Track market-moving stories before they get noisy

Key Takeaways Southwest Airlines plans four lounges for late 2027, with at least seven more locations planned. LUV's Chase partnership and planned 2027 premium credit card could lift engagement & ancillary revenue. LUV faces investment and execution risks, plus fuel, labor, regulatory and aircraft-delivery pressures. Southwest Airlines’ (LUV - Free Report) plan to launch its first-ever airport lounge network marks a significant step toward enhancing its premium offerings and customer experience. The initial four lounges at Austin-Bergstrom International Airport, Baltimore/Washington International Thurgood Marshall Airport, Daniel K. Inouye International Airport in Honolulu and Nashville International Airport are expected to welcome guests in late 2027, with at least seven additional locations planned.

The initiative should strengthen Southwest’s Rapid Rewards loyalty program and help the company attract and retain higher-value customers. Its partnership with Chase, along with the planned launch of a premium Southwest Rapid Rewards credit card in 2027, could further boost card adoption, customer engagement and ancillary revenues.

The lounge expansion also supports LUV’s broader strategy to evolve beyond its traditional low-cost carrier model and improve its competitive positioning. By offering premium amenities, locally inspired dining and travel benefits, the company can better compete with airlines that already have established lounge networks.

However, the initiative will require substantial investment and successful execution across multiple locations. Southwest also continues to face risks from economic uncertainty, geopolitical developments, fuel-price volatility, labor matters, regulatory actions and aircraft-delivery constraints, which could weigh on its financial performance and limit the benefits of its customer-experience investments.

LUV's Share Price PerformanceLUV’s shares have gained 24.3% over the past year against the Transportation - Airline industry’s 1.2% decline.

Image Source: Zacks Investment Research

LUV’s Zacks RankLUV currently carries a Zacks Rank #3 (Hold).

Stocks to ConsiderInvestors interested in the Zacks Transportation sector may consider Expeditors International of Washington, Inc. (EXPD - Free Report) and Seanergy Maritime Holdings (SHIP - Free Report) . 

EXPD currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Expeditors has an expected earnings growth rate of 28.6% for 2026.  The company has an encouraging earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 17.15%.

Seanergy Maritime Holdings currently sports a Zacks Rank #1.

SHIP has an expected earnings growth rate of more than 100% for the current year. The company has an encouraging earnings surprise history. Its earnings topped the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 38%.

Southwest Airlines just fell harder than every major carrier and the entire sector fund combined, and the reason traces back to one strategic decision the airline made long before oil prices turned ugly.

Southwest Airlines (NYSE:LUV | LUV Price Prediction) stock has emerged as the sector’s biggest laggard over the past month, and the reason pertains to a single strategic decision made well before crude oil turned higher this summer.

Southwest Airlines shares are down 2% to $38.67 in Monday midday trading, and the stock has fallen 14% over the past month. That trails the main U.S. carriers and a well-known airline sector fund.

The U.S. Global Jets ETF (NYSEARCA:JETS) is down 9% to $28.50 over the past month, so the entire group repriced together. Southwest Airlines stock simply fell the most, and the gap between Southwest Airlines and the fund is what this article has to explain.

Fuel Repricing Hit the Whole Group The peer moves confirm a broad sector event. Delta Air Lines (NYSE:DAL) stock is down 11% over the past month. American Airlines Group (NASDAQ:AAL) stock is down 12% over the past month.

United Airlines Holdings (NASDAQ:UAL) stock is down 11% over the past month. Crude oil strengthened through the month, and U.S. strikes on Iranian targets pushed WTI crude oil above $86 in the current session. Jet fuel is an airline’s largest variable cost, which is why the whole group fell together.

Why Southwest Airlines Fell Hardest Southwest Airlines discontinued its fuel hedging program, leaving it fully exposed to price swings that hedged peers can absorb more gradually. That’s the cleanest available explanation for Southwest Airlines underperforming three larger carriers and the sector fund at the same time.

The guidance reset amplified the pressure. On July 23, Southwest Airlines replaced its prior full-year 2026 adjusted EPS guidance of at least $4 with a range of $3.25 to $4.25, reflecting the forward fuel curve as of July 17 and an estimated year-to-date fuel headwind of $1.33 per share. That lowered the earnings bar just before this month’s decline.

The bull side is genuinely strong. Southwest Airlines’ second-quarter 2026 adjusted EPS reached $0.94, up 120% year over year, with adjusted operating revenue setting a record of $8.7 billion on capacity growth of just 0.2% and adjusted operating margin expanding to 6.7%. CEO Bob Jordan stated on the second-quarter 2026 call, “While fuel prices have remained volatile and elevated, industry recapture has been swift and pricing has remained sticky.” Southwest Airlines’ managed business revenue grew 30% year over year and Southwest Airlines ended the quarter with $5.3 billion of liquidity.

The bear side is equally direct. The operating improvement is real, yet fuel is outrunning it, and with no hedges Southwest Airlines has no buffer if crude oil keeps climbing. Southwest Airlines also guided fourth-quarter capacity up 4% to 4.5% year over year, its largest sequential third-to-fourth-quarter increase, adding seats into a market where costs are rising.

What to Watch Next Investors can watch for the next monthly jet fuel print and any Southwest Airlines commentary on whether industry pricing continues to recapture the fuel move. If crude oil holds above $86, the fuel curve embedded inside the $3.25 to $4.25 EPS range gets meaningfully harder to hit, and the same math applies to Delta Air Lines, American Airlines Group and United Airlines Holdings.

Cautious position sizing should be considered with airline stocks now, including LUV stock. With no hedge program to smooth results, Southwest Airlines carries more single-variable risk than Delta Air Lines or United Airlines Holdings on any given fuel move, so anyone weighing a starter position should size to that volatility rather than to the second-quarter headline. The next scheduled catalyst is Q3 2026 earnings, when management could narrow or refresh the full-year range and either validate the transformation thesis or confirm that fuel has taken over the story.

Contact [email protected] for any questions or corrections.

A month has gone by since the last earnings report for Southwest Airlines (LUV - Free Report) . Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Southwest due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.

Southwest Airlines Q2 Earnings Beat EstimatesSouthwest Airlines reported second-quarter 2026 adjusted earnings of 94 cents per share, up 118.6% year over year and 80.8% above the Zacks Consensus Estimate of 52 cents. Record operating revenues of $8.43 billion rose 16.4% but missed the consensus mark of $8.58 billion by 1.7%.

Results benefited from demand for enhanced products, record managed business revenues and cost discipline despite an $889 million increase in fuel expense. Adjusted unit revenues jumped 20.1%, while adjusted operating margin expanded 3.3 points to 6.7%.

LUV's Passenger Revenues Power Top-Line GrowthPassenger revenues, which accounted for 91.9% of the top line, increased 16.9% year over year to $7.75 billion. The improvement reflected higher fares and strong customer response to Southwest’s expanded commercial offerings.

