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 nine months ended September 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 September 30,
	2025			2024			Change
Revenue passengers carried (000s)	34,581			35,516			(2.6)	%
Enplaned passengers (000s)	43,806			44,711			(2.0)	%
Revenue passenger miles (RPMs) (in millions)(a)	36,362			36,735			(1.0)	%
Available seat miles (ASMs) (in millions)(b)	45,567			45,219			0.8	%
Load factor(c)	79.8		%	81.2		%	(1.4)		pts.
Average length of passenger haul (miles)	1,051			1,034			1.6	%
Average aircraft stage length (miles)	784			770			1.8	%
Trips flown	356,952			364,609			(2.1)	%
Seats flown (000s)(d)	57,643			58,119			(0.8)	%
Seats per trip(e)	161.5			159.4			1.3	%
Average passenger fare	$	182.56		$	175.97		3.7	%
Passenger revenue yield per RPM (cents)(f)	17.36			17.01			2.1	%
Operating revenues per ASM (cents)(g)	15.25			15.19			0.4	%
Passenger revenue per ASM (cents)(h)	13.85			13.82			0.2	%
Operating expenses per ASM (cents)(i)	15.17			15.11			0.4	%
Operating expenses per ASM, excluding fuel (cents)	12.25			11.97			2.3	%
Operating expenses per ASM, excluding fuel and profit sharing (cents)	12.23			11.94			2.4	%
Fuel costs per gallon, including fuel tax	$	2.40		$	2.52		(4.8)	%
Fuel costs per gallon, including fuel tax (economic)	$	2.40		$	2.55		(5.9)	%
Fuel consumed, in gallons (millions)	554			562			(1.4)	%
Active fulltime equivalent Employees	72,223			73,463			(1.7)	%
Aircraft at end of period	802			811			(1.1)	%


	Nine months ended September 30,
	2025			2024			Change
Revenue passengers carried (000s)	100,078			105,897			(5.5)	%
Enplaned passengers (000s)	125,330			132,875			(5.7)	%
Revenue passenger miles (RPMs) (in millions)(a)	103,875			108,044			(3.9)	%
Available seat miles (ASMs) (in millions)(b)	133,994			133,717			0.2	%
Load factor(c)	77.5		%	80.8		%	(3.3)		pts.
Average length of passenger haul (miles)	1,038			1,020			1.8	%
Average aircraft stage length (miles)	781			763			2.4	%
Trips flown	1,056,790			1,090,337			(3.1)	%
Seats flown (000s)(d)	170,145			173,588			(2.0)	%
Seats per trip(e)	161.0			159.2			1.1	%
Average passenger fare	$	187.36		$	176.34		6.2	%
Passenger revenue yield per RPM (cents)(f)	18.05			17.28			4.5	%
Operating revenues per ASM (cents)(g)	15.39			15.37			0.1	%
Passenger revenue per ASM (cents)(h)	13.99			13.96			0.2	%
Operating expenses per ASM (cents)(i)	15.36			15.34			0.1	%
Operating expenses per ASM, excluding fuel (cents)	12.45			11.94			4.3	%
Operating expenses per ASM, excluding fuel and profitsharing (cents)	12.43			11.90			4.5	%
Fuel costs per gallon, including fuel tax	$	2.40		$	2.73		(12.1)	%
Fuel costs per gallon, including fuel tax, economic	$	2.40		$	2.74		(12.4)	%
Fuel consumed, in gallons (millions)	1,624			1,663			(2.3)	%
Active fulltime equivalent Employees	72,223			73,463			(1.7)	%
Aircraft at end of period	802			811			(1.1)	%

(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 September 30,
(in millions, except per share amounts)
GAAP	2025		2024		Change
Operating income	$	35	$	38	(7.9)	%
Net income	$	54	$	67	(19.4)	%
Net income per share, diluted	$	0.10	$	0.11	(9.1)	%

Non-GAAP
Operating income	$	42	$	32	31.3	%
Net income	$	58	$	89	(34.8)	%
Net income per share, diluted	$	0.11	$	0.15	(26.7)	%

The Company recorded third quarter 2025 operating revenues of $6.9 billion, a third quarter Company record, despite year-over-year declines in load factor. This increase in operating revenues was primarily driven by revenue initiatives, the largest of which related to the Company's policy change for certain Customers' first and second checked bags that became effective May 28, 2025. This policy change excludes Business Select Customers, Rapid Rewards A-List Preferred Members, and Active-duty military members who all continue to receive both their first and second checked bags free and Rapid Rewards A-List Members and Rapid Rewards Credit Cardmembers who receive their first checked bag free. This initiative led to a year-over-year increase in bag fee revenue, resulting in a year-over-year increase in Operating revenues of $79 million. Despite the third quarter record revenue performance, the Company's operating income and net income for the three months ended September 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period. On a GAAP basis, operating expenses increased by $82 million, or 1.2 percent, driven by higher Salaries, wages, and benefits expense, partially offset by lower Fuel and oil expense.


