SOUTHWEST AIRLINES CO.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

WEDNESDAY, MAY 16, 201815, 2019

To the Shareholders:

The Annual Meeting of the Shareholders of Southwest Airlines Co. will be held on May 16, 2018,15, 2019, at 10:00 a.m., EasternMountain Daylight Time, at the Historic Inns of Annapolis, 58 State Circle, Annapolis, Maryland,Renaissance Denver Downtown City Center Hotel, 918 17^th Street, Denver, Colorado, for the following purposes:

March 20, 2018,19, 2019, is the date of record for determining Shareholders entitled to receive notice of and to vote at the Annual Meeting or any adjournment or postponement thereof.

The Annual Meeting will be broadcast live on the Internet. To listen to the broadcast, log on towww.southwestairlinesinvestorrelations.com/news-and-events/events-and-presentations.

To attend the meeting in person, you will need to bring (i) a valid government-issued photo identification, such as a driver’s license or passport; and (ii) either an Admission Ticket or proof of ownership of Southwest Airlines Co. common stock as of March 20, 201819, 2019 (such as an account statement from your broker showing your stock ownership as of March 20, 2018)19, 2019). If you have received a paper copy of your proxy materials, an Admission Ticket is included with your proxy materials. If you have received your proxy materials electronically, you will need proof of ownership to be admitted to the meeting. If you are a proxy holder for a Shareholder of Southwest who owned shares of Southwest’s common stock as of March 20, 2018,19, 2019, you must also bring to the meeting the executed proxy naming you as the proxy holder, signed by the Shareholder who owned shares of Southwest’s common stock as of March 20, 2018.19, 2019.

Your vote is important. Please sign and returnAs described in your electronic proxy materials notice or on the enclosed proxy or voting instruction card, in the enclosed envelope to enable your shares to be represented at the meeting. Alternatively, you mayplease vote via telephone orby: (1) accessing the Internet as described inwebsite, (2) calling the toll-free number, or (3) signing, dating, and mailing the enclosed proxy or voting instruction card. We encourage you to vote via telephone or the Internet to help us save postage costs. In addition, if you vote via the Internet, you may elect to have next year’s Proxy Statement and Annual Report to Shareholders delivered to you electronically. We encourage you to enroll in electronic delivery, as it is a cost-effective way for us to provide you with proxy materials and annual reports.

		By Order of the Board of Directors,
		MarkMarilyn R. ShawPost
		Corporate Secretary

April 6, 20185, 2019

Table of Contents

Southwest Airlines Co.

P.O. Box 36611

Dallas, Texas 75235

(214)792-4000

PROXY STATEMENT

FOR

ANNUAL MEETING OF SHAREHOLDERS

To be Held May 16, 201815, 2019

GENERAL INFORMATION

This Proxy Statement is being furnished in connection with the solicitation of proxies by and on behalf of the Board of Directors of Southwest Airlines Co. (the “Company” or “Southwest”) for use at the Annual Meeting of Shareholders of the Company to be held on May 16, 2018,15, 2019, at 10:00 a.m., EasternMountain Daylight Time, at the Historic Inns of Annapolis, 58 State Circle, Annapolis, Maryland,Renaissance Denver Downtown City Center Hotel, 918 17^th Street, Denver, Colorado, or at such other time and place to which the meeting may be adjourned or postponed. The approximate date on which this Proxy Statement and accompanying Proxy are first being sent or given to Shareholders is April 6, 2018.5, 2019.

Annual Meeting Admission

To attend the meeting in person, you will need to bring (i) a valid government-issued photo identification, such as a driver’s license or passport; and (ii) either an Admission Ticket or proof of ownership of Southwest Airlines Co. common stock as of March 20, 201819, 2019 (such as an account statement from your broker showing your stock ownership as of March 20, 2018)19, 2019). If you have received a paper copy of your proxy materials, an Admission Ticket is included with your proxy materials. If you have received your proxy materials electronically, you will need proof of ownership to be admitted to the meeting. If you are a proxy holder for a Shareholder of Southwest who owned shares of Southwest’s common stock as of March 20, 2018,19, 2019, you must also bring to the meeting the executed proxy naming you as the proxy holder, signed by the Shareholder who owned shares of Southwest’s common stock as of March 20, 2018.19, 2019.

Voting Procedures

A representative of Broadridge Financial Solutions, Inc. will tabulate votes and serve as Inspector of Election for the meeting. Each Shareholder of record will be entitled to one vote for each share registered in the Shareholder’s name with respect to each matter to be voted on at the meeting. A “Shareholder of record” is a person or entity who holds shares on the record date that are registered in such Shareholder’s name on the records of Southwest’s transfer agent. A person or entity who holds shares through a broker, bank, or other nominee is considered a “beneficial owner” of the shares. You may receive more than one set of proxy materials. This means your shares are held in more than one account. Please vote all of your shares.

