Item 1. Financial Statements

Southwest Airlines Co.

Condensed Consolidated Balance Sheet

(in millions)

(unaudited)

			September 30, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	9,497					$	9,492
Short-term investments			2,236						2,800
Accounts and other receivables			1,467						1,040
Inventories of parts and supplies, at cost			799						790
Prepaid expenses and other current assets			632						686
Total current assets			14,631						14,808
Property and equipment, at cost:
Flight equipment			25,724						23,725
Ground property and equipment			7,344						6,855
Deposits on flight equipment purchase contracts			345						376
Assets constructed for others			51						28
			33,464						30,984
Less allowance for depreciation and amortization			14,389						13,642
			19,075						17,342
Goodwill			970						970
Operating lease right-of-use assets			1,288						1,394
Other assets			1,016						855
			$	36,980					$	35,369
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable			$	1,736					$	2,004
Accrued liabilities			2,880						2,043
Current operating lease liabilities			220						225
Air traffic liability			7,246						6,064
Current maturities of long-term debt			30						42
Total current liabilities			12,112						10,378
Long-term debt less current maturities			7,984						8,046
Air traffic liability - noncurrent			1,754						2,186
Deferred income taxes			2,157						1,985
Noncurrent operating lease liabilities			1,039						1,118
Other noncurrent liabilities			880						969
Stockholders' equity:
Common stock			888						888
Capital in excess of par value			4,135						4,037
Retained earnings			16,657						16,261
Accumulated other comprehensive income			201						344
Treasury stock, at cost			(10,827)						(10,843)
Total stockholders' equity			11,054						10,687
			$	36,980					$	35,369

See accompanying notes.

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Income (Loss)

(in millions, except per share amounts)

(unaudited)

			Three months ended September 30,												Nine months ended September 30,
			2023						2022						2023						2022
OPERATING REVENUES:
Passenger			$	5,912					$	5,613					$	17,426					$	15,867
Freight			44						44						131						133
Other			569						563						1,711						1,642
Total operating revenues			6,525						6,220						19,268						17,642
OPERATING EXPENSES:
Salaries, wages, and benefits			2,728						2,322						7,991						6,771
Fuel and oil			1,564						1,750						4,514						4,390
Maintenance materials and repairs			326						204						836						624
Landing fees and airport rentals			457						395						1,324						1,128
Depreciation and amortization			375						335						1,107						984
Other operating expenses			958						819						2,868						2,343
Total operating expenses			6,408						5,825						18,640						16,240
OPERATING INCOME			117						395						628						1,402
OTHER EXPENSES (INCOME):
Interest expense			63						86						193						272
Capitalized interest			(4)						(11)						(15)						(31)
Interest income			(156)						(70)						(425)						(101)
Loss on extinguishment of debt			—						76						—						192
Other (gains) losses, net			(23)						(39)						(44)						57
Total other expenses (income)			(120)						42						(291)						389
INCOME BEFORE INCOME TAXES			237						353						919						1,013
PROVISION FOR INCOME TAXES			44						76						202						254
NET INCOME			$	193					$	277					$	717					$	759
NET INCOME PER SHARE, BASIC			$	0.32					$	0.47					$	1.20					$	1.28
NET INCOME PER SHARE, DILUTED			$	0.31					$	0.44					$	1.15					$	1.21
COMPREHENSIVE INCOME (LOSS)			$	336					$	(223)					$	574					$	676
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic			596						593						595						593
Diluted			640						639						639						643

See accompanying notes.

Southwest Airlines Co.

Condensed Consolidated Statement of Stockholders' Equity

(in millions, except per share amounts)

(unaudited)

						Common Stock						Capital in excess of par value						Retained earnings						Accumulated other comprehensive income (loss)						Treasury stock						Total
Balance at December 31, 2022						$	888					$	4,037					$	16,261					$	344					$	(10,843)					$	10,687
Issuance of common and treasury stock pursuant to Employee stock plans						—						1						—						—						7						8
Share-based compensation						—						20						—						—						—						20
Cash dividends, $0.18 per share						—						—						(107)						—						—						(107)
Comprehensive loss						—						—						(159)						(147)						—						(306)
Balance at March 31, 2023						$	888					$	4,058					$	15,995					$	197					$	(10,836)					$	10,302
Issuance of common and treasury stock pursuant to Employee stock plans						—						11						—						—						5						16
Share-based compensation						—						34						—						—						—						34
Cash dividends, $0.18 per share						—						—						(107)						—						—						(107)
Comprehensive income (loss)						—						—						683						(139)						—						544
Balance at June 30, 2023						$	888					$	4,103					$	16,571					$	58					$	(10,831)					$	10,789
Issuance of common and treasury stock pursuant to Employee stock plans						—						9						—						—						4						13
Share-based compensation						—						23						—						—						—						23
Cash dividends, $0.18 per share						—						—						(107)						—						—						(107)
Comprehensive income						—						—						193						143						—						336
Balance at September 30, 2023						$	888					$	4,135					$	16,657					$	201					$	(10,827)					$	11,054

						Common Stock						Capital in excess of par value						Retained earnings						Accumulated other comprehensive income (loss)						Treasury stock						Total
Balance at December 31, 2021						$	888					$	4,224					$	15,774					$	388					$	(10,860)					$	10,414
Cumulative effect of adopting Accounting Standards Update No. 2020-06, Debt						—						(300)						55						—						—						(245)
Issuance of common and treasury stock pursuant to Employee stock plans						—						—						—						—						7						7
Share-based compensation						—						16						—						—						—						16
Comprehensive income (loss)						—						—						(278)						503						—						225
Balance at March 31, 2022						$	888					$	3,940					$	15,551					$	891					$	(10,853)					$	10,417
Issuance of common and treasury stock pursuant to Employee stock plans						—						10						—						—						3						13
Share-based compensation						—						16						—						—						—						16
Comprehensive income (loss)						—						—						760						(86)						—						674
Balance at June 30, 2022						$	888					$	3,966					$	16,311					$	805					$	(10,850)					$	11,120
Issuance of common and treasury stock pursuant to Employee stock plans						—						9						—						—						4						13
Share-based compensation						—						14						—						—						—						14
Comprehensive income (loss)						—						—						277						(500)						—						(223)
Balance at September 30, 2022						$	888					$	3,989					$	16,588					$	305					$	(10,846)					$	10,924

See accompanying notes.

