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Performance

Reporting on Business Performance

Southwest’s Annual Report to Shareholders includes an opening letter to Shareholders from Gary Kelly, Chairman of the Board and Chief Executive Officer, and provides an overview of our business and financial performance in 2020. The Annual Report also includes a discussion of our business, risks, Management’s discussion and analysis of Southwest’s financial condition and results of operations, and audited financial statements.

Read our 2020 Annual Report to Shareholders here.

Southwest’s Proxy Statement is provided to Shareholders in advance of the Annual Meeting of Shareholders. It contains Shareholder proposals as well as Executive compensation information.

View the complete 2021 Proxy Statement here.

The COVID-19 pandemic had a devastating impact on our 2020 financial performance, but we remain laser-focused on managing through this challenging time, and we intend to thrive post-pandemic.2828) The 2020 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 environmental sustainability beliefs, plans, and expectations; (ii) the Company’s plans, goals, objectives, and initiatives related to diversity, equity, and inclusion; (iii) the Company’s plans and expectations with respect to Employee training, development, benefits, (including post-retirement benefits) pay, and staffing (including with respect to avoiding furloughs or pay cuts); (iv) the Company’s Vision; (v) the Company’s network plans, expectations, and opportunities, including factors and assumptions underlying the Company’s plans and expectations; (vi) the Company’s initiatives and related goals with respect to global distribution system access and related alliances and capabilities; (vii) the Company’s financial position, outlook, plans, strategies, goals, targets, and projected results of operations; (viii) the Company’s fleet plans and expectations; and (ix) the Company’s initiatives and expectations with respect to fuel efficiency and emissions. 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) the extent of the COVID-19 pandemic, including the duration, spread, severity, and any recurrence of the COVID-19 pandemic, including through any new variant strains of the underlying virus; the effectiveness and availability of vaccines; the duration and scope of related government orders and restrictions; the duration and scope of the Company’s actions to address Customer and Employee health concerns; the extent of the impact of the COVID-19 pandemic on overall demand for air travel and the Company’s related business plans and decisions; and any negative impact of the COVID-19 pandemic on the Company’s access to capital; (ii) the impact of fears or actual outbreaks of other diseases, economic conditions, fuel prices, extreme or severe weather and natural disasters, fears of terrorism or war, actions of competitors, consumer perception, 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; (iii) the impact of governmental actions and governmental regulations on the Company’s plans, strategies, and operations; (iv) the Company's dependence on Boeing with respect to the Company's fleet order book and delivery schedule; (v) the Company’s dependence on other third parties for products and services, in particular with respect to global distributions systems and related alliances and capabilities, and the impact on the Company’s operations and results of operations of any third party delays or non-performance; (vi) 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; (vii) the impact of labor matters on the Company’s result of operations, business decisions, plans, and strategies; and (viii) 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, 2020.

See Footnotes: 2929) The Company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). These GAAP financial statements may include (i) unrealized noncash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult. As a result, the Company also provides financial information in this report 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 net income (loss), 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 that are designated as hedges are reflected as a component of fuel and oil expense, for both GAAP and non-GAAP (including economic) purposes in the period of contract settlement. The Company believes these economic results provide further insight into the impact of the Company's fuel hedges on its operating performance and liquidity since they exclude the unrealized, noncash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within fuel and oil expense. This enables the Company's management, as well as investors and analysts, to consistently assess the Company's operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations, and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies. Further information on (i) the Company's fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in Note 11 to the Consolidated Financial Statements on Form 10-K for the fiscal year ended Dec. 31, 2020. The Company’s GAAP results in the applicable periods may include other charges or benefits that are also deemed "special items," that the Company believes make its results difficult to compare to prior periods, anticipated future periods, or industry trends. Financial measures identified as non-GAAP (or as excluding special items) have been adjusted to exclude special items. For the periods presented, in addition to the items discussed above, special items include: • Proceeds related to the Payroll Support Program under the CARES Act, which were used to pay Employee salaries, wages, and benefits; • Accrued charges related to the special termination benefits upon Employees accepting Voluntary Separation Program 2020 or Extended ETO as of Dec. 31, 2020; • Gains associated with the sale-leaseback of 10 Boeing 737-800 aircraft and 10 Boeing 737 MAX 8 aircraft to third parties; • A noncash impairment charge related to 20 Boeing 737-700 aircraft that were retired during 2020; • Unrealized losses related to 12 forward-starting interest rate swap agreements. During 2020, the interest rate swap agreements, which were related to 12 737 MAX 8 aircraft leases (with deliveries originally scheduled between June 2020 and September 2020), were de-designated as hedges due to the scheduled delivery range no longer being probable, resulting in the mark-to-market changes being recorded to earnings; and • A post-retirement curtailment charge related to Employees who accepted Voluntary Separation Program 2020 and elected to participate in the Company's Retiree medical benefits plan. Because management believes special items can distort the trends associated with the Company’s ongoing performance as an airline, the Company believes that evaluation of its financial performance can be enhanced by a supplemental presentation of results that exclude the impact of special items, in order to enhance consistency and comparativeness with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods. The following measure is 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: net income (loss), non-GAAP. Information regarding special items and reconciliation of reported amounts to amounts excluding special items are included in the accompanying reconciliation table in the Performance section., 3030) Active, full-time equivalent Employees as of Dec. 31 for specific calendar year. Included 10,421 Employees participating in the Extended Emergency Time Off program as of Dec. 31, 2020., 3131) Includes 32 Boeing MAX 737 aircraft in long-term storage as of Dec. 31, 2020. Includes 60 Boeing 737 Next Generation aircraft removed from the active fleet and remaining in long-term storage as of Dec. 31, 2020., 3232) Includes seasonal destinations, as well as seven international stations that still had suspended service as of Dec. 31, 2020, due to the COVID-19 pandemic (BZE, GCM, LIR, NAS, PLS, SJO, and CZM). Service to CZM resumed on March 11, 2021.

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