Southwest Airlines (LUV) 10-K risk factor changes: FY2016 vs FY2015

Unfavorable economic [removed: conditions] [added: conditions, when low fares are often used to stimulate traffic,] have also historically hampered the ability of airlines to raise fares to counteract any increases in fuel, labor, and other costs.

Although the U.S. economy has experienced moderate economic growth over the course of the past [removed: three] [added: several] years, any continuing or future U.S. or global economic uncertainty could negatively affect the Company’s results of operations and could cause the Company to adjust its business strategies.

Airlines are inherently dependent upon energy to operate, and jet fuel and oil represented approximately [removed: 23] [added: 22] percent of the Company’s operating expenses for [removed: 2015.][added: 2016.]

Although [removed: 2015] [added: 2016] fuel prices were lower than in [removed: 2014, and dropped significantly beginning in the second half of 2014,] [added: 2015, as discussed above under "Business - Cost Structure,"] the cost of fuel [removed: continues to] [added: can] be [added: extremely] volatile and unpredictable, and even a small change in market fuel prices can significantly affect profitability.

The [removed: Company's] [added: Company’s] ability to [removed: increase fares can also] [added: effectively address fuel price increases could] be limited by factors such as its historical low-fare reputation, the portion of its Customer base that purchases travel for leisure purposes, the competitive nature of the airline industry generally, and the risk that higher fares will drive a decrease in demand.

However, as evidenced by the extreme decline in jet fuel prices [removed: during the fourth quarter of 2014 and early 2015, and again] in late 2015, energy prices can fluctuate significantly in a relatively short amount of time.

Because the Company uses a variety of different derivative instruments at different price points, the Company is subject to the risk that the fuel derivatives it uses will not provide adequate protection against significant increases in fuel prices and could in fact result in [added: hedging losses, and the Company effectively paying higher than market prices for fuel, thus creating] additional volatility in the Company’s earnings.

The Company’s low-cost structure has historically been one of its primary competitive advantages, as it has enabled it to offer low fares, drive traffic volume, and grow market [removed: share.][added: share; however fuel and labor costs, as well as other costs such as regulatory compliance costs, can negatively affect the Company’s ability to control its costs.]

Jet fuel and oil constituted approximately [removed: 23] [added: 22] percent of the Company’s operating expenses during [removed: 2015,] [added: 2016,] and the [added: Company’s ability to control the] cost of fuel is subject to the external factors discussed in the second Risk Factor above.

Salaries, wages, and benefits constituted approximately 41 percent of the Company’s operating expenses during [removed: 2015.][added: 2016.]

As discussed further under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company’s unionized workforce, which makes up [removed: the majority] [added: approximately 83%] of its Employees, has had pay scale increases as a result of contractual rate increases.

Furthermore, as indicated above under “Business - Employees,” [removed: the majority of Southwest’s] [added: other Southwest] unionized Employees, including its [removed: Pilots;] Mechanics; [removed: Ramp, Operations, Provisioning, and Freight Agents; Flight Attendants;] Material Specialists; [added: and] Facilities Maintenance [removed: Technicians; Flight Crew Training Instructors; and Source of Support Representatives,] [added: Technicians,] are in unions currently in negotiations for labor agreements, which could [removed: continue to put] [added: result in additional] pressure on the Company’s [removed: labor costs.][added: low-cost structure.]

As discussed above under “Business - Regulation,” the airline industry is heavily regulated, and the Company’s regulatory compliance costs are subject to potentially significant increases from time to time based on actions by [removed: the] regulatory [removed: agencies.][added: agencies that are out of the Company’s control.]

[removed: Additionally, when other airlines reduce their capacity, airport costs are then allocated among a fewer number of total] flights, which can result in increased landing fees and other costs for the Company.

As discussed above under “Business - Insurance,” the Company carries insurance of types customary in the airline [removed: industry and, in the past, has also been provided supplemental, first-party, war-risk insurance coverage by the federal][added: industry.]

Although the Company [removed: was] [added: has been] able to purchase [removed: comparable coverage] [added: war-risk (terrorism) insurance] via the commercial insurance marketplace, available commercial insurance [removed: in the future] could be more expensive [added: in the future] and/or have material differences in coverage than [removed: is currently] [added: insurance that has historically been] provided and may not be adequate to protect against the Company's risk of loss from future acts of terrorism.

[removed: Further, some] [added: When] competitors [removed: have continued to] grow their fleets and expand their networks, [added: they are] potentially [removed: enabling them] [added: able] to better control costs per available seat mile.

In addition, like Southwest, some competitors have plans to add a significant number of new aircraft to their fleets, which could potentially decrease their operating costs through better fuel [removed: efficiencies,] [added: efficiencies] and lower maintenance costs.

[removed: Some] [added: Furthermore, some] of the Company’s competitors have taken advantage of reorganization in bankruptcy, and even the threat of bankruptcy, not only to lower employee pay scales, but also to decrease operating costs through renegotiated supply and financing agreements.

The Company is increasingly dependent on the use of complex technology and systems to run its ongoing [removed: operations.][added: operations, and the Company continues to implement technology initiatives to support its ongoing operations and strategies.]

Integration also presents the risk of operational or security inadequacy or interruption, which could materially affect the Company’s ability to effectively operate its [removed: business.][added: business and/or could negatively impact the Company’s results of operations.]

The Company [removed: may] [added: has] occasionally [removed: experience] [added: experienced] system interruptions and delays that make its websites and services unavailable or slow to respond, which [removed: could] [added: can] prevent the Company from efficiently processing Customer transactions or providing [removed: services.][added: services, and these could continue to occur in the future.]

Any of these events could cause system interruptions, delays, and loss of critical data, and could prevent the Company from [added: processing Customer transactions or providing services, which could make the Company’s business and services less attractive and subject the Company to liability.]

The Company’s business is labor intensive; therefore, the Company would be adversely affected if it were unable to maintain satisfactory relations with its Employees or its Employees’ [removed: Representatives or if the Company were unable to employ sufficient numbers of qualified Employees to maintain its operations.][added: Representatives.]

Salaries, wages, and benefits represented approximately 41 percent of the Company’s operating expenses for the year ended December 31, [removed: 2015.][added: 2016.]

In addition, as of December 31, [removed: 2015,] [added: 2016,] approximately 83 percent of the Company’s Employees were represented for collective bargaining purposes by labor unions, making the Company particularly exposed in the event of labor-related job actions.

Employment-related issues that [removed: may] [added: have, and continue to,] impact the Company’s results of operations, some of which are negotiated items, include hiring/retention rates, pay rates, outsourcing costs, work rules, [removed: and] health care [removed: costs.][added: costs, and retirement benefits.]

[removed: However, as indicated above under “Business - Employees,”] [added: Additionally,] the majority of Southwest’s unionized Employees, including its Pilots; [removed: Mechanics;] [added: Flight Attendants;] Ramp, Operations, Provisioning, and Freight Agents; [removed: Flight Attendants; Material Specialists; Facilities Maintenance] [added: Aircraft Appearance] Technicians; [added: and] Flight Crew Training [removed: Instructors; and Source of Support Representatives, are in unions currently in negotiations for labor agreements,] [added: Instructors, have ratified new collective-bargaining agreements during 2016,] which [removed: could continue to] [added: have] put pressure on the Company’s [removed: labor costs.][added: low-cost structure.]

The Company must receive information related to its Customers in order to run its business, and the Company’s [removed: online] operations depend upon [added: secure retention and] the secure transmission of information over public networks, including information permitting cashless payments.

[added: A compromise] of the Company’s security systems could adversely affect the Company’s reputation and disrupt its operations and could also result in litigation against the Company or the imposition of penalties.

Although the Company has not experienced cyber incidents that are individually, or in the aggregate, material, the Company has experienced [removed: cyber attacks] [added: cyber-attacks] in the past, which have thus far been mitigated by preventative, detective, and responsive measures put in place by the Company.

However, organic growth remains challenging because (i) the opportunities for domestic expansion [removed: could be] [added: are] limited; (ii) the Company's international network is [added: relatively] small and [removed: not yet developed;] [added: international expansion presents unique challenges;] and (iii) the Company has faced an increased presence of other low-cost, low-fare carriers.

As a result, the Company is reliant on the success of its revenue strategies to help offset [removed: certain increasing costs and to continue to improve Customer Service.]

Terrorist [removed: attacks,] [added: attacks or other hostilities,] actual and threatened, have from time to time materially adversely affected the demand for air travel and also have resulted in increased safety and security costs for the Company and the airline industry generally.

Additional terrorist [removed: attacks,] [added: attacks or other hostilities,] even if not made directly on the airline industry, or the fear of such attacks or other hostilities (including elevated national threat warnings or selective cancellation or redirection of flights due to terror threats) would likely have a further significant negative impact on the Company and the airline industry.

Airport capacity constraints and air traffic control inefficiencies [added: have limited and] could [added: continue to] limit the Company’s growth; changes in or additional governmental regulation could increase the Company’s operating costs or otherwise limit the Company’s ability to conduct business.

The Company’s future results will suffer if it does not effectively manage its expanded [removed: operations, including its] international operations.

[removed: Laws in some jurisdictions differ in significant] respects from those in the United States, and these differences can affect the Company’s ability to react to changes in its business, and its rights or ability to enforce rights may be different than would be expected under U.S. laws.

Furthermore, the Company has limited control over many of these costs.

Additionally, the Company cannot control decisions by other airlines to reduce their capacity.

When this occurs, airport costs are allocated among a fewer number of total

Some so called “ultra low-cost carriers” have surpassed the Company’s cost advantage while continuing to add aircraft, expand their networks, and add competition to the Company’s routes.

These system interruptions and delays can reduce the Company’s operating revenues and the attractiveness of its services as well as increase the Company’s costs.

certain increasing costs and to continue to improve Customer Service.

The current air traffic control system is mainly radar-based and supported in large part by antiquated equipment and technologies.

The FAA’s protracted transition to a satellite-based air traffic control system, as well as the implementation of policies and standards that account for the precision of global positioning system-supported aircraft technologies, could continue to adversely impact airspace capacity and the overall efficiency of the system, resulting in limited opportunities for the Company to grow, longer scheduled flight times, more delays and cancellations, and increased fuel consumption and aircraft emissions.

| • | limitations on airport gate capacity or use of other airport facilities such as the 2016 reallocation of slots at John Wayne Airport in Orange County, California, which caused the Company to reduce service at that airport; |

Laws in some jurisdictions differ in significant

As discussed below under “Legal Proceedings,” the Company is subject to pending litigation.

If higher fuel prices were to return, the Company’s ability to effectively address fuel price increases could be limited by its ability to increase fares, which can be difficult in challenging economic environments when low fares are often used to stimulate traffic.

The Company has limited control over fuel and labor costs, as well as other costs such as regulatory compliance costs.

government.

Since the government-provided supplemental coverage from the Wartime Act was set to expire on September 30, 2014, the Company proactively canceled its government provided war-risk insurance coverage prior to that date and purchased comparable coverage via the commercial insurance marketplace.

Some of the Company’s competitors have achieved lower employee pay scales through bankruptcy.

In recent years the Company has been committed to technology improvements to support its ongoing operations and initiatives and, as discussed above under “Business - Technology Initiatives,” the Company has invested in significant technology changes.

The Company is in the midst of a multi-year project to completely replace its reservation system.

In 2014, the Company launched the Amadeus Altéa reservations solution to support the Company’s international service.

The Company has since begun implementing Amadeus' Altéa reservations solution as the Company's future single reservation system for both domestic and international reservations.

This single reservation system is expected to be implemented in 2017.

The Company intends to continue to devote significant technology resources towards, among other things, (i) the continued development of systems to improve both revenue management and network optimization capabilities, (ii) the aforementioned replacement of Southwest's existing domestic reservation system with the comprehensive Amadeus' Altéa reservations solution, and (iii) tools to improve operational management.

This in turn could reduce the Company’s operating revenues and the attractiveness of its services.

processing Customer transactions or providing services, which could make the Company’s business and services less attractive and subject the Company to liability.

The Company has historically maintained positive relationships with its Employees and its Employees’ Representatives.

Increasing labor costs could negatively impact the Company’s competitive position.

The Company’s success also depends on its ability to attract and retain skilled personnel.

Competition for skilled personnel may intensify if overall industry capacity increases and/or if high levels of current personnel reach retirement age.

The Company may be required to increase existing levels of compensation to retain or supplement its skilled workforce.

The inability to recruit and retain skilled personnel or the unexpected loss of key skilled personnel could adversely affect the Company’s operations.

