investor.relations@wnco.com
SOUTHWEST AIRLINES REPORTS THIRD QUARTER 2026 RESULTS; RECORD REVENUE PERFORMANCE DRIVES YEAR-OVER-YEAR MARGIN EXPANSION
Will host a Capital Markets Day in New York City on March 2, 2027 DALLAS, TEXAS - October 21, 2026 - Southwest Airlines Co. (NYSE: LUV) today reported third quarter 2026 financial results, reflecting strong demand for the Southwest product and continued momentum across the business.
"Customers are responding to the enhanced Southwest offering, and it shows in our results. Demand remained strong as we lapped last year's bag fee and other commercial initiatives, reinforcing our belief that the earnings power we've built is durable, even with significantly higher fuel costs.
"With the transformation complete, our efforts have shifted to optimizing the business and delivering the next set of Customer Experience enhancements, both focused on unlocking the next phase of value creation. Robust demand has continued in the fourth quarter, and we are seeing encouraging progress across our product and loyalty initiatives. We remain confident in our ability to further strengthen earnings, improve returns, and expand margins over time.
"We look forward to sharing our multi-year financial framework, the targets we are managing toward, and our path to achieving them at our Capital Markets Day in New York City on March 2, 2027," said Bob Jordan, Southwest Airlines President & Chief Executive Officer. 1 Highlights:
• Net income of $270 million, or $0.55 diluted EPS, adjusted net income¹ of $328 million, or $0.66 adjusted EPS¹
• Unit revenues increased 21.6%, exceeding prior guidance, achieving an all-time record
• Operating margin of 4.5%, up 4.0 points year-over-year; adjusted operating margin¹ of 5.4%, up 4.8 points year-over-year despite an $821 million increase in nominal fuel costs
• Record third quarter passenger revenue and the highest passenger yield in the Company's history
• Managed business revenue reached a third quarter record, with 20 of the 50 all-time top managed business booking days occurring during the quarter
• Announced enhancements to the Rapid Rewards® program, including a new Platinum tier, a faster path to status through card spend, new Milestone Rewards, and new loyalty redemption partners
• Announced plans to launch the Southwest Icon Lounge™ network, the Company's first airport lounges, with the first guests expected in 2027
• Became the first U.S. airline to make flight shopping available through ChatGPT
• Enhanced Southwest Business with the introduction of Business Priority and NDC connectivity, making it easier for corporate Customers to access and book Southwest products and services
• Welcomed TAP Air Portugal and LOT Polish Airlines as Southwest's tenth and eleventh airline partners
• Continued installation of Starlink ultra-fast WiFi across all aircraft, with fleet-wide installation expected to be complete in fall 2027 2 Guidance and Outlook:
The following tables provide guidance for fourth quarter and full-year 2026. The Company's guidance is based on the forward fuel curve as of October 15, 2026 and assumes the current fare environment and demand trends remain broadly intact.
4Q 2026 Forecast Adjusted EPS1,2 $0.55 to $0.80 ASMs (a), year-over-year 3% to 4% RASM (b), year-over-year 19% to 21% CASM-X (c), year-over-year1,2 4.0% to 4.5%
(c) Operating expenses per available seat mile, excluding aircraft fuel and related taxes expense, special items, and profit sharing ("CASM-X"). 3 Revenue:
• Record third quarter 2026 operating revenues of $8.4 billion, up 21.2 percent year-over-year
• Third quarter 2026 RASM reached an all-time record, increasing 21.6 percent year-over-year, on capacity down 0.4 percent
• Fourth quarter 2026 RASM is expected to increase between 19% and 21% year- over-year
• Third quarter 2026 operating expenses increased 16.3 percent year-over-year to $8.0 billion; operating expenses excluding special items¹ increased 15.4 percent year-over-year to $8.0 billion
• Third quarter 2026 operating expenses, excluding aircraft fuel and related taxes expense, special items, and profit sharing 1 , increased 3.4 percent year- over-year
• Fourth quarter 2026 CASM-X 1,2 is expected to increase between 4.0% and 4.5% year-over-year, which includes an expected 1.0 point headwind from the removal of six seats from the Boeing 737-700 fleet to enable extra legroom seating
Third quarter 2026 fuel cost was $3.92 per gallon, above prior assumptions of $3.70 to $3.75 per gallon. Fuel expense increased by $821 million compared to the third quarter of 2025 and represented a $1.08 headwind to adjusted EPS
• Fourth quarter 2026 fuel cost per gallon is assumed to be approximately $4.55 3 based on the forward curve as of October 15, 2026
• Received 20 Boeing 737-8 aircraft and retired 20 aircraft in third quarter 2026, ending the quarter with 803 aircraft (retirements included the sale of three Boeing 737-800 aircraft and the retirement of 17 Boeing 737-700 aircraft)
• Third quarter 2026 gain on sale of $214 million, including $96 million primarily from retiring aircraft and engine sales and $118 million from sale- leaseback transactions
• Third quarter 2026 gross capital expenditures were $1.0 billion, driven primarily by aircraft-related capital spending, as well as technology, facilities, and operational investments
• Expect a total of 67 Boeing 737-8 and 737-7 aircraft deliveries and plan to retire approximately 60 aircraft in 2026 4 • Entered 2026 with a disciplined capacity plan and now expect full-year growth of approximately 1.2%, versus last updated guidance of approximately 1.5%
• Ended third quarter 2026 with $5.6 billion in liquidity, comprised of $3.6 billion in cash and cash equivalents and a revolving credit line of $2.0 billion
• Have unencumbered aircraft and other related assets with a net book value of approximately $15.8 billion
• $450 million remains outstanding under the Company's $2.0 billion share repurchase authorization 5 Conference Call:
Southwest will discuss its third quarter 2026 results on a conference call at 10:00 a.m. Eastern Time on October 22, 2026. To listen to a live broadcast of the conference call, please go to
