Item 1. Financial Statements

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Item 1. Financial Statements

Southwest Airlines Co.

Condensed Consolidated Balance Sheet

(in millions)

(unaudited)


	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	8,142	$	9,288
Short-term investments	1,860		2,186
Accounts and other receivables	1,346		1,154
Inventories of parts and supplies, at cost	784		807
Prepaid expenses and other current assets	619		520
Total current assets	12,751		13,955

Property and equipment, at cost:
Flight equipment	26,274		26,060
Ground property and equipment	7,704		7,460
Deposits on flight equipment purchase contracts	466		236
Assets constructed for others	77		62
	34,521		33,818
Less allowance for depreciation and amortization	14,856		14,443
	19,665		19,375
Goodwill	970		970
Operating lease right-of-use assets	1,132		1,223
Other assets	1,045		964
	$	35,563	$	36,487

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,028	$	1,862
Accrued liabilities	1,870		3,606
Current operating lease liabilities	198		208
Air traffic liability	7,086		6,551
Current maturities of long-term debt	2,931		29
Total current liabilities	14,113		12,256

Long-term debt less current maturities	5,065		7,978
Air traffic liability - noncurrent	1,990		1,728
Deferred income taxes	2,089		2,044

Noncurrent operating lease liabilities	915		985
Other noncurrent liabilities	926		981
Stockholders' equity:
Common stock	888		888
Capital in excess of par value	4,151		4,153
Retained earnings	16,218		16,297
Accumulated other comprehensive income	11		—
Treasury stock, at cost	(10,803)		(10,823)
Total stockholders' equity	10,465		10,515
	$	35,563	$	36,487

See accompanying notes.

Southwest Airlines Co.

Condensed Consolidated Statement of Comprehensive Income

(in millions, except per share amounts)

(unaudited)


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
OPERATING REVENUES:
Passenger	$	6,712	$	6,409	$	12,424	$	11,514
Freight	45		47		87		87

Other	597		581		1,172		1,142
Total operating revenues	7,354		7,037		13,683		12,743

OPERATING EXPENSES:
Salaries, wages, and benefits	2,999		2,786		5,939		5,264

Fuel and oil	1,599		1,403		3,130		2,950
Maintenance materials and repairs	350		271		711		511

Landing fees and airport rentals	511		459		975		867
Depreciation and amortization	404		367		812		731
Other operating expenses	1,093		956		2,110		1,909
Total operating expenses	6,956		6,242		13,677		12,232

OPERATING INCOME	398		795		6		511

OTHER EXPENSES (INCOME):
Interest expense	63		65		128		130
Capitalized interest	(8)		(5)		(15)		(11)
Interest income	(130)		(144)		(271)		(269)

Other gains, net	(5)		(7)		(17)		(21)
Total other income	(80)		(91)		(175)		(171)

INCOME BEFORE INCOME TAXES	478		886		181		682
PROVISION FOR INCOME TAXES	111		203		44		158

NET INCOME	$	367	$	683	$	137	$	524

NET INCOME PER SHARE, BASIC	$	0.61	$	1.15	$	0.23	$	0.88

NET INCOME PER SHARE, DILUTED	$	0.58	$	1.08	$	0.23	$	0.84

COMPREHENSIVE INCOME	$	359	$	544	$	148	$	238

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	599		595		598		595
Diluted	643		639		643		639

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, 2023	$	888	$	4,153	$	16,297	$	—	$	(10,823)	$	10,515


Issuance of common and treasury stock pursuant to Employee stock plans	—		(25)		—		—		15		(10)
Share-based compensation	—		10		—		—		—		10
Cash dividends, $0.18 per share	—		—		(107)		—		—		(107)

Comprehensive income (loss)	—		—		(231)		19		—		(212)
Balance at March 31, 2024	$	888	$	4,138	$	15,959	$	19	$	(10,808)	$	10,196

Issuance of common and treasury stock pursuant to Employee stock plans	—		12		—		—		5		17
Share-based compensation	—		7		—		—		—		7
Cash dividends, $0.18 per share	—		—		(108)		—		—		(108)
Stock warrants repurchase	—		(6)		—		—		—		(6)

Comprehensive income (loss)	—		—		367		(8)		—		359
Balance at June 30, 2024	$	888	$	4,151	$	16,218	$	11	$	(10,803)	$	10,465



	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

See accompanying notes.

Southwest Airlines Co.

