Southwest Airlines (LUV) 10-K risk factor changes: FY2023 vs FY2022

The following risk factors are summarized as financial; operational; information technology; [removed: COVID-19;] and legal, regulatory, compliance, and reputational.

[removed: Prolonged] [added: experience prolonged delivery] delays [removed: in the FAA issuing required certifications or approvals for the -7, or further regulatory actions by the FAA with respect to the] [added: of] MAX aircraft, [removed: could materially and adversely affect] the [removed: Company’s] [added: Company's] business plans, strategies, and results of [removed: operations.][added: operations could be materially and adversely affected.]

- The Company's business is labor intensive, with most Employees represented by labor unions; therefore, the Company could be materially adversely affected in the event of conflict with its Employees or its Employees' representatives or if the Company were unable to employ [added: and retain] sufficient numbers of qualified Employees to maintain its operations.

- The Company is currently dependent on a single engine supplier, as well as single suppliers of certain other aircraft parts and equipment; therefore, the Company could be materially adversely affected (i) if it were unable to obtain timely or sufficient delivery of aircraft parts or equipment from Boeing or other suppliers or adequate maintenance or other support from any of these [removed: suppliers,] [added: suppliers at commercially reasonable terms,] (ii) if Boeing or other suppliers were unable to achieve and/or maintain required regulatory certifications or approvals of their parts or equipment, or (iii) in the event of a mechanical or regulatory issue associated with the Company's aircraft parts or equipment.

- The airline industry has faced on-going security concerns and related cost burdens; further threatened or actual terrorist attacks, [added: war,] or other hostilities, even if not made directly on the airline industry, could significantly harm the airline industry and the Company's operations.

- Interruptions or disruptions in service at one of the Company’s core stations [removed: could] have [added: had, and could in the future have,] a material adverse impact on its operations.

An inability to quickly and effectively restore operations following adverse [removed: weather or] [added: weather,] a localized [removed: disaster] [added: disaster,] or disturbance in a key geography has adversely and materially impacted, and in the future could again adversely and materially impact, the Company’s business, results of operations, and financial condition.

- The airline industry is made up of inherently complex [removed: systems,] [added: systems] and is affected by many conditions that are beyond its control, which can impact the Company's business strategies and results of operations.

- The Company is increasingly dependent on technology to operate its business and continues to implement substantial changes to its information systems; any failure, disruption, breach, or delay in implementation of [added: necessary changes to] the Company's information systems could materially adversely affect its operations.

- Developing and expanding data security and privacy requirements could increase the Company's operating costs, and any failure of the Company to maintain the security of certain Customer, Employee, and business-related information could result in [added: disruption to operations and] damage to the Company's reputation and could be costly to remediate.

- The Company is subject to extensive FAA regulation that may [added: disrupt or] necessitate modifications to the Company’s operations, business plans, and strategies.

- The Company is subject to various environmental requirements and risks, including increased regulation, changing consumer preferences, physical, environmental, and climate risks, and risks associated with climate [removed: change.][added: change; the cost of compliance with more stringent environmental regulations, failure to comply with environmental regulations, or failure to otherwise manage the risks of climate change effectively could have a material adverse effect on the Company’s results of operations.]

- The Company is subject to risks related to its [removed: voluntary] sustainability goals and disclosures, which may affect stakeholder sentiment and the Company’s reputation and brand.

- The Company is currently subject to [added: regulatory actions and] pending litigation, and if [removed: judgment] [added: judgment, penalties, or fines] were to be rendered against the [removed: Company in litigation,] [added: Company,] such [removed: judgment] [added: judgment, penalties, or fines] could adversely affect the Company's operating results.

In addition, to the extent business travel recovers [removed: from the COVID-19 pandemic,] [added: to pre-pandemic levels,] businesses may require the purchase of less expensive tickets to reduce costs.

Additionally, because [removed: expenses] [added: a significant portion] of [added: expenses to operate] a flight do not vary significantly with the number of passengers carried, a relatively small change in the number of passengers can have a disproportionate effect on an airline’s operating and financial results.

Airlines are inherently dependent upon energy to operate, and jet fuel and oil represented approximately [removed: 26.2] [added: 24.0] percent of the Company's operating expenses for [removed: 2022.][added: 2023.]

As discussed under "Business - Cost Structure," [added: although market jet fuel prices remained volatile throughout the year,] Fuel and oil expense for [removed: 2022 increased significantly compared with 2021,] [added: 2023 remained high,] primarily due to higher [removed: market jet fuel prices and in part due to higher] capacity in response to consumer demand.

[removed: The] [added: Furthermore, the] cost of fuel can be extremely volatile and unpredictable and subject to [added: many external] factors [removed: outside of] [added: that are beyond] the [removed: Company’s] [added: Company's] control.

[removed: For example, fuel prices can be impacted by political,] environmental (including those related to climate change), and economic factors, such as (i) dependency on foreign imports of crude oil and the potential for hostilities or other conflicts in oil producing areas; (ii) limitations and/or disruptions in domestic refining or pipeline operations or capacity due to weather, natural disasters, or other factors; (iii) worldwide demand for fuel, particularly in developing countries, which can result in inflated energy prices; (iv) changes in U.S. governmental policies on fuel production, transportation, taxes, and marketing; and (v) changes in currency exchange rates.

[removed: Because the Company uses a variety of different] [added: In some cases, these] derivative instruments [removed: 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 in some cases] could [removed: in fact] result in hedging losses, which could result in the Company effectively paying higher than market prices for fuel, thus creating additional volatility in the Company's earnings.

A disruption in that supply could present significant challenges to the Company's operations and could ultimately cause the cancellation of flights and/or [removed: the inability of] [added: hinder] the [removed: Company] [added: Company’s ability] to provide service to a particular airport.

The airline industry could face potential fuel shortages in [removed: 2023] [added: 2024] due to pipeline capacity [removed: constraints] [added: constraints,] resulting from the shifting of jet fuel allocations during the COVID-19 [removed: pandemic] [added: pandemic,] as well as a national shortage of interstate trucking capacity.

However, unless there is additional jet fuel distribution capacity, whether by pipeline and/or by truck, there could be temporary disruptions (e.g., flight cancellations or passenger caps) at one or more of the Company’s airports in [removed: 2023,] [added: 2024,] especially during peak travel periods.

[removed: Even before the pandemic, the] [added: The] Company's low-cost position [removed: had] [added: has also] been challenged by the [removed: significant] growth of "Ultra-Low Cost Carriers" ("ULCCs"), which in some cases have surpassed the Company's cost advantage with larger aircraft, increased seat density, and lower wages.

ULCCs have further introduced "unbundled" service [removed: offerings] [added: offerings,] which appeal to price-sensitive travelers through promotion to consumers of an extremely low relative base fare for a seat, while separately charging for related services and products.

[removed: Also in] [added: In] response to competitive ULCC pricing, some carriers removed fare floors for certain routes, leading to a lower fare offering across the industry.

Jet fuel and oil constituted approximately [removed: 26.2] [added: 24] percent of the Company's operating expenses during [removed: 2022,] [added: 2023,] and the Company's ability to control the cost of fuel is subject to the external factors discussed in “The Company's business can be significantly impacted by the availability of jet fuel and high and/or volatile fuel prices, and the Company's operations are subject to disruption in the event of any delayed supply of fuel; therefore, the Company's strategic plans and future profitability are likely to be impacted by the Company's ability to effectively address fuel price increases and fuel price volatility and availability.”

Salaries, wages, and benefits constituted approximately [removed: 41.0] [added: 43] percent of the Company's operating expenses during [removed: 2022.][added: 2023.]

This limited control has negatively impacted the Company's low-cost [removed: position, in particular in the context of the Company's cost reduction efforts during the COVID-19 pandemic.][added: structure and position.]

As discussed further under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company's unionized workforce makes up approximately 83 percent of its Employees and [removed: has] [added: many have] had pay scale increases as a result of contractual rate increases, which has put pressure on the Company's labor costs.

Additionally, as indicated under "Business - Employees," [removed: the majority] [added: a significant number] of Southwest's unionized Employees, including its [removed: Pilots;] Flight Attendants; Ramp, Operations, Provisioning, and Freight Agents; and [removed: Meteorologists] [added: Flight Simulator Technicians] are in unions currently in negotiations for labor agreements, which could result in additional pressure on the Company's low-cost structure.

When this occurs, as it has at times during [removed: the pandemic,] [added: recent years,] certain fixed airport costs are allocated among a fewer number of total flights, which can result in increased landing fees and other costs for the Company.

[added: Disruptions] to capital markets, shortages of skilled personnel, supply chain disruptions, increased regulation, geopolitical developments, and/or adverse economic conditions could subject certain of the Company's third-party vendors and service providers to significant financial pressures, which could lead to delays and other performance issues, ceased operations, or even bankruptcies among these third-party vendors and service providers.

With respect to any insurance claims, policy coverages and claims are subject to acceptance by the many insurers involved and may require [removed: arbitration] [added: arbitration, mediation,] and/or [removed: mediation] [added: litigation] to effectively settle the claims over prolonged periods of time.

As discussed below under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company experienced significant [removed: unit] [added: inflationary] cost pressure in [removed: 2020, 2021,] [added: 2023, particularly with respect to Salaries, wages,] and [removed: 2022 following the onset of the COVID-19 pandemic.][added: benefits expense.]

The execution of the Company's strategic plans [removed: has been] [added: was] significantly negatively affected by the COVID-19 pandemic.

Nevertheless, the Company [removed: began to take] [added: has taken] actions [removed: in 2021 and 2022] to add staffing and increase the starting wage rate for certain workgroups, manage its fleet and fleet order book, and better optimize its network in an effort to position itself to opportunistically recover and [removed: grow as the pandemic subsides.][added: grow.]

The Company's revenues are sensitive to the actions of other carriers with respect to pricing, routes, loyalty programs, scheduling, capacity, customer service, operational reliability, comfort and amenities, [added: product offerings,] cost structure, aircraft fleet, strategic alliances, and code-sharing and similar activities.

[removed: Prolonged delays in] [added: If] the [removed: FAA issuing required certifications or approvals] [added: MAX aircraft were to become unavailable] for the [removed: -7,] [added: Company's operations,] or [removed: further regulatory actions by] [added: if] the [removed: FAA with respect] [added: Company were] to [removed: the] [added: experience prolonged delivery delays of] MAX aircraft, [removed: could materially and adversely affect] the [removed: Company’s] [added: Company's] business plans, strategies, and results of [removed: operations.][added: operations could be materially and adversely affected.]

If the MAX aircraft were to become unavailable for the Company's operations, or if the Company were to

For example, fuel prices can be impacted by political,

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.

The Company participates in fuel consortium arrangements and fuel committees at certain airports.

Fuel consortiums and fuel committees have, directly or indirectly, incurred debt obligations for improvements and capital projects for fuel facilities.

While each participating airline in a consortium is generally allocated a share of the consortium’s costs based on usage, the inability of other participating airlines to satisfy their obligations with respect to fuel consortiums and fuel committees could adversely impact the Company’s financial results.

Deliveries of MAX aircraft from Boeing to the Company are subject to Boeing's production schedules and volumes.

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

In January 2024, the FAA announced that it had informed Boeing that the FAA would not (i) agree to any request from Boeing for an expansion in production or (ii) approve additional production lines for the MAX aircraft until the FAA is satisfied that any applicable Boeing quality control issues are resolved.

In January 2024, Boeing announced plans to withdraw an exemption request with the FAA and incorporate an engineering solution as part of the -7 certification process.

If the MAX aircraft were to become unavailable for the Company’s flight operations, the Company's operations would be materially adversely affected.

Although the Company has surpassed pre-pandemic staffing levels as of December 31, 2023, staffing-related challenges could continue to occur in certain areas and

Changes to the Company’s technology and systems could also expose the Company to intellectual property risks, such as allegations of infringement of third-party patents or copyrights.

Defending against allegations could involve significant fees and resources.

If the Company is found to infringe, the Company may be liable for damages.

Certain new technologies, such as the use of AI, present new and significant risks related to intellectual property, personal data, and confidentiality, among others.

The development of generative AI technologies is complex, and there are legal and practical challenges associated with achieving the desired level of accuracy, efficiency, and reliability.

The algorithms and models utilized in generative AI systems may have limitations, including biases, errors, or inability to handle certain data types or scenarios.

Furthermore, there is a risk of system failures, disruptions, or vulnerabilities that could compromise the confidentiality, integrity, or availability

of the generated content.

The legal landscape is also developing around generative AI technologies and generated content, and the Company's ability to use and commercialize generated content may be affected by legal developments related to intellectual property rights in generated content.

These limitations or failures could result in reputational damage, legal liabilities, or loss of Customer confidence.

There can be no assurance that the usage of AI will enhance the Company’s strategies or initiatives.

While the Company’s crew scheduling software worked as designed during this event, due to a number of factors, including unanticipated changes in the severity of the weather, the Company began implementing frequent close-in flight cancellations.

Although the Company has not experienced cyber incidents that are individually, or in the aggregate, material, the Company has experienced cyber-attacks in

For example, due to air traffic control staffing challenges, government agencies have had to implement short-term capacity constraints during peak travel periods or adverse weather conditions in certain markets, resulting in delays and disruptions of air traffic.

- mandates that affect the usage of SAF;

- changes in laws that could affect the value of the Company’s existing contracts or agreements, such as its co-branded credit card agreement;

Additional regulation could result in increased regulatory or permitting requirements for the Company from multiple jurisdictions, as well as added costs on fuel suppliers that may be passed through to the Company.

For example, the California Air Resources Board has proposed amendments to California’s Low Carbon Fuel Standard (“LCFS”) regulation that would subject intrastate fossil jet fuel to the LCFS, which could in turn increase the demand for and the costs of the limited supply of SAF currently available.

The proposed amendments could also result in increased costs of fossil jet fuel in the California market because of the need for jet fuel producers to produce SAF or buy LCFS credits.

Other states could propose or adopt similar obligations in the future.

Violations of environmental and climate change-related laws and regulations could lead to significant fines and penalties and reputational harm.

In addition to risks from potential changes to environmental regulation and policy, the transition to lower-carbon technologies could materially adversely affect the Company’s financial results.

For example, lower-carbon technologies, such as SAF, are currently not available at scale and may take a significant amount of time to develop and mature, and the cost to transition to them could be prohibitively expensive without appropriate government support, policies, and incentives in place (including tax credits).

For additional disclosure related to the risks of SAF, see the Risk Factor entitled, “The Company is subject to risks related to its sustainability goals and disclosures, which may affect stakeholder sentiment and the Company’s reputation and brand.”

