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

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

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


	Three months ended June 30,
	2025			2024			Change
Revenue passengers carried (000s)	35,507			37,509			(5.3)	%
Enplaned passengers (000s)	44,385			47,267			(6.1)	%
Revenue passenger miles (RPMs) (in millions)(a)	36,885			38,221			(3.5)	%
Available seat miles (ASMs) (in millions)(b)	46,996			46,250			1.6	%
Load factor(c)	78.5		%	82.6		%	(4.1)		pts.
Average length of passenger haul (miles)	1,039			1,019			2.0	%
Average aircraft stage length (miles)	786			766			2.6	%
Trips flown	367,952			375,749			(2.1)	%
Seats flown (000s)(d)	59,265			59,775			(0.9)	%
Seats per trip(e)	161.1			159.1			1.3	%
Average passenger fare	$	186.65		$	178.94		4.3	%
Passenger revenue yield per RPM (cents)(f)	17.97			17.56			2.3	%
Operating revenues per ASM (cents)(g)	15.41			15.90			(3.1)	%
Passenger revenue per ASM (cents)(h)	14.10			14.51			(2.8)	%
Operating expenses per ASM (cents)(i)	14.94			15.04			(0.7)	%
Operating expenses per ASM, excluding fuel (cents)	12.11			11.58			4.6	%
Operating expenses per ASM, excluding fuel and profit sharing (cents)	12.08			11.52			4.9	%
Fuel costs per gallon, including fuel tax	$	2.32		$	2.76		(15.9)	%
Fuel costs per gallon, including fuel tax (economic)	$	2.32		$	2.76		(15.9)	%
Fuel consumed, in gallons (millions)	570			577			(1.2)	%
Active fulltime equivalent Employees	72,242			74,081			(2.5)	%
Aircraft at end of period	810			817			(0.9)	%


	Six months ended June 30,
	2025			2024			Change
Revenue passengers carried (000s)	65,497			70,381			(6.9)	%
Enplaned passengers (000s)	81,524			88,164			(7.5)	%
Revenue passenger miles (RPMs) (in millions)(a)	67,513			71,308			(5.3)	%
Available seat miles (ASMs) (in millions)(b)	88,427			88,497			(0.1)	%
Load factor(c)	76.3		%	80.6		%	(4.3)		pts.
Average length of passenger haul (miles)	1,031			1,013			1.8	%
Average aircraft stage length (miles)	779			760			2.5	%
Trips flown	699,838			725,728			(3.6)	%
Seats flown (000s)(d)	112,502			115,469			(2.6)	%
Seats per trip(e)	160.8			159.1			1.1	%
Average passenger fare	$	189.90		$	176.52		7.6	%
Passenger revenue yield per RPM (cents)(f)	18.42			17.42			5.7	%
Operating revenues per ASM (cents)(g)	15.46			15.46			—	%
Passenger revenue per ASM (cents)(h)	14.07			14.04			0.2	%
Operating expenses per ASM (cents)(i)	15.46			15.46			—	%
Operating expenses per ASM, excluding fuel (cents)	12.55			11.92			5.3	%
Operating expenses per ASM, excluding fuel and profitsharing (cents)	12.53			11.88			5.5	%
Fuel costs per gallon, including fuel tax	$	2.40		$	2.84		(15.5)	%
Fuel costs per gallon, including fuel tax, economic	$	2.40		$	2.84		(15.5)	%
Fuel consumed, in gallons (millions)	1,071			1,101			(2.7)	%
Active fulltime equivalent Employees	72,242			74,081			(2.5)	%
Aircraft at end of period	810			817			(0.9)	%

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

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

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

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

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

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

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

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

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

Financial Highlights

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


	Three months ended June 30,
(in millions, except per share amounts)
GAAP	2025		2024		Change
Operating income	$	225	$	398	(43.5)	%
Net income	$	213	$	367	(42.0)	%
Net income per share, diluted	$	0.39	$	0.58	(32.8)	%

Non-GAAP
Operating income	$	245	$	405	(39.5)	%
Net income	$	230	$	370	(37.8)	%
Net income per share, diluted	$	0.43	$	0.58	(25.9)	%

The Company's operating income and net income for the three months ended June 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period. Operating revenues decreased by 1.5 percent as a result of a decline in travel demand versus the same prior year period, particularly in domestic leisure travel, where the Company is more heavily weighted than larger industry peers. Operating expenses remained relatively flat, driven by higher Salaries, wages, and benefits expense, partially offset by lower Fuel and oil expense. On a GAAP basis, the Company's Operating expenses increased 0.9 percent year-over-year. Operating expenses for the three months ended June 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $20 million.


	Six months ended June 30,
(in millions, except per share amounts)
GAAP	2025		2024		Change
Operating income	$	2	$	6	(66.7)	%
Net income	$	64	$	137	(53.3)	%
Net income per share, diluted	$	0.11	$	0.23	(52.2)	%

Non-GAAP
Operating income	$	117	$	28	n.m.
Net income	$	153	$	152	0.7	%
Net income per share, diluted	$	0.27	$	0.25	8.0	%

The Company's net income for the six months ended June 30, 2025, on a GAAP basis, decreased 53.3 percent compared to the same prior year period, while on a non-GAAP basis, net income remained relatively flat year-over-year. While Operating revenues were flat year-over-year, an increase in Salaries, wages, and benefits expense was offset by the year-over-year decline in Fuel and oil expense. The Company has implemented cost savings initiatives, including a reduction in its corporate workforce, resulting in a first quarter 2025 charge, but resulting in lower salaries, wages, and benefits on a go-forward basis. See Note 11 to the unaudited Condensed Consolidated Financial Statements for further information. Additionally, Net income was impacted by lower interest income driven by lower cash and investment balances, partially offset by lower interest expense as a result of debt repayments. The

Company's operating income for the six months ended June 30, 2025, on a non-GAAP basis increased compared to the same prior year period primarily due to lower Fuel and oil expense, partially offset by higher Salaries, wages, and benefits expense. Operating expense for the six months ended June 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $115 million, most notably $62 million related to severance and related professional fees associated with the Company's reduction in workforce.

2025 Outlook

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


									3Q 2025 Estimation
RASM (a), year-over-year									Down 2% to up 2%
ASMs (b), year-over-year									~Flat
Fuel cost per gallon (c)									$2.40 to $2.50


ASMs per gallon (fuel efficiency)									82 to 84
CASM-X (d), year-over-year (e)(f)									Up 3.5% to 5.5%
Scheduled debt repayments (millions)									~$6
Interest expense (millions)									~$35


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


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

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

(b) Available seat miles ("ASMs" or "capacity").

(c) Based on market prices as of July 17, 2025. Fuel cost per gallon includes fuel taxes and fuel hedging net premium expense of $0.07 per gallon related to terminated fuel derivative contracts. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

(d) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profit sharing ("CASM-X" or "unit costs").

