025			2024
NET INCOME	$	118		$	204
Unrealized gain (loss) on fuel derivative instruments, net of deferred taxes of $5 and ($12)	15		(a)	(42)

Other, net of deferred taxes of $1 and $1	4			5
Total other comprehensive income (loss)	$	19		$	(37)
COMPREHENSIVE INCOME	$	137		$	167

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

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


(in millions)	Fuel derivatives		Defined benefit plan items		Other		Deferred tax impact		Accumulated other comprehensive income (loss)
Balance at June 30, 2025	$	(209)	$	167	$	(4)	$	11	$	(35)
Changes in fair value	—		—		—		—		—
Reclassification to earnings	36		—		2		(9)		29
Balance at September 30, 2025	$	(173)	$	167	$	(2)	$	2	$	(6)


(in millions)	Fuel derivatives		Defined benefit plan items		Other		Deferred tax impact		Accumulated other comprehensive income (loss)
Balance at December 31, 2024	$	(193)	$	167	$	(7)	$	8	$	(25)
Changes in fair value	(90)		—		—		21		(69)
Reclassification to earnings	110		—		5		(27)		88
Balance at September 30, 2025	$	(173)	$	167	$	(2)	$	2	$	(6)


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

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


Three months ended September 30, 2025

(in millions)	Amounts reclassified from AOCI		Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income
AOCI components
Unrealized loss on fuel derivative instruments	$	36	Fuel and oil expense

	8		Less: Tax expense
	$	28	Net of tax
Other	$	2	Other operating expenses
	1		Less: Tax expense
	$	1	Net of tax







Total reclassifications for the period	$	29	Net of tax


Nine months ended September 30, 2025

(in millions)	Amounts reclassified from AOCI		Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income
AOCI components
Unrealized loss on fuel derivative instruments	$	110	Fuel and oil expense

	26		Less: Tax expense
	$	84	Net of tax
Other	$	5	Other operating expenses
	1		Less: Tax expense
	$	4	Net of tax

Total reclassifications for the period	$	88	Net of tax

5. REVENUE

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. 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.

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow. The following table provides the components of Passenger revenue recognized for the three and nine months ended September 30, 2025 and 2024:


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2025		2024		2025		2024
Passenger non-loyalty	$	4,896	$	5,092	$	15,110	$	15,316
Passenger loyalty - air transportation	805		896		2,475		2,589
Passenger ancillary sold separately	612		262		1,166		768
Total passenger revenues	$	6,313	$	6,250	$	18,751	$	18,673

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


	Balance as of
(in millions)	September 30, 2025		December 31, 2024
Air traffic liability - passenger travel and ancillary passenger services	$	3,620	$	3,393
Air traffic liability - loyalty program	4,505		4,849
Total Air traffic liability	$	8,125	$	8,242

The balance in Air traffic liability - passenger travel and ancillary passenger services also includes flight credits not currently associated with a ticket that can be applied by Customers towards the purchase of future travel. 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 and nine months ended September 30, 2025 and 2024 were as follows:


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2025		2024		2025		2024
Air traffic liability - loyalty program - beginning balance	$	4,693	$	4,962	4,849		$	4,916
Amounts deferred associated with points awarded	649		851		2,214		2,645
Revenue recognized from points redeemed - Passenger	(805)		(896)		(2,475)		(2,589)
Revenue recognized from points redeemed - Other	(32)		(31)		(83)		(86)

Air traffic liability - loyalty program - ending balance	$	4,505	$	4,886	$	4,505	$	4,886

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 September 30, 2025 and 2024 were as follows:


	Nine months ended September 30,
(in millions)	2025		2024

Air traffic liability - beginning balance	$	8,242	$	8,279
Current period sales (a)	18,496		19,181
Revenue from amounts included in contract liability opening balances	(4,634)		(4,593)
Revenue from current period sales	(13,979)		(14,167)
Air traffic liability - ending balance	$	8,125	$	8,700

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


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

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, have a specified expiration date of one year or less, depending on the type of fare purchased. Flight credits issued between July 28, 2022, and May 28, 2025, including any future issuances associated with bookings made prior to the policy change on May 28, 2025, do not have an expiration date. With the launch of the new Getaways by Southwest™ ("Getaways") product, the Company has begun to issue vacation travel credits for cancelled bookings, with 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. Customer travel credits represent approximately 5 percent and 8 percent of the total Air traffic liability balance as of September 30, 2025, and December 31, 2024, respectively.

Through the Company's co-branded credit card agreement with JPMorgan Chase Bank, N.A. ("Chase"), the Company sells loyalty points, certain marketing benefits, which consist of the use of the Southwest Airlines brand and access to Rapid Rewards Member lists, licensing and advertising elements, the use of the Company’s resource team, and other airline benefits. The Company allocates consideration received to performance obligations based on the relative fair value of those obligations. In 2025, the Company and Chase amended the co-brand credit card agreement—in the first quarter to extend the term of the agreement and add enhanced airline benefits for Cardmembers associated with the Company's planned assigned seating and premium seating initiative, and again in the second quarter to add benefits to Cardmembers related to the Company's changes in its checked bag policy that went into effect on May 28, 2025. For each change to the agreement, the Company estimated the selling prices and volumes over the term of the amended agreement in order to determine the allocation of proceeds to each of the three performance obligations identified in the agreement, which have been characterized as a transportation component, a marketing component, and an airline benefits component. The Company defers revenue for points earned by Customers through the Chase 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 when the performance obligations related to those services are satisfied, which is generally the same period consideration is received from Chase, and the airline benefits are recognized as Passenger revenue when they are provided. As a result of the amended co-brand agreement, a larger portion of the Company’s co-brand credit card benefits from Chase are now being classified within Passenger revenues during 2025.

The Company recognizes revenue related to the marketing, advertising, and other travel-related benefits of the cash receipts associated with various loyalty partner agreements including, but not limited to, its co-branded credit card agreement with Chase. For the three months ended September 30, 2025 and 2024, the Company recognized $723 million and $538 million of such revenue, respectively, the majority of which is within Other operating revenues. For the nine months ended September 30, 2025 and 2024, the Company recognized revenues of $1.9 billion and $1.6 billion, respectively.

