LUVSouthwest Airlines

We note that you provide disclosure in the third paragraph on page 3, explaining that "Business travel, while showing modest improvements over several years, remained at reduced levels throughout 2022 and 2023 compared with pre-pandemic levels, as corporate travel patterns continued to lag and evolve post-pandemic." We also see that you discuss initiatives aimed at growing the corporate travel business on page 12,

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and discuss some of the associated risk on page 32. Please expand your discussion and analysis of revenue and passenger levels as necessary to clarify the significance of this business, and to address the implications of the respective trends to comply with Item 303(a) and (b)(2) of Regulation S-K.

The Company believes it has previously met the requirements of Item 303(a) and (b)(2) of Regulation S-K within Management's Discussion and Analysis of Operating Revenues in the 2023 Form 10-K, but will expand its explanation and analysis regarding business travel demand in this section within future filings as requested, to the extent such amounts are material to the respective periods and trends.

The Company categorizes Passenger revenue by revenue source (passenger non-loyalty, passenger loyalty – air transportation, and passenger ancillary sold separately) as it believes these categories

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best depict the nature, amount, timing, and uncertainty of Passenger revenue and cash flow. The Company monitors industry and Customer travel patterns and trends, including trends in business and leisure travel, to help analyze and forecast Passenger revenues, as well as to aid in the future optimization of its network and schedules. While there was a modest improvement in total business-related revenues from 2022 to 2023, it was not the most significant driver of the overall $2.2 billion increase in Passenger revenues year-over-year. Likewise, this year-over-year change was not a material factor in the Company’s decline in Passenger revenue per available seat mile for 2023 versus 2022. Generally, while the number of business travelers and total business trips remained below pre-pandemic levels for 2023, this decreased level of travel was slightly offset through an increase in average fares paid by business Customers (defined as those booking travel on Southwest through the Company’s managed business tools).

Many of the initiatives described in Part 1 of the Form 10-K are not necessarily in reaction to changes in Customer behavior resulting from the pandemic, but are long-term strategies designed to appeal to a wider base of business travelers that may have traditionally flown on larger network carriers. The majority of these strategies were initiated prior to the pandemic, in fact, and are intended to put the Company on a level playing field by reducing the friction or extra efforts that have historically made it more difficult for such Customers to book and travel on Southwest. However, while the Company aspires to increase its market share with regards to the level of business travel it attracts, there is no guarantee that these efforts will be successful.

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We understand from your disclosure that you estimate the useful life of flight equipment at 25 years, and associated residual values that range from 13% to 20% Please explain to us how you established the useful lives and residual values of your aircraft, and describe any efforts undertaken to revisit and update these policies on a regular basis.

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For example, given your disclosure on page 52, that you own 736 Boeing 737 aircraft, tell us how you considered the potential effect on marketability of used aircraft that were subject to the FAA grounding discussed on page 42, to address manufacturing and safety concerns, in estimating residual values and disposal costs. In conjunction with your response, please submit a summary of aircraft sales over the last three years, in the form of a spreadsheet specifying the type of each aircraft and showing for each the acquisition dates and costs, your estimate of the useful lives and residual values, the useful life and residual value percentage applied, the accumulated depreciation and net book values on the disposal dates, the disposal dates and costs and proceeds received in exchange, and the net gain or loss on each transaction. Please provide us with an explanation for how the residual value percentage applied was correlated with the aircraft, and discuss any material variances between the residual values that had been calculated and the net of disposal costs and proceeds. In closing, we remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.

In estimating the useful lives and expected residual values of its aircraft, the Company primarily has relied upon its actual experience with the same or similar aircraft types, as well as current and projected future resale market value information provided by independent third parties. Flight equipment estimated useful lives are initially based on the number of "cycles" expected to be flown (one take-off and landing) as well as the expected aircraft age at retirement.