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

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

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

The Company expects third quarter 2025 unit revenues to be in the range of down 2 percent to up 2 percent on roughly flat capacity, both on a year-over-year basis. This guidance range assumes a modest sequential improvement in demand, as well as an estimated impact of approximately one point related to a temporary reduction in the conversion rate of basic economy bookings on the Company's website following the May 28, 2025 launch of its basic economy product. The Company took swift action and refined its booking flow and marketing approach in an effort to reduce friction, as well as offer additional promotional activity, and bookings and conversion rates

quickly returned to expected levels. Company-specific initiatives provide a unique offset to the broader industry revenue impact, and will continue to accelerate throughout third quarter 2025. Third quarter 2024 RASM included approximately one point of positive year-over-year impact from the CrowdStrike industry event.

The Company continues to expect to achieve its $370 million cost reduction target this year. The Company anticipates third quarter 2025 CASM-X to increase in the range of 3.5 percent to 5.5 percent, on roughly flat capacity, both on a year-over-year basis. This increase is driven primarily by the continuation of inflationary pressures, including those associated with labor contracts ratified in 2024, as well as approximately one point from the timing of engine overhaul expenses and one-half point from aircraft retrofit costs in advance of extra legroom seating launching in January 2026. Excluding the impact of book gains from fleet transactions in the fourth quarter of both years, the Company continues to expect fourth quarter 2025 CASM-X to be up low-single digits, year-over-year. Projections do not reflect the potential impact of fuel and oil expense, special items, and profit sharing because the Company cannot reliably predict or estimate those items or expenses or their impact to its financial statements in future periods, especially considering the significant volatility of the fuel and oil expense line item. Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for these projected results is not meaningful or available without unreasonable effort. The Company remains focused on driving efficiencies to offset overall inflationary cost pressures and achieve its multi-year cost reduction targets.

The Company has provided full year 2025 EBIT guidance, which assumes further sequential improvement from third quarter 2025, driven by accelerating incremental revenue from Company-specific initiatives, the recovery of the temporary basic economy optimization impact, and anticipated improvement in domestic leisure travel trends. The Company realized approximately one-third of its $1.8 billion 2025 initiative EBIT target in first half 2025 and remains highly confident in its ability to realize the remaining amount during second half 2025, as the value of initiatives are expected to accelerate throughout second half 2025 and more meaningfully into 2026.

Company Overview

Transformational Initiative Highlights

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

Introduced bag fees for most fare products for flights booked and ticketed or changed on or after May 28, 2025. The Company continues to offer two free checked bags to Rapid Rewards® A-List Preferred Members and Customers traveling on Business Select fares and offers one free checked bag to A-List Members and co-brand Cardmembers under its credit card program (weight and size limitations apply);
Introduced a basic fare product beginning on May 28, 2025, in lieu of its prior Wanna Get Away® fare product;
Updated its flight credit policy for tickets purchased on or after May 28, 2025, with flight credits originating from a basic fare expiring six months from ticketing date and flight credits issued for other fares expiring one year from the date of ticketing;
Announced plans to transition to new fare products, Choice Extra, Choice Preferred, and Choice (formerly Business Select, Anytime, and Wanna Get Away Plus), in conjunction with sales of assigned and premium seating with a sell date of July 29, 2025 for travel beginning January 27, 2026;
Announced an international airline partnership with China Airlines, which is expected to launch in early 2026, creating the first trans-Pacific airline partnership for Southwest; and
Expanded its partnership with Icelandair, connecting Customers on dual-carrier itineraries through gateway airports Baltimore/Washington, Denver, and Nashville. Beginning July 14, 2025, Icelandair and Southwest added connecting service through Orlando, Pittsburgh, and Raleigh-Durham, providing more access between Europe and cities across the Company’s network.

These strategic moves add to the initiatives already underway at Southwest, including the implementation of assigned seating and extra legroom options. The move to assigned and extra legroom seating requires incorporating new technologies and procedures. In April, 2025, the Company received necessary approvals and certifications from the Federal Aviation Administration ("FAA") to begin extra legroom seating retrofits on Boeing 737-8 ("-8") and Boeing 737-800 ("-800") aircraft. Such retrofits began during second quarter 2025 and are expected to continue through the rest of the year. As of July 24, 2025, the Company has completed retrofits of more than 220 aircraft for extra legroom seating. The Company expects its Boeing 737-700 ("-700") aircraft to receive necessary approvals and certifications later this year.

The Company has also continued to enhance its onboard offerings, with improvements such as faster WiFi, in-seat power, and larger overhead bins, and work is well underway on a refreshed cabin design, including new, more comfortable RECARO seats.

Other Initiatives and Quarterly Developments

In second quarter 2025, the Company returned $1.6 billion to Shareholders through $103 million in dividend payments and a $1.5 billion accelerated share repurchase program, which was launched in April 2025 and which will be completed by the end of July 2025. The Company has no amounts remaining under its September 2024 $2.5 billion share repurchase authorization. On July 23, 2025, the Board approved a new $2.0 billion share repurchase authorization of the Company's common stock, which is expected to be completed over a period of up to two years. See "Liquidity and Capital Resources" below and Part II, Item 2 - Issuer Purchases of Equity Securities for further information on the Company's share repurchases.

On July 14, 2025, the Company announced its intention to commence new service at Cyril E. King International Airport on St. Thomas beginning early 2026.

On May 16, 2025, the Company's 35 Network Operations Control Customer Planners, added to the existing Passenger Service Employees craft or class to be represented by the International Association of Machinists and Aerospace Workers (“IAM”), entered into a tentative agreement as part of the accretion process to join an existing collective-bargaining agreement. The vote to ratify a contract amendment with the Company failed, and the Company is continuing negotiations with the IAM.

In 2025, the Company and JPMorgan Chase Bank, N.A. ("Chase") have amended the co-brand credit card agreement—in the first quarter to extend the term of the agreement and add enhanced airline benefits for Cardmembers associated with the Company's planned assigned seating and premium seating initiative, and again in the second quarter to add benefits to Cardmembers related to the Company's changes in its checked bag policy that went into effect on May 28, 2025.

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

Fleet Information

As a result of The Boeing Company's ("Boeing") delivery delays, the Company has previously replanned its capacity and delivery expectations multiple times and will continue to closely monitor the ongoing aircraft delivery delays with Boeing and further adjust expectations as needed. In second quarter 2025, the Company entered into a supplemental agreement to its purchase agreement with Boeing relating to the Company's purchase of -8 aircraft and Boeing 737-7 aircraft ("-7", and, together with -8, the "MAX aircraft").

The Company previously announced proactive capacity reductions in the second half of 2025 in an effort to better accommodate the current demand environment and capture associated cost savings, and continues to expect full year 2025 capacity to be up roughly 1 percent, year-over-year. This modest growth is driven entirely by an increase in aircraft utilization provided by redeye flying and turn time reduction initiatives.