6. 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. 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. Due to this maturity, the Convertible Notes did not have a dilutive impact on the net income per share calculation and interest expense was not added back to the numerator for the three months ended September 30, 2025.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


	Three months ended September 30,					Nine months ended September 30,
	2025		2024			2025			2024
NUMERATOR:
Net income	$	54	$	67		$	118		$	204
Add: Interest expense	—		—		(a)	—		(a)	15
Net income attributable to common stockholders	$	54	$	67		$	118		$	219

DENOMINATOR:
Weighted-average shares outstanding, basic	523		599			548			598
Dilutive effects of Convertible Notes	—		—			—			43
Dilutive effect of restricted stock units	3		2			3			2
Weighted-average shares outstanding, diluted	526		601			551			643

NET INCOME PER SHARE:
Basic	$	0.10	$	0.11		$	0.21		$	0.34
Diluted	$	0.10	$	0.11		$	0.21		$	0.34

Antidilutive amounts excluded from calculations:
Convertible debt	—		44			20		(b)	—
Restricted stock units	—		—			—			1

(a) For the nine months ended September 30, 2025 and the three months ended September 30, 2024, Interest expense is not added back to the numerator due to the impact of the Convertible Notes being anti-dilutive.

(b) For the nine months ended September 30, 2025, the Convertible Notes were outstanding for a portion of the period and were anti-dilutive. See Note 10 for further information on the Convertible Notes.

7. FAIR VALUE MEASUREMENTS

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; 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 September 30, 2025, the Company held certain items that are required to be measured at fair value on a recurring basis. These included cash equivalents, short-term investments, and available-for-sale securities. The majority of the Company’s cash equivalents and short-term investments consist of instruments classified as Level 1. 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.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts, which were scheduled to settle through 2027, to effectively close its fuel hedging portfolio. See Note 3 for further information on the Company’s derivative instruments and hedging activities. The Company’s derivative instruments held in prior periods consisted of over-the-counter contracts, which were not traded on a public exchange. Fuel derivative instruments historically consisted solely of option contracts, whereas interest rate derivatives have historically


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

consisted solely of swap agreements. The Company determined the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts. The option pricing model historically used by the Company is an industry standard model for valuing options and is a similar model used by the broker/dealer community (i.e., the Company’s counterparties). The inputs to this option pricing model are the option strike price, underlying price, risk free rate of interest, time to expiration, and volatility. Because certain inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company 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 in prior periods. The fair value of option contracts considered both the intrinsic value and any remaining time value associated with those derivatives that had not yet settled. The Company also considered counterparty credit risk and its own credit risk in its determination of all estimated fair values. To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compared its option valuations to third party valuations. Any significant differences noted were researched in order to determine the reason. However, historically, no significant differences were noted. The Company consistently applied these valuation techniques in prior periods presented and believes it obtained the most accurate information available for the types of derivative contracts it held.

Included in Equity securities are the Company’s investments primarily associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available. These plans are non-qualified deferred compensation plans designed to hold contributions in excess of limits established by the Internal Revenue Code of 1986, as amended. The distribution timing and payment amounts under these plans are made based on the participant’s distribution election and plan balance. 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.

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


			Fair value measurements at reporting date using:
			Quoted prices in active markets for identical assets		Significant other observable inputs
Description	September 30, 2025		(Level 1)		(Level 2)
Assets	(in millions)
Cash equivalents:
Cash equivalents (a)	$	2,552	$	2,552	$	—



Time deposits	350		—		350
Short-term investments:


Certificates of deposit	16		—		16
Time deposits	100		—		100




Equity Securities	433		433		—
Total assets	$	3,451	$	2,985	$	466

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


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


			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)
Assets	(in millions)
Cash equivalents:
Cash equivalents (a)	$	7,209	$	7,209	$	—	$	—


Time deposits	300		—		300		—
Short-term investments:
Treasury bills	1,094		1,094		—		—
Certificates of deposit	122		—		122		—




Fuel derivatives:


Option contracts (b)	130		—		—		130



Equity Securities	367		367		—		—
Total assets	$	9,222	$	8,670	$	422	$	130

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

(b) In the unaudited Condensed Consolidated Balance Sheet amounts are presented as an asset. See Note 3.

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2025, or the year ended December 31, 2024. The following table presents the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2025. There was no activity for the three months ended September 30, 2025.


Fair value measurements using significant unobservable inputs (Level 3)
(in millions)	Fuel derivatives
Balance at December 31, 2024	$	130
Total loss for the period

Included in other comprehensive income	(90)

Proceeds from portfolio termination	(40)

Balance at September 30, 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 September 30, 2025, are presented in the table below. 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. All privately held debt agreements are categorized as Level 3. The Company has determined the estimated fair value of this debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


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





3.00% Notes	2026	$	300	$	296	Level 2
7.375% Debentures	2027	105		109		Level 2
3.45% Notes	2027	300		295		Level 2
5.125% Notes	2027	1,727		1,749		Level 2
2.625% Notes	2030	500		461		Level 2




1.000% Payroll Support Program Loan (a)	2031	566		573		Level 3
1.000% Payroll Support Program Loan (b)	2031	526		524		Level 3

(a) The interest rate will change to Secured Overnight Financing Rate plus two percent in January 2026. See Note 10 for further information.

(b) The interest rate will change to Secured Overnight Financing Rate plus two percent in April 2026. See Note 10 for further information.

8. SUPPLEMENTAL FINANCIAL INFORMATION


(in millions)	September 30, 2025		December 31, 2024
Trade receivables	$	52	$	47
Credit card receivables	199		143
Business partners	736		573
Taxes receivable	10		11
Fuel hedging and receivables	—		1
Reinsurance receivable and losses recoverable	97		168
Other	24		167
Accounts and other receivables	$	1,118	$	1,110


(in millions)	September 30, 2025		December 31, 2024
Derivative contracts	$	—	$	90
Intangible assets, net	295		300

Equity securities	433		367
Prepaid maintenance	282		263
Other	63		61
Other assets	$	1,073	$	1,081


(in millions)	September 30, 2025		December 31, 2024
Accounts payable trade	$	503	$	339
Salaries, withholdings and payroll taxes	452		536
Ticket taxes and fees	302		318
Aircraft maintenance payable	43		33
Fuel payable	65		86
Dividends payable	—		107
Third party services	177		176
Other payable	166		223
Accounts payable	$	1,708	$	1,818


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)


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


Voluntary Separation Program and severance pay	$	2	$	48
Profit-sharing and savings plans	44		151



Vacation pay	682		657

Health	218		192

Workers compensation	225		178
Property and income taxes	69		53
Interest	36		23
Deferred supplier credits	12		—
Bonus pay	112		208
Reinsurance payable and losses payable	181		249
Aircraft maintenance	138		92
Other	372		355
Accrued liabilities	$	2,091	$	2,206


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

Postretirement obligation	$	261	$	256


Other deferred compensation	487		412

Other	396		241
Other noncurrent liabilities	$	1,144	$	909

For further information on derivative instruments, see Note 3.

Other Operating Expenses

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

9. COMMITMENTS AND CONTINGENCIES

Commitments

The Company's contractual order book with The Boeing Company ("Boeing") for 737-7 ("-7") and -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 eight -8 aircraft deliveries from Boeing in third quarter 2025 and retired 16 aircraft (15 -700 and the sale of one -800). In addition, during third quarter 2025, the Company exercised four -7 options for delivery in 2026.