1 See 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").
2 Projections 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.
3 Based on market prices as of October 15, 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.
4 Net capital expenditures include the impact of aircraft sales and sale- leaseback transactions.
Throughout this press release, certain columns and rows may not calculate precisely to the reported totals due to the use of rounded numbers.
This earnings 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 outlook, expectations, plans, targets, and projected results of operations, including with respect to earnings power and margin expansion; (ii) the Company’s initiatives, strategic priorities, focus areas, core strengths, goals, and opportunities, including with respect to product offering enhancements; (iii) the Company’s expectations with respect to demand, competitive positioning, and Customer response to its product offering; (iv) the Company’s capacity plans and expectations; (v) the Company's expectations with respect to fuel costs and fuel efficiency; (vi) the Company’s fleet plans and expectations, including with respect to the Company’s fleet order book, fleet upgrades and modernization, fleet transactions, fleet deliveries and retirements; (vii) the Company's plans, estimates, and assumptions related to capital spending; and (viii) the Company’s plans, expectations, and targets with respect to its investment-grade balance sheet, liquidity, leverage, and share repurchases and other Shareholder returns. 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, tariffs, or government shutdowns, economic 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, maintain, and protect the technology systems, cybersecurity measures, artificial intelligence and other emerging technology capabilities, and infrastructure necessary to support its operations and initiatives; (iii) the Company’s ability to effectively execute and evolve its strategic plans, initiatives, product offerings, and policies, including related consumer behavior and response; (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 the Federal Aviation Administration and other governmental regulations and actions, including with respect to government shutdowns and Air Traffic Control staffing shortages and inefficiencies, 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, fleet and capacity plans, operations, maintenance, strategies, and goals; (vii) the Company's dependence on other third parties, including with respect to technology, revenue management, distribution channels, operational reliability, fuel supply, maintenance, and the impact on the Company's operations and results of operations of any third- party delays or nonperformance; (viii) the impact of labor matters on the Company's business decisions, plans, strategies, and results; (ix) the Company's ability to obtain and maintain adequate infrastructure and equipment to support its operations and initiatives; (x) 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; (xi) the cost and effects of the actions of activist shareholders; and (xii) other factors, as described in the Company's filings with the 6 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.
Reconciliation of Reported Amounts to Non-GAAP Financial Measures (excluding special items)
Operating expenses per ASM, excluding Aircraft fuel and related 12.68 ¢ 12.21 ¢ 3.8 12.74 ¢ 12.34 ¢ 3.2 taxes expense, special items, and profit sharing (cents)
(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. 11
Relevant comparative operating statistics for the three and nine months ended September 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.
(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.
(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.
(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. 12
September 30, 2026 December 31, 2025 ────────────────────────────────────────────────────────────────────────────── ASSETS Current assets: Cash and cash equivalents $ 3,624 $ 3,231 Accounts and other 1,313 1,149 receivables Inventories of parts and supplies, at 997 775 cost Prepaid expenses and other current 572 490 assets Total current assets 6,506 5,645 Property and equipment, at cost: Flight equipment 26,144 26,293 Ground property and 9,686 9,163 equipment Deposits on flight equipment purchase 723 401 contracts Assets constructed for 88 88 others 36,642 35,945 Less allowance for depreciation and 15,654 15,700 amortization 20,988 20,245 Goodwill 970 970 Operating lease 994 1,089 right-of-use assets Other assets 1,081 1,112 $ 30,539 $ 29,061 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,847 $ 1,991 Accrued liabilities 2,382 2,349 Current operating lease 278 312 liabilities Air traffic liability 7,078 5,945 Current maturities of 2,153 324 long-term debt Total current liabilities 13,738 10,921 Long-term debt less current 3,734 4,577 maturities Air traffic liability - 1,199 1,219 noncurrent Deferred income taxes 2,513 2,289 Noncurrent operating lease 706 768 liabilities Other noncurrent 1,320 1,306 liabilities Stockholders' equity: Common stock 888 888 Capital in excess of par 4,326 4,322 value Retained earnings 16,853 16,388 Accumulated other comprehensive income 51 -24 (loss) Treasury stock, at cost -14,790 -13,593 Total stockholders' equity 7,329 7,981 $ 30,539 $ 29,061
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.
2. Expenses associated with professional advisory fees related to the Company's implementation of its comprehensive transformational plan;
3. Charges associated with Employee severance and other related payments resulting from corporate workforce reductions;
4. Reversal of breakage revenue recorded in prior years related to a portion of non-expiring flight credits issued to Customers that have either been redeemed or are expected to be redeemed in future periods;
5. Non-cash impairment charges to remove certain assets no longer in use that are not related to the direct operations of the Company from the unaudited Condensed Consolidated Balance Sheet;
6. 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;
7. 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
8. A credit received from the Department of Transportation ("DOT") regarding a settlement reached for the Company's December 2022 operational disruption in light of the Company significantly improving its on-time performance and completion factor through the Company's investment in its Network Operations Control.