Southwest Airlines Co.

Condensed Consolidated Statement of Cash Flows

(in millions)

(unaudited)

			Three months ended												Nine months ended
			September 30,												September 30,
			2023						2022						2023						2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	193					$	277					$	717					$	759
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			375						335						1,107						984
Impairment of long-lived assets			—						4						—						35
Unrealized mark-to-market adjustment on available for sale securities			—						—						(4)						7
Unrealized/realized (gain) on fuel derivative instruments			(21)						(26)						(14)						(11)
Deferred income taxes			57						76						214						250
Loss on extinguishment of debt			—						76						—						192
Changes in certain assets and liabilities:
Accounts and other receivables			(216)						58						(405)						162
Other assets			(35)						30						74						(14)
Accounts payable and accrued liabilities			352						(70)						645						436
Air traffic liability			(59)						(93)						750						700
Other liabilities			(89)						(83)						(180)						(292)
Cash collateral received from (provided to) derivative counterparties			40						(325)						(6)						(41)
Other, net			19						(25)						(159)						44
Net cash provided by operating activities			616						234						2,739						3,211
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(842)						(1,072)						(2,812)						(2,568)
Assets constructed for others			(8)						(7)						(23)						(14)
Purchases of short-term investments			(1,620)						(1,743)						(5,347)						(4,213)
Proceeds from sales of short-term and other investments			2,406						1,702						5,914						3,982
Net cash used in investing activities			(64)						(1,120)						(2,268)						(2,813)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Employee stock plans			13						12						36						32
Payments of long-term debt and finance lease obligations			(11)						(1,679)						(78)						(1,825)
Payments of cash dividends			(214)						—						(428)						—
Payments for repurchases and conversions of convertible debt			—						(239)						—						(648)
Other, net			(1)						1						4						6
Net cash used in financing activities			(213)						(1,905)						(466)						(2,435)
NET CHANGE IN CASH AND CASH EQUIVALENTS			339						(2,791)						5						(2,037)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			9,158						13,234						9,492						12,480
CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	9,497					$	10,443					$	9,497					$	10,443
CASH PAYMENTS FOR:
Interest, net of amount capitalized			$	19					$	42					$	134					$	203
Income taxes			$	1					$	8					$	9					$	19
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Adoption of Accounting Standards Update 2020-06, Debt			$	—					$	—					$	—					$	245
Right-of-use assets acquired under operating leases			$	9					$	14					$	78					$	42

See accompanying notes.

Southwest Airlines Co.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Basis of Presentation

2. New Accounting Pronouncements

3. Financial Derivative Instruments

4. Comprehensive Income (Loss)

5. Revenue

6. Net Income Per Share

7. Fair Value Measurements

8. Supplemental Financial Information

9. Commitments and Contingencies

10. Financing Activities

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

1. BASIS OF PRESENTATION

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

In late December 2022, the Company experienced a wide-scale operational disruption as historically 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 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. These events also created a deceleration in bookings, primarily isolated to January and February 2023, as well as increased first quarter 2023 expenses by approximately $55 million, which are included in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income (Loss) for the nine months ended September 30, 2023. These first quarter 2023 expenses included reimbursements to Customers impacted by the cancellations for costs they incurred in excess of the amounts accrued as of December 31, 2022, adjustments to the estimated value of Rapid Rewards points offered as a gesture of goodwill to Customers as a result of changes in the estimates of the points expected to be redeemed, and additional premium pay and additional compensation for Employees directly or indirectly impacted by the cancellations and recovery efforts. There were no material impacts to operating revenues or expenses beyond first quarter 2023 as a result of this disruption.

The accompanying unaudited Condensed Consolidated Financial Statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States ("GAAP") for complete financial statements. The unaudited Condensed Consolidated Financial Statements for the interim periods ended September 30, 2023 and 2022 include all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. This includes all normal and recurring adjustments and elimination of significant intercompany transactions. Financial results for the Company and airlines in general can be seasonal in nature. In many years, the Company's revenues, as well as its Operating income and Net income, have performed better in its second and third fiscal quarters than in its first and fourth fiscal quarters. Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers and changes in consumer behavior, unemployment levels, corporate travel budgets, global pandemics such as COVID-19, extreme or severe weather and natural disasters, fears of terrorism or war, governmental actions, and other factors beyond the Company's control. These and other factors, such as the price of jet fuel in some periods, the nature of the Company's fuel hedging program, and the periodic volatility of commodities used by the Company for hedging jet fuel, have created, and may continue to create, significant volatility in the Company's financial results. See Note 3 for further information on fuel and the Company's hedging program. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2023. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

2. NEW ACCOUNTING PRONOUNCEMENTS

On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848). This standard provides optional temporary guidance for entities transitioning away from London Interbank Offered Rate ("LIBOR") to new reference interest rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions with Topic 848. These amendments do not apply to any contract modifications made after December 31, 2024, any new hedging relationships entered into after December 31, 2024, or to existing hedging relationships evaluated for effectiveness existing as of December 31, 2024, that apply certain optional practical expedients. This standard was effective immediately and may be applied (i) on a full retrospective basis as

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

of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or (ii) on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The Company had no material LIBOR-related contract modifications during the nine months ended September 30, 2023.

3. FINANCIAL DERIVATIVE INSTRUMENTS

Fuel Contracts

Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes in jet fuel prices. Furthermore, jet fuel and oil typically represents one of the largest operating expenses for airlines. The Company endeavors to acquire jet fuel at the lowest possible cost and to reduce volatility in operating expenses through its fuel hedging program.

The Company has used financial derivative instruments for both short-term and long-term timeframes, and primarily uses a mixture of purchased call options, collar structures (which include both a purchased call option and a sold put option), call spreads (which include a purchased call option and a sold call option), put spreads (which include a purchased put option and a sold put option), and fixed price swap agreements in its portfolio. The Company does not purchase or hold any financial derivative instruments for trading or speculative purposes.