Voting by Shareholders of Record.If you are a Shareholder of record, you may vote by completing and returningthrough the enclosedInternet, using the instructions on the proxy card. You may also votecard, by telephone from the United States, using the number on the proxy card, or throughby completing and returning the Internet, using the instructions on theenclosed proxy card. Shares represented by proxy will be voted at the meeting and may be revoked at any time prior to the time at which they are voted by (i) timely submitting a valid, later-dated proxy; (ii) delivering a written notice of revocation to the Corporate Secretary of the Company; or (iii) voting in person at the meeting. Please note that attending the meeting without completing a ballot will not revoke any previously submitted proxy. If you properly complete and sign your proxy card, but do not indicate how your shares should be voted on a matter, the shares represented by your proxy will be voted in accordance with the recommendation of the Company’s Board of Directors.

Voting by Beneficial Owners.If you are a beneficial owner of shares, these proxy materials are being forwarded to you by your broker (or bank or other nominee) who is considered the Shareholder of record of your shares. As the beneficial owner of the shares, you are entitled to direct your broker as to how to vote your shares. You may so instruct your broker by completing the voting instruction card the broker provides to you. You may

also vote by telephone or through the Internet or by telephone as described in the applicable instructions your broker has provided with these proxy materials. You may also vote by completing the voting instruction

card the broker provides to you. You may change your vote by submitting new voting instructions to your broker in accordance with such broker’s procedures. If you provide voting instructions to your broker, your shares will be voted as you direct. If you do not provide voting instructions, pursuant to the rules of the New York Stock Exchange (the “NYSE”), your broker may vote your shares only with respect to proposals as to which it has discretion to vote under the NYSE’s rules. For any other proposals, the broker may not vote your shares at all, which is referred to as a “brokernon-vote.”Please note that, in the absence of your specific instructions as to how to vote, your broker may not vote your shares with respect to any of the proposals included in this Proxy Statement except for Proposal 3 (Ratification of the Selection of Independent Auditors), so please provide instructions to your broker regarding the voting of your shares.As the beneficial owner of shares, you are invited to attend the meeting; however, you may not vote your shares in person at the meeting unless you obtain a legal proxy from the Shareholder of record of your shares.

Quorum; Effect of Abstentions and BrokerNon-Votes

The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of the Company’s common stock entitled to vote at the meeting is necessary to constitute a quorum. Shareholders of record at the close of business on March 20, 2018,19, 2019, are entitled to vote at the meeting. As of that date, the Company had issued and outstanding 582,009,140546,648,017 shares of common stock. Abstentions and brokernon-votes are each included in the determination of the number of shares present and entitled to vote at the meeting for purposes of determining the presence or absence of a quorum for the transaction of business at the meeting; however, neither abstentions nor brokernon-votes are counted as voted either for or against a proposal and, as such, will not affect the outcome of the vote on any proposal. If you are a beneficial owner of shares and do not provide voting instructions to your broker, your broker will only be entitled to vote your shares in its discretion with respect to Proposal 3 (Ratification of the Selection of Independent Auditors). Your broker willnot be able to vote your shares in its discretion with respect to Proposals 1, 2, 4 or 5, which will be referred to as a “brokernon-vote” on those proposals.

PROPOSAL 1 — ELECTION OF DIRECTORS

At the Annual Meeting of Shareholders, eleven Directors are nominated to be elected for terms expiring at the 20192020 Annual Meeting of Shareholders. Gary C. Kelly, Tammy Romo, and Mark R. Shaw have been selected as a proxy committee by the Board of Directors, and it is the intention of the proxy committee that, unless otherwise directed therein, proxies will be voted for the election of all of the nominees listed below. Although it is not contemplated that any of the nominees will be unable to serve, if such a situation arises prior to the meeting, the proxy committee will act in accordance with its best judgment. Each of the nominees has indicated his or her willingness to serve as a member of the Board of Directors, if elected.

The following sets forth certain information for each nominee for Director of the Company.

David W. Bieglerhasserved since March 2018served as acting Chairman, President, and Chief Executive Officer of Southcross Energy Partners GP, LLC (“Southcross GP”) from March 2018 to September 2018, after previously serving as Southcross GP’s Chairman from August 2011 to January 2017, as its Chief Executive Officer from August 2011 to December 2014, and as its President from October 2012 to March 2014. Southcross GP is the general partner of Southcross Energy Partners, L.P., a limited partnership that owns, operates, develops, and acquires midstream energy assets. Mr. Biegler served as Chairman of Southcross Holdings LP, the sole owner of Southcross GP, from August 2014 to January 2016, and served as its Chief Executive Officer from August 2014 to December 2014. From July 2009 to August 2014, Mr. Biegler served as Chairman and Chief Executive Officer of Southcross Energy LLC, formerly the sole owner of Southcross GP. From 2003 to 2012, Mr. Biegler served as Chairman and Chief Executive Officer of Estrella Energy LP, a former investor in Southcross Energy, LLC. Mr. Biegler also served as interim President and Chief Executive Officer of Dynegy Inc., a provider of wholesale power, capacity, and ancillary services, from March 2011 to April 2011. He retired as Vice Chairman of TXU Corp. at the end of 2001, having served TXU Corp. as President and Chief Operating Officer from 1997 until 2001. He previously served as Chairman, President, and Chief Executive Officer of ENSERCH Corporation from 1993 to 1997. During the past five years, Mr. Biegler has served as a Director of the following entities (or of the general partner of the entity) that are or were publicly traded other than Southwest: Trinity Industries, Inc. (since 1992) and(1992-2018); Southcross Energy Partners, L.P. (since 2011); and Arcosa, Inc., aspin-off of Trinity Industries, Inc. (since 2018). Mr. Biegler also servesserved as a Director for Austin Industries.of Dynegy Inc. from 2003 to 2011. In November 2011, after Mr. Biegler had resigned from the Dynegy Inc. Board, certain subsidiaries of Dynegy Inc. filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Southcross Holdings LP, while he was serving as a director, filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in March 2016.