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. 15
Twelve Twelve months September months September ended 30, 2026 ended 30, 2025 ────────────────────────────────────────────────────────────────────────────── Operating income, $ 1,384 $ 315 as reported Breakage revenue 285 116 adjustme… Severance and 45 62 related costs Voluntary Employee — 5 programs Net impact — -25 from fuel contracts Professi… advisory — 18 fees Transfor… — 37 costs DOT -11 — settleme… Litigati… 13 19 accruals Impairme… 30 8 Operating income, $ 1,747 $ 555 non-GAAP Net adjustme… for 214 201 aircraft leases (a) Adjusted operating income, $ 1,961 $ 756 non-GAAP (A) Non-GAAP tax rate 22.7 % -d 22.4 % -e (B) Net operating profit after-ta… $ 1,516 $ 587 NOPAT (A* (1-B) = C) Debt, including finance $ 5,244 $ 5,921 leases (b) Equity 7,409 9,181 (b) Net present value of aircraft 814 977 operating leases (b) Average invested $ 13,467 $ 16,079 capital Equity adjustme… for hedge -8 32 accounti… (c) Adjusted average invested $ 13,459 $ 16,111 capital (D) Non-GAAP ROIC, 14.6 % 4.7 % pre-tax (A/D) Non-GAAP ROIC, 11.3 % 3.6 % after-tax (C/D)
(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 prior period impact of these gains and/or losses is reflected in the Net impact from fuel contracts in the numerator. (d) The GAAP twelve month rolling tax rate as of September 30, 2026, was 22.2 percent, and the Non-GAAP twelve month rolling tax rate was 22.7 percent. See Note Regarding Use of Non-GAAP Financial Measures for additional information.
(e) The GAAP twelve month rolling tax rate as of September 30, 2025, was 21.8 percent, and the Non-GAAP twelve month rolling tax rate was 22.4 percent. See Note Regarding Use of Non-GAAP Financial Measures for additional information. 16 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.
September 30, 2026 ────────────────────────────────────────────────────────────────────────────── Current maturities of long-term debt, as $ 2,153 reported Long-term debt less current maturities, 3,734 as reported Total debt, including finance leases (A) 5,887 Add: Current operating lease liabilities, as 278 reported Add: Noncurrent operating lease liabilities, 706 as reported Adjusted debt (B) $ 6,871 Twelve Months Ended September 30, 2026 Net income, as reported (C) $ 1,053 Interest expense (income), net of 59 capitalized interest, as reported Income tax expense (benefit), as 300 reported Non-operating other (gains) losses, net, -28 as reported Operating income, as reported 1,384 Impact of special items 363 Operating income, non-GAAP 1,747 Depreciation and amortization 1,569 Fixed portion of operating lease expense 345 Adjusted EBITDAR (D) $ 3,661 Total debt to Net income (A/C) 5.6x Adjusted debt to adjusted EBITDAR (B/D) 1.9x
Full text with the tables
Southwest Airlines Co.
Investor Relations
investor.relations@wnco.com
SOUTHWEST AIRLINES REPORTS THIRD QUARTER 2026 RESULTS; RECORD REVENUE
PERFORMANCE DRIVES YEAR-OVER-YEAR MARGIN EXPANSION
Record third quarter operating revenue and all-time record unit revenues
Expanded margins year-over-year despite significant fuel headwind
Announced Southwest Icon Lounge™ network
Will host a Capital Markets Day in New York City on March 2, 2027
DALLAS, TEXAS - October 21, 2026 - Southwest Airlines Co. (NYSE: LUV) today
reported third quarter 2026 financial results, reflecting strong demand for the
Southwest product and continued momentum across the business.
"Customers are responding to the enhanced Southwest offering, and it shows in
our results. Demand remained strong as we lapped last year's bag fee and other
commercial initiatives, reinforcing our belief that the earnings power we've
built is durable, even with significantly higher fuel costs.
"With the transformation complete, our efforts have shifted to optimizing the
business and delivering the next set of Customer Experience enhancements, both
focused on unlocking the next phase of value creation. Robust demand has
continued in the fourth quarter, and we are seeing encouraging progress across
our product and loyalty initiatives. We remain confident in our ability to
further strengthen earnings, improve returns, and expand margins over time.
"We look forward to sharing our multi-year financial framework, the targets we
are managing toward, and our path to achieving them at our Capital Markets Day
in New York City on March 2, 2027," said Bob Jordan, Southwest Airlines
President & Chief Executive Officer.