Boeing continues to experience delays in fulfilling its commitments with regards to delivery of MAX aircraft to the Company, primarily as a result of manufacturing challenges and delays in achieving Federal Aviation Administration ("FAA") certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer. As a result of Boeing's delivery delays, the Company has previously replanned its capacity and delivery expectations multiple times and will continue to closely monitor the ongoing aircraft delivery delays with Boeing and further adjust expectations as needed. Year-to-date through September 30, 2025, the Company converted 42 2025 deliveries from -7 to -8 firm orders.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

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


	The Boeing Company
	-7 Firm Orders		-8 Firm Orders		-7 or -8 Options	Total
2025	28		108		—	136	(c)
2026	86		—		—	86
2027	19		46		25	90
2028	15		50		25	90
2029	38		34		18	90
2030	45		—		45	90
2031	45		—		45	90
	276	(a)	238	(b)	158	672

(a) The delivery timing for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company. The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.

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

(c) Includes 36 -8 deliveries received year-to-date through September 30, 2025. In addition, the Company has included 63 of its 2024 contractual but undelivered aircraft (27 -7s and 36 -8s) within its 2025 contractual commitments. The 2025 contractual detail is as follows:


	The Boeing Company
	-7 Firm Orders	-8 Firm Orders	Total
2024 Contractual Deliveries	27	36	63
2025 Contractual Deliveries	1	72	73
2025 Combined Contractual Total	28	108	136

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


(in billions)	Remainder of 2025			2026		2027		2028		2029		2030 and thereafter		Total
Payments for capital commitments	$	2.7	(a)	$	2.4	$	2.5	$	2.8	$	2.5	$	2.7	$	15.6

(a) Capital commitments associated with the Company's firm orders in 2025 of $2.7 billion include approximately $1.4 billion primarily related to the existing remaining scheduled 73 MAX aircraft to be delivered in 2025 and $1.3 billion related to 63 MAX aircraft (27 -7s and 36 -8s) that were contractually committed for 2024, but were not received.

Subsequent to September 30, 2025, and through October 23, 2025, the Company exercised two -7 options for delivery in 2027, converted one 2025 -7 firm order into a 2025 -8 firm order, and converted five 2026 -7 firm orders into 2026 -8 firm orders, resulting in the Company's 2026 and 2027 capital commitments increasing to $2.5 billion and $2.6 billion, respectively.

Contingencies

The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business and records a liability for such claims when it is probable that a loss will be incurred and the amount is reasonably estimable.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

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. 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. The Ninth Circuit’s decision may adversely affect the Company’s defenses in the USERRA proceeding and may give rise to additional litigation in this or other areas. On October 29, 2024, the Company filed a motion to decertify the class, which was then fully briefed and set for hearing. 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 ten days of military leave per year, which will remain in place for at least five years once initiated. The proposed settlement is fully accrued as of September 30, 2025.

On December 27, 2019, a former customer service agent at Oakland International Airport, filed a putative class action complaint in the Superior Court of California, for the County of Santa Clara, against the Company alleging the following seven claims under the California Labor Code and Business & Professions Code: (1) failure to provide meal periods; (2) failure to provide rest periods; (3) failure to pay hourly wages; (4) failure to provide accurate wage statements; (5) failure to timely pay all final wages; (6) unfair competition; and (7) civil penalties for the foregoing. Plaintiff filed a First Amended Complaint on October 15, 2021, that asserted the same causes of action and added a named plaintiff. The First Amended Complaint primarily seeks unpaid wages, interest thereon, and associated civil and statutory penalties, along with attorneys’ fees and costs. On February 26, 2025, the Court granted class certification as to the first cause of action for failure to provide meal periods, denied certification on the second through fourth causes of action, and granted certification on the fifth and sixth causes of action only insofar as they are predicated on the first cause of action. The certified class consists of all of the Company’s non-exempt ground employees in California who worked a shift in excess of five hours for the time period between October 24, 2014, forward. On April 17, 2025, the Company filed a summary judgment motion arguing that Plaintiffs’ first cause of action, and all causes of action predicated thereon, failed as a matter of law. The motion was 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.

10. FINANCING ACTIVITIES

Convertible Notes due 2025

On May 1, 2020, the Company completed the public offering of $2.3 billion aggregate principal amount of the Convertible Notes, bearing interest at a rate of 1.25 percent, payable semi-annually in arrears. The Company repurchased $689 million during the two year period ending December 31, 2022, and the remaining $1.6 billion principal amount of the Convertible Notes was repaid at maturity during second quarter 2025 utilizing available cash on hand. An immaterial amount of Convertible Note conversions settled at maturity.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

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


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2025		2024		2025		2024

Non-cash amortization of debt issuance costs	$	—	$	3	$	3	$	8
Contractual coupon interest	—		5		7		15
Total interest expense	$	—	$	8	$	10	$	23

The unamortized debt issuance costs were recognized as non-cash interest expense based on the 5-year term of the notes, through May 1, 2025, less amounts that were required to be accelerated immediately upon conversion or repurchases. The Company had no changes to contingencies with regards to the Convertible Notes through the settlement date, May 1, 2025.

Payroll Support Program Loan due 2030

During 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"); the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021; and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

As consideration for its receipt of funding under each of these Payroll Support programs, the Company issued 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, utilizing available cash on hand. The notes associated with the PSP2 and PSP3 Payroll Support Programs are due in January and April 2031, respectively.

On the day after the fifth anniversary of each of the PSP2 and PSP3 Notes, during January and April 2026, respectively, the applicable interest rates are scheduled to change to the Secured Overnight Financing Rate plus two percent.

Revolving Credit Facility

As of September 30, 2025, 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 nine months ended September 30, 2025 and 2024, there were no amounts outstanding under the Amended Credit Agreement.


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

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


Notes to Condensed Consolidated Financial Statements			Southwest Airlines Co. Notes to Condensed Consolidated Financial Statements (unaudited)

11. RESTRUCTURING

On February 17, 2025, the Company announced 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 complete by the end of second quarter 2025. 

As a result of this workforce reduction, the Company recorded a one-time expense of $62 million in first quarter 2025, which is included on the unaudited Condensed Consolidated Statement of Comprehensive Income as part of Salaries, wages, and benefits and Other operating expenses. Substantially all of the expense is due to Employee severance payments and related professional fees and was substantially paid in first and second quarter 2025, with approximately $2 million remaining in Accrued liabilities on the unaudited Condensed Consolidated Balance Sheet as of September 30, 2025. The Company does not expect to incur any material additional costs in connection with this reduction in workforce.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Relevant comparative operating statistics for the three and nine months ended September 30, 2025 and 2024 are included below. The Company provides these operating statistics because they are commonly used in the airline industry and, as such, allow readers to compare the Company’s performance against its results for the prior year period, as well as against the performance of the Company’s peers.