	Nine months ended September 30,
(in millions, except per share amounts)
GAAP	2025		2024		Change
Operating income	$	37	$	43	(14.0)	%
Net income	$	118	$	204	(42.2)	%
Net income per share, diluted	$	0.21	$	0.34	(38.2)	%

Non-GAAP
Operating income	$	159	$	60	165.0	%
Net income	$	211	$	241	(12.4)	%
Net income per share, diluted	$	0.38	$	0.40	(5.0)	%

The Company's net income for the nine months ended September 30, 2025, on a GAAP and non-GAAP basis, decreased compared to the same prior year period. While operating revenues and expenses remained relatively flat, year-over-year, interest income decreased by $220 million driven by lower cash and investment balances. The

Company's operating income for the nine months ended September 30, 2025, on a GAAP basis, decreased compared to the same prior year period primarily due to higher Salaries, wages, and benefits expense and Landing fees and airport rentals. These decreases were partially offset by lower Fuel and oil expense coupled with higher passenger revenue, driven primarily by an increase in bag fee revenue. Operating expense for the nine months ended September 30, 2025, on a non-GAAP basis, excluded pre-tax charges of $122 million, most notably $62 million related to severance and related professional fees associated with the Company's reduction in workforce in the first quarter 2025.

2025 Outlook

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


									4Q 2025 Estimation
ASMs (a), year-over-year									Up ~6%
RASM (b), year-over-year									Up 1% to 3%
CASM-X (c), year-over-year (d)(e)									Up 1.5% to 2.5%
Fuel cost per gallon (f)									$2.20 to $2.30


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


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

(a) Available seat miles ("ASMs" or "capacity"). This guidance includes approximately 2 points of additional capacity since July 2025 from the impact of shifting extra legroom seating retrofits of Boeing 737-700 ("-700") aircraft to January 2026, which delays the removal of six seats from each of these aircraft.

(b) Operating revenue per available seat mile ("RASM" or "unit revenues"). Fourth quarter 2024 RASM excluded special items related to a breakage revenue adjustment. Please see the Company's Earnings Press Release furnished on January 30, 2025, for additional information.

(c) Operating expenses per available seat mile, excluding fuel and oil expense, special items, and profit sharing ("CASM-X" or "unit costs"). The Company's GAAP and non-GAAP results for fourth quarter 2024 included a $92 million gain from a sale-leaseback transaction. Excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, the Company anticipates fourth quarter 2025 CASM-X to be in the range of flat to up 1 percent, year-over-year.

(d) 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").

(e) 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.

(f) Based on market prices as of October 15, 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.

(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 fourth quarter 2025 unit revenues to be in the range of up 1 percent to 3 percent, compared with fourth quarter 2024 unit revenues, excluding special items, on capacity up approximately 6 percent year-over-year, a sequential improvement from third quarter. This guidance range assumes demand strength remains at current levels through the end of the quarter. It also reflects the planned acceleration from the Company's initiatives, the recent observed impact of the government shutdown, and the approximate 2-point year-over-year increase in fourth quarter capacity since July. This 2-point capacity increase is a result of shifting the extra legroom retrofit of the -700 fleet to January, as described below. The Company expects to deliver an all-time quarterly record revenue performance in the fourth quarter.

The Company continues to expect to achieve its $370 million cost reduction target this year. The Company anticipates fourth quarter 2025 CASM-X to be in the range of up 1.5 percent to 2.5 percent, or flat to up 1 percent when excluding the impact of expected book gains from fleet transactions in the fourth quarter of both years, on capacity up approximately 6 percent, all on a year-over-year basis. Unit costs continue to be driven primarily by the continuation of inflationary pressures, including those associated with labor contracts ratified in 2024. The Company remains focused on driving efficiencies to offset overall inflationary cost pressures and achieve its multi-year cost reduction targets.

Company Overview

Third Quarter 2025 Transformational Initiative Highlights

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

Launched Getaways by Southwest, an in-house packaged vacations product creating more opportunities for Customers to book their vacations
Transitioned 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 on July 29, 2025, for travel beginning January 27, 2026;
Announced free WiFi sponsored by T-Mobile for all Rapid Rewards® Members beginning October 24, 2025;
Announced a new partnership with China Airlines, which is expected to launch in early 2026, creating the first trans-Pacific airline partnership for Southwest;
Expanded the existing partnership with Icelandair, which began connecting Customers on dual-carrier itineraries through gateway airports Baltimore/Washington, Denver, and Nashville in February 2025. 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; and
Announced a new partnership with EVA Air, a subsidiary of the Evergreen Group, that jointly will operate itineraries between North America and Asia connecting through the carriers' shared gateway airports in Los Angeles, San Francisco, Seattle-Tacoma, and Chicago.

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 October 23, 2025, the Company has completed retrofits of more than 400 aircraft for extra legroom seating. In July 2025, the Company received necessary approvals and certifications to begin retrofitting its Boeing 737-700 ("-700") aircraft, and the work is expected to begin in January 2026 and be completed prior to January 27, 2026, when assigned seating begins.