1
Highlights:
• Net income of $270 million, or $0.55 diluted EPS, adjusted net income¹ of $328
million, or $0.66 adjusted EPS¹
• Operating revenues of $8.4 billion, up 21.2%, a third quarter Company record
• Unit revenues increased 21.6%, exceeding prior guidance, achieving an all-time
record
• Operating margin of 4.5%, up 4.0 points year-over-year; adjusted operating
margin¹ of 5.4%, up 4.8 points year-over-year despite an $821 million increase
in nominal fuel costs
• Returned $176 million to Shareholders through dividends
• Record third quarter passenger revenue and the highest passenger yield in the
Company's history
• Managed business revenue reached a third quarter record, with 20 of the 50
all-time top managed business booking days occurring during the quarter
• Announced enhancements to the Rapid Rewards® program, including a new Platinum
tier, a faster path to status through card spend, new Milestone Rewards, and new
loyalty redemption partners
• Announced plans to launch the Southwest Icon Lounge™ network, the Company's
first airport lounges, with the first guests expected in 2027
• Became the first U.S. airline to make flight shopping available through
ChatGPT
• Enhanced Southwest Business with the introduction of Business Priority and NDC
connectivity, making it easier for corporate Customers to access and book
Southwest products and services
• Welcomed TAP Air Portugal and LOT Polish Airlines as Southwest's tenth and
eleventh airline partners
• Continued installation of Starlink ultra-fast WiFi across all aircraft, with
fleet-wide installation expected to be complete in fall 2027
2
Guidance and Outlook:
The following tables provide guidance for fourth quarter and full-year 2026. The
Company's guidance is based on the forward fuel curve as of October 15, 2026 and
assumes the current fare environment and demand trends remain broadly intact.
4Q 2026 Forecast
Adjusted EPS1,2 $0.55 to $0.80
ASMs (a), year-over-year 3% to 4%
RASM (b), year-over-year 19% to 21%
CASM-X (c), year-over-year1,2 4.0% to 4.5%
2026 Forecast
Adjusted EPS1,2 $2.60 to $2.85
(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").
3
Revenue:
• Record third quarter 2026 operating revenues of $8.4 billion, up 21.2 percent
year-over-year
• Third quarter 2026 RASM reached an all-time record, increasing 21.6 percent
year-over-year, on capacity down 0.4 percent
• Fourth quarter 2026 RASM is expected to increase between 19% and 21% year-
over-year
Costs:
• Third quarter 2026 operating expenses increased 16.3 percent year-over-year to
$8.0 billion; operating expenses excluding special items¹ increased 15.4 percent
year-over-year to $8.0 billion
• Third quarter 2026 operating expenses, excluding aircraft fuel and related
taxes expense, special items, and profit sharing 1 , increased 3.4 percent year-
over-year
• Third quarter 2026 CASM-X 1 increased 3.8 percent year-over-year
• Fourth quarter 2026 CASM-X 1,2 is expected to increase between 4.0% and 4.5%
year-over-year, which includes an expected 1.0 point headwind from the removal
of six seats from the Boeing 737-700 fleet to enable extra legroom seating
Fuel:
•
Third quarter 2026 fuel cost was $3.92 per gallon, above prior assumptions of
$3.70 to $3.75 per gallon. Fuel expense increased by $821 million compared to
the third quarter of 2025 and represented a $1.08 headwind to adjusted EPS
• Fourth quarter 2026 fuel cost per gallon is assumed to be approximately $4.55
3 based on the forward curve as of October 15, 2026
Capacity, Fleet, and Capital Spending:
• Third quarter 2026 capacity decreased 0.4 percent year-over-year
• Received 20 Boeing 737-8 aircraft and retired 20 aircraft in third quarter
2026, ending the quarter with 803 aircraft (retirements included the sale of
three Boeing 737-800 aircraft and the retirement of 17 Boeing 737-700 aircraft)
• Third quarter 2026 gain on sale of $214 million, including $96 million
primarily from retiring aircraft and engine sales and $118 million from sale-
leaseback transactions
• Third quarter 2026 gross capital expenditures were $1.0 billion, driven
primarily by aircraft-related capital spending, as well as technology,
facilities, and operational investments
• Expect a total of 67 Boeing 737-8 and 737-7 aircraft deliveries and plan to
retire approximately 60 aircraft in 2026
4
• Entered 2026 with a disciplined capacity plan and now expect full-year growth
of approximately 1.2%, versus last updated guidance of approximately 1.5%
• Expect 2026 net capital spending 4 between $2.5 billion and $2.75 billion
Liquidity and Capital Deployment:
• Ended third quarter 2026 with $5.6 billion in liquidity, comprised of $3.6
billion in cash and cash equivalents and a revolving credit line of $2.0 billion
• Ended the quarter with gross leverage 1 of 1.9x
• Have unencumbered aircraft and other related assets with a net book value of
approximately $15.8 billion
• Distributed $176 million in dividends during third quarter 2026
• $450 million remains outstanding under the Company's $2.0 billion share
repurchase authorization
5
Conference Call:
Southwest will discuss its third quarter 2026 results on a conference call at
10:00 a.m. Eastern Time on October 22, 2026. To listen to a live broadcast of
the conference call, please go to
https://www.investors.southwest.com
.
Footnotes
1 See 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").
2 Projections 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.
3 Based on market prices as of October 15, 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.
4 Net capital expenditures include the impact of aircraft sales and sale-
leaseback transactions.
Throughout this press release, certain columns and rows may not calculate
precisely to the reported totals due to the use of rounded numbers.