	Three months ended September 30,
	2025			2024			Change
Revenue passengers carried (000s)	34,581			35,516			(2.6)	%
Enplaned passengers (000s)	43,806			44,711			(2.0)	%
Revenue passenger miles (RPMs) (in millions)(a)	36,362			36,735			(1.0)	%
Available seat miles (ASMs) (in millions)(b)	45,567			45,219			0.8	%
Load factor(c)	79.8		%	81.2		%	(1.4)		pts.
Average length of passenger haul (miles)	1,051			1,034			1.6	%
Average aircraft stage length (miles)	784			770			1.8	%
Trips flown	356,952			364,609			(2.1)	%
Seats flown (000s)(d)	57,643			58,119			(0.8)	%
Seats per trip(e)	161.5			159.4			1.3	%
Average passenger fare	$	182.56		$	175.97		3.7	%
Passenger revenue yield per RPM (cents)(f)	17.36			17.01			2.1	%
Operating revenues per ASM (cents)(g)	15.25			15.19			0.4	%
Passenger revenue per ASM (cents)(h)	13.85			13.82			0.2	%
Operating expenses per ASM (cents)(i)	15.17			15.11			0.4	%
Operating expenses per ASM, excluding fuel (cents)	12.25			11.97			2.3	%
Operating expenses per ASM, excluding fuel and profit sharing (cents)	12.23			11.94			2.4	%
Fuel costs per gallon, including fuel tax	$	2.40		$	2.52		(4.8)	%
Fuel costs per gallon, including fuel tax (economic)	$	2.40		$	2.55		(5.9)	%
Fuel consumed, in gallons (millions)	554			562			(1.4)	%
Active fulltime equivalent Employees	72,223			73,463			(1.7)	%
Aircraft at end of period	802			811			(1.1)	%

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	Nine months ended September 30,
	2025			2024			Change
Revenue passengers carried (000s)	100,078			105,897			(5.5)	%
Enplaned passengers (000s)	125,330			132,875			(5.7)	%
Revenue passenger miles (RPMs) (in millions)(a)	103,875			108,044			(3.9)	%
Available seat miles (ASMs) (in millions)(b)	133,994			133,717			0.2	%
Load factor(c)	77.5		%	80.8		%	(3.3)		pts.
Average length of passenger haul (miles)	1,038			1,020			1.8	%
Average aircraft stage length (miles)	781			763			2.4	%
Trips flown	1,056,790			1,090,337			(3.1)	%
Seats flown (000s)(d)	170,145			173,588			(2.0)	%
Seats per trip(e)	161.0			159.2			1.1	%
Average passenger fare	$	187.36		$	176.34		6.2	%
Passenger revenue yield per RPM (cents)(f)	18.05			17.28			4.5	%
Operating revenues per ASM (cents)(g)	15.39			15.37			0.1	%
Passenger revenue per ASM (cents)(h)	13.99			13.96			0.2	%
Operating expenses per ASM (cents)(i)	15.36			15.34			0.1	%
Operating expenses per ASM, excluding fuel (cents)	12.45			11.94			4.3	%
Operating expenses per ASM, excluding fuel and profitsharing (cents)	12.43			11.90			4.5	%
Fuel costs per gallon, including fuel tax	$	2.40		$	2.73		(12.1)	%
Fuel costs per gallon, including fuel tax, economic	$	2.40		$	2.74		(12.4)	%
Fuel consumed, in gallons (millions)	1,624			1,663			(2.3)	%
Active fulltime equivalent Employees	72,223			73,463			(1.7)	%
Aircraft at end of period	802			811			(1.1)	%

(a)A revenue passenger mile is one paying passenger flown one mile. Also referred to as "traffic," which is a measure of demand for a given period.

(b)An available seat mile is one seat (empty or full) flown one mile. Also referred to as "capacity," which is a measure of the space available to carry passengers in a given period.

(c)Revenue passenger miles divided by available seat miles.

(d)Seats flown is calculated using total number of seats available by aircraft type multiplied by the total trips flown by the same aircraft type during a particular period.

(e)Seats per trip is calculated by dividing seats flown by trips flown.

(f)Calculated as passenger revenue divided by revenue passenger miles. Also referred to as "yield," this is the average cost paid by a paying passenger to fly one mile, which is a measure of revenue production and fares.

(g)Calculated as operating revenues divided by available seat miles. Also referred to as "operating unit revenues" or "RASM," this is a measure of operating revenue production based on the total available seat miles flown during a particular period.

(h)Calculated as passenger revenue divided by available seat miles. Also referred to as "passenger unit revenues" or "PRASM," this is a measure of passenger revenue production based on the total available seat miles flown during a particular period.

(i)Calculated as operating expenses divided by available seat miles. Also referred to as "unit costs" or "cost per available seat mile" or "CASM," this is the average cost to fly an aircraft seat (empty or full) one mile, which is a measure of cost efficiencies.

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Financial Highlights

The Company reports its results in accordance with accounting principles generally accepted in the United States ("GAAP"). The Company also provides certain non-GAAP financial measures which the Company's management utilizes to evaluate its ongoing financial performance, and the Company believes provides additional insight to investors as supplemental information to its GAAP results, as noted in the following tables. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.


	Three months ended September 30,
(in millions, except per share amounts)
GAAP	2025		2024		Change
Operating income	$	35	$	38	(7.9)	%
Net income	$	54	$	67	(19.4)	%
Net income per share, diluted	$	0.10	$	0.11	(9.1)	%

Non-GAAP
Operating income	$	42	$	32	31.3	%
Net income	$	58	$	89	(34.8)	%
Net income per share, diluted	$	0.11	$	0.15	(26.7)	%

The Company recorded third quarter 2025 operating revenues of $6.9 billion, a third quarter Company record, despite year-over-year declines in load factor. This increase in operating revenues was primarily driven by revenue initiatives, the largest of which related to the Company's policy change for certain Customers' first and second checked bags that became effective May 28, 2025. This policy change excludes Business Select Customers, Rapid Rewards A-List Preferred Members, and Active-duty military members who all continue to receive both their first and second checked bags free and Rapid Rewards A-List Members and Rapid Rewards Credit Cardmembers who receive their first checked bag free. This initiative led to a year-over-year increase in bag fee revenue, resulting in a year-over-year increase in Operating revenues of $79 million. Despite the third quarter record revenue performance, the Company's operating income and net income for the three months ended September 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period. On a GAAP basis, operating expenses increased by $82 million, or 1.2 percent, driven by higher Salaries, wages, and benefits expense, partially offset by lower Fuel and oil expense.