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. The first -8 aircraft with an updated cabin has been delivered and entered service on October 16, 2025.

Other Initiatives and Quarterly Developments

In third quarter 2025, the Company returned $439 million to Shareholders through $189 million in dividend payments and a $250 million accelerated share repurchase program, which was launched in September 2025 and completed in October 2025. The Company has $1.75 billion remaining under its $2.0 billion share repurchase authorization. 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.

The Company has announced its intention to commence new service at multiple locations in an effort to grow its network and provide more destinations for Customers. These locations include:

Cyril E. King International Airport on St. Thomas beginning early 2026;
McGhee Tyson Airport in Knoxville, Tennessee beginning March 5, 2026;
Princess Juliana International Airport on St. Maarten beginning April 7, 2026;
Charles M. Schulz Sonoma County Airport in Santa Rosa, California beginning April 7, 2026; and
Ted Stevens Anchorage International Airport in Anchorage, Alaska beginning in the first half of 2026.

On July 31, 2025, the Company announced the resignation of Rakesh Gangwal from his position as independent Chair of the Board of Directors of the Company (the "Board") due to additional time commitments unrelated to the Company. Mr. Gangwal remains on the Board and serves as Chair of the newly formed Fleet Oversight Committee, designed to assist in the oversight of the Company's aircraft fleet acquisition strategy. Additionally, the independent members of the Board appointed Doug Brooks as independent Chair of the Board effective August 1, 2025.

On September 3, 2025, the Company and Transport Workers of America Union Local 557 ("TWU 557"), representing the Company's approximately 216 Flight Instructors, reached a tentative agreement on a three year extension of their collective bargaining agreement from 2027 to 2030. The vote to ratify the tentative agreement with the Company failed, and the Company is continuing negotiations with TWU 557.

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.

The Company now expects full year 2025 capacity to be up roughly 1.5 percent, year-over-year, including the capacity increase associated with shifting extra legroom seating retrofits of -700 aircraft to January 2026, which delays the removal of six seats from each of those aircraft. This shift is expected to maximize revenue potential during the holiday travel period and still meet the Company's operate date milestone of January 27, 2026 for assigned and extra legroom seating, as the Company's Technical Operations Team has streamlined the timeline to complete this work.

The Company updated its fleet planning assumptions to 53 -8 aircraft deliveries in 2025, from its prior estimate of 47, as Boeing continues to ramp up production. The Company continues to plan for 55 aircraft retirements in 2025, which includes the sale of one -800 aircraft in third quarter 2025 and the expected sale of four -800 aircraft to occur in fourth quarter 2025.

The Company ended third quarter 2025 with 802 Boeing 737 aircraft, including 281 -8 aircraft. During third quarter 2025, the Company retired 16 aircraft (15 -700 aircraft and the sale of one -800 aircraft) and took delivery of eight -8 aircraft. As of October 23, 2025, during 2025 the Company has exercised a total of 22 and 2 -7 options for delivery in 2026 and 2027, respectively. The Company's order book with Boeing as of October 23, 2025, consists of a total of 516 MAX firm orders (272 -7 aircraft and 244 -8 aircraft), less 36 -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 156 MAX options (-7s or -8s) for the years 2027 through 2031.

Material Changes in Results of Operations

Comparison of the three months ended September 30, 2025 and 2024


	Three months ended September 30,				Increase (Decrease)		Percent change
(in millions)	2025		2024
Passenger	$	6,313	$	6,250	$	63	1.0	%
Freight	42		43		(1)		(2.3)
Other	594		577		17		2.9
Total operating revenues	$	6,949	$	6,870	$	79	1.1	%

Salaries, wages, and benefits	$	3,219	$	3,070	$	149	4.9	%
Fuel and oil	1,331		1,417		(86)		(6.1)
Maintenance materials and repairs	299		335		(36)		(10.7)
Landing fees and airport rentals	548		493		55		11.2
Depreciation and amortization	394		438		(44)		(10.0)
Other operating expenses	1,123		1,079		44		4.1
Total operating expenses	$	6,914	$	6,832	$	82	1.2	%

Operating Revenues

Total operating revenues for third quarter 2025 increased by $79 million, or 1.1 percent, year-over-year, to achieve an all-time third quarter Company record of $6.9 billion. Passenger revenues for third quarter 2025 increased by $63 million, or 1.0 percent, year-over-year, driven primarily by the increase in bag fee revenue. Other revenues for third quarter 2025 increased by $17 million, or 2.9 percent, year-over-year. Third quarter 2025 RASM was 15.25 cents, finishing 0.4 percent higher than third quarter 2024. The unit revenue increase was primarily due to a 2.1 percent increase in yield as a result of an increase in bag fee revenues. These were partially offset by a 1.4 point year-over-year decline in Load factor.

Operating Expenses

Operating expenses for third quarter 2025 increased by $82 million, or 1.2 percent, compared with third quarter 2024, and capacity increased 0.8 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 third quarter of 2025 and 2024, followed by explanations of these changes on both a dollar and unit basis.