A compromise

Instability of credit, capital, and energy markets can result in pressure on the Company’s credit ratings and can also negatively affect the Company’s ability to obtain financing on acceptable terms and the Company’s liquidity generally.

While the Company’s credit rating is “investment grade,” factors such as future unfavorable economic conditions, a significant decline in demand for air travel, or instability of the credit, capital, and energy markets could result in future pressure on credit ratings, which could negatively affect (i) the Company’s ability to obtain financing on acceptable terms, (ii) the Company’s liquidity generally, and (iii) the availability and cost of insurance.

A credit rating downgrade could subject the Company to credit rating triggers related to its credit card transaction processing agreements, the pricing related to any funds drawn under its revolving credit facility, and some of its hedging counterparty agreements.

The potential effect of credit rating downgrades is discussed in more detail below under “Quantitative and Qualitative Disclosures About Market Risk.”

The air traffic control system, which is operated by the FAA, could continue to face airspace and/or airport congestion challenges in the future, which could limit the Company’s opportunities for growth.

| • | limitations on airport gate capacity or use of other airport facilities; |

A complaint alleging violations of federal antitrust laws and seeking certification as a class action was filed against Delta Air Lines, Inc. and AirTran in the United States District Court for the Northern District of Georgia in Atlanta on May 22, 2009.

The complaint alleged, among other things, that AirTran attempted to monopolize air travel in violation of Section 2 of the Sherman Act, and conspired with Delta in imposing $15-per-bag fees for the first item of checked luggage in violation of Section 1 of the Sherman Act.

The initial complaint sought treble damages on behalf of a putative class of persons or entities in the United States who directly paid Delta and/or AirTran such fees on domestic flights beginning December 5, 2008.

After the filing of the May 2009 complaint, various other nearly identical complaints also seeking certification as class actions were filed in federal district courts in Atlanta, Georgia; Orlando, Florida; and Las Vegas, Nevada.

All of the cases were consolidated before a single federal district court judge in Atlanta.

A Consolidated Amended Complaint was filed in the consolidated action on February 1, 2010, which broadened the allegations to add claims that Delta and AirTran conspired to reduce capacity on competitive routes and to raise prices in violation of Section 1 of the Sherman Act.

In addition to treble damages for the amount of first baggage fees paid to AirTran and to Delta, the Consolidated Amended Complaint seeks injunctive relief against a broad range of alleged anticompetitive activities, as well as attorneys' fees.

On August 2, 2010, the Court dismissed plaintiffs' claims that AirTran and Delta had violated Section 2 of the Sherman Act; the Court let stand the claims of a conspiracy with respect to the imposition of a first bag fee and the airlines' capacity and pricing decisions.

On June 30, 2010, the plaintiffs filed a motion to certify a class, which AirTran and Delta have opposed.

The parties have submitted briefs on class certification, and the parties have filed motions to exclude the class certification opinions of each other’s expert.

The parties engaged in extensive discovery, and discovery has now closed.

On June 18, 2012, the parties filed a Stipulation and Order that plaintiffs have abandoned their claim that AirTran and Delta conspired to reduce capacity.

On August 31, 2012, AirTran and Delta moved for summary judgment on all of plaintiffs' remaining claims, but discovery disputes between plaintiffs and Delta delayed further briefing on summary judgment.

On August 5, 2015, the Court entered an order granting class certification, which was vacated on August 17, 2015, to permit further briefing on class certification and AirTran’s motion to exclude plaintiffs’ expert.

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | Change | |

| Total operating revenues, as reported | $ | [removed: 19,820] [added: 20,425] | | | $ | [removed: 18,605] [added: 19,820] | | | | |

| Deduct: Special revenue adjustment | [removed: (172] [added: —] | | [removed: )] | | [removed: —] [added: (172] | | [added: )] | | | |

| Operating revenues, [removed: Non-GAAP] [added: non-GAAP] | $ | [removed: 19,648] [added: 20,425] | | | $ | [removed: 18,605] [added: 19,648] | | | [removed: 5.6] [added: 4.0] | % |

| Fuel and oil expense, unhedged | $ | [removed: 3,362] [added: 2,827] | | | $ | [removed: 5,321] [added: 3,362] | | | | |

| [removed: Add (Deduct):] [added: Add:] Fuel hedge [removed: losses] (gains) [added: losses] included in Fuel and oil expense | [removed: 254] [added: 820] | | | | [removed: (28] [added: 254] | | [removed: )] | | | |

| Fuel and oil expense, as reported | $ | [removed: 3,616] [added: 3,647] | | | $ | [removed: 5,293] [added: 3,616] | | | | |

| [removed: Add (Deduct):] [added: Add:] Net impact from fuel contracts | [removed: 323] [added: 202] | | | | [removed: (28] [added: 323] | | [removed: )] | | | |

| Fuel and oil expense, non-GAAP [added: (economic)] | $ | [removed: 3,939] [added: 3,849] | | | $ | [removed: 5,265] [added: 3,939] | | | [removed: (25.2] [added: (2.3] | )% |

| Total operating expenses, as reported | $ | [removed: 15,704] [added: 16,665] | | | $ | [removed: 16,380] [added: 15,704] | | | | |

| Deduct: Union contract bonuses | [removed: (334] [added: (356] | | ) | | [removed: (9] [added: (334] | | ) | | | |

| [removed: Add (Deduct):] [added: Add:] Reclassification between Fuel and oil and Other (gains) losses, net, associated with current period settled contracts | [removed: 72] [added: 5] | | | | [removed: (4] [added: 72] | | [removed: )] | | | |

| [removed: Add (Deduct):] [added: Add:] Contracts settling in the current period, but for which gains and/or (losses) have been recognized in a prior period* | [removed: 251] [added: 197] | | | | [removed: (24] [added: 251] | | [removed: )] | | | |

| Deduct: Acquisition and integration costs | [removed: (39] [added: —] | | [removed: )] | | [removed: (126] [added: (39] | | ) | | | |

| Add: Litigation settlement | [removed: 37] [added: —] | | | | [removed: —] [added: 37] | | | | | |

| Total operating expenses, non-GAAP | $ | [removed: 15,691] [added: 16,468] | | | $ | [removed: 16,217] [added: 15,691] | | | [removed: (3.2] [added: 5.0] | [removed: )%] [added: %] |

| Operating income, as reported | $ | [removed: 4,116] [added: 3,760] | | | $ | [removed: 2,225] [added: 4,116] | | | [added: $] | [added: 2,225] | [added: |]

| Deduct: Special revenue adjustment | [removed: (172] [added: —] | | [removed: )] | | [removed: $] [added: (172] | [removed: —] | [added: )] | | | |

| Add: Union contract bonuses | [removed: 334] [added: 356] | | | | [removed: 9] [added: 334] | | | | | |

| [removed: Add (Deduct):] [added: Deduct:] Reclassification between Fuel and oil and Other (gains) losses, net, associated with current period settled contracts | [removed: (72] [added: (5] | | ) | | [removed: 4] [added: (72] | | [added: )] | | | |

| [removed: Add (Deduct):] [added: Deduct:] Contracts settling in the current period, but for which gains and/or (losses) have been recognized in a prior period* | [removed: (251] [added: (197] | | ) | | [removed: 24] [added: (251] | | [added: )] | | | |

| Add: Acquisition and integration costs | [removed: 39] [added: —] | | | | [removed: 126] [added: 39] | | | | | |

| Deduct: Litigation settlement | [removed: (37] [added: —] | | [removed: )] | | [removed: —] [added: (37] | | [added: )] | | | |

| Operating income, non-GAAP | [removed: $ |] 3,957 | | | [removed: $] | [removed: 2,388] [added: 3,957] | | | [removed: 65.7] | [removed: %] [added: 2,388] | [added: | |]

| Net income, as reported | $ | [removed: 2,181] [added: 2,244] | | | $ | [removed: 1,136] [added: 2,181] | | | | |

| Deduct: Special revenue adjustment [removed: (a)] | [removed: (108] [added: —] | | [removed: )] | | [removed: —] [added: (172] | | [added: )] | | | |

| Add: Union contract bonuses [removed: (a)] | [removed: 210] [added: 356] | | | | [removed: 6] [added: 334] | | | | | |

| Add: Mark-to-market impact from fuel contracts settling in future periods | [removed: 373] [added: 9] | | | | [removed: 251] [added: 373] | | | | | |

| [removed: Add (Deduct):] [added: Deduct:] Ineffectiveness from fuel hedges settling in future periods | [removed: (9] [added: (11] | | ) | | [removed: 5] [added: (9] | | [added: )] | | | |

| [removed: Add (Deduct):] [added: Deduct:] Other net impact of fuel contracts settling in the current or a prior period (excluding reclassifications) | [removed: (251] [added: (197] | | ) | | [removed: 24] [added: (251] | | [added: )] | | | |

| Add: Acquisition and integration costs [removed: (a)] | [removed: 24] [added: —] | | | | [removed: 79] [added: 39] | | | | | |

| Deduct: Litigation settlement [removed: (a)] | [removed: (23] [added: —] | | [removed: )] | | [removed: —] [added: (37] | | [added: )] | | | |

| Net income, non-GAAP | $ | [removed: 2,355] [added: 2,370] | | | $ | [removed: 1,397] [added: 2,355] | | | [removed: 68.6] [added: 0.6] | % |

| Net income per share, diluted, as reported | $ | [removed: 3.27] [added: 3.55] | | | $ | [removed: 1.64] [added: 3.27] | | | | |

| [removed: Add:] [added: Add (Deduct):] Net impact to net income above from fuel contracts divided by dilutive shares [removed: (a)] | [removed: 0.06] [added: (0.31] | | [added: )] | | [removed: 0.25] [added: 0.17] | | | | | |

| Add: Impact of special items [removed: (a)] | [removed: 0.19] [added: 0.63] | | | | [removed: 0.12] [added: 0.24] | | | | | |

| Net income per share, diluted, non-GAAP | $ | [removed: 3.52] [added: 3.75] | | | $ | [removed: 2.01] [added: 3.52] | | | [removed: 75.1] [added: 6.5] | % |

| Operating expenses per ASM (cents) | | [removed: 11.18] [added: 11.22] | ¢ | | | [removed: 12.50] [added: 11.18] | ¢ | | | |

| Deduct: Fuel expense divided by ASMs | [removed: (2.57] [added: (2.46] | | ) | | [removed: (4.04] [added: (2.58] | | ) | | | |

| Deduct: Impact of special items | [removed: (0.24] [added: (0.27] | | ) | | [removed: (0.10] [added: (0.24] | | ) | | | |

This increase was partially offset by an increase in Salaries, wages, and benefits expense, an increase in Depreciation and amortization expense, and an increase in Other operating expenses.

These items are discussed in more detail below.

During 2016, the Company began scheduled service to Long Beach, California and scheduled service to three Cuban cities: Havana, Varadero, and Santa Clara.

With the addition of these new markets, the Company now serves 101 cities across nine countries and operates over 3,900 departures a day.

Also in January 2017, the Company filed an application with the DOT to serve Owen Roberts International Airport in Grand Cayman, and announced plans to launch service to Cincinnati/Northern Kentucky International Airport, both scheduled to begin in June 2017.

The Company plans to continue its route network and schedule optimization efforts through the addition of new markets and itineraries, while also pruning less profitable flights from its schedule.

The Company currently plans to grow its 2017 available seat miles approximately 3.5 percent, year-over-year, with approximately 2.5 points of that increase relating to domestic growth.

The Company also retired 31 Boeing 737-300 ("Classic") aircraft and its remaining 11 Boeing 737-500 aircraft during the year.

By the end of third quarter 2017, the Company intends to retire the 87 Classic aircraft remaining in its fleet at December 31, 2016.

After taking into account scheduled deliveries for new and pre-owned aircraft in 2017, this accelerated retirement schedule is expected to decrease the Company's fleet to 703 aircraft by year-end 2017.

For 2018, the Company's current firm aircraft commitments would result in 743 aircraft by year-end 2018, including nine Boeing 737-800 options exercised during 2016, and two Boeing 737-800 options exercised in January 2017.

The Company is in the midst of a multi-year project to completely replace its reservation system.

In 2014, the Company launched the Amadeus Altéa reservations solution to support the Company’s international service.

The Company has since begun implementing Amadeus' Altéa reservations solution as the Company's future single reservation system for both domestic and international reservations.

The implementation consists of two foundational releases.

Release 1 was completed in December 2016, and added functionality to enable the sale of domestic tickets on the new reservation system.

Release 2 is expected to be completed on May 9, 2017 and will add functionality to enable operational capabilities such as passenger check-in and boarding and baggage check-in on the new reservation system.