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The Company has made a conversion of cycles into years based on both historical and anticipated future utilization of the aircraft. Subsequent revisions to these useful life and residual value estimates could be caused by, among other considerations, changes to aircraft maintenance programs, changes in utilization of the aircraft (actual cycles during a given period of time), governmental regulations on aging aircraft, and changing market prices of new and used aircraft of the same or similar types. The Company evaluates its estimates and assumptions each reporting period and, when warranted, adjusts these estimates and assumptions. Generally, these adjustments are accounted for on a prospective basis through depreciation and amortization expense.

At the time of the prior grounding of the Company’s Boeing 737 MAX fleet in 2019, the Company did consider whether such grounding would have an impact on its estimated useful lives and/or residual values—either for its 31 owned MAX-8 aircraft at the time, or its entire owned Boeing 737 fleet. Historically, the Company has operated its aircraft up to or near the initially established useful lives. Additionally, because the issues that led to the grounding were not “structural” in nature (i.e., associated directly with the airframe and/or engines of the aircraft), and because they were not pervasive to other Boeing fleet types (such as the Company’s Next Generation fleet of 737-700s and 737-800s), the Company determined there should be no long-term material impact to its prior estimates. This conclusion was further supported by valuation estimates provided by independent third parties, as well as compensation provided to the Company by Boeing associated with the MAX grounding. As agreed upon in correspondence with the SEC's Office of the Chief Accountant in 2019, this compensation was accounted for as a reduction in the cost basis for the Company’s owned MAX aircraft and thus reduced the book values associated with those aircraft, thereby reducing the risk associated with a potential decline in market value. Further, as the Company has had a number of other (non-MAX) aircraft retirements since this grounding, it has not experienced any material gains or losses associated with the ultimate disposal of the retired aircraft, also supporting the estimates made by the Company.

Estimated residual values can be further impacted by the Company’s decision or intent with respect to how the retired aircraft will be disposed of. For example, the Company could sell the aircraft as a whole unit to a third party that will continue to operate it. Likewise, the Company could determine that the retired airframe and/or engines will be a “tear-down”, where at retirement

LUV-003 the aircraft is taken apart and the parts are either utilized within the Company’s inventory as support for the remaining fleet, or sold as salvage to other third parties to find buyers or to be disposed of as scrap. The initial estimate of residual value applied to an aircraft is inclusive of the entire unit (airframe and two engines). However, at retirement, the majority of the actual value of the total aircraft is associated with the engines, which can be and in most cases are removed and continue to be used as spares to support the Company’s remaining fleet.

In recent years, none of the owned aircraft retired by the Company have been sold as whole units but have been dismantled and the parts consumed within the Company’s inventory. Because the Company’s entire fleet is a version of the Boeing 737 aircraft, there is much commonality with such parts across the fleet. In some instances, if the parts are not usable or repairable, they have been sold as scrap to third party vendors. Typically, the estimated residual values assigned to the Company’s owned aircraft anticipate such treatment at retirement—and historically where the Company has been able to procure a buyer for an entire aircraft at or near retirement, the Company has recorded modest gains on such transactions. Although the Company initially estimates a residual value of approximately 15 percent for an aircraft at the date of initial purchase, as the aircraft nears its intended retirement date and the Company can reasonably gain more certainty about the actual retirement date of the aircraft, the presumed action it will take at retirement (sell as a whole unit or dismantled and consumed internally), and the expected market for used aircraft parts and/or scrap, it will adjust the estimated useful life and expected residual value of each aircraft and the recording of depreciation expense on a prospective basis so that the Company can minimize or eliminate the likelihood of recording a gain and/or loss at the actual retirement date. The impact of changes in the estimated useful lives and/or expected residual values of aircraft has not been material in recent years. Also, except for aircraft that were retired earlier than expected and/or impaired during the pandemic, the Company has not incurred any material gains and/or losses on such retirements in recent years.