	Three months ended September 30,				Per ASM change		Percent change
(in cents, except for percentages)	2025		2024
Salaries, wages, and benefits	7.08	¢	6.78	¢	0.30	¢	4.4	%

Fuel and oil	2.92		3.14		(0.22)		(7.0)
Maintenance materials and repairs	0.66		0.74		(0.08)		(10.8)
Landing fees and airport rentals	1.20		1.09		0.11		10.1
Depreciation and amortization	0.86		0.97		(0.11)		(11.3)
Other operating expenses	2.45		2.39		0.06		2.5
Total	15.17	¢	15.11	¢	0.06	¢	0.4	%

Operating expenses per ASM for third quarter 2025 increased by 0.4 percent compared with third quarter 2024, primarily due to an increase in Salaries, wages, and benefits expense, which exceeded the year-over-year increase in capacity, partially offset by a decrease in fuel price per gallon. Operating expenses per ASM for third quarter 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 2.5 percent, compared with third 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 third quarter 2025 increased by $149 million, or 4.9 percent, compared with third quarter 2024. On a per ASM basis, third quarter 2025 Salaries, wages, and benefits expense increased 4.4 percent, compared with third 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 third quarter 2025 decreased by $86 million, or 6.1 percent, compared with third quarter 2024. On a per ASM basis, third quarter 2025 Fuel and oil expense decreased 7.0 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 September 30,
	2025			2024
Economic fuel costs per gallon	$	2.40		$	2.55
Fuel hedging premium expense (in millions)	$	36	(a)	$	39
Fuel hedging cash settlement gain (in millions)	$	—		$	11
Fuel hedging premium expense per gallon	$	0.07	(a)	$	0.07
Fuel hedging cash settlement gain per gallon	$	—		$	0.02

(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 third quarter 2025 available seat miles per gallon ("fuel efficiency") increased 2.4 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 and does not intend to add additional fuel derivatives to its portfolio. As of September 30, 2025, the Company did not have any outstanding fuel derivative contracts to hedge its future fuel consumption. See Note 3 to the unaudited Condensed Consolidated Financial Statements for further information. 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 in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2025 for additional risk factors.

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 September 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 September 30, 2025
Remainder of 2025	$	(36)
2026	(115)
2027	(22)

Total	$	(173)

Maintenance materials and repairs expense for third quarter 2025 decreased by $36 million, or 10.7 percent, compared with third quarter 2024. On a per ASM basis, Maintenance materials and repairs expense decreased 10.8 percent compared with third quarter 2024. On a dollar and per ASM basis, the decrease was due to fewer routine heavy checks for airframes compared to the same period in 2024 as a result of timing for required checks.

Landing fees and airport rentals expense for third quarter 2025 increased by $55 million, or 11.2 percent, compared with third quarter 2024. On a per ASM basis, Landing fees and airport rentals expense increased 10.1 percent, compared with third quarter 2024. On a dollar and per ASM basis, approximately 40 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, 30 percent of the increase was primarily due to receiving fewer favorable settlements and credits from various airports, and 25 percent due to higher landing fees throughout the network driven by higher rates.

Depreciation and amortization expense for third quarter 2025 decreased by $44 million, or 10.0 percent, compared with third quarter 2024. On a per ASM basis, Depreciation and amortization expense decreased 11.3 percent compared with third 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 39 -8 aircraft and new assets for technology being placed into service since third quarter 2024.

Other operating expenses for third quarter 2025 increased by $44 million, or 4.1 percent, compared with third quarter 2024. Included within this line item was aircraft rentals expense in the amounts of $76 million and $52 million for the three-month periods ended September 30, 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 2.5 percent, compared with third quarter 2024. On a dollar basis, the increase was primarily due to (i) a $24 million increase in aircraft rentals expense associated with recent fleet transactions, (ii) a $23 million increase driven by higher travel expenses due to inflation in lodging rates and utilization of rooms as a result of redeye flying in 2025, and (iii) a $16 million increase in third party software maintenance agreement expense driven by expanded cloud-based services. These increases were partially offset by a $22 million decrease in external consulting services related to non-recurring Company-wide initiatives.

Non-Operating Expenses (Income)

Interest expense for third quarter 2025 decreased by $28 million, or 44.4 percent, compared with third quarter 2024, primarily due to significant debt repayments since third quarter 2024. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Interest income for third quarter 2025 decreased by $87 million, or 71.9 percent, compared with third 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 September 30, 2025 and 2024:


	Three months ended September 30,
(in millions)	2025		2024
Mark-to-market impact from fuel contracts settling in current and future periods	$	—	$	29
Premium cost of fuel contracts not designated as hedges	—		5


Mark-to-market impact on deferred compensation plan investments	(23)		(17)
Other	2		(1)


	$	(21)	$	16

Income Taxes

The Company's effective tax rate was 21.0 percent in third quarter 2025, compared with 24.0 percent in third quarter 2024. The year-over-year decrease in the tax rate was primarily due to a third quarter 2024 deferred tax liability adjustment combined with a decrease in third quarter 2025 non-deductible expenses.