The Board has concluded that Mr. Biegler should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Biegler’s extensive experience as a Chief Executive Officer and Chief Operating Officer enable him to contribute significantly to the Board’s oversight responsibilities on matters relating to operational and financial strategies and risks, particularly in his roles as a member of the Board’s Audit Committee and Safety and Compliance Oversight Committee; (ii) Mr. Biegler’s senior management experience, as well as his experience from serving on multiple public company boards, enable him to contribute significantly with respect to the Board’s oversight of matters relating to executive compensation and compensation strategies, particularly in his role as Chair of the Board’s Compensation Committee; and (iii) Mr. Biegler’s broad-based knowledge in energy marketing is particularly pertinent in assisting the Board with its oversight of the Company’s fuel hedging program.

J. Veronica Bigginsis a Managing Partner in the Atlanta office of Diversified Search LLC, an executive and board search firm. Ms. Biggins was Managing Partner of the Atlanta office of Hodge Partners from 2007 until 2011 when Hodge Partners, also an executive and board search firm, became a part of Diversified Search. Ms. Biggins served as Assistant to the President of the United States and Director of Presidential Personnel under President William Jefferson Clinton and has also served as Chair of the Czech Slovak American Enterprise Fund. Ms. Biggins’ background includes 20 years’ experience with NationsBank (now Bank of America) and its predecessor. Prior to joining the White House, Ms. Biggins was one of the highest ranking women in the banking industry. During the past five years, Ms. Biggins has served as a Director of one publicly traded company other than Southwest: Avnet, Inc. (since 1997)(1997-2018). Ms. Biggins has also servedserves on a number ofnon-profit boards.

The Board has concluded that Ms. Biggins should continue to serve as a Director for the Company for the following reasons, among others: (i) Ms. Biggins brings to the Board extensive financial expertise, as well as knowledge of the airline industry, through her experience as a Director of AirTran Holdings, Inc., the former parent company of AirTran Airways, Inc., which was acquired by the Company in 2011; (ii) Ms. Biggins has extensive knowledge of compensation and governance matters as a result of her service on the compensation and nominating and corporate governance committees for other publicly traded companies; and (iii) Ms. Biggins’ knowledge of the Atlanta market, along with her community involvement and charitable work, is valuable because of the Company’s significant focus inon these areas.

Douglas H. Brooksserved as Chairman of the Board of Brinker International, Inc., a casual dining restaurant company, from November 2004 to December 2013, as its Chief Executive Officer from January 2004 to January 2013, and as its President from January 1999 to January 2013. Mr. Brooks also served in other capacities for Brinker, including as its Chief Operating Officer and as President of Chili’s Grill & Bar. In March 2018, Mr. Brooks was appointed to the University of Houston System Board of Regents. During the past five years, Mr. Brooks has served as a Director of the following companies that are or were publicly traded other than Southwest: Brinker International, Inc. (1999-2013); AutoZone, Inc. (since 2013); and ClubCorp Holdings, Inc. (2013-2017). Mr. Brooks also serves on the Board of Directors of Limbs for Life and is a member of the Professional Advisory Board for St. Jude Children’s Research Hospital.

The Board has concluded that Mr. Brooks should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Brooks adds a unique skill set to the Board because of his lengthy service as a Chief Executive Officer of a company with tens of thousands of employees and operations in the United States, its territories, and numerous other countries outside of the United States; (ii) Mr. Brooks’ skill set is particularly valuable to the Board and the Company in connection with the Company’s international operations and its exploration of additional international opportunities; (iii) Mr. Brooks’ experience managing a company

with a large employee base is particularly beneficial to the Board because of the importance to the Company of strong employee relations; and (iv) Mr. Brooks’ experience managing a company with a focus on customer service is particularly beneficial to the Board because of the importance of customer service to the Company.

William H. Cunningham, Ph.D. has been a professor at The University of Texas at Austin since 2000 and holds the James L. Bayless Chair for Free Enterprise at the University’s Red McCombs School of Business. Dr. Cunningham served as Chancellor and Chief Executive Officer of The University of Texas System from 1992 to 2000 and as President of The University of Texas at Austin from 1985 to 1992. During the past five years, Dr. Cunningham has served as a Director of the following companies that are or were publicly traded other than Southwest: Lincoln National Corporation (since 2006); Resolute Energy Corporation (formerly Hicks Acquisition Company I, Inc., from 2007 to 2015); and LIN Media LLC, successor registrant to LIN TV Corp. (from 2009 to 2014). Dr. Cunningham is also a disinterested Director of John Hancock Funds, III, a registered investment company.