The cost to transition to SAF could be prohibitively expensive without appropriate government support, policies, and incentives in place (including tax credits).

Further, SAF incentives that are currently in place could expire or be repealed, and the Company may have binding SAF purchase commitments that extend beyond various incentives currently in place.

Additionally, SAF purchase agreements may pertain to production from facilities that are planned but not yet

operational, and which may utilize technology that has not been proven at commercial scale.

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COVID-19 Risks

- The COVID-19 pandemic, including associated variants, has materially and adversely affected, and could in the future materially and adversely affect, the Company’s results of operations, financial position, and liquidity.

- The Company has entered into agreements with Treasury with respect to funding support; pursuant to these agreements the Company has agreed to certain restrictions on how it operates its business and uses its cash, which could limit the ability of the Company to take actions that it otherwise might have determined were in the best interests of the Company and its Shareholders.

Furthermore, volatility in fuel prices can be due to many external factors that are beyond the Company's control.

The COVID-19 pandemic has forced the Company and the Company's competitors to implement significant cost reduction measures.

Competitor cost reduction measures such as accelerated fleet retirements, capacity cuts, and network reductions, could have a negative impact on the Company's relative cost position.

Disruptions

Except for changes in the price of fuel, changes in operating expenses for airlines have been largely driven by changes in capacity.

However, the Company's operating expenses are largely fixed once flight schedules are published; and the Company experienced capacity lower than 2019 during 2020, 2021, and 2022 due to the COVID-19 pandemic, which has continued to pressure unit costs.

During the COVID-19 pandemic, the Company has made schedule adjustments based on consumer demand, booking trends, and available crew resources.

The limits on availability of crew resources could continue to require the Company to make additional schedule adjustments and could have a material adverse impact on the Company's results of operations.

While the Company is still assessing the causes of the disruption, the Company’s preliminary assessment is that the crew scheduling software worked as designed during this event.

However, due to a number of factors, including unanticipated changes in the severity of the

weather, the Company began implementing frequent close-in flight cancellations.

The Company believes the unanticipated crew scheduling challenges, together with several other factors, contributed to the extent of the operational disruption.

These laws also are not uniform, as certain laws may be more

The COVID-19 pandemic, including associated variants, has materially and adversely affected, and could in the future materially and adversely affect, the Company’s results of operations, financial position, and liquidity.

The COVID-19 pandemic, including associated variants materially and adversely affected passenger demand and bookings, thereby materially and adversely affecting operating income and cash flows from operations during 2020, 2021, and early 2022.

Any further impact of the COVID-19 pandemic on the Company’s business and its financial and operational performance will depend on future developments, including (i) the duration, spread, severity, or any recurrence of the COVID-19 pandemic, including through any new variant strains of the underlying virus; (ii) the effectiveness, availability, and usage of vaccines; (iii) the impact of government mandates, directives, orders, regulations, and other governmental actions related to the COVID-19 pandemic; (iv) the extent of the impact of the COVID-19 pandemic on overall demand for air travel and the Company's related business plans and decisions; (v) the impact of the COVID-19 pandemic on the Company's ability to retain key Employees; and (vi) the impact of the COVID-19 pandemic on the Company’s access to capital, all of which are highly uncertain and cannot be predicted.

The COVID-19 pandemic may also materially and adversely affect the Company’s supply chain.

For example, the Company is dependent on Boeing as its sole supplier for many of its aircraft parts.

The Company is also dependent on (i) sole or limited suppliers for aircraft engines and certain other aircraft parts, equipment, and services; (ii) third-

The effects of the COVID-19 pandemic on the financial markets may materially and adversely affect the Company’s access to capital and cost of capital, including its ability to raise funds through equity or debt financings.

If the Company’s credit ratings were to be downgraded, or general market conditions were to ascribe higher risk to the Company’s rating levels, the airline industry, or the Company, the Company’s access to capital and the cost of any debt financing would be negatively affected.

The terms of future debt agreements could include more restrictive covenants or require incremental collateral, which could further restrict the Company’s business operations.

There is no guarantee that debt or equity financings will be available in the future to fund the Company’s obligations, or that they will be available on terms consistent with the Company’s expectations.

The COVID-19 pandemic continues to evolve.

The Company has entered into agreements with Treasury with respect to funding support; pursuant to these agreements the Company has agreed to certain restrictions on how it operates its business and uses its cash, which could limit the ability of the Company to take actions that it otherwise might have determined were in the best interests of the Company and its Shareholders.

Since the start of the pandemic, the Company entered into definitive documentation with Treasury with respect to Payroll Support pursuant to three separate Payroll Support programs: the "PSP1 Payroll Support Program" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act; the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021; and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

Pursuant to these agreements, the Company has agreed to certain ongoing restrictions on, and requirements with respect to, its business and operations, including the following:

- The Company was prohibited from repurchasing its common stock and from paying dividends or making capital contributions with respect to its common stock through September 30, 2022;

- The Company must place certain restrictions on certain higher-paid employee and executive pay, including limiting pay increases and severance pay or other benefits upon terminations, until April 1, 2023; and

- The Company must maintain certain internal controls and records relating to the Payroll Support funds, and is subject to additional reporting requirements.

These restrictions and requirements may necessitate that the Company take, or limit taking, actions it might otherwise believe to be in the best interests of the Company and its Shareholders.

For example, the restrictions could require that the Company change certain of its business practices, risk the Company's ability to retain key personnel, and expose the Company to additional costs (including increased compliance costs).

maintenance and operation of aircraft.

On June 30, 2022, the U.S. Supreme Court denied review of the Ninth Circuit’s ruling in Bernstein v.

Virgin America, Inc., which held that federal law did not preempt the California state meal-and-rest-break regulations for flight attendants at issue.

The Company is a defendant in multiple proceedings asserting wage and hour claims with respect to certain employees who work in, or are based in, California.

The [removed: Company's financial] [added: Company recorded] results [removed: in 2021] [added: for 2023] and 2022, on [removed: both] an accounting principles generally accepted in the United States ("GAAP") [removed: basis] and non-GAAP basis, [removed: continued to be affected by the COVID-19 pandemic, which began] [added: as noted] in [removed: early 2020.][added: the following tables.]

The [added: Company’s 2022 results were somewhat impacted by the COVID-19 pandemic, as the] Omicron variant of COVID-19 both impacted travel demand and created staffing challenges for the Company, particularly during January and February 2022.

However, strong travel demand, especially associated with leisure travel, accelerated during March 2022 and continued through [removed: the remainder of the year, producing record operating revenues of $23.8 billion for 2022.][added: 2023.]

In late December 2022, the Company experienced [added: a] wide-scale operational [removed: disruptions] [added: disruption] as extreme winter weather across a significant portion of the United States impacted its operational plan and flight schedules.

Subsequent to Winter Storm Elliott, the Company was challenged [removed: in its efforts] to realign flight crews, flight schedules, and [removed: fleet] [added: aircraft] for a period of several days during this peak demand travel period.

[removed: However, this] [added: This] disruption and subsequent recovery efforts resulted in the cancellation of more than 16,700 flights during the period from December 21 [removed: to] [added: through] December 31, 2022.

[removed: The] [added: For fourth quarter 2022, the] Company [removed: estimates] [added: estimated] the financial impact of this disruption was approximately $800 million on a pre-tax [removed: basis, and resulted in the Company reporting a net loss of $220 million for fourth quarter 2022.][added: basis.]

[removed: The] [added: A significant portion of this impact in fourth quarter 2022 was due to the loss of Operating revenue associated with the flight cancellations that was estimated to be approximately $410 million, and the] remaining impact primarily related to a net increase of approximately $390 million in operating expenses, primarily due to travel expense reimbursements to Customers, the estimated value of Rapid Rewards points offered as a gesture of goodwill to Customers that [removed: are] [added: were] expected to be redeemed, and premium pay and additional compensation for Employees, which were partially offset by lower fuel and oil and profitsharing expenses.

| GAAP | | | | | | [removed: 2022] [added: 2023] | | | | | | [removed: 2021] [added: 2022] | | | | | | [removed: 2022 Change to 2021] [added: Change] | | | | | | [removed: 2019] | | | | | | [removed: 2022 Change to 2019] | | |

| Net income per share, diluted | | | | | | $ | [removed: 0.87] [added: 0.76] | | | | | $ | [removed: 1.61] [added: 0.87] | | | | | [removed: (45.7)] [added: (12.6)] | | | | | | [removed: $] | [removed: 4.27] | | | | | [removed: (79.5)] | | |

| Net income [removed: (loss)] per share, diluted | | | | | | $ | [removed: 1.16] [added: 1.56] | | | | | $ | [removed: (2.15)] [added: 1.16] | | | | | [removed: n.m.] [added: 34.5] | | | | | | [removed: $] | [removed: 4.27] | | | | | [removed: (72.8)] | | |

[added: (c)] See Note [removed: 2] [added: 11] to [removed: the] Consolidated Financial Statements for further information.

The Company provides the operating data below for the years ended December 31, [removed: 2022, 2021,] [added: 2023] and [removed: 2019] [added: 2022] because these statistics are commonly used in the airline industry and, therefore, allow readers to compare the Company’s performance against its results for [added: the] prior [removed: periods,] [added: year period,] as well as against the performance of the Company’s peers.

| | | | | | | Year ended December 31, | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| | | | | | | [removed: 2022 | | | | | | 2021 | | | | | | 2022 Change to 2021] [added: 2023] | | | | | | [removed: 2019] [added: 2022] | | | | | | [removed: 2022 Change to 2019] [added: Change] | | |

| Operating Data: | | | | | | | | | | | | | | | | | | | | | [removed: | | | | | | | | | | | |]

| Revenue passengers carried (000s) | | | | | | [removed: 126,586 | | | | | | 99,111 | | | | | | 27.7] [added: 137,279] | | [removed: %] | | | | [removed: 134,056] [added: 126,586] | | | | | | [removed: (5.6)] [added: 8.4] | | % |

| Revenue passenger miles (RPMs) (in millions)(a) | | | | | | [removed: 123,843 | | | | | | 103,562 | | | | | | 19.6] [added: 136,256] | | [removed: %] | | | | [removed: 131,345] [added: 123,843] | | | | | | [removed: (5.7)] [added: 10.0] | | % |

| Available seat miles (ASMs) (in millions)(b) | | | | | | [removed: 148,467 | | | | | | 132,006 | | | | | | 12.5] [added: 170,323] | | [removed: %] | | | | [removed: 157,254] [added: 148,467] | | | | | | [removed: (5.6)] [added: 14.7] | | % |

| Load factor(c) | | | | | | [removed: 83.4 | | % | | | | 78.5] [added: 80.0] | | % | | | | [removed: 26.1 pts. | | | | | | 83.5] [added: 83.4] | | % | | | | [removed: (5.0)] [added: (3.4)] pts. | | |

| Average length of passenger haul (miles) | | | | | | [removed: 978 | | | | | | 1,045 | | | | | | (6.4)] [added: 993] | | [removed: %] | | | | [removed: 980] [added: 978] | | | | | | [removed: (0.2)] [added: 1.5] | | % |

| Average aircraft stage length (miles) | | | | | | [removed: 728 | | | | | | 790 | | | | | | (7.8)] [added: 730] | | [removed: %] | | | | [removed: 748] [added: 728] | | | | | | [removed: (2.7)] [added: 0.3] | | % |

| Seats per trip(e) | | | | | | [removed: 155.5 | | | | | | 155.2 | | | | | | 0.2] [added: 158.6] | | [removed: %] | | | | [removed: 150.9] [added: 155.5] | | | | | | [removed: 3.0] [added: 2.0] | | % |

| Average passenger fare | | | | | | $ | [removed: 169.12 | | | | | $ | 141.92 | | | | | 19.2 |] [added: 172.18] | [removed: %] | | | | $ | [removed: 154.98] [added: 169.12] | | | | | [removed: 9.1] [added: 1.8] | | % |

| Passenger revenue yield per RPM (cents)(f) | | | | | | [removed: 17.29 | | | | | | 13.58 | | | | | | 27.3] [added: 17.35] | | [removed: %] | | | | [removed: 15.82] [added: 17.29] | | | | | | [removed: 9.3] [added: 0.3] | | % |

| Operating revenues per ASM [removed: (cents)(g)(j) | | | | | | 16.04 | | | | | | 11.96] [added: (cents)(g)] | | | | | | [removed: 34.1] [added: 15.32] | | [removed: %] | | | | [removed: 14.26] [added: 16.04] | | | | | | [removed: 12.5] [added: (4.5)] | | % |

| Passenger revenue per ASM (cents)(h) | | | | | | [removed: 14.42 | | | | | | 10.66 | | | | | | 35.3] [added: 13.88] | | [removed: %] | | | | [removed: 13.21] [added: 14.42] | | | | | | [removed: 9.2] [added: (3.7)] | | % |

| [removed: Operating] [added: Operating] expenses per ASM [removed: (cents)(i) | | | | | | 15.36 | | | | | | 10.66 | | |] [added: (cents)] | | | [removed: 44.1] [added: 15.19] | | [removed: %] [added: ¢] | | | | [removed: 12.38] [added: 15.36] | | [added: ¢] | | | | [removed: 24.1] | | [removed: %] |

| Operating expenses per ASM, excluding fuel (cents) | | | | | | [removed: 11.33 | | | | | | 8.15 | | | | | | 39.0] [added: 11.54] | | [removed: %] | | | | [removed: 9.62] [added: 11.33] | | | | | | [removed: 17.8] [added: 1.9] | | % |

| Operating expenses per ASM, excluding fuel and profitsharing (cents) | | | | | | [removed: 11.25 | | | | | | 7.98 | | | | | | 41.0] [added: 11.47] | | [removed: %] | | | | [removed: 9.19] [added: 11.25] | | | | | | [removed: 22.4] [added: 2.0] | | % |

| Fuel costs per gallon, including fuel tax | | | | | | $ | [removed: 3.10 | | | | | $ | 1.98 | | | | | 56.6 |] [added: 2.89] | [removed: %] | | | | $ | [removed: 2.09] [added: 3.10] | | | | | [removed: 48.3] [added: (6.8)] | | % |

| Fuel costs per gallon, including fuel tax, economic | | | | | | $ | [removed: 3.07 | | | | | $ | 2.01 | | | | | 52.7 |] [added: 2.89] | [removed: %] | | | | $ | [removed: 2.09] [added: 3.07] | | | | | [removed: 46.9] [added: (5.9)] | | % |

| Fuel consumed, in gallons (millions) | | | | | | [removed: 1,922 | | | | | | 1,668 | | | | | | 15.2] [added: 2,143] | | [removed: %] | | | | [removed: 2,077] [added: 1,922] | | | | | | [removed: (7.5)] [added: 11.5] | | % |

| Active full-time equivalent Employees [removed: (j)] | | | | | | [removed: 66,656 | | | | | | 55,093 | | | | | | 21.0] [added: 74,806] | | [removed: %] | | | | [removed: 60,767] [added: 66,656] | | | | | | [removed: 9.7] [added: 12.2] | | % |

| Aircraft at end of [removed: period (k) | | | | | | 770 | | | | | | 728] [added: period(j)] | | | | | | [removed: 5.8] [added: 817] | | [removed: %] | | | | [removed: 747] [added: 770] | | | | | | [removed: 3.1] [added: 6.1] | | % |

[removed: (k)Included] [added: (j)Included] four [removed: and six] Boeing 737-700 ("700") Next Generation aircraft in temporary storage as of December 31, [removed: 2022 and December 31, 2021, respectively.][added: 2022.]

