Southwest Airlines (LUV) Risk Factor Changes

The forum selection, waiver of jury trial, and derivative proceedings threshold provisions may increase costs to bring a claim, discourage claims, limit a Shareholder’s ability to bring a claim, or limit a Shareholder…

The Company’s Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the United States District Court for the Northern District of Texas or, if such court lacks jurisdict…

The Company has adopted certain provisions in its Bylaws that could increase costs to bring a claim, discourage claims, limit the ability of the Company’s Shareholders to bring a claim, or limit the ability of the Com…

The Company’s reputation and brand could be harmed if it were to experience significant negative publicity through social media or otherwise.

The Company continues its initiative to expand its network and develop strategic relationships with a number of airlines through interline agreements, and potentially other forms of cooperation and support.

The Company has entered into interline partnership agreements for international flights, including with Icelandair, China Airlines, EVA Air, Philippine Airlines, Condor, and Turkish Airlines.

The Company’s future results may suffer if it is unable to effectively manage its current and contemplated international operations or Extended Operations (“ETOPS”).

The Company is subject to changing federal, state, local, and international laws and regulations relating to the protection of the environment, including those relating to aircraft and ground-based emissions, discharg…

Similarly, the federal government singularly controls all U.S.

The FAA promulgates and enforces regulations affecting the airline industry and exercises extensive regulatory oversight of the Company’s operations.

The Company is expanding its use of AI and machine-learning to carry out elements of its business strategy.

The Company has a dedicated cybersecurity team and program, along with support from legal advisors and other resources, focused on current and emerging data security matters.

The Company’s IT Systems or those of third-party service providers could be damaged or interrupted by catastrophic events beyond its control such as fires, floods, earthquakes, tornadoes and hurricanes, power loss, co…

The Company must securely handle high volumes of traffic and operational data, which makes it vulnerable to various security risks and interruptions.

The Company depends heavily on the use of computer systems, hardware, software, technology infrastructure, operational technology, networks, and online sites (collectively, “IT Systems”) to run its ongoing operations…

•outbreaks of disease such as the COVID-19 pandemic;

•actual or potential disruptions in the air traffic control system (including, for example, as a result of FAA system outages or inadequate FAA staffing levels, as the United States has recently seen a shortage of air…

While the Company operates across a diverse geographic footprint, its operations at times have been adversely and materially impacted by severe weather, such as Winter Storm Fern in January 2026, Hurricane Milton in O…

The Company is also dependent on third-party vendors and service providers.

The Company’s success depends on its ability to attract and retain appropriate levels of skilled personnel.

The airline business is labor intensive, and for the year ended December 31, 2025, Salaries, wages, and benefits expense represented approximately 47 percent of the Company's operating expenses.

The Company currently operates a higher proportion of the Boeing 737 aircraft than other air carriers in the industry, and therefore may encounter novel hazards, age-related maintenance issues, or airworthiness issues…

The Boeing MAX aircraft are crucial to the Company’s ability to operate and grow its business and fleet modernization initiatives.

The Company’s historical low-fare position has been challenged by the removal of fare floors for certain routes by other carriers, leading to a lower fare offering across the industry, as well as “unbundled” service o…

The Company is reliant on the success of its strategic plans and initiatives to increase revenues and help offset increasing costs.

The Company’s business, operating results, and financial condition could be adversely impacted if it is unable to effectively execute its strategic plans.

The Company’s low-cost structure has been one of its primary competitive advantages, as it has generally enabled the Company to offer low fares, drive traffic volume, grow market share, and protect profits.

profitability.

Airlines are inherently dependent upon energy to operate, and jet fuel and oil represented approximately 19 percent of the Company's operating expenses for 2025.

The Company's business can be significantly affected by the availability of jet fuel, fuel prices, and volatility of fuel prices and the Company's operations are subject to disruption in the event of any delayed suppl…

During unfavorable economic conditions, low fares are often used to stimulate traffic.

Businesses and other travelers are able to forego air travel by using other communications such as videoconferencing, business communication platforms, and the Internet.

•The Company’s reputation and brand could be harmed if it were to experience significant negative publicity through social media or otherwise.