On July 4, 2025, the One Big Beautiful Bill Act, was signed into law. The legislation did not have a material impact on the Company's income tax expense for the quarter ending September 30, 2025, and the Company does not expect it to materially change its effective income tax rate for 2025.

Comparison of the nine months ended September 30, 2025 and 2024


	Nine months ended September 30,				Increase (Decrease)		Percent change
(in millions)	2025		2024
Passenger	$	18,751	$	18,673	$	78	0.4	%
Freight	127		131		(4)		(3.1)
Other	1,743		1,749		(6)		(0.3)
Total operating revenues	$	20,621	$	20,553	$	68	0.3	%

Salaries, wages, and benefits	$	9,583	$	9,010	$	573	6.4	%
Fuel and oil	3,907		4,548		(641)		(14.1)
Maintenance materials and repairs	921		1,046		(125)		(12.0)
Landing fees and airport rentals	1,638		1,468		170		11.6
Depreciation and amortization	1,189		1,250		(61)		(4.9)
Other operating expenses	3,346		3,188		158		5.0
Total operating expenses	$	20,584	$	20,510	$	74	0.4	%

Operating Revenues

Passenger revenues for the nine months ended September 30, 2025, increased by $78 million, or 0.4 percent, compared with the first nine months of 2024, driven primarily by an increase in bag fee revenue. On a unit basis, Passenger revenues remained relatively flat, year-over-year. The dollar increase was primarily due to an increase in bag fee revenues driven by the Company's policy change, coupled with an increase in the portion of the Company's co-brand credit card benefits that are now classified within Passenger Revenues, as a result of the amended and restated co-brand agreement in 2025. This was partially offset by a 5.5 percent decrease in Revenue Passengers carried coupled with a decrease in loyalty revenue due to fewer loyalty program points redeemed.

Operating Expenses

Operating expenses for the nine months ended September 30, 2025, increased by $74 million, or 0.4 percent, compared with the first nine months of 2024, and capacity increased 0.2 percent over the same prior year period. The vast majority of the dollar increase was due to higher Salaries, wages, and benefits expense and higher Landing fees and airport rentals expense, partially offset by a 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 first nine months of 2025 and 2024, followed by explanations of these changes on a dollar basis.


	Nine months ended September 30,				Per ASM		Percent
(in cents, except for percentages)	2025		2024		change		change
Salaries, wages, and benefits	7.16	¢	6.74	¢	0.42	¢	6.2	%

Fuel and oil	2.91		3.40		(0.49)		(14.4)
Maintenance materials and repairs	0.69		0.78		(0.09)		(11.5)
Landing fees and airport rentals	1.22		1.10		0.12		10.9
Depreciation and amortization	0.89		0.93		(0.04)		(4.3)

Other operating expenses	2.49		2.39		0.10		4.2
Total	15.36	¢	15.34	¢	0.02	¢	0.1	%

Operating expenses per ASM for the first nine months of 2025 increased 0.1 percent, compared with the first nine months of 2024, primarily due to an increase in the Company's Salaries, wages, and benefits expense along with an increase in Landing fees and airport rentals expense, offset by a decrease in Fuel and oil expense. Operating expenses per ASM for the first nine months of 2025, excluding Fuel and oil expense, profit sharing, and special items (a non-GAAP financial measure), increased 4.0 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 nine months of 2025 increased by $573 million, or 6.4 percent, compared with the first nine months of 2024. On a per ASM basis, Salaries, wages, and benefits expense for the first nine months of 2025 increased 6.2 percent, compared with the first nine months of 2024. On a dollar and per ASM basis, approximately 70 percent of the increase was due to net step/pay rate increases and related benefits for certain workgroups, and 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 nine months of 2025 decreased by $641 million, or 14.1 percent, compared with the first nine months of 2024. On a per ASM basis, Fuel and oil expense for the first nine months of 2025 decreased 14.4 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:


	Nine months ended September 30,
	2025			2024
Economic fuel costs per gallon	$	2.40		$	2.74
Fuel hedging premium expense (in millions)	$	110	(a)	$	119
Fuel hedging cash settlement gain (in millions)	$	—		$	49
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 nine months of 2025 decreased by $125 million, or 12.0 percent, compared with the first nine months of 2024. On a per ASM basis, Maintenance materials and repairs expense decreased 11.5 percent, compared with the first nine months of 2024. On both a dollar and per ASM basis, the decrease was primarily due to (i) a $73 million decrease driven by fewer airframes in routine heavy check compared to the same period in 2024, (ii) a $35 million decrease in engine shop visit expenses and various other engine expenses associated with the Company's -800 fleet, and (iii) a $25 million reduction in routine bulk purchases of materials for the Company's seat refurbishment efforts.

Landing fees and airport rentals expense for the first nine months of 2025 increased by $170 million, or 11.6 percent, compared with the first nine months of 2024. On a per ASM basis, Landing fees and airport rentals expense increased 10.9 percent, compared with the first nine months of 2024. On a dollar and per ASM basis, approximately 50 percent of the increase was due to an increase in airport rental expense throughout the network driven by higher rates charged by airports for leased space, 25 percent of the increase was due to higher landing fees throughout the network driven by higher rates, and 25 percent was due to receiving fewer favorable settlements and credits from various airports.