See [removed: Note 17 to] the [removed: Consolidated] [added: Note Regarding Use of Non-GAAP] Financial [removed: Statements] [added: Measures] for further information.

The following tables present selected financial guidance for first quarter and full year [removed: 2023:][added: 2024:]

| [removed: ASMs, year-over-year (a)] [added: ASMs (b), year-over-year] | | | | | | | | | Up ~10% | | |

| Economic fuel costs per gallon [removed: (b) (c)] [added: (c) (d)] | | | | | | | | | [removed: $3.25] [added: $2.70] to [removed: $3.35] [added: $2.80] | | |

The Company had record full year 2023 revenue performance, producing operating revenues of $26.1 billion, due to healthy leisure demand and continued yield strength combined with record ancillary revenue, loyalty program revenue, and passengers carried.

In 2023, the Company was able to focus on completing a comprehensive winter action plan, restoring its network and operational stability, reaching full utilization of its fleet, and delivering on significant new capabilities for its Customers.

For first quarter 2023, these events also created a deceleration in bookings, largely isolated to January and February 2023, as well as additional expenses primarily in the form of reimbursing Customers for costs incurred as a result of the flight cancellations.

The financial impact of this disruption on first quarter 2023 results was approximately $380 million on a pre-tax basis.

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

During fourth quarter 2023, the Company accrued an expense of $107 million associated with a settlement reached with the DOT in December 2023 based on their investigation into the disruption, which includes a cash penalty and incorporates a future commitment for Southwest Customer care with a new Customer compensation policy.

An additional $33 million penalty was also assessed by the DOT, but was able to be credited against the substantial value the Company had already provided to its Customers impacted by the disruption, and therefore did not result in further impact to the Company's financial results for 2023.

Other than the fourth quarter 2023 charge associated with the DOT settlement, there were no material impacts to operating revenues or expenses as a result of this disruption beyond first quarter 2023.

To boost operational resiliency in key areas across the Company and to mitigate the risk of a recurrence, the Company developed a three-part tactical action plan focused on improving winter operations, accelerating

operational-related investments, and enhancing cross-team collaboration.

The Company's action plan was released in March 2023 and key winter operations steps were completed as of October 2023, as planned.

| Operating income | | | | | | $ | 224 | | | | | $ | 1,017 | | | | | (78.0) | | | | | | | | | | | | | | |

| Net income | | | | | | $ | 465 | | | | | $ | 539 | | | | | (13.7) | | | | | | | | | | | | | | |

| Operating income | | | | | | $ | 893 | | | | | $ | 1,120 | | | | | (20.3) | | | | | | | | | | | | | | |

| Net income | | | | | | $ | 980 | | | | | $ | 723 | | | | | 35.5 | | | | | | | | | | | | | | |

The Company's financial results, as shown above on a GAAP and non-GAAP basis for the year ended December 31, 2023 versus the year ended December 31, 2022, were affected by higher salaries, wages, and benefits expense and maintenance materials and repairs expense.

On a GAAP basis, the Company's results for the year ended December 31, 2023 included incremental expense of $180 million for changes in estimate related to the contract ratification bonus for the Company's Flight Attendants as part of a tentative agreement reached in October 2023 and an incremental expense of $354 million for changes in estimate related to the contract ratification bonus for the Company's Pilots as part of a tentative agreement reached in December 2023, both of which were treated as special items and excluded from the Company's presentation of non-GAAP results.

Additionally, due to the December 2022 operational disruption, as described above, the financial results on a GAAP and non-GAAP basis for the year ended December 31, 2023 included a negative financial impact of approximately $380 million on a pre-tax basis in first quarter 2023 and, on a GAAP basis, a $107 million charge on a pre-tax basis for the DOT settlement in fourth quarter 2023.

The expense related to the tentative agreement with Pilots combined with the charge related to the settlement with the DOT resulted in the Company reporting a net loss of $252 million on a GAAP basis for fourth quarter 2023.

Furthermore, on a GAAP and non-GAAP basis, the financial results for the year ended December 31, 2022 included a negative financial impact of approximately $800 million on a pre-tax basis in fourth quarter 2022 related to the December 2022 operational disruption and, on a GAAP basis, the financial results for the year ended December 31, 2022 included a $193 million pre-tax loss on extinguishment of debt primarily due to the repurchase of a portion of the Company's May 1, 2020 public offering of $2.3 billion aggregate principal amount of Convertible Senior notes (the "Convertible Notes").

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| Enplaned passengers (000s) | | | | | | 171,817 | | | | | | 156,982 | | | | | | 9.5 | | % |

| Trips flown | | | | | | 1,459,427 | | | | | | 1,298,219 | | | | | | 12.4 | | % |

| Seats flown (000s)(d) | | | | | | 231,409 | | | | | | 201,913 | | | | | | 14.6 | | % |

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

2024 Outlook

| | | | | | | | | | 1Q 2024 Estimation | | |

| RASM (a), year-over-year | | | | | | | | | Up 2.5% to 4.5% | | |

| | | | | | | | | | 2024 Estimation | | |

| Fuel hedging premium expense per gallon | | | | | | | | | $0.07 | | |

| Aircraft (g) | | | | | | | | | 847 | | |

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

The Company currently plans for approximately 79 Boeing 737 MAX ("MAX") aircraft deliveries and 49 aircraft retirements in 2024, including 45 Boeing 737-700s ("-700") and four Boeing 737-800s ("-800").

The Company expects first quarter 2024 RASM to increase in the range of 2.5 percent to 4.5 percent, year-over-year.

This increase includes an approximate five point tailwind due to the negative revenue impact incurred in first quarter 2023 associated with the December 2022 operational disruption.

Sequentially, the performance represents a healthy improvement driven primarily by network optimization, market share contributions from the Company's Global Distribution System initiative, growth in the Rapid Rewards loyalty program, and continued strength in overall demand.

The network optimization is materially complete with the March 2024 schedule, at which point the Company expects a return to profitability.

Managed business revenues improved during 2022, but remained below 2019 levels, including approximately 20 percent below fourth quarter 2019 levels in fourth quarter 2022.

The Company returned to a normal operating schedule on December 30, 2022.

A significant portion of this impact was due to the loss of Operating revenue associated with the flight cancellations that is estimated to be approximately $410 million.

Following the disruption, the Company has put mitigation elements in place to reduce the risk of future operational disruptions that could impede the travel plans of its Customers.

These elements, along with efforts that remain in progress, currently include:

- Creating an early indicator dashboard that closely monitors operational health and signals an alert if the Company approaches predefined operational thresholds,

- Establishing supplemental staffing that can quickly mobilize to support Crew recovery efforts,

- Enhancing its Crew engagement technology to better communicate with large numbers of Crew Members during frequent schedule changes, and

- Updating and upgrading the Company’s Crew recovery system to not only solve current and future schedules, but also provide the ability to optimize established schedules as they are being revised during irregular operations.

Going forward, the Company is also taking additional steps to understand and review the disruption, which will determine the Company's future actions.

The Company has engaged Oliver Wyman, a third-party global aviation consulting firm, to complete an assessment of the event and make recommendations of additional mitigation steps for consideration.

In addition, the Company’s Board of Directors has established an Operations Review Committee that is working with the Company's Management to help oversee the Company's response.

The Company will continue to provide further information regarding these ongoing efforts in future periods.

The Company recorded year-to-date GAAP and non-GAAP results for 2022, 2021, and 2019 as noted in the following tables.

The Company believes comparisons of current year financial results to 2019 are relevant and show how the Company has continued to recover from the pandemic.

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

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| Operating income | | | | | | $ | 1,017 | | | | | $ | 1,721 | | | | | (40.9) | | | | | | $ | 2,957 | | | | | (65.6) | | |

| Net income | | | | | | $ | 539 | | | | | $ | 977 | | | | | (44.8) | | | | | | $ | 2,300 | | | | | (76.6) | | |

| Operating income (loss) | | | | | | $ | 1,120 | | | | | $ | (1,281) | | | | | n.m. | | | | | | $ | 2,957 | | | | | (62.1) | | |

| Net income (loss) | | | | | | $ | 723 | | | | | $ | (1,271) | | | | | n.m. | | | | | | $ | 2,300 | | | | | (68.6) | | |

The comparison of the Company's financial results, as shown above on a GAAP basis for the year ended December 31, 2022, versus the year ended December 31, 2021, were impacted by the Company's receipt of $2.7 billion in grant allocations of payroll funding support ("Payroll Support") from the United States Department of the Treasury ("Treasury") in 2021 that significantly benefited 2021 results.

Operating revenues for year ended December 31, 2022, increased 50.8 percent versus 2021 and operating revenues for the year ended December 31, 2022, exceeded the comparative 2019 pre-pandemic levels and was a Company annual record primarily due to strong leisure demand and higher yields.

Operating expenses for the year ended December 31, 2022, exceeded the comparative pre-pandemic 2019 levels primarily due to higher salaries, wages, and benefits expense and fuel prices.

On a non-GAAP basis, the Company's financial results improved significantly for the year ended December 31, 2022, versus the same prior year period due to the significant recovery in travel demand, which was aided by a reduction in COVID-19 cases and hospitalizations, an increase in vaccinations, and a decline in travel-related restrictions across the United States.

For the year ended December 31, 2022, the Company believes a comparison of its 2022 to 2019 (pre-pandemic) operating statistics is relevant and useful as the Company continues to recover from the pandemic.

For the twelve months ended December 31, 2022 and 2021, most of these operating statistics were significantly impacted by the COVID-19 pandemic and decisions the Company made as a result of the pandemic although the effect in 2022 was primarily in first quarter.

| Enplaned passengers (000s) | | | | | | 156,982 | | | | | | 123,264 | | | | | | 27.4 | | % | | | | 162,681 | | | | | | (3.5) | | % |

| Trips flown | | | | | | 1,298,219 | | | | | | 1,066,934 | | | | | | 21.7 | | % | | | | 1,367,727 | | | | | | (5.1) | | % |

| Seats flown (000s)(d) | | | | | | 201,913 | | | | | | 165,580 | | | | | | 21.9 | | % | | | | 206,390 | | | | | | (2.2) | | % |

(j)Included less than 250 Employees on Extended Emergency Time Off program as of December 31, 2021.

Also included 34 Boeing 737 MAX aircraft in long-term storage as of December 31, 2019.

2023 Outlook

| | | | | | | | | | 1Q 2023 Estimation | | |

| Operating revenue, year-over-year | | | | | | | | | Up 20% to 24% | | |

| | | | | | | | | | 2023 Estimation | | |

| Aircraft (g) | | | | | | | | | 843 | | |

(f) The Company expects to retire approximately $50 million in principal related to a lease buyout transaction in first quarter 2023, shifting this payment forward from the previous monthly payments scheduled throughout the remainder of 2023 and beyond.

Combined with the retirement of $191 million in principal related to a lease buyout transaction in fourth quarter 2022, the Company's full year 2023 scheduled debt repayments remained roughly the same as its previous guidance.

The Company continues to estimate approximately 100 Boeing 737 MAX ("MAX") aircraft deliveries in 2023, including 30 Boeing 737-8 ("-8") aircraft deliveries expected in first quarter 2023.

The Company has [added: at times had] interest rate risk in its interest rate swaps, commodity price risk in jet fuel required to operate its aircraft fleet, and market risk in the derivatives used to manage its fuel hedging program and in the form of fixed-rate debt instruments.

As of December 31, [removed: 2022,] [added: 2023,] the Company operated a total of [removed: 94] [added: 81] aircraft under operating and finance leases.

The Company utilizes financial derivative instruments, on both a short-term and a long-term basis, as a form of insurance against the potential for [removed: significant] [added: significant, or catastrophic,] increases in fuel prices.

The Company [added: currently] expects to consume approximately 2.2 billion gallons of jet fuel in [removed: 2023.][added: 2024.]

Based on this anticipated usage, a change in jet fuel prices of just one cent per gallon would impact the Company’s Fuel and oil expense by approximately $22 million for [removed: 2023,] [added: 2024,] excluding any impact associated with fuel derivative instruments held.

As of December 31, [removed: 2022,] [added: 2023,] the Company held a net position of fuel derivative instruments that represented a hedge for a portion of its anticipated jet fuel purchases for future [removed: periods.][added: periods through 2026.]

The Company may increase or decrease the volume of fuel hedged based on its expectation of future market prices and its forecasted fuel consumption levels, while considering the significant [added: premium] cost that can be associated with different types of hedging strategies.

The gross fair value of outstanding financial derivative instruments related to the Company’s jet fuel market price risk [removed: at] [added: as of] December 31, [removed: 2022,] [added: 2023,] was an asset of [removed: $512] [added: $223] million.

In addition, [removed: $106] [added: $50] million in cash collateral deposits were held by the Company in connection with these instruments based on their fair value as of December 31, [removed: 2022.][added: 2023.]

An immediate 10 percent increase or decrease in underlying fuel-related commodity prices from [removed: the] [added: prices as of] December 31, [removed: 2022, prices] [added: 2023] would correspondingly change the fair value of the commodity derivative instruments in place by approximately [removed: $191] [added: $148] million.

This sensitivity analysis uses industry standard valuation models and holds all inputs constant [removed: at] [added: as of] December 31, [removed: 2022,] [added: 2023,] levels, except underlying futures prices.

As of December 31, [removed: 2022,] [added: 2023,] the Company had eight counterparties for which the derivatives held were an [removed: asset.][added: asset and none in a loss position.]