The Company also has the opportunity to evaluate the estimated cost/benefit of continuing to operate the aircraft, which it could choose to do in most cases even beyond its estimated 25-year useful life—subject to any limits prescribed by the manufacturer based on the number of cycles flown by that particular aircraft at that time. That decision is based on a number of factors, including: the travel demand environment, the current and expected economics of continuing to operate the aircraft (which include airfares, fuel prices, labor rates and maintenance costs charged by third parties, etc.), the aircraft’s maintenance history and required future maintenance requirements, the Company’s anticipated scheduled deliveries of new aircraft that could replace retiring aircraft and how efficient the replacement aircraft are in comparison (from a cost, fuel efficiency and dependability perspective), and the nature and number of opportunities available to deploy the additional aircraft capacity.

The Company has not sold any aircraft as whole units to third parties during the years 2021-2023. However, it has provided a detail of the requested information for the two airframe sales that it completed with a third party. In addition, six spare engines were sold to third parties during the applicable period and details have also been provided for those.

LUV-004

Airframe Sales:

Acquisition date Acquisition cost Projected residual % value at acquisition Projected residual $ value at acquisition Aircraft retirement date Age at retirement (Yrs) Accumulated depreciation at retirement

Aircraft #1 12/17/1997 [***] 15 % [***] 3/22/2021 23.28 [***]

Aircraft #2 12/29/1998 [***] 15 % [***] 3/22/2021 22.24 [***]

Net book value (NBV) at retirement Allocation of NBV to engines Allocation of NBV to airframe/rotables* Impair-ments recorded Airframe sale date Sale price Gain/loss on sale Disposal costs

Aircraft #1 $ 5,993,026 $ 4,014,310 $ 1,414,814 $ (563,902) 3/30/2022 $ 1,100,000 $ — $ (220,000)

Aircraft #2 $ 6,992,276 $ 4,988,082 $ 1,180,727 $ (823,467) 3/30/2022 $ 1,100,000 $ — $ (220,000)

*Of the amount listed, $880K consists of the airframe, and the remainder is related to rotables.

Engine Sales:

Acquisition date Acquisition cost Projected residual % value at acquisition Projected residual $ value at acquisition Aircraft retirement date Age at retirement (Yrs) Accumulated depreciation at retirement

Aircraft #1 10/26/1998 [***] 15 % [***] 9/23/2022 24.88 [***]

Aircraft #2 6/8/1998 [***] 15 % [***] 3/22/2021 25.43 [***]

Aircraft #3-1* 3/7/2014 [***] 15 % [***] 11/9/2023 9.75 [***]

Aircraft #3-2* 3/7/2014 [***] 15 % [***] 11/9/2023 9.78 [***]

Aircraft #4 4/10/1998 [***] 15 % [***] 3/18/2022 25.70 [***]

Aircraft #5 3/30/1998 [***] 15 % [***] 12/6/2021 25.76 [***]

Net book value (NBV) at retirement Allocation of NBV to engines (per engine)** Allocation of NBV to airframe/rotables Impair-ments recorded Engine sale date Sale price Gain/loss on sale (per engine) Disposal costs

Aircraft #1 $ 4,077,612 $ 1,388,325 $ 857,191 $ — 9/6/2023 $ 1,700,000 $ 311,675 $ —

Aircraft #2 $ 6,366,992 $ 1,426,577 $ 324,265 $ — 11/6/2023 $ 1,700,000 $ 273,423 $ —

Aircraft #3-1* $ 3,272,335 $ 1,187,542 $ 880,000 $ — 12/4/2023 $ 1,700,000 $ 512,458 $ —

Aircraft #3-2* $ 3,272,335 $ 1,187,542 $ 880,000 $ — 12/15/2023 $ 1,700,000 $ 512,458 $ —

Aircraft #4 $ 4,743,208 $ 1,429,163 $ 616,512 $ — 12/15/2023 $ 1,700,000 $ 270,837 $ —

Aircraft #5 $ 5,772,794 $ 1,431,868 $ 173,647 $ — 12/28/2023 $ 1,700,000 $ 268,132 $ —

*The two engines on this same aircraft were purchased used from a third party in 2014 and depreciated over a useful life of approximately 12 years from the date of acquisition (manufacture date of 12/20/2000).