For the purpose of evaluating its net cash spend for jet fuel and for forecasting its future estimated jet fuel expense, the Company evaluates its hedge volumes strictly from an "economic" standpoint and thus does not consider whether the hedges have qualified or will qualify for hedge accounting. The Company defines its "economic" hedge as the net volume of fuel derivative contracts held, including the impact of positions that have been offset through sold positions, regardless of whether those contracts qualify for hedge accounting. The level at which the Company is economically hedged for a particular period is also dependent on current market prices for that period, as well as the types of derivative instruments held and the strike prices of those instruments. For example, the Company may enter into "out-of-the-money" option contracts (including "catastrophic" protection, which the Company defines as prices significantly higher than historical average levels), which may not generate intrinsic gains at settlement if market prices do not rise above the option strike price. Therefore, even though the Company may have an economic hedge in place for a particular period, that hedge may not produce any hedging gains at settlement and may even produce hedging losses depending on market prices, the types of instruments held, and the strike prices of those instruments.

As of September 30, 2023, the Company had fuel derivative instruments in place to provide coverage at varying price levels. The following table provides information about the Company’s volume of fuel hedging on an economic basis:

						Maximum fuel hedged as of
						September 30, 2023						Derivative underlying commodity type as of
Period (by year)						(gallons in millions) (a)						September 30, 2023
Remainder of 2023						271						West Texas Intermediate ("WTI") crude oil, Brent crude oil, and Heating oil
2024						1,265						WTI crude oil and Brent crude oil
2025						1,033						Brent crude oil
2026						176						Brent crude oil

(a) Due to the types of derivatives utilized by the Company and different price levels of those contracts, these volumes represent the maximum economic hedge in place and may vary significantly as market prices and the Company's flight schedule fluctuate.

Upon proper qualification, the Company accounts for its fuel derivative instruments as cash flow hedges. Qualification is re-evaluated quarterly, and all periodic changes in fair value of the derivatives designated as hedges

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

are recorded in Accumulated other comprehensive income ("AOCI") until the underlying jet fuel is consumed. See Note 4.

When the Company has sold derivative positions in order to effectively "close" or offset a derivative already held as part of its fuel derivative instrument portfolio, any subsequent changes in fair value of those positions are marked to market through earnings. Likewise, any changes in fair value of those positions that were offset by entering into the sold positions and were de-designated as hedges are concurrently marked to market through earnings. However, any changes in value related to hedges that were deferred as part of AOCI while designated as a hedge would remain until the originally forecasted transaction occurs. In a situation where it becomes probable that a fuel hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into earnings. The Company did not have any such situations where a derivative ceased to qualify for hedge accounting during 2022, or during the nine months ended September 30, 2023.

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

												Asset derivatives												Liability derivatives
						Balance Sheet						Fair value at						Fair value at						Fair value at						Fair value at
(in millions)						location						9/30/2023						12/31/2022						9/30/2023						12/31/2022
Derivatives designated as hedges (a)
Fuel derivative contracts (gross)						Prepaid expenses and other current assets						$	250					$	352					$	—					$	—
Fuel derivative contracts (gross)						Other assets						223						160						—						—
Interest rate derivative contracts						Other assets						23						14						—						—
Total derivatives designated as hedges												$	496					$	526					$	—					$	—
Derivatives not designated as hedges (a)
Fuel derivative contracts (gross)						Prepaid expenses and other current assets						$	42					$	—					$	28					$	—
Total derivatives												$	538					$	526					$	28					$	—

(a) Represents the position of each trade before consideration of offsetting positions with each counterparty and does not include the impact of cash collateral deposits provided to or received from counterparties. See discussion of credit risk and collateral following in this Note.

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

						Balance Sheet						September 30,						December 31,
(in millions)						location						2023						2022
Cash collateral deposits held from counterparties for fuel contracts - current						Offset against Prepaid expenses and other current assets						$	70					$	106
Cash collateral deposits held from counterparties for fuel contracts - noncurrent						Offset against Other assets						30						—
Receivable from third parties for fuel contracts						Accounts and other receivables						45						34

All of the Company's fuel derivative instruments and interest rate swaps are subject to agreements that follow the netting guidance in the applicable accounting standards for derivatives and hedging. The types of derivative

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

instruments the Company has determined are subject to netting requirements in the accompanying unaudited Condensed Consolidated Balance Sheet are those in which the Company pays or receives cash for transactions with the same counterparty and in the same currency via one net payment or receipt. For cash collateral held by the Company or provided to counterparties, the Company nets such amounts against the fair value of the Company's derivative portfolio by each counterparty. The Company has elected to utilize netting for both its fuel derivative instruments and interest rate swap agreements and also classifies such amounts as either current or noncurrent, based on the net fair value position with each of the Company's counterparties in the unaudited Condensed Consolidated Balance Sheet. If its fuel derivative instruments are in a net asset position with a counterparty, cash collateral amounts held are first netted against current outstanding derivative asset amounts associated with that counterparty until that balance is zero, and then any remainder is applied against the fair value of noncurrent outstanding derivative instruments. As of September 30, 2023, no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements.

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

Offsetting of derivative assets
(in millions)
												(i)						(ii)						(iii) = (i) + (ii)						(i)						(ii)						(iii) = (i) + (ii)
												September 30, 2023																		December 31, 2022
Description						Balance Sheet location						Gross amounts of recognized assets						Gross amounts offset in the Balance Sheet						Net amounts of assets presented in the Balance Sheet						Gross amounts of recognized assets						Gross amounts offset in the Balance Sheet						Net amounts of assets presented in the Balance Sheet
Fuel derivative contracts						Prepaid expenses and other current assets						$	292					$	(98)					$	194					$	352					$	(106)					$	246
Fuel derivative contracts						Other assets						$	223					$	(30)					$	193		(a)			$	160					$	—					$	160		(a)
Interest rate derivative contracts						Other assets						$	23					$	—					$	23		(a)			$	14					$	—					$	14		(a)