[removed: At] [added: As of] December 31, [removed: 2022,] [added: 2023,] the Company had agreements with all of its active counterparties containing early termination rights and/or bilateral collateral provisions whereby security is required if market risk exposure exceeds a specified [removed: threshold amount based on the]

[added: threshold amount based on the] counterparty’s credit rating.

Refer to the counterparty credit risk and collateral table provided in Note 11 to the Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of December 31, [removed: 2022,] [added: 2023,] at which such postings are triggered.

The Company also [added: at times] has agreements with each of its counterparties associated with its outstanding interest rate swap agreements in which cash collateral may be required based on the fair value of outstanding derivative instruments, as well as the Company’s and its counterparty’s credit ratings.

As of December 31, [removed: 2022, no cash collateral deposits were provided by or held by] [added: 2023,] the Company [removed: based on its] [added: had no] outstanding interest rate swap [removed: agreements.][added: agreements and therefore no cash collateral deposits provided or held.]

The Company’s [added: long-term] strategy is to maintain a conservative balance sheet and [removed: grow] [added: generate adequate profits and returns on capital, while growing] capacity steadily [removed: and profitably] under the right conditions.

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: 2022,] [added: 2023,] all of which are considered "investment grade." See Note 7 to the Consolidated Financial Statements for more information on the material terms of the Company’s short-term and long-term debt.

The Company's senior unsecured notes outstanding as of December 31, [removed: 2022] [added: 2023] are all fixed-rate obligations.

The Company's total debt divided by total assets was [removed: 22.9] [added: 21.9] percent as of December 31, [removed: 2022.][added: 2023.]

The Company also has some risk associated with changing interest rates due to the short-term nature of its invested cash, which totaled [removed: $9.5] [added: $9.3] billion, and short-term investments, which totaled [removed: $2.8] [added: $2.2] billion [removed: at] [added: as of] December 31, [removed: 2022.][added: 2023.]

A hypothetical 10 percent change in market interest rates as of December 31, [removed: 2022,] [added: 2023,] would have resulted in an approximate [removed: $100] [added: $74] million change in the fair value of the Company’s fixed-rate debt instruments.

Assuming floating market rates in effect as of December 31, [removed: 2022] [added: 2023] were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have resulted in an approximate [removed: $47] [added: $59] million 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 from or provided to counterparties, if applicable) and short-term investments outstanding [removed: at] [added: as of] December 31, [removed: 2022,] [added: 2023,] an increase in rates would have a net positive effect on the Company’s earnings and cash flows, while a decrease in rates would have a net negative effect on the Company’s earnings and cash flows.

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

As of December 31, [removed: 2022,] [added: 2023,] the Company was in compliance with this covenant and there were no amounts outstanding under the Amended [removed: A&R] Credit Agreement.

However, if conditions change and the Company fails to meet the minimum standards set forth in the Amended [removed: A&R] Credit Agreement, there could be a reduction in the availability of cash under the facility, or an increase in the costs to keep the facility intact as written.

Credit card processors have financial risk associated with tickets purchased for travel because the processor generally forwards the cash related to the purchase to the Company soon after the purchase is completed, but the air travel generally occurs after that time; therefore, the processor will have liability if the Company does not ultimately [removed: provide the air travel.]

There was no cash reserved for this purpose as of December 31, [removed: 2022.][added: 2023.]

Cash reserve requirements are based on the Company’s public debt rating and a [added: corresponding percentage of the Company’s Air traffic liability.]

As of December 31, [removed: 2022,] [added: 2023,] no holdbacks were in place.

As of December 31, [removed: 2022,] [added: 2023,] the Company was in compliance with all credit card processing agreements.

During fourth quarter 2023, the Company terminated $150 million notional value of forward-starting interest rate swap agreements.

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

The effect of this termination is that the value of the swaps originally recorded in AOCI, a gain of $23 million, will be amortized to Interest expense over the life of the debt, which will be within the years 2024-2027.

The Company’s Amended Credit Agreement contains a financial covenant to maintain a Coverage Ratio (as defined therein) of 1.25 to 1.00, subject to the Company's one-time option to reduce this ratio requirement to 0.80 to 1.00 for two consecutive fiscal quarters.

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

provide the air travel.

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

The Company’s Amended A&R Credit Agreement contains a financial covenant to maintain total liquidity, as defined therein, of $1.5 billion at all times.

corresponding percentage of the Company’s Air traffic liability.

[removed: At] [added: As of] December 31, [removed: 2022,] [added: 2023,] Southwest had a total of [removed: 770] [added: 817] Boeing 737 aircraft in its fleet and served 121 destinations in 42 states, the District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.

Overall, the U.S. airline industry [removed: saw] [added: has experienced] a strong recovery of domestic leisure travel demand [removed: in 2022] [added: since mid-2022,] as [removed: a result of declining] reported COVID-19 cases [added: declined] throughout the United States and [removed: the easing of] travel [removed: restrictions.][added: restrictions eased.]

The airline industry has historically been an extremely volatile [removed: industry subject to numerous other challenges.][added: industry.]

The airline industry has also been particularly susceptible to detrimental events such as economic recessions, jet fuel price volatility, unscheduled maintenance disruptions, [added: outbreaks of disease and/or pandemics, supply chain challenges,] U.S. government shutdowns, acts of [removed: terrorism,] [added: terrorism or war, geopolitical unrest,] severe weather, and natural disasters.

Southwest has historically principally provided [removed: point-to-point] [added: “point-to-point”] service, rather than the [removed: "hub-and-spoke"] [added: “hub-and-spoke”] service provided by most major U.S. airlines.

[removed: The] [added: By contrast, the] hub-and-spoke system concentrates most of an airline's operations at a limited number of central hub cities and serves most other destinations in the system by providing one-stop or connecting service through a hub.

By not concentrating operations exclusively through one or more central transfer points, Southwest's route structure has allowed for more direct nonstop routing than [added: a traditional] hub-and-spoke service.

Approximately [removed: 74] [added: 73] percent of the Company's Customers flew nonstop during [removed: 2022,] [added: 2023,] compared with [removed: 73] [added: 74] percent during [removed: 2021,] [added: 2022] and [removed: compared with 72] [added: 73] percent during [removed: 2020, and, as of December 31, 2022, Southwest served 825 nonstop city pairs, compared with 788 as of December 31, 2021, and compared with 667 as of December 31, 2020.][added: 2021.]

For [removed: 2022,] [added: 2023,] the Company’s average aircraft trip stage length was [removed: 728] [added: 730] miles, with an average duration of approximately 2.0 hours, as compared with an average aircraft trip stage length of [removed: 790] [added: 728] miles and an average duration of approximately [removed: 2.1] [added: 2.0] hours in [removed: 2021,] [added: 2022,] and [removed: as compared with] an average aircraft trip stage length of [removed: 743] [added: 790] miles and an average duration of approximately [removed: 2.0] [added: 2.1] hours in [removed: 2020.][added: 2021.]

Southwest’s [added: unique] route network has also enabled it to provide its markets with frequent, conveniently timed flights and low fares.

For example, Southwest currently offers 12 weekday roundtrips between Dallas Love Field and Houston Hobby (and an additional [removed: five] [added: 3] to Houston Bush), [removed: eight] [added: 5] weekday roundtrips between Denver and Chicago Midway (and an additional [removed: six] [added: 4] to Chicago O'Hare), [removed: ten] [added: 7] weekday roundtrips between Los Angeles International and Las Vegas, [removed: 12] [added: 8] weekday round trips between Burbank and Oakland, and 13 weekday roundtrips between Phoenix and Denver.

Southwest complements its high-frequency short-haul routes with [added: mid-range and] long-haul nonstop [removed: service] [added: service,] including flights between Hawaii and California, Las Vegas, and Phoenix, and between markets such as Los Angeles and Nashville, New York LaGuardia and Houston, Los Angeles and Baltimore, Oakland and Houston, and San Diego and Baltimore.

The Company continually works to optimize its route network and schedule through the adjustment of [removed: frequencies] [added: flights] in its existing markets and the addition of new markets and itineraries, while also pruning less profitable flights from its schedule.

[removed: The additional service has] [added: These services have] created additional regional and international connectivity [removed: that has been] structured to grow the Company's presence in strategic markets that serve as cornerstones for its network and provide additional options for Customers to reach their final destinations.

The Company's low-cost strategy includes, among other elements, (i) the use of a single aircraft type, the Boeing [removed: 737,] [added: 737 and] (ii) the Company's route [removed: structure, and (iii) its historically productive Employees.][added: structure.]

This, in turn, has reduced the number of aircraft and gate facilities that would otherwise be required and is designed to allow for [removed: high] [added: higher] Employee productivity [removed: (lower headcount per aircraft).][added: over a long period of time.]

For example, in [removed: 2022,] [added: 2023,] the Company added [removed: 68] [added: 86] Boeing [removed: 737-8] [added: 737 MAX 8] (“-8”) aircraft to its fleet, with the goal of lowering operating costs, improving potential growth opportunities, restoring the Company's network [removed: closer] to pre-pandemic levels, reducing carbon emissions per available seat mile, and further modernizing the Company's fleet with more [removed: fuel efficient] [added: fuel-efficient] aircraft.

[added: The Company’s] Fuel and oil expense for [removed: 2022] [added: 2023] increased [removed: significantly] compared with [removed: 2021,] [added: 2022,] primarily due to [removed: higher market jet] [added: increased gallons of] fuel [removed: prices.][added: consumed, largely from increased trips.]

Fuel and oil expense remained the Company's second largest operating cost [added: category] for [removed: 2022.][added: 2023.]

The table below shows the Company's average cost of jet fuel [added: inclusive of fuel taxes and fuel hedging impacts,] for each year beginning in 2011 and during each quarter of [removed: 2022.][added: 2023.]

The Company’s fuel efficiency was aided in [removed: 2022,] [added: 2023,] as compared with [removed: 2021,] [added: 2022,] through the addition of [removed: 68] [added: 86] -8 aircraft to its fleet and by the retirement of [removed: 26] [added: 39] of its oldest, least fuel-efficient Boeing 737-700 (“-700”) aircraft.

The Company [removed: continues to plan for 27] [added: retired 39] Boeing -700 [removed: retirements] [added: aircraft] in [removed: 2023,] [added: 2023] and [removed: 30-35 Boeing -700 retirements annually] [added: currently plans] for [removed: the next several years thereafter.][added: 49 aircraft retirements in 2024.]

The Company [removed: exercised a total of 91 MAX options during 2022 and] held [removed: 147] [added: 199] remaining MAX options [removed: at] [added: as of] December 31, [removed: 2022,] [added: 2023,] in addition to [removed: 417] [added: 495] firm orders of MAX aircraft to be delivered through [removed: 2030.][added: 2031.]

[removed: For further information regarding the Company’s contractual order] book see “Properties” and [removed: "Management’s] [added: “Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations."] [added: Operations.”] The delivery schedule for the -7 is dependent on the Federal Aviation Administration (“FAA”) issuing required certifications and approvals to Boeing and the Company.

The table below sets forth the Company's available seat miles produced per fuel gallon consumed [added: (fuel-efficiency)] over the last five years:

| | | | | | | [removed: 2022] [added: 2023] | | | | | | [removed: 2021] [added: 2022] | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | |

| Available seat miles per fuel gallon consumed | | | | | | [removed: 77.3] [added: 79.5] | | | | | | [removed: 79.2] [added: 77.3] | | | | | | [removed: 81.3] [added: 79.2] | | | | | | [removed: 75.7] [added: 81.3] | | | | | | [removed: 76.3] [added: 75.7] | | |

Salaries, wages, and benefits expense constituted approximately [removed: 41.0] [added: 43] percent of the Company's operating expenses [added: in 2023 and was the Company's largest operating cost category.]

The Company's ability to control labor costs is [added: largely] limited by the terms of its collective-bargaining agreements, and increased labor costs [added: from recently ratified contracts and rate inflation] have negatively impacted [added: both] the Company's low-cost [removed: competitive position.][added: structure and the overall airline industry’s costs.]

The Company's labor costs, and risks associated therewith, are discussed in more detail below under [removed: "Risk Factors," "Business - Employees,"] [added: “Business—Employees,” “Risk Factors,”] and [removed: "Management’s] [added: “Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations."][added: Operations.”]

Southwest fare products include four major categories: [removed: "Wanna] [added: “Wanna] Get [removed: Away®," "Wanna] [added: Away®,” “Wanna] Get Away [removed: Plus," "Anytime,"] [added: Plus®,” “Anytime,”] and [removed: "Business Select®,"] [added: “Business Select®,”] to provide Customers options when choosing a fare.

Southwest does not charge fees for cancellations or changes to flight [removed: reservations] [added: reservations,] although fare differences may apply.

- [removed: "Wanna] [added: “Wanna] Get [removed: Away"] [added: Away”] fares are generally the lowest fares and are [removed: typically] [added: often] subject to advance purchase requirements.

They are non-refundable, but, subject to [removed: Southwest's] [added: Southwest’s] No-Show Policy, flight credit for the fare paid for unused travel by the Customer [removed: ("flight credit")] [added: (“flight credit”)] may be applied towards future travel on [removed: Southwest.]

[added: Under Southwest's Rapid Rewards® loyalty program,] Wanna Get Away fares earn six Rapid [removed: Rewards® points, under Southwest's Rapid] Rewards [removed: loyalty program,] [added: points] for each dollar spent on the base fare.

[removed: - “Wanna Get Away Plus” fares] [added: They] are non-refundable, but, subject to Southwest’s No-Show Policy, flight credit may be applied towards future travel on Southwest.

[removed: “Wanna] [added: Wanna] Get Away [removed: Plus”] [added: Plus] fares earn eight Rapid Rewards points for each dollar spent on the base fare.

[removed: “Wanna] [added: Wanna] Get Away [removed: Plus”] [added: Plus] fares offer Transferable Flight [removed: CreditTM] [added: Credit™] that enables Customers to transfer an eligible unused flight credit to another traveler for future use.

Both [added: travelers] must be Rapid Rewards members and only one transfer is permitted.

Subject to Southwest’s No-Show Policy, [removed: “Wanna] [added: Wanna] Get Away [removed: Plus”] [added: Plus] fares also enable a same-day confirmed change, free of airline charges, if there is an open seat on another flight that departs on the same day as the original flight and is between the same [removed: cities,] [added: origin and destination airports,] but the Customer is required to pay any additional government taxes and fees associated with [added: voluntary] changes in their itinerary.

Southwest’s unique route network, low fares, and famous Hospitality continue to make the Company an attractive choice for Customers in cities across the United States and near-international destinations.