Subsequent releases will add functionality to enable revenue enhancements, further schedule optimization, support for international growth, and additional foundational and operational capabilities.

| • | The Company's Ramp, Operations, Provisioning, and Freight Agents, represented by TWU Local 555, ratified a new collective-bargaining agreement with the Company. The newly ratified contract becomes amendable in February 2021. |

| • | The Company's Pilots, represented by the Southwest Airlines Pilots' Association, ratified a new collective-bargaining agreement. The newly ratified contract becomes amendable in September 2020. |

| • | The Company's Flight Attendants, represented by TWU Local 556, ratified a new collective-bargaining agreement with the Company. The newly ratified contract becomes amendable in November 2018. |

| • | The Company's Aircraft Appearance Technicians, represented by the Aircraft Mechanics Fraternal Association ("AMFA"), ratified a new collective-bargaining agreement with the Company. The newly ratified contract becomes amendable in November 2020. |

2016 Compared with 2015

Holding all other factors constant, the increase was primarily attributable to a 5.7 percent increase in capacity as strong Customer demand for low-fare air travel enabled the Company to fill the additional seats, as evidenced by a Company record annual load factor of 84.0 percent.

On a unit basis, Passenger revenues decreased 3.8 percent, year-over-year, largely driven by a 4.3 percent decrease in passenger revenue yield, year-over-year, which included a reduction to 2016 Passenger revenues associated with the Agreement with Chase, as a result of the required change in accounting methodology in 2015.

Freight revenues for 2016 decreased by $8 million, or 4.5 percent, compared with 2015, primarily due to sluggish demand.

This adjustment represented a one-time non-cash reduction to deferred revenue liability as a result of the Agreement with Chase and the resulting required change in accounting methodology, and is classified as a special item and thus excluded from the Company's 2015 non-GAAP financial results.

Other revenues for 2016 increased $490 million, or 41.9 percent, compared with 2015, primarily as a result of the Agreement with Chase and the resulting required change in accounting methodology.

This change resulted in approximately 90 percent of the increase to Other revenue year-over-year.

Excluding this impact of the Agreement with Chase, Other revenues increased primarily due to higher ancillary revenues associated with EarlyBird Check-in® and A1-15 select boarding positions sold at the airport.

The Company currently expects Other revenues in first quarter 2017 to increase, compared with first quarter 2016.

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.

| Salaries, wages, and benefits | | 4.57 | ¢ | | | 4.54 | ¢ | | | 0.03 | ¢ | | 0.7 | % |

| Fuel and oil | 2.46 | | | | 2.58 | | | | (0.12 | | ) | | (4.7 | ) |

| Maintenance materials and repairs | 0.70 | | | | 0.72 | | | | (0.02 | | ) | | (2.8 | ) |

| Aircraft rentals | 0.15 | | | | 0.17 | | | | (0.02 | | ) | | (11.8 | ) |

| Other operating expenses | 1.70 | | | | 1.59 | | | | 0.11 | | | | 6.9 | |

| Total | | 11.22 | ¢ | | | 11.18 | ¢ | | | 0.04 | ¢ | | 0.4 | % |

Operating expenses per ASM for 2016 increased by 0.4 percent, compared with 2015, primarily due to the accelerated depreciation expense associated with the planned early retirement of the Classic fleet, higher contract programming and consulting expenses associated with large technology projects, and higher wage rates due to new labor agreements.

Reconciliation of Reported Amounts to Non-GAAP Financial Measures (unaudited) (in millions, except per share and per ASM amounts)

| Deduct: Income tax impact of fuel contracts | (42 | | ) | | (104 | | ) | | | |

(a) Amounts net of tax.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

In addition to its “economic” financial measures, as defined above, the Company has also provided other non-GAAP financial measures, including results that it refers to as "excluding special items," as a result of items that the Company believes are not indicative of its ongoing operations.

These include a one-time Special revenue adjustment due to the July 2015 amended co-branded credit card agreement (the "Agreement") with Chase Bank USA, N.A. ("Chase") and the resulting change in accounting methodology, expenses associated with the Company’s acquisition and integration of AirTran, a gain resulting from a litigation settlement received in January 2015, and union contract bonuses recorded for certain workgroups.

As a result of the Company’s acquisition of AirTran, which closed on May 2, 2011, the Company has incurred substantial charges associated with the integration of the two companies.

The Company does not expect to incur any further Acquisition and integration costs beyond 2015.

Also, Operating expenses decreased 4.1 percent, primarily as a result of lower fuel prices, which more than offset increases in certain cost categories discussed below, including Salaries, Wages, and Benefits expense, which included the Company's record Employee Profitsharing expense of $620 million.

Both GAAP and non-GAAP annual Operating income results for 2015 were Company records and significantly surpassed the prior year performance.

This represented a significant increase compared with the Company's ROIC of 21.2 percent for the twelve months ended December 31, 2014.

The increase in ROIC was achieved primarily through successful integration of AirTran, operational and network enhancements, and declining fuel prices.

Subsequent to the launch of the First Quarter 2016 ASR Program, the Company has $200 million remaining under its existing $1.5 billion share repurchase program.

Following the Company’s effective completion of the AirTran integration at the end of 2014, one of the Company’s primary areas of focus was on allowing its expanded network to develop, while also improving the reliability of its operations.

Throughout most of 2015, the Company had a significantly higher than normal portion of its network considered under development, due to new service implemented upon converting both international and domestic destinations over from AirTran to Southwest, as well as growth in existing Southwest markets including Dallas, Houston, Washington D.C, and New York.

In 2016, the portion of those markets under development will return to a more long-term historical figure based on capacity.

Following the integration of AirTran, the Company also made investments in its 2015 flight schedule to improve its overall on-time performance.

The Company’s on-time performance during 2015 as reported through November 2015 was approximately 80 percent, which increased approximately 7 points compared to full year 2014.

During 2015, the Company took several steps designed to enhance its existing service in cities across the network or to connect existing cities with new service not previously offered by Southwest, most notably:

| • | The Company began offering daily nonstop flights to 20 new cities from Dallas Love Field, marking the Company's most robust schedule ever offered at Dallas Love Field, with 180 daily departures to 50 nonstop destinations. |

| • | The Company connected Central America to the Company's network with the addition of Liberia, Costa Rica; San Jose, Costa Rica; and Belize City, Belize in 2015. |

| • | The Company began service to Puerto Vallarta, Mexico in June 2015. |

| • | During October 2015, the all-new international terminal at Houston Hobby opened and the Company commenced service from Houston Hobby to Mexico (Cancun, Mexico City, Puerto Vallarta, Cabo San Lucas/Los Cabos), Belize City, Belize; San Jose, Costa Rica; Liberia, Costa Rica; and Montego Bay, Jamaica. |

Following AirTran's final passenger service on December 28, 2014, the Company removed all remaining Boeing 717-200 aircraft ("B717s") from service.

As of December 31, 2015, 87 of AirTran's 88 B717 aircraft had been delivered to Delta pursuant to a lease/sublease agreement, and one B717 aircraft was undergoing conversion in preparation for delivery to Delta.

At the end of December 2015, the Company revised its future firm delivery schedule to reflect 33 additional -800s, and the conversion of its remaining 25 -700 firm orders to -800s.

In addition, two pre-owned -700s were added to its delivery schedule.

The incremental seat gauge and aircraft will be used to replace the capacity associated with the Company's year-end decision to further accelerate the retirement of its Classic fleet to no later than mid-2018, as compared to the previous plan of 2021.

The Company continues to plan for modest year-over-year fleet growth through 2018 of no more than two percent, on average.

The Company also expects an approximate five to six percent increase year-over-year in 2016 ASMs.

The revised delivery schedule is currently estimated to increase the Company's firm aircraft capital commitments by $400 million beyond 2015.

Replacing the Boeing 737-300s and Boeing 737-500s with more efficient and cost-effective aircraft is expected to provide significant cost savings, along with improving the Customer experience with better ontime performance and WiFi-equipped aircraft.

Additional information regarding the Company's aircraft delivery schedule is included in Note 4 to the Consolidated Financial Statements.

| • | Flight Simulator Technicians, represented by the International Brotherhood of Teamsters, ratified a new four-year contract which becomes amendable on April 30, 2019. |

| • | Meteorologists, represented by TWU 550, approved their first-ever collective-bargaining agreement following certification by the National Mediation Board late last year. This new, four-year contract becomes amendable on June 1, 2019. |

| • | Pilots, represented by the Southwest Airlines Pilots' Association, reached a tentative collective bargaining agreement with the Company, which was announced September 17, 2015. The Pilots failed to ratify this agreement, as announced by the Company on November 4, 2015, and the parties will continue negotiations. |

| • | Ramp, Operations, Provisioning, and Freight Agents, represented by the Transport Workers Union Local 555, reached a tentative collective bargaining agreement with the Company, which was announced on December 29, 2015. The agreement has been presented to members for ratification and the vote will be closed in first quarter 2016. |

gate, which was partially offset by the decrease in revenues from the termination of AirTran passenger service and related ancillary fees.

While some yield softness has continued into January, demand for low-fare air travel, thus far, remains strong.

As of December 31, [removed: 2015,] [added: 2016,] Southwest operated a total of [removed: 123] [added: 134] aircraft under operating and capital lease.

The Company expects to consume approximately 2 billion gallons of jet fuel in [removed: 2016.][added: 2017.]

Based on this anticipated usage, a change in jet fuel prices of just one cent per gallon would impact [added: the Company’s Fuel and oil expense by approximately $20 million for 2017, excluding any impact associated with fuel derivative instruments held.]

As of December 31, [removed: 2015,] [added: 2016,] the Company held a net position of fuel derivative instruments that represented a hedge for a portion of its anticipated jet fuel purchases for each year from [removed: 2016] [added: 2017] through [removed: 2018.][added: 2019.]

The gross fair value of outstanding financial derivative instruments related to the Company’s jet fuel market price risk at December 31, [removed: 2015,] [added: 2016,] was a net liability of [removed: $1.5 billion.][added: $326 million.]

In addition, [removed: $835] [added: $301] million in cash collateral deposits [removed: and $250 million in aircraft collateral] were provided by the Company in connection with these instruments based on their fair value as of December 31, [removed: 2015.][added: 2016.]

An immediate 10 percent increase or decrease in underlying fuel-related commodity prices from the December 31, [removed: 2015] [added: 2016] (for all years from [removed: 2016] [added: 2017] through [removed: 2018)] [added: 2019)] prices would correspondingly change the fair value of the commodity derivative instruments in place by approximately [removed: $192] [added: $266] million.

This sensitivity analysis uses industry standard valuation models and holds all inputs constant at December 31, [removed: 2015,] [added: 2016,] levels, except underlying futures prices.

The Company’s credit exposure related to fuel derivative instruments is represented by the fair value of contracts [removed: with a net positive fair value] [added: that are an asset] to the Company.

As of December 31, [removed: 2015,] [added: 2016,] the Company had [removed: three] [added: five] counterparties in which the derivatives held were a net asset.

To manage credit risk, the Company selects and [removed: will] periodically [removed: review] [added: reviews] counterparties based on credit ratings, limits its exposure [removed: to a single counterparty] with [removed: collateral support agreements,] [added: respect to each counterparty,] and monitors the market position of the [added: fuel hedging] program and its relative market position with each counterparty.

[removed: However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations,] any open derivative contracts with the counterparty could be subject to early termination, which could result in substantial losses for the Company.

At December 31, [removed: 2015,] [added: 2016,] the Company had agreements with all of its [added: active] counterparties containing early termination rights [removed: triggered by credit rating thresholds] and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified threshold amount based on the counterparty’s credit rating.

The Company also had agreements with counterparties in which cash deposits, letters of credit, and/or pledged aircraft are required to be posted [added: as collateral] whenever the net fair value of derivatives associated with those counterparties exceeds specific [removed: thresholds—cash is either posted by the counterparty if the value of derivatives is an asset to the Company, or cash, letters of credit, and/or aircraft could be posted as collateral by the Company if the value of derivatives is a liability to the Company.][added: thresholds.]

Refer to the counterparty credit risk and collateral table provided in Note 10 to the Consolidated Financial Statements for the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of December 31, [removed: 2015,] [added: 2016,] at which such postings are triggered.

Due to the terms of the Company’s current fuel hedging agreements with counterparties and the types of derivatives held, in the Company’s judgment, it does not have significant additional [removed: exposure to future] cash collateral [removed: requirements.][added: exposure.]