The Company has updated its fleet planning assumption to 47 -8 aircraft deliveries in 2025, from its prior estimate of 38 deliveries, as Boeing continues to ramp up production. With these incremental deliveries, the Company now expects to retire approximately 55 aircraft in 2025, compared with its previous estimate of approximately 50 retirements this year. This includes the sale of five -800 aircraft expected to occur in the second half of 2025. The Company continues to expect additional new aircraft deliveries to facilitate the retirement of aircraft from its existing fleet in support of its fleet monetization and capital allocation strategies.

The Company ended second quarter 2025 with 810 Boeing 737 aircraft, including 273 -8 aircraft. During second quarter 2025, the Company retired seven -700 aircraft and took delivery of 17 -8 aircraft. As of July 24, 2025, during 2025 the Company has exercised a total of 21 -7 options for delivery in 2026. The Company's order book with Boeing as of July 24, 2025, consists of a total of 510 MAX firm orders (303 -7 aircraft and 207 -8 aircraft), less 28 -8 deliveries to date in 2025, for the years 2025 through 2031, including 63 MAX aircraft that were contractually committed for 2024, but were not received, and 162 MAX options (-7s or -8s) for the years 2026 through 2031.

Material Changes in Results of Operations

Comparison of three months ended June 30, 2025 and June 30, 2024


	Three months ended June 30,				Increase (Decrease)		Percent change
(in millions)	2025		2024
Passenger	$	6,627	$	6,712	$	(85)	(1.3)	%
Freight	44		45		(1)		(2.2)
Other	573		597		(24)		(4.0)
Total operating revenues	$	7,244	$	7,354	$	(110)	(1.5)	%

Salaries, wages, and benefits	$	3,262	$	2,999	$	263	8.8	%
Fuel and oil	1,326		1,599		(273)		(17.1)
Maintenance materials and repairs	331		350		(19)		(5.4)
Landing fees and airport rentals	567		511		56		11.0
Depreciation and amortization	400		404		(4)		(1.0)
Other operating expenses	1,133		1,093		40		3.7
Total operating expenses	$	7,019	$	6,956	$	63	0.9	%

Operating Revenues

Total operating revenues for second quarter 2025 decreased by $110 million, or 1.5 percent, year-over-year. Passenger revenues for second quarter 2025 decreased by $85 million, or 1.3 percent, year-over-year, and Other revenues for second quarter 2025 decreased by $24 million, or 4.0 percent, year-over-year. Second quarter 2025 RASM was 15.41 cents, finishing 3.1 percent lower than second quarter 2024. The nominal Passenger revenue and unit revenue decreases were primarily due to a 4.1 point year-over-year decline in Load factor, partially offset by a 2.3 percent increase in yield. The yield improvements were primarily due to revenue management actions and capacity moderation. Additionally, second quarter 2025 RASM results include a nearly one-half point headwind due to a temporary reduction in the conversion rate of basic economy bookings on the Company's website that occurred following the May 28, 2025 launch of its basic economy product.

Operating Expenses

Operating expenses for second quarter 2025 increased by $63 million, or 0.9 percent, compared with second quarter 2024, and capacity increased 1.6 percent over the same prior year period. The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and Landing fees and airport rentals expense, partially offset by a year-over-year decrease in Fuel and oil expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the second quarter of 2025 and 2024, followed by explanations of these changes on both a dollar and unit basis.


	Three months ended June 30,				Per ASM change		Percent change
(in cents, except for percentages)	2025		2024
Salaries, wages, and benefits	6.94	¢	6.47	¢	0.47	¢	7.3	%

Fuel and oil	2.83		3.46		(0.63)		(18.2)
Maintenance materials and repairs	0.70		0.76		(0.06)		(7.9)
Landing fees and airport rentals	1.21		1.12		0.09		8.0
Depreciation and amortization	0.85		0.87		(0.02)		(2.3)
Other operating expenses	2.41		2.36		0.05		2.1
Total	14.94	¢	15.04	¢	(0.10)	¢	(0.7)	%

Operating expenses per ASM for second quarter 2025 decreased by 0.7 percent, compared with second quarter 2024, primarily due to a decrease in Fuel and oil expense, partially offset by increases in Salaries, wages, and benefits expense and Landing fees and airport rentals expense. Operating expenses per ASM for second quarter 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.7 percent, compared with second quarter 2024, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for second quarter 2025 increased by $263 million, or 8.8 percent, compared with second quarter 2024. On a per ASM basis, second quarter 2025 Salaries, wages, and benefits expense increased 7.3 percent, compared with second quarter 2024. On a dollar and per ASM basis, the majority of the increase was due to net step/pay rate increases and related benefits for certain workgroups.

Fuel and oil expense for second quarter 2025 decreased by $273 million, or 17.1 percent, compared with second quarter 2024. On a per ASM basis, second quarter 2025 Fuel and oil expense decreased 18.2 percent. On a dollar and per ASM basis, the decrease was primarily attributable to lower jet fuel prices. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging net premium expense and fuel derivative contract settlements:


	Three months ended June 30,
	2025			2024
Economic fuel costs per gallon	$	2.32		$	2.76
Fuel hedging premium expense (in millions)	$	36	(a)	$	39
Fuel hedging cash settlement gain (in millions)	$	—		$	21
Fuel hedging premium expense per gallon	$	0.06	(a)	$	0.07
Fuel hedging cash settlement gain per gallon	$	—		$	0.04

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

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

The Company's second quarter 2025 available seat miles per gallon ("fuel efficiency") increased 2.9 percent, year-over-year, primarily due to operating more -8 aircraft, the Company's most fuel-efficient aircraft, as a percentage of its fleet. The continued deliveries of MAX aircraft are expected to remain critical to the Company's efforts to modernize its fleet.

During second quarter 2025, the Company terminated its remaining portfolio of fuel hedging contracts to effectively close its fuel hedging portfolio. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information. Therefore, as of June 30, 2025, the Company did not have any outstanding fuel derivative contracts to hedge its future fuel consumption. The Company does not intend to add additional fuel derivatives to its portfolio. As such, the Company will be fully exposed to fluctuations in jet fuel prices, which are expected to remain volatile. See Part II, Item 1A. Risk Factors – “The Company’s business can be significantly affected by the availability of jet fuel, fuel prices, and volatility of fuel prices, and the Company’s operations are subject to disruption in the event of any delayed supply of fuel; therefore, the Company’s strategic plans and future profitability are likely to be affected by the Company’s ability to address fuel availability, price increases, and volatility.”

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


Year	Amount of gains (losses) deferred in AOCI at June 30, 2025
Remainder of 2025	$	(72)
2026	(115)
2027	(22)

Total	$	(209)

Maintenance materials and repairs expense for second quarter 2025 decreased by $19 million, or 5.4 percent, compared with second quarter 2024. On a per ASM basis, Maintenance materials and repairs expense decreased 7.9 percent compared with second quarter 2024. On a dollar and per ASM basis, approximately $26 million of the decrease was due to fewer airframes in routine heavy check compared to 2024 and approximately $18 million of the decrease was due to fewer routine bulk purchases of materials for the Company's seat refurbishment efforts. These decreases were partially offset by an increase of approximately $26 million due to engine shop visits associated with the Company's -700 fleet.