Cautionary Statement Regarding Forward-Looking Statements
This earnings 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
outlook, expectations, plans, targets, and projected results of operations,
including with respect to earnings power and margin expansion; (ii) the
Company’s initiatives, strategic priorities, focus areas, core strengths, goals,
and opportunities, including with respect to product offering enhancements;
(iii) the Company’s expectations with respect to demand, competitive
positioning, and Customer response to its product offering; (iv) the Company’s
capacity plans and expectations; (v) the Company's expectations with respect to
fuel costs and fuel efficiency; (vi) the Company’s fleet plans and expectations,
including with respect to the Company’s fleet order book, fleet upgrades and
modernization, fleet transactions, fleet deliveries and retirements; (vii) the
Company's plans, estimates, and assumptions related to capital spending; and
(viii) the Company’s plans, expectations, and targets with respect to its
investment-grade balance sheet, liquidity, leverage, and share repurchases and
other Shareholder returns. 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, tariffs, or government shutdowns, economic
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, maintain, and protect the technology systems, cybersecurity
measures, artificial intelligence and other emerging technology capabilities,
and infrastructure necessary to support its operations and initiatives; (iii)
the Company’s ability to effectively execute and evolve its strategic plans,
initiatives, product offerings, and policies, including related consumer
behavior and response; (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 the Federal Aviation Administration and other
governmental regulations and actions, including with respect to government
shutdowns and Air Traffic Control staffing shortages and inefficiencies, 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, fleet and capacity plans, operations,
maintenance, strategies, and goals; (vii) the Company's dependence on other
third parties, including with respect to technology, revenue management,
distribution channels, operational reliability, fuel supply, maintenance, and
the impact on the Company's operations and results of operations of any third-
party delays or nonperformance; (viii) the impact of labor matters on the
Company's business decisions, plans, strategies, and results; (ix) the Company's
ability to obtain and maintain adequate infrastructure and equipment to support
its operations and initiatives; (x) 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; (xi) the cost and
effects of the actions of activist shareholders; and (xii) other factors, as
described in the Company's filings with the
6
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.
Investor Contact:
Southwest Airlines Investor Relations
investor.relations@wnco.com
Media Contact:
Southwest Airlines Media Relations
214-792-4847
swamedia@wnco.com
7
Southwest Airlines Co.
Condensed Consolidated Statement of Income
(in millions, except per share amounts)
(unaudited)
Thr… Nine
mon… mon…
end… end…
Sep… Sep…
OP… 30, Per… 30, Per…
RE… 2026 2025 Cha… 2026 2025 Cha…
──────────────────────────────────────────────────────────────────────────────
Pa… $ 7,7… $ 6,3… 22.8 $ 22,… $ 18,7… 17.8
Fr… 48 42 14.3 141 127 11.0
Ot… 621 594 4.5 1,8… 1,743 7.4
To…
op… 8,4… 6,9… 21.2 24,… 20,6… 16.9
re…
OP…
EX…
Sa…
wa… 3,5… 3,2… 10.0 10,… 9,583 7.9
and
be…
Ai…
fu…
and 2,1… 1,3… 61.7 5,7… 3,907 46.5
re…
ta…
Ma…
ma… 303 299 1.3 855 921 -7.2
and
re…
La…
fe…
and 623 548 13.7 1,8… 1,638 11.8
ai…
re…
De…
and 398 394 1.0 1,1… 1,189 0.8
am…
Ot…
op… 1,0… 1,1… -8.6 3,1… 3,346 -5.4
ex…
To…
op… 8,0… 6,9… 16.3 23,… 20,5… 12.3
ex…
OP… 379 35 n.m. 994 37 n.m.
IN…
NO…
EX…
(I…
In… 70 35 100… 188 120 56.7
ex…
Ca… -13 -13 — -38 -38 —
in…
In… -33 -34 -2.9 -90 -172 -47…
in…
Ot…
ga… -1 -21 -95… -13 -28 -53…
net
To…
no… 24 -33 n.m. 47 -118 n.m.
ex…
(i…
IN…
BE… 355 68 n.m. 946 155 n.m.
IN…
TA…
PR…
FOR 85 14 n.m. 216 37 n.m.
IN…
TA…
NET $ 270 $ 54 n.m. $ 730 $ 118 n.m.
IN…
NET
IN…
PER
SH…
Ba… $ 0.55 $ 0.10 n.m. $ 1.48 $ 0.21 n.m.
Di… $ 0.55 $ 0.10 n.m. $ 1.47 $ 0.21 n.m.