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

Offsetting of derivative liabilities
(in millions)
												(i)						(ii)						(iii) = (i) + (ii)						(i)						(ii)						(iii) = (i) + (ii)
												September 30, 2023																		December 31, 2022
Description						Balance Sheet location						Gross amounts of recognized liabilities						Gross amounts offset in the Balance Sheet						Net amounts of liabilities presented in the Balance Sheet						Gross amounts of recognized liabilities						Gross amounts offset in the Balance Sheet						Net amounts of liabilities presented in the Balance Sheet
Fuel derivative contracts						Prepaid expenses and other current assets						$	98					$	(98)					$	—					$	106					$	(106)					$	—
Fuel derivative contracts						Other assets						$	30					$	(30)					$	—					$	—					$	—					$	—

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

The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022:

Location and amount recognized in income on cash flow and fair value hedging relationships
						Three months ended September 30, 2023															Three months ended September 30, 2022
(in millions)						Fuel and oil												Other operating expenses						Fuel and oil												Other operating expenses
Total						$	(52)											$	2					$	(195)											$	2
(Gain) loss on cash flow hedging relationships
Commodity contracts:
Amount of (gain) reclassified from AOCI into income						(52)												—						(195)												—
Interest contracts:
Amount of loss reclassified from AOCI into income						—												2						—												2

Location and amount recognized in income on cash flow and fair value hedging relationships
						Nine months ended September 30, 2023												Nine months ended September 30, 2022
(in millions)						Fuel and oil												Other operating expenses						Fuel and oil						Other operating expenses
Total						$	(93)											$	5					$	(703)					$	5
(Gain) loss on cash flow hedging relationships
Commodity contracts:
Amount of (gain) reclassified from AOCI into income						(93)												—						(703)						—
Interest contracts:
Amount of loss reclassified from AOCI into income						—												5						—						5

Derivatives designated and qualified in cash flow hedging relationships
			(Gain) loss recognized in AOCI on derivatives, net of tax
			Three months ended
			September 30,
(in millions)			2023						2022
Fuel derivative contracts			$	(175)					$	354
Interest rate derivatives			(7)						(2)
Total			$	(182)					$	352

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

Derivatives designated and qualified in cash flow hedging relationships
			(Gain) loss recognized in AOCI on derivatives, net of tax
			Nine months ended
			September 30,
(in millions)			2023						2022
Fuel derivative contracts			$	78					$	(438)
Interest rate derivatives			(7)						(14)
Total			$	71					$	(452)

Derivatives not designated as hedges
			(Gain) loss recognized in income on derivatives
			Three months ended												Location of (gain) loss recognized in income on derivatives
			September 30,
(in millions)			2023						2022
Fuel derivative contracts			$	(33)					$	(38)					Other (gains) losses, net

Derivatives not designated as hedges
			(Gain) loss recognized in income on derivatives
			Nine months ended												Location of (gain) loss recognized in income on derivatives
			September 30,
(in millions)			2023						2022
Fuel derivative contracts			$	(26)					$	(23)					Other (gains) losses, net

The Company also recorded expense (benefit) associated with premiums paid for fuel derivative contracts that settled/expired during the three and nine months ended September 30, 2023 and 2022. Gains and/or losses associated with fuel derivatives that qualify for hedge accounting are ultimately recorded to Fuel and oil expense. Gains and/or losses associated with fuel derivatives that do not qualify for hedge accounting are recorded to Other (gains) and losses, net. The following tables present the impact of premiums paid for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss) during the period the contract settles:

			Premium expense (benefit) recognized in income on derivatives
			Three months ended												Location of premium expense (benefit) recognized in income on derivatives
			September 30,
(in millions)			2023						2022
Fuel derivative contracts designated as hedges			$	30					$	26					Fuel and oil
Fuel derivative contracts not designated as hedges			—						(14)						Other (gains) losses, net

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

			Premium expense (benefit) recognized in income on derivatives
			Nine months ended												Location of premium expense (benefit) recognized in income on derivatives
			September 30,
(in millions)			2023						2022
Fuel derivative contracts designated as hedges			$	91					$	79					Fuel and oil
Fuel derivative contracts not designated as hedges			$	—					$	(14)					Other (gains) losses, net

The fair values of the derivative instruments, depending on the type of instrument, were determined by the use of present value methods or option value models with assumptions about commodity prices based on those observed in underlying markets or provided by third parties. Included in the Company’s cumulative unrealized gains from fuel hedges as of September 30, 2023, recorded in AOCI, were approximately $77 million in unrealized gains, net of taxes, which are expected to be realized in earnings during the twelve months subsequent to September 30, 2023.

Interest Rate Swaps

The Company is party to certain interest rate swap agreements that are accounted for as cash flow hedges. The Company did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented. All of the Company's interest rate swap agreements qualify for the "shortcut" or "critical terms match" methods of accounting for hedges, which dictate that the hedges were assumed to be perfectly effective at origination, and, thus, there was no ineffectiveness to be recorded in earnings.

Credit Risk and Collateral

Credit exposure related to fuel derivative instruments is represented by the fair value of contracts that are an asset to the Company at the reporting date. At such times, these outstanding instruments expose the Company to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company has not experienced any significant credit loss as a result of counterparty nonperformance in the past. To manage credit risk, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market position of the fuel hedging program and its relative market position with each counterparty. As of September 30, 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 threshold amount based on the counterparty's credit rating. The Company also had agreements with counterparties in which cash deposits and letters of credit were required to be posted as collateral whenever the net fair value of derivatives associated with those counterparties exceeds specific thresholds. In certain cases, the Company has the ability to substitute among these different forms of collateral at its discretion.

The following table provides the fair values of fuel derivatives, amounts posted as collateral, and applicable collateral posting threshold amounts as of September 30, 2023, at which such postings are triggered:

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

			Counterparty (CP)
(in millions)			A						B												C						D						E						F						G						H												Total
Fair value of fuel derivatives			$	120					$	57											$	84					$	28					$	77					$	35					$	60					$	26											$	487
Cash collateral held from CP			100						—												—						—						—						—						—						—												100
Option to substitute LC for cash			N/A						N/A												(a)						(a)						(a)						N/A						(a)						N/A
If credit rating is investment grade, fair value of fuel derivative level at which:
Cash is provided to CP			>(100)						>(50)												>(75)						>(125)						>(40)						>(65)						>(100)						>(100)
Cash is received from CP			>0(b)						>150(b)												>250(b)						>125(b)						>100(b)						>70(b)						>100(b)						>100(b)
If credit rating is non-investment grade, fair value of fuel derivative level at which:
Cash is received from CP			(c)						(c)												(c)						(c)						(c)						(c)						(c)						(c)

(a) The Company has the option to substitute letters of credit for 100 percent of cash collateral requirement.