Condensed Consolidated Statement of Cash Flows

(in millions)

(unaudited)


	Three months ended				Six months ended
	June 30,				June 30,
	2024		2023		2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	367	$	683	$	137	$	524
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization	404		367		812		731


Unrealized mark-to-market adjustment on available for sale securities	—		—		—		(4)
Unrealized/realized loss on fuel derivative instruments	1		6		2		6
Deferred income taxes	110		209		43		157



Changes in certain assets and liabilities:
Accounts and other receivables	34		44		(274)		(188)
Other assets	32		58		18		109
Accounts payable and accrued liabilities	(576)		364		(1,473)		293
Air traffic liability	(317)		(137)		798		809
Other liabilities	(45)		(44)		(117)		(90)

Cash collateral provided to derivative counterparties	(20)		(16)		(20)		(46)
Other, net	(13)		(118)		(54)		(178)
Net cash provided by (used in) operating activities	(23)		1,416		(128)		2,123

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(494)		(925)		(1,077)		(1,971)

Assets constructed for others	(6)		(8)		(16)		(14)

Purchases of short-term investments	(1,532)		(1,522)		(3,210)		(3,727)
Proceeds from sales of short-term and other investments	1,820		1,828		3,540		3,508
Other, net	6		—		(28)		—
Net cash used in investing activities	(206)		(627)		(791)		(2,204)

CASH FLOWS FROM FINANCING ACTIVITIES:






Payroll Support Program stock warrants repurchase	(6)		—		(6)		—
Proceeds from Employee stock plans	15		14		30		22



Payments of long-term debt and finance lease obligations	(8)		(8)		(16)		(67)



Payments of cash dividends	—		—		(215)		(214)




Other, net	3		4		(20)		6
Net cash provided by (used in) financing activities	4		10		(227)		(253)

NET CHANGE IN CASH AND CASH EQUIVALENTS	(225)		799		(1,146)		(334)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	8,367		8,359		9,288		9,492

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	8,142	$	9,158	$	8,142	$	9,158

CASH PAYMENTS FOR:
Interest, net of amount capitalized	$	92	$	96	$	110	$	115
Income taxes	$	4	$	6	$	7	$	8

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

Right-of-use assets acquired under operating leases	$	6	$	22	$	21	$	69

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

5. Revenue

6. Net Income Per Share

7. Fair Value Measurements

8. Supplemental Financial Information

9. Commitments and Contingencies

10. Financing Activities

11. Subsequent Events


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

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 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 for the six months ended June 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.

Based on the Company's wide-scale operational disruption, the Company has been subject to inquiries and investigations by governmental agencies (including with respect to a December 2023 settlement with the Department of Transportation) and could be subject to fines and/or penalties resulting from those inquiries and investigations, as well as litigation from Customers and Shareholders.

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 June 30, 2024 and 2023 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, 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 fuel hedging program. Operating results for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for future quarters or for the year ended December 31, 2024. 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, 2023.

During second quarter 2024, the Company identified certain 737-700 ("-700") aircraft that are planned for early retirement in 2025. These accelerated retirement dates, and the corresponding impact to depreciation expense, are considered a change in estimate and resulted in the following impact to Depreciation and amortization expense for the three and six months ended June 30, 2024:


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


	Three months ended		Six months ended
(in millions, except per share amounts)	June 30, 2024		June 30, 2024
Depreciation and amortization expense	$	10	$	10
Net income *	$	(6)	$	(6)
Net income per basic share	$	(0.01)	$	(0.01)
Net income per diluted share	$	(0.01)	$	(0.01)

net of profitsharing benefit and income taxes

NEW ACCOUNTING PRONOUNCEMENTS

On December 14, 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This standard increases transparency and decision usefulness of income tax disclosures for investors by requiring information to better assess how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This standard requires entities to provide enhanced disclosures related to the income tax rate reconciliation and income taxes paid. This standard is effective for all entities that are subject to Topic 740, Income Taxes for annual periods beginning after December 15, 2024, but early adoption is permitted. The Company is evaluating this new standard but does not expect it to have a significant impact on its financial statement presentation or results.

On November 27, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This standard improves reportable segment disclosures by adding and enhancing interim disclosure requirements, clarifying circumstances in which entities can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and adding other disclosure requirements. This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, but early adoption is permitted. The Company is evaluating this new standard but does not expect it to have a significant impact on its financial statement presentation or results.