Freight revenues rose 13.6% to $50 million. Other operating revenues increased 11.2% to $637 million, providing another source of growth beyond ticket sales.

Southwest Airlines Posts Stronger Revenue ProductivityRevenue passenger miles, a measure of traffic, increased 1.2% year over year to 37.35 billion. Capacity, measured in available seat miles, edged up only 0.2% to 47.09 billion, allowing demand growth to outpace supply.

The load factor improved 0.8 percentage points to 79.3%. Average passenger fare climbed 20.9% to $225.61, while passenger revenue per available seat mile advanced 16.7% to 16.45 cents. Revenue passengers carried declined 3.3% to 34.3 million.

LUV Controls Non-Fuel Costs as Fuel Expense SurgesTotal operating expenses increased 16.1% year over year to $8.15 billion. Aircraft fuel and related taxes surged 67% to $2.22 billion, representing the largest cost headwind during the quarter.

Fuel cost per gallon increased 69% to $3.92. Still, cost per available seat mile excluding fuel, special items and profit sharing rose a more moderate 3.4% to 12.45 cents, coming in below the company’s prior guidance.

Adjusted operating income climbed 138.8% to $585 million. Reported operating income increased 26.7% to $285 million despite the sharp rise in fuel costs.

Southwest Airlines' Commercial Initiatives Gain TractionManaged business revenues reached a quarterly record and increased 30% year over year. The performance highlighted stronger demand from corporate customers and broadened the company’s revenue mix.

Rapid Rewards enrollment rose 35%, while the loyalty program reached nearly 100 million members and posted record tier qualifiers. Acquisitions for the Chase co-branded credit card accelerated 28%, with double-digit growth in every month of the quarter.

Southwest also completed service rollouts to five new destinations and added Air Premia as its ninth airline partner. The carrier operated its first aircraft equipped with Starlink connectivity during the quarter.

LUV Generates Higher Operating Cash FlowSouthwest ended June with cash and cash equivalents of $3.79 billion, up from $3.23 billion at the end of 2025. Total liquidity was $5.3 billion, including a $1.5 billion revolving credit facility.

Net cash provided by operating activities rose to $530 million from $401 million a year earlier. Capital expenditures totaled $818 million, while proceeds from property and equipment sales reached $258 million.

The company paid $88 million in dividends during the quarter. It ended the period with $3.79 billion of long-term debt, excluding current maturities, and reported gross leverage of 2.1 times.

Southwest Airlines Issues Q3 and 2026 GuidanceFor third-quarter 2026, Southwest expects adjusted earnings of 50-75 cents per share. Capacity is projected to decline 1% to remain flat, while unit revenues are forecast to increase 17.5-19.5% year over year.

Third-quarter cost per available seat mile excluding fuel, special items and profit sharing is expected to rise 3.5-4%. Fuel cost per gallon is projected between $3.70 and $3.75.

For 2026, management expects adjusted earnings of $3.25-$4.25 per share, replacing its prior expectation of at least $4. Capacity growth is now forecast at roughly 1.5%, down from 2%. Net capital spending is expected near the low end of, or below, the previously announced $3-$3.5 billion range.

How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -12.83% due to these changes.

VGM ScoresCurrently, Southwest has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for value investors.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Southwest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

New Business Priority product and NDC solutions give businesses greater flexibility and choice throughout the journey

, /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) today announces new benefits for Southwest Business with the introduction of Business Priority and New Distribution Capability (NDC) connectivity. Designed for corporate travel programs, these new offerings provide eligible business travelers with day-of-travel assistance and partners with greater flexibility and choice to access Southwest® content through participating third-party booking tools.

"Southwest is focused on elevating the travel experience to meet the expectations of today's and tomorrow's business Customers through initiatives like assigned and Extra Legroom seating, cabin upgrades, including in-seat power, Starlink ultra-fast WiFi,1 larger overhead bins, and international partnerships," said Aileen Furlong, Vice President of Sales. "And Southwest Business is building on that by making it easier for corporate buyers to access these enhancements through expanded distribution options and priority travel from booking to boarding."

Advancing Managed Travel
Beginning in early 2027, Southwest's new Business Priority product will become available as an option for inclusion in corporate travel agreements for qualified Customers. Business Priority will aim to give business travelers of companies who receive its benefits access to preferred reaccommodation, standby, and boarding benefits that provide greater flexibility and confidence on the day of travel.

More Ways to Access Southwest
The airline is introducing NDC capabilities to provide new connectivity options and ensure Customers have access to Southwest's fare products and seating ancillary services in the channels they use every day. As part of this effort, Southwest is evolving its industry-leading, in-house API. This new direct-connect option is expected to be available to partners by the end of 2026.

Additionally, Southwest has selected Amadeus Altéa NDC, the Amadeus solution enabling personalized and enriched offers for Customers and their travelers through the third parties of their choice, including the Amadeus Travel Platform. This option is expected to be available later in 2027.

"As NDC adoption continues to accelerate across corporate travel, we are pleased to deepen our technology collaboration with Southwest and bring its NDC content to a wider audience. For travel management companies and business travel agencies, access to relevant airline content within existing workflows–including booking and servicing capabilities–is essential to supporting modern managed travel programs and delivering the choice, consistency and efficiency corporate customers increasingly expect," said Meg O'Keefe, Senior Vice President, Airlines, Americas at Amadeus.

These NDC enhancements reflect Southwest's commitment to delivering modern technology solutions across all channels, giving Customers and partners reliable access to consistent fare content, preferred seating products, and travel management capabilities.

Together, these new business travel benefits and distribution capabilities underscore Southwest's continued investment in its corporate travel product.

Visit Southwest.com/aboutbusiness to learn more, including how Southwest Business can be your organization's trusted business travel advisor. 

ABOUT SOUTHWEST AIRLINES CO.
Southwest Airlines Co. operates one of the world's most admired and awarded airlines, offering its one-of-a-kind value and Hospitality at 121 airports across 12 countries. Southwest took flight in 1971 to democratize the sky through friendly, reliable, and low-cost air travel and now carries more air travelers flying nonstop within the United States than any other airline.2 By empowering its more than 73,0003  People to deliver unparalleled Hospitality, the maverick airline cherishes a passionate loyalty among more than 134 million Customers carried in 2025. Southwest leverages a unique legacy and mission to serve communities around the world including harnessing the power of its People and Purpose to put communities at the Heart of its success. Learn more by visiting Southwest.com/citizenship.

1 Where available. Available only on select WiFi-enabled designated aircraft.
2 Based on U.S. Dept. of Transportation quarterly Airline Origin & Destination Survey as of Q4 2025
3 Fulltime-equivalent active Employees as of March 31, 2026. 