WE…
AV…
SH…
OU…
Ba… 489 523 -6.5 492 548 -10…
Di… 494 526 -6.1 497 551 -9.8
8
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)
T… Ni…
m… mo…
e… S… en… S…
2… 3… 2… C… P… 20… 3… 20… Ch…
──────────────────────────────────────────────────────────────────────────────
O…
r… $ 8… $ 6… $ 2… $ 2…
as
r…
A…
… B… — — 2… —
r…
a…
O…
r…
e… $ 8… $ 6… 2… $ 2… $ 2… 18…
s…
i…
A…
f…
a… $ 2… $ 1… $ 5… $ 3…
r…
t…
u…
A…
P…
c…
of
… f… 29 36 86 1…
c…
d…
as
h…
A…
f…
a…
r… $ 2… $ 1… 6… $ 5… $ 3… 46…
t…
as
r…
T…
o…
e… $ 8… $ 6… $ 2… $ 2…
as
r…
D…
I…
of -… — -… -8
l…
a…
D…
L… -… — -… -…
a…
D…
T… — -7 — -…
c…
D…
S…
… a… -… — -… -…
r…
c…
T…
o…
e… $ 7… $ 6… 1… $ 2… $ 2… 12…
e…
s…
i…
D…
A…
f…
a…
r… -… -… -… -…
t…
e…
as
r…
O…
e…
e…
A…
f…
a… $ 5… $ 5… 4… $ 1… $ 1… 4.5
r…
t…
e…
a…
s…
i…
D…
P… -… -… -… -…
e…
O…
e…
e…
A…
f…
a…
r… $ 5… $ 5… 3… $ 1… $ 1… 3.7
t…
e…
s…
i…
a…
p…
s…
O…
i… $ 3… $ 35 $ 9… $ 37
as
r…
A…
… B… — — 2… —
r…
a…
A…
I…
of 30 — 30 8
l…
a…
A…
L… 13 — 13 19
a…
A…
T… — 7 — 33
c…
A…
S…
… a… 30 — 45 62
r…
c…
O…
i…
e… $ 4… $ 42 9… $ 1… $ 1… 75…
s…
i…
T…
o…
r… $ 8… $ 6… $ 2… $ 2…
as
r…
O…
m… 4… % 0… % 4… 4… % 0… % 3.9
as p… pt…
r…
A…
I…
of 0… % 0… % 1… % 0… %
s…
i…
O…
m… 4… 4.8
e… 5… % 0… % p… 5… % 0… % pt…
s…
i…
I…
b…
i… $ 3… $ 68 $ 9… $ 1…
t…
as
r…
A…
… B… — — 2… —
r…
a…
A…
L… 13 — 13 19
a…
A…
T… — 7 — 33
c…
A…
S…
… a… 30 — 45 62
r…
c…
9
Ad…
Im…
of
lo…
as… 30 — 30 8
──────────────────────────────────────────────────────────────────────────────
In…
be…
in…
ta… $ 428 $ 75 47… $ 1,… $ 277 37…
ex…
sp…
it…
Pr…
for
in… $ 85 $ 14 $ 216 $ 37
ta…
as
re…
Ad…
Net
in…
(… tax 16 3 85 29
im…
of
sp…
it…
Pr…
for
in…
ta… $ 101 $ 17 49… $ 301 $ 66 35…
ne…
ex…
sp…
it…
Net
in… $ 270 $ 54 $ 730 $ 118
as
re…
Ad…
(… Br… — — 285 —
re…
ad…
Ad…
Li… 13 — 13 19
ac…
Ad…
Tr… — 7 — 33
co…
Ad…
Se…
(… and 30 — 45 62
re…
co…
Ad…
Im…
of 30 — 30 8
lo…
as…
De…
Net
in…
(… tax -16 -3 -85 -29
im…
of
sp…
it…
Net
in…
ex… $ 328 $ 58 46… $ 1,… $ 211 38…
sp…
it…
To…
op…
re… $ 8,… $ 6,… $ 24… $ 20,…
as
re…
Net
ma… 3.2 % 0.8 % 2.4 3.0 % 0.6 % 2.4
as pt… pt…
re…
Ad…
Im…
of 0.9 % 0.1 % 1.5 % 0.6 %
sp…
it…
De…
Net
in…
(… tax -0… % — % -0… % -0.1 %
im…
of
sp…
it…
Net
ma… 3.1 3.2
ex… 3.9 % 0.8 % pt… 4.2 % 1.0 % pt…
sp…
it…
Net
in…
per
sh… $ 0.… $ 0.… $ 1.… $ 0.21
di…
as
re…
Ad…
Im…
of 0.… 0.… 0.… 0.22
sp…
it…
De…
Net
in…
(… tax -0… -0… -0… -0.…
im…
of
sp…
it…
Net
in…
per
sh… $ 0.… $ 0.… 50… $ 2.… $ 0.38 43…
di…
ex…
sp…
it…
Op…
re…
per
ASM 18… ¢ 15… ¢ 17… ¢ 15.… ¢
(c…
as
re…
Ad…
Im…
of — — 0.… —
sp…
it…
Op…
re…
per
AS… 18… ¢ 15… ¢ 21… 18… ¢ 15.… ¢ 17…
ex…
sp…
it…
(c…
Op…
ex…
per 17… ¢ 15… ¢ 17… ¢ 15.… ¢
ASM
(c…
De…
Im…
of -0… -0… -0… -0.…
sp…
it…
De…
Ai…
fu…
and
re… -4… -2… -4… -2.…
ta…
ex…
di…
by
AS…
De…
Pr…
ex… -0… -0… -0… -0.…
di…
by
AS…
10
Operating
expenses per
ASM, excluding
Aircraft fuel
and related 12.68 ¢ 12.21 ¢ 3.8 12.74 ¢ 12.34 ¢ 3.2
taxes expense,
special items,
and profit
sharing
(cents)
(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.
11
Southwest Airlines Co.
Comparative Consolidated Operating Statistics
(unaudited)
Relevant comparative operating statistics for the three and nine months ended
September 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.