(b) Thresholds may vary based on changes in credit ratings within investment grade.

(c) Cash collateral is provided at 100 percent of fair value of fuel derivative contracts.

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

4. COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes changes in the fair value of certain financial derivative instruments that qualify for hedge accounting and actuarial gains/losses arising from the Company’s postretirement benefit obligation. The differences between Net income and Comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022 were as follows:

			Three months ended September 30,
(in millions)			2023						2022
NET INCOME			$	193					$	277
Unrealized gain (loss) on fuel derivative instruments, net of deferred taxes of $41 and ($153)			135						(504)
Unrealized gain on interest rate derivative instruments, net of deferred taxes of $2 and $—			8						4
Total other comprehensive income (loss)			$	143					$	(500)
COMPREHENSIVE INCOME (LOSS)			$	336					$	(223)

			Nine months ended September 30,
(in millions)			2023						2022
NET INCOME			$	717					$	759
Unrealized loss on fuel derivative instruments, net of deferred taxes of ($45) and ($31)			(150)						(101)
Unrealized gain on interest rate derivative instruments, net of deferred taxes of $2 and $5			11						18
Other, net of deferred taxes of $4 and $—			(4)						—
Total other comprehensive loss			$	(143)					$	(83)
COMPREHENSIVE INCOME			$	574					$	676

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and nine months ended September 30, 2023:

(in millions)			Fuel derivatives						Interest rate derivatives						Defined benefit plan items												Deferred tax impact						Accumulated other comprehensive income (loss)
Balance at June 30, 2023			$	(65)					$	(29)					$	170											$	(18)					$	58
Changes in fair value			228						8						—												(55)						181
Reclassification to earnings			(52)						2						—												12						(38)
Balance at September 30, 2023			$	111					$	(19)					$	170											$	(61)					$	201

(in millions)			Fuel derivatives						Interest rate derivatives						Defined benefit plan items												Deferred tax impact						Accumulated other comprehensive income (loss)
Balance at December 31, 2022			$	305					$	(32)					$	170											$	(99)					$	344
Changes in fair value			(101)						8						—												21						(72)
Reclassification to earnings			(93)						5						—												17						(71)
Balance at September 30, 2023			$	111					$	(19)					$	170											$	(61)					$	201

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

The following tables illustrate the significant amounts reclassified out of each component of AOCI for the three and nine months ended September 30, 2023:

Three months ended September 30, 2023
(in millions)						Amounts reclassified from AOCI						Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)
AOCI components
Unrealized (gain) on fuel derivative instruments						$	(52)					Fuel and oil expense
						(12)						Less: Tax expense
						$	(40)					Net of tax
Unrealized loss on interest rate derivative instruments						$	2					Other operating expenses
						—						Less: Tax expense
						$	2					Net of tax
Total reclassifications for the period						$	(38)					Net of tax

Nine months ended September 30, 2023
(in millions)						Amounts reclassified from AOCI						Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss)
AOCI components
Unrealized (gain) on fuel derivative instruments						$	(93)					Fuel and oil expense
						(22)						Less: Tax expense
						$	(71)					Net of tax
Unrealized loss on interest rate derivative instruments						$	5					Other operating expenses
						1						Less: Tax expense
						$	4					Net of tax
Other						—						Other
						4						Less: Tax Expense
						$	(4)					Net of tax
Total reclassifications for the period						$	(71)					Net of tax

5. REVENUE

Passenger Revenues

The Company’s contracts with its Customers primarily consist of its tickets sold, which are initially deferred as Air traffic liability. Passenger revenue associated with tickets is recognized when the performance obligation to the Customer is satisfied, which is primarily when travel is provided.

Revenue is categorized by revenue source as the Company believes it best depicts the nature, amount, timing, and uncertainty of revenue and cash flow. The following table provides the components of Passenger revenue recognized for the three and nine months ended September 30, 2023 and 2022:

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

			Three months ended September 30,												Nine months ended September 30,
(in millions)			2023						2022						2023						2022
Passenger non-loyalty			$	4,758					$	4,630					$	14,023					$	13,112
Passenger loyalty - air transportation			916						791						2,730						2,236
Passenger ancillary sold separately			238						192						673						519
Total passenger revenues			$	5,912					$	5,613					$	17,426					$	15,867

As of September 30, 2023, and December 31, 2022, the components of Air traffic liability, including contract liabilities based on tickets sold and unused flight credits available to the Customer, both of which are net of recorded breakage, and loyalty points available for redemption, within the unaudited Condensed Consolidated Balance Sheet were as follows:

			Balance as of
(in millions)			September 30, 2023						December 31, 2022
Air traffic liability - passenger travel and ancillary passenger services			$	4,004					$	3,061
Air traffic liability - loyalty program			4,996						5,189
Total Air traffic liability			$	9,000					$	8,250

The balance in "Air traffic liability - passenger travel and ancillary passenger services" also includes flight credits not currently associated with a ticket that can be applied by Customers towards the purchase of future travel. These flight credits are typically created as a result of a prior ticket cancellation or exchange, and are reflected net of associated breakage. Rollforwards of the Company's "Air traffic liability - loyalty program" for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

			Three months ended September 30,												Nine months ended September 30,
			2023						2022						2023						2022
Air traffic liability - loyalty program - beginning balance			$	5,079					$	4,885					$	5,189					$	4,789
Amounts deferred associated with points awarded			859						815						2,609						2,395
Revenue recognized from points redeemed - Passenger			(916)						(791)						(2,730)						(2,236)
Revenue recognized from points redeemed - Other			(26)						(24)						(72)						(63)
Air traffic liability - loyalty program - ending balance			$	4,996					$	4,885					$	4,996					$	4,885