Depreciation and amortization expense for the first nine months of 2025 decreased by $61 million, or 4.9 percent, compared with the first nine months of 2024. On a per ASM basis, Depreciation and amortization expense decreased 4.3 percent, compared with the first nine months of 2024. These decreases were primarily due to accelerating depreciation of fewer -700 aircraft planned for early retirement in 2025 compared to 2024. This decrease was partially offset by technology and ground property assets being placed into service since third quarter 2024 and the acquisition of 39 -8 aircraft since third quarter 2024.

Other operating expenses for the first nine months of 2025 increased by $158 million, or 5.0 percent, compared with the first nine months of 2024. Included within this line item was aircraft rentals expense in the amount of $243 million and $153 million for the nine months ended September 30, 2025 and 2024, respectively. On a per ASM basis, Other operating expenses increased 4.2 percent, compared with the first nine months of 2024. On both a dollar and a per ASM basis, the increases were primarily due to (i) a $90 million increase in aircraft rental expense associated with recent fleet transactions, (ii) a $57 million increase driven by higher maintenance agreement expense driven by expanded cloud-based service, and (iii) a $47 million increase driven by higher travel expenses due to inflation in lodging rates and utilization of rooms as a result of redeye flying in 2025. These increases were partially offset by a $62 million decrease in advertising and promotional campaigns.

Non-Operating Expenses (Income)

Interest expense for the first nine months of 2025 decreased by $71 million, or 37.2 percent, compared with the first nine months of 2024, primarily due to significant debt repayments since third quarter 2024. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information.

Capitalized interest for the first nine months of 2025 increased by $14 million, or 58.3 percent, compared with the first nine months of 2024, primarily due to an increase in various technology projects, facilities projects, and aircraft under construction.

Interest income for the first nine months of 2025 decreased by $220 million, or 56.1 percent, compared with the first nine 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 nine months ended September 30, 2025 and 2024:


	Nine months ended September 30,
(in millions)	2025		2024
Mark-to-market impact from fuel contracts settling in current and future periods	$	—	$	31
Premium cost of fuel contracts not designated as hedges	—		5


Mark-to-market impact on deferred compensation plan investment	(34)		(40)


Other	6		3
	$	(28)	$	(1)

Income Taxes

The Company's effective tax rate was approximately 24.6 percent for the first nine months of 2025, compared with 24.3 percent for the first nine months of 2024. The year-over-year increase in the tax rate was primarily due to the impact of year-to-date lower pre-tax book income on discrete tax items.

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 September 30,				Percent	Nine months ended September 30,				Percent
	2025		2024		Change	2025		2024		Change




Fuel and oil expense, unhedged	$	1,295	$	1,409		$	3,797	$	4,500
Add: Premium cost of fuel contracts designated as hedges (a)	36		34			110		114
Deduct: Fuel hedge gains included in Fuel and oil expense, net	—		(26)			—		(66)
Fuel and oil expense, as reported	$	1,331	$	1,417	(6.1)	$	3,907	$	4,548	(14.1)
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		14			—		14
Add: Premium cost of fuel contracts not designated as hedges	—		5			—		5
Fuel and oil expense, excluding special items (economic)	$	1,331	$	1,436	(7.3)	$	3,907	$	4,567	(14.5)

Total operating expenses, as reported	$	6,914	$	6,832		$	20,584	$	20,510

Deduct: Labor contract adjustment	—		—			—		(9)
Add: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		14			—		14

Add: Premium cost of fuel contracts not designated as hedges	—		5			—		5

Deduct: Impairment of long-lived assets	—		—			(8)		—
Deduct: Litigation accruals	—		—			(19)		(7)
Deduct: Transformation costs	(7)		—			(33)		—
Deduct: Severance and related costs (c)	—		—			(62)		—
Deduct: Professional advisory fees	—		(13)			—		(20)
Total operating expenses, excluding special items	$	6,907	$	6,838	1.0	$	20,462	$	20,493	(0.2)
Deduct: Fuel and oil expense, excluding special items (economic)	(1,331)		(1,436)			(3,907)		(4,567)
Operating expenses, excluding Fuel and oil expense and special items	$	5,576	$	5,402	3.2	$	16,555	$	15,926	3.9
Deduct: Profit-sharing expense	(11)		(18)			(26)		(49)
Operating expenses, excluding Fuel and oil expense, special items, and profit sharing	$	5,565	$	5,384	3.4	$	16,529	$	15,877	4.1

Operating income, as reported	$	35	$	38		$	37	$	43

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(14)			—		(14)

Deduct: Premium cost of fuel contracts not designated as hedges	—		(5)			—		(5)