Landing fees and airport rentals expense for second quarter 2025 increased by $56 million, or 11.0 percent, compared with second quarter 2024. On a per ASM basis, Landing fees and airport rentals expense increased 8.0 percent, compared with second quarter 2024. On a dollar and per ASM basis, approximately 80 percent of the increase was primarily attributable to an increase in airport rental expense throughout the network driven by the higher rates charged by airports for leased space. The remainder of the increase was primarily due to receiving fewer favorable settlements and credits from various airports in second quarter 2025.

Depreciation and amortization expense for second quarter 2025 decreased by $4 million, or 1.0 percent, compared with second quarter 2024. On a per ASM basis, Depreciation and amortization expense decreased 2.3 percent compared with second quarter 2024. On a dollar and per ASM basis, the decrease was primarily due to accelerating depreciation for fewer -700 aircraft planned for early retirement in 2025 compared to 2024. This decrease was

partially offset by the acquisition of 40 -8 aircraft and new assets for technology and ground equipment being placed into service since second quarter 2024.

Other operating expenses for second quarter 2025 increased by $40 million, or 3.7 percent, compared with second quarter 2024. Included within this line item was aircraft rentals expense in the amounts of $80 million and $49 million for the three-month periods ended June 30, 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 2.1 percent, compared with second quarter 2024. On a dollar and per ASM basis, the increase was primarily due to (i) a $31 million increase in aircraft rentals expense associated with recent fleet transactions, (ii) a $21 million increase in maintenance agreement expense driven by expanded cloud-based services, and (iii) a $19 million increase as a result of per diem rates paid to Flight crews. These increases were partially offset by a $38 million decrease in advertising and promotional campaign costs.

Non-Operating Expenses (Income)

Interest expense for second quarter 2025 decreased by $24 million, or 38.1 percent, compared with second quarter 2024, primarily due to significant debt repayments since second quarter 2024. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Interest income for second quarter 2025 decreased by $76 million, or 58.5 percent, compared with second quarter 2024, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

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


	Three months ended June 30,
(in millions)	2025		2024
Mark-to-market impact from fuel contracts settling in current and future periods	$	—	$	2
Premium benefit of fuel contracts not designated as hedges	—		(1)


Mark-to-market impact on deferred compensation plan investments	(28)		(8)
Other	1		2


	$	(27)	$	(5)

Income Taxes

The Company's effective tax rate was 23.9 percent in second quarter 2025, compared with 23.2 percent in second quarter 2024. The year-over-year increase in the tax rate was primarily due to an increase in state taxes.

Comparison of six months ended June 30, 2025 and June 30, 2024


	Six months ended June 30,				Increase (Decrease)		Percent change
(in millions)	2025		2024
Passenger	$	12,438	$	12,424	$	14	0.1	%
Freight	86		87		(1)		(1.1)
Other	1,148		1,172		(24)		(2.0)
Total operating revenues	$	13,672	$	13,683	$	(11)	(0.1)	%

Salaries, wages, and benefits	$	6,364	$	5,939	$	425	7.2	%
Fuel and oil	2,575		3,130		(555)		(17.7)
Maintenance materials and repairs	623		711		(88)		(12.4)
Landing fees and airport rentals	1,090		975		115		11.8
Depreciation and amortization	795		812		(17)		(2.1)
Other operating expenses	2,223		2,110		113		5.4
Total operating expenses	$	13,670	$	13,677	$	(7)	(0.1)	%

Operating Revenues

Passenger revenues for the six months ended June 30, 2025, increased by $14 million, or 0.1 percent, compared with the first six months of 2024. On a unit basis, Passenger revenues remained flat, year-over-year. The dollar increase was primarily due to average yields increasing 5.7 percent due to revenue management actions, partially offset by a 6.9 percent decrease in revenue Passengers carried.

Other revenues for the six months ended June 30, 2025, decreased by $24 million, or 2.0 percent, year-over-year. On a dollar basis, approximately 50 percent of the decrease was due to a larger portion of the Company’s co-brand credit card benefits from Chase being classified within Passenger revenues during 2025, as a result of the amended co-brand agreement effective in January 2025. See Note 5 to the unaudited Condensed Consolidated Financial Statements for further information. The majority of the remainder of the year-over-year decline was due to a reduction in other partner sales attributable to softer travel demand.

Operating Expenses

Operating expenses for the six months ended June 30, 2025, decreased by $7.0 million, or 0.1 percent, compared with the first six months of 2024, and capacity decreased 0.1 percent over the same prior year period. The vast majority of the dollar decrease was due to a year-over-year decrease in Fuel and oil expense, partially offset by higher Salaries, wages, and benefits expense and higher Landing fees and airport rentals expense. Historically, except for changes in the price of fuel, changes in Operating expenses for airlines have been largely driven by changes in capacity, or ASMs. The following table presents the Company's Operating expenses per ASM for the first six months of 2025 and 2024, followed by explanations of these changes on a dollar basis.


	Six months ended June 30,				Per ASM		Percent
(in cents, except for percentages)	2025		2024		change		change
Salaries, wages, and benefits	7.20	¢	6.72	¢	0.48	¢	7.1	%

Fuel and oil	2.91		3.54		(0.63)		(17.8)
Maintenance materials and repairs	0.70		0.80		(0.10)		(12.5)
Landing fees and airport rentals	1.23		1.10		0.13		11.8
Depreciation and amortization	0.90		0.92		(0.02)		(2.2)

Other operating expenses	2.52		2.38		0.14		5.9
Total	15.46	¢	15.46	¢	—	¢	—	%

Operating expenses per ASM for the first six months of 2025 was flat, compared with the first six months of 2024, primarily due to a decrease in the Company's fuel cost per gallon being offset by increases in Salaries, wages, and benefits expense, Other operating expenses, and Landing fees and airport rentals expense. Operating expenses per ASM for the first six months of 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.6 percent, year-over-year, primarily due to contract-driven wage rate inflation in Salaries, wages, and benefits expense in 2025. See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Salaries, wages, and benefits expense for the first six months of 2025 increased by $425 million, or 7.2 percent, compared with the first six months of 2024. On a per ASM basis, Salaries, wages, and benefits expense for the first six months of 2025 increased 7.1 percent, compared with the first six months of 2024. On a dollar and per ASM basis, approximately 60 percent of the increase was due to step/pay rate increases and related benefits for certain workgroups. Additionally, approximately 10 percent of the increase was due to a one-time severance cost as a result of the workforce reduction in February 2025, which was considered a special item and excluded from the Company's non-GAAP financials. See Note 11 to the unaudited Condensed Consolidated Financial Statements for additional detail regarding the reduction in workforce, and Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