Air traffic liability includes consideration received for ticket and loyalty related performance obligations which have not been satisfied as of a given date. Rollforwards of the amounts included in Air traffic liability as of September 30, 2023 and 2022 were as follows (in millions):

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

			Air traffic liability
Balance at December 31, 2022			$	8,250
Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty)			18,249
Revenue from amounts included in contract liability opening balances			(5,263)
Revenue from current period sales			(12,236)
Balance at September 30, 2023			$	9,000

			Air traffic liability
Balance at December 31, 2021			$	7,725
Current period sales (passenger travel, ancillary services, flight loyalty, and partner loyalty)			16,630
Revenue from amounts included in contract liability opening balances			(3,750)
Revenue from current period sales			(12,180)
Balance at September 30, 2022			$	8,425

On July 28, 2022, the Company announced that all existing Customer flight credits as of that date, as well as any future flight credits issued, will no longer expire and will thus remain redeemable by Customers. Flight credits for non-refundable fares will be issued as long as the flight is cancelled more than 10 minutes prior to the scheduled departure. As the Company continues to believe that a portion of Customer flight credits issued after July 28, 2022, will not be redeemed, it continues to estimate and record breakage associated with such amounts. The amount of Customer flight credits represents approximately 7 percent and 9 percent of the total Air traffic liability balance as of September 30, 2023, and December 31, 2022, respectively.

The Company recognized revenue related to the marketing, advertising, and other travel-related benefits of the revenue associated with various loyalty partner agreements including, but not limited to, the Agreement with Chase Bank USA, N.A, within Other operating revenues. For the three months ended September 30, 2023 and 2022, the Company recognized $526 million and $521 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company recognized $1.6 billion and $1.5 billion, respectively.

6. NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in millions except per share amounts). Basic net income per share is calculated by dividing net income by the weighted average of shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and nine months ended September 30, 2023 and 2022, an immaterial number of shares related to the Company's restricted stock units and stock warrants were excluded from the denominator because inclusion of such shares would be antidilutive.

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

			Three months ended September 30,												Nine months ended September 30,
			2023						2022						2023						2022
NUMERATOR:
Net income			$	193					$	277					$	717					$	759
Add: Interest expense			5						5						15						17
Net income attributable to common stockholders			198						282						732						776
DENOMINATOR:
Weighted-average shares outstanding, basic			596						593						595						593
Dilutive effects of Convertible Notes			42						45						42			(a)			49
Dilutive effect of restricted stock units			2						1						2						1
Adjusted weighted-average shares outstanding, diluted			640						639						639						643
NET INCOME PER SHARE:
Basic			$	0.32					$	0.47					$	1.20					$	1.28
Diluted			$	0.31					$	0.44					$	1.15					$	1.21

7. FAIR VALUE MEASUREMENTS

Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of September 30, 2023, the Company held certain items that are required to be measured at fair value on a recurring basis. These included cash equivalents, short-term investments (primarily treasury bills), interest rate derivative contracts, fuel derivative contracts, and available-for-sale securities. The majority of the Company’s cash equivalents and short-term investments consist of instruments classified as Level 1. However, the Company has certificates of deposit, commercial paper, and time deposits that are classified as Level 2, due to the fact that the fair value for these instruments is determined utilizing observable inputs in non-active markets. Equity securities primarily consist of investments with readily determinable market values associated with the Company’s excess benefit plan.

The Company’s fuel and interest rate derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. Fuel derivative instruments currently consist solely of option contracts, whereas interest rate derivatives consist solely of swap agreements. See Note 3 for further information on the Company’s derivative instruments and hedging activities. The fair values of swap contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Therefore, the Company has categorized these swap contracts as Level 2. The Company’s Treasury Department, which reports to the Chief Financial Officer, determines the value of option contracts utilizing an option pricing model based on inputs that are either readily available in public markets, can be derived from information available in publicly quoted markets, or are provided by financial institutions that trade these contracts. The option pricing model used by the Company is an industry standard model for valuing options and is a similar model used by the broker/dealer community (i.e., the Company’s counterparties). The inputs to this option pricing model are the option

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

strike price, underlying price, risk free rate of interest, time to expiration, and volatility. Because certain inputs used to determine the fair value of option contracts are unobservable (principally implied volatility), the Company has categorized these option contracts as Level 3. Volatility information is obtained from external sources but is analyzed by the Company for reasonableness and compared to similar information received from other external sources. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. To validate the reasonableness of the Company’s option pricing model, on a monthly basis, the Company compares its option valuations to third party valuations. If any significant differences were to be noted, they would be researched in order to determine the reason. However, historically, no significant differences have been noted. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

Included in Other available-for-sale securities are the Company’s investments associated with its deferred compensation plans, which consist of mutual funds that are publicly traded and for which market prices are readily available. These plans are non-qualified deferred compensation plans designed to hold contributions in excess of limits established by the Internal Revenue Code of 1986, as amended. The distribution timing and payment amounts under these plans are made based on the participant’s distribution election and plan balance. Assets related to the funded portions of the deferred compensation plans are held in a rabbi trust, and the Company remains liable to these participants for the unfunded portion of the plans. The Company records changes in the fair value of plan obligations and plan assets, which net to zero, within the Salaries, wages, and benefits line and Other (gains) losses line, respectively, of the unaudited Condensed Consolidated Statement of Comprehensive Income (Loss).