FINANCIAL DERIVATIVE INSTRUMENTS

Fuel Contracts

Airline operators are inherently dependent upon energy to operate and, therefore, are impacted by changes in jet fuel prices. Furthermore, jet fuel typically represents one of the largest operating expenses for airlines. The Company endeavors to acquire jet fuel at the lowest possible net 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 historically has used 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


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

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 June 30, 2024, 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 hedged on an economic basis:


	Maximum fuel hedged as of
	June 30, 2024	Derivative underlying commodity type as of
Period (by year)	(gallons in millions) (a)	June 30, 2024
Remainder of 2024	633	West Texas Intermediate ("WTI") crude oil, Brent crude oil, and Heating oil
2025	1,033	Brent crude oil
2026	832	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 fluctuate and if the Company's published flight schedule or capacity plans change.

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 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 hedging portfolio, any subsequent changes in fair value of those positions are marked to market through the unaudited Condensed Consolidated Statement of Comprehensive Income. 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 the unaudited Condensed Consolidated Statement of Comprehensive Income**.** 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 the unaudited Condensed Consolidated Statement of Comprehensive Income. The Company did not have any such situations where a derivative ceased to qualify for hedge accounting during 2023, or during the six months ended June 30, 2024.

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:


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


		Asset derivatives				Liability derivatives
	Balance Sheet	Fair value at		Fair value at		Fair value at		Fair value at
(in millions)	location	6/30/2024		12/31/2023		6/30/2024		12/31/2023
Derivatives designated as hedges (a)
Fuel derivative contracts (gross)	Prepaid expenses and other current assets	$	83	$	86	$	—	$	—
Fuel derivative contracts (gross)	Other assets	139		137		—		—






Total derivatives designated as hedges		$	222	$	223	$	—	$	—

Derivatives not designated as hedges (a)
Fuel derivative contracts (gross)	Prepaid expenses and other current assets	$	12	$	—	$	14	$	—





Total derivatives		$	234	$	223	$	14	$	—

(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	June 30,		December 31,
(in millions)	location	2024		2023
Cash collateral deposits held from counterparties for fuel contracts - current	Offset against Prepaid expenses and other current assets	$	13	$	15
Cash collateral deposits held from counterparties for fuel contracts - noncurrent	Offset against Other assets	17		35




Receivable from third parties for fuel contracts	Accounts and other receivables	6		12

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

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


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


Offsetting of derivative assets
(in millions)
		(i)		(ii)		(iii) = (i) + (ii)			(i)		(ii)		(iii) = (i) + (ii)
		June 30, 2024							December 31, 2023
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	$	95	$	(27)	$	68		$	86	$	(15)	$	71
Fuel derivative contracts	Other assets	$	139	$	(17)	$	122	(a)	$	137	$	(35)	$	102	(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)
		June 30, 2024							December 31, 2023
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	$	27	$	(27)	$	—		$	15	$	(15)	$	—
Fuel derivative contracts	Other assets	$	17	$	(17)	$	—	(a)	$	35	$	(35)	$	—	(a)

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

The following tables present the impact of derivative instruments and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2024 and 2023:


Location and amount recognized in income on cash flow hedging relationships
	Three months ended June 30, 2024				Three months ended June 30, 2023
(in millions)	Fuel and oil		Other operating expenses			Fuel and oil		Other operating expenses
Total	$	17	$	2		$	(14)	$	2

(Gain) loss on cash flow hedging relationships
Commodity contracts:
Amount of (gain) loss reclassified from AOCI into income	17		—			(14)		—




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


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


Location and amount recognized in income on cash flow hedging relationships
	Six months ended June 30, 2024				Six months ended June 30, 2023
(in millions)	Fuel and oil		Other operating expenses			Fuel and oil		Other operating expenses
Total	$	39	$	4		$	(42)	$	3

(Gain) loss on cash flow hedging relationships
Commodity contracts:
Amount of (gain) loss reclassified from AOCI into income	39		—			(42)		—




Other:
Amount of loss reclassified from AOCI into income	—		4			—		3


Derivatives designated and qualified in cash flow hedging relationships
	(Gain) loss recognized in AOCI on derivatives, net of tax
	Three months ended
	June 30,
(in millions)	2024		2023
Fuel derivative contracts	$	23	$	126
Other	$	—	(1)

Total	$	23	$	125


Derivatives designated and qualified in cash flow hedging relationships
	(Gain) loss recognized in AOCI on derivatives, net of tax
	Six months ended
	June 30,
(in millions)	2024		2023
Fuel derivative contracts	$	22	$	252
Other	—		—
Total	$	22	$	252


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

	Three months ended				Location of (gain) loss recognized in income on derivatives
	June 30,
(in millions)	2024		2023
Fuel derivative contracts	$	2	$	6	Other (gains) losses, net


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


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

	Six months ended				Location of (gain) loss recognized in income on derivatives
	June 30,
(in millions)	2024		2023
Fuel derivative contracts	$	3	$	6	Other (gains) losses, net