Fuel and oil expense for the first six months of 2025 decreased by $555 million, or 17.7 percent, compared with the first six months of 2024. On a per ASM basis, Fuel and oil expense for the first six months of 2025 decreased 17.8 percent. On a dollar and per ASM basis, the decrease was primarily attributable to a decrease in the Company's fuel cost per gallon. The following table provides more information on the Company's economic fuel cost per gallon, including the impact of fuel hedging premium expense and fuel derivative contracts:


	Six months ended June 30,
	2025			2024
Economic fuel costs per gallon	$	2.40		$	2.84
Fuel hedging premium expense (in millions)	$	73	(a)	$	78
Fuel hedging cash settlement gain (in millions)	$	—		$	38
Fuel hedging premium expense per gallon	$	0.07	(a)	$	0.07
Fuel hedging cash settlement gains per gallon	$	—		$	0.03

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

Maintenance materials and repairs expense for the first six months of 2025 decreased by $88 million, or 12.4 percent, compared with the first six months of 2024. On a per ASM basis, Maintenance materials and repairs expense decreased 12.5 percent, compared with the first six months of 2024. On a dollar and per ASM basis, the decrease was primarily due to (i) a $45 million decrease in engine shop visits and various other engine expenses for the Company's -800 fleet, (ii) a $42 million decrease driven by fewer airframes in routine heavy check compared to the same period in 2024, and (iii) a $19 million reduction in routine bulk purchases of materials for the Company's seat refurbishment efforts. These decreases were partially offset by a $32 million increase in engine shop visits and various other engine expenses associated with the Company's -700 fleet.

Landing fees and airport rentals expense for the first six months of 2025 increased by $115 million, or 11.8 percent, compared with the first six months of 2024. On a per ASM basis, Landing fees and airport rentals expense increased 11.8 percent, compared with the first six months of 2024. On a dollar and per ASM basis, approximately

75 percent of the increase was largely due to an increase in airport rental expense throughout the network driven by higher rates charged by airports for leased space. The remainder of the increase was primarily due to receiving fewer favorable settlements and credits from various airports.

Depreciation and amortization expense for the first six months of 2025 decreased by $17 million, or 2.1 percent, compared with the first six months of 2024. On a per ASM basis, Depreciation and amortization expense decreased 2.2 percent, compared with the first six months of 2024. On a dollar and per ASM basis, the decrease was primarily due to accelerating depreciation for fewer -700 aircraft planned for early retirement in 2025 compared to 2024. This decrease was partially offset by an increase due to technology projects being placed into service since second quarter 2024.

Other operating expenses for the first six months of 2025 increased by $113 million, or 5.4 percent, compared with the first six months of 2024. Included within this line item was aircraft rentals expense in the amount of $167 million and $101 million for the six months ended June 30, 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 5.9 percent, compared with the first six months of 2024. On a dollar and per ASM basis, the increase was primarily due to (i) a $66 million increase in aircraft rental expense associated with recent fleet transactions, (ii) a $40 million increase due to higher maintenance agreement expense driven by expanded cloud-based service, (iii) a $30 million increase due to higher professional fees driven by professional advisory fees related to the Company's implementation of its transformational plan, and (iv) a $26 million increase due to an increase in per diem rates paid to Flight crews. These increases were partially offset by a $67 million decrease in advertising and promotional campaigns.

Other expenses (income)

Interest expense for the first six months of 2025 decreased by $43 million, or 33.6 percent, compared with the first six months of 2024, primarily due to significant debt repayments since second quarter 2024. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Capitalized interest for the first six months of 2025 increased by $9 million, or 60.0 percent, compared with the first six months of 2024, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.

Interest income for the first six months of 2025 decreased by $133 million, or 49.1 percent, compared with the first six months of 2024, primarily due to lower cash and investment balances and a lower average interest rate in the Company's total investment portfolio.

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


	Six months ended June 30,
(in millions)	2025		2024
Mark-to-market impact from fuel contracts settling in current and future periods	$	—	$	3
Premium benefit of fuel contracts not designated as hedges	—		(1)


Mark-to-market impact on deferred compensation plan investment	(11)		(23)


Other	2		4
	$	(9)	$	(17)

Income Taxes

The Company's effective tax rate was approximately 27.4 percent for the first six months of 2025, compared with 24.4 percent for the first six months of 2024. The year-over-year increase in the tax rate was primarily due to additional federal tax credits recorded in 2024 and the impact of changes in pre-tax book income on the effective tax rate.

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

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


	Three months ended June 30,				Percent	Six months ended June 30,				Percent
	2025		2024		Change	2025		2024		Change




Fuel and oil expense, unhedged	$	1,290	$	1,581		$	2,502	$	3,091
Add: Premium cost of fuel contracts designated as hedges (a)	36		40			73		79
Deduct: Fuel hedge gains included in Fuel and oil expense, net	—		(22)			—		(40)
Fuel and oil expense, as reported	$	1,326	$	1,599	(17.1)	$	2,575	$	3,130	(17.7)
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		1			—		2
Deduct: Premium benefit of fuel contracts not designated as hedges	—		(1)			—		(1)
Fuel and oil expense, excluding special items (economic)	$	1,326	$	1,599	(17.1)	$	2,575	$	3,131	(17.8)

Total operating expenses, as reported	$	7,019	$	6,956		$	13,670	$	13,677

Deduct: Labor contract adjustment	—		—			—		(9)
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		1			—		2

Deduct: Premium benefit of fuel contracts not designated as hedges	—		(1)			—		(1)

Deduct: Impairment of long-lived assets	(8)		—			(8)		—
Deduct: Litigation accruals	—		—			(19)		(7)
Deduct: Transformation costs	(12)		—			(26)		—
Deduct: Severance and related costs (c)	—		—			(62)		—
Deduct: Professional advisory fees	—		(7)			—		(7)
Total operating expenses, excluding special items	$	6,999	$	6,949	0.7	$	13,555	$	13,655	(0.7)
Deduct: Fuel and oil expense, excluding special items (economic)	(1,326)		(1,599)			(2,575)		(3,131)
Operating expenses, excluding Fuel and oil expense and special items	$	5,673	$	5,350	6.0	$	10,980	$	10,524	4.3
Deduct: Profit-sharing expense	(14)		(31)			(14)		(31)
Operating expenses, excluding Fuel and oil expense, special items, and profit sharing	$	5,659	$	5,319	6.4	$	10,966	$	10,493	4.5

Operating income, as reported	$	225	$	398		$	2	$	6

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(1)			—		(2)

Add: Premium benefit of fuel contracts not designated as hedges	—		1			—		1

Add: Impairment of long-lived assets	8		—			8		—
Add: Litigation accruals	—		—			19		7
Add: Transformation costs	12		—			26		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		7			—		7
Operating income, excluding special items	$	245	$	405	(39.5)	$	117	$	28	317.9


	Three months ended June 30,				Percent	Six months ended June 30,				Percent
	2025		2024		Change	2025		2024		Change