**The allocation provided is for each of the two engines included in the NBV at retirement less additional depreciation recorded on the engines while they were held and used as spares prior to their sale date.

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We understand from your response to prior comment 1 that although you routinely monitor industry and customer travel patterns, including trends in business and leisure travel, to both analyze and forecast passenger revenues and to aid in the future optimization of your network and schedules, you do not regard information about business travel revenue to be material to investors, though would provide some explanation

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and analysis if you consider that information material in the future. You explain that you categorize passenger revenues by source, though identify revenue categories based on whether the tickets were purchased or acquired through loyalty program point redemptions. You state that these two categories "...best depict the nature, amount, timing, and uncertainty of Passenger revenue and cash flow," though do not mention either of these categories in your discussion and analysis on page 68. We see that a section of your website is dedicated to corporate/business travel, covering various features and initiatives, such as the business travel program booking tool, dedicated account management teams, coordination programs for meetings and groups, and support for travel management companies, which collectively does not clearly reconcile with your view of the revenue source as not material. Given these observations, considering your efforts at monitoring, analyzing and forecasting business and leisure travel patterns, including the associated trends and revenues and use of that information in resource allocation decisions, explain to us why you would not also identify business and leisure ticket revenues, individually as sources on page 107 to comply with FASB ASC 606-10-50-5 and 55-89 through 55-91. As part of your response, please identify the economic factors and various correlations that you considered in identifying the non-loyalty and loyalty passenger revenue source categories as depicting how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors; explain how you would similarly evaluate economic factors and correlations for the business and leisure travel revenue sources; and provide us with a schedule showing non-loyalty and loyalty passenger revenues separately attributable to business and leisure ticket sales during each of the last five fiscal years. If you continue to regard such information as not material for disclosure in the notes to the financial statements, or in the discussion and analysis of your results of operations, provide us with the analyses that you performed in formulating these views.

Southwest Airlines Co. (the “Company”) has received the letter dated April 9, 2024 from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2023, File No. 001-07259, filed with the Commission on February 6, 2024. The Company respectfully requests an extension to the deadline for responding to the letter in order for the Company to devote appropriate time and resources to consider the Staff’s comments and complete its responses.

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The Company expects to provide its response to the letter via EDGAR by May 10, 2024.

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Please update the contact information on the cover of your periodic and current reports to include a working telephone number for your corporate office. Also provide us with direct contact information for a representative of your company to answer any questions we may have about your response to this letter.

The Company’s periodic and current reports contain the contact information for the Company’s corporate offices. The main telephone number is (214) 792-4000. To reach the Operator, press “8.” As noted below, if you have any questions about the Company’s response to this letter, please do not hesitate to contact Tammy Romo at (214) 792-3022. Read in the reply ↗

We note that your forum selection provision identifies the United States District Court for the Northern District of Texas or, if such court lacks jurisdiction, the state district court of Dallas County, Texas as the exclusive forum for certain litigation, including any “derivative action.” Please disclose whether this provision applies to actions arising under the Securities Act or Exchange Act.

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If so, please also state that there is uncertainty as to whether a court would enforce such provision. In that regard, we note that Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Please also provide corresponding risk factor disclosure regarding the impact of your exclusive forum provision on stockholders, including that they may be subject to increased costs to bring a claim and that the provision could discourage claims or limit their ability to bring a claim in a judicial forum that they find favorable. Further, if this provision does not apply to actions arising under the Securities Act or Exchange Act, please tell us how you will inform investors in future filings that the provision does not apply to any actions arising under the Securities Act or Exchange Act. We remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.