Cautionary Statement Regarding Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements related to (i) the Company's initiatives, strategic priorities, focus areas, core strengths, goals, and opportunities, including delivering more for business travelers, elevating the travel experience to meet the expectations of today's and tomorrow's business Customers through initiatives, providing greater flexibility, choice, and confidence for travel, and continued investment in the Company's corporate travel product; (ii) the Company's expectations with respect to delivering modern technology solutions across all channels, giving Customers and partners reliable access to consistent fare content, preferred seating products, and travel management capabilities; (iii) the Company's expectations with respect to enhanced benefits and booking options, Business Priority, and New Distribution Capability connectivity options and adoption, including Amadeus Altéa NDC and including the timing of introduction; and (iv) the Company's plans and expectations with respect to evolving the Company's industry-leading, in-house API, ensuring access to the Company's fare products and seating ancillary services, and making it easier to access product offering enhancements through expanded distribution options and priority travel. These forward-looking statements are based on the Company's current estimates, intentions, beliefs, expectations, goals, strategies, and projections for the future and are not guarantees of future performance. Forward-looking statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the impact of geopolitical conflicts, 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), governmental actions, consumer perception, consumer uncertainties with respect to trade policies or government shutdowns (including the imposition of tariffs), economic conditions, banking conditions, fears or actual acts of terrorism or war, sociodemographic 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; (ii) the Company's ability to timely and effectively implement, transition, operate, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (iii) consumer behavior and response with respect to the Company's commercial products and policies; (iv) the impact of fuel price changes, fuel price volatility, and fuel availability on the Company's business plans and results of operations; (v) 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 business plans, results, and operations; (vi) the Company's dependence on The Boeing Company ("Boeing") and Boeing suppliers with respect to the Company's aircraft deliveries, Boeing MAX 7 aircraft certifications, fleet and capacity plans, operations, maintenance, strategies, and goals; (vii) the Company's dependence on the Federal Aviation Administration with respect to, among other things, the certification of the Boeing MAX 7 aircraft; (viii) the Company's dependence on other third parties, in particular with respect to its technology plans, its plans and expectations related to revenue management, online travel agencies, operational reliability, fuel supply, maintenance, Global Distribution Systems, environmental sustainability, and the impact on the Company's operations and results of operations of any third-party delays or nonperformance; (ix) the Company's ability to timely and effectively prioritize its initiatives and focus areas and related expenditures; (x) the impact of labor matters on the Company's business decisions, plans, strategies, and results; (xi) the Company's ability to obtain and maintain adequate infrastructure and equipment to support its operations and initiatives; (xii) the Company's dependence on its workforce, including its ability to employ and retain sufficient numbers of qualified Employees with appropriate skills and expertise to effectively and efficiently maintain its operations and execute the Company's plans, strategies, and initiatives; (xiii) the cost and effects of the actions of activist shareholders; and (xiv) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

SOURCE Southwest Airlines Co.

Posted by Defense World Staff on Jul 25th, 2026

Arrowstreet Capital Limited Partnership reduced its holdings in shares of Southwest Airlines Co. (NYSE:LUV – Free Report) by 37.6% during the 1st quarter, according to the company in its most recent 13F filing with the SEC. The institutional investor owned 4,858,283 shares of the airline’s stock after selling 2,932,884 shares during the period. Arrowstreet Capital Limited Partnership owned about 0.99% of Southwest Airlines worth $182,526,000 at the end of the most recent reporting period.

A number of other hedge funds have also modified their holdings of LUV. SHP Wealth Management acquired a new stake in shares of Southwest Airlines during the fourth quarter worth approximately $25,000. GHP Investment Advisors Inc. acquired a new position in Southwest Airlines in the fourth quarter valued at approximately $26,000. Entrust Financial LLC acquired a new position in Southwest Airlines in the fourth quarter valued at approximately $26,000. Los Angeles Capital Management LLC bought a new position in Southwest Airlines in the fourth quarter valued at approximately $26,000. Finally, Optima Capital LLC bought a new position in Southwest Airlines in the fourth quarter valued at approximately $27,000. 80.82% of the stock is owned by institutional investors and hedge funds.

Analyst Upgrades and Downgrades Several analysts have commented on the stock. JPMorgan Chase & Co. dropped their target price on shares of Southwest Airlines from $60.00 to $59.00 and set an “overweight” rating for the company in a research report on Friday. Jefferies Financial Group lifted their price objective on Southwest Airlines from $44.00 to $50.00 and gave the stock a “hold” rating in a research note on Wednesday, July 1st. Wells Fargo & Company upped their price objective on Southwest Airlines from $44.00 to $50.00 and gave the company an “equal weight” rating in a report on Tuesday, June 30th. Evercore increased their target price on Southwest Airlines from $44.00 to $52.00 in a research note on Thursday, June 25th. Finally, TD Cowen raised their target price on Southwest Airlines from $47.00 to $53.00 and gave the stock a “buy” rating in a report on Thursday, July 2nd. Nine research analysts have rated the stock with a Buy rating, nine have given a Hold rating and four have assigned a Sell rating to the company. According to data from MarketBeat.com, Southwest Airlines has an average rating of “Hold” and a consensus target price of $49.55.

Read Our Latest Stock Report on LUV

Key Headlines Impacting Southwest Airlines Here are the key news stories impacting Southwest Airlines this week:

Positive Sentiment: BMO Capital Markets raised its price target on Southwest Airlines to $60 from $58.50 and reiterated an outperform rating, signaling confidence in further upside after the company’s earnings beat. Benzinga report Positive Sentiment: Barclays kept a buy rating on Southwest Airlines, reinforcing the bullish view from analysts following the airline’s latest quarter. Barclays article Positive Sentiment: Southwest reported second-quarter adjusted EPS of $0.94, well above estimates, and record quarterly revenue, showing improved earnings power and solid demand. Yahoo Finance report Positive Sentiment: Several earnings recaps highlighted stronger fares, commercial gains, and margin expansion, suggesting the company’s transformation efforts are starting to show through in results. Zacks report Southwest Airlines Stock Performance Shares of LUV stock opened at $45.19 on Friday. Southwest Airlines Co. has a 12 month low of $28.98 and a 12 month high of $55.11. The company’s fifty day simple moving average is $46.01 and its 200-day simple moving average is $44.29. The firm has a market cap of $22.09 billion, a PE ratio of 27.72, a P/E/G ratio of 0.37 and a beta of 1.12. The company has a quick ratio of 0.41, a current ratio of 0.49 and a debt-to-equity ratio of 0.54.

Southwest Airlines (NYSE:LUV – Get Free Report) last released its earnings results on Wednesday, July 22nd. The airline reported $0.94 earnings per share for the quarter, beating analysts’ consensus estimates of $0.52 by $0.42. Southwest Airlines had a net margin of 2.78% and a return on equity of 14.15%. The business had revenue of $8.72 billion during the quarter, compared to the consensus estimate of $8.58 billion. During the same quarter last year, the firm earned $0.43 earnings per share. The firm’s revenue for the quarter was up 16.4% compared to the same quarter last year. Southwest Airlines has set its FY 2026 guidance at 3.250-4.250 EPS and its Q3 2026 guidance at 0.500-0.750 EPS. Equities research analysts expect that Southwest Airlines Co. will post 3.67 EPS for the current fiscal year.