Other gains, net, as reported	$	(27)	$	(5)		$	(9)	$	(17)
Deduct: Mark-to-market impact from fuel contracts settling in future periods (b)	—		(2)			—		(3)
Add: Premium benefit of fuel contracts not designated as hedges	—		1			—		1


Other gains, net, excluding special items	$	(27)	$	(6)	n.m.	$	(9)	$	(19)	(52.6)%

Income before income taxes, as reported	$	280	$	478		$	88	$	181

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(1)			—		(2)


Add: Mark-to-market impact from fuel contracts settling in future periods (b)	—		2			—		3

Add: Impairment of long-lived assets	8		—			8		—
Add: Litigation accruals	—		—			19		7
Add: Transformation costs	12		—			26		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		7			—		7


Income before income taxes, excluding special items	$	300	$	486	(38.3)	$	203	$	205	(1.0)

Provision for income taxes, as reported	$	67	$	111		$	24	$	44
Add: Net income tax impact of fuel and special items (d)	3		5			26		9

Provision for income taxes, net, excluding special items	$	70	$	116	(39.7)	$	50	$	53	(5.7)



Net income, as reported	$	213	$	367		$	64	$	137

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(1)			—		(2)


Add: Mark-to-market impact from fuel contracts settling in future periods (b)	—		2			—		3

Add: Litigation accruals	—		—			19		7
Add: Transformation costs	12		—			26		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		7			—		7

Add: Impairment of long-lived assets	8		—			8		—
Deduct: Net income tax impact of special items (d)	(3)		(5)			(26)		(9)

Net income, excluding special items	$	230	$	370	(37.8)	$	153	$	152	0.7


	Three months ended June 30,						Percent	Six months ended June 30,						Percent
	2025			2024			Change	2025			2024			Change
Net income per share, diluted, as reported	$	0.39		$	0.58			$	0.11		$	0.23
Add: Impact of special items	0.05			0.01				0.21			0.03

Deduct: Net income tax impact of special items (d)	(0.01)			(0.01)				(0.05)			(0.01)


Net income per share, diluted, excluding special items	$	0.43		$	0.58		(25.9)	$	0.27		$	0.25		8.0

Operating expenses per ASM (cents)	14.94		¢	15.04		¢		15.46		¢	15.46		¢
Deduct: Impact of special items	(0.04)			(0.02)				(0.13)			(0.02)
Deduct: Fuel and oil expense divided by ASMs	(2.83)			(3.46)				(2.91)			(3.54)
Deduct: Profit-sharing expense divided by ASMs	(0.03)			(0.06)				(0.02)			(0.04)
Operating expenses per ASM, excluding Fuel and oil expense, special items, and profit sharing (cents)	12.04		¢	11.50		¢	4.7	12.40		¢	11.86		¢	4.6

(b) See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information.

(c) Represents Employee severance payments and related professional fees resulting from the workforce reduction in February 2025 ($53 million in Salaries, wages, and benefits and $9 million in Other operating expenses). See Note 11 to the unaudited Condensed Consolidated Financial Statements for further information.

(d) Tax amounts for each individual special item are calculated at the Company's effective rate for the applicable period and totaled in this line item.

Non-GAAP Return on Invested Capital (ROIC) (in millions) (unaudited)


	Twelve months ended				Twelve months ended
	June 30, 2025				June 30, 2024
Operating income (loss), as reported	$	318			$	(281)
Breakage revenue adjustment	116				—
Severance and related costs	62				—
Voluntary Employee programs	5				—
TWU 555 contract adjustment	—				9
TWU 556 contract adjustment	—				95
SWAPA contract adjustment	—				354
Net impact from fuel contracts	(43)				16
Professional advisory fees	30				7
Transformation costs	30				—
DOT settlement	—				107
Litigation accruals	19				7
Impairments	8				—
Operating income, non-GAAP	$	545			$	314
Net adjustment for aircraft leases (a)	182				127
Adjusted operating income, non-GAAP (A)	$	727			$	441

Non-GAAP tax rate (B)	22.6		%	(d)	23.8		%	(e)

Net operating profit after-tax, NOPAT (A (1-B) = C)*	$	563			$	336

Debt, including finance leases (b)	$	6,699			$	8,008


Equity (b)	9,718				10,604
Net present value of aircraft operating leases (b)	967				949
Average invested capital	$	17,384			$	19,561
Equity adjustment for hedge accounting (c)	31				(61)
Adjusted average invested capital (D)	$	17,415			$	19,500

Non-GAAP ROIC, pre-tax (A/D)	4.2		%		2.3		%

Non-GAAP ROIC, after-tax (C/D)	3.2		%		1.7		%

(a) Net adjustment to reflect all aircraft in fleet as owned (i.e., the impact of eliminating aircraft rent expense and replacing with estimated depreciation expense for those same aircraft). The Company makes this adjustment to enhance comparability to other entities that have different capital structures by utilizing alternative financing decisions.

(b) Calculated as an average of the five most recent quarter end balances or remaining obligations. The Net present value of aircraft operating leases represents the assumption that all aircraft in the Company’s fleet are owned, as it reflects the remaining contractual commitments discounted at the Company's estimated incremental borrowing rate as of the time each individual lease was signed.

(c) The Equity adjustment in the denominator adjusts for the cumulative impacts, in Accumulated other comprehensive income and Retained earnings, of gains and/or losses that will settle in future periods, including those associated with the Company's terminated fuel hedges. The current period impact of these gains and/or losses is reflected in the Net impact from fuel contracts in the numerator.

(d) The GAAP twelve month rolling tax rate as of June 30, 2025, was 22.3 percent, and the Non-GAAP twelve month rolling tax rate was 22.6 percent. See Note Regarding Use of Non-GAAP Financial Measures for additional information.

(e) The GAAP twelve month rolling tax rate as of June 30, 2024, was 41.0 percent, and the Non-GAAP twelve month rolling tax rate was 23.8 percent. See Note Regarding Use of Non-GAAP Financial Measures for additional information.

Note Regarding Use of Non-GAAP Financial Measures

The Company's unaudited Condensed Consolidated Financial Statements are prepared in accordance with GAAP. These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profit sharing; Operating income, non-GAAP; Adjusted Operating income, non-GAAP; Other (gains) losses, net, non-GAAP; Income before income taxes, non-GAAP; Provision for income taxes, net, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profit sharing (cents); and Return on invested capital, non-GAAP. For periods in which fuel hedge contracts are utilized, the Company's economic Fuel and oil expense results may differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts - all reflected within Fuel and oil expense in the period of settlement. Thus, Fuel and oil expense on an economic basis has historically been utilized by the Company, as well as some of the other airlines that utilize fuel hedging, as it reflects the Company’s actual net cash outlays for fuel during the applicable period, inclusive of settled fuel derivative contracts. Any net fuel hedging premium costs paid related to option contracts that are designated as hedges are reflected as a component of Fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight into the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Also, see Note 3 to the unaudited Condensed Consolidated Financial Statements for further information regarding the Company's termination of its remaining fuel hedge derivative instruments.