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2023, and December 31, 2022:

												Fair value measurements at reporting date using:
												Quoted prices in active markets for identical assets						Significant other observable inputs						Significant unobservable inputs
Description						September 30, 2023						(Level 1)						(Level 2)						(Level 3)
Assets						(in millions)
Cash equivalents:
Cash equivalents (a)						$	9,166					$	9,166					$	—					$	—
Commercial paper						314						—						314						—
Certificates of deposit						17						—						17						—
Short-term investments:
Treasury bills						2,029						2,029						—						—
Certificates of deposit						207						—						207						—
Fuel derivatives:
Option contracts (b)						515						—						—						515
Interest rate derivatives (see Note 3)						23						—						23						—
Equity Securities						249						249						—						—
Total assets						$	12,520					$	11,444					$	561					$	515
Liabilities
Fuel derivatives:
Option contracts (b)						$	(28)					$	—					$	—					$	(28)

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

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

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

												Fair value measurements at reporting date using:
												Quoted prices in active markets for identical assets						Significant other observable inputs						Significant unobservable inputs
Description						December 31, 2022						(Level 1)						(Level 2)						(Level 3)
Assets						(in millions)
Cash equivalents:
Cash equivalents (a)						$	9,040					$	9,040					$	—					$	—
Commercial paper						179						—						179						—
Certificates of deposit						23						—						23						—
Time deposits						250						—						250						—
Short-term investments:
Treasury bills						2,226						2,226						—						—
Certificates of deposit						124						—						124						—
Time deposits						450						—						450						—
Fuel derivatives:
Option contracts (b)						512						—						—						512
Interest rate derivatives (see Note 3)						14						—						14						—
Equity Securities						235						235						—						—
Total assets						$	13,053					$	11,501					$	1,040					$	512

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

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

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2023, or the year ended December 31, 2022. The following tables present the Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023:

Fair value measurements using significant unobservable inputs (Level 3)
(in millions)			Fuel derivatives
Balance at June 30, 2023			$	316
Total gains (losses) for the period
Included in earnings			33			(a)
Included in other comprehensive income			228
Purchases			4			(b)
Settlements			(94)
Balance at September 30, 2023			$	487
The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023			$	(16)		(a)
The amount of total gains for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023			$	(182)

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

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

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

Fair value measurements using significant unobservable inputs (Level 3)
(in millions)			Fuel derivatives
Balance at December 31, 2022			$	512
Total gains (losses) for the period
Included in earnings			26			(a)
Included in other comprehensive income			(100)
Purchases			245			(b)
Settlements			(196)
Balance at September 30, 2023			$	487
The amount of total gains for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023			$	(14)		(a)
The amount of total losses for the period included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023			$	26

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

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

The significant unobservable input used in the fair value measurement of the Company’s derivative option contracts is implied volatility. Holding other inputs constant, an increase (decrease) in implied volatility would have resulted in a higher (lower) fair value measurement, respectively, for the Company’s derivative option contracts.

The following table presents a range and weighted average of the unobservable inputs utilized in the fair value measurements of the Company’s fuel derivatives classified as Level 3 as of September 30, 2023:

Quantitative information about Level 3 fair value measurements
						Valuation technique						Unobservable input						Period (by year)						Range						Weighted Average (a)
Fuel derivatives						Option model						Implied volatility						Fourth quarter 2023						19-41%						31		%
																		2024						26-38%						28		%
																		2025						24-28%						25		%
																		2026						23-26%						25		%

(a) Implied volatility weighted by the notional amount (barrels of fuel) that will settle in respective period.

The carrying amounts and estimated fair values of the Company’s short-term and long-term debt (including current maturities), as well as the applicable fair value hierarchy tier, as of September 30, 2023, are presented in the table below. The fair values of the Company’s publicly held long-term debt are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company has categorized these agreements as Level 2. All privately held debt agreements are categorized as Level 3. The Company has determined the estimated fair value of this debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.

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

(in millions)			Carrying value						Estimated fair value						Fair value level hierarchy
5.25% Notes due 2025			1,302						1,287						Level 2
1.25% Convertible Notes due 2025			1,611						1,616						Level 2
3.00% Notes due 2026			300						278						Level 2
7.375% Debentures due 2027			111						104						Level 2
3.45% Notes due 2027			300						275						Level 2
5.125% Notes due 2027			1,727						1,683						Level 2
2.625% due 2030			500						414						Level 2
1.000% Payroll Support Program Loan due 2030 (a)			976						893						Level 3
1.000% Payroll Support Program Loan due 2031 (a)			566						500						Level 3
1.000% Payroll Support Program Loan due 2031 (a)			526						457						Level 3

(a) The interest rate will change to Secured Overnight Financing Rate +2% on the fifth anniversary of the loans.

8. SUPPLEMENTAL FINANCIAL INFORMATION

(in millions)			September 30, 2023						December 31, 2022
Trade receivables			$	142					$	117
Credit card receivables			382						85
Business partners and other suppliers			606						478
Taxes receivable			53						133
Fuel hedging and receivables			45						34
Other			239						193
Accounts and other receivables			$	1,467					$	1,040

(in millions)			September 30, 2023						December 31, 2022
Derivative contracts			$	216					$	174
Intangible assets, net			296						296
Equity securities			249						235
Other			255						150
Other assets			$	1,016					$	855

(in millions)			September 30, 2023						December 31, 2022
Accounts payable trade			$	329					$	277
Salaries, withholdings and payroll taxes			338						456
Ticket taxes and fees			357						242
Aircraft maintenance payable			121						65
Fuel payable			153						188
Dividends payable			—						107
Customer reimbursements and refunds (a)			6						311
Accrued third party services			225						196
Other payable			207						162
Accounts payable			$	1,736					$	2,004

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

(in millions)			September 30, 2023						December 31, 2022
Voluntary Separation Program			$	65					$	72
Profitsharing and savings plans			184						167
Vacation pay			513						484
Health			315						261
Workers compensation			128						164
Property and income taxes			64						37
Interest			72						45
Bonus and incentive pay (b)			1,250						563
Other			289						250
Accrued liabilities			$	2,880					$	2,043

(in millions)			September 30, 2023						December 31, 2022
Voluntary Separation Program			$	83					$	147
Postretirement obligation			246						241
Other deferred compensation			327						331
Other			224						250
Other noncurrent liabilities			$	880					$	969

(a) As of December 31, 2022, included customer reimbursement expenses due to the Company's December 2022 operational disruption and refund submissions that had yet to be processed. As of September 30, 2023, amounts primarily consist of normal current activity.

(b) Primarily consists of anticipated contract labor ratification bonuses and/or accruals. Also includes non-contract incentive pay. Included in Salaries, wages and benefits expense for the three and nine months ended September 30, 2023, is incremental expense of $96 million and $180 million, respectively, for changes in estimate related to the contract ratification bonus for the Company’s Flight Attendants as part of the tentative agreement reached in October 2023 with the Transport Workers Union 556 ("TWU 556"). The cumulative $180 million is included in the balance as of September 30, 2023. The Company began accruing for all of its open labor contracts on April 1, 2022, and this incremental $180 million expense extends the timeframe covered by the ratification bonus to the date the Flight Attendant contract became amendable on November 1, 2018, to compensate for missed wage increases over that time period.