	Nine months ended September 30,
(in millions, except per share amounts)
GAAP	2025		2024		Change
Operating income	$	37	$	43	(14.0)	%
Net income	$	118	$	204	(42.2)	%
Net income per share, diluted	$	0.21	$	0.34	(38.2)	%

Non-GAAP
Operating income	$	159	$	60	165.0	%
Net income	$	211	$	241	(12.4)	%
Net income per share, diluted	$	0.38	$	0.40	(5.0)	%

The Company's net income for the nine months ended September 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period. While operating revenues and expenses remained relatively flat, year-over-year, interest income decreased by $220 million driven by lower cash and investment balances. The

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Company's operating income for the nine months ended September 30, 2025, on a GAAP basis, decreased compared to the same prior year period primarily due to higher Salaries, wages, and benefits expense and Landing fees and airport rentals. These decreases were partially offset by lower Fuel and oil expense coupled with higher passenger revenue, driven primarily by an increase in bag fee revenue. Operating expense for the nine months ended September 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $122 million, most notably $62 million related to severance and related professional fees associated with the Company's reduction in workforce in the first quarter 2025.

2025 Outlook

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

4Q 2025 Estimation

ASMs (a), year-over-year

Up ~6%

RASM (b), year-over-year

Up 1% to 3%

CASM-X (c), year-over-year (d)(e)

Up 1.5% to 2.5%

Fuel cost per gallon (f)

$2.20 to $2.30


						2025 Estimation
EBIT (g) (millions)						$600 to $800


	2025 Target	2026 Target
EBIT (g) contribution from initiatives (billions)	~$1.8	~$4.3

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

(b) Operating revenue per available seat mile ("RASM" or "unit revenues"). Fourth quarter 2024 RASM excluded special items related to a breakage revenue adjustment. Please see the Company's Earnings Press Release furnished on January 30, 2025, for additional information.

(c) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profit sharing ("CASM-X" or "unit costs"). The Company's GAAP and non-GAAP results for fourth quarter 2024 included a $92 million gain from a sale-leaseback transaction. Excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, the Company anticipates fourth quarter 2025 CASM-X to be in the range of flat to up 1 percent, year-over-year.

(d) See Note Regarding Use of Non-GAAP Financial Measures for additional information on special items. In addition, information regarding special items and economic results is included in the accompanying table Reconciliation of Reported Amounts to Non-GAAP Measures (also referred to as "excluding special items").

(e) Projections do not reflect the potential impact of fuel and oil expense, special items, and profit sharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for these projected results is not meaningful or available without unreasonable effort.

(f) Based on market prices as of October 15, 2025. Fuel cost per gallon includes fuel taxes and fuel hedging net premium expense of $0.07 per gallon related to terminated fuel derivative contracts. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

(g) Earnings before interest and taxes, excluding special items ("EBIT"), a non-GAAP financial measure, also excludes gains or losses from fleet transactions. Projections do not reflect the potential impact of special items because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for these projected results is not meaningful or available without unreasonable effort.

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The Company expects fourth quarter 2025 unit revenues to be in the range of up 1 percent to 3 percent, compared with fourth quarter 2024 unit revenues, excluding special items, on capacity up approximately 6 percent year-over-year, a sequential improvement from third quarter. This guidance range assumes demand strength remains at current levels through the end of the quarter. It also reflects the planned acceleration from the Company's initiatives, the recent observed impact of the government shutdown, and the approximate 2-point year-over-year increase in fourth quarter capacity since July. This 2-point capacity increase is a result of shifting the extra legroom retrofit of the -700 fleet to January, as described below. The Company expects to deliver an all-time quarterly record revenue performance in the fourth quarter.

The Company continues to expect to achieve its $370 million cost reduction target this year. The Company anticipates fourth quarter 2025 CASM-X to be in the range of up 1.5 percent to 2.5 percent, or flat to up 1 percent when excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, on capacity up approximately 6 percent, all on a year-over-year basis. Unit costs continue to be driven primarily by the continuation of inflationary pressures, including those associated with labor contracts ratified in 2024. The Company remains focused on driving efficiencies to offset overall inflationary cost pressures and achieve its multi-year cost reduction targets.

Company Overview

Third Quarter 2025 Transformational Initiative Highlights

The Company is evolving rapidly, implementing its previously announced transformational initiatives, which are expected to meet the needs of current and future Customers, improve financial performance, and drive Shareholder value. During third quarter 2025, the Company:

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

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

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

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

•Expanded the existing partnership with Icelandair, which began connecting Customers on dual-carrier itineraries through gateway airports Baltimore/Washington, Denver, and Nashville in February 2025. Beginning July 14, 2025, Icelandair and Southwest added connecting service through Orlando, Pittsburgh, and Raleigh-Durham, providing more access between Europe and cities across the Company’s network; and

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

These strategic moves add to the initiatives already underway at Southwest, including the implementation of assigned seating and extra legroom options. The move to assigned and extra legroom seating requires incorporating new technologies and procedures. In April 2025, the Company received necessary approvals and certifications from the Federal Aviation Administration ("FAA") to begin extra legroom seating retrofits on Boeing 737-8 ("-8") and Boeing 737-800 ("-800") aircraft. Such retrofits began during second quarter 2025 and are expected to continue through the rest of the year. As of October 23, 2025, the Company has completed retrofits of more than 400 aircraft for extra legroom seating. In July 2025, the Company received necessary approvals and certifications to begin retrofitting its Boeing 737-700 ("-700") aircraft, and the work is expected to begin in January 2026 and be completed prior to January 27, 2026, when assigned seating begins.

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The Company has also continued to enhance its onboard offerings, with improvements such as faster WiFi, in-seat power, and larger overhead bins, and work is well underway on a refreshed cabin design, including new, more comfortable RECARO seats. The first -8 aircraft with an updated cabin has been delivered and entered service on October 16, 2025.

Other Initiatives and Quarterly Developments

In third quarter 2025, the Company returned $439 million to Shareholders through $189 million in dividend payments and a $250 million accelerated share repurchase program, which was launched in September 2025 and completed in October 2025. The Company has $1.75 billion remaining under its $2.0 billion share repurchase authorization. See "Liquidity and Capital Resources" below and Part II, Item 2 - Issuer Purchases of Equity Securities for further information on the Company's share repurchases.

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

•Cyril E. King International Airport on St. Thomas beginning early 2026;

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

•Princess Juliana International Airport on St. Maarten beginning April 7, 2026;

•Charles M. Schulz Sonoma County Airport in Santa Rosa, California beginning April 7, 2026; and

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

On July 31, 2025, the Company announced the resignation of Rakesh Gangwal from his position as independent Chair of the Board of Directors of the Company (the "Board") due to additional time commitments unrelated to the Company. Mr. Gangwal remains on the Board and serves as Chair of the newly formed Fleet Oversight Committee, designed to assist in the oversight of the Company's aircraft fleet acquisition strategy. Additionally, the independent members of the Board appointed Doug Brooks as independent Chair of the Board effective August 1, 2025.