The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include:

1.Incremental expense associated with contract ratification bonuses for various workgroups related to additional compensation for services performed by Employees outside the applicable fiscal period;

2.Charges associated with tentative litigation settlements regarding paid short-term military leave to certain Employees, certain California state meal-and-rest break regulations for Flight Attendants, and an arbitration award in favor of the Company's Pilots relating to a collective-bargaining matter;

3.Expenses associated with professional advisory fees related to the Company's implementation of its comprehensive transformational plan;

4.Charges associated with severance, post-employment benefits, and professional fees as a result of the Company's reduction in workforce;

5.Reversal of breakage revenue recorded in prior years related to a portion of flight credits issued to Customers during 2022 and prior that have either been redeemed or are expected to be redeemed in future periods. The majority of these flight credits were issued during the COVID-19 pandemic as the Company was making significant changes to its flight schedules based on fluctuating demand, which made it difficult to estimate future redemption patterns when compared against historical Customer behavior;

6.Incremental expense associated with a voluntary separation program that allowed eligible Employees the opportunity to voluntarily separate from the Company in exchange for severance, medical/dental coverage for a specified period of time, and travel privileges based on years of service;

7.Expenses associated with incremental professional advisory fees related to activist investor activities, which were not budgeted by the Company or associated with the ongoing operation of the airline;

8.A charge associated with a settlement reached with the DOT as a result of the Company's December 2022 operational disruption; and

9.Non-cash impairment charges to remove certain assets from the unaudited Condensed Consolidated Balance Sheet that are no longer in use.

Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measures are often provided, excluding special items, and utilized by the Company’s management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Fuel and oil expense; Operating expenses, non-GAAP excluding Fuel and oil expense and profit sharing; Operating income, non-GAAP; Adjusted Operating income, non-GAAP; Other (gains) losses, net, non-GAAP; Income before income taxes, non-GAAP; Provision for income taxes, net, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; Operating expenses per ASM, non-GAAP, excluding Fuel and oil expense and profit sharing (cents); and Return on invested capital, non-GAAP.

The Company has also provided its calculation of return on invested capital ("ROIC"), which is a measure of financial performance used by management to evaluate its investment returns on capital. ROIC is not a substitute for financial results as reported in accordance with GAAP and should not be utilized in place of such GAAP results. Although ROIC is not a measure defined by GAAP, it is calculated by the Company, in part, using non-GAAP financial measures. Those non-GAAP financial measures are utilized for the same reasons as those noted above for Net income, non-GAAP and Operating income, non-GAAP. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non-GAAP results since "special items" cannot be reliably predicted or estimated. The Company believes non-GAAP ROIC is a meaningful measure because it quantifies the Company's effectiveness in generating returns relative to the capital it has invested in its business. Although ROIC is commonly used as a measure of capital efficiency, definitions of return on invested capital differ; therefore, the Company is providing an explanation of its calculation for non-GAAP return on invested capital in the accompanying reconciliation in order to allow investors to compare and contrast its calculation to the calculations provided by other companies.

Liquidity and Capital Resources

Net cash provided by operating activities was $401 million for the three months ended June 30, 2025, compared with $23 million used in operating activities in the same prior year period. Net cash provided by operating activities was $1.3 billion for the six months ended June 30, 2025 compared with $128 million used in the same prior year period. Historically, operating cash inflows are primarily derived from selling tickets for future flights and providing air transportation to Customers. The vast majority of tickets are purchased prior to the day on which travel is provided and, in some cases, several months before the anticipated travel date. Operating cash outflows are related to the recurring expenses of airline operations. The operating cash flows for the six months ended June 30, 2025, were largely impacted by the Company's net results (as adjusted for noncash items, primarily Depreciation and amortization), a $103 million profit-sharing contribution for 2024 pursuant to the Company's Retirement Savings Plan, and a $55 million increase in Air traffic liability driven by higher ticket sales despite a softness in bookings. The operating cash flows for the six months ended June 30, 2024, were largely impacted by the Company's net results (as adjusted for noncash items, primarily Depreciation and amortization), the approximately $1.9 billion paid 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; and the $105 million payout of the Company's Profitsharing Plan contribution for the 2023 Plan year. These decreases were partially offset by a $798 million increase in Air traffic liability driven by higher ticket sales related to an increase in capacity. Net cash provided by operating activities is primarily used to finance capital expenditures, repay debt, provide Shareholder returns, and provide working capital.

Net cash used in investing activities totaled $882 million during the three months ended June 30, 2025, compared with $206 million used in investing activities in the same prior year period. Net Cash used in investing activities totaled $259 million during the six months ended June 30, 2025, compared with $791 million used in investing activities in the same prior year period. Investing activities in both years included Capital expenditures and changes in the balance of the Company's short-term and noncurrent investments. During the six months ended June 30, 2025 and 2024, Capital expenditures were $1.1 billion.

The Company continues to expect its 2025 capital spending to be in the range of $2.5 billion to $3.0 billion, including the additional aircraft deliveries now expected, as well as the impact of the expected sale of five -800 aircraft this year.

Net cash used in financing activities was $4.2 billion during the three months ended June 30, 2025, compared with $4 million provided by financing activities for the same prior year period. Net cash used in financing activities was $5.0 billion during the six months ended June 30, 2025, compared with $227 million used in financing activities for the same prior year period. During the six months ended June 30, 2025, the Company paid $210 million in cash dividends to Shareholders related to the first quarter 2025 and fourth quarter 2024 declarations. Additionally, the Company expended $2.25 billion to repurchase the Company's outstanding common stock through authorized share repurchases during the six months ended June 30, 2025. The repurchases of common stock amounts in the unaudited Consolidated Statement of Cash Flows may differ from the unaudited Consolidated Statement of Stockholder's Equity due to the timing of excise taxes incurred and subsequent payment on share repurchases, net of issuances. The Company may engage in early debt repurchases from time to time at its discretion; however, any early future repurchases are not included in the Company's current maturities of long-term debt unless otherwise disclosed. During second quarter 2025, the Company repaid both the Convertible Notes and the PSP1 Payroll Support Program loan in the amounts of $1.6 billion and $976 million, respectively. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information on the Convertible Notes, PSP1 Payroll Support Program loan, and future debt maturities. During the six months ended June 30, 2024, the Company paid $215 million in cash dividends to Shareholders for the fourth quarter 2023 and first quarter 2024 declarations, and the Company repaid $16 million in finance lease obligations.

The Company completed its September 2024 $2.5 billion share repurchase authorization in second quarter 2025, repurchasing $1.5 billion of its outstanding common stock through an accelerated share repurchase program. Final settlement of the second quarter 2025 accelerated share repurchase program is expected to occur by the end of July 2025. On July 23, 2025, the Board approved a new $2.0 billion share repurchase authorization of the Company's

common stock, which is expected to be completed over a period of up to two years. Subject to certain conditions, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated repurchase transactions from time to time, depending on market conditions.