The Board has concluded that Dr. Cunningham should continue to serve as a Director for the Company for the following reasons, among others: (i) Dr. Cunningham holds a Ph.D. and a Masters of Business Administration in Business, which, combined with his experience as an executive, brings valuable financial and strategic expertise and perspectives to the Board, particularly in his roles as PresidingLead Director and as a member of the Audit Committee; and (ii) Dr. Cunningham has served on over 25 corporate boards and has taught

corporate governance at The University of Texas Schools of Law and Business, which enables him to bring valuable governance expertise to the Board, particularly in his roles as PresidingLead Director and Chair of the Nominating and Corporate Governance Committee.

John G. Denison served as Chairman of the Board for Global Aero Logistics Inc. (“Global”), a diversified passenger airline, from January 2006 until April 2008. Mr. Denison came out of retirement in January 2005 to join Global as itsCo-Chief Restructuring Officer. He also served as President and Chief Executive Officer of ATA Airlines Inc. (“ATA”), a subsidiary of Global, from February 2005 until December 2006. In his capacities with Global and ATA, Mr. Denison’s responsibilities included, among others, managing or supervising business plans, collective bargaining negotiations, restructurings, financings, and major contract negotiations.

The Board has concluded that Mr. Denison should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Denison holds a Masters of Business Administration in Finance and has previously served as a Chief Financial Officer; (ii) Mr. Denison’s extensive experience in the airline industry, combined with his extensive experience in the area of financial reporting, brings a unique and valuable perspective to the Board with respect to the Company’s operations and risks, particularly in his roles as a member of the Company’s Audit Committee and Chair of the Safety and Compliance Oversight Committee; and (iii) Mr. Denison’s experience with business plans, collective bargaining negotiations, and major contract negotiations are extremely valuable to the Board’s strategic discussions.

Thomas W. Gilligan, Ph.D.has been the Tad and Dianne Taube Director of the Hoover Institution on War, Revolution and Peace at Stanford University since September 2015. The Hoover Institution on War, Revolution and Peace is a public policy research center devoted to the advanced study of economics, politics, history, and political economy, as well as international affairs. Prior to his appointment at the Hoover Institution,

Dr. Gilligan served as the Dean of the McCombs School of Business at The University of Texas at Austin from 2008 to August 2015, where he also held the Centennial Chair in Business Education Leadership. Prior to his appointment at the McCombs School of Business, Dr. Gilligan held several key administrative roles at the Marshall School of Business at the University of Southern California (USC) between 1987 and 2008, including interim Dean, the Vice-Dean of Undergraduate Education, director of the Ph.D. program, and the Chair of the Finance and Business Economics Department. During his tenure at USC, he held visiting appointments at Stanford University (1989-1990 and 1994) and Northwestern University (1995-1996). From 1984 to 1987, Dr. Gilligan taught Economics at the California Institute of Technology. Dr. Gilligan was a staff economist at the Council of Economic Advisers in the White House from 1982 to 1983, and he served in the United States Air Force from 1972 to 1976. During the past five years, Dr. Gilligan has served as a Director of one publicly traded company other than Southwest: KB Home (since 2012).

The Board has concluded that Dr. Gilligan should continue to serve as a Director for the Company for the following reasons, among others: (i) Dr. Gilligan holds a Ph.D. in economics, which, combined with his extensive leadership experience, brings valuable and unique economic expertise and perspectives to the Board; (ii) Dr. Gilligan also has extensive knowledge of political and international affairs, which is valuable to the Board asin connection with the Company explores additionalCompany’s international opportunities;operations; and (iii) Dr. Gilligan’s geographic presence on the West Coast is valuable in connection with the Company’s significant operations in that area.

Gary C. Kellyhas served as the Company’s Chairman of the Board since May 2008 and as its Chief Executive Officer since July 2004. Mr. Kelly also served as the Company’s President from July 2008 to January 2017, Executive Vice President & Chief Financial Officer from June 2001 to July 2004, and Vice President Finance & Chief Financial Officer from 1989 to 2001. Mr. Kelly joined the Company in 1986 as its Controller. During the past five years, Mr. Kelly has served as a Director of one publicly traded company other than Southwest: Lincoln National Corporation (since November 2009).

The Board has concluded that Mr. Kelly should continue to serve as a Director for the Company for the following reasons, among others: (i) he is the Company’s Chief Executive Officer and has been with the Company for over 30 years; (ii) his role and his experience enable him to bring invaluable operational, financial, regulatory, governance, and cultural perspectives to the Board; and (iii) his role and his experience enable him to continually educate and advise the Board on the Company’s industry and related opportunities, issues, and challenges.

Grace D. Lieblein served as Vice President, Global Quality of General Motors Corporation (“GM”), a company that designs, manufactures, and markets cars, crossovers, trucks, and automobile parts worldwide, from November 2014 to December 2015, as its Vice President, Global Purchasing and Supply Chain from December 2012 to November 2014, as the GM Brazil President and Managing Director from June 2011 to December 2012, as the GM Mexico President and Managing Director from January 2009 to June 2011, and as Vehicle Chief Engineer from October 2004 to January 2009. Ms. Lieblein joined GM in 1978 as aco-op student at the General Motors Assembly Division in Los Angeles and held a variety of leadership positions at GM in engineering, product development, and manufacturing. During the past five years, Ms. Lieblein has served as a Director of the following companies that are publicly traded other than Southwest: Honeywell International, Inc. (since 2012) and American Tower Corporation (since 2017).