The Company also recorded expense (benefit) associated with premiums paid (received) for fuel derivative contracts that settled/expired during the three and six months ended June 30, 2024 and 2023. 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, net. The following tables present the impact of premiums paid (received) for fuel derivative contracts and their location within the unaudited Condensed Consolidated Statement of Comprehensive Income 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
	June 30,
(in millions)	2024		2023
Fuel derivative contracts designated as hedges	$	40	$	30	Fuel and oil
Fuel derivative contracts not designated as hedges	(1)		—		Other (gains) losses, net


	Premium expense (benefit) recognized in income on derivatives

	Six months ended				Location of premium expense (benefit) recognized in income on derivatives
	June 30,
(in millions)	2024		2023
Fuel derivative contracts designated as hedges	$	79	$	61	Fuel and oil
Fuel derivative contracts not designated as hedges	(1)		—		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 losses from fuel hedges as of June 30, 2024, recorded in AOCI, were approximately $53 million in unrealized losses, net of taxes, which are expected to be realized in the unaudited Condensed Consolidated Statement of Comprehensive Income during the twelve months subsequent to June 30, 2024.

Interest Rate Swaps

The Company is at times party to certain interest rate swap agreements that are accounted for as cash flow hedges, but had none in place as of June 30, 2024, or as of December 31, 2023. The Company also did not have any interest rate swap agreements designated as fair value hedges, as defined, during the periods presented. During the six months ended June 30, 2023, all of the Company's interest rate swap agreements qualified for the "shortcut" or "critical terms match" methods of accounting for hedges, which dictate that the hedges were assumed to be perfectly


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

effective at origination, and, thus, there was no ineffectiveness to be recorded in the unaudited Condensed Consolidated Statement of Comprehensive Income. All interest rate swap agreements were terminated prior to December 31, 2023.

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 as of 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 June 30, 2024, 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 June 30, 2024, at which such postings are triggered:


	Counterparty (CP)
(in millions)	A		B		C		D		E		F		G		H		Total
Fair value of fuel derivatives	$	46	$	28	$	29	$	14	$	40	$	18	$	26	$	19	$	220
Cash collateral held from CP	30		—		—		—		—		—		—		—		30



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.


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

COMPREHENSIVE INCOME

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 for the three and six months ended June 30, 2024 and 2023 were as follows:


	Three months ended June 30,
(in millions)	2024		2023
NET INCOME	$	367	$	683
Unrealized loss on fuel derivative instruments, net of deferred taxes of ($3) and ($42)	(10)		(137)

Other, net of deferred taxes of $— and $5	2		(2)
Total other comprehensive loss	$	(8)	$	(139)
COMPREHENSIVE INCOME	$	359	$	544


	Six months ended June 30,
(in millions)	2024	2023
NET INCOME	137	524
Unrealized gain (loss) on fuel derivative instruments, net of deferred taxes of $3 and ($86)	7	(284)

Other, net of deferred taxes of $— and $5	4	(2)
Total other comprehensive income (loss)	11	(286)
COMPREHENSIVE INCOME	148	238

A rollforward of the amounts included in AOCI, net of taxes, is shown below for the three and six months ended June 30, 2024:


(in millions)	Fuel derivatives		Defined benefit plan items		Other		Deferred tax impact		Accumulated other comprehensive income (loss)
Balance at March 31, 2024	$	(112)	$	149	$	(13)	$	(5)	$	19
Changes in fair value	(30)		—		—		7		(23)
Reclassification to earnings	17		—		2		(4)		15
Balance at June 30, 2024	$	(125)	$	149	$	(11)	$	(2)	$	11


(in millions)	Fuel derivatives		Defined benefit plan items		Other		Deferred tax impact		Accumulated other comprehensive income (loss)
Balance at December 31, 2023	$	(135)	$	149	$	(15)	$	1	$	—

Changes in fair value	(29)		—		—		7		(22)
Reclassification to earnings	39		—		4		(10)		33
Balance at June 30, 2024	$	(125)	$	149	$	(11)	$	(2)	$	11


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 six months ended June 30, 2024:


Three months ended June 30, 2024

(in millions)	Amounts reclassified from AOCI		Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income
AOCI components
Unrealized loss on fuel derivative instruments	$	17	Fuel and oil expense

	4		Less: Tax expense
	$	13	Net of tax
Other	$	2	Other operating expenses
	—		Less: Tax expense
	$	2	Net of tax







Total reclassifications for the period	$	15	Net of tax


Six months ended June 30, 2024

(in millions)	Amounts reclassified from AOCI		Affected line item in the unaudited Condensed Consolidated Statement of Comprehensive Income
AOCI components
Unrealized loss on fuel derivative instruments	$	39	Fuel and oil expense