Southwest Airlines Dividend Announcement The business also recently disclosed a quarterly dividend, which was paid on Thursday, July 2nd. Stockholders of record on Thursday, June 11th were issued a $0.18 dividend. The ex-dividend date was Thursday, June 11th. This represents a $0.72 annualized dividend and a dividend yield of 1.6%. Southwest Airlines’s dividend payout ratio (DPR) is presently 44.17%.

Southwest Airlines Company Profile (Free Report)

Southwest Airlines Co is a U.S.-based low-cost carrier that operates a point-to-point domestic and near-international airline network. Headquartered in Dallas, Texas, the company primarily flies Boeing 737 aircraft and offers no-frills, single-class service designed to keep fares competitive. Southwest’s operating model emphasizes high aircraft utilization, quick turnaround times and an open seating policy, allowing customers to board and select seats on a first-come, first-served basis.

Founded in 1967 by Herb Kelleher and Rollin King as Air Southwest Company, Southwest began commercial service in 1971, initially connecting Dallas, Houston and San Antonio.

See Also Five stocks we like better than Southwest Airlines AMD and Cerbras Create A New Blueprint For Hardware Intel Earnings Reveal Whether the Chip Selloff Created a Buy CrowdStrike’s Cerebras Deal Puts Its AI Security Strategy to the Test Plugging In: How Kinder Morgan Powers Up Profits

Receive News & Ratings for Southwest Airlines Daily - Enter your email address below to receive a concise daily summary of the latest news and analysts' ratings for Southwest Airlines and related companies with MarketBeat.com's FREE daily email newsletter.

« PREVIOUS HEADLINEArrowstreet Capital Limited Partnership Increases Stock Holdings in HubSpot, Inc. $HUBS

Strong year-over-year margin expansion despite fuel expense up nearly $900 million

All-time record operating and managed business revenues

Record Rapid Rewards membership and tier qualifiers

Expect full-year adjusted earnings per share1,2of $3.25 to $4.25

, /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) today reported second quarter 2026 financial results, marking the first full quarter with all transformational initiatives in place. Results reflected record revenue performance, significant earnings growth and margin expansion, broad demand strength, continued cost discipline, and strong Customer engagement with the Company's enhanced product offering.

"Second quarter results demonstrate the earnings power of our business. We delivered results well ahead of consensus expectations despite nearly $900 million of additional fuel expense year-over-year.

"Our business model now benefits from a broader and more diversified set of revenue and commercial levers than at any point in our history.  Momentum across managed business, Rapid Rewards, and our Chase co-branded credit card, together with continued robust demand for our enhanced product offering, reinforce the strong progress we are seeing across Southwest.

"Our focus now turns to unlocking the Company's full earnings potential by continuing to optimize our network, product offering, and pricing, while continuing to strengthen financial performance. Even in a volatile fuel environment, we delivered significant earnings growth and margin expansion in the second quarter, and are positioned to do so for the remainder of 2026," said Bob Jordan, Southwest Airlines President & Chief Executive Officer.

Highlights:

Net income of $233 million, or $0.47 diluted EPS, adjusted net income¹ of $465 million, or $0.94 adjusted EPS¹ Record operating revenues of $8.4 billion, up 16.4%, the highest in Company history; adjusted operating revenues¹ of $8.7 billion, up 20.3% Unit revenues increased 16.2%; adjusted unit revenues¹ increased 20.1%, exceeding prior guidance Operating margin of 3.4%, up 0.3 points year-over-year; adjusted operating margin¹ of 6.7%, up 3.3 points year-over-year despite an $889 million increase in nominal fuel costs Returned $88 million to Shareholders through dividends Managed business revenues reached an all-time quarterly record, increasing 30% year-over-year Strong Rapid Rewards program engagement, with new enrollments increasing 35% year-over-year and record tier qualifiers, driving the program to its largest size ever at nearly 100 million Members Chase co-branded credit card acquisitions accelerated 28% year-over-year, with double-digit growth in each month of the quarter Named #1 in Customer Satisfaction among Economy Passengers in the JD Power 2026 North America Airline Satisfaction Study for the fifth consecutive year Completed the rollout of service to all five previously announced new destinations with the addition of St. Maarten, Santa Rosa, California, and Anchorage, Alaska Welcomed Air Premia as Southwest's ninth airline partner Operated the Company's first Starlink-equipped aircraft, marking the beginning of a new era of inflight connectivity at Southwest Guidance and Outlook:
The following tables provide guidance for third quarter and full-year 2026. The Company's guidance is based on the forward fuel curve as of July 17, 2026 and assumes the current fare environment and demand trends remain broadly intact.

The Company is guiding adjusted EPS1,2 for the third quarter to be in the range of $0.50 to $0.75.
For full-year 2026, the Company is guiding adjusted EPS1,2 to be in the range of $3.25 to $4.25. This updated range replaces its prior expectation of at least $4.00.

3Q 2026 Forecast

Adjusted EPS1,2

$0.50 to $0.75

ASMs (a), year-over-year

-1% to flat

RASM (b), year-over-year                                   

17.5% to 19.5%

CASM-X (c), year-over-year1,2

3.5% to 4.0%

2026 Forecast

Adjusted EPS1,2                                                               

$3.25 to $4.25

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

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

(c) Operating expenses per available seat mile, excluding aircraft fuel and related taxes expense, special items, and profit sharing ("CASM-X").

Revenue Results and Outlook:

Record second quarter 2026 operating revenues of $8.4 billion, up 16.4 percent year-over-year; adjusted operating revenues¹ of $8.7 billion, a 20.3 percent increase year-over-year Second quarter 2026 RASM increased 16.2 percent year-over-year, and adjusted RASM¹ increased 20.1 percent year-over-year, above prior guidance, on capacity up 0.2 percent Third quarter 2026 RASM is expected to increase between 17.5% and 19.5% year-over-year, which includes the headwind from lapping the 2025 implementation of bag fees and other initiatives Second quarter 2026 results included a $285 million adjustment for the reversal of a portion of breakage revenue recognized between 2022 and 2025 related to non-expiring flight credits issued during that same period. The accounting adjustment, which is further described in the Non-GAAP reconciliation and corresponding Non-GAAP Note, reflects a 3 percentage point increase in the Company's redemption assumption for this population of flight credits based on current redemption trends. The adjustment was treated as a special item and excluded from adjusted results. No breakage revenue related to these non-expiring flight credits was recorded during 2026.