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

In February 2025, the Company implemented a reduction in workforce that provided for the reduction of approximately 1,750 Employee roles, or 15 percent of corporate positions. As a result of the reduction in workforce, the Company incurred a one-time expense of $62 million during first quarter 2025 and estimates 2025 savings of approximately $210 million and 2026 savings of approximately $300 million. Separations were substantially complete by the end of second quarter 2025. See Note 11 to the unaudited Condensed Consolidated Financial Statements for further information.

Fleet Information

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

The Company now expects full year 2025 capacity to be up roughly 1.5 percent, year-over-year, including the capacity increase associated with shifting extra legroom seating retrofits of -700 aircraft to January 2026, which delays the removal of six seats from each of those aircraft. This shift is expected to maximize revenue potential during the holiday travel period and still meet the Company's operate date milestone of January 27, 2026 for assigned and extra legroom seating, as the Company's Technical Operations Team has streamlined the timeline to complete this work.

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The Company updated its fleet planning assumptions to 53 -8 aircraft deliveries in 2025, from its prior estimate of 47, as Boeing continues to ramp up production. The Company continues to plan for 55 aircraft retirements in 2025, which includes the sale of one -800 aircraft in third quarter 2025 and the expected sale of four -800 aircraft to occur in fourth quarter 2025.

The Company ended third quarter 2025 with 802 Boeing 737 aircraft, including 281 -8 aircraft. During third quarter 2025, the Company retired 16 aircraft (15 -700 aircraft and the sale of one -800 aircraft) and took delivery of eight -8 aircraft. As of October 23, 2025, during 2025 the Company has exercised a total of 22 and 2 -7 options for delivery in 2026 and 2027, respectively. The Company's order book with Boeing as of October 23, 2025, consists of a total of 516 MAX firm orders (272 -7 aircraft and 244 -8 aircraft), less 36 -8 deliveries to date in 2025, for the years 2025 through 2031, including 63 MAX aircraft that were contractually committed for 2024, but were not received, and 156 MAX options (-7s or -8s) for the years 2027 through 2031.

Material Changes in Results of Operations

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


	Three months ended September 30,				Increase (Decrease)		Percent change
(in millions)	2025		2024
Passenger	$	6,313	$	6,250	$	63	1.0	%
Freight	42		43		(1)		(2.3)
Other	594		577		17		2.9
Total operating revenues	$	6,949	$	6,870	$	79	1.1	%

Salaries, wages, and benefits	$	3,219	$	3,070	$	149	4.9	%
Fuel and oil	1,331		1,417		(86)		(6.1)
Maintenance materials and repairs	299		335		(36)		(10.7)
Landing fees and airport rentals	548		493		55		11.2
Depreciation and amortization	394		438		(44)		(10.0)
Other operating expenses	1,123		1,079		44		4.1
Total operating expenses	$	6,914	$	6,832	$	82	1.2	%

Operating Revenues

Total operating revenues for third quarter 2025 increased by $79 million, or 1.1 percent, year-over-year, to achieve an all-time third quarter Company record of $6.9 billion. Passenger revenues for third quarter 2025 increased by $63 million, or 1.0 percent, year-over-year, driven primarily by the increase in bag fee revenue. Other revenues for third quarter 2025 increased by $17 million, or 2.9 percent, year-over-year. Third quarter 2025 RASM was 15.25 cents, finishing 0.4 percent higher than third quarter 2024. The unit revenue increase was primarily due to a 2.1 percent increase in yield as a result of an increase in bag fee revenues. These were partially offset by a 1.4 point year-over-year decline in Load factor.

Operating Expenses

Operating expenses for third quarter 2025 increased by $82 million, or 1.2 percent, compared with third quarter 2024, and capacity increased 0.8 percent over the same prior year period. The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and Landing fees and airport rentals expense, partially offset by a year-over-year decrease in Fuel and oil expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The

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


	Three months ended September 30,				Per ASM change		Percent change
(in cents, except for percentages)	2025		2024
Salaries, wages, and benefits	7.08	¢	6.78	¢	0.30	¢	4.4	%

Fuel and oil	2.92		3.14		(0.22)		(7.0)
Maintenance materials and repairs	0.66		0.74		(0.08)		(10.8)
Landing fees and airport rentals	1.20		1.09		0.11		10.1
Depreciation and amortization	0.86		0.97		(0.11)		(11.3)
Other operating expenses	2.45		2.39		0.06		2.5
Total	15.17	¢	15.11	¢	0.06	¢	0.4	%

Operating expenses per ASM for third quarter 2025 increased by 0.4 percent compared with third quarter 2024, primarily due to an increase in Salaries, wages, and benefits expense, which exceeded the year-over-year increase in capacity, partially offset by a decrease in fuel price per gallon. Operating expenses per ASM for third quarter 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 2.5 percent, compared with third quarter 2024, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for third quarter 2025 increased by $149 million, or 4.9 percent, compared with third quarter 2024. On a per ASM basis, third quarter 2025 Salaries, wages, and benefits expense increased 4.4 percent, compared with third quarter 2024. On a dollar and per ASM basis, the majority of the increase was due to net step/pay rate increases and related benefits for certain workgroups.

Fuel and oil expense for third quarter 2025 decreased by $86 million, or 6.1 percent, compared with third quarter 2024. On a per ASM basis, third quarter 2025 Fuel and oil expense decreased 7.0 percent. On a dollar and per ASM basis, the decrease was primarily attributable to lower jet fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging net premium expense and fuel derivative contract settlements:


	Three months ended September 30,
	2025			2024
Economic fuel costs per gallon	$	2.40		$	2.55
Fuel hedging premium expense (in millions)	$	36	(a)	$	39
Fuel hedging cash settlement gain (in millions)	$	—		$	11
Fuel hedging premium expense per gallon	$	0.07	(a)	$	0.07
Fuel hedging cash settlement gain per gallon	$	—		$	0.02

(a) Includes amounts reclassified from Accumulated Other Comprehensive Income associated with hedges previously terminated. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

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

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

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During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts to effectively close its fuel hedging portfolio and does not intend to add additional fuel derivatives to its portfolio. As of September 30, 2025, the Company did not have any outstanding fuel derivative contracts to hedge its future fuel consumption. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information. As such, the Company will be fully exposed to fluctuations in jet fuel prices, which are expected to remain volatile. See Part II, Item 1A. Risk Factors in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 for additional risk factors.