	10		Less: Tax expense
	$	29	Net of tax
Other	$	4	Other operating expenses
	—		Less: Tax expense
	$	4	Net of tax

Total reclassifications for the period	$	33	Net of tax

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 six months ended June 30, 2024 and 2023:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023
Passenger non-loyalty	$	5,544	$	5,183	$	10,224	$	9,265
Passenger loyalty - air transportation	895		989		1,694		1,814
Passenger ancillary sold separately	273		237		506		435
Total passenger revenues	$	6,712	$	6,409	$	12,424	$	11,514


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

As of June 30, 2024, and December 31, 2023, 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)	June 30, 2024		December 31, 2023
Air traffic liability - passenger travel and ancillary passenger services	$	4,114	$	3,363
Air traffic liability - loyalty program	4,962		4,916
Total Air traffic liability	$	9,076	$	8,279

The balance in Air traffic liability - passenger travel and ancillary passenger services also includes flight credits not currently associated with a ticket that can be applied by Customers towards the purchase of future travel. These flight credits are typically created as a result of a prior ticket cancellation or exchange, and are recorded net of associated breakage. Rollforwards of the Company's Air traffic liability - loyalty program for the three and six months ended June 30, 2024 and 2023 were as follows:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023
Air traffic liability - loyalty program - beginning balance	$	4,987	$	5,190	4,916		$	5,189
Amounts deferred associated with points awarded	901		903		1,794		1,750
Revenue recognized from points redeemed - Passenger	(895)		(989)		(1,694)		(1,814)
Revenue recognized from points redeemed - Other	(31)		(25)		(54)		(46)

Air traffic liability - loyalty program - ending balance	$	4,962	$	5,079	$	4,962	$	5,079

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 June 30, 2024 and 2023 were as follows:


	Six months ended June 30,
(in millions)	2024		2023

Air traffic liability - beginning balance	$	8,279	$	8,250
Current period sales (a)	13,276		12,369
Revenue from amounts included in contract liability opening balances	(4,021)		(4,170)
Revenue from current period sales	(8,458)		(7,390)
Air traffic liability - ending balance	$	9,076	$	9,059

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

Under the Company's policy, flight credits never expire. However, as the Company believes that a portion of Customer flight credits issued will not be redeemed, it estimates and records breakage associated with such amounts. The amount of Customer flight credits represents approximately 6 percent and 8 percent of the total Air traffic liability balance as of June 30, 2024, and December 31, 2023, 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, its co-branded credit card agreement with Chase Bank USA, N.A, within Other operating revenues. For the three months ended June 30, 2024 and 2023, the Company recognized $556 million and $540 million, respectively. For the six months ended June 30, 2024 and 2023, the Company recognized $1.1 billion and $1.1 billion, respectively.


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

NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share (in millions, except per share amounts). Basic net income per share is calculated by dividing net income by the weighted average of shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the three and six months ended June 30, 2024 and 2023, 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. The Company paid $6 million during June 2024 to repurchase and cancel its outstanding stock warrants, previously issued in connection with the Payroll Support Program.


	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
NUMERATOR:
Net income	$	367	$	683	$	137	$	524
Add: Interest expense	5		5		9		10
Net income attributable to common stockholders	$	372	$	688	$	146	$	534

DENOMINATOR:
Weighted-average shares outstanding, basic	599		595		598		595
Dilutive effects of Convertible Notes	43		42		43		42

Dilutive effect of restricted stock units	1		2		2		2
Adjusted weighted-average shares outstanding, diluted	643		639		643		639

NET INCOME PER SHARE:



Basic	$	0.61	$	1.15	$	0.23	$	0.88
Diluted	$	0.58	$	1.08	$	0.23	$	0.84

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 June 30, 2024, 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), 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 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


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

have historically consisted solely of swap agreements. See Note 3 for further information on the Company’s derivative instruments and hedging activities. 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 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, net line, respectively, of the unaudited Condensed Consolidated Statement of Comprehensive Income.


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

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2024, and December 31, 2023:


			Fair value measurements at reporting date using:
			Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
Description	June 30, 2024		(Level 1)		(Level 2)		(Level 3)
Assets	(in millions)
Cash equivalents:
Cash equivalents (a)	$	7,796	$	7,796	$	—	$	—
Commercial paper	45		—		45		—
Certificates of deposit	1		—		1		—

Time deposits	300		—		300		—
Short-term investments:
Treasury bills	1,637		1,637		—		—

Certificates of deposit	223		—		223		—


Fuel derivatives:
Option contracts (b)	234		—		—		234

Equity Securities	302		302		—		—
Total assets	$	10,538	$	9,735	$	569	$	234
Liabilities
Fuel derivatives:
Option contracts (b)	$	(14)	$	—	$	—	$	(14)

(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.