In 2023, the U.S. airline industry continued to recover from the COVID-19 pandemic while facing challenges such as volatile fuel prices, inflationary cost pressures (particularly labor costs), delayed aircraft deliveries, labor availability (namely pilot availability), supply chain challenges, shifting travel demand patterns, economic uncertainty, disruptive weather events, and natural disasters such as the wildfires in Maui.

International travel demand largely recovered to pre-pandemic levels in summer 2023.

Business travel, while showing modest improvements over several years, remained at reduced levels throughout 2022 and 2023 compared with pre-pandemic levels, as corporate travel patterns continued to lag and evolve post-pandemic.

In response to ever-evolving travel patterns, the Company and several other U.S. airlines have announced route network changes and slower capacity growth for early 2024, as compared with 2023 and/or previously announced plans.

Although jet fuel prices were slightly lower in 2023 as compared with 2022, they remain at high levels and continue to be subject to extreme volatility based on a variety of factors.

A point-to-point system enables airlines to connect directly to destinations without providing a connecting service.

Southwest’s network blends intentional

connectivity offered by hub-and-spoke models and point-to-point nonstops, allowing the Company to capture nonstop demand and provide reliable one-stop itinerary options.

As of December 31, 2023, Southwest served 805 nonstop city pairs, compared with 825 as of December 31, 2022, and 788 as of December 31, 2021.

In 2023, the Company focused its efforts towards restoring the depth and breadth of its pre-pandemic network by adding back frequency in existing markets and reconnecting markets that have historically served as points of strength for the network.

While the Company’s network and aircraft utilization were restored to pre-pandemic levels in late 2023, the network was not fully optimized for post-pandemic travel patterns.

The Company’s near-term optimization efforts focus on evaluating its short-haul routes as business travel continues to lag pre-pandemic levels, offering the right number of flights at the right times of day, and reducing certain weekday flights to better match capacity to demand.

The Company’s unique route network allows for these adjustments without structurally disrupting its airports in core markets and other large cities.

The Company also remains focused on maturing newer markets introduced during the pandemic.

The Company entered 18 new destinations during 2020 and 2021, expanding its network to new Customer bases, leisure destinations, and geographic regions.

To further improve international connectivity with its domestic network, the Company has announced its plans to shift the bulk of its international service in Fort Lauderdale to Orlando.

Further, in October 2023, the Company announced its plans to moderate capacity growth in 2024 to better match demand and Customer travel patterns, as well as to absorb its capacity growth from 2023.

Given ever-evolving travel patterns and labor market challenges, the Company continues to focus on better optimizing its route network to support orderly, measured, and consistent growth, reducing inefficiencies, and improving Employee productivity and operational resilience.

Although the Company’s jet fuel prices per gallon were slightly lower in 2023, as compared with 2022, they remain at high historical levels.

| 2023 | | | | | | $ | 6,217 | | | | | $ | 2.89 | | | | | 24.0 | | % |

| First Quarter 2023 | | | | | | $ | 1,547 | | | | | $ | 3.19 | | | | | 25.8 | | % |

| Second Quarter 2023 | | | | | | $ | 1,403 | | | | | $ | 2.60 | | | | | 22.5 | | % |

| Third Quarter 2023 | | | | | | $ | 1,564 | | | | | $ | 2.80 | | | | | 24.4 | | % |

| Fourth Quarter 2023 | | | | | | $ | 1,703 | | | | | $ | 3.01 | | | | | 23.6 | | % |

As of December 31, 2023, the Company had 223 -8 aircraft in its fleet.

The Company is also scheduled to begin receiving the Boeing 737 MAX -7 (“-7”) in 2024.

In fourth quarter 2023, the Company entered into supplemental agreements (the “Supplements”) to its purchase agreement with The Boeing Company (“Boeing”) relating to the Company's purchase of -8 and -7 aircraft (collectively, “MAX aircraft”).

Pursuant to the Supplements, the Company amended its order book delivery schedule to better allocate aircraft deliveries for orderly and measured growth, to extend its firm orders through 2031, and to add 108 firm orders and 108 MAX aircraft options.

For further information regarding the Company’s aircraft contractual order

Operational Disruption Action Plan

In late December 2022, the Company experienced a wide-scale operational disruption as historically extreme winter weather spread across a significant portion of the United States, impacting the Company’s operational plan and flight schedules.

After Winter Storm Elliott, the Company was challenged to realign flight crews, flight schedules, and aircraft for a period of several days during this peak demand travel period.

This disruption and subsequent recovery efforts resulted in the cancellation of more than 16,700 flights during the period from December 21 through December 31, 2022.

As discussed below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the December 2022 operational disruption had a significant negative impact on the Company’s results of operations in fourth quarter 2022 and first quarter 2023.

For first quarter 2023, these events created a deceleration in bookings, primarily isolated to January and February 2023, as well as increased expenses, primarily in the form of reimbursing Customers for costs incurred as a result of the flight cancellations.

Following these events, the Company conducted a thorough internal review, working with the Company's Board of Directors (the “Board”), and engaged respected aviation consulting firm Oliver Wyman for a third-party assessment.

To boost operational resiliency in key areas across the Company and to mitigate the risk of recurrence, the Company developed a three-part tactical action plan focused on improving winter operations, accelerating operational-related investments, and enhancing cross-team collaboration.

The Company’s action plan was released in March 2023 and key winter operations steps were completed as of October 2023.

Improve Winter Operations

As discussed below under "Business – Worldwide Pandemic," beginning in March 2020, the travel industry was adversely impacted in 2020, 2021, and 2022 by the COVID-19 pandemic, including the Omicron variant in early 2022.

Southwest, like other U.S. airlines, experienced significant negative impacts to passenger demand and revenues; however, the impact of the COVID-19 pandemic on some of these airlines was particularly severe because of the percentage of their operations that had historically been dependent on business and international travel, each of which suffered particular harm as a result of the pandemic.

Demand for business travel declined significantly due to companies tightening or even suspending corporate travel.

This not only reduced overall demand for air travel, but also resulted in a decrease in the percentage of full-fare purchases.

Demand for international travel was significantly harmed by the imposition of international travel restrictions.

Southwest, like other U.S. airlines, continued to recover from the COVID-19 pandemic in 2022, while facing challenges such as the Omicron variant early in the year, higher fuel prices and other cost inflation, economic uncertainty, weather events, and, until the Company returned to pre-pandemic staffing levels in May 2022, operational challenges resulting from surges in leisure travel demand against constrained personnel resources.

Business travel, however, remained at a reduced level throughout 2022, as compared with pre-pandemic levels.

In 2022, the industry experienced a very challenging fuel environment, as compared with recent years, with year-over-year fuel prices significantly higher throughout 2022.

Worldwide Pandemic

In March 2020, the World Health Organization classified the novel coronavirus, COVID-19, as a pandemic.

The speed with which the effects of the COVID-19 pandemic changed the U.S. economic landscape, outlook, and in particular the travel industry, was swift and unexpected.

The Company experienced significant disruptions in travel and reduced bookings throughout the remainder of 2020, 2021, and early 2022 as a result of the pandemic and subsequent variants of COVID-19.

Following a significant negative impact to revenues and bookings in January and February 2022, which included increased trip cancellations and staffing challenges associated with the Omicron variant, the Company saw improvements in revenue trends in March 2022 and throughout the remainder of 2022 as COVID-19 cases significantly trended downward.

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

During the pandemic, the Company substantially enhanced its cash holdings by obtaining significant financing in the capital markets, through payroll funding support ("Payroll Support") with the U.S. Department of Treasury ("Treasury"), and elsewhere.

In addition, the Company offered voluntary separation and extended time-off programs for its Employees, which significantly reduced the Company's active headcount, to better match the reduced level of travel demand, especially during the early stages of the pandemic.

The unpredictable fluctuating extent of the travel demand recovery, combined with the reduction in the Company's available workforce during 2020 and 2021, contributed to operational challenges during early parts of 2022 as the Company aggressively hired new Employees throughout 2022 in order to return to the staffing levels necessary for operational demands.

The Company returned to pre-pandemic staffing levels in May 2022.

For further information on risks related to COVID-19, as well as the significant impacts of COVID-19 on the Company's operations, financial performance, and liquidity, see "Risk Factors," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and Notes 2, 7, and 9 to the Consolidated Financial Statements.

In addition, the Company has focused its efforts in 2022 and thus far in 2023 towards restoring its pre-pandemic network, including long-haul service.

The Company's network and schedule optimization efforts were particularly beneficial in addressing the impacts of the COVID-19 pandemic.

For example, these efforts enabled the Company to add cities in key existing markets, as well as opportunistically introduce service in other markets during the pandemic.

As part of the Company's recovery from the impacts of the COVID-19 pandemic, the Company remains focused on maturing newer markets and restoring its network to pre-pandemic levels through adding back breadth and frequency to the

Company's network while balancing its network schedule with its crew resources.

The Company began service to 14 new destinations in 2021.

The Company expects to complement and strengthen its existing route network in or near cities where its Customer base is large, along with adding easier access to popular leisure-oriented destinations.

The COVID-19 pandemic had a particularly negative impact on the Company's international operations and led to the Company's suspension of international operations at the beginning of the pandemic.

The Company has since resumed service to all 14 of its international destinations.

The Company continues to focus on restoring its route network, with nearly all planned 2023 capacity growth going toward adding depth and breadth in key Southwest markets, which is designed to improve Employee productivity and operational resilience.

| First Quarter 2022 | | | | | | $ | 1,004 | | | | | $ | 2.30 | | | | | 20.7 | | % |

| Second Quarter 2022 | | | | | | $ | 1,636 | | | | | $ | 3.36 | | | | | 29.4 | | % |

| Third Quarter 2022 | | | | | | $ | 1,750 | | | | | $ | 3.39 | | | | | 30.0 | | % |

| Fourth Quarter 2022 | | | | | | $ | 1,585 | | | | | $ | 3.27 | | | | | 24.2 | | % |

However, the Company’s fuel efficiency decreased in 2022, as compared with 2021, primarily as a result of the Company’s significantly increased Load factor and operating more of its least fuel- efficient -700 aircraft versus 2021 when many of the Company’s -700 aircraft were in storage.

While the Company was contractually scheduled to receive 114 Boeing 737 MAX (“MAX”) deliveries in 2022, including exercised options, 46 of these aircraft were undelivered due to The Boeing Company's ("Boeing") supply chain challenges and delays in the Boeing 737-7 (“-7”) certification.

The Company expects the remaining 46 contractual undelivered aircraft to shift into future years.

Given current supply chain and aircraft delivery delays, the Company will continue working with Boeing to solidify future delivery dates.

during 2022 and was the Company's largest operating cost.

General

In 2022, Southwest introduced a new fare product, "Wanna Get Away PlusTM," that adds more flexibility, options, and rewards to Southwest’s fare lineup.

Since then, a number of similar class action complaints 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, [added: and the Eastern District of Wisconsin.]

[removed: The Company agreed to pay] $15 million and to provide certain cooperation with the plaintiffs as set forth in the settlement agreement.

On [removed: July 11, 2019,] [added: February 19, 2020,] a complaint alleging violations of federal [removed: and state] [added: securities] laws and seeking certification as a class action was filed against [removed: Boeing and] the Company [added: and certain of its officers] in the United States District Court for the [removed: Eastern] [added: Northern] District of Texas in [removed: Sherman ("Sherman Complaint").][added: Dallas (the “2020 Securities Litigation”).]

The complaint [removed: generally] seeks [removed: money damages, equitable monetary relief, injunctive relief,] declaratory [added: and injunctive] relief, [added: damages, liquidated damages, interest,] and attorneys’ [removed: fees] [added: fees, expert fees,] and [removed: other] [added: litigation] costs.

The Company denies all allegations of [removed: wrongdoing,] [added: wrongdoing in the complaint,] believes the plaintiffs' positions are without merit, and intends to [removed: continue] vigorously [removed: defending] [added: defend] itself in all respects.

[removed: On February 19, 2020, a complaint] [added: Two complaints] alleging violations of federal securities laws and seeking certification as a class action [removed: was] [added: have been] filed [added: (on January 10, 2023, and March 13, 2023, respectively)] against the Company and certain of its officers in the United States District Court for the [removed: Northern] [added: Southern] District of Texas in [removed: Dallas.][added: Houston.]

The Company [added: denies all allegations of wrongdoing,] believes the [removed: plaintiffs'] [added: plaintiff’s] positions are without [removed: merit] [added: merit,] and intends to vigorously defend itself in all respects.

The plaintiff alleges the Board, in the absence of good faith, exhibited reckless [removed: disregard for its duties of oversight.]

[removed: The plaintiff in the Derivative Action shall have] [added: On October 7, 2020,] the [removed: right to reopen] [added: Court entered an order staying and administratively closing] the [removed: action following] [added: Derivative Action, pending] the [added: District Court’s final] resolution of the [removed: Company's] [added: Company’s] motion to dismiss in the ongoing [removed: litigation] [added: 2020 Securities Litigation] brought under the federal securities laws or upon the occurrence of certain other conditions.

On October 27, 2021, the Company filed a multi-faceted motion challenging the complaint based upon lack of subject matter jurisdiction, the existence of [removed: the] [added: a] prior-filed [removed: Sherman Complaint] [added: complaint] on appeal in the Fifth [removed: Circuit,] [added: Circuit (the “Sherman Complaint”),] improper venue, and failure to state a claim, and seeking to have the complaint's class contentions stricken.

On January [removed: 12, 2023,] [added: 7, 2019,] a complaint alleging [removed: violations] [added: a violation] of [added: the] federal [removed: securities laws] [added: Uniformed Services Employment] and [added: Reemployment Rights Act (“USERRA”) and] seeking [added: a] certification as a class action was filed against the Company [removed: and certain of its officers] in the United States District Court for the [removed: Southern] [added: Northern] District of [removed: Texas in Houston.][added: California.]

The [removed: complaint seeks] [added: complaints seek] damages on behalf of a putative class of persons who purchased [added: or otherwise acquired] the Company's common stock between June 13, 2020, and December 31, 2022.

The [removed: complaint asserts] [added: complaints assert] claims under Sections 10(b) and 20 of the [removed: Securities] Exchange Act and [removed: alleges] [added: allege] that the Company made material misstatements to investors regarding the Company's internal technology and alleged vulnerability to large-scale flight disruptions.

The [removed: complaint] [added: complaints] generally [removed: seeks] [added: seek] money damages, pre-judgment and post-judgment interest, and attorneys' fees and other costs.

[removed: On or] [added: Since] about January 24, 2023, [removed: legal counsel for a purported Southwest shareholder sent a letter to] the Company’s senior officers and Board of Directors [added: have received multiple derivative demand letters from legal counsel for purported Southwest shareholders] demanding that the Board investigate claims, initiate legal action, and take remedial measures in connection with the service disruptions occurring in December 2022.