As an example, if market prices for the commodities used in the Company’s fuel hedging activities were to decrease by 25 percent from market prices as of December 31, [removed: 2015,] [added: 2016,] given the Company’s [added: current] fuel derivative portfolio, its aircraft collateral facilities, and its investment grade credit rating, it would likely provide an additional [removed: $436] [added: $256] million in [removed: collateral which could be met by posting aircraft and/or letters of credit with its current counterparties.][added: collateral.]

The Company [removed: has] [added: would have] the option of providing cash, letters of credit, and/or pledging aircraft [removed: as collateral.][added: in order to meet this collateral requirement.]

At December 31, [removed: 2015,] [added: 2016,] the Company had [removed: $1.4] [added: $1.6] billion in aircraft available to be posted as collateral.

[removed: However, as it did in 2015, and expects to continue doing in first quarter 2016,] [added: In addition,] the Company would expect to also benefit from lower market prices paid for fuel used in [added: its operations.]

In recent years, jet fuel prices have been [removed: more] closely correlated with changes in the price of Brent crude [removed: oil ("Brent").][added: oil.]

The Company has attempted to mitigate some of this risk by entering into more fuel hedges based on Brent [removed: crude.][added: crude oil.]

As of December 31, [removed: 2015,] [added: 2016,] no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements.

While the Company uses financial leverage, it strives to maintain a strong balance sheet and has a “BBB+” rating with Fitch, a “BBB” rating with Standard & Poor’s, and a “Baa1” credit rating with Moody’s as of December 31, [removed: 2015,] [added: 2016,] all of which are considered “investment grade.” The Company’s French Credit Agreements due 2018 do not give rise to significant fair value risk but do give rise to interest rate risk because this borrowing was originally issued as floating-rate debt.

[removed: Although there is interest rate] risk associated with these floating rate borrowings, the risk of the French Credit Agreements due 2018 is somewhat mitigated by the fact that the Company may prepay this debt under certain conditions.

As of December 31, [removed: 2015,] [added: 2016,] excluding the notes or debentures that have been converted to a floating rate, the Company’s fixed-rate senior unsecured notes outstanding included its $300 million [removed: 5.75%] [added: 5.125%] senior unsecured notes [removed: 2016,] [added: due 2017,] its $300 million [removed: 5.125%] [added: 3.00%] senior unsecured notes due [removed: 2017,] [added: 2026,] and its $100 million 7.375% senior unsecured notes due 2027.

[removed: Each of] [added: Excluding the notes due 2026,] these notes had at one point been converted to floating rates, but the Company subsequently terminated the fixed-to-floating interest rate swap agreements related to them.

As a result of the gains realized on these transactions, which are being amortized over the remaining term of the corresponding notes, and based on projected interest rates at the date of termination, the Company does not believe its future interest expense, based on projected future interest rates at the date of termination, associated with these notes will significantly differ from the expense it [added: would have recorded had the notes remained at floating rates.]

The following table displays the characteristics of the Company’s secured fixed rate debt as of December 31, [removed: 2015:][added: 2016:]

| Term Loan Agreement | | $ | [removed: 143] [added: 106] | | | 6.315 | % | | 5/6/2019 | | 14 specified Boeing 737-700 aircraft |

| Term Loan Agreement | | [removed: 36] [added: 28] | | | | 4.84 | % | | 7/1/2019 | | 4 specified Boeing 737-700 aircraft |

| Term Loan Agreement | | [removed: 329] [added: 284] | | | | 5.223 | % | | 5/9/2020 | | 21 specified Boeing 737-700 aircraft |

The carrying value of the Company’s floating rate debt totaled [removed: $859 million,] [added: $1.1 billion,] and this debt had a weighted-average maturity of [removed: 4.36] [added: 4.69] years at floating rates averaging [removed: 1.47] [added: 1.97] percent for the year ended December 31, [removed: 2015.][added: 2016.]

In total, the Company’s fixed-rate debt and floating rate debt represented [removed: 13.42] [added: 12.44] percent and [removed: 4.97] [added: 5.59] percent, respectively, of consolidated noncurrent assets at December 31, [removed: 2015.][added: 2016.]

The Company also has some risk associated with changing interest rates due to the short-term nature of its invested cash, which totaled [removed: $1.6] [added: $1.7] billion, and short-term investments, which totaled [removed: $1.5] [added: $1.6] billion at December 31, [removed: 2015.][added: 2016.]

A hypothetical 10 percent change in market interest rates as of December 31, [removed: 2015,] [added: 2016,] would not have a material effect on the fair value of the Company’s fixed-rate debt instruments.

Assuming floating market rates in effect as of December 31, [removed: 2015] [added: 2016] were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have an immaterial impact on the Company’s net earnings and cash flows.

Utilizing these assumptions and considering the Company’s cash balance (excluding the impact of cash collateral deposits held or provided to counterparties, if applicable), short-term investments, and floating-rate debt outstanding at December 31, [removed: 2015,] [added: 2016,] an increase in rates would have a net negative effect on the Company’s earnings and cash flows, while a decrease in rates would have a net positive effect on the Company’s earnings and cash flows.

The Company is also subject to a financial covenant included in its revolving credit facility, and is subject to credit rating triggers related to its credit card transaction processing agreements, the pricing related to any funds drawn under [removed: its revolving credit facility, and some of its hedging counterparty agreements.]

As of December 31, [removed: 2015,] [added: 2016,] the Company was in compliance with this covenant and there were no amounts outstanding under the revolving credit facility.

However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations,

Given its investment grade credit rating, the Company can meet any additional significant collateral calls by posting aircraft and/or letters of credit.

See Note 10 to the Consolidated Financial Statements.

Although there is interest rate

its revolving credit facility, and some of its hedging counterparty agreements.

the Company’s Fuel and oil expense by approximately $20 million for 2016, excluding any impact associated with fuel derivative instruments held.

its operations.

Also, the Company has the ability to manage or reduce its derivative positions by entering into offsetting positions, as it did during 2015, for a portion of its future hedge portfolio.

A portion of the fuel derivatives in the Company's hedge portfolio are based on the market price of West Texas intermediate crude oil ("WTI").

Although the Company has some fuel derivatives based on the price of Brent, to the extent the Company holds WTI-based derivatives, changes in the fair value of these positions will continue to create income statement volatility and may not provide complete protection against jet fuel price volatility.

would have recorded had the notes remained at floating rates.

As a result of previous turmoil in credit markets, the Company has discontinued further investments in auction rate securities.

As of December 31, 2015, $835 million in cash collateral deposits were

On June 30, 2010, the plaintiffs filed a motion to certify a class, which AirTran and Delta [removed: have] opposed.

The parties [removed: have submitted briefs on class certification, and the parties have] filed motions to exclude the [removed: class certification] opinions of [removed: each other’s expert.][added: the other parties' experts on class certification and on the merits.]

On August 31, 2012, AirTran and Delta moved for summary judgment on all of plaintiffs' remaining [removed: claims, but discovery disputes between plaintiffs and Delta delayed further briefing on summary judgment.][added: claims.]

On January 8, 2016, the parties completed briefing on [removed: defendants’] [added: defendants'] motions for summary judgment, [removed: plaintiffs’] [added: plaintiffs'] motion for class certification, and the motions to exclude the opinions of [removed: experts, and those motions have been submitted to the Court for decision.][added: experts.]

Since then, a number of similar class action complaints [removed: have been] [added: were] filed in the United States District Courts for the Central District of California, the Northern District of California, the District of Columbia, the Middle District of Florida, the Southern District of Florida, the Northern District of Georgia, the Northern District of Illinois, the Southern District of Indiana, the Eastern District of Louisiana, the District of Minnesota, the District of New Jersey, the Eastern District of New York, the Southern District of New York, the Middle District of North Carolina, the District of Oklahoma, the Eastern District of Pennsylvania, the Northern District of Texas, the District of Vermont, and the Eastern District of Wisconsin.

The Company [added: denies all allegations of wrongdoing and] intends to vigorously defend these civil cases.

In addition, on July 8, 2015, the Company was named as a defendant in [added: a] putative class action filed in [removed: British Columbia,] [added: the Federal Court in] Canada alleging that the Company, Air Canada, American Airlines, Delta Air [removed: Lines] [added: Lines,] and United Airlines colluded to [added: restrict capacity and maintain higher fares for Canadian residents traveling in the United States and for travel between the United States and Canada.]

The time for the Company to respond to the [added: remaining] complaints has not yet expired.

The Company [added: denies all allegations of wrongdoing and] intends to vigorously defend these civil cases in Canada.

On July 12, 2016, the Court granted plaintiffs’ motion to certify a class of all persons who paid first bag fees to AirTran or Delta from December 8, 2008 to November 1, 2014 (the date on which AirTran stopped charging first bag fees).

Defendants submitted a petition to appeal the class certification decision, which the Court of Appeals for the Eleventh Circuit granted on October 7, 2016, and the appeal is ongoing.

Defendants’ motions for summary judgment have been submitted for decision and are still pending.

On March 25, 2016, the plaintiffs filed a Consolidated Amended Complaint in the consolidated cases alleging that the defendants conspired to restrict capacity from 2009 to present.

The plaintiffs seek to bring their claims on behalf of a class of persons who purchased tickets for domestic airline travel on the defendants' airlines from July 1, 2011 to present.

They seek treble damages, injunctive relief, and attorneys' fees and expenses.

On May 11, 2016, the defendants moved to dismiss the Consolidated Amended Complaint, and on October 28, 2016, the Court denied this motion.

On January 31, 2017, the Court entered a case management schedule

that calls for discovery to be completed, and for plaintiffs to file a motion for class certification, by April 27, 2018.

Similar lawsuits were filed in the Supreme Court of British Columbia on July 15, 2015, Court of Queen's Bench for Saskatchewan on August 4, 2015, Superior Court of the Province of Quebec on September 21, 2015, and Ontario Superior Court of Justice on October 6, 2015.

In December 2015, the Company entered into Tolling and Discontinuance agreements with putative class counsel in the Federal Court and British Columbia and Ontario proceedings and a discontinuance agreement with putative class counsel in the Quebec proceeding.

The other defendants entered into an agreement with the same putative class counsel to stay the Federal Court, British Columbia, and Quebec proceedings and to proceed in Ontario.

On June 10, 2016, the Federal Court granted plaintiffs' motion to discontinue that action against the Company without prejudice and stayed the action against the other defendants.

On July 13, 2016, the plaintiff unilaterally discontinued the action against the Company in British Columbia.

On September 28, 2016, the plaintiff filed a motion to discontinue the Quebec proceeding against the Company and to stay that proceeding against the other defendants.

An initial case conference in the Ontario litigation was held on January 27, 2017, and the case managing judge scheduled a motion to discontinue that proceeding as to the Company for March 10, 2017.

The plaintiffs in the remaining complaints generally seek damages (including punitive damages in certain cases), prejudgment interest, disgorgement of any benefits accrued by the defendants as a result of the allegations, injunctive relief, and attorneys' fees and other costs.

| | |

| --- | --- |

| Item 4. | Mine Safety Disclosures |

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following information regarding the Company’s executive officers is as of February 1, 2017.

| | | |

| --- | --- | --- |

| | | |

| Name | Position | Age |

| Gary C. Kelly | Chairman of the Board & Chief Executive Officer | 61 |

| Thomas M. Nealon | President | 55 |

| Michael G. Van de Ven | Chief Operating Officer | 55 |

| Robert E. Jordan | Executive Vice President & Chief Commercial Officer | 56 |

| Jeff Lamb | Executive Vice President Corporate Services | 54 |

| Tammy Romo | Executive Vice President & Chief Financial Officer | 54 |

| Gregory D. Wells | Executive Vice President Daily Operations | 58 |

| Mark R. Shaw | Senior Vice President, General Counsel, & Corporate Secretary | 54 |

Set forth below is a description of the background of each of the Company’s executive officers.

Gary C.

Kelly has served as the Company’s Chairman of the Board since May 2008 and as its Chief Executive Officer since July 2004.

Mr. Kelly also served as President from July 2008 to January 2017, Executive Vice President & Chief

Financial Officer from June 2001 to July 2004, and Vice President Finance & Chief Financial Officer from 1989 to 2001.

On August 5, 2015, the Court entered an order granting class certification, which was vacated on August 17, 2015, to permit further briefing on class certification and AirTran’s motion to exclude plaintiffs’ expert.

Thereafter, the parties filed motions to exclude the opinions of the other parties’ experts.

The complaints seek treble damages for periods that vary among the complaints, costs, attorneys’ fees, and injunctive relief.

The Court has not yet entered a scheduling order establishing a date for defendants to respond to the complaints.

restrict capacity and maintain higher fares for Canadian citizens traveling in the United States and for travel between the United States and Canada.