			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, 2023		(Level 1)		(Level 2)		(Level 3)
Assets	(in millions)
Cash equivalents:
Cash equivalents (a)	$	9,032	$	9,032	$	—	$	—
Commercial paper	135		—		135		—
Certificates of deposit	21		—		21		—
Time deposits	100		—		100		—
Short-term investments:
Treasury bills	1,983		1,983		—		—
Certificates of deposit	203		—		203		—




Fuel derivatives:


Option contracts (b)	223		—		—		223



Equity Securities	280		280		—		—
Total assets	$	11,977	$	11,295	$	459	$	223

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

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

The Company did not have any material assets or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2024, or the year ended December 31, 2023. The following tables present the


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

Company’s activity for items measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2024:


Fair value measurements using significant unobservable inputs (Level 3)
(in millions)	Fuel derivatives
Balance as of March 31, 2024	$	257
Total gains (losses) for the period
Included in earnings	(2)		(a)
Included in other comprehensive income	(30)
Purchases	16		(b)

Settlements	(21)
Balance as of June 30, 2024	$	220
The amount of total losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held as of June 30, 2024	$	2	(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 as of June 30, 2024	$	23

(a) Included in Other gains, 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.


Fair value measurements using significant unobservable inputs (Level 3)
(in millions)	Fuel derivatives
Balance as of December 31, 2023	$	223
Total gains (losses) for the period
Included in earnings	(3)		(a)
Included in other comprehensive income	(29)
Purchases	67		(b)

Settlements	(38)
Balance as of June 30, 2024	$	220
The amount of total losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2024	$	2	(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 June 30, 2024	$	35

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

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 June 30, 2024:


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


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	Third quarter 2024	16-35%	26	%
			Fourth quarter 2024	22-30%	26	%
			2025	21-23%	22	%
			2026	21-23%	22	%

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

The carrying amounts and estimated fair values of the Company’s outstanding debt (including current maturities), as well as the applicable fair value hierarchy tier, as of June 30, 2024, are presented in the table below. The fair values of the Company’s publicly held debt are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company has categorized these agreements as Level 2. All privately held debt agreements are categorized as Level 3. The Company has determined the estimated fair value of this debt to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes indicative pricing from counterparties and a discounted cash flow method to estimate the fair value of the Level 3 items.


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



5.25% Notes due 2025	1,302	1,297	Level 2
1.25% Convertible Notes due 2025	1,611	1,611	Level 2
3.00% Notes due 2026	300	284	Level 2
7.375% Debentures due 2027	109	114	Level 2
3.45% Notes due 2027	300	282	Level 2
5.125% Notes due 2027	1,727	1,718	Level 2
2.625% due 2030	500	434	Level 2



1.000% Payroll Support Program Loan due 2030 (a)	976	955	Level 3
1.000% Payroll Support Program Loan due 2031 (a)	566	532	Level 3
1.000% Payroll Support Program Loan due 2031 (a)	526	488	Level 3

(a) The interest rate will change to Secured Overnight Financing Rate plus two percent on the fifth anniversary of the loans.


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

SUPPLEMENTAL FINANCIAL INFORMATION


(in millions)	June 30, 2024		December 31, 2023
Trade receivables	$	67	$	104
Credit card receivables	238		200
Business partners and other suppliers	640		501
Taxes receivable	13		35
Fuel hedging and receivables	6		12
Reinsurance receivable	226		145
Other	156		157
Accounts and other receivables	$	1,346	$	1,154


(in millions)	June 30, 2024		December 31, 2023
Derivative contracts	$	122	$	102
Intangible assets, net	300		296

Equity securities	302		280
Prepaid maintenance	263		258
Other	58		28
Other assets	$	1,045	$	964


(in millions)	June 30, 2024		December 31, 2023
Accounts payable trade	$	330	$	265
Salaries, withholdings and payroll taxes	479		400
Ticket taxes and fees	426		302
Aircraft maintenance payable	140		140
Fuel payable	119		161

Dividends payable	108		107
Accrued third party services	181		269
Other payable	245		218
Accounts payable	$	2,028	$	1,862