•The Company is currently subject to regulatory actions and pending litigation, and judgment, penalties, or fines rendered against the Company could adversely affect the Company’s operating results.

•The Company’s future results may suffer if it is unable to effectively manage its current and contemplated international operations or Extended Operations.

•The Company is subject to various environmental requirements and risks; the cost of compliance with more stringent environmental regulations, failure to comply with environmental regulations, or failure to otherwise…

•The Company is subject to extensive government regulation that may disrupt or necessitate modifications to the Company’s operations, business plans, and strategies, or increase the Company’s operating costs.

•The Company is increasingly exposed to cybersecurity attacks and data incidents impacting its IT Systems, and such incidents could have a disruptive and material adverse effect on the Company’s business, financial po…

•The Company is heavily dependent on technology to operate its business; any failure, disruption, breach, or delay in the Company’s information systems or in implementation of necessary changes could materially advers…

•The airline industry has faced on-going security concerns and related cost burdens; further threatened or actual terrorist attacks, war, or other hostilities could significantly harm the airline industry and the Comp…

•The Company is currently dependent on a single engine supplier, as well as single suppliers of certain other aircraft parts and equipment; therefore, the Company could be materially adversely affected (i) if it were…

•The Company could be materially adversely affected in the event of conflict with its Employees or its Employees’ representatives or if the Company were unable to employ and retain appropriate numbers of qualified Emp…

•The Company is currently dependent on Boeing as the sole manufacturer of the Company’s aircraft.

•The Company’s business, operating results, and financial condition could be adversely impacted if it is unable to effectively execute its strategic plans.

•The Company’s low-cost structure has historically been a competitive advantage, and many factors have and could continue to adversely affect the Company’s ability to control its costs.

•The Company's business, strategic plans, and profitability can be significantly affected by the availability of jet fuel, fuel prices, and volatility of fuel prices, and the Company's operations are subject to disrup…

The Company’s Bylaws designate specific courts as the exclusive forum for certain legal actions between the Company and its Shareholders, which could increase costs to bring a claim, discourage claims, or limit the ab…

Company’s advertising campaigns, sponsorship arrangements or marketing programs; (iii) Customer perceptions of the Company’s use of social media; (iv) Customer and other stakeholder perceptions of statements made by t…

The Company operates in a public-facing industry with significant exposure to social media.

While the new presidential administration is not expected to pursue federal efforts to significantly increase sustainability-related regulatory requirements or require the disclosure of certain climate-related informa…

Additionally, the Company is subject to increasing regulation imposing mandatory disclosure of sustainability and climate-related goals.

The Company also makes certain disclosures regarding sustainability, including the Company’s sustainability goals and plans to address carbon emissions, and many of these disclosures are necessarily based on (i) estim…

The Company’s ability to achieve its environmental sustainability goals is subject to risks and uncertainties, many of which are outside of its control.

Furthermore, to the extent that the Company may seek to achieve its voluntary climate goals and/or mandatory climate obligations through the use of carbon offsets, it may be exposed to additional costs associated with…

The Company is attempting to diversify its sources of jet fuel or otherwise seek to limit its reliance on fossil-fuel based fuels, such as through increasing the volumes of SAF used in its operations.

In addition to responding to legislative and regulatory requirements, the Company has voluntarily set near- and long-term environmental sustainability plans and goals.

could affect the Company’s operations, infrastructure, and financial results.

Finally, the potential acute and chronic physical effects of climate change, such as increased frequency, duration, and severity of extreme weather events, longer-term changes in weather patterns, and other climate-re…

In addition to risks from potential changes to environmental regulation and policy, the transition to lower-carbon technologies could materially adversely affect the Company’s financial results.