Similar lawsuits were filed in Ontario, Quebec and Saskatchewan.

10-K 1 [removed: luv-12312015x10k.htm] [added: luv-12312016x10k.htm] FORM 10-K

| | For the fiscal year ended December 31, [removed: 2015] [added: 2016] |

[removed: ][added: ]

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately [removed: $21,774,060,585] [added: $24,270,482,662] computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, [removed: 2015,] [added: 2016,] the last trading day of the registrant’s most recently completed second fiscal quarter.

Number of shares of common stock outstanding as of the close of business on [removed: January 29, 2016: 638,070,032] [added: February 3, 2017: 615,254,524] shares

Portions of the Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held May [removed: 18, 2016,] [added: 17, 2017,] are incorporated into Part III of this Annual Report on Form 10-K.

| Item 1. | [removed: [Business](#s4A83A2CD8108F4F15A150236C1EE5D8D)] [added: [Business](#sBF52A3334A2753EDB682E287A4BCA566)] | [removed: [4](#s4A83A2CD8108F4F15A150236C1EE5D8D)] [added: [4](#sBF52A3334A2753EDB682E287A4BCA566)] |

| Item 1A. | [Risk [removed: Factors](#s24B2A3858FAA081039A50236C677A15C)] [added: Factors](#s11C20A20575F5AD286EF8C56EB38931D)] | [removed: [20](#s24B2A3858FAA081039A50236C677A15C)] [added: [20](#s11C20A20575F5AD286EF8C56EB38931D)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s7B53D6D2E1433F94636F0236CFB1F070)] [added: Comments](#s2D37B4C079C553D3A682CC376B1B7075)] | [removed: [28](#s7B53D6D2E1433F94636F0236CFB1F070)] [added: [26](#s2D37B4C079C553D3A682CC376B1B7075)] |

| Item 2. | [removed: [Properties](#sC11063D64EECE7210A640236C04F5C3A)] [added: [Properties](#sCBDC6FB501245E95B268FD50A1B9D966)] | [removed: [28](#sC11063D64EECE7210A640236C04F5C3A)] [added: [26](#sCBDC6FB501245E95B268FD50A1B9D966)] |

| Item 3. | [Legal [removed: Proceedings](#s11D407BBE43518DB79B30236CFE8CFCA)] [added: Proceedings](#s49AA948F0627572DA25042C9336D5E61)] | [removed: [30](#s11D407BBE43518DB79B30236CFE8CFCA)] [added: [28](#s49AA948F0627572DA25042C9336D5E61)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s14F8EF6277AF86B824280236D00AD32B)] [added: Disclosures](#sB66B9F5B40045F22A44804505BB18010)] | [removed: [31](#s14F8EF6277AF86B824280236D00AD32B)] [added: [29](#sB66B9F5B40045F22A44804505BB18010)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#s2CB2A65B6D641EC38D500236BFA073A5)] [added: Securities](#s1D7E6B03D92957ABA03FF8044B61AD1D)] | [removed: [33](#s2CB2A65B6D641EC38D500236BFA073A5)] [added: [32](#s1D7E6B03D92957ABA03FF8044B61AD1D)] |

| Item 6. | [Selected Financial [removed: Data](#s60B486B371CEDBA663D90236D7EB62B2)] [added: Data](#sA0EA33312D5D5F668DDAC7AE2AC0CBC9)] | [removed: [35](#s60B486B371CEDBA663D90236D7EB62B2)] [added: [34](#sA0EA33312D5D5F668DDAC7AE2AC0CBC9)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s2D5C4E90201E805E3E640236B910142D)] [added: Operations](#sFCC7B348993058999E391799154EB859)] | [removed: [37](#s2D5C4E90201E805E3E640236B910142D)] [added: [36](#sFCC7B348993058999E391799154EB859)] |

| | [Liquidity and Capital [removed: Resources](#sADFA291F3433AF270B6F0236BFFAF8B5)] [added: Resources](#sB5FE867D0AC85A50A7825C3E1961A35E)] | [removed: [52](#sADFA291F3433AF270B6F0236BFFAF8B5)] [added: [49](#sB5FE867D0AC85A50A7825C3E1961A35E)] |

| | [Off-Balance Sheet Arrangements, Contractual Obligations, and Contingent Liabilities and [removed: Commitments](#sE7DDD322E66A5DA6DABC0236BFF92DDE)] [added: Commitments](#sB5A59AC88A0353CC8BB9322F038E7A24)] | [removed: [53](#sE7DDD322E66A5DA6DABC0236BFF92DDE)] [added: [51](#sB5A59AC88A0353CC8BB9322F038E7A24)] |

| | [Critical Accounting Policies and [removed: Estimates](#s97ECFE9C60CACA7A3FC40236C01C4C6D)] [added: Estimates](#s6599287EE105547B8424EF709A60113B)] | [removed: [56](#s97ECFE9C60CACA7A3FC40236C01C4C6D)] [added: [54](#s6599287EE105547B8424EF709A60113B)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s90865E07D7678FA383070236BFA69073)] [added: Risk](#s88253CC3DE11555EAF47D78314A18368)] | [removed: [63](#s90865E07D7678FA383070236BFA69073)] [added: [60](#s88253CC3DE11555EAF47D78314A18368)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#sA87A1362CED4B40D66990236E685D962)] [added: Data](#s1C6594E502915E9FA0CD3970251F9720)] | [removed: [67](#sA87A1362CED4B40D66990236E685D962)] [added: [63](#s1C6594E502915E9FA0CD3970251F9720)] |

| | [Southwest Airlines Co. Consolidated Balance [removed: Sheet](#sF240235E5008619906180236B73F2E9A)] [added: Sheet](#s06BB168C1C525326B6E295C3D1EC824C)] | [removed: [67](#sF240235E5008619906180236B73F2E9A)] [added: [63](#s06BB168C1C525326B6E295C3D1EC824C)] |

| | [Southwest Airlines Co. Consolidated Statement of [removed: Income](#sA372D8C804C357E4BF500236B8B7A469)] [added: Income](#s9B0259E7C2A850EA989CCD10F80FB408)] | [removed: [68](#sA372D8C804C357E4BF500236B8B7A469)] [added: [64](#s9B0259E7C2A850EA989CCD10F80FB408)] |

| | [Southwest Airlines Co. Consolidated Statement of Comprehensive [removed: Income](#s64753235607AA17142520236B84A8118)] [added: Income](#sAAF911135F6C52E698991866A21104AA)] | [removed: [69](#s64753235607AA17142520236B84A8118)] [added: [65](#sAAF911135F6C52E698991866A21104AA)] |

| | [Southwest Airlines Co. Consolidated Statement of Stockholders’ [removed: Equity](#sDFBD5C3993E21BC853860236B7EA3EAE)] [added: Equity](#s4FD5968B8825504781B641220682815E)] | [removed: [70](#sDFBD5C3993E21BC853860236B7EA3EAE)] [added: [66](#s4FD5968B8825504781B641220682815E)] |

| | [Southwest Airlines Co. Consolidated Statement of Cash [removed: Flows](#s6B2AFACF72BD38FDB1930236B8632863)] [added: Flows](#s30D88EEBE39F5DDE9A6F8FF761035A33)] | [removed: [71](#s6B2AFACF72BD38FDB1930236B8632863)] [added: [67](#s30D88EEBE39F5DDE9A6F8FF761035A33)] |

| | [Notes to Consolidated Financial [removed: Statements](#s4FA38F30784CAD61DCBD0236E80642D4)] [added: Statements](#sE54E1DD70F2E53C6AC31C256A2F37FDB)] | [removed: [72](#s4FA38F30784CAD61DCBD0236E80642D4)] [added: [68](#sE54E1DD70F2E53C6AC31C256A2F37FDB)] |

| Item 9. | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#sE9DA3F2DE6064F1805890236EBEF7925)] [added: Disclosure](#sF8CF722E4B0451878EFC200C64F9C8A1)] | [removed: [111](#sE9DA3F2DE6064F1805890236EBEF7925)] [added: [106](#sF8CF722E4B0451878EFC200C64F9C8A1)] |

| Item 9A. | [Controls and [removed: Procedures](#sF9BFBC307C522E6C172D0236EC0F6BD8)] [added: Procedures](#s0402287DF69955459714C883DF41D1EA)] | [removed: [111](#sF9BFBC307C522E6C172D0236EC0F6BD8)] [added: [106](#s0402287DF69955459714C883DF41D1EA)] |

| Item 9B. | [Other [removed: Information](#s7B599619F5FA85915E7A0236EC410007)] [added: Information](#sF726D3968F0C565F95B1A85563F1346C)] | [removed: [112](#s7B599619F5FA85915E7A0236EC410007)] [added: [107](#sF726D3968F0C565F95B1A85563F1346C)] |

| Item 10. | [Directors, Executive Officers, and Corporate [removed: Governance](#sD97926E7530852EB9D1B0236EC9549FC)] [added: Governance](#sD83C8497728E57C981277A2E0ABA5CD9)] | [removed: [112](#sD97926E7530852EB9D1B0236EC9549FC)] [added: [107](#sD83C8497728E57C981277A2E0ABA5CD9)] |

| Item 11. | [Executive [removed: Compensation](#s7E7EB92B61323103F6D10236ECB6AA77)] [added: Compensation](#sABE107F5F2175036A2CF275BA5DEDFFA)] | [removed: [112](#s7E7EB92B61323103F6D10236ECB6AA77)] [added: [107](#sABE107F5F2175036A2CF275BA5DEDFFA)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sB944FC99379A7E4D126E0236C4FB450F)] [added: Matters](#s609E1011C6A85053BBB827C6FBC79C5A)] | [removed: [112](#sB944FC99379A7E4D126E0236C4FB450F)] [added: [107](#s609E1011C6A85053BBB827C6FBC79C5A)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sA82F875171268144B2220236ED09BB31)] [added: Independence](#sB3CCC15F7BFC52D9A4ADCEC080C9BF0C)] | [removed: [113](#sA82F875171268144B2220236ED09BB31)] [added: [108](#sB3CCC15F7BFC52D9A4ADCEC080C9BF0C)] |

| Item 14. | [Principal Accounting Fees and [removed: Services](#s5BF8AC0C1C12131C930C0236ED3B7E83)] [added: Services](#s150450E5E69850BDB6A1F4DC05BC6C8B)] | [removed: [113](#s5BF8AC0C1C12131C930C0236ED3B7E83)] [added: [108](#s150450E5E69850BDB6A1F4DC05BC6C8B)] |

| Item 15. | [Exhibits and Financial Statement [removed: Schedules](#s33F2C1321617BA7BB9B30236ED8E4834)] [added: Schedules](#sCB19C84AB9355151959CC8C0A7DBA5E0)] | [removed: [114](#s33F2C1321617BA7BB9B30236ED8E4834)] [added: [109](#sCB19C84AB9355151959CC8C0A7DBA5E0)] |

For the [removed: 43rd] [added: 44th] consecutive year, the Company was profitable, earning $2.2 billion in net income.

[removed: The Company ended 2015 serving 97] [added: At December 31, 2016, Southwest operated a total of 723 Boeing 737 aircraft and served 101] destinations in 40 states, the District of Columbia, the Commonwealth of Puerto Rico, and [removed: seven] [added: eight] near-international [removed: countries including] [added: countries:] Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, [added: Belize,] and [removed: Belize.][added: Cuba.]

Based on the most recent data available from the U.S. Department of [removed: Transportation,] [added: Transportation (the "DOT"),] as of June 30, [removed: 2015,] [added: 2016,] Southwest was the largest domestic air carrier in the United States, as measured by the number of domestic originating passengers boarded.

The U.S. airline industry benefited from moderate economic growth during [removed: 2015] [added: 2016] and was further aided by [removed: a significant drop in] [added: low] fuel prices.

[removed: The] [added: In recent years, the] U.S. airline industry, including Southwest, has increased available seat miles (also referred to as “capacity,” an available seat mile is one seat, empty or full, flown one mile and is a measure of space available to carry passengers in a given period), and has increased the number of seats per trip (or “gauge”) through slimline seat retrofits and the use of larger aircraft.

| [Signatures](#s35E54FFD1A2551CDBF23487A391D72DD) | | [114](#s35E54FFD1A2551CDBF23487A391D72DD) |

The Company added its first three destinations in Cuba during 2016, with service to Varadero and Santa Clara from Fort Lauderdale-Hollywood International Airport and service to Havana from both Fort Lauderdale and Tampa International Airport.