(in millions)	June 30, 2024		December 31, 2023


Voluntary Separation Program	$	64	$	65
Profitsharing and savings plans	63		141



Vacation pay	578		516

Health	183		163

Workers compensation	141		133
Property and income taxes	70		63
Interest	34		34
Bonus and incentive pay (a)	186		2,022
Reinsurance payable	282		190
Other	269		279
Accrued liabilities	$	1,870	$	3,606


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


(in millions)	June 30, 2024		December 31, 2023

Voluntary Separation Program	$	20	$	61
Postretirement obligation	277		269


Other deferred compensation	379		358

Other	250		293
Other noncurrent liabilities	$	926	$	981

(a) Primarily consists of contract labor ratification bonuses and/or accruals. Also includes non-contract incentive pay. Approximately $1.9 billion was paid in the six months ended June 30, 2024 to Pilots, Flight Attendants, and Ramp, Operations, Provisioning, and Cargo Agents as bonuses upon the ratification of the labor contract agreements with the Southwest Airlines Pilots Association ("SWAPA"), Transport Workers of America Union Local 556 ("TWU 556"), and the Transport Workers Union Local 555 ("TWU 555"), respectively.

For further information on derivative instruments, see Note 3.

Other Operating Expenses

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

COMMITMENTS AND CONTINGENCIES

Commitments

The Company's contractual order book with The Boeing Company ("Boeing") for 737-7 ("-7") and 737-8 ("-8") aircraft, which extends to 2031, was designed to support the Company's growth and fleet modernization plans, while also providing significant flexibility and optionality to manage its fleet gauge and size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize. The Company received five -8 aircraft deliveries from Boeing in second quarter 2024 and retired six -700 aircraft and one 737-800 ("-800") aircraft.

Boeing continues to experience delays in fulfilling its commitments with regards to delivery of MAX aircraft to the Company, as a result of manufacturing challenges, as well as delays in achieving FAA certification of one of its new aircraft types, the -7, for which Southwest expects to be the launch customer. During first quarter 2024, as a result of Boeing's delivery delays, the Company conservatively re-planned its capacity and delivery expectations for the remainder of this year and for 2025. While the Company has not further adjusted capacity expectations this quarter, it will continue to closely monitor the ongoing aircraft delivery delays with Boeing and adjust expectations, conservatively, as needed.

During April 2024, the Company shifted one 2025 -8 option into 2026. As of June 30, 2024, the Company had the following firm orders and options for future periods:


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


	The Boeing Company
	-7 Firm Orders		-8 Firm Orders		-7 or -8 Options	Total
2024	27		58		—	85	(c)
2025	40		19		14	73
2026	59		—		27	86
2027	19		46		25	90
2028	15		50		25	90
2029	38		34		18	90
2030	45		—		45	90
2031	45		—		45	90
	288	(a)	207	(b)	199	694

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

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

(c) Includes 10 -8 deliveries received year-to-date through June 30, 2024. Given the Company's continued discussions with Boeing and expected aircraft delivery delays, the Company continues to plan for approximately 20 -8 aircraft deliveries in 2024.

Based on the Company's current agreement with Boeing, capital commitments associated with firm orders as of June 30, 2024, were: $1.8 billion remaining in 2024, $1.7 billion in 2025, $1.8 billion in 2026, $2.6 billion in 2027, $2.9 billion in 2028, $2.5 billion in 2029, and $2.8 billion thereafter.

Subsequent to June 30, 2024 and through July 25, 2024, the Company exercised two -7 options for delivery in 2025, and converted two 2025 -7 firm orders to -8 firm orders, resulting in the Company's 2025 capital commitments increasing to $1.8 billion.

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.

The Company is a defendant in class action litigation asserting it has not provided paid short-term military leave to certain employees, in violation of the federal Uniformed Services Employment and Reemployment Rights Act (“USERRA”). The United States District Court for the Northern District of California previously issued an order to effectively stay the action, pending an appeal from an order by the United States District Court for the Eastern District of Washington granting summary judgment in favor of an airline in a separate case involving substantially the same claims at issue in this action. On February 1, 2023, the Ninth Circuit reversed the district court’s grant of summary judgment and remanded the separate airline case to the District Court. The Ninth Circuit’s decision may adversely affect the Company’s defenses in the USERRA proceeding and may give rise to additional litigation in this or other areas. On March 22, 2024, the parties in the Company's case submitted a proposed case schedule through trial. The Court subsequently set a trial date of July 21, 2025. The Company is currently not able to estimate a range of possible loss with regards to the litigation to which it is a defendant.