We acknowledge the Staff’s comment and advise the Staff that the forum selection provision in the Company’s Second Amended and Restated Bylaws (the “Bylaws”) does not apply to actions arising under the Securities Act and Exchange Act and will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws.

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We propose to add the risk factor set forth below in future annual reports on Form 10-K to acknowledge that a forum selection provision could increase costs to bring a claim, discourage claims or limit the ability of the Company’s Shareholders to bring a claim in a judicial forum that they find favorable for disputes with the Company, its directors, officers or other employees.

The Company’s Bylaws provide to the fullest extent permitted by applicable law that the United States District Court for the Northern District of Texas or, if such court lacks jurisdiction, the state district court of Dallas County, Texas, will be the exclusive forum for certain legal actions between the Company and its Shareholders, which could increase costs to bring a claim, discourage claims, or limit the ability of the Company’s Shareholders to bring a claim in a judicial forum viewed by the Shareholders as more favorable for disputes with the Company or the Company’s directors, officers, or other Employees.

The Company’s Bylaws provide to the fullest extent permitted by law that unless the Company consents in writing to the selection of an alternative forum, the United States District Court for the Northern District of Texas or, if such court lacks jurisdiction, the state district court of Dallas County, Texas, will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other Employee of the Company to the Company or the Company’s Shareholders; (c) any action asserting a claim against the Company or any director, officer, or other Employee of the Company pursuant to any provision of the Company’s Restated Certificate of Formation or the Bylaws (as either may be amended from time to time) or the Texas Business Organizations Code; and (d) any action asserting a claim against the Company or any director, officer, or other Employee of the Company governed by the internal affairs doctrine.

The forum selection provision may increase costs to bring a claim, discourage claims, or limit a Shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the Company or the Company’s directors, officers, or other Employees, which may discourage such lawsuits against the Company or the Company’s directors, officers, and other Employees. Alternatively, if a court were to find the forum selection provision contained in the Company’s Bylaws to be inapplicable or unenforceable in an action, the Company may incur additional costs associated with resolving such action in other jurisdictions. The exclusive forum provision in the Bylaws will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws including the Securities Exchange Act of 1934 or the Securities Act of 1933, or the respective rules and regulations promulgated thereunder.

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It appears you have elected the transition provision pursuant to ASC 606-10-65-1(f)(4) in regard to the aggregate effect of historical modifications to the co-branded credit card agreement with Chase Bank USA, N.A.

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In so doing, ASC 606-10-65-1(g)(2) states that to the extent reasonably possible a qualitative assessment of the estimated effect of applying this expedient is required to be disclosed, but this disclosure is not apparent. Please advise.

In making the election of the transition provision pursuant to ASC 606, the Company did not believe it was reasonably possible to provide a qualitative assessment of applying the contract modification transition practical expedient without performing a complete quantitative analysis of each modification. To perform a complete quantitative analysis, the Company would require the assistance of an independent third party to perform a historical valuation and attempt to re-create valid assumptions many years after the fact, which would have been costly and time consuming.

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Without knowing the movement in each assumption in the valuation, the Company does not believe it is reasonably possible to estimate the impact of applying this practical expedient.

In order to address the Staff’s request to provide a qualitative assessment, the Company modified its disclosures in the most recent Form 10-Q for the quarterly period ended June 30, 2018, that was filed on August 1, 2018. After filing such Form 10-Q, the Company is proposing further relatively minor modifications that it would make in future filings to further clarify its disclosures and address the

Staff’s comment. Please advise whether the staff believes the comment has been adequately addressed in the following, which would replace the existing two paragraphs in Note 5 of the Notes to Condensed Financial Statements (unaudited) on pages 22 and 23 of the Form 10-Q in future filings:

ASC 606 requires the Company to allocate consideration received to performance obligations based on relative fair value of those obligations. The Company has a co-branded credit card agreement (“Agreement”) with Chase Bank USA, N.A. (“Chase”), through which the Company sells loyalty points and certain marketing components, which consist of use of Southwest Airlines’ brand and access to Rapid Rewards Member lists, licensing and advertising elements, and use of the Company’s resource team. The Company estimated the selling prices and volumes over the term of the Agreement in order to determine the allocation of proceeds to each of the two performance obligations identified in the agreement-which have been characterized as a transportation component and a marketing component. The allocations utilized are reviewed to determine if adjustment is necessary any time there is a modification to the Agreement. The Company records Passenger revenue related to loyalty point redemptions for air travel when the travel is delivered. The marketing elements are recognized as Other revenue when earned following the sales-based royalty method, as intellectual property was determined to be the predominate component of this performance obligation in the Agreement.

The Company has elected the transition provision within ASC 606 to reflect the aggregate effect of historical modifications to the Agreement on January 1, 2018, when (i) identifying the satisfied and unsatisfied performance obligations, (ii) determining the transaction price, and (iii) allocating the transaction price to the satisfied and unsatisfied performance obligation. When applying the full retrospective adoption provisions of ASC 606, the Company determined the transaction price for all satisfied and unsatisfied performance obligations in the Agreement and performed a single allocation of the transaction price to those performance obligations, based on the relative selling prices on January 1, 2016. In applying this transition provision, the Company evaluated the historical modifications of the contract and did not identify any new performance obligations throughout the periods prior to adoption of the new standard. The Company did not believe it was reasonably possible to quantitatively estimate the impact of applying this transition provision to contract modifications prior to January 1, 2016.

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Please present the comparable GAAP measure with equal or greater prominence and label the non-GAAP calculation as “adjusted” or similar. Refer to Item10(e)(1)(i)(A) and Question 102.10 of staff’s Compliance and Discussion Interpretation on Non-GAAP Financial Measures for guidance.

The Company believes it has complied with Item10(e)(1)(i)(A) and Question 102.10 of staff’s Compliance and Discussion Interpretation on Non-GAAP Financial Measures in its presentation of ROIC. ROIC itself is not defined by GAAP, but is a financial measure that can be useful to investors as a supplement to other measures. The Company acknowledges that in the calculation of ROIC, it does utilize non-GAAP information, and that is why the Company provides a reconciliation of that information to the most comparable GAAP financial measures.

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However, the Company does believe there are opportunities to clarify and improve the reconciliation and explanations provided. Set forth below is an example of how the Company proposes to enhance its future disclosures related to ROIC, beginning with its first quarter 2017 results that are planned for release on April 27, 2017. For the Staff’s convenience, we have marked the changes compared to the disclosures commented on by the Staff. The Company expects its future disclosures would be substantially in this proposed form, with appropriate changes depending on the particular non-GAAP information included in the periodic report.

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

Year Ended

December 31, 2016

December 31, 2015

December 31, 2014

Operating income, as reported

$

3,760

4,116

2,225

Special revenue adjustment (1)

—

(172

)

Union contract bonuses

356

334

Net impact from fuel contracts

(202

(323

Acquisition and integration costs

126

Litigation settlement

(37

Asset impairment

Lease termination expense

Operating income, non-GAAP

3,957

2,388

Net adjustment for aircraft leases (2)

111

114

133

Adjustment for fuel hedge accounting (3)

(152

(124

(62

Adjusted Operating income, non-GAAP

3,916

3,947

2,459

Debt, including capital leases (4)

3,304

2,782

2,763

Equity (4)

7,833

7,032

7,249

Net present value of aircraft operating leases (4)

1,015

1,223

1,458

Average invested capital

12,152

11,037

11,470

Equity adjustment for hedge accounting (3)

886

1,027

104

Adjusted average invested capital

13,038

12,064

11,574

Non-GAAP ROIC, pre-tax

30.0

%

32.7

21.2

(1) One-time adjustment related to the execution of the Agreement with Chase and the resulting change in accounting methodology. See Note 1 to the Consolidated Financial Statements for further information.