The Company is a "well-known seasoned issuer" and currently has an effective shelf registration statement registering an indeterminate amount of debt and equity securities for future sales. The Company intends to use the proceeds from any future securities sales off this shelf registration statement for general corporate purposes.

As of June 30, 2025 the Company had 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, 2025 and 2024 there were no amounts outstanding under the Amended Credit Agreement. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information. On July 22, 2025, the Company exercised the accordion feature under the Amended Credit Agreement, increasing the size of the facility to $1.5 billion. There were no amounts outstanding under the Amended Credit Agreement as of July 24, 2025.

As of June 30, 2025, the Company carried a working capital deficit of approximately $4.8 billion, in which its current liabilities exceed its current assets. This is common within the airline industry and is primarily due to the nature of the Air traffic liability account, which is related to advance ticket sales, unused flight credits available to Customers, and loyalty deferred revenue, which are performance obligations for future Customer flights, do not require future settlement in cash, and are mostly nonrefundable. See Note 5 to the unaudited Condensed Consolidated Financial Statements for further information.

The Company believes it has various options available to meet its capital and operating commitments, including unrestricted cash and short-term investments of $3.8 billion as of June 30, 2025, and anticipated future internally generated funds from operations. The Company continues to have a large base of unencumbered aircraft and primarily aircraft-related assets with a net book value of approximately $16.6 billion. In addition, the Company continues to maintain investment-grade credit ratings by all three major credit agencies (Moody's, S&P Global, and Fitch).

As of July 24, 2025, for the years 2025 through 2031, the Company has firm orders with Boeing for 510 aircraft (less 28 -8 aircraft received to date in 2025), and options for an additional 162 aircraft. The contractual order book as of July 24, 2025 does not include the impact of delivery delays and is subject to change based on ongoing discussions with Boeing and their production capability. See Note 9 to the unaudited Condensed Consolidated Financial Statements for further information.

The following table details information on the aircraft in the Company's fleet as of June 30, 2025:


		Average Age (Yrs)	Number of Aircraft	Number Owned	Number Leased
Type	Seats
737-700	143	19	334	313	21
737-800	175	10	203	154	49
737-8	175	3	273	244	29
Totals		11	810	711	99

Critical Accounting Policies and Estimates

For information regarding the Company’s Critical Accounting Policies and Estimates, see the "Critical Accounting Policies and Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Cautionary Statement Regarding Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). Forward-looking statements are based on, and include statements about, the Company's estimates, expectations, beliefs, intentions, and strategies for the future, and the assumptions underlying these forward-looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, statements related to the following:

the Company’s plans and expectations with respect to cost reductions;
the Company’s financial targets for 2025 and 2026 and factors that could impact the Company’s financial results;
the Company’s financial guidance for third quarter and full year 2025 and factors that could impact the Company’s financial results;
the Company’s capacity guidance and expectations;
the Company’s estimated fuel costs and fuel efficiency and the assumptions underlying the Company’s fuel-related expectations and estimates;
the Company’s plans and expectations for the repayment of debt and its interest expense;
the Company’s expectations regarding passenger demand, revenue management, revenue trends, and bookings;
the Company’s focus areas, goals, opportunities, and initiatives, including with respect to flight credit expiration, checked bag fees, creating efficiencies, the Company’s fare structure, airline partnerships, financial performance, and the Company’s co-brand credit card agreement with Chase;
the Company’s plans and expectations with respect to assigned and extended legroom seating, cabin design and seating, redesigned boarding model, aircraft turn times, and redeye flying;
the Company’s plans and expectations with respect to capital allocation, capital deployment, infrastructure investments, leverage, and Shareholder returns;
the Company’s network plans and expectations;
the Company’s labor plans and expectations including with respect to the Company’s reduction in force;
the Company’s fleet plans and expectations, including with respect to fleet modernization, fleet retrofits, fleet utilization, flexibility, fleet strategy and extracting value from the fleet and the fleet order book, and expected fleet deliveries and retirements, and underlying expectations and dependencies;
the Company’s financial targets and goals, including with respect to leverage, liquidity, balance sheet goals, and cost mitigation;
the Company’s short-term and long-term financial and operational goals;
the Company’s cash flow expectations and capital spending guidance, in particular with respect to aircraft capital expenditures and underlying aircraft delivery expectations;
the Company’s expectations with respect to its ability to meet its ongoing capital and operating commitments, including underlying assumptions and factors that could impact this ability;
the Company's assessment of market risks; and
the Company's plans and expectations related to legal and regulatory proceedings.

While management believes these forward-looking statements are reasonable as and when made, forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed in or indicated by the Company's forward-looking statements or from historical experience or the Company's present expectations. Factors that could cause these differences include, among others:

the impact of consumer perception, consumer uncertainties with respect to trade policies (including the imposition of tariffs), economic conditions, banking conditions, fears or actual outbreaks of diseases, extreme or severe weather and natural disasters, actions of competitors (including, without limitation, pricing, scheduling, capacity, and network decisions, and consolidation and alliance activities), socio-demographic trends, and other factors beyond the Company's control on consumer behavior and the Company's results of operations and business decisions, plans, strategies, and results;
the Company's ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives;
the Company's dependence on Boeing, Boeing’s suppliers, and the FAA with respect to the Company's fleet plans and deliveries, capacity and operational plans, assigned and extended legroom seating plans, and other operational plans, strategies, and goals;
consumer behavior and response with respect to the Company's new commercial products and policies;
the impact of labor and hiring matters on the Company’s business decisions, plans, strategies, and results;
the impact of fuel price changes, fuel price volatility, and fuel availability on the Company's business plans and results of operations;
the Company's dependence on other third parties, in particular with respect to its technology plans, its plans and expectations related to operational excellence and reliability, revenue management, online travel agencies, fuel supply, maintenance, environmental sustainability, Global Distribution Systems, and the impact on the Company's operations and results of operations of any third party delays or non-performance;
the Company's ability to obtain and maintain adequate infrastructure and equipment to support its operations and initiatives;
the impact of governmental regulations and other governmental actions, as well as the Company's ability to obtain any required governmental approvals, on the Company's plans, strategies, financial results, and operations;
the Company's dependence on its workforce, including its ability to employ and retain sufficient numbers of qualified Employees to effectively and efficiently maintain its operations;
the impact of fears or actual acts of terrorism or war, political instability, cyber-attacks, and other factors beyond the Company’s control on the Company’s plans, financial results, operations, and ability to adequately insure against risks;
the cost and effects of the actions of activist shareholders; and
other factors as set forth in the Company's filings with the Securities and Exchange Commission (the "SEC"), including the detailed factors discussed under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.

Caution should be taken not to place undue reliance on the Company's forward-looking statements, which represent the Company's views only as of the date this report is filed. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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