Add: Impairment of long-lived assets	—		—			8		—
Add: Litigation accruals	—		—			19		7
Add: Transformation costs	7		—			33		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		13			—		20
Operating income, excluding special items	$	42	$	32	31.3	$	159	$	60	165.0


	Three months ended September 30,				Percent	Nine months ended September 30,				Percent
	2025		2024		Change	2025		2024		Change

Other (gains) losses, net, as reported	$	(21)	$	16		$	(28)	$	(1)
Deduct: Mark-to-market impact from fuel contracts settling in future periods (b)	—		(29)			—		(31)
Deduct: Premium cost of fuel contracts not designated as hedges	—		(5)			—		(5)


Other gains, net, excluding special items	$	(21)	$	(18)	16.7	$	(28)	$	(37)	(24.3)

Income before income taxes, as reported	$	68	$	89		$	155	$	269

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(14)			—		(14)


Add: Mark-to-market impact from fuel contracts settling in future periods (b)	—		29			—		31

Add: Impairment of long-lived assets	—		—			8		—
Add: Litigation accruals	—		—			19		7
Add: Transformation costs	7		—			33		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		13			—		20


Income before income taxes, excluding special items	$	75	$	117	(35.9)	$	277	$	322	(14.0)

Provision for income taxes, as reported	$	14	$	22		$	37	$	65
Add: Net income tax impact of fuel and special items (d)	3		6			29		16

Provision for income taxes, net, excluding special items	$	17	$	28	(39.3)	$	66	$	81	(18.5)



Net income, as reported	$	54	$	67		$	118	$	204

Add: Labor contract adjustment	—		—			—		9
Deduct: Fuel hedge contracts settling in the current period, but for which losses were reclassified from AOCI (b)	—		(14)			—		(14)


Add: Mark-to-market impact from fuel contracts settling in future periods (b)	—		29			—		31

Add: Litigation accruals	—		—			19		7
Add: Transformation costs	7		—			33		—
Add: Severance and related costs (c)	—		—			62		—
Add: Professional advisory fees	—		13			—		20

Add: Impairment of long-lived assets	—		—			8		—
Deduct: Net income tax impact of special items (d)	(3)		(6)			(29)		(16)

Net income, excluding special items	$	58	$	89	(34.8)	$	211	$	241	(12.4)


	Three months ended September 30,						Percent	Nine months ended September 30,						Percent
	2025			2024			Change	2025			2024			Change
Net income per share, diluted, as reported	$	0.10		$	0.11			$	0.21		$	0.34
Add: Impact of special items	0.02			0.01				0.22			0.06
Add: Net impact of net income above from fuel contracts divided by dilutive shares	—			0.02				—			0.03
Deduct: Net income tax impact of special items (d)	(0.01)			—				(0.05)			(0.03)

Add: GAAP to Non-GAAP diluted weighted average shares difference (e)	—			0.01				—			—
Net income per share, diluted, excluding special items	$	0.11		$	0.15		(26.7)	$	0.38		$	0.40		(5.0)

Operating expenses per ASM (cents)	15.17		¢	15.11		¢		15.36		¢	15.34		¢
Deduct: Impact of special items	(0.02)			(0.03)				(0.09)			(0.03)
Deduct: Fuel and oil expense divided by ASMs	(2.92)			(3.14)				(2.91)			(3.40)
Deduct: Profit-sharing expense divided by ASMs	(0.02)			(0.03)				(0.02)			(0.04)
Operating expenses per ASM, excluding Fuel and oil expense, special items, and profit sharing (cents)	12.21		¢	11.91		¢	2.5	12.34		¢	11.87		¢	4.0

(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.

(e) Adjustment related to GAAP and Non-GAAP diluted weighted average shares difference due to the Convertible Notes

being anti-dilutive for GAAP but dilutive for Non-GAAP for the three months ended September 30, 2024.

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


	Twelve months ended				Twelve months ended
	September 30, 2025				September 30, 2024
Operating income (loss), as reported	$	315			$	(361)
Breakage revenue adjustment	116				—
Severance and related costs	62				—
Voluntary Employee programs	5				—
TWU 555 contract adjustment	—				9

SWAPA contract adjustment	—				354
Net impact from fuel contracts	(25)				(14)
Professional advisory fees	18				20
Transformation costs	37				—
DOT settlement	—				107
Litigation accruals	19				7
Impairments	8				—
Operating income, non-GAAP	$	555			$	122
Net adjustment for aircraft leases (a)	201				128
Adjusted operating income, non-GAAP (A)	$	756			$	250

Non-GAAP tax rate (B)	22.4		%	(d)	24.3		%	(e)

Net operating profit after-tax, NOPAT (A (1-B) = C)*	$	587			$	189

Debt, including finance leases (b)	$	5,921			$	8,005


Equity (b)	9,181				10,528
Net present value of aircraft operating leases (b)	977				910
Average invested capital	$	16,079			$	19,443
Equity adjustment for hedge accounting (c)	32				(39)
Adjusted average invested capital (D)	$	16,111			$	19,404

Non-GAAP ROIC, pre-tax (A/D)	4.7		%		1.3		%

Non-GAAP ROIC, after-tax (C/D)	3.6		%		1.0		%

(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 September 30, 2025, was 21.8 percent, and the Non-GAAP twelve month rolling tax rate was 22.4 percent. See Note Regarding Use of Non-GAAP Financial Measures for additional information.