The Board has concluded that Ms. Lieblein should continue to serve as a Director for the Company for the following reasons, among others: (i) Ms. Lieblein’s extensive engineering skills add a unique technical expertise to the Board, and her leadership experience with respect to quality control is particularly valuable with respect to a heavily regulated company like Southwest; (ii) Ms. Lieblein’s global leadership experience is

particularly valuable to the Board in connection with the Company’s international operations; (iii) Ms. Lieblein’s leadership experience with supply chain management enables her to offer unique strategic perspectives to the Board; and (iv) Ms. Lieblein’s knowledge of the Midwestern U.S. market adds perspectives to the Board in connection with the Company’s significant operations in that region.

Nancy B. Loefflerhas served as a consultant for Frost Bank since July 2009 and as a member of the Frost Bank Advisory Board since October 2008. A long-time advocate of volunteerism, Ms. Loeffler currently serves on the boards of The Briscoe Western Art Museum and The National Cowgirl Museum. In addition, she serves on the Executive Committee of The San Antonio Stock Show and Rodeo, on the Executive Committee of The University of Texas System Chancellor’s Council, and as a Board member of The Cancer Therapy and Research Center at The University of Texas Health Science Center. Ms. Loeffler is also a member of the prestigious Kripke Legend Award Selection Committee for Women in Cancer Research. She has also previously served as Chair of The University of Texas MD Anderson Cancer Center Foundation, as Chair of the Advisory Board of the School of Nursing at The University of Texas Health Science Center of San Antonio, as well asand on the Board of Trustees for the Vice President’s Residence Foundation in Washington, D.C.

The Board has concluded that Ms. Loeffler should continue to serve as a Director for the Company for the following reasons, among others: (i) Ms. Loeffler’s background provides the Board with valuable perspectives on governmental affairs and the legislative process; and (ii) her extensive experience with community service and cultural affairs is valuable to the Board because of the Company’s significant focus on these areas.

John T. Montford, J.D.has been President and Chief Executive Officer of JTM Consulting, LLC, a state and federal governmental relations firm, since January 2010. Mr. Montford was retained by General Motors in January 2010 as a consultant and served in the capacity of Senior Advisor of Government Relations and Global Public Policy until January 2012. In his consulting role, Mr. Montford also served on the Executive Committee of General Motors. From 2001 through 2009, Mr. Montford served in a number of positions in the telecommunications industry. These included: President of Southwestern Bell and Southern New England Company, External Affairs (2001-2005); Senior Vice President for Legislative and Regulatory Affairs for SBC and AT&T (2005-2007); and President, Western Region, AT&T Services (2008-2009). Mr. Montford was Chancellor of the Texas Tech University System from 1996 to 2001 and also served in the Texas Senate from 1983 to 1996, where he served as both Chairman of the Senate Finance Committee and Chairman of the Senate State Affairs Committee. In 2002, Mr. Montford was named Chancellor Emeritus of the Texas Tech University System. He is a former active duty U.S. Marine Officer and elected District Attorney.

The Board has concluded that Mr. Montford should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Montford’s extensive executive experience in the areas of governmental relations, regulatory affairs, and public policy is valuable to a heavily-regulated company like Southwest; (ii) this same experience enables Mr. Montford to provide valuable perspectives and input on governance matters, particularly in his roles as a member of the Board’s Nominating and Corporate Governance

Committee and Compensation Committee; and (iii) his experience as Chairman of the Senate Finance Committee (for example, his role in drafting a budget of over $100 billion for the State of Texas) brings valuable perspectives to the Company in connection with its financial strategies and reporting, particularly in his role as Chair of the Board’s Audit Committee.

Ron Rickshas served as the Company’s Vice Chairman of the Board since July 2015. Mr. Ricks also served as the Company’s Executive Vice President & Chief Legal & Regulatory Officer from September 2011 to July 2015, Corporate Secretary from May 2008 to January 2013, Executive Vice President Corporate Services from May 2008 to September 2011, Executive Vice President Law, Airports, & Public Affairs from September 2006 to May 2008, and Senior Vice President Law, Airports, & Public Affairs from August 2004 until September 2006. Mr. Ricks joined the Company in 1986 as its Vice President Governmental Affairs and retired as an Employee of the Company in February 2017.

The Board has concluded that Mr. Ricks should continue to serve as a Director for the Company for the following reasons, among others: (i) Mr. Ricks has over 30 years of institutional knowledge of the Company’s operations, governmental affairs, and community relations, which enables him to provide insight and perspectives to the Board that cannot be replicated by other Board candidates; (ii) Mr. Ricks’ experience as the Company’s former Chief Legal & Regulatory Officer is particularly valuable with respect to the Board’s related oversight responsibilities; and (iii) Mr. Ricks’ leadership experience over airports and public affairs enables him to provide unique strategic perspectives with respect to the Company’s growth plans, both domestic and international.

Vote Required

Provided a quorum is present at the meeting, the affirmative vote of a majority of the votes cast by the holders of shares entitled to vote in the election of Directors is required to elect Directors. A majority of the votes cast means the number of votes cast “for” a Director must exceed the number of votes cast “against” that Director.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote FOR the election of each of the nominees for Director named above. Proxies solicited by the Board of Directors will be so voted unless Shareholders specify a different choice.