The Company also expanded its domestic footprint during 2016, with the commencement of service at Long Beach Airport, the Company's fifth service point in the L.A. Basin and tenth airport in California.

This has enabled the Company to more economically serve long-haul routes, as well as high-demand, slot-controlled, and gate-restricted

With the addition of Long Beach Airport to the Company’s route map in 2016, the Company added four weekday flights from Long Beach to Oakland, which, in turn, has brought connectivity between Long Beach and 20 cities on the Southwest network across the Pacific Northwest and mid-America.

Based on the most recent data available from the DOT, as of June 30, 2016, Southwest offers more seats than any other carrier each day to, from, and within California.

The Company has announced plans to add service, beginning in June 2017, to Cincinnati/Northern Kentucky International Airport and, subject to requisite government approvals, to Owen Roberts International Airport in Grand Cayman.

The Company’s addition of service to Cincinnati/Northern Kentucky International Airport, scheduled for June 2017, will give the Company’s Customers access to a full complement of the top 50 markets across the 48 contiguous United States.

Southwest Airlines launched international service in 2014, ending 2016 with service to 14 international destinations through 13 international gateway cities within the 48 contiguous United States.

During 2016, the Company commenced international service out of Los Angeles International Airport by introducing service to Liberia, Costa Rica, and later to three airports in Mexico’s coastal regions: Cancun, San Jose del Cabo/Los Cabos, and Puerto Vallarta.

Also during 2016, the Company began scheduled international service from Fort Lauderdale with daily service to Nassau, Bahamas.

The Company has also announced its first ever international service from Oakland International Airport and San Diego International Airport, its 14th and 15th international gateway cities within the 48 contiguous United States, with daily flights from Oakland to San Jose del Cabo/Los Cabos and Puerto Vallarta scheduled to begin in February 2017 and from San Diego to San Jose del Cabo/Los Cabos scheduled to begin in April 2017.

In connection with the scheduled opening of a new five-gate international concourse at Fort Lauderdale-Hollywood International Airport (FLL) in June 2017, the Company has announced a significantly expanded international flight schedule for South Florida to a total of eight international nonstop destinations.

In addition to existing service, beginning in June 2017, the Company is scheduled to offer new daily international nonstop service from Fort Lauderdale to Montego Bay, Jamaica; Belize City, Belize; and Cancun, Mexico, and subject to requisite government approvals, Grand Cayman.

The Company's operating revenues in 2014 included the operating revenues of AirTran Airways ("AirTran").

and Ft.

The Company’s focus on controlling costs also includes ongoing work to reduce fuel consumption.

Furthermore, as evidenced by the table below, energy prices can fluctuate significantly in a relatively short amount of time.

| 2016 | | $ | 3,647 | | | $ | 1.82 | | | 21.9 | % |

| First Quarter 2016 | | $ | 852 | | | $ | 1.80 | | | 21.9 | % |

| Second Quarter 2016 | | $ | 903 | | | $ | 1.75 | | | 22.0 | % |

| Third Quarter 2016 | | $ | 941 | | | $ | 1.83 | | | 21.2 | % |

| Fourth Quarter 2016 | | $ | 952 | | | $ | 1.90 | | | 22.5 | % |

The Company also announced its intent to accelerate the retirement of its 737-300 aircraft to no later than third quarter 2017, when it is scheduled to take delivery of its first, more fuel-efficient, Boeing 737-8 aircraft.

The Company's fleet composition and delivery schedules are discussed in more detail below under "Properties - Aircraft." The Company has also undertaken a number of other fuel conservation initiatives which are discussed in detail under “Regulation - Environmental Regulation."

The Company also enters into fuel derivative contracts to manage its risk associated with significant increases in fuel prices.

Salaries, wages, and benefits expense constituted approximately 41 percent of the Company’s operating expenses during 2016 and was the Company’s largest operating cost.

The Company’s ability to control labor costs is limited by the terms of its collective-bargaining agreements, and increased labor costs have negatively impacted the Company’s low-cost competitive position.

The Company’s labor costs, and risks associated therewith, are discussed in more detail below under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

international flights.

In late 2016, the Company entered into new WiFi connectivity agreements designed to yield greater WiFi bandwidth available to Customers on WiFi-equipped aircraft beginning in mid-2017.

By the end of 2017, the Company expects to operate a 100 percent WiFi-equipped fleet.

AirTran’s final passenger service occurred on December 28, 2014, and it has been integrated into Southwest.

Southwest.com highlights points of differentiation between Southwest and other air carriers and provides information on the Company’s fare and ancillary products.

Both sites meet Web Content Accessibility Guidelines (2.0, Level AA) in order to provide an optimal experience for more people with disabilities.

In 2014, the Company launched a new visual expression of its brand - Heart - to symbolize the Company’s care, trust, and belief in providing exceptional Hospitality, and its Employees’ dedication to connecting Customers with what is important in their lives.

In 2016, the Company unveiled the next phase

of the Heart brand with the introduction of its first aircraft with a new Heart cabin interior.

The new 737-800 interiors, which will also be included in the Company’s 737-8 aircraft, give Southwest Customers a look and feel of the future, with bold blue seats and additional seat width and legroom, an adjustable headrest, enhanced back comfort, and extra room for personal belongings.

In addition, in mid-2017, front-line Employees will begin wearing Employee-designed uniforms that highlight the Company’s red and blue Heart brand.

| [Signatures](#s918E10F8737E19AFF1B00236EDB05736) | | [119](#s918E10F8737E19AFF1B00236EDB05736) |

During 2015, the Company added its first three destinations in Central America (San Jose, Costa Rica, Belize City, Belize, and Liberia, Costa Rica) and also commenced Southwest service to a fourth destination in Mexico (Puerto Vallarta).

At December 31, 2015, Southwest operated a total of 704 Boeing 737 aircraft.

During 2015, the Company also added 20 domestic nonstop destinations from Dallas Love Field.

These routes were made possible by the repeal of certain federal flight restrictions at Dallas Love Field in October 2014.

At year-end 2015, Southwest offered a total of 180 weekday departures to 50 nonstop destinations from Dallas Love Field.

In addition, the Company added eight international nonstop destinations from a newly constructed five-gate international terminal at Houston’s William P.

Hobby Airport.

General

Southwest Airlines launched international service in 2014, and ended 2015 with service to 11 international destinations.

The Company’s international expansion in 2015 was facilitated by the completion of construction of a new five-gate international terminal at Houston’s William P.

The new terminal includes an expanded security checkpoint and an upgraded Southwest ticketing area.

The Company controlled this expansion and the related financial terms pursuant to an Airport Use and Lease Agreement with the City of Houston.

Approximately $226 million of the Company’s 2014 operating revenues were attributable to foreign operations (including those attributable to both Southwest and AirTran).

The remainder of the Company’s 2014 operating revenues, approximately $18.4 billion, was attributable to domestic operations.

Impact of Fuel Costs on the Company’s Low-Cost Structure; Fuel Initiatives

| First Quarter 2015 | | $ | 877 | | | $ | 2.01 | | | 24.1 | % |

| Second Quarter 2015 | | $ | 1,005 | | | $ | 2.03 | | | 25.0 | % |

| Third Quarter 2015 | | $ | 936 | | | $ | 1.98 | | | 22.9 | % |

| Fourth Quarter 2015 | | $ | 798 | | | $ | 1.65 | | | 20.2 | % |

The Company enters into fuel derivative contracts to manage its risk associated with significant increases in fuel prices; however, as is evidenced by the table above, energy prices can fluctuate significantly in a relatively short amount of time, and the cost of hedging generally increases with sustained high potential for volatility in the fuel market.

Therefore, the Company continually monitors and adjusts its fuel hedge portfolio and strategies to address not only fuel price increases, but also fuel price volatility, hedge costs, and hedge collateral requirements.

For example, during 2015, the Company took delivery of 19 Boeing 737-800 aircraft and 24 Boeing 737-700 aircraft.

In 2016, the Company currently expects to take delivery of an additional 36 Boeing 737-800 aircraft and 17 Boeing 737-700 aircraft.

As further discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 1 to the Consolidated Financial Statements, the Company recently announced its intent to accelerate the retirement of its 737-300 and 737-500 aircraft.

The Company's fleet composition and delivery schedule is discussed in more detail below under "Properties - Aircraft." The Company also continued to participate in Required Navigation Performance (“RNP”) operations as part of the FAA’s Performance Based Navigation program.

The Company’s RNP activities are discussed further under “Regulation - Environmental Regulation."

Southwest.com highlights points of differentiation between Southwest and other air carriers, as well as the fact that southwest.com is the only place where Customers can purchase Southwest fares online.

In October 2015, the Company premiered a new advertising campaign called TransfarencySM..

In addition, many of the future airport conversions will be integrated into existing and upcoming airport improvement projects.

This single reservation system is expected to be implemented in 2017 and is expected to (i) provide significant incremental revenue opportunities beyond implementation; (ii) allow the

Company to offer product enhancements that will benefit Customers; (iii) give the Company a flexible and reliable foundation that will allow it to adapt more quickly and efficiently, and better respond to industry demands; and (iv) reduce the complexities associated with maintaining and operating multiple reservation systems.

In August 2015, the Company achieved one of the first milestones of the single reservation system when its Customer Support & Services group (“CS&S”) began using Amadeus Group Manager for international group reservations.

This enhanced functionality allows CS&S to book larger numbers of Passengers on a single reservation via streamlined booking processes.

During 2015, the Company also activated a new recovery optimization tool designed to help the Company effectively manage its increasingly complex network.

The optimizing tool assists with irregular operations such as out of service events, station reduction, and station shutdown, by considering many factors including passenger and crew connections, airport curfews, equipment mismatches, and mission and maintenance requirements.

will provide adequate food and potable drinking water no later than two hours after the aircraft leaves the gate (in the case of departure) or touches down (in the case of arrival) if the aircraft remains on the tarmac, unless the pilot-in-command determines that safety or security considerations preclude such service; and (iii) an assurance of operable lavatories, as well as adequate medical attention, if needed.

The DOT has issued a proposed rule that would further expand the Passenger Protection Rules.

First, the proposed rule would require airlines to share with ticket agents fee information for “basic ancillary services,” including fees for a first checked bag, second checked bag, carry-on items, and advance seat selection.

Second, the proposed rule would require enhanced reporting of information to the DOT by mainline carriers for their domestic code-share partner operations.

Southwest operated a total of [removed: 704] [added: 723] Boeing 737 aircraft as of December 31, [removed: 2015,] [added: 2016,] of which [removed: 95] [added: 83] and [removed: 28] [added: 51] were under operating and capital leases, respectively.

The following table details information on the [removed: 704] [added: 723] aircraft as of December 31, [removed: 2015:][added: 2016:]

| 737-300 [removed: (b)] | | 137 or 143 | | 22 | | | [removed: 118] [added: 87] | | [added: (b)] | [removed: 78] [added: 57] | | | [removed: 40] [added: 30] | |

| 737-700 | | 143 | | [removed: 11] [added: 13] | | | [removed: 471] [added: 494] | | | 397 | | | [removed: 74] [added: 97] | |

| 737-800 | | 175 | | 2 | | | [removed: 104] [added: 142] | | | [removed: 97] [added: 135] | | | 7 | |

| (a) | As discussed further in Note 6 to the Consolidated Financial Statements, [removed: 181] [added: 202] of the Company's aircraft were pledged as collateral as of December 31, [removed: 2015,] [added: 2016,] for secured borrowings and/or in the case that the Company has obligations related to its fuel derivative instruments with counterparties that exceed certain thresholds. |

| (b) | Of the total, [removed: 78] [added: 77] 737-300 aircraft [removed: had] [added: have] 143 seats and [removed: 40] [added: 10] have 137 seats. |