(2) Net adjustment related to presumption that all aircraft in fleet are 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.

(3) The Adjustment for fuel hedge accounting in the numerator is due to the Company’s accounting policy decision to classify fuel hedge accounting premiums below the Operating income line, and thus is adjusting Operating income to reflect such policy decision. The Equity adjustment for hedge accounting in the denominator adjusts for the cumulative impacts in Accumulated other comprehensive income and

Retained earnings, of gains and/or losses associated with hedge accounting related to fuel hedge derivatives that will settle in future periods. The current period impact of these gains and/or losses are reflected in the Net impact from fuel contracts in the numerator.

(4) 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 its estimated incremental borrowing rate as of the time each individual lease was signed.

Note Regarding Use of Non-GAAP Financial Measures

The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements include (i) unrealized non-cash 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 not be indicative of its ongoing operational performance.

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, 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 Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating income, non-GAAP; Net income, non-GAAP; and Net income per share, diluted, non-GAAP. The Company's economic Fuel and oil expense results 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 premium costs paid related to option contracts are reflected as a component of Other (gains) losses, net, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide a better measure of the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, non-cash 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 Note 10 to the Consolidated Financial Statements.

In addition, the Company’s GAAP results in the applicable periods include other charges or benefits that are deemed “special items” that the Company believes are not indicative of its ongoing operations and make its results difficult to compare to prior periods, anticipated future periods, or to its competitors’ results. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. Special items include:

A one-time $172 million Special revenue adjustment in July 2015 as a result of the Agreement with Chase and the resulting required change in accounting methodology. This increase to revenue represented a nonrecurring required acceleration of revenues associated with the adoption of Accounting Standards Update 2009-13;

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We note you adjust operating income used in your calculation of ROIC for “net adjustment for aircraft leases.” You define this adjustment as the presumption that all aircraft in your fleet are owned, with the impact of eliminating aircraft rent expense and replacing it with estimated depreciation expense for the same aircraft.

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Please tell us whether average invested capital has been adjusted for any impact on your capital structure associated with making this adjustment and what the impact is, including why your treatment is meaningful to investors. For example, tell us if another type of financing is assumed in association with the presumption the aircraft is owned and the basis for your assumption.

Union contract bonuses recorded for certain workgroups. As the bonuses would only be paid at ratification of the associated tentative agreement and would not represent an ongoing expense to the Company, management believes its results for the associated periods are more usefully compared if the impacts of ratification bonus amounts are excluded from results.

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Generally, union contract agreements cover a specified threeto fiveyear period, although such contracts officially never expire, and the agreed upon terms remain in place until a revised agreement is reached, which can be several years following the amendable date;

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Footnote (3) to the computation of ROIC states the amount of average invested capital includes the net present value of aircraft leases. Please tell us if this represents the net present value of all leases (whether operating or capital) or just capital leases and why your treatment is meaningful to investors.

Expenses associated with the Company’s acquisition and integration of AirTran. Such expenses were primarily incurred during the acquisition and integration period of the two companies from 2011 through 2015 as a result of the Company’s acquisition of AirTran, which closed on May 2, 2011. The exclusion of these expenses provides investors with a more applicable basis with which to compare results in future periods now that the integration process has been completed; Read in the reply ↗

It appears your description on page 49 why return on invested capital is a meaningful measure refers to the measure as calculated on a GAAP basis. Please include a description of why your calculation of ROIC on a non-GAAP basis is meaningful to investors. Additionally, clarify for investors the difference in usefulness between the two.

A gain resulting from a litigation settlement received in January 2015. This cash settlement meaningfully lowered Other operating expenses during the applicable period and the Company does not expect a similar impact on its cost structure in the future; Read in the reply ↗

We note the working capital deficit for each year reported on the balance sheet. Please discuss (i) the reason for the deficit, (ii) its effect on your liquidity and operations, and (iii) how you manage the deficit. Refer to Item 303(a)(1) of Regulation S-K and instruction 5 to instructions to paragraph 303(a) for guidance.