As a result of applying hedge accounting in prior periods, the Company has amounts in Accumulated other comprehensive income ("AOCI") that will be recognized in the unaudited Condensed Consolidated Statement of Comprehensive Income in the periods the originally forecasted transactions occur. See Note 4 to the unaudited Condensed Consolidated Financial Statements for additional information on AOCI. The following table displays the Company's deferred amounts in AOCI as of September 30, 2025, and the future periods in which these items will be recognized in the unaudited Condensed Consolidated Statement of Comprehensive Income (in millions):


Year	Amount of gains (losses) deferred in AOCI at September 30, 2025
Remainder of 2025	$	(36)
2026	(115)
2027	(22)

Total	$	(173)

Maintenance materials and repairs expense for third quarter 2025 decreased by $36 million, or 10.7 percent, compared with third quarter 2024. On a per ASM basis, Maintenance materials and repairs expense decreased 10.8 percent compared with third quarter 2024. On a dollar and per ASM basis, the decrease was due to fewer routine heavy checks for airframes compared to the same period in 2024 as a result of timing for required checks.

Landing fees and airport rentals expense for third quarter 2025 increased by $55 million, or 11.2 percent, compared with third quarter 2024. On a per ASM basis, Landing fees and airport rentals expense increased 10.1 percent, compared with third quarter 2024. On a dollar and per ASM basis, approximately 40 percent of the increase was primarily attributable to an increase in airport rental expense throughout the network driven by the higher rates charged by airports for leased space, 30 percent of the increase was primarily due to receiving fewer favorable settlements and credits from various airports, and 25 percent due to higher landing fees throughout the network driven by higher rates.

Depreciation and amortization expense for third quarter 2025 decreased by $44 million, or 10.0 percent, compared with third quarter 2024. On a per ASM basis, Depreciation and amortization expense decreased 11.3 percent compared with third quarter 2024. On a dollar and per ASM basis, the decrease was primarily due to accelerating depreciation for fewer -700 aircraft planned for early retirement in 2025 compared to 2024. This decrease was partially offset by the acquisition of 39 -8 aircraft and new assets for technology being placed into service since third quarter 2024.

Other operating expenses for third quarter 2025 increased by $44 million, or 4.1 percent, compared with third quarter 2024. Included within this line item was aircraft rentals expense in the amounts of $76 million and $52 million for the three-month periods ended September 30, 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 2.5 percent, compared with third quarter 2024. On a dollar basis, the increase was primarily due to (i) a $24 million increase in aircraft rentals expense associated with recent fleet transactions, (ii) a $23 million increase driven by higher travel expenses due to inflation in lodging rates and utilization of rooms as a result of redeye flying in 2025, and (iii) a $16 million increase in third party software maintenance agreement expense driven by expanded cloud-based services. These increases were partially offset by a $22 million decrease in external consulting services related to non-recurring Company-wide initiatives.

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Non-Operating Expenses (Income)

Interest expense for third quarter 2025 decreased by $28 million, or 44.4 percent, compared with third quarter 2024, primarily due to significant debt repayments since third quarter 2024. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

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

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


	Three months ended September 30,
(in millions)	2025		2024
Mark-to-market impact from fuel contracts settling in current and future periods	$	—	$	29
Premium cost of fuel contracts not designated as hedges	—		5


Mark-to-market impact on deferred compensation plan investments	(23)		(17)
Other	2		(1)


	$	(21)	$	16

Income Taxes

The Company's effective tax rate was 21.0 percent in third quarter 2025, compared with 24.0 percent in third quarter 2024. The year-over-year decrease in the tax rate was primarily due to a third quarter 2024 deferred tax liability adjustment combined with a decrease in third quarter 2025 non-deductible expenses.

On July 4, 2025, the One Big Beautiful Bill Act, was signed into law. The legislation did not have a material impact on the Company's income tax expense for the quarter ending September 30, 2025, and the Company does not expect it to materially change its effective income tax rate for 2025.

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


	Nine months ended September 30,				Increase (Decrease)		Percent change
(in millions)	2025		2024
Passenger	$	18,751	$	18,673	$	78	0.4	%
Freight	127		131		(4)		(3.1)
Other	1,743		1,749		(6)		(0.3)
Total operating revenues	$	20,621	$	20,553	$	68	0.3	%

Salaries, wages, and benefits	$	9,583	$	9,010	$	573	6.4	%
Fuel and oil	3,907		4,548		(641)		(14.1)
Maintenance materials and repairs	921		1,046		(125)		(12.0)
Landing fees and airport rentals	1,638		1,468		170		11.6
Depreciation and amortization	1,189		1,250		(61)		(4.9)
Other operating expenses	3,346		3,188		158		5.0
Total operating expenses	$	20,584	$	20,510	$	74	0.4	%

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Operating Revenues

Passenger revenues for the nine months ended September 30, 2025, increased by $78 million, or 0.4 percent, compared with the first nine months of 2024, driven primarily by an increase in bag fee revenue. On a unit basis, Passenger revenues remained relatively flat, year-over-year. The dollar increase was primarily due to an increase in bag fee revenues driven by the Company's policy change, coupled with an increase in the portion of the Company's co-brand credit card benefits that are now classified within Passenger Revenues, as a result of the amended and restated co-brand agreement in 2025. This was partially offset by a 5.5 percent decrease in Revenue Passengers carried coupled with a decrease in loyalty revenue due to fewer loyalty program points redeemed.

Operating Expenses

Operating expenses for the nine months ended September 30, 2025, increased by $74 million, or 0.4 percent, compared with the first nine months of 2024, and capacity increased 0.2 percent over the same prior year period. The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and higher Landing fees and airport rentals expense, partially offset by a decrease in Fuel and oil expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the first nine months of 2025 and 2024, followed by explanations of these changes on a dollar basis.


	Nine months ended September 30,				Per ASM		Percent
(in cents, except for percentages)	2025		2024		change		change
Salaries, wages, and benefits	7.16	¢	6.74	¢	0.42	¢	6.2	%

Fuel and oil	2.91		3.40		(0.49)		(14.4)
Maintenance materials and repairs	0.69		0.78		(0.09)		(11.5)
Landing fees and airport rentals	1.22		1.10		0.12		10.9
Depreciation and amortization	0.89		0.93		(0.04)		(4.3)

Other operating expenses	2.49		2.39		0.10		4.2
Total	15.36	¢	15.34	¢	0.02	¢	0.1	%