Th… Ni…
mo… mo…
en… en…
Se… Pe… Se… Pe…
30, 30,
20… 20… Ch… 20… 20… Ch…
R…
p… 33… 34… -3… 96… 10… -3…
c…
(…
E…
p… 43… 43… -1… 12… 12… -0…
(…
R…
p…
m…
(… 36… 36… -0… 10… 10… 0.8
(…
m…
(…
A…
s…
m…
(… 45… 45… -0… 13… 13… 0.4
(…
m…
(…
L… — 0.3
f… 79… % 79… % pt… 77… % 77… % pt…
(…
A…
l…
of 1,… 1,… 2.9 1,… 1,… 4.0
p…
h…
(…
A…
a…
s… 776 784 -1… 779 781 -0…
l…
(…
T… 35… 35… 0.1 1,… 1,… -0…
f…
S…
f… 57… 57… -0… 16… 17… -0…
(…
(…
S…
p… 16… 16… -0… 16… 16… -0…
t…
(…
A…
p… $ 23… $ 18… 26… $ 22… $ 18… 21…
f…
P…
r…
y…
p… 21… 17… 23… 21… 18… 16…
R…
(…
(…
R…
(… 18… 15… 21… 17… 15… 16…
(…
R…
e…
s… 18… 15… 21… 18… 15… 17…
i…
(…
P…
(… 17… 13… 23… 16… 13… 17…
(…
C…
(… 17… 15… 16… 17… 15… 11…
(…
C…
e… 12… 12… 6.0 12… 12… 3.8
f…
(…
C…
e…
s… 17… 15… 15… 17… 15… 12…
i…
(…
C…
e…
f…
a… 12… 12… 4.7 12… 12… 4.0
s…
i…
(…
C…
e…
f…
s…
i… 12… 12… 3.8 12… 12… 3.2
a…
p…
s…
(…
F…
c…
p…
g… $ 3.… $ 2.… 66… $ 3.… $ 2.… 50…
i…
f…
t…
(…
F…
c…
p…
g… $ 3.… $ 2.… 63… $ 3.… $ 2.… 48…
i…
f…
t…
F…
c…
in 548 554 -1… 1,… 1,… -1…
g…
(…
A…
f… 73… 72… 1.2 73… 72… 1.2
e…
E…
A…
at
e… 803 802 0.1 803 802 0.1
of
p…
(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.
12
Southwest Airlines Co.
Condensed Consolidated Balance Sheet
(in millions)
(unaudited)
September 30, 2026 December 31, 2025
──────────────────────────────────────────────────────────────────────────────
ASSETS
Current assets:
Cash and cash equivalents $ 3,624 $ 3,231
Accounts and other 1,313 1,149
receivables
Inventories of parts and
supplies, at 997 775
cost
Prepaid expenses and other
current 572 490
assets
Total current assets 6,506 5,645
Property and equipment, at
cost:
Flight equipment 26,144 26,293
Ground property and 9,686 9,163
equipment
Deposits on flight
equipment purchase 723 401
contracts
Assets constructed for 88 88
others
36,642 35,945
Less allowance for
depreciation and 15,654 15,700
amortization
20,988 20,245
Goodwill 970 970
Operating lease 994 1,089
right-of-use assets
Other assets 1,081 1,112
$ 30,539 $ 29,061
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,847 $ 1,991
Accrued liabilities 2,382 2,349
Current operating lease 278 312
liabilities
Air traffic liability 7,078 5,945
Current maturities of 2,153 324
long-term debt
Total current liabilities 13,738 10,921
Long-term debt less current 3,734 4,577
maturities
Air traffic liability - 1,199 1,219
noncurrent
Deferred income taxes 2,513 2,289
Noncurrent operating lease 706 768
liabilities
Other noncurrent 1,320 1,306
liabilities
Stockholders' equity:
Common stock 888 888
Capital in excess of par 4,326 4,322
value
Retained earnings 16,853 16,388
Accumulated other
comprehensive income 51 -24
(loss)
Treasury stock, at cost -14,790 -13,593
Total stockholders' equity 7,329 7,981
$ 30,539 $ 29,061
13
Southwest Airlines Co.