[removed: The demand letter broadly asserts that the Company’s directors and senior officers] did not [removed: make sufficient investments in internal technology systems to prevent large-scale flight disruptions, did not] exercise sufficient oversight over the Company’s operations, approved or received unwarranted compensation, caused the Company to make materially misleading public statements, and breached their fiduciary duties to the Company.

The Company is from time to time subject to various legal proceedings and claims arising in the ordinary course of business, including, but not limited to, examinations by the Internal Revenue [removed: Service.][added: Service and state and local income tax authorities.]

The Company’s management does not expect that the outcome in any of its currently ongoing legal proceedings or the outcome of any proposed adjustments presented to date by the Internal Revenue [removed: Service,] [added: Service and state and local income tax authorities,] individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flow.

The Company agreed to pay

The complaint alleges that the Company violates section 4316(b) of USERRA because it does not provide paid “short-term” military leave (i.e., a military leave of 14 days or fewer) but does provide paid jury duty leave, bereavement leave, and sick leave, which the plaintiff alleges are “comparable” forms of leave under USERRA and its implementing regulations.

On February 3, 2021, the court granted the plaintiff’s motion for class certification and issued an order certifying a class comprised of current or former Employees who, during their employment with the Company at any time from October 10, 2004, through the date of judgment in this action, have taken short-term military leave and were subject to a collective bargaining agreement, except for Employees subject to the Transport Workers Union Local 550 agreement covering meteorologists.

On January 11, 2022, the court granted the parties’ stipulated request to vacate the trial date as the Department of Defense had not yet produced the class members’ military pay and service records pursuant to the Company’s third-party subpoena.

On August 18, 2022, the court entered an order that effectively stayed the action, except for attention to the third-party subpoena, until after the Ninth Circuit issued its opinion in the matter of *Clarkson v.

Alaska Airlines, Inc. and Horizon Industries, Inc.*, an appeal from an order by the United States District Court for the Eastern District of Washington granting summary judgment in defendants’ favor on substantially the same claims at issue in this action.

The Ninth Circuit issued its order in *Clarkson* on February 1, 2023, reversing the district court’s grant of summary judgment and remanding the *Clarkson* case to the District Court with instructions to consider the “pay during leave” issue in the first instance.

The Company filed a reply on or about October 21, 2020.

On September 20, 2023, the District Court issued an opinion granting the Company’s motion to dismiss as to all claims.

On October 5, 2023, the District Court entered a final judgment dismissing the suit in its entirety with prejudice.

The lead plaintiff has filed no timely notice of appeal.

disregard for its duties of oversight.

On October 5, 2023, the District Court entered a final judgment dismissing the 2020 Securities Litigation in its entirety with prejudice, and the lead plaintiff has filed no timely notice of appeal from that dismissal.

The plaintiff in the Derivative Action has taken no steps to lift the stay in the case, which remains stayed.

On March 23, 2023, the parties jointly notified the Court of the dismissal of the Sherman Complaint for lack of jurisdiction.

The case remains stayed.

The deadline in the first of these two cases to file a motion seeking appointment of lead plaintiff was March 13, 2023; four separate motions were filed, and three of the parties seeking appointment have continued to contest the issue.

On July 17, 2023, the Court signed an order consolidating the two federal securities cases into the first-filed suit and also appointed plaintiff Michael Berry as lead plaintiff in the consolidated case, with his counsel of record to serve as lead counsel and liaison counsel.

On September 15, 2023, the lead plaintiff filed an amended complaint that expanded the class period to include persons who purchased or otherwise acquired the Company's common stock between February 4, 2020, and March 14, 2023, while continuing to assert claims under Sections 10(b) and 20 of the Exchange Act based on alleged misstatements regarding the Company's internal technology and alleged vulnerability to large-scale flight disruptions.

On November 20, 2023, the Company and the individual defendants filed a motion to dismiss the amended complaint for failure to state a claim.

The parties’ respective briefing on the Company’s motion to dismiss is expected to be completed on or around February 21, 2024.

Generally, the demand letters broadly assert that the Company’s directors and senior officers did not make sufficient investments in internal technology systems to prevent large-scale flight disruptions,

Additionally, since January 27, 2023, the Company has received multiple letters from counsel for purported Southwest shareholders making statutory demands for the production of various books and records of the Company, purportedly in an effort to investigate possible derivative claims similar to those made the subject of the derivative demands discussed above.

On June 13, 2023, a shareholder derivative suit was filed against certain of the Company’s current and former officers and directors in the 14th Judicial District Court of Dallas County, Texas, asserting claims for damages from alleged breach of fiduciary duty, waste of corporate assets, and unjust enrichment derivatively on the Company’s behalf against the individual defendants based on similar factual allegations as contained in the demand letters and in the federal class action complaints.

On June 15, 2023, a second shareholder derivative suit was filed against certain of the Company’s current and former officers and directors in the United States District Court for the Northern District of Texas, asserting claims under Section 14(a) of the Exchange Act and for damages from alleged breach of fiduciary duty, indemnification, and unjust enrichment derivatively on the Company’s behalf against the individual defendants based on similar factual allegations as contained in the demand letters and in the federal class action complaints.

On November 14, 2023, a third shareholder derivative suit was filed in the 134th Judicial District of Dallas County, Texas, by some of the same counsel involved in the June 13, 2023, suit against the same defendants in that suit and making allegations of the same operative facts and claims.

The Company and its Board of Directors intend to address the derivative and books and records demands and the shareholder derivative suits in accordance with the applicable Texas statutes governing such demands and litigation.

Pursuant to those statutes, a committee of independent and disinterested directors (“Special Litigation Committee”) has been appointed to conduct an inquiry regarding the allegations in the derivative suits and derivative demand letters.

In that regard, on December 15, 2023, the plaintiffs in the two state court derivative cases filed an unopposed motion to consolidate the two state derivative cases, to appoint lead counsel, and to stay the consolidated state court derivative case pending the outcome of the ongoing inquiry of the Special Litigation Committee.

Further, in light of the ongoing inquiry of the Special Litigation Committee, on December 19, 2023, the Company filed an unopposed motion to extend a stay of the federal derivative case until at least February 26, 2024.

Based on the Company's wide-scale operational disruption, which led to the cancelation of a significant number of flights between December 21 and December 29, 2022, the Company has been subject to inquiries and investigations by governmental agencies and could be subject to fines and/or penalties resulting from those inquiries and investigations, as well as litigation from Customers and Shareholders.

On October 27, 2023, the DOT notified the Company that it had determined the Company failed to provide adequate customer service assistance, prompt flight status notifications, and proper and prompt refunds and that the assessment of a civil penalty was warranted.

During fourth quarter 2023, the Company accrued an expense of $107 million associated with a settlement reached with the DOT based on their investigation into the disruption, which includes a cash penalty and incorporates a future commitment for Southwest Customer care with a new Customer compensation policy.

An additional $33 million penalty was also assessed by the DOT, but was able to be credited against the substantial value the Company had already provided to its Customers impacted by the disruption, and therefore did not result in further impact to the Company's financial results for 2023.

Nevertheless, an adverse outcome for any of these matters could be material.

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and the Eastern District of Wisconsin.

The complaint alleges that Boeing and the Company colluded to conceal defects with the Boeing 737 MAX ("MAX") aircraft in violation of the Racketeer Influenced and Corrupt Organization Act ("RICO") and also asserts related state law claims based upon the same alleged facts.

The complaint seeks damages on behalf of putative classes of customers who purchased tickets for air travel from either the Company or American Airlines between August 29, 2017, and March 13, 2019.

On September 13, 2019, the Company filed a motion to dismiss the complaint and to strike certain class allegations.

Boeing also moved to dismiss.

On February 14, 2020, the trial court issued a ruling that granted in part and denied in part the motions to dismiss the complaint.

The trial court order, among other things: (i) dismissed without prejudice various state law claims that the plaintiffs abandoned in response to the motions, (ii) dismissed with prejudice the remaining state law claims, including fraud by concealment, fraud by misrepresentation, and negligent misrepresentation on the grounds that federal law preempts those claims, and (iii) found that plaintiffs lack Article III standing to pursue one of the plaintiffs’ theories of RICO injury.

The order denied the motion to dismiss with respect to two RICO claims premised upon a second theory of RICO injury and denied the motion to strike the class allegations at the pleadings stage.

On September 3, 2021, the trial court issued an order under Rule 23(a) and 23(b)(3) certifying four classes of persons associated with ticket purchases for flights during the period of August 29, 2017, through March 13, 2019, comprised of (i) those who purchased tickets (without being reimbursed) for flights on Southwest Airlines during the class period, except for those whose flights were solely on routes where, at the time of the ticket purchase(s), a MAX plane was not scheduled for use (or actually used) and had not previously been used, (ii) those who reimbursed a Southwest Airlines ticket purchaser and thus bore the economic burden for a Southwest Airlines ticket for a flight meeting the preceding criteria set forth in (i) above, (iii) those who purchased tickets (without being reimbursed) for flights on American Airlines during the class period, except for those whose flights were solely on routes where, at the time of ticket purchase(s), a MAX plane was not scheduled for use (or actually used) and had not previously been used, and (iv) those who reimbursed an American Airlines ticket purchaser and thus bore the economic burden for an American Airlines ticket for a flight meeting the preceding criteria set forth in (iii) above.

On September 17, 2021, the Company filed a petition for permission immediately to appeal the class certification ruling to the Fifth Circuit Court of Appeals.

Boeing also filed such a petition.

Plaintiffs filed their oppositions to the petitions on September 27, 2021.

On September 30, 2021, the Fifth Circuit Court of Appeals granted the Company (and Boeing) permission to appeal the class certification ruling.

On December 22, 2021, in response to a motion to stay the trial court proceedings filed by the Company and Boeing, the Fifth Circuit stayed all proceedings, including the pursuit of any discovery, in the trial court pending disposition of the class certification appeal by the Fifth Circuit.

Following full briefing on the merits of the appeal, a three-judge panel of the Fifth Circuit heard oral argument of the appeal on July 5, 2022.

On November 21, 2022, the Fifth Circuit issued an opinion concluding that, among other things, the plaintiffs "have offered no plausible theory of economic harm" and "have suffered no injury in fact and lack Article III standing," and so their "case therefore must be dismissed." The

Fifth Circuit reversed the trial court's September 3, 2021 certification order and remanded the case to the trial court with instructions to dismiss the case for lack of jurisdiction.

On December 5, 2022, the plaintiffs filed a Petition for Rehearing En Banc, which seeks to have the appeal reheard by the Fifth Circuit.

On January 10, 2023, the Company and Boeing filed a joint response to the Petition.

The Petition remains pending before the Fifth Circuit.

The Company filed a reply on or about October 21, 2020, such that the motion is now fully briefed, although the parties have each supplemented their prior briefing with regard to more recent case holdings in other matters.

On October 7, 2020, the Court entered an order staying and administratively closing the Derivative Action.

The Company denies all allegations of wrongdoing in the complaint, believes the plaintiff's positions are without merit, and intends to vigorously defend itself in all respects.

For the fiscal year ended December 31, [removed: 2022][added: 2023]

[removed: ][added: ]

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately [removed: $21,357,830,046] [added: $21,499,447,826] computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, [removed: 2022,] [added: 2023,] 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 February [removed: 3, 2023: 594,286,577] [added: 2, 2024: 596,664,523] shares

Portions of the Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held May [removed: 17, 2023,] [added: 15, 2024,] are incorporated into Part III of this Annual Report on Form 10-K.

| Item 1. | | | [removed: [Business](#i79738292d41746b1bb15858ef354b619_13)] [added: [Business](#i8e716f7d23f343d791ba065768ec54bd_13)] | | | [removed: [3](#i79738292d41746b1bb15858ef354b619_13)] [added: [3](#i8e716f7d23f343d791ba065768ec54bd_13)] | | |

| Item 1A. | | | [Risk [removed: Factors](#i79738292d41746b1bb15858ef354b619_19)] [added: Factors](#i8e716f7d23f343d791ba065768ec54bd_19)] | | | [removed: [29](#i79738292d41746b1bb15858ef354b619_19)] [added: [30](#i8e716f7d23f343d791ba065768ec54bd_19)] | | |

| Item 1B. | | | [Unresolved Staff [removed: Comments](#i79738292d41746b1bb15858ef354b619_22)] [added: Comments](#i8e716f7d23f343d791ba065768ec54bd_22)] | | | [removed: [47](#i79738292d41746b1bb15858ef354b619_22)] [added: [48](#i8e716f7d23f343d791ba065768ec54bd_22)] | | |

| Item 2. | | | [removed: [Properties](#i79738292d41746b1bb15858ef354b619_25)] [added: [Properties](#i8e716f7d23f343d791ba065768ec54bd_25)] | | | [removed: [48](#i79738292d41746b1bb15858ef354b619_25)] [added: [52](#i8e716f7d23f343d791ba065768ec54bd_25)] | | |

| Item 3. | | | [Legal [removed: Proceedings](#i79738292d41746b1bb15858ef354b619_28)] [added: Proceedings](#i8e716f7d23f343d791ba065768ec54bd_28)] | | | [removed: [49](#i79738292d41746b1bb15858ef354b619_28)] [added: [53](#i8e716f7d23f343d791ba065768ec54bd_28)] | | |

| Item 4. | | | [Mine Safety [removed: Disclosures](#i79738292d41746b1bb15858ef354b619_31)] [added: Disclosures](#i8e716f7d23f343d791ba065768ec54bd_31)] | | | [removed: [52](#i79738292d41746b1bb15858ef354b619_31)] [added: [56](#i8e716f7d23f343d791ba065768ec54bd_31)] | | |

| Item 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#i79738292d41746b1bb15858ef354b619_40)] [added: Securities](#i8e716f7d23f343d791ba065768ec54bd_40)] | | | [removed: [55](#i79738292d41746b1bb15858ef354b619_40)] [added: [60](#i8e716f7d23f343d791ba065768ec54bd_40)] | | |

| Item 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i79738292d41746b1bb15858ef354b619_46)] [added: Operations](#i8e716f7d23f343d791ba065768ec54bd_46)] | | | [removed: [58](#i79738292d41746b1bb15858ef354b619_46)] [added: [62](#i8e716f7d23f343d791ba065768ec54bd_46)] | | |