CORPORATE GOVERNANCE

General

The business of the Company is managed under the direction of the Board of Directors. Pursuant to the requirements of the NYSE, a majority of the members of the Board must be independent, as defined by NYSE rules. The Board of Directors meets on a regularly scheduled basis to review significant developments affecting the Company, to act on matters requiring approval by the Board, and to otherwise fulfill its responsibilities. The Board of Directors has adopted Corporate Governance Guidelines, based on the recommendation of its Nominating and Corporate Governance Committee, to further its goal of providing effective governance of the Company’s business for the long-term benefit of the Company’s Shareholders, Employees, and Customers. These guidelines set forth policies concerning overall governance practices for the Company, including the following:

The Company’s Corporate Governance Guidelines, along with its Code of Ethics and the Charters for its Audit, Compensation, Nominating and Corporate Governance, Safety and Compliance Oversight, and Executive Committees, are available on the Company’s website, www.southwestairlinesinvestorrelations.com/corporate-governance.corporate-governance/board-committees. Shareholders may also obtain copies of these documents upon written request to Southwest Airlines Co., Investor Relations,HDQ-6IR, P.O. Box 36611, Dallas, Texas 75235.

Board Membership and Qualifications

General Qualification Requirements; Diversity Considerations.The Company’s Nominating and Corporate Governance Committee is responsible for recommending to the Board the criteria for Board membership, as set forth in the Company’s Corporate Governance Guidelines. The Corporate Governance Guidelines require that members of the Board (i) possess the highest personal and professional ethics, integrity, and values; (ii) possess practical wisdom and mature judgment; (iii) be committed to the best long-term interests of the Company’s Employees, Customers, and Shareholders; (iv) be willing to devote sufficient time to fulfill their responsibilities; and (v) be willing to serve on the Board for an extended period of time. The Corporate Governance Guidelines also require the following factors to be considered in connection with the nomination or appointment of new Board members: (i) finance, marketing, government, education, and other professional experience or knowledge relevant to the success of the Company in the current business environment; (ii) independence (fornon-management Directors); (iii) in the case of current Directors being considered forre-nomination, a Director’s past attendance at Board and committee meetings and participation in and contributions to such meetings; and (iv) diversity. Each individual is evaluated in the context of the Board as a whole, with the objective of recommending to Shareholders a group that collectively can best serve the long-term interests of the Company’s Employees, Customers, and Shareholders. The Board does not have a formal policy with regard to Board member diversity. Rather, diversity is one of many factors considered by the Board in assessing the qualifications of Board candidates. Furthermore, in considering diversity, the Board takes into account various types of diversity, such as diversity of experience, geography, gender, ethnicity, color, and age, with the goalgoals of obtaining diverse perspectives.perspectives and encouraging constructive debate. The Board’s primary consideration is to identify candidates with the background, experience, and skills that will best fulfill the Board’s and the Company’s needs at the time a search is being conducted. Therefore, the Board does not believe

it is appropriate to either nominate or exclude from nomination an individual based on gender, ethnicity, color, age, or similar factors.

The Corporate Governance Guidelines prohibitnon-Employee Directors from serving on more than five public company boards and prohibit Employee Directors from serving on more than two public company boards. The Corporate Governance Guidelines also require that the nature and time involved in a Director’s service on other boards be considered in connection with the evaluation of the suitability of that Director. In addition, in accordance with the Corporate Governance Guidelines, Directors should advise the Chairman of the Board and the Chairman of the Nominating and Corporate Governance Committee in advance of accepting an invitation to serve on the board of directors, the audit committee, or the compensation committee of another publicly traded company.

Attendance at Meetings.The Board of Directors held 13six meetings during 20172018 (some of which spanned two days) and otherwise acted three timesone time by unanimous written consent. During 2017,2018, each of the Company’s current Directors attended at least 75 percent of the total number of Board and applicable committee meetings held during the period for which he or she served as a Director.meetings. It is the Board’s policy that every Director and nominee for Director should make every effort to attend the Company’s Annual Meeting of Shareholders. All of the Company’s Directors attended the 20172018 Annual Meeting of Shareholders.

Board Leadership Structure

Gary C. Kelly, the Company’s Chief Executive Officer, also serves as the Company’s Chairman of the Board. The Board of Directors believes this is in the best interests of the Company and its Shareholders because, among other factors, Mr. Kelly is in the best position to (i) properly and timely identify matters that should be brought to the Board’s attention, (ii) prioritize Board agenda items, and (iii) identify the individuals in the best position to present agenda items. The Board believes this structure is considerably more efficient and effective than (i) requiring an outside Chairman of the Board to duplicate many of the Chief Executive Officer’s efforts or (ii) requiring the Chief Executive Officer to relay communications through another member of the Board. In addition, the Board believes the following practices accomplish independent oversight of management without the need to separate the roles of the Chief Executive Officer and the Chairman of the Board:

In addition, pursuant to the Company’s Corporate Governance Guidelines, the independent members of the Board isare required to appoint an independent member of the Board to serve as its Presiding Director. The duties of the PresidingLead Director, whichwho is the Board’s lead independentpresiding director for purposes of the rules of the NYSE. The duties and functions of the Lead Director include the following:

Risk Oversight

The Board is responsible for overseeing management’s assessments of major risks facing the Company and for reviewing options to mitigate such risks. The Board’s oversight of major risks occurs at both the full Board level and at the Board committee level. The Board and its committees use the following procedures to monitor and assess risks.