Non-Fuel Costs and Outlook:

Second quarter 2026 operating expenses increased 16.1 percent year-over-year to $8.1 billion; operating expenses excluding special items¹ increased 16.2 percent year-over-year to $8.1 billion Second quarter 2026 operating expenses, excluding aircraft fuel and related taxes expense, special items, and profit sharing1, increased 3.6 percent year-over-year Second quarter 2026 CASM-X1 increased 3.4 percent year-over-year, below prior guidance Third quarter 2026 CASM-X1,2 is expected to increase between 3.5% and 4.0% year-over-year, which includes an expected 1.1 point headwind from the removal of six seats from the Boeing 737-700 fleet to enable extra legroom seating Fuel Costs:

Second quarter 2026 fuel cost was $3.92 per gallon, below prior assumptions of $4.10 to $4.15 per gallon. Fuel expense increased by $889 million compared to the second quarter of 2025 and represented a $1.17 headwind to adjusted EPS Third quarter 2026 fuel cost per gallon is assumed to be between $3.70 and $3.753 based on the forward curve as of July 17, 2026 Capacity, Fleet, and Capital Spending:

Second quarter 2026 capacity increased 0.2 percent year-over-year Received 13 Boeing 737-8 aircraft and retired 10 aircraft in second quarter 2026, ending the quarter with 803 aircraft (retirements included the sale of four Boeing 737-800 aircraft and one Boeing 737-700 aircraft, and the retirement of five Boeing 737-700 aircraft) Second quarter 2026 gross capital expenditures were $818 million, driven primarily by aircraft-related capital spending, as well as technology, facilities, and operational investments Expect 64 Boeing 737-8 aircraft deliveries and plan to retire approximately 60 aircraft in 2026 Entered 2026 with a disciplined capacity plan and now expect full-year growth of approximately 1.5%, versus last updated guidance of 2% Expect 2026 net capital spending4 toward the low end of, or below, the $3.0 billion to $3.5 billion range
  Liquidity and Capital Deployment:

Ended second quarter 2026 with $5.3 billion in liquidity, comprised of $3.8 billion in cash and cash equivalents and a revolving credit line of $1.5 billion Ended the quarter with gross leverage1 of 2.1x Have unencumbered aircraft and other related assets with a net book value of approximately $15.7 billion Distributed $88 million in dividends during second quarter 2026 $450 million remains outstanding under the Company's $2.0 billion share repurchase authorization Conference Call:
Southwest will discuss its second quarter 2026 results on a conference call at 10:00 a.m. Eastern Time on July 23, 2026. To listen to a live broadcast of the conference call, please go to
https://www.southwestairlinesinvestorrelations.com. 

Footnotes
1See Note Regarding Use of Non-GAAP Financial Measures for additional information on special items. In addition, information regarding special items is included in the accompanying table Reconciliation of Reported Amounts to Non-GAAP Items (also referred to as "excluding special items").
2Projections do not reflect the potential impact of special items and/or Aircraft fuel and related taxes 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, particularly given the unusual or infrequent nature of special items and especially considering the significant volatility of the Aircraft fuel and related taxes 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.
3Based on market prices as of July 17, 2026. Fuel cost per gallon includes fuel taxes and fuel hedging net premium expense of $0.05 per gallon related to terminated fuel derivative contracts.
4Net capital expenditures include the impact of aircraft sales and sale-leaseback transactions.

Cautionary Statement Regarding Forward-Looking Statements
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Specific forward-looking statements include, without limitation, statements related to (i) the Company's financial and operational outlook, expectations, goals, plans, targets, and projected results of operations, including with respect to its earnings power, growth, and margin expansion, and including factors and assumptions underlying the Company's expectations and projections; (ii) the Company's initiatives, strategic priorities and focus areas, goals, and opportunities, including with respect to the Company's positioning and momentum; (iii) the Company's capacity plans and expectations; (iv) the Company's expectations with respect to fuel costs and fuel efficiency, including factors underlying the Company's expectations; (v) the Company's expectations with respect to unlocking its full earnings potential by optimizing the Company's network, product offerings, and pricing; (vi) the Company's network plans and expectations; (vii) the Company's expectations with respect to the continued demand, including with respect to engagement across managed business and loyalty programs; (viii) the Company's plans and expectations with respect to Starlink Wi-Fi; (ix) the Company's fleet plans and expectations, including with respect to its fleet order book, fleet utilization, fleet modernization, and expected fleet deliveries and retirements, and including factors and assumptions underlying the Company's plans and expectations; and (x) the Company's plans, estimates, and assumptions related to capital spending, including factors and assumptions underlying the Company's expectations and projections. These forward-looking statements are based on the Company's current estimates, intentions, beliefs, expectations, goals, strategies, and projections for the future and are not guarantees of future performance. Forward-looking statements involve risks, uncertainties, assumptions, and other factors that are difficult to predict and that could cause actual results to vary materially from those expressed in or indicated by them. Factors include, among others, (i) the impact of geopolitical conflicts, 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), governmental actions, consumer perception, consumer uncertainties with respect to trade policies or government shutdowns (including the imposition of tariffs), economic conditions, banking conditions, fears or actual acts of terrorism or war, sociodemographic 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; (ii) the Company's ability to timely and effectively implement, transition, operate, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (iii) consumer behavior and response with respect to the Company's commercial products and policies; (iv) the impact of fuel price changes, fuel price volatility, and fuel availability on the Company's business plans and results of operations; (v) 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 business plans, results, and operations; (vi) the Company's dependence on The Boeing Company ("Boeing") and Boeing suppliers with respect to the Company's aircraft deliveries, Boeing MAX 7 aircraft certifications, fleet and capacity plans, operations, maintenance, strategies, and goals; (vii) the Company's dependence on the Federal Aviation Administration with respect to, among other things, the certification of the Boeing MAX 7 aircraft; (viii) the Company's dependence on other third parties, in particular with respect to its technology plans, its plans and expectations related to revenue management, online travel agencies, operational reliability, fuel supply, maintenance, Global Distribution Systems, environmental sustainability, and the impact on the Company's operations and results of operations of any third-party delays or nonperformance; (ix) the Company's ability to timely and effectively prioritize its initiatives and focus areas and related expenditures; (x) the impact of labor matters on the Company's business decisions, plans, strategies, and results; (xi) the Company's ability to obtain and maintain adequate infrastructure and equipment to support its operations and initiatives; (xii) the Company's dependence on its workforce, including its ability to employ and retain sufficient numbers of qualified Employees with appropriate skills and expertise to effectively and efficiently maintain its operations and execute the Company's plans, strategies, and initiatives; (xiii) the cost and effects of the actions of activist shareholders; and (xiv) other factors, as described in the Company's filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Southwest Airlines Co.

