Footnotes & Disclosures

1) The 2018 Southwest Airlines One Report 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 Vision; (ii) the Company’s financial position, outlook, goals, targets, strategies, plans, expectations, and projected results of operations, including specific factors expected to impact the Company’s results of operations; (iii) the Company’s network, growth, and capacity plans, strategies, opportunities, and expectations; (iv) the Company’s expectations and goals with respect to enhancing Shareholder value and returning value to Shareholders; (v) the Company’s fleet plans, strategies, and expectations, including its fleet modernization initiatives, and the Company’s related financial and operational expectations; (vi) the Company’s operational initiatives and related plans and expectations, including with respect to its technology and innovation initiatives; and (vii) the Company’s other initiatives, including construction, safety, fuel, and environmental initiatives, and related plans and expectations. These 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) changes in demand for the Company’s services and other changes in consumer behavior; (ii) the impact of a continually changing business environment, economic conditions, fuel prices, actions of competitors (including without limitation pricing, product, scheduling, capacity, and network decisions, and consolidation and alliance activities), and other factors beyond the Company’s control, on the Company’s business decisions, plans, strategies, and results; (iii) the impact of governmental actions and governmental regulations related to the Company’s operations, in particular with respect to the grounding of the Company’s 737 MAX 8 fleet; (iv) the Company’s dependence on third parties, in particular with respect to its fleet and technology plans and expectations, and the impact on the Company’s operations and results of operations of any related third party delays or non-performance; (v) the Company’s ability to timely and effectively implement, transition, and maintain the necessary information technology systems and infrastructure to support its operations and initiatives; (vi) the Company’s ability to timely and effectively prioritize its initiatives and related expenditures; (vii) the impact of labor matters on the Company’s business decisions, plans, strategies, and costs; (viii) changes in aircraft fuel prices, the volatility of commodities used by the Company for hedging jet fuel, and any changes to the Company’s fuel hedging strategies and positions; and (ix) other factors, as described in the Company’s filings with the Securities and Exchange Commission, including the detailed factors discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2018.
2) Source: Air Travel Consumer Reports. Rankings based on complaints filed with the Department of Transportation (DOT) per 100,000 passengers served. Southwest tied for 1st place in the DOT's Year-to-Date (YTD) Customer Service ranking among Operating Carriers. Southwest was by far #1 among Marketing Carriers. An Operating Carrier can be an airline that only operates flights on behalf of another/larger carrier (i.e. "Branded Codeshare Partner") or any airline that sells and flies under its own brand (a.k.a. "Marketing Carrier").
3) A revenue ton mile (RTM) is one ton of revenue traffic (passenger and cargo) transported one mile.
4) 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 noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this filing that was not prepared in accordance with GAAP and should not be considered as an alternative to the information prepared in accordance with GAAP. The Company provides supplemental non-GAAP financial information (also referred to as "excluding special items"), including results that it refers to as "economic," which the Company's management utilizes to evaluate its ongoing financial performance and the Company believes provides additional insight to investors as supplemental information to its GAAP results. The non-GAAP measures provided that relate to the Company’s performance on an economic fuel cost basis include Fuel and oil expense, non-GAAP; Total operating expenses, non-GAAP; Operating income, non-GAAP; Adjusted operating income, non-GAAP; Income tax rate, non-GAAP; Provision for income taxes, non-GAAP; Net income, non-GAAP; Net income per share, diluted, non-GAAP; and Operating expenses per ASM, non-GAAP, excluding ProfitSharing and Fuel and oil expense. 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 that are designated as hedges are reflected as a component of Fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight on the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within Fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or market-to-market gains or losses from derivative instruments is included in Note 2 and Note 10 to the Consolidated Financial Statements on Form 10-K for the fiscal year ended Dec. 31, 2018, which also discusses the Company's Jan. 1, 2018 adoption of the New Hedging Standard. The Company’s GAAP results in the applicable periods include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. Special items include:

  • A gain recognized in first quarter 2018, associated with the sale of 39 owned Boeing 737-300 aircraft and a number of spare engines to a third party. These aircraft were previously retired as part of the Company's exit of its Classic fleet. The gain was not anticipated, and the Company associates it with the grounding charge recorded in third quarter 2017; and

  • An adjustment to Provision for income taxes related to the Tax Cuts and Jobs Act legislation enacted in December 2017, which resulted in a re-measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21 percent. This adjustment was a non-cash item and was treated as a special item.


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

The Company has also provided free cash flow, which is a non-GAAP financial measure. The Company believes free cash flow is a meaningful measure because it demonstrates the Company’s ability to service its debt, pay dividends, and make investments to enhance Shareholder value. Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ; therefore, the Company is providing an explanation of its calculation for free cash flow. For the year ended Dec. 31, 2018, the Company generated $3.1 billion in free cash flow, calculated as operating cash flows of $4.9 billion less capital expenditures of $1.9 billion less assets constructed for others of $54 million plus reimbursements for assets constructed for others of $170 million.

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. Although return on invested capital is not a measure defined by GAAP, it is calculated by the Company, in part, using non-GAAP financial measures. Those non-GAAP financial measures are utilized for the same reasons as those noted above for Net income, non-GAAP and Operating income, non-GAAP. The comparable GAAP measures include charges or benefits that are deemed "special items" that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends, and the Company’s profitability targets and estimates, both internally and externally, are based on non-GAAP results since in the vast majority of cases the "special 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.