The Board.

The Chief Executive Officer, the President, the Chief Operating Officer, members of senior management, and other personnel and advisors, as requested by the Board, report on the Company’s financial and operating strategies, as well as any related risks, at every regular meeting of the Board. Based on these reports, the Board requestsfollow-up data and presentations to address any specific concerns and recommendations.

The Audit Committee.Committee

In accordance with the requirements of the NYSE, the Audit Committee assists the Board with its oversight responsibilities by discussing the Company’s major financial risk exposures, its policies with respect to risk assessment and risk management, and the steps management has taken to monitor and control or mitigate financial risk exposures. The Audit Committee discusses with the Company’s management, as well as the Company’s Internal Audit Department (including in executive sessions), the Company’s policies with respect to risk assessment and risk management and advises management on its risk assessment approach and its prioritization of risks. The Audit Committee also receives regular reports on, and assessments of, the Company’s internal controls from the Company’s Internal Audit Department and members of management responsible for financial controls. In addition, the Audit Committee receives the independent auditor’s assessment of the Company’s internal controls and financial risks, which includes the independent

auditor’s report on its procedures for identifying fraud and addressing any risk of management override. The Audit Committee also receives management reports regarding specific areas of financial risk and discusses strategies to mitigate risk. Further, the Audit Committee reviews with management (i) the Company’s cyber security frameworks, policies, programs, opportunities, and other risks relevant torisk profile; and (ii) the Company’s computerized information system controlsbusiness continuity and security.disaster recovery plans and capabilities and the effectiveness of the Company’s escalation procedures.

The Safety and Compliance Oversight Committee.Committee

The Board’s Safety and Compliance Oversight Committee assists the Board with overseeing the Company’s activities with respect to safety and operational compliance. Pursuant to its Charter, the Safety and Compliance Oversight Committee is responsible for periodically assessing the Company’s safety and operational compliance obligations and associated risks and performance relative to those standards. In fulfilling this responsibility, the Safety and Compliance Oversight Committee regularly specifies areas to be addressed at its meetings and requires that individuals from a variety of operational areas and levels be available to discuss their areas of responsibility and respond to questions.

The Nominating and Corporate Governance Committee.Committee

The Nominating and Corporate Governance Committee receives updates and advice from management and outside advisors regarding the Company’s procedures for complying with corporate governance regulations, as well as with respect to the Company’s governance structure and protections. This Committee also reviews the Company’s Corporate Governance Guidelines at least annually to further the Company’s goal of providing effective governance.

The Compensation Committee.Committee

The Compensation Committee receives updates and advice on the ongoing advisability of the Company’s compensation practices both from management and from the Compensation Committee’s independent consultant. The Compensation Committee also assists the Board with its annual review of succession planning.

The Compensation Committee is aware of the need to routinely assess the Company’s compensation policies and practices as they relate to the Company’s risk management and whether the structure and

administration of the Company’s compensation and incentive programs could influence risk-taking throughout the organization. The Compensation Committee has determined that the compensation policies and practices for the Company’s Employees are not reasonably likely to have a material adverse effect on the Company for the following reasons, among others:

Committees of the Board

The Board has established the following standing committees to assist it with fulfilling its responsibilities: (i) Audit, (ii) Compensation, (iii) Nominating and Corporate Governance, (iv) Safety and Compliance Oversight, and (v) Executive. The following table provides information on the Board’s current committee memberships.memberships and number of meetings held by each committee during 2018. None of the committees acted by unanimous written consent during 2018.

Audit Committee.

The primary functions of the Audit Committee include assisting the Board in its oversight of (i) the integrity of the Company’s financial statements, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications and independence, (iv) the performance of the Company’s internal audit function and independent auditors, and (v) businesscyber security and technology-related risks relatedand management efforts to cyber security. The Audit Committee held nine meetings during 2017.monitor and mitigate those risks. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, and the Board has determined that each of the members of the Audit Committee is independent under all applicable rules of the Securities and Exchange Commission (the “SEC”) and the NYSE governing Audit Committee membership. The Board has also determined that all five members of the Audit Committee satisfy the criteria adopted by the SEC to serve as an “audit committee financial expert” for the Audit Committee.