Operating expenses per ASM for the first nine months of 2025 increased 0.1 percent, compared with the first nine months of 2024, primarily due to an increase in the Company's Salaries, wages, and benefits expense along with an increase in Landing fees and airport rentals expense, offset by a decrease in Fuel and oil expense. Operating expenses per ASM for the first nine months of 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.0 percent, year-over-year, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for the first nine months of 2025 increased by $573 million, or 6.4 percent, compared with the first nine months of 2024. On a per ASM basis, Salaries, wages, and benefits expense for the first nine months of 2025 increased 6.2 percent, compared with the first nine months of 2024. On a dollar and per ASM basis, approximately 70 percent of the increase was due to net step/pay rate increases and related benefits for certain workgroups, and approximately 10 percent of the increase was due to a one-time severance cost as a result of the workforce reduction in February 2025, which was considered a special item and excluded from the Company's non-GAAP financials. See Note 11 to the unaudited Condensed Consolidated Financial Statements for additional detail regarding the reduction in workforce, and Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

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Fuel and oil expense for the first nine months of 2025 decreased by $641 million, or 14.1 percent, compared with the first nine months of 2024. On a per ASM basis, Fuel and oil expense for the first nine months of 2025 decreased 14.4 percent. On a dollar and per ASM basis, the decrease was primarily attributable to a decrease in the Company's fuel cost per gallon. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:


	Nine months ended September 30,
	2025			2024
Economic fuel costs per gallon	$	2.40		$	2.74
Fuel hedging premium expense (in millions)	$	110	(a)	$	119
Fuel hedging cash settlement gain (in millions)	$	—		$	49
Fuel hedging premium expense per gallon	$	0.07	(a)	$	0.07
Fuel hedging cash settlement gains per gallon	$	—		$	0.03

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

Maintenance materials and repairs expense for the first nine months of 2025 decreased by $125 million, or 12.0 percent, compared with the first nine months of 2024. On a per ASM basis, Maintenance materials and repairs expense decreased 11.5 percent, compared with the first nine months of 2024. On both a dollar and per ASM basis, the decrease was primarily due to (i) a $73 million decrease driven by fewer airframes in routine heavy check compared to the same period in 2024, (ii) a $35 million decrease in engine shop visit expenses and various other engine expenses associated with the Company's -800 fleet, and (iii) a $25 million reduction in routine bulk purchases of materials for the Company's seat refurbishment efforts.

Landing fees and airport rentals expense for the first nine months of 2025 increased by $170 million, or 11.6 percent, compared with the first nine months of 2024. On a per ASM basis, Landing fees and airport rentals expense increased 10.9 percent, compared with the first nine months of 2024. On a dollar and per ASM basis, approximately 50 percent of the increase was due to an increase in airport rental expense throughout the network driven by higher rates charged by airports for leased space, 25 percent of the increase was due to higher landing fees throughout the network driven by higher rates, and 25 percent was due to receiving fewer favorable settlements and credits from various airports.

Depreciation and amortization expense for the first nine months of 2025 decreased by $61 million, or 4.9 percent, compared with the first nine months of 2024. On a per ASM basis, Depreciation and amortization expense decreased 4.3 percent, compared with the first nine months of 2024. These decreases were primarily due to accelerating depreciation of fewer -700 aircraft planned for early retirement in 2025 compared to 2024. This decrease was partially offset by technology and ground property assets being placed into service since third quarter 2024 and the acquisition of 39 -8 aircraft since third quarter 2024.

Other operating expenses for the first nine months of 2025 increased by $158 million, or 5.0 percent, compared with the first nine months of 2024. Included within this line item was aircraft rentals expense in the amount of $243 million and $153 million for the nine months ended September 30, 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 4.2 percent, compared with the first nine months of 2024. On both a dollar and a per ASM basis, the increases were primarily due to (i) a $90 million increase in aircraft rental expense associated with recent fleet transactions, (ii) a $57 million increase driven by higher maintenance agreement expense driven by expanded cloud-based service, and (iii) a $47 million increase driven by higher travel expenses due to inflation in lodging rates and utilization of rooms as a result of redeye flying in 2025. These increases were partially offset by a $62 million decrease in advertising and promotional campaigns.

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Non-Operating Expenses (Income)

Interest expense for the first nine months of 2025 decreased by $71 million, or 37.2 percent, compared with the first nine months of 2024, primarily due to significant debt repayments since third quarter 2024. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

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

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

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


	Nine months ended September 30,
(in millions)	2025		2024
Mark-to-market impact from fuel contracts settling in current and future periods	$	—	$	31
Premium cost of fuel contracts not designated as hedges	—		5


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


Other	6		3
	$	(28)	$	(1)

Income Taxes

The Company's effective tax rate was approximately 24.6 percent for the first nine months of 2025, compared with 24.3 percent for the first nine months of 2024. The year-over-year increase in the tax rate was primarily due to the impact of year-to-date lower pre-tax book income on discrete tax items.

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

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


	Three months ended September 30,				Percent	Nine months ended September 30,				Percent
	2025		2024		Change	2025		2024		Change




Fuel and oil expense, unhedged	$	1,295	$	1,409		$	3,797	$	4,500
Add: Premium cost of fuel contracts designated as hedges (a)	36		34			110		114
Deduct: Fuel hedge gains included in Fuel and oil expense, net	—		(26)			—		(66)
Fuel and oil expense, as reported	$	1,331	$	1,417	(6.1)	$	3,907	$	4,548	(14.1)
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		14			—		14
Add: Premium cost of fuel contracts not designated as hedges	—		5			—		5
Fuel and oil expense, excluding special items (economic)	$	1,331	$	1,436	(7.3)	$	3,907	$	4,567	(14.5)

Total operating expenses, as reported	$	6,914	$	6,832		$	20,584	$	20,510

Deduct: Labor contract adjustment	—		—			—		(9)
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		14			—		14

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

Deduct: Impairment of long-lived assets	—		—			(8)		—
Deduct: Litigation accruals	—		—			(19)		(7)
Deduct: Transformation costs	(7)		—			(33)		—
Deduct: Severance and related costs (c)	—		—			(62)		—
Deduct: Professional advisory fees	—		(13)			—		(20)
Total operating expenses, excluding special items	$	6,907	$	6,838	1.0	$	20,462	$	20,493	(0.2)
Deduct: Fuel and oil expense, excluding special items (economic)	(1,331)		(1,436)			(3,907)		(4,567)
Operating expenses, excluding Fuel and oil expense and special items	$	5,576	$	5,402	3.2	$	16,555	$	15,926	3.9
Deduct: Profit-sharing expense	(11)		(18)			(26)		(49)
Operating expenses, excluding Fuel and oil expense, special items, and profit sharing	$	5,565	$	5,384	3.4	$	16,529	$	15,877	4.1

Operating income, as reported	$	35	$	38		$	37	$	43

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(14)			—		(14)

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

Add: Impairment of long-lived assets	—		—			8		—
Add: Litigation accruals	—		—			19		7
Add: Transformation costs	7		—			33		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		13			—		20
Operating income, excluding special items	$	42	$	32	31.3	$	159	$	60	165.0

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Three months ended September 30,

Percent

Nine months ended September 30,

SOUTHWEST AIRLINES CO 10-Q