Condensed Consolidated Statement of Income

(in millions, except per share amounts)

(unaudited)

Three months ended

Six months ended

June 30,

June 30,

2026

2025

Percent

Change

2026

2025

Percent

Change

OPERATING REVENUES:

Passenger

$    7,745

$    6,627

16.9

$  14,337

$  12,438

15.3

Freight

50

44

13.6

93

86

8.1

Other

637

573

11.2

1,252

1,148

9.1

     Total operating revenues

8,432

7,244

16.4

15,682

13,672

14.7

OPERATING EXPENSES:

Salaries, wages, and benefits

3,499

3,262

7.3

6,797

6,364

6.8

Aircraft fuel and related taxes

2,215

1,326

67.0

3,571

2,575

38.7

Maintenance materials and repairs

294

331

(11.2)

552

623

(11.4)

Landing fees and airport rentals

636

567

12.2

1,208

1,090

10.8

Depreciation and amortization

402

400

0.5

800

795

0.6

Other operating expenses

1,101

1,133

(2.8)

2,139

2,223

(3.8)

     Total operating expenses

8,147

7,019

16.1

15,067

13,670

10.2

OPERATING INCOME

285

225

26.7

615

2

n.m.

NON-OPERATING EXPENSES (INCOME):

Interest expense

64

39

64.1

118

85

38.8

Capitalized interest

(12)

(13)

(7.7)

(25)

(24)

4.2

Interest income

(33)

(54)

(38.9)

(57)

(138)

(58.7)

Other (gains) losses, net

(40)

(27)

48.1

(13)

(9)

44.4

     Total non-operating expenses (income)

(21)

(55)

(61.8)

23

(86)

n.m.

INCOME BEFORE INCOME TAXES

306

280

9.3

592

88

n.m.

PROVISION FOR INCOME TAXES

73

67

9.0

132

24

n.m.

NET INCOME

$      233

$       213

9.4

$      460

$       64

n.m.

NET INCOME PER SHARE:

Basic

$      0.48

$      0.40

20.0

$     0.93

$     0.11

n.m.

Diluted

$      0.47

$      0.39

20.5

$     0.92

$     0.11

n.m.

WEIGHTED AVERAGE SHARES OUTSTANDING:               

Basic

489

538

(9.1)

494

561

(11.9)

Diluted

493

541

(8.9)

498

564

(11.7)

Southwest Airlines Co.

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

(See Note Regarding Use of Non-GAAP Financial Measures)

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

Three months ended

Six months ended

June 30,

Percent

June 30,

Percent

2026

2025

Change

2026

2025

Change

Operating revenues, as reported

$    8,432

$    7,244

$  15,682

$  13,672

(a)

Add: Breakage revenue adjustment

285

—

285

—

Operating revenues, excluding special items

$    8,717

$    7,244

20.3

$  15,967

$  13,672

16.8

Aircraft fuel and related taxes, unhedged

$    2,186

$    1,290

$   3,513

$   2,502

(b)

Add: Premium cost of fuel contracts designated as hedges

29

36

58

73

Aircraft fuel and related taxes, as reported

$    2,215

$    1,326

67.0

$   3,571

$   2,575

38.7

Total operating expenses, as reported

$    8,147

$    7,019

$  15,067

$  13,670

Deduct: Impairment of long-lived assets

—

(8)

—

(8)

Deduct: Litigation accruals

—

—

—

(19)

Deduct: Transformation costs

—

(12)

—

(26)

(c)

Deduct: Severance and related costs

(15)

—

(15)

(62)

Total operating expenses, excluding special items

$    8,132

$    6,999

16.2

$  15,052

$  13,555

11.0

Deduct: Aircraft fuel and related taxes expense, as reported

(2,215)

(1,326)

(3,571)

(2,575)

Operating expenses, excluding Aircraft fuel and related taxes expense and special items

$    5,917

$    5,673

4.3

$  11,481

$  10,980

4.6

Deduct: Profit-sharing expense

(53)

(14)

(103)

(14)

Operating expenses, excluding Aircraft fuel and related taxes expense, special items, and profit sharing

$    5,864

$    5,659

3.6

$  11,378

$  10,966

3.8

Operating income, as reported

$      285

$      225

$     615

$        2

(a)

Add: Breakage revenue adjustment

285

—

285

—

Add: Impairment of long-lived assets

—

8

—

8

Add: Litigation accruals

—

—

—

19

Add: Transformation costs

—

12

—

26

(c)

Add: Severance and related costs

15

—

15

62

Operating income, excluding special items

$      585

$      245

138.8

$     915

$     117

682.1

Total operating revenues, as reported

$    8,432

$    7,244

$  15,682

$  13,672

Operating margin, as reported

3.4 %

3.1 %

0.3 pts.

3.9 %

— %

3.9 pts.

Add: Impact of special items

3.3 %

0.3 %

1.8 %

0.9 %

Operating margin, excluding special items

6.7 %

3.4 %

3.3 pts.

5.7 %

0.9 %

4.8 pts.

Income before income taxes, as reported

$      306

$      280

$     592

$       88

(a)

Add: Breakage revenue adjustment

285

—

285

—

Add: Litigation accruals

—

—

—

19

Add: Transformation costs

—

12

—

26

(c)

Add: Severance and related costs

15

—

15

62

Add: Impairment of long-lived assets

—

8

—

8

Income before income taxes, excluding special items

$      606

$      300

102.0

$     892

$     203

339.4

Provision for income taxes, as reported

$       73

$        67

$     132

$       24

(d)

Add: Net income tax impact of fuel and special items

68

3

69

26

Provision for income taxes, net, excluding special items

$      141

$        70

101.4

$     201

$       50

302.0

Net income, as reported

$      233

$      213

$     460

$       64

(a)

Add: Breakage revenue adjustment

285

—

285

—

Add: Litigation accruals

—

—

—

19

Add: Transformation costs

—

12

—

26

(c)

Add: Severance and related costs

15

—

15

62

Add: Impairment of long-lived assets

—

8

—

8

(d)

Deduct: Net income tax impact of special items

(68)

(3)

(69)

(26)

Net income, excluding special items

$      465

$      230

102.2

$     691

$     153

351.6

Total operating revenues, as reported

$    8,432

$    7,244

$  15,682

$  13,672

Net margin, as reported

2.8 %

2.9 %

(0.1) pts.

2.9 %

0.5 %

2.4 pts.

Add: Impact of special items

3.3 %

0.3 %

1.8 %

0.8 %

(d)

Deduct: Net income tax impact of special items

(0.8) %

— %

(0.4) %

(0.2) %

Net margin, excluding special items

5.3 %

3.2 %

2.1 pts.

4.3 %

1.1 %

3.2 pts.