Compensation Committee.Committee

General.The primary functions of the Compensation Committee include (i) reviewing and approving corporate goals and objectives relevant to the compensation of the Chief Executive Officer; (ii) evaluating the Chief Executive Officer’s performance in light of those goals and objectives; (iii) together with the other independent members of the Board (as directed by the Board and to the extent consistent with any applicable plan documents or law), determining and approving the Chief Executive Officer’s compensation level based on the Compensation Committee’s evaluation; (iv) with the advice of the Chairman of the Board and the Chief Executive Officer, conducting an annual review of the compensation structure of the Company’s officers and approving the salary, bonus, and other incentive and equity-related compensation for each of the Company’s executive officers who are subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (“Reporting Officers”); (v) reviewing and approving all stock-based compensation arrangements for Employees of the Company (including executive officers) and making recommendations to the Board with respect to equity-

equity-basedbased plans that are subject to Board approval; and (vi) making recommendations to the Board with respect tonon-CEO Reporting Officer compensation and incentive compensation plans that are subject to Board approval. The Compensation Committee is also responsible for reviewingnon-Employee Director compensation at least annually and making any related recommendations to the full Board. To the extent permitted by applicable law and regulations, the Compensation Committee has the power to delegate any of the authority above to subcommittees or to individual members of the Compensation Committee, as it deems appropriate. The Board has determined that each of the members of the Compensation Committee is (i) independent under the NYSE’s rules governing Compensation Committee membership; (ii) a“non-employee director” under Rule16b-3 of the Securities Exchange Act of 1934, as amended; and (iii) an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The Compensation Committee held eight meetings during 2017 and otherwise acted once by unanimous written consent.

Role of executive officers in determining or recommending the amount or form of executive and Director compensation.At the Compensation Committee’s request, the Company’s Chief Executive Officer and the Company’s People Department Leader provide regular input regarding compensation designs and recommendations presented to the Compensation Committee. In connection with the Compensation Committee’s decisions, the Chief Executive Officer also reviews with the Compensation Committee the relative roles, scope of responsibilities, and performance of the Company’s other executive officers. The roles of the Chief Executive Officer and the People Department Leader in connection with the Compensation Committee’s determinations are discussed in more detail below under “Compensation of Executive Officers — Compensation Discussion and Analysis.Analysis — Internal Equity; Role of Management.”

Use of consultants.The Compensation Committee is directly responsible for the appointment, retention, compensation, and oversight of the work of any compensation consultant, independent legal counsel, or other advisor retained by the Compensation Committee in its sole discretion. During 2017,2018, the Compensation Committee continued to engage Pay Governance LLC, an independent executive compensation advisory firm, as the Compensation Committee’s independent consultant. With respect to executive compensation earned for 2017,2018, the Compensation Committee based its decisions in part on market data provided by its consultant, as well as recommendations from the consultant with respect to the form and amount of executive compensation. Market data is discussed below under “Compensation of Executive Officers – Compensation Discussion and Analysis – Role of Independent Compensation Consultant; Benchmarking; Market Data.”

In 20162017 and 2017,2018, at the Compensation Committee’s request, its consultant also provided data and assessments related to the adequacy and effectiveness of the Company’s compensation program fornon-Employee members of the Board. Based on the information provided in 2016, during 2017, the Compensation Committee decided to recommend an increase in thenon-Employee Director annual equity retainer from $130,000 to $150,000 to better align pay levels and components with those of comparable companies included in the consultant’s survey data. Based on the information provided in 2017, the Compensation Committee also decided to recommend a more simplified pay structure fornon-Employee members of the Board, effective January 1, 2018. The new pay structure generally replicates the Board’s prior total remuneration, but replaced the fees for meetings of the Board and its committees with (i) a moderate increase to the annual Board member retainer fee, (ii) the incorporation of annual retainer fees for Board committee membership, and (iii) a continued meeting fee of $1,500 for any meetings in excess of the regularly-scheduled Board and committee meetings.

The Compensation Committee uses the information provided by its independent consultant (i) for the purpose of informing, as opposed to determining, the Compensation Committee’s decisions; and (ii) to assist it in balancing between compensation that is appropriately linked to performance and compensation that is adequate for retention purposes. Although the Compensation Committee considers any recommendations received from its consultant, the Compensation Committee’s decisions are ultimately based on its own assessment of the information provided to it in the context of the

totality of the Company’s circumstances at any given point in time. Additional detail regarding the work performed by the independent consultant, as well as the Compensation Committee’s related determinations, is included below under “Compensation of Executive Officers — Compensation Discussion and Analysis.”

The Compensation Committee has considered the independence of its consultant in light of SEC rules and NYSE listing standards. The Compensation Committee received a letter from its consultant addressing its independence, which addressed the following factors: (i) other services provided to the Company by the independent consultant, if any; (ii) fees paid by the Company as a percentage of the consultant’s total revenue; (iii) policies orand procedures maintained by the consultant that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the individual consultants involved in the engagement and members of the Compensation Committee; (v) any business or personal relationships between the Company’s executive officers and the independent consultant or the individual consultants involved in the engagement; and (vi) any Company stock owned by the individual consultants involved in the engagement. Questions intended to elicit information regarding business or personal relationships between the independent consultant and the individual consultants involved in the engagement and the Company’s Board members and executive officers were also included in the Company’s annual Director and Executive Officer Questionnaires. The Compensation Committee has assessed the independence of Pay Governance pursuant to the SEC and NYSE rules and determined that no conflict of interest exists, or has existed, that would prevent Pay Governance from independently representing the Compensation Committee.

Nominating and Corporate Governance Committee.Committee

The primary functions of the Nominating and Corporate Governance Committee include (i) developing and annually reviewing and recommending to the Board a set of Corporate Governance Guidelines applicable to the Company; (ii) reviewing potential candidates for Board