Information regarding special items and reconciliation of reported amounts to amounts excluding special items are included in the accompanying reconciliation tables in the Performance section.
5) Load factor is RPMs66) An RPM is one paying Passenger flown one mile. Also referred to as “traffic,” which is a measure of demand for a given period. divided by ASMs.77) An available seat mile (ASM) is one seat (empty or full) flown one mile. Also referred to as “capacity,” which is a measure of the space available to carry Passengers in a given period.
6) An RPM is one paying Passenger flown one mile. Also referred to as “traffic,” which is a measure of demand for a given period.
7) An available seat mile (ASM) is one seat (empty or full) flown one mile. Also referred to as “capacity,” which is a measure of the space available to carry Passengers in a given period.
8) The average distance in miles the aircraft is flown per trip.
9) The average amount of Passenger revenue per revenue Passenger carried.
10) Calculated as Passenger revenue divided by RPMs. 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.
11) Calculated as operating revenues divided by ASMs. Also referred to as “operating unit revenues” or “RASM,” this is a measure of operating revenue production based on the total available seat miles flown during a particular period. Year ended 2015 RASM excludes a $172 million one-time special revenue adjustment. Including the special revenue adjustment, RASM would have been 14.11 cents for the year ended 2015.
12) Calculated as operating expenses divided by ASMs. Also referred to as “unit costs” or “costs 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 efficiencies.
13) Active, full-time equivalent Employees as of Dec. 31 for specific calendar year.
14) Aircraft in the Company’s fleet at yearend, less Boeing 717-200s removed from service in preparation for transition out of the fleet. Fleet at yearend 2018 does not include the Company's Boeing 737-300 aircraft that were retired and grounded at the end of third quarter 2017 but remained in the Company's possession.
15) As of Jan. 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2014-09: Revenue from Contracts with Customers (the "New Revenue Standard"), ASU 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (the "New Retirement Standard"), and ASU 2017-12: Targeted Improvements to Accounting for Hedging Activities (the "New Hedging Standard"), using the retrospective method. As a result, certain prior period results have been recast due to the transition methods applied.
16) The Company has chosen to not recast 2009-2015 results for the New Revenue Standard, as permitted by applicable accounting guidance. Therefore, years 2009-2015 only reflect recast results for the New Retirement Standard and the New Hedging Standard.
17) As measured by the U.S. DOT’s O&D Survey for the 12 months ended Sept. 30, 2018 based on domestic originating passengers. O&D stands for Origin & Destination.
18) Metro areas are areas around cities that may include multiple major airports. In some cases, the airports within a metro area may serve separate competitive markets.
19) Co-terminal: Airports that share a common city or region; for example, Newark, LaGuardia, and JFK are considered co-terminals to one another.
20) Percentage of year-over-year ASM77) An available seat mile (ASM) is one seat (empty or full) flown one mile. Also referred to as “capacity,” which is a measure of the space available to carry Passengers in a given period. growth that touched California.
21)A slot is the right of an air carrier, pursuant to regulations by the Federal Aviation Administration, to operate a takeoff or landing at a specific time at certain airports.
22) Growth in weekday flights as a percentage, for fourth quarter 2018 compared with fourth quarter 2017.
23) Tax amounts for each individual special item are calculated at the Company’s effective tax rate for the applicable period and totaled in this line item.
24) 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.
25) The GAAP annual tax rate as of Dec. 31, 2018 was 22.1 percent, and the annual non-GAAP tax rate was also 22.1 percent. See Footnote 4 Regarding use of non-GAAP Financial Measures for additional information.
26) 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.
27) 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 is reflected in the Net impact from fuel contracts in the numerator.
28) Flight includes Cabin Service Support, Inflight, and Flight Operations. Ground, Customer, and Fleet Services includes Provisioning, Customer Services, Ground Operations, and Operations Coordination Center.
29) First and second checked pieces of luggage, size and weight limits apply.
30) Fare differences might apply.
31) Each qualified organization is eligible to receive up to six roundtrip tickets per calendar year as part of the Tickets for Time Program.
32) Based on Independent Sector’s estimated value of a volunteer hour. For more information, visit: http://www.independentsector.org/resource/the-value-of-volunteer-time/
33) Includes Southwest’s contributions to Employee health and welfare plans, workers’ compensation insurance, and employer payroll taxes.
34) 401(k) savings plan participation for 2017 has been revised to be consistent with current year and prior years’ participation calculations.
35) Conversions to MWh are based on default densities and heating values from the CDP guidance document, “Technical Note: Conversion of fuel data to MWh.” We use this unit of measurement for consistency with our CDP reporting.
36) Our energy and emissions related to the use of propane fuel for 2018 does not include propane used in forklifts.
37) Water consumption is primarily for domestic use at our facilities.
38) NOx and SOx emissions are reported in our annual emissions inventories for our DAL and PHX facilities. Data is from prior year due to air emissions reporting cycle.
39) Definition has been revised to count only electric Ground Support Equipment (GSE) where there is a fossil-fueled alternative. Total numbers of electric Ground Support Equipment for 2014 through 2017 have been revised to reflect the revised definition.
40) Purchases of renewable energy certificates (kWh) has been revised based on review of renewable energy certificate records for 2017.
41) Waste and material recycled from aircraft and select facilities as part of Southwest’s waste management and co-mingled recycling programs. Does not include international flights due to regulations that require waste from international flights to be incinerated. Does not include AirTran flights.