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

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 June 30, 2024, but are classified within Current maturities of long-term debt in the accompanying unaudited Condensed Consolidated Balance Sheet due to their maturity on May 1, 2025. 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 May 2024, the bond conversion rate changed, and was 27.0296 as of June 30, 2024. The Company repurchased $689 million in principal of its Convertible Notes during the years ended December 31, 2021 and 2022, and the net carrying amount and principal amount of the Convertible Notes was $1.6 billion as of June 30, 2024, and December 31, 2023. There were no Convertible Note conversions exercised or settled or partial extinguishments of debt during the six months ended June 30, 2024 and 2023.

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


	Three months ended June 30,				Six months ended June 30,
(in millions)	2024		2023		2024		2023

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

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 with regards to the Convertible Notes during the six months ended June 30, 2024. The effective interest rate associated with the Convertible Notes was approximately 1.9 percent for the three and six months ended June 30, 2024.

In second quarter 2024, the Company repurchased and terminated the Company's outstanding stock warrants that were previously issued in connection with the Payroll Support Program. The total value of the repurchase was approximately $6 million.

The Company has access to $1.0 billion under its amended and restated revolving credit facility (the "Amended Credit Agreement"), which expires in August 2028. For the six months ended June 30, 2024 and 2023, there were no amounts outstanding under the Amended Credit Agreement.


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

On December 5, 2022, the Company signed an aircraft sale agreement with AerCap Ireland Limited (“AerCap”) to purchase 39 -700 aircraft, all of which were already in the Company's fleet under finance lease terms. As each aircraft was purchased, the Company relieved its related lease liability but continued to recognize the cost of the aircraft within Property and equipment in the unaudited Condensed Consolidated Balance Sheet. As of March 31, 2023, the Company had completed the purchase of all 39 aircraft, including the 31 aircraft purchased in 2022. The Company paid the lessor $88 million as part of this transaction for the remaining eight aircraft in first quarter 2023, of which $50 million was recorded as the elimination of the Company’s remaining finance lease obligation for the aircraft, and which was also reflected within Payments of long-term debt and finance lease obligations in the accompanying unaudited Condensed Consolidated Statement of Cash Flows. The remaining $38 million was the net purchase price of the aircraft and is included as part of the Company’s Capital expenditures for the six months ended June 30, 2023. As of June 30, 2024, the Company has 22 finance leased aircraft remaining. There was no gain or loss recorded as a result of these transactions.


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

SUBSEQUENT EVENTS

On July 2, 2024, the Company's Board of Directors (the “Board”) adopted a shareholder rights plan and declared a dividend of one right (a “Right”) in respect of each of the Company’s issued and outstanding shares of common stock, par value $1.00 per share (“Common Stock”). The dividend is payable to the shareholders of record at the close of business on July 15, 2024. Each Right initially entitles the registered holder, subject to the terms of the Rights Agreement (as defined below), to purchase from the Company one ten-thousandth (a “Unit”) of a share of Common Stock, at a price equal to the quotient of $170.00 divided by ten thousand for each Unit of a share of Common Stock, subject to certain adjustments (as adjusted from time to time, the “Exercise Price”). The terms of the Rights are set forth in the Rights Agreement, dated as of July 2, 2024 (as it may be amended from time to time, the “Rights Agreement”), by and between the Company and Equiniti Trust Company, LLC, as rights agent (or any successor rights agent, the “Rights Agent”).

The adoption of the Rights Agreement is intended to deter the acquisition of actual, de facto, or negative control of the Company by any person or group without appropriately compensating its Shareholders for that control. In general terms, the Rights Agreement imposes significant dilution upon any person or group (other than the Company or certain related persons) that is or becomes the beneficial owner of 12.5 percent (the “Triggering Percentage”) or more of the Company’s outstanding Common Stock without the prior approval of the Board. A person or group that becomes the beneficial owner of the Triggering Percentage or more is called an “Acquiring Person.” Any Rights held by an Acquiring Person will be null and void and may not be exercised. Shareholders that beneficially own the Triggering Percentage or more of the Company’s outstanding Common Stock on the date the plan is adopted, are not considered Acquiring Persons; however, such Shareholders generally may not acquire, or obtain the right to acquire, beneficial ownership of one or more additional shares of the Company’s outstanding Common Stock. The term “beneficial ownership” is defined in the Rights Agreement and includes, among other things, certain securities that may be exercised or converted into shares of Common Stock and certain derivative arrangements.

The Rights will expire prior to the earliest of (i) the close of business on July 1, 2025; (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement; (iii) the time at which the Rights are exchanged pursuant to the Rights Agreement; and (iv) upon the occurrence of certain transactions.

This description of the Rights Agreement herein does not purport to be complete and is qualified in its entirety by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 3, 2024.

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