| | | | [Liquidity and Capital [removed: Resources](#i79738292d41746b1bb15858ef354b619_67)] [added: Resources](#i8e716f7d23f343d791ba065768ec54bd_76)] | | | [removed: [74](#i79738292d41746b1bb15858ef354b619_67)] [added: [76](#i8e716f7d23f343d791ba065768ec54bd_76)] | | |

| | | | [Critical Accounting Policies and [removed: Estimates](#i79738292d41746b1bb15858ef354b619_73)] [added: Estimates](#i8e716f7d23f343d791ba065768ec54bd_82)] | | | [removed: [77](#i79738292d41746b1bb15858ef354b619_73)] [added: [80](#i8e716f7d23f343d791ba065768ec54bd_82)] | | |

| Item 7A. | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i79738292d41746b1bb15858ef354b619_79)] [added: Risk](#i8e716f7d23f343d791ba065768ec54bd_88)] | | | [removed: [81](#i79738292d41746b1bb15858ef354b619_79)] [added: [84](#i8e716f7d23f343d791ba065768ec54bd_88)] | | |

| Item 8. | | | [Financial Statements and Supplementary [removed: Data](#i79738292d41746b1bb15858ef354b619_85)] [added: Data](#i8e716f7d23f343d791ba065768ec54bd_94)] | | | [removed: [85](#i79738292d41746b1bb15858ef354b619_85)] [added: [88](#i8e716f7d23f343d791ba065768ec54bd_94)] | | |

| | | | [Southwest Airlines Co. Consolidated Balance [removed: Sheet](#i79738292d41746b1bb15858ef354b619_88)] [added: Sheet](#i8e716f7d23f343d791ba065768ec54bd_97)] | | | [removed: [85](#i79738292d41746b1bb15858ef354b619_88)] [added: [88](#i8e716f7d23f343d791ba065768ec54bd_97)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of [removed: Income (Loss)](#i79738292d41746b1bb15858ef354b619_91)] [added: Income](#i8e716f7d23f343d791ba065768ec54bd_100)] | | | [removed: [86](#i79738292d41746b1bb15858ef354b619_91)] [added: [89](#i8e716f7d23f343d791ba065768ec54bd_100)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Comprehensive [removed: Income (Loss)](#i79738292d41746b1bb15858ef354b619_94)] [added: Income](#i8e716f7d23f343d791ba065768ec54bd_103)] | | | [removed: [87](#i79738292d41746b1bb15858ef354b619_94)] [added: [90](#i8e716f7d23f343d791ba065768ec54bd_103)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Stockholders’ [removed: Equity](#i79738292d41746b1bb15858ef354b619_97)] [added: Equity](#i8e716f7d23f343d791ba065768ec54bd_106)] | | | [removed: [88](#i79738292d41746b1bb15858ef354b619_97)] [added: [91](#i8e716f7d23f343d791ba065768ec54bd_106)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Cash [removed: Flows](#i79738292d41746b1bb15858ef354b619_100)] [added: Flows](#i8e716f7d23f343d791ba065768ec54bd_109)] | | | [removed: [89](#i79738292d41746b1bb15858ef354b619_100)] [added: [92](#i8e716f7d23f343d791ba065768ec54bd_109)] | | |

| | | | [Notes to Consolidated Financial [removed: Statements](#i79738292d41746b1bb15858ef354b619_103)] [added: Statements](#i8e716f7d23f343d791ba065768ec54bd_112)] | | | [removed: [90](#i79738292d41746b1bb15858ef354b619_103)] [added: [93](#i8e716f7d23f343d791ba065768ec54bd_112)] | | |

| Item 9. | | | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#i79738292d41746b1bb15858ef354b619_178)] [added: Disclosure](#i8e716f7d23f343d791ba065768ec54bd_187)] | | | [removed: [141](#i79738292d41746b1bb15858ef354b619_178)] [added: [140](#i8e716f7d23f343d791ba065768ec54bd_187)] | | |

| Item 9A. | | | [Controls and [removed: Procedures](#i79738292d41746b1bb15858ef354b619_181)] [added: Procedures](#i8e716f7d23f343d791ba065768ec54bd_190)] | | | [removed: [141](#i79738292d41746b1bb15858ef354b619_181)] [added: [140](#i8e716f7d23f343d791ba065768ec54bd_190)] | | |

| Item 9B. | | | [Other [removed: Information](#i79738292d41746b1bb15858ef354b619_184)] [added: Information](#i8e716f7d23f343d791ba065768ec54bd_193)] | | | [removed: [142](#i79738292d41746b1bb15858ef354b619_184)] [added: [141](#i8e716f7d23f343d791ba065768ec54bd_193)] | | |

| Item 9C. | | | [Disclosure Regarding Foreign Jurisdictions that Prevent [removed: Inspections](#i79738292d41746b1bb15858ef354b619_187)] [added: Inspections](#i8e716f7d23f343d791ba065768ec54bd_196)] | | | [removed: [142](#i79738292d41746b1bb15858ef354b619_187)] [added: [141](#i8e716f7d23f343d791ba065768ec54bd_196)] | | |

| Item 10. | | | [Directors, Executive Officers, and Corporate [removed: Governance](#i79738292d41746b1bb15858ef354b619_193)] [added: Governance](#i8e716f7d23f343d791ba065768ec54bd_202)] | | | [removed: [143](#i79738292d41746b1bb15858ef354b619_193)] [added: [142](#i8e716f7d23f343d791ba065768ec54bd_202)] | | |

| Item 11. | | | [Executive [removed: Compensation](#i79738292d41746b1bb15858ef354b619_196)] [added: Compensation](#i8e716f7d23f343d791ba065768ec54bd_205)] | | | [removed: [143](#i79738292d41746b1bb15858ef354b619_196)] [added: [142](#i8e716f7d23f343d791ba065768ec54bd_205)] | | |

| Item 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i79738292d41746b1bb15858ef354b619_199)] [added: Matters](#i8e716f7d23f343d791ba065768ec54bd_208)] | | | [removed: [144](#i79738292d41746b1bb15858ef354b619_199)] [added: [143](#i8e716f7d23f343d791ba065768ec54bd_208)] | | |

| Item 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i79738292d41746b1bb15858ef354b619_202)] [added: Independence](#i8e716f7d23f343d791ba065768ec54bd_211)] | | | [removed: [144](#i79738292d41746b1bb15858ef354b619_202)] [added: [143](#i8e716f7d23f343d791ba065768ec54bd_211)] | | |

| Item 14. | | | [Principal Accounting Fees and [removed: Services](#i79738292d41746b1bb15858ef354b619_205)] [added: Services](#i8e716f7d23f343d791ba065768ec54bd_214)] | | | [removed: [144](#i79738292d41746b1bb15858ef354b619_205)] [added: [144](#i8e716f7d23f343d791ba065768ec54bd_214)] | | |

| Item 15. | | | [Exhibits and Financial Statement [removed: Schedules](#i79738292d41746b1bb15858ef354b619_211)] [added: Schedules](#i8e716f7d23f343d791ba065768ec54bd_220)] | | | [removed: [146](#i79738292d41746b1bb15858ef354b619_211)] [added: [145](#i8e716f7d23f343d791ba065768ec54bd_220)] | | |

| Item 16. | | | [Form 10-K [removed: Summary](#i79738292d41746b1bb15858ef354b619_214)] [added: Summary](#i8e716f7d23f343d791ba065768ec54bd_223)] | | | [removed: [150](#i79738292d41746b1bb15858ef354b619_214)] [added: [149](#i8e716f7d23f343d791ba065768ec54bd_223)] | | |

| Item 1C. | | | [Cybersecurity](#i8e716f7d23f343d791ba065768ec54bd_1811) | | | [48](#i8e716f7d23f343d791ba065768ec54bd_1811) | | |

| [Signatures](#i8e716f7d23f343d791ba065768ec54bd_226) | | | | | | [150](#i8e716f7d23f343d791ba065768ec54bd_226) | | |

| [Signatures](#i79738292d41746b1bb15858ef354b619_217) | | | | | | [151](#i79738292d41746b1bb15858ef354b619_217) | | |

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

Cybersecurity Risk Management and Strategy

Risk Assessment and Management

The Company is increasingly dependent on the use of complex technology and systems to run its operations and support its strategic objectives.

These technologies and systems include, among others, the Company's website and reservation system; flight dispatch and tracking systems; flight simulators; check-in kiosks; aircraft maintenance, planning, and record keeping systems; telecommunications systems; flight planning and scheduling systems; crew scheduling systems; human resources systems; and financial planning, management, and accounting systems.

Additionally, the Company must receive certain confidential or personal information related to its Customers and

Employees to run its business, and the Company's operations depend upon secure collection, processing, retention, and transmission of such information.

Therefore, the performance, reliability, and security of the Company's technology infrastructure and information systems are critical to the Company's operations and initiatives.

The Company has an enterprise risk management (“ERM”) program to identify, evaluate, and manage risks.

Cybersecurity risks are evaluated alongside other critical business risks under the ERM program to align cybersecurity efforts with the Company's broader business goals and objectives.

The Company believes that integrating cybersecurity risks into its ERM program fosters a proactive and holistic approach to cybersecurity, which helps safeguard the Company’s operations, financial condition, and reputation in an ever-evolving threat landscape.

The Company maintains a cybersecurity program that is designed to identify, protect from, detect, respond to, and recover from cybersecurity threats and risks, and protect the confidentiality, integrity, and availability of its information systems, including the information residing on such systems.

The National Institute of Standards and Technology Cybersecurity Framework helps the Company inform its cybersecurity agenda and prioritize its cybersecurity activities.

The Company takes a risk-based approach to cybersecurity, which begins with the identification and evaluation of cybersecurity risks or threats that could affect the Company’s operations, finances, legal or regulatory compliance, or reputation.

Once identified, cybersecurity risks and related mitigation efforts are prioritized based on their potential impact, likelihood, velocity, and vulnerability, considering both quantitative and qualitative factors.

Risk mitigation strategies are developed and implemented based on the specific nature of each cybersecurity risk.

These strategies include, among others, the application of cybersecurity policies and procedures, implementation of administrative, technical, and physical controls, and Employee training, education, and awareness initiatives.

The Company’s cybersecurity risk management also includes a Security Operations Center (“SOC”) that conducts ongoing monitoring of networks and systems for potential signs of suspicious activity.

The SOC is a centralized function that monitors security alerts to initiate triage, verification, and remediation activities.

Additionally, the Company’s cybersecurity program provides mechanisms for Employees to report any unusual or potentially malicious activity they observe.

The Company tracks key performance indicators and cybersecurity metrics to evaluate the efficacy of its cybersecurity controls and practices.

Further, the Company’s cybersecurity program is periodically reviewed by its Cybersecurity Leaders (as defined below) and adjusted in an effort to maintain the program’s agility and responsiveness as circumstances evolve, new cybersecurity threats emerge, and regulations change.

Incident Response

The Company has a dedicated cybersecurity incident response team responsible for managing and coordinating the Company’s cybersecurity incident response efforts.

This team also collaborates closely with other teams in identifying, protecting from, detecting, responding to, and recovering from cybersecurity incidents.

Cybersecurity incidents that meet certain thresholds are escalated to the Cybersecurity Leaders and cross-functional teams on an as-needed basis for support and guidance.

Additionally, this team tracks cybersecurity incidents to help identify and analyze them.

The Company’s cybersecurity incident response team partners with the Company’s internal cybersecurity teams as well as with external legal advisors, communication specialists, and other key stakeholders as appropriate to respond to cybersecurity incidents.

The Company maintains a cybersecurity incident response plan to prepare for and respond to cybersecurity incidents.

The incident response plan includes standard processes for reporting and escalating cybersecurity incidents to senior management.

Additionally, the Company conducts at least one cybersecurity tabletop exercise on an annual basis, where members of a cross-functional team engage in a simulated cybersecurity incident scenario.

This preparedness exercise is intended to provide hands-on training for the participants and helps the Company assess its processes and capabilities in addressing cybersecurity threats.

Use of Third Parties

*Cybersecurity Service Providers and Third-Party Consultants*.

The Company engages cybersecurity consultants, auditors, and other third parties to assess and enhance its cybersecurity practices.

These third parties conduct assessments, penetration testing, and vulnerability assessments to identify weaknesses and recommend

improvements.

Additionally, the Company leverages a number of third-party tools and technologies as part of its efforts to enhance cybersecurity functions.

This includes a managed security service provider to augment the Company’s dedicated SOC team, an endpoint detection and response system for continuous monitoring, detection, and response capabilities, and a security information and event management solution to automate real-time threat detection, investigation, and prioritization of high-fidelity alerts.

*Oversight of Third-Party Service Providers*.

The Company also uses third-party service providers to support its operations and many of its technology initiatives.

Southwest operated a total of [removed: 770] [added: 817] Boeing 737 aircraft as of December 31, [removed: 2022,] [added: 2023,] of which [removed: 58] [added: 57] and [removed: 36] [added: 24] were under operating and finance leases, respectively.

The following table details information on the [removed: 770] [added: 817] aircraft as of December 31, [removed: 2022:][added: 2023:]

| Type | | | | | | Seats | | | | | | Average Age (Yrs) | | | | | | Number of Aircraft | | | | | | Number [removed: Owned (a)] [added: Owned] | | | | | | Number Leased [removed: (b)] [added: (a)] | | |

| 737-700 | | | | | | 143 | | | | | | 18 | | | | | | [removed: 426] [added: 387] | | | | | | [removed: 378] [added: 352] | | | | | | [removed: 48] [added: 35] | | |

| 737-800 | | | | | | 175 | | | | | | [removed: 7] [added: 8] | | | | | | 207 | | | | | | 190 | | | | | | 17 | | |

[removed: (b)See] [added: (a)See] Note 8 to the Consolidated Financial Statements for more information on the Company's lease transactions.

The delivery schedule below reflects contractual commitments, although the timing of future deliveries [removed: is uncertain.][added: could be affected by any potential or prolonged delays in the manufacturing process or with the -7 certification.]

[added: (c)] The Company [removed: is planning] [added: currently plans] for approximately [removed: 100 -8] [added: 79 MAX] aircraft deliveries in [removed: 2023.][added: 2024.]

[added: (a)] The delivery [removed: schedule] [added: timing] for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.