A noncash impairment charge related to leased slots at Newark Liberty International Airport as a result of the FAA announcement in April 2016 that this airport was being changed to a Level 2 schedule-facilitated airport from its previous designation as Level 3; and Read in the reply ↗

Reference is made to the tables beginning on page 37 representing your reconciliation of non-GAAP financial measures and the related note regarding the use of non-GAAP financial measures on page 40. Please move the non-GAAP information to follow your discussion of your results of operations on pages 41-48.

Rest of the question

Your current presentation and discussion of non-GAAP measures on page 37-40 does not comply with Item 10(e)(1)(i)(A) of Regulation S-K as it appears to give undue prominence to the non- GAAP measures. Please similarly revise your presentation of non-GAAP measures on page 49.

The Company will comply with the Staff’s request to move its non-GAAP reconciliations and explanatory note regarding the use of non-GAAP financial measures to follow its discussion of results of operations in future filings. Read in the reply ↗

For each non-GAAP measure presented, please ensure that your disclosures comply with the requirements outlined in Item 10(e)(1)(i)(C)-(D) of Regulation S-K. In this regard, the disclosures should be specific to each non-GAAP measure presented.

Rest of the question

Your revised disclosures should describe the reason(s) why management believes each non-GAAP measure is useful to investors for evaluating your financial condition and results of operations and to the extent material, disclose the additional purposes, if any, for which management uses the non-GAAP financial measure. Please revise accordingly.

The Company will revise its disclosures prospectively to enhance description of the reasons why management believes each non-GAAP measure is useful to investors for evaluating the Company’s results of operations and to the extent material, the additional purposes, if any, for which management uses the non-GAAP financial measures. Set forth below is an example of how the Company proposes to enhance its future disclosures. For the Staff’s convenience, we have marked the changes compared to the disclosures commented on by the Staff.

Rest of the answer

The Company expects its future disclosures would be substantially in this proposed form, with appropriate changes depending on the particular non-GAAP information included in the periodic report.

Note Regarding Use of Non-GAAP Financial Measures

The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements include (i) unrealized non-cash 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 not indicative of its ongoing operational performance.

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, including results that it at times refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides greater transparency 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 Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating income, non-GAAP; Net income, non-GAAP; and Net income per share, diluted, non-GAAP. The Company's economic financial results 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 Southwest, 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 premium costs paid related to option contracts are reflected as a component of Other (gains) losses, net, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide a better measure of the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, non-cash 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 assess the Company's operating performance on a consistent basis year-over-year or quarter-over-quarter 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, these 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 Note 10 to the Consolidated Financial Statements.

In addition, the Company’s GAAP results in the applicable periods include other charges or benefits that are deemed “special items” that the Company believes are not indicative of its ongoing operations and make its results difficult to compare to prior periods, anticipated future periods, or to its competitors’ results. Special items include:

1) a one-time $172 million Special revenue adjustment due to the July 2015 amended co-branded credit card agreement (the "Agreement") with Chase Bank USA, N.A. ("Chase") and the resulting change in accounting methodology. This non-cash increase to Other revenue represented a non-recurring required acceleration of revenues associated with the adoption of ASU 2009-13. See Note 1 to the Consolidated Financial Statements for further information;

2) expenses associated with the Company’s acquisition and integration of AirTran. Such expenses were primarily incurred during the acquisition and integration period of the two companies from 2011 through 2015 as a result of the Company’s acquisition of AirTran, which closed on May 2, 2011. The Company does not expect to incur any further acquisition and integration costs related to the AirTran acquisition and therefore, the exclusion of these expenses provides investors with a more applicable basis for which to compare results in future periods now that the integration process has been completed;

Read in the reply ↗