Net income per share, diluted, as reported

$      0.47

$      0.39

$     0.92

$     0.11

Add: Impact of special items

0.61

0.05

0.61

0.21

(d)

Deduct: Net income tax impact of special items

(0.14)

(0.01)

(0.14)

(0.05)

Net income per share, diluted, excluding special items

$      0.94

$      0.43

118.6

$     1.39

$     0.27

414.8

Operating revenues per ASM (cents), as reported

      17.91 ¢

      15.41 ¢

     17.59 ¢

     15.46 ¢

Add: Impact of special items

0.60

—

0.32

—

Operating revenues per ASM, excluding special items (cents)

      18.51 ¢

      15.41 ¢

20.1

     17.91 ¢

     15.46 ¢

15.8

Operating expenses per ASM (cents)

      17.30 ¢

      14.94 ¢

     16.90 ¢

     15.46 ¢

Deduct: Impact of special items

(0.04)

(0.04)

(0.02)

(0.13)

Deduct: Aircraft fuel and related taxes expense divided by ASMs

(4.70)

(2.83)

(4.00)

(2.91)

Deduct: Profit-sharing expense divided by ASMs

(0.11)

(0.03)

(0.12)

(0.02)

Operating expenses per ASM, excluding Aircraft fuel and related taxes expense, special items, and profit sharing (cents)

      12.45 ¢

      12.04 ¢

3.4

     12.76 ¢

     12.40 ¢

2.9

(a) Represents a change in breakage revenue estimate related to non-expiring flight credits the Company issued to Passengers between July 2022 and December 2025. Due to higher-than-projected Customer redemptions of these non-expiring flight credits, along with updated projections of future redemptions, the Company has revised its estimates with regards to the remaining non-expiring flight credits that remain available for redemption.

(b) Includes amounts reclassified from Accumulated other comprehensive income associated with hedges previously terminated.

(c) Represents Employee severance and other related payments resulting from corporate workforce reductions.

(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.

Southwest Airlines Co.

Comparative Consolidated Operating Statistics

(unaudited)

Relevant comparative operating statistics for the three and six months ended June 30, 2026 and 2025 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

Six months ended

June 30,

Percent

June 30,

Percent

2026

2025

Change

2026

2025

Change

Revenue passengers carried (000s)

34,331

35,507

(3.3)

63,506

65,497

(3.0)

Enplaned passengers (000s)

44,518

44,385

0.3

81,795

81,524

0.3

Revenue passenger miles (RPMs) (in millions) (a)

37,346

36,885

1.2

68,497

67,513

1.5

Available seat miles (ASMs) (in millions) (b)

47,093

46,996

0.2

89,142

88,427

0.8

Load factor (c)

79.3 %

78.5 %

0.8 pts.

76.8 %

76.3 %

0.5 pts.

Average length of passenger haul (miles)

1,088

1,039

4.7

1,079

1,031

4.7

Average aircraft stage length (miles)

784

786

(0.3)

781

779

0.3

Trips flown

367,740

367,952

(0.1)

698,110

699,838

(0.2)

Seats flown (000s) (d)

59,009

59,265

(0.4)

112,039

112,502

(0.4)

Seats per trip (e)

160.5

161.1

(0.4)

160.5

160.8

(0.2)

Average passenger fare

$   225.61

$   186.65

20.9

$    225.76

$    189.90

18.9

Passenger revenue yield per RPM (cents) (f)

20.74

17.97

15.4

20.93

18.42

13.6

RASM (cents) (g)

17.91

15.41

16.2

17.59

15.46

13.8

RASM, excluding special items (cents)

18.51

15.41

20.1

17.91

15.46

15.8

PRASM (cents) (h)

16.45

14.10

16.7

16.08

14.07

14.3

CASM (cents) (i)

17.30

14.94

15.8

16.90

15.46

9.3

CASM, excluding fuel (cents)

12.60

12.11

4.0

12.90

12.55

2.8

CASM, excluding special items (cents)

17.27

14.89

16.0

16.89

15.33

10.2

CASM, excluding fuel and special items (cents)

12.56

12.07

4.1

12.88

12.42

3.7

CASM, excluding fuel, special items, and profit sharing (cents)               

12.45

12.04

3.4

12.76

12.40

2.9

Fuel costs per gallon, including fuel tax (unhedged)

$     3.87

$      2.26

71.2

$       3.31

$       2.33

42.1

Fuel costs per gallon, including fuel tax

$     3.92

$      2.32

69.0

$       3.37

$       2.40

40.4

Fuel consumed, in gallons (millions)

564

570

(1.1)

1,059

1,071

(1.1)

Active fulltime equivalent Employees

73,456

72,242

1.7

73,456

72,242

1.7

Aircraft at end of period

803

810

(0.9)

803

810

(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 supply or 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) RASM (unit revenue) - Operating revenue yield per ASM, calculated as operating revenue divided by available seat miles. Also referred to as "operating unit revenues," this is a measure of operating revenue production based on the total available seat miles flown during a particular period.

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

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

Southwest Airlines Co.

Condensed Consolidated Balance Sheet

(in millions)

(unaudited)

June 30, 2026

December 31, 2025

ASSETS

Current assets:

     Cash and cash equivalents

$                  3,791

$                  3,231

     Accounts and other receivables

1,218

1,149

     Inventories of parts and supplies, at cost

917

775

     Prepaid expenses and other current assets

556

490

          Total current assets

6,482

5,645

Property and equipment, at cost:

     Flight equipment

26,198

26,293

     Ground property and equipment

9,485

9,163

     Deposits on flight equipment purchase contracts

616

401

     Assets constructed for others

88

88

36,387

35,945

     Less allowance for depreciation and amortization                    

15,745

15,700

20,642

20,245

Goodwill

970

970

Operating lease right-of-use assets

953

1,089

Other assets

1,075

1,112

$                30,122

$                 29,061

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Accounts payable

$                  2,072

$                  1,991

     Accrued liabilities

2,247

2,349

     Current operating lease liabilities

283

312

     Air traffic liability

6,510

5,945

     Current maturities of long-term debt

2,156

324

          Total current liabilities

13,268

10,921

Long-term debt less current maturities

3,790

4,577

Air traffic liability - noncurrent

1,674

1,219

Deferred income taxes

2,421

2,289

Noncurrent operating lease liabilities

660

768

Other noncurrent liabilities

1,227

1,306

Stockholders' equity:

     Common stock

888

888

     Capital in excess of par value

4,294

4,322

     Retained earnings

16,672

16,388

     Accumulated other comprehensive income (loss)

22

(24)

     Treasury stock, at cost

(14,794)

(13,593)

          Total stockholders' equity

7,082

7,981

$                30,122

$                 29,061

Southwest Airlines Co.