The Company is subject to changing federal, state, local, and international laws and regulations relating to the protection of the environment, including those relating to aircraft and ground-based emissions, discharg…

•changes in laws that may limit the Company's ability to enter into fuel derivative contracts to hedge against increases in fuel prices;

•enhanced emissions and climate reporting obligations;

•mandates that affect the usage of SAF;

•changes to environmental regulations;

could cause system interruptions, delays, and loss of critical data, and could prevent the Company from processing Customer transactions or providing services, which could make the Company's business and services less…

limit or even curtail its growth, delay strategic initiatives, increase its compliance costs, harm its reputation, or reduce its competitive advantage.

adversely affect demand for the Company’s services, resulting in an adverse effect on its business, results of operations, and financial condition.

products, or otherwise fulfill their commitments to the Company, could materially adversely affect the Company’s operations.

certain flood insurance is no longer available.

As discussed under "Business - Insurance," the Company carries insurance of types customary in the airline industry.

Salaries, wages, and benefits constituted approximately 45.1 percent of the Company's operating expenses during 2024.

The Company's low-cost structure can also be negatively impacted by costs over which the Company has limited control.

has experienced significant inflationary cost pressure, particularly with respect to Salaries, wages, and benefits expense.

The Company is also reliant upon the readily available supply and timely delivery of jet fuel to the airports that it serves.

In addition, the Company has had to de-designate certain derivative instruments from their hedging relationships because the derivatives no longer qualify for hedge accounting under applicable accounting standards.

The Company's ability to mitigate the impact of fuel price increases could also be limited by factors such as its historical low-fare reputation, the portion of its Customer base that purchases travel for leisure purp…

The Company’s Bylaws further provide that, as permitted by the TBOC, no shareholder (as defined by the TBOC) may institute or maintain a derivative proceeding unless that shareholder beneficially owns at least three (…

The Company operates in a public-facing industry with significant exposure to social media, and failure to maintain the Company’s reputation or brand could adversely affect its business, financial performance, market…

The Company could face increased litigation risks relating to alleged direct or indirect climate-related damages resulting from the Company’s operations, statements alleged to have been made by the Company or others i…

certain “anti-ESG” parties for making environmental or social commitments or pursuing certain environmental or social initiatives that are alleged to be political or polarizing in nature, which could adversely affect…

The Company makes certain disclosures regarding sustainability, many of which are based on estimates, assumptions, and timelines which are subject to high levels of uncertainty and inherently difficult to assess in ad…

The achievement of the Company’s plans and goals is materially dependent on the performance of third parties and government action, and these goals could be adversely affected by changes in third-party expectations, m…

The Company has voluntarily set near- and long-term environmental sustainability plans and goals, and any failure or perception of failure to meet or adequately progress against its sustainability plans or goals, whic…

•changes to environmental regulations, including mandates affecting the usage of SAF and enhanced emissions and climate reporting obligations;

The Company is expanding its use of AI and machine-learning.

actors are increasingly using technologies specifically designed to circumvent cybersecurity measures and avoid detection.

experienced operational challenges in connection with severe weather events and associated crew scheduling, such as during and subsequent to Winter Storm Elliott.

•laws and regulations, which may change or which may be inconsistent across various jurisdictions; and

to optimally adjust capacity.

If the Company’s operations, growth, or strategic initiatives were to be dependent upon the introduction of a new aircraft make and model to the Company’s fleet, the Company would need to, among other things, (i) deve…

Introducing a new aircraft manufacturer or fleet type could impose significant operational complexities, regulatory requirements, and costs on the Company.

aircraft may exceed supply, and manufacturers may face production constraints, supply chain shortages, changes in production rates, labor disruptions, or order backlogs that limit availability of aircraft.

The Company’s ability to execute its growth, fleet modernization, and strategic and operational plans may be affected by the timely procurement of additional aircraft on commercially favorable terms.

The Company may not be able to procure aircraft in the future in a timely manner or on favorable commercial terms, which could limit the Company’s growth or negatively affect the Company’s cost structure and competiti…

and a premium economy fare product with extra legroom.

loss developments.

As discussed under “Business - Insurance,” the Company carries insurance of types customary in the airline industry.

The Company’s ability to control labor costs is limited by the terms of its collective-bargaining agreements.

expense.

Historically, the Company attempted to manage its risk associated with volatile jet fuel prices by utilizing over-the-counter fuel derivative instruments to hedge a portion of its future jet fuel purchases.