As of December 31, [removed: 2022,] [added: 2023,] the Company had firm deliveries and options for [removed: Boeing 737] -7 and [removed: 737] -8 aircraft as follows:

| 2024 | | | [removed: 41] [added: 27] | | | | | | [removed: —] [added: 58] | | | | | | [removed: 45] [added: —] | | | | | | | | | | | | [removed: 86] [added: 85] | | | [removed: (b)] [added: (c)] | | |

| 2025 | | | [removed: 30] [added: 59] | | | | | | — | | | | | | [removed: 56] [added: 15] | | | | | | | | | | | | [removed: 86] [added: 74] | | | | | |

| 2026 | | | [removed: 30] [added: 59] | | | | | | [removed: 15] [added: —] | | | | | | [removed: 40] [added: 26] | | | | | | | | | | | | 85 | | | | | |

| 2027 | | | [removed: 15] [added: 19] | | | | | | [removed: 15] [added: 46] | | | | | | [removed: 6] [added: 25] | | | | | | | | | | | | [removed: 36] [added: 90] | | | | | |

| 2028 | | | 15 | | | | | | [removed: 15] [added: 50] | | | | | | [removed: —] [added: 25] | | | | | | | | | | | | [removed: 30] [added: 90] | | | | | |

| 2029 | | | [removed: 20] [added: 38] | | | | | | [removed: 30] [added: 34] | | | | | | [removed: —] [added: 18] | | | | | | | | | | | | [removed: 50] [added: 90] | | | | | |

| 2030 | | | [removed: —] [added: 45] | | | | | | [removed: 55] [added: —] | | | | | | [removed: —] [added: 45] | | | | | | | | | | | | [removed: 55] [added: 90] | | | | | |

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

Southwest either leases or pays a usage fee for terminal passenger service facilities at each of the airports it [removed: serves,] [added: serves] to which various leasehold improvements have been made.

[removed: The] Company also leases a warehouse and engine repair facility in Atlanta.

The Company owns two additional headquarters buildings, located across the street from the Company's main headquarters building, on land owned by the [removed: Company] [added: Company,] including (a) an [removed: energy-efficient,] [added: energy efficient,] modern building, called TOPS, which houses certain operational and training functions, including the Company's 24-hour operations and (b) the Wings Complex, consisting of a Leadership Education and Aircrew Development [removed: (LEAD)] [added: (“LEAD”)] Center (housing the Company's 26 Boeing 737 flight simulators and classroom space for Pilot training), an additional office building, and a parking garage.

| 737 -8 | | | | | | 175 | | | | | | 2 | | | | | | 223 | | | | | | 194 | | | | | | 29 | | |

| Totals | | | | | | | | | | | | 11 | | | | | | 817 | | | | | | 736 | | | | | | 81 | | |

In fourth quarter 2023, the Company entered into supplemental agreements with Boeing relating to its contractual order book for -7 and -8 aircraft.

These agreements, which include an extended order book to 2031, provide flexibility in support of the Company's growth plans and fleet modernization.

The Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

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

| 2031 | | | 45 | | | | | | — | | | | | | 45 | | | | | | | | | | | | 90 | | | | | |

| | | | 307 | | | (a) | | | 188 | | | (b) | | | 199 | | | | | | | | | | | | 694 | | | | | |

The

In April 2023, the Company executed a ground lease agreement with Los Angeles World Airports (“LAWA”) at Los Angeles International Airport (LAX) which provides the Company the right to construct a 9-gate concourse (Concourse 0) adjacent to Terminal 1.

The Company expects to manage the design, development, financing, construction, and commissioning of the project, and expects to commence construction in early 2025 with construction to be complete in late 2028 or early 2029.

Prior to commencement of construction, LAWA and the Company will need to agree on scope and budget and have financing in place.

| 737 -8 | | | | | | 175 | | | | | | 2 | | | | | | 137 | | | | | | 108 | | | | | | 29 | | |

| Totals | | | | | | | | | | | | 12 | | | | | | 770 | | | | | | 676 | | | | | | 94 | | |

(a)As discussed further in Note 7 to the Consolidated Financial Statements, 83 of the Company's aircraft were pledged as collateral as of December 31, 2022, associated with outstanding secured borrowings.

For purposes of the delivery schedule below, the Company has included the remaining 46 of its 2022 contractual undelivered aircraft within its 2023 contractual commitments, and has not made any further adjustments to this schedule based on current estimations.

| 2023 | | | 31 | | | | | | 105 | | | | | | — | | | | | | | | | | | | 136 | | | (a) | | |

| | | | 182 | | | | | | 235 | | | (c) | | | 147 | | | (b) | | | | | | | | | 564 | | | | | |

(a) The Company has included the remaining 46 of its 2022 contractual undelivered aircraft (14 -7s and 32 -8s) within its 2023 contractual commitments.

Due to Boeing's supply chain challenges and the current status of the -7 certification, the Company currently estimates approximately 100 MAX aircraft deliveries in 2023.

The 2023 contractual detail is as follows:

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

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

| | | | The Boeing Company | | | | | | | | | | | | | | | | | | | | |

| | | | \-7 Firm Orders | | | \-8 Firm Orders | | | | | | | | | | | | Total | | | | | |

| 2022 Contractual Deliveries Remaining | | | 14 | | | 32 | | | | | | | | | | | | 46 | | | | | |

| 2023 Contractual Deliveries | | | 17 | | | 73 | | | | | | | | | | | | 90 | | | | | |

| 2023 Contractual Total | | | 31 | | | 105 | | | | | | | | | | | | 136 | | | | | |

(b) In January 2023, the Company exercised 10 -7 options for delivery in 2024.

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

As of December 31, 2021, the Company operated seven Customer Support and Services call centers.

During 2022, the Company closed all seven physical locations of the Customer Support and Services call centers and transitioned Customer Support and Services Employees to remote work.

The following information regarding the Company’s executive officers is as of February 1, [removed: 2023.][added: 2024.]

| Gary C. Kelly | | | Executive Chairman of the Board | | | [removed: 67] [added: 68] | | |

| Robert E. Jordan | | | President & Chief Executive Officer | | | [removed: 62] [added: 63] | | |

| Andrew M. Watterson | | | Chief Operating Officer | | | [removed: 56] [added: 57] | | |

| Ryan C. Green | | | Executive Vice President & Chief Commercial Officer | | | [removed: 46] [added: 47] | | |

| Tammy Romo | | | Executive Vice President & Chief Financial Officer | | | [removed: 60] [added: 61] | | |

| Linda B. Rutherford | | | Chief Administration [removed: & Communications] Officer | | | [removed: 56] [added: 57] | | |

| Mark R. Shaw | | | Executive Vice President & Chief Legal & Regulatory Officer & Corporate Secretary | | | [removed: 60] [added: 61] | | |

Ms. Romo also served as Senior Vice President Finance & Chief Financial Officer from September 2012 to July 2015, Senior Vice President of Planning from February 2010 to September 2012, Vice President of Financial Planning from September 2008 to February 2010, Vice President Controller from February 2006 to August 2008, Vice President Treasurer from September 2004 to February 2006, Senior Director of Investor Relations from March 2002 to September 2004, Director of Investor Relations from December 1994 to March 2002, Manager of Investor [added: Relations from September 1994 to December 1994, and Manager of Financial Reporting from September 1991 to September 1994.]

Rutherford* has served as the Company’s Chief Administration [removed: & Communications] Officer since October 2022.

Ms. Rutherford also served as [added: Chief Communications Officer from October 2022 to December 2023,] Executive Vice President People & Communications from June 2021 to October 2022, Senior Vice President & Chief Communications Officer from October 2017 to June 2021, Vice President & Chief Communications Officer from January 2016 to October 2017, Vice President Communications & Strategic Outreach from April 2007 to January 2016, Vice President Public Relations & Community Affairs from December 2005 to April 2007, Director Public Relations from May 2001 to December 2005, Senior Manager Public Relations from February 1999 to May 2001, and Manager Public Relations from February 1997 to February 1999.

| Justin Jones | | | Executive Vice President Operations | | | 45 | | |

*Justin Jones* has served as the Company’s Executive Vice President Operations since December 2023.

Mr. Jones also served as Senior Vice President Operations & Design from December 2021 to December 2023, Vice President Planning & Performance, Technical Operations from September 2018 to December 2021, Vice President Operational Strategy & Performance from March 2016 to September 2018, Senior Director Pricing & Planning from October 2012 to March 2016, and Director Revenue Management from November 2008 to October 2012.

Mr. Jones joined the Company in 2001 in the Revenue Management Department.

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

Relations from September 1994 to December 1994, and Manager of Financial Reporting from September 1991 to September 1994.

The Company currently intends to continue declaring dividends on a quarterly basis for the foreseeable future; however, the [removed: Company’s] Board [removed: of Directors] may elect to alter the timing, amount, and payment of dividends on the basis of operational results, financial condition, cash requirements, future prospects, and other factors deemed relevant by the Board.

As of February [removed: 3, 2023,] [added: 2, 2024,] there were approximately [removed: 11,378] [added: 11,028] 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: 2022,] [added: 2023,] 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: 2017,] [added: 2018,] in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.

[removed: ][added: ]

| | | | | | | [removed: 12/31/2017] [added: 12/31/2018] | | | | | | [removed: 12/31/2018] [added: 12/31/2019] | | | | | | [removed: 12/31/2019] [added: 12/31/2020] | | | | | | [removed: 12/31/2020] [added: 12/31/2021] | | | | | | [removed: 12/31/2021] [added: 12/31/2022] | | | | | | [removed: 12/31/2022] [added: 12/31/2023] | | |

| Southwest Airlines Co. | | | | | | $ | 100 | | | | | $ | [removed: 72] [added: 118] | | | | | $ | [removed: 85] [added: 102] | | | | | $ | [removed: 73] [added: 94] | | | | | $ | [removed: 67] [added: 74] | | | | | $ | [removed: 53] [added: 65] | |

| NYSE ARCA Airline | | | | | | $ | 100 | | | | | $ | [removed: 79] [added: 123] | | | | | $ | [removed: 96] [added: 93] | | | | | $ | [removed: 73] [added: 91] | | | | | $ | [removed: 72] [added: 59] | | | | | $ | [removed: 47] [added: 77] | |

On May 15, 2019, the [removed: Company’s] Board [removed: of Directors] authorized the repurchase of up to $2.0 billion of the Company’s common stock.

Subject to certain conditions, [removed: including restrictions on the Company pursuant to the PSP3 Payroll Support Program through September 30, 2022,] repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions.

The Company’s common stock is listed on the New York Stock Exchange ("NYSE") and is traded under the symbol "LUV." Although the Company previously suspended the payment of dividends in second quarter 2020 through September 30, 2022, pursuant to payroll funding support agreements with the U.S. Department of the Treasury, the Company reinstated and declared a quarterly cash dividend of $.18 per share on December 6, 2022, and has continued to pay quarterly dividends since the reinstatement.

| S&P 500 | | | | | | $ | 100 | | | | | $ | 131 | | | | | $ | 156 | | | | | $ | 200 | | | | | $ | 164 | | | | | $ | 207 | |

The Company’s common stock is listed on the New York Stock Exchange ("NYSE") and is traded under the symbol "LUV." Although the Company has a history of declaring dividends on a quarterly basis, the Company suspended the payment of dividends following its 174th consecutive quarterly dividend which was declared and paid in first quarter 2020.

Pursuant to the "PSP1 Payroll Support Program" under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), as supplemented by the "PSP2 Payroll Support Program” under the Consolidated Appropriations Act, 2021, and the "PSP3 Payroll Support Program" under the American Rescue Plan Act of 2021, the Company was prohibited from paying dividends with respect to its common stock through September 30, 2022.

On December 6, 2022, the Company reinstated and declared a quarterly cash dividend of $.18 per share to Shareholders of record at the close of business on January 10, 2023, on all shares then issued and outstanding.

The quarterly dividend was paid on January 31, 2023.

[Table](#i79738292d41746b1bb15858ef354b619_7) [of Contents](#i79738292d41746b1bb15858ef354b619_7)

| S&P 500 | | | | | | $ | 100 | | | | | $ | 96 | | | | | $ | 126 | | | | | $ | 149 | | | | | $ | 191 | | | | | $ | 157 | |

| | | | December 31, [removed: 2022] [added: 2023] | | | | | | December 31, [removed: 2021] [added: 2022] | | |

| Cash and cash equivalents | | | $ | [removed: 9,492] [added: 9,288] | | | | | $ | [removed: 12,480] [added: 9,492] | |

| Short-term investments | | | [removed: 2,800] [added: 2,186] | | | | | | [removed: 3,024] [added: 2,800] | | |

| Accounts and other receivables | | | [removed: 1,040] [added: 1,154] | | | | | | [removed: 1,357] [added: 1,040] | | |

| Inventories of parts and supplies, at cost | | | [removed: 790] [added: 807] | | | | | | [removed: 537] [added: 790] | | |

| Prepaid expenses and other current assets | | | [removed: 686] [added: 520] | | | | | | [removed: 638] [added: 686] | | |

| Total current assets | | | [removed: 14,808] [added: 13,955] | | | | | | [removed: 18,036] [added: 14,808] | | |

| Flight equipment | | | [removed: 23,725] [added: 26,060] | | | | | | [removed: 21,226] [added: 23,725] | | |

| Ground property and equipment | | | [removed: 6,855] [added: 7,460] | | | | | | [removed: 6,342] [added: 6,855] | | |

| Deposits on flight equipment purchase contracts | | | [removed: 376] [added: 236] | | | | | | [removed: —] [added: 376] | | |

| Assets constructed for others | | | [removed: 28] [added: 62] | | | | | | [removed: 6] [added: 28] | | |

| Less allowance for depreciation and amortization | | | [removed: 13,642] [added: 14,443] | | | | | | [removed: 12,732] [added: 13,642] | | |

| Operating lease right-of-use assets | | | [removed: 1,394] [added: 1,223] | | | | | | [removed: 1,590] [added: 1,394] | | |

| Other assets | | | [removed: 855] [added: 964] | | | | | | [removed: 882] [added: 855] | | |

| Accounts payable | | | $ | [removed: 2,004] [added: 1,862] | | | | | $ | [removed: 1,282] [added: 2,004] | |

| Accrued liabilities | | | [removed: 2,043] [added: 3,606] | | | | | | [removed: 1,624] [added: 2,043] | | |

| Current operating lease liabilities | | | [removed: 225] [added: 208] | | | | | | [removed: 239] [added: 225] | | |

| Air traffic liability | | | [removed: 6,064] [added: 6,551] | | | | | | [removed: 5,566] [added: 6,064] | | |

| Current maturities of long-term debt | | | [removed: 42] [added: 29] | | | | | | [removed: 453] [added: 42] | | |

| Total current liabilities | | | [removed: 10,378] [added: 12,256] | | | | | | [removed: 9,164] [added: 10,378] | | |

| Long-term debt less current maturities | | | [removed: 8,046] [added: 7,978] | | | | | | [removed: 10,274] [added: 8,046] | | |