Condensed Consolidated Statement of Cash Flows
(in millions) (unaudited)
Three Nine
CASH months months
FLOWS ended ended
FROM Septem… Septemb…
OPERA… 30, 30,
ACTIV… 2026 2025 2026 2025
──────────────────────────────────────────────────────────────────────────────
Net $ 270 $ 54 $ 730 $ 118
income
Adjus…
to
recon…
net
income
to
net
cash
provi…
by
opera…
activ…
Depre…
and 398 394 1,198 1,189
amort…
Impai…
of 30 — 30 8
long-…
assets
Defer…
income 83 14 201 37
taxes
Gain
on
sale
of -96 -13 -272 -28
prope…
and
equip…
Gain
on -118 — -118 -3
sale-…
trans…
Chang…
in
certa…
assets
and
liabi…
Accou…
and -95 -83 -151 64
other
recei…
Other -41 3 -156 359
assets
Accou…
payab…
and 41 11 -14 -209
accru…
liabi…
Air
traff… 92 -172 1,113 -117
liabi…
Other -86 16 -216 -19
liabi…
Cash
colla…
provi… — — — -22
to
deriv…
count…
Other, 33 63 115 170
net
Net
cash
provi… 513 287 2,460 1,547
by
opera…
activ…
CASH
FLOWS
FROM
INVES…
ACTIV…
Capit… -1,006 -735 -2,454 -1,922
expen…
Proce…
from
sale
of 285 57 735 108
prope…
and
equip…
Proce…
from 212 — 212 23
sale-…
trans…
Purch…
of — -100 — -470
short…
inves…
Proce…
from
sales
of — 350 — 1,577
short…
and
other
inves…
Other, — — -6 -3
net
Net
cash
used -509 -428 -1,513 -687
in
inves…
activ…
CASH
FLOWS
FROM
FINAN…
ACTIV…
Proce…
from
issua… — — 1,500 —
of
long-…
debt
Proce…
from
Emplo… 14 14 46 46
stock
plans
Repur…
of — -250 -1,250 -2,500
common
stock
Payme…
of
long-…
debt -5 -6 -442 -2,603
and
finan…
lease
oblig…
Payme…
of -176 -189 -357 -399
cash
divid…
Other, -4 -1 -51 -11
net
Net
cash
used -171 -432 -554 -5,467
in
finan…
activ…
NET
CHANGE
IN
CASH -167 -573 393 -4,607
AND
CASH
EQUIV…
CASH
AND
CASH
EQUIV… 3,791 3,475 3,231 7,509
AT
BEGIN…
OF
PERIOD
CASH
AND
CASH
EQUIV… $ 3,624 $ 2,902 $ 3,624 $ 2,902
AT END
OF
PERIOD
14
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:
1. Charges associated with tentative and/or actual litigation settlements;
2. Expenses associated with professional advisory fees related to the Company's
implementation of its comprehensive transformational plan;
3. Charges associated with Employee severance and other related payments
resulting from corporate workforce reductions;
4. Reversal of breakage revenue recorded in prior years related to a portion of
non-expiring flight credits issued to Customers that have either been redeemed
or are expected to be redeemed in future periods;
5. Non-cash impairment charges to remove certain assets no longer in use that
are not related to the direct operations of the Company from the unaudited
Condensed Consolidated Balance Sheet;
6. 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;
7. 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
8. A credit received from the Department of Transportation ("DOT") regarding a
settlement reached for the Company's December 2022 operational disruption in
light of the Company significantly improving its on-time performance and
completion factor through the Company's investment in its Network Operations
Control.
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.
15
Southwest Airlines Co.
Non-GAAP Return on Invested Capital (ROIC)
(in millions)
(unaudited)
Twelve Twelve
months September months September
ended 30, 2026 ended 30, 2025
──────────────────────────────────────────────────────────────────────────────
Operating
income, $ 1,384 $ 315
as
reported
Breakage
revenue 285 116
adjustme…
Severance
and 45 62
related
costs
Voluntary
Employee — 5
programs
Net
impact — -25
from fuel
contracts
Professi…
advisory — 18
fees
Transfor… — 37
costs
DOT -11 —
settleme…
Litigati… 13 19
accruals
Impairme… 30 8
Operating
income, $ 1,747 $ 555
non-GAAP
Net
adjustme…
for 214 201
aircraft
leases
(a)
Adjusted
operating
income, $ 1,961 $ 756
non-GAAP
(A)
Non-GAAP
tax rate 22.7 % -d 22.4 % -e
(B)
Net
operating
profit
after-ta… $ 1,516 $ 587
NOPAT
(A* (1-B)
= C)
Debt,
including
finance $ 5,244 $ 5,921
leases
(b)
Equity 7,409 9,181
(b)
Net
present
value of
aircraft 814 977
operating
leases
(b)
Average
invested $ 13,467 $ 16,079
capital
Equity
adjustme…
for hedge -8 32
accounti…
(c)
Adjusted
average
invested $ 13,459 $ 16,111
capital
(D)
Non-GAAP
ROIC, 14.6 % 4.7 %
pre-tax
(A/D)
Non-GAAP
ROIC, 11.3 % 3.6 %
after-tax
(C/D)
(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 prior period impact of these gains and/or
losses is reflected in the Net impact from fuel contracts in the numerator.
(d) The GAAP twelve month rolling tax rate as of September 30, 2026, was 22.2
percent, and the Non-GAAP twelve month rolling tax rate was 22.7 percent. See
Note Regarding Use of Non-GAAP Financial Measures for additional information.
(e) The GAAP twelve month rolling tax rate as of September 30, 2025, was 21.8
percent, and the Non-GAAP twelve month rolling tax rate was 22.4 percent. See
Note Regarding Use of Non-GAAP Financial Measures for additional information.
16
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)
September 30, 2026
──────────────────────────────────────────────────────────────────────────────
Current maturities of long-term debt, as $ 2,153
reported
Long-term debt less current maturities, 3,734
as reported
Total debt, including finance leases (A) 5,887
Add:
Current operating lease liabilities, as 278
reported
Add:
Noncurrent operating lease liabilities, 706
as reported
Adjusted debt (B) $ 6,871
Twelve Months Ended
September 30, 2026
Net income, as reported (C) $ 1,053
Interest expense (income), net of 59
capitalized interest, as reported
Income tax expense (benefit), as 300
reported
Non-operating other (gains) losses, net, -28
as reported
Operating income, as reported 1,384
Impact of special items 363
Operating income, non-GAAP 1,747
Depreciation and amortization 1,569
Fixed portion of operating lease expense 345
Adjusted EBITDAR (D) $ 3,661
Total debt to Net income (A/C) 5.6x
Adjusted debt to adjusted EBITDAR (B/D) 1.9x
17