Condensed Consolidated Statement of Cash Flows

(in millions) (unaudited)

Three months ended

 June 30,

Six months ended

 June 30,

2026

2025

2026

2025

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$       233

$       213

$       460

$        64

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

402

400

800

795

Impairment of long-lived assets

—

8

—

8

Deferred income taxes

60

66

117

23

Gain on sale-leaseback transactions

—

—

—

(3)

Changes in certain assets and liabilities:

Accounts and other receivables

37

90

(56)

146

Other assets

(54)

212

(115)

357

Accounts payable and accrued liabilities

23

(95)

(56)

(220)

Air traffic liability

(65)

(606)

1,021

55

Other liabilities

(53)

28

(130)

(35)

Cash collateral provided to derivative counterparties

—

—

—

(22)

Other, net

(53)

85

(94)

93

Net cash provided by operating activities

530

401

1,947

1,261

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(818)

(660)

(1,448)

(1,187)

Proceeds from sale of property and equipment

258

25

450

51

Proceeds from sale-leaseback transactions

—

—

—

24

Purchases of short-term investments

—

(319)

—

(370)

Proceeds from sales of short-term and other investments

—

72

—

1,226

Other, net

—

—

(6)

(3)

Net cash used in investing activities

(560)

(882)

(1,004)

(259)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of long-term debt

1,000

—

1,500

—

Proceeds from Employee stock plans

15

15

31

32

Repurchase of common stock

—

(1,500)

(1,250)

(2,250)

Payments of long-term debt and finance lease obligations

(431)

(2,592)

(437)

(2,598)

Payments of cash dividends

(88)

(103)

(181)

(210)

Other, net

(3)

2

(46)

(10)

Net cash provided by (used in) financing activities

493

(4,178)

(383)

(5,036)

NET CHANGE IN CASH AND CASH EQUIVALENTS

463

(4,659)

560

(4,034)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

3,328

8,134

3,231

7,509

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$     3,791

$     3,475

$     3,791

$     3,475

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 include (i) unrealized noncash reclassifications, as a result of accounting requirements and elections previously made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company considers unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

Accordingly, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as a substitute for the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"). Management believes special items can distort the trends associated with the Company's ongoing performance. Therefore, management utilizes non-GAAP financial measures to evaluate the Company's financial performance, anticipate future operating results, and assess trends without the impact of items that can vary significantly from period to period. The following measures are often provided, excluding special items, and are utilized by the Company's management, analysts, and investors to enhance comparability of year-over-year results, as well as to industry trends: Operating revenues, non-GAAP; Total operating expenses, non-GAAP; Operating expenses, non-GAAP excluding Aircraft fuel and related taxes expense; Operating expenses, non-GAAP excluding Aircraft fuel and related taxes expense and profit sharing; Operating income, non-GAAP; Adjusted Operating income, 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 revenues per ASM, non-GAAP (cents); Operating expenses per ASM, non-GAAP, excluding Aircraft fuel and related taxes expense and profit sharing (cents); Return on invested capital, non-GAAP; adjusted operating margin; adjusted net margin; and gross leverage.

For the periods presented, special items include:

Charges associated with tentative litigation settlements regarding paid short-term military leave to certain Employees; Expenses associated with professional advisory fees related to the Company's implementation of its comprehensive transformational plan; Charges associated with Employee severance and other related payments resulting from corporate workforce reductions; Reversal of breakage revenue recorded in prior years related to a portion of non-expiring flight credits issued to Customers between July 2022 and December 2025 that have either been redeemed or are expected to be redeemed in future periods; Non-cash impairment charges to remove certain assets from the unaudited Condensed Consolidated Balance Sheet that are no longer in use; 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; 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; and A charge associated with a settlement reached with the Department of Transportation ("DOT") as a result of the Company's December 2022 operational disruption. The Company has also provided its calculation of return on invested capital, which is a measure of financial performance used by management to evaluate its investment returns on capital. Return on invested capital is not a substitute for financial results as reported in accordance with GAAP and should not be utilized in place of such GAAP results. Return on invested capital is not a measure defined by GAAP. It is calculated by the Company, in part, using non-GAAP financial measures, which include charges or benefits that are deemed "special items." As noted above, the Company believes "special items" make it difficult to compare to prior periods, anticipated future periods, or industry trends since these items cannot be reliably predicted or estimated. The Company believes non-GAAP return on invested capital 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 return on invested capital 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.

Southwest Airlines Co.

Non-GAAP Return on Invested Capital (ROIC)

(in millions)

(unaudited)

Twelve months ended

Twelve months ended

June 30, 2026

June 30, 2025

Operating income, as reported

$                   1,041

$                     318

Breakage revenue adjustment

285

116

Severance and related costs

15

62

Voluntary Employee programs

—

5

Net impact from fuel contracts

—

(43)

Professional advisory fees

—

30

Transformation costs

7

30

DOT settlement

(11)

—

Litigation accruals

—

19

Impairments

—

8

Operating income, non-GAAP

$                   1,337

$                     545

Net adjustment for aircraft leases (a)

211

182

Adjusted operating income, non-GAAP (A)

$                   1,548

$                     727

Non-GAAP tax rate (B)

22.4 %

(d)

22.6 %

(e)

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

$                   1,201

$                     563

Debt, including finance leases (b)

$                   4,888

$                   6,699

Equity (b)

7,543

9,718

Net present value of aircraft operating leases (b)

857

967

Average invested capital

$                  13,288

$                  17,384

Equity adjustment for hedge accounting (c)

8

31

Adjusted average invested capital (D)

$                  13,296

$                  17,415

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

11.6 %

4.2 %

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

9.0 %

3.2 %

(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, 2026, was 21.5 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 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.

The Company has also provided gross leverage, which is calculated as adjusted debt divided by trailing twelve month adjusted EBITDAR. Leverage, adjusted debt, and adjusted EBITDAR are non-GAAP measures of financial performance. Management believes these supplemental measures can provide a more accurate view of the Company's leverage and risk, since they consider the Company's debt and debt-like obligation profile. Leverage ratios are widely used by investors, analysts, and rating agencies in the valuation, comparison, rating, and investment recommendations of companies. Although adjusted debt, adjusted EBITDAR, and leverage ratios are commonly-used financial measures, definitions of each differ; therefore, the Company is providing an explanation of its calculations for non-GAAP adjusted debt and adjusted EBITDAR in the accompanying reconciliation below in order to allow investors to compare and contrast its calculations to the calculations provided by other companies.

Southwest Airlines Co.

Non-GAAP Gross Leverage

(in millions) (unaudited)

June 30, 2026

Current maturities of long-term debt, as reported

$                        2,156

Long-term debt less current maturities, as reported

3,790

Total debt, including finance leases (A)

5,946

Add: Current operating lease liabilities, as reported

283

Add: Noncurrent operating lease liabilities, as reported

660

Adjusted debt (B)

$                        6,889

Twelve Months Ended

June 30, 2026

Net income, as reported (C)

$                          837

Interest expense (income), net of capitalized interest, as reported

22

Income tax expense (benefit), as reported

229

Non-operating other (gains) losses, net, as reported

(47)

Operating income, as reported

1,041

Impact of special items

296

Operating income, non-GAAP

1,337

Depreciation and amortization

1,565

Fixed portion of operating lease expense

350

Adjusted EBITDAR (D)

$                        3,252

Total debt to Net income (A/C)

7.1x

Adjusted debt to adjusted EBITDAR (B/D)

2.1x

SOURCE Southwest Airlines Co.