(e) The GAAP twelve month rolling tax rate as of September 30, 2024, was (186.0) percent, and the Non-GAAP twelve month rolling tax rate was 24.3 percent. The GAAP twelve month rolling tax rate as of September 30, 2024 is negative primarily due to the Company's pre-tax book loss for the twelve months ended September 30, 2024. 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, 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 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, 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); EBIT, non-GAAP; 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 $287 million for the three months ended September 30, 2025, compared with $113 million provided by operating activities in the same prior year period. Net cash provided by operating activities was $1.5 billion for the nine months ended September 30, 2025 compared with $14 million used in operating activities 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 nine months ended September 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 $117 million decrease in Air traffic liability driven by a decrease in flight points earned and more flight credits redeemed by Customers. The operating cash flows for the nine months ended September 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 a $98 million decrease related to the purchase of fuel derivative instruments, which is included within Other, net operating cash flows in the accompanying unaudited Condensed Consolidated Statement of Cash Flows. These decreases were partially offset by a $421 million increase in Air traffic liability driven by higher ticket sales. 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 $428 million during the three months ended September 30, 2025, compared with $458 million provided by investing activities in the same prior year period. Net Cash used in investing activities totaled $687 million during the nine months ended September 30, 2025, compared with $334 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 nine months ended September 30, 2025, Capital expenditures were $1.8 billion, compared with $1.6 billion in the same prior year period. Capital expenditures increased, year-over-year, largely due to an increase in average delivery payment balances for scheduled future aircraft deliveries during the nine months ended September 30, 2025, compared to the same prior year period.

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 -800 aircraft sales this year.

Net cash used in financing activities was $432 million during the three months ended September 30, 2025, compared with $210 million used in financing activities for the same prior year period. Net cash used in financing activities was $5.5 billion during the nine months ended September 30, 2025, compared with $437 million used in financing activities for the same prior year period. During the nine months ended September 30, 2025, the Company paid $399 million in cash dividends to Shareholders related to the first, second, and third quarter 2025 and fourth quarter 2024 declarations. Additionally, the Company expended $2.5 billion to repurchase the Company's outstanding common stock through authorized share repurchases during the nine months ended September 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 nine months ended September 30, 2024, the Company paid $431 million in cash dividends to Shareholders and the Company repaid $27 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. The Company received a total of 46,623,010 million shares under the second quarter 2025 accelerated share repurchase program, which was completed in August 2025. On July 23, 2025, the Board approved a $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. The Company repurchased $250 million of its outstanding common stock through an accelerated share repurchase program entered into in third quarter 2025 under its current $2.0 billion authorization, which also impacted net cash used in financing activities. The Company received a total of 7,777,764 million shares under the third quarter 2025 accelerated share repurchase program, which was completed in October 2025. These purchases were recorded as treasury share repurchases for purposes of calculating earnings per share. 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.

On July 22, 2025, the Company exercised the accordion feature under its amended and restated revolving credit facility (the "Amended Credit Agreement"), increasing the size of the facility to $1.5 billion. As of September 30, 2025, the Company had access to $1.5 billion under the Amended Credit Agreement, which expires in August 2028. See Note 10 to the unaudited Condensed Consolidated Financial Statements for further information. There were no amounts outstanding under the Amended Credit Agreement as of October 23, 2025.

As of September 30, 2025, the Company carried a working capital deficit of approximately $5.6 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 $3.0 billion as of September 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 $16.8 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 October 23, 2025, for the years 2025 through 2031, the Company has firm orders with Boeing for 516 aircraft (less 36 -8 aircraft received to date in 2025), and options for an additional 156 aircraft. The contractual order book as of October 23, 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 September 30, 2025:


		Average Age (Yrs)	Number of Aircraft	Number Owned	Number Leased
Type	Seats
737-700	143	19	319	300	19
737-800	175	10	202	153	49
737-8	175	3	281	252	29
Totals		11	802	705	97

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 financial targets for 2025 and 2026 and factors that could impact the Company’s financial results;
the Company’s financial guidance for fourth 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 expectations with respect to fleet transactions;
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 checked bag fees, creating efficiencies, Getaways by Southwest, the Company’s fare structure, the Company’s delivery of WiFi, airline partnerships, and the Company’s co-brand credit card agreement with Chase;
the Company’s expectations with respect to cost reductions;
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 improving financial performance, driving Shareholder value, capital allocation, capital deployment, infrastructure investments, leverage, and Shareholder returns;
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 network plans and expectations;
the Company’s labor plans and expectations including with respect to the Company’s reduction in force;
the Company’s financial expectations, targets and goals, including with respect to fuel prices, income taxes, 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 government shutdowns or 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 impact of governmental regulations and other governmental actions, including with respect to government shutdowns, 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 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 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 September 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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