For further information on fuel derivative and interest rate derivative contracts, see Note 3.

Other Operating Expenses

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

9. COMMITMENTS AND CONTINGENCIES

Commitments

On October 25, 2023, the Company entered into a supplemental agreement with The Boeing Company ("Boeing") relating to its contractual order book for Boeing 737-7 and Boeing 737-8 aircraft. Based on the Company's agreement with Boeing, capital commitments associated with firm orders as of October 26, 2023, were: $133 million remaining in 2023, $2.1 billion in 2024, $1.7 billion in 2025, $1.8 billion in 2026, $2.6 billion in 2027, $2.9 billion in 2028, and $5.3 billion thereafter.

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

Contingencies

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

Based on the wide-scale operational disruption for the Company, which led to the cancelation of a significant number of flights between December 21 and December 29, 2022, the Company could be subject to fines and/or penalties resulting from investigations by the Department of Transportation or other government agencies. See Note 1. On October 27, 2023, the Department of Transportation notified the Company that it has 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 is warranted. The Company could also face monetary damages or other costs resulting from litigation initiated by Customers and/or Shareholders. The Company is currently not able to estimate a range of possible loss for such items.

The Company is a defendant in class action litigation asserting it has not provided paid short-term military leave to certain employees, in violation of the federal Uniformed Services Employment and Reemployment Rights Act (“USERRA”). The United States District Court for the Northern District of California previously issued an order to effectively stay the action, pending an appeal from an order by the United States District Court for the Eastern District of Washington granting summary judgment in favor of an airline in a separate case involving substantially the same claims at issue in this action. On February 1, 2023, the Ninth Circuit reversed the district court’s grant of summary judgment and remanded the separate airline case to the District Court. The Ninth Circuit’s decision may adversely affect the Company’s defenses in the USERRA proceeding and may give rise to additional litigation in this or other areas. The Company is currently not able to estimate a range of possible loss with regards to the litigation to which it is a defendant.

10. FINANCING ACTIVITIES

On May 1, 2020, the Company completed the public offering of $2.3 billion aggregate principal amount of Convertible Senior Notes (the "Convertible Notes"). The Convertible Notes bear interest at a rate of 1.25% and will mature on May 1, 2025. Interest on the notes is payable semi-annually in arrears.

Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding February 1, 2025, in the event certain conditions are met, as stated in the offering documents. The Convertible Notes did not meet the criteria to be converted as of the date of the financial statements, and thus are classified as Long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet as of September 30, 2023. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company’s election. The Company intends to settle conversions by paying cash up to the principal amount of the Convertible Notes, with any excess conversion value settled in cash or shares of common stock. The initial conversion rate was 25.9909 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $38.48 per share of common stock). However, based on the Company's most recent cash dividends declared in August 2023, the bond conversion rate changed to 26.5559 on September 5, 2023. The net carrying amount and principal amount of the Convertible Notes was $1.6 billion as of September 30, 2023 and December 31, 2022.

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

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

			Three months ended September 30,												Nine months ended September 30,
(in millions)			2023						2022						2023						2022
Non-cash amortization of debt issuance costs			$	3					$	3					$	8					$	9
Contractual coupon interest			5						5						15						18
Total interest expense			$	8					$	8					$	23					$	27

The unamortized debt issuance costs are being recognized as non-cash interest expense based on the 5-year term of the notes, through May 1, 2025, less amounts that were or will be required to be accelerated immediately upon conversion or repurchases. The Company had no changes to contingencies during the nine months ended September 30, 2023. The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three and nine months ended September 30, 2023.

The following tables present the impact of the partial extinguishment of the Company's Convertible Notes and early prepayment of debt (excluding payments on finance leases) for the three and nine months ended September 30, 2022. No such instances of partial extinguishment or early prepayment of debt occurred for the three and nine months ended September 30, 2023.

			Three months ended September 30, 2022
(in millions)			Cash paid for debt and interest						Principal repayment						Loss on extinguishment						Non-cash amortization of debt discount and (issuance) costs						Accrued Interest
1.25% Convertible Notes due 2025			$	240					$	184					$	59					$	(3)					$	—
5.125% Notes due 2027			149						143						3						1						2
4.75% Notes due 2023			1,274						1,247						8						—						19
5.25% Notes due 2025			227						217						6						—						4
Total			$	1,890					$	1,791					$	76					$	(2)					$	25

			Nine months ended September 30, 2022
(in millions)			Cash paid for debt and interest						Principal repayment						Loss on extinguishment						Non-cash amortization of debt discount and (issuance) costs						Accrued Interest
1.25% Convertible Notes due 2025			$	649					$	486					$	171					$	(9)					$	1
5.125% Notes due 2027			209						199						6						2						2
4.75% Notes due 2023			1,278						1,250						9						—						19
5.25% Notes due 2025			228						218						6						—						4
Total			$	2,364					$	2,153					$	192					$	(7)					$	26

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

The Company has access to $1.0 billion under its amended and restated revolving credit facility (the "Amended A&R Credit Agreement"). In August 2023, this facility was amended to (i) extend the maturity to August 4, 2028, (ii) release all aircraft and other assets constituting collateral securing the loans made under the credit facility, (iii) delete all provisions and terminate all agreements, in each case, relating to the grant of such collateral, (iv) eliminate the role of “Collateral Agent” under the credit facility after giving effect to the amendment, terminations, and releases, (v) eliminate the minimum liquidity covenant, (vi) add a Coverage Ratio financial covenant, (vii) amend the Collateral Coverage Test covenant requiring that a pool of lien-free specified aircraft and related assets have a minimum aggregate appraised value, and add certain covenants with respect to such pool of assets, (viii) amend the pricing and fees, (ix) increase certain materiality thresholds, (x) grant longer grace periods for certain defaults, and (xi) update and amend certain other provisions. For the nine months ended September 30, 2023 and 2022, there were no amounts outstanding under the Amended A&R Credit Agreement.