As of December 31, [removed: 2015,] [added: 2016,] the Company had firm deliveries and options for Boeing 737-700, 737-800, [removed: 737 MAX 7,] [added: 737-7,] and [removed: 737 MAX 8] [added: 737-8] aircraft as follows:

| | The Boeing Company [removed: 737 NG] | | | | | | | [removed: The Boeing Company 737 MAX] | | | | | | | | | | [added: |]

| | \-800 Firm Orders | | [added: \-800] Options | | [removed: Additional -700 A/C] | [removed: | |] \-7 Firm Orders | | \-8 Firm Orders | | | [added: \-8] Options | | | [added: Additional -700s | | |] Total | |

| 2017 | [removed: 35] [added: 39] | | — | | [removed: 14] | [removed: | |] — | | 14 | | | — | | | [removed: 63] [added: 14] | | [added: | 67 | |]

| 2018 | [removed: 18 | | 18] [added: 21] | | [removed: 4] [added: 9] | | | — | | 13 | | | — | | | [removed: 53] [added: 4] | | [added: | 47 | |]

| 2019 | — | | — | | [removed: —] | [added: 15] | | [removed: 15] [added: —] | | [removed: 10] | [added: 5] | | [added: |] — | | | [removed: 25] [added: 20] | |

| 2020 | — | | — | | [removed: —] | [added: 14] | | [removed: 14] [added: —] | | [removed: 22] | [added: 8] | | [added: |] — | | | [removed: 36] [added: 22] | |

| 2021 | — | | — | | [removed: —] | [removed: | |] 1 | | [removed: 33] [added: 13] | | | 18 | | | [removed: 52] [added: —] | | [added: | 32 | |]

| 2022 | — | | — | | [added: |] — | | [added: 15] | [removed: —] | | [removed: 30] [added: 19] | | | [removed: 19] [added: —] | | | [removed: 49] [added: 34] | |

| 2023 | — | | — | | [added: |] — | | [added: 34] | [removed: —] | | [removed: 24] [added: 23] | | | [removed: 23] [added: —] | | | [removed: 47] [added: 57] | |

| 2024 | — | | — | | [added: |] — | | [added: 41] | [removed: —] | | [removed: 24] [added: 23] | | | [removed: 23] [added: —] | | | [removed: 47] [added: 64] | |

| 2025 | — | | — | | [added: |] — | | [added: 40] | [removed: —] | | [removed: —] [added: 36] | | | [removed: 36] [added: —] | | | [removed: 36] [added: 76] | |

| 2026 | — | | — | | [removed: —] | [removed: | |] — | | — | | | 36 | | | [added: — | | |] 36 | |

| 2027 | — | | — | | [removed: —] | [added: —] | | — | | [removed: —] | [added: 23] | | [removed: 36] | [added: —] | | [removed: 36] | [added: 23] | [added: |]

| [removed: Total] | [removed: 89 | | 18] [added: 60] | | [removed: 35] [added: 9] | | [removed: (b)] [added: (a)] | 30 | | 170 | | [removed: (a)] [added: (b)] | 191 | | | [removed: 533] [added: 18] | | [added: (c) | 478 | |]

[removed: (a)] [added: (b)] The Company has flexibility to substitute [removed: MAX 7] [added: 737-7] in lieu of [removed: MAX 8] [added: 737-8] firm orders beginning in 2019.

[removed: (b)] [added: (c)] To be acquired in leases from various third parties.

The Company leases the land and/or structures on a long-term basis for its aircraft maintenance centers (located at Dallas Love Field, Houston Hobby, Phoenix Sky Harbor, Chicago Midway, Hartsfield-Jackson Atlanta International [removed: Airport] [added: Airport,] and Orlando International Airport), its [added: current] flight training center at Dallas Love Field (which [added: currently] houses [removed: ten] [added: Boeing] 737 [added: flight] simulators), and its main corporate headquarters building, also located at Dallas Love Field.

[removed: The Company owns an] [added: This] energy-efficient, modern [removed: building designed to house] [added: building, called TOPS, houses] certain operational and training functions, including its 24-hour operations.

[removed: This] [added: The Company owns an] additional headquarters [removed: building is] [added: building,] located across the street from the Company’s [removed: current] [added: main] headquarters [removed: building] [added: building,] on land owned by the Company.

Additional information regarding [removed: this project] [added: these projects] is provided below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 4 to the Consolidated Financial Statements.

As of December 31, [removed: 2015,] [added: 2016,] the Company operated seven Customer Support and Services call centers.

| Totals | | | | 12 | | | 723 | | | 589 | | | 134 | |

| | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | |

(a) Includes two -800 options exercised in January 2017.

The Company has commitments associated with various airport improvement projects, including ongoing construction at Fort Lauderdale-Hollywood International Airport and Los Angeles International Airport.

These projects include the construction of new facilities and the rebuilding or modernization of existing facilities.

In 2016, the Company broke ground on an additional headquarters building, called Wings, designed to house flight simulators, classroom space for Pilot training, and additional work areas.

The Wings building is scheduled to be completed in 2018 and is also located across the street from the Company’s main headquarters building on land owned by the Company.

The Company expects to begin moving its 12 737 flight simulators to the Wings building during 2017 and expects to have all of its flight simulators in the Wings building by mid-2018.

In 2017, the Company expects to add a pedestrian safety bridge to its corporate campus in order to connect the main headquarters building, the TOPS building, and the Wings building.

| 737-500 | | 122 | | 24 | | | 11 | | | 9 | | | 2 | |

| Totals | | | | 12 | | | 704 | | | 581 | | | 123 | |

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| 2016 | 36 | | — | | 17 | | | — | | — | | | — | | | 53 | |

The Company’s international expansion in 2015 was facilitated by the completion of construction of a new five-gate international terminal at Houston’s William P.

Hobby Airport with international passenger processing facilities, an expanded security checkpoint, and an upgraded Southwest ticketing area.

The Company controlled this expansion and related financial terms pursuant to an Airport Use and Lease Agreement with the City of Houston.

Pursuant to an agreement with Broward County, Florida, which owns and operates Fort Lauderdale-Hollywood International Airport, the Company is also overseeing and managing the design and construction of the airport’s Terminal 1 Modernization Project.

In addition to significant improvements to the existing Terminal 1, the project includes the design and construction of a new five-gate Concourse A with an international processing facility.

Major construction on the project began during third quarter 2015 and is estimated to be completed during 2017.

Pursuant to a lease agreement with Los Angeles World Airports, which owns and operates Los Angeles International Airport, the Company is also overseeing and managing the design, development, financing, construction, and commissioning of the airport's Terminal 1 Modernization Project.

Construction on the project began during fourth quarter 2014 and is estimated to be completed during 2018.

The Company also managed the reconstruction of Dallas Love Field with modern, convenient air travel facilities (“Love Field Modernization Program”).

The project consisted of the complete replacement of gate facilities with a new 20-gate facility, including infrastructure, systems and equipment, aircraft parking apron, fueling system, roadways and terminal curbside, baggage handling systems, passenger loading bridges and support systems, and other supporting infrastructure.

The Love Field Modernization Program is discussed in more detail below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 4 to the Consolidated Financial Statements.

As of [removed: January 29, 2016,] [added: February 3, 2017,] there were approximately [removed: 13,518] [added: 12,850] holders of record of the Company’s common stock.

The following graph compares the cumulative total shareholder return on the Company’s common stock over the five-year period ended December 31, [removed: 2015,] [added: 2016,] with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the NYSE ARCA Airline Index.

The comparison assumes $100 was invested on December 31, [removed: 2010,] [added: 2011,] in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.

[removed: ][added: ]

| | | [removed: 12/31/2010 | | | |] 12/31/2011 | | | | 12/31/2012 | | | | 12/31/2013 | | | | 12/31/2014 | | | | 12/31/2015 | | | [added: | 12/31/2016 | | |]

| (1) | [removed: In] [added: On] May [removed: 2015,] [added: 18, 2016,] the Company’s Board of Directors authorized the repurchase of up to [removed: $1.5] [added: $2.0] billion of the Company’s common stock. Repurchases are made in accordance with applicable securities laws in open market, private, or [removed: in] accelerated repurchase transactions from time to time, depending on market conditions, and may be discontinued at any time. |

| (2) | Under an accelerated share repurchase program entered into by the Company with a third party financial institution in third quarter [removed: 2015 ("Third] [added: 2016 (the "Third] Quarter [added: 2016] ASR Program"), the Company paid [removed: $500] [added: $250] million and received an initial delivery of [removed: 9,679,195] [added: 4,956,384] shares during third quarter [removed: 2015,] [added: 2016,] representing an estimated 75 percent of the shares to be purchased by the Company under the Third Quarter [added: 2016] ASR Program based on a [removed: volume-weighted average] price of [removed: $38.74] [added: $37.83] per [removed: share] [added: share, which was the closing price] of the Company’s common stock on the New York Stock Exchange [removed: during a calculation period between August 3, 2015 and August 20, 2015.] [added: on July 22, 2016.] Final settlement of this Third Quarter [added: 2016] ASR Program occurred in [removed: November 2015] [added: October 2016] and was determined based generally on a discount to the volume-weighted average price per share of the Company's common stock during a calculation period completed in October [removed: 2015.] [added: 2016.] Upon settlement, the third party financial institution delivered [removed: 3,213,009] [added: 1,709,877] additional shares of the Company’s common stock to the Company. In total, the average purchase price per share for the [removed: 12,892,204] [added: 6,666,261] shares repurchased under the Third Quarter [added: 2016] ASR Program, upon completion of the Third Quarter [added: 2016] ASR Program in [removed: November 2015,] [added: October 2016,] was [removed: $38.78.] [added: $37.5023.] |

| 2016 | | | | | | | | | | | | |

| 1st Quarter | | $ | 0.07500 | | | $ | 45.39 | | | $ | 33.96 | |

| 2nd Quarter | | 0.10000 | | | | 48.00 | | | | 36.48 | | |

| 3rd Quarter | | 0.10000 | | | | 45.00 | | | | 35.42 | | |

| 4th Quarter | | 0.10000 | | | | 51.31 | | | | 36.91 | | |

| Southwest Airlines Co. | | $ | 100 | | | $ | 120 | | | $ | 222 | | | $ | 502 | | | $ | 514 | | | $ | 600 | |

| S&P 500 | | $ | 100 | | | $ | 116 | | | $ | 153 | | | $ | 177 | | | $ | 176 | | | $ | 197 | |

| NYSE ARCA Airline | | $ | 100 | | | $ | 138 | | | $ | 218 | | | $ | 327 | | | $ | 277 | | | $ | 356 | |

| October 1, 2016 through October 31, 2016 | | 1,709,877 | | | $ | — | | (2 | ) | 1,709,877 | | | $ | 1,250,000,000 | | |

| November 1, 2016 through November 30, 2016 | | — | | | $ | — | | (3 | ) | — | | | $ | 950,000,000 | | |

| December 1, 2016 through December 31, 2016 | | 4,723,420 | | | $ | — | | (3 | ) | 4,723,420 | | | $ | 950,000,000 | | |

| Total | | 6,433,297 | | | | | | | | 6,433,297 | | | | | | |

| | |

| --- | --- |

| (3) | Under an accelerated share repurchase program entered into by the Company with a third party financial institution in fourth quarter 2016 (the "Fourth Quarter 2016 ASR Program"), the Company paid $300 million in November 2016 and received an initial delivery of 4,723,420 shares during December 2016, representing an estimated 75 percent of the shares to be purchased by the Company under the Fourth Quarter 2016 ASR Program based on a volume-weighted average price of $47.6350 per share of the Company’s common stock on the New York Stock Exchange during a calculation period between November 18, 2016 and December 8, 2016. The specific number of shares that the Company ultimately will repurchase under the Fourth Quarter 2016 ASR Program will be determined based generally on a discount to the volume-weighted average price per share of the Company’s common stock during a calculation period to be completed in February 2017. At settlement, under certain circumstances, the third party financial institution may be required to deliver additional shares of common stock to the Company, or under certain circumstances, the Company may be required to deliver shares of its common stock or may elect to make a cash payment to the third party financial institution. |

| 2014 | | | | | | | | | | | | |

| 1st Quarter | | $ | 0.04000 | | | $ | 24.17 | | | $ | 18.78 | |

| 2nd Quarter | | 0.06000 | | | | 27.70 | | | | 22.35 | | |

| 3rd Quarter | | 0.06000 | | | | 35.49 | | | | 25.86 | | |

| 4th Quarter | | 0.06000 | | | | 43.19 | | | | 28.40 | | |

| Southwest Airlines Co. | | $ | 100 | | | $ | 66 | | | $ | 79 | | | $ | 147 | | | $ | 332 | | | $ | 340 | |

| S&P 500 | | $ | 100 | | | $ | 102 | | | $ | 119 | | | $ | 156 | | | $ | 177 | | | $ | 180 | |

| NYSE ARCA Airline | | $ | 100 | | | $ | 70 | | | $ | 96 | | | $ | 152 | | | $ | 227 | | | $ | 193 | |

| October 1, 2015 through October 31, 2015 | | — | | | $ | — | | | | — | | | $ | 700,000,000 | | |

| November 1, 2015 through November 30, 2015 | | 3,213,009 | | | $ | — | | (2 | ) | 3,213,009 | | | $ | 700,000,000 | | |

| December 1, 2015 through December 31, 2015 | | — | | | $ | — | | | | — | | | $ | 700,000,000 | | |

| Total | | 3,213,009 | | | | | | | | 3,213,009 | | | | | | |

The following financial information, for the five years ended December 31, [removed: 2015,] [added: 2016,] has been derived from the Company’s Consolidated Financial Statements.

| | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| Operating revenues | | $ | [removed: 19,820] [added: 20,425] | | | $ | [removed: 18,605] [added: 19,820] | | | $ | [removed: 17,699] [added: 18,605] | | | $ | [removed: 17,088] [added: 17,699] | | | $ | [removed: 15,658] [added: 17,088] | |

| Operating expenses | | [removed: 15,704] [added: 16,665] | | | | [removed: 16,380] [added: 15,704] | | | | [removed: 16,421] [added: 16,380] | | | | [removed: 16,465] [added: 16,421] | | | | [removed: 14,965] [added: 16,465] | | |

| Operating income | | [removed: 4,116] [added: 3,760] | | | | [removed: 2,225] [added: 4,116] | | | | [removed: 1,278] [added: 2,225] | | | | [removed: 623] [added: 1,278] | | | | [removed: 693] [added: 623] | | |

| Other expenses (income) net | | [added: 213 | | | |] 637 | | | | 409 | | | | 69 | | | | (62 | | ) | [removed: | 370 | | |]

| Income before taxes | | [removed: 3,479] [added: 3,547] | | | | [removed: 1,816] [added: 3,479] | | | | [removed: 1,209] [added: 1,816] | | | | [removed: 685] [added: 1,209] | | | | [removed: 323] [added: 685] | | |

| Provision for income taxes | | [removed: 1,298] [added: 1,303] | | | | [removed: 680] [added: 1,298] | | | | [removed: 455] [added: 680] | | | | [removed: 264] [added: 455] | | | | [removed: 145] [added: 264] | | |

| Net income | | $ | [removed: 2,181] [added: 2,244] | | | $ | [removed: 1,136] [added: 2,181] | | | $ | [removed: 754] [added: 1,136] | | | $ | [removed: 421] [added: 754] | | | $ | [removed: 178] [added: 421] | |

| Net income per share, basic | | $ | [removed: 3.30] [added: 3.58] | | | $ | [removed: 1.65] [added: 3.30] | | | $ | [removed: 1.06] [added: 1.65] | | | $ | [removed: 0.56] [added: 1.06] | | | $ | [removed: 0.23] [added: 0.56] | |

| Net income per share, diluted | | $ | [removed: 3.27] [added: 3.55] | | | $ | [removed: 1.64] [added: 3.27] | | | $ | [removed: 1.05] [added: 1.64] | | | $ | [removed: 0.56] [added: 1.05] | | | $ | [removed: 0.23] [added: 0.56] | |

| Cash dividends per common share | | $ | [removed: 0.2850] [added: 0.3750] | | | $ | [removed: 0.2200] [added: 0.2850] | | | $ | [removed: 0.1300] [added: 0.2200] | | | $ | [removed: 0.0345] [added: 0.1300] | | | $ | [removed: 0.0180] [added: 0.0345] | |

| Total assets at period-end (1) | | $ | [removed: 21,312] [added: 23,286] | | | $ | [removed: 19,723] [added: 21,312] | | | $ | [removed: 19,177] [added: 19,723] | | | $ | [removed: 18,350] [added: 19,177] | | | $ | [removed: 17,805] [added: 18,350] | |

| Long-term obligations at period-end | | $ | [removed: 2,541] [added: 2,821] | | | $ | [removed: 2,434] [added: 2,541] | | | $ | [removed: 2,191] [added: 2,434] | | | $ | [removed: 2,883] [added: 2,191] | | | $ | [removed: 3,107] [added: 2,883] | |

| Stockholders’ equity at period-end | | $ | [removed: 7,358] [added: 8,441] | | | $ | [removed: 6,775] [added: 7,358] | | | $ | [removed: 7,336] [added: 6,775] | | | $ | [removed: 6,992] [added: 7,336] | | | $ | [removed: 6,877] [added: 6,992] | |

| Revenue passengers carried | | [removed: 118,171,211] [added: 124,719,765] | | | | [removed: 110,496,912] [added: 118,171,211] | | | | [removed: 108,075,976] [added: 110,496,912] | | | | [removed: 109,346,509] [added: 108,075,976] | | | | [removed: 103,973,759] [added: 109,346,509] | | |

| Enplaned passengers | | [removed: 144,574,882] [added: 151,740,357] | | | | [removed: 135,767,188] [added: 144,574,882] | | | | [removed: 133,155,030] [added: 135,767,188] | | | | [removed: 133,978,100] [added: 133,155,030] | | | | [removed: 127,551,012] [added: 133,978,100] | | |

| Revenue passenger miles (RPMs) (000s) (2) | | [removed: 117,499,879] [added: 124,797,986] | | | | [removed: 108,035,133] [added: 117,499,879] | | | | [removed: 104,348,216] [added: 108,035,133] | | | | [removed: 102,874,979] [added: 104,348,216] | | | | [removed: 97,582,530] [added: 102,874,979] | | |

| Available seat miles (ASMs) (000s) (3) | | [removed: 140,501,409] [added: 148,522,051] | | | | [removed: 131,003,957] [added: 140,501,409] | | | | [removed: 130,344,072] [added: 131,003,957] | | | | [removed: 128,137,110] [added: 130,344,072] | | | | [removed: 120,578,736] [added: 128,137,110] | | |

| Load factor (4) | | [removed: 83.6] [added: 84.0] | | % | | [removed: 82.5] [added: 83.6] | | % | | [removed: 80.1] [added: 82.5] | | % | | [removed: 80.3] [added: 80.1] | | % | | [removed: 80.9] [added: 80.3] | | % |

| Average length of passenger haul (miles) | | [removed: 994] [added: 1,001] | | | | [removed: 978] [added: 994] | | | | [removed: 966] [added: 978] | | | | [removed: 941] [added: 966] | | | | [removed: 939] [added: 941] | | |

| Average aircraft stage length (miles) | | [removed: 750] [added: 760] | | | | [removed: 721] [added: 750] | | | | [removed: 703] [added: 721] | | | | [removed: 693] [added: 703] | | | | [removed: 679] [added: 693] | | |

| Trips flown | | [removed: 1,267,358] [added: 1,311,149] | | | | [removed: 1,255,502] [added: 1,267,358] | | | | [removed: 1,312,785] [added: 1,255,502] | | | | [removed: 1,361,558] [added: 1,312,785] | | | | [removed: 1,317,977] [added: 1,361,558] | | |

| Seats flown (5) | | [removed: 184,955,094] [added: 193,167,695] | | | | [removed: 179,733,055] [added: 184,955,094] | | | | [removed: 183,563,527] [added: 179,733,055] | | | | [removed: 184,208,891] [added: 183,563,527] | | | | [removed: 177,469,069] [added: 184,208,891] | | |

| Seats per trip (6) | | [removed: 145.94] [added: 147.33] | | | | [removed: 143.16] [added: 145.94] | | | | [removed: 139.83] [added: 143.16] | | | | [removed: 135.92] [added: 139.83] | | | | [removed: 134.65] [added: 135.92] | | |

| Average passenger fare [removed: (12)] [added: (11)] | | $ | [removed: 154.85] [added: 149.09] | | | $ | [removed: 159.80] [added: 154.85] | | | $ | [removed: 154.72] [added: 159.80] | | | $ | [removed: 147.17] [added: 154.72] | | | $ | [removed: 141.90] [added: 147.17] | |

| Passenger revenue yield per RPM (cents) [removed: (7)(12)] [added: (7)(11)] | | [removed: 15.57] [added: 14.90] | | | | [removed: 16.34] [added: 15.57] | | | | [removed: 16.02] [added: 16.34] | | | | [removed: 15.64] [added: 16.02] | | | | [removed: 15.12] [added: 15.64] | | |

| Operating revenue per ASM (cents) (8) | | [removed: 13.98] [added: 13.75] | | | | [removed: 14.20] [added: 13.98] | | | | [removed: 13.58] [added: 14.20] | | | | [removed: 13.34] [added: 13.58] | | | | [removed: 12.99] [added: 13.34] | | |

| Passenger revenue per ASM (cents) [removed: (9)(12)] [added: (9)(11)] | | [removed: 13.02] [added: 12.52] | | | | [removed: 13.48] [added: 13.02] | | | | [removed: 12.83] [added: 13.48] | | | | [removed: 12.56] [added: 12.83] | | | | [removed: 12.24] [added: 12.56] | | |

| Operating expenses per ASM (cents) (10) | | [removed: 11.18] [added: 11.22] | | | | [removed: 12.50] [added: 11.18] | | | | [removed: 12.60] [added: 12.50] | | | | [removed: 12.85] [added: 12.60] | | | | [removed: 12.41] [added: 12.85] | | |

| Operating expenses per ASM, excluding fuel (cents) | | [removed: 8.61] [added: 8.76] | | | | [removed: 8.46] [added: 8.60] | | | | [removed: 8.18] [added: 8.46] | | | | [removed: 8.07] [added: 8.18] | | | | [removed: 7.73] [added: 8.07] | | |

| Operating expenses per ASM, excluding fuel and profitsharing (cents) | | [removed: 8.17] [added: 8.37] | | | | [removed: 8.19] [added: 8.16] | | | | [removed: 8.01] [added: 8.19] | | | | [removed: 7.98] [added: 8.01] | | | | [removed: 7.65] [added: 7.98] | | |

| Fuel costs per gallon, including fuel tax | | $ | [removed: 1.90] [added: 1.82] | | | $ | [removed: 2.93] [added: 1.90] | | | $ | [removed: 3.16] [added: 2.93] | | | $ | [removed: 3.30] [added: 3.16] | | | $ | [removed: 3.19] [added: 3.30] | |

| Fuel costs per gallon, including fuel tax, economic | | $ | [removed: 2.07] [added: 1.92] | | | $ | [removed: 2.92] [added: 2.07] | | | $ | [removed: 3.12] [added: 2.92] | | | $ | [removed: 3.28] [added: 3.12] | | | $ | [removed: 3.19] [added: 3.28] | |

| Fuel consumed, in gallons (millions) | | [removed: 1,901] [added: 1,996] | | | | [removed: 1,801] [added: 1,901] | | | | [removed: 1,818] [added: 1,801] | | | | [removed: 1,847] [added: 1,818] | | | | [removed: 1,764] [added: 1,847] | | |

| Active fulltime equivalent Employees | | [removed: 49,583] [added: 53,536] | | | | [removed: 46,278] [added: 49,583] | | | | [removed: 44,381] [added: 46,278] | | | | [removed: 45,861] [added: 44,381] | | | | [removed: 45,392] [added: 45,861] | | |

| Aircraft at end of period [removed: (11)] | | [removed: 704] [added: 723] | | | | [removed: 665] [added: 704] | | | | [removed: 681] [added: 665] | | | | [removed: 694] [added: 681] | | | | [removed: 698] [added: 694] | | |

| (1) | Historical amounts have been restated to align with current presentation. [removed: See Note 1 to the Consolidated Financial Statements for further information.] |

| (8) | Calculated as operating [removed: revenues, excluding special items,] [added: revenues] divided by available seat miles. Also referred to as [removed: "RASM" or] "operating unit [removed: revenues,"] [added: revenues" or "RASM,"] this is a measure of operating revenue production based on the total available seat miles flown during a particular period. Year ended 2015 RASM excludes a $172 million one-time [removed: non-cash] special revenue adjustment. [added: Including the special revenue adjustment, RASM would have been 14.11 cents for the year ended 2015.] Additional information regarding this special item is provided in the Note Regarding Use of Non-GAAP Financial Measures and a reconciliation of revenue excluding special items related to accounting changes in the accompanying pages. |

| [removed: (12)] [added: (11)] | Refer to Note 1 to the Consolidated Financial Statements for additional information regarding the impact from the [added: Company's] July 2015 amended co-branded credit card agreement with Chase Bank USA, N.A. |

This financial information includes the operations of AirTran from the May 2, 2011 acquisition date through the end of AirTran service on December 28, 2014.

Any financial information presented prior to May 2, 2011, or after December 28, 2014, includes only the operations of Southwest unless otherwise indicated.

| | |

| --- | --- |

| (11) | Aircraft in the Company's fleet at end of period, less Boeing 717-200s removed from service in preparation for transition out of the fleet. |

| | December 31, [removed: 2015] [added: 2016] | | | | December 31, [removed: 2014] [added: 2015] | | |

| Cash and cash equivalents | $ | [removed: 1,583] [added: 1,680] | | | $ | [removed: 1,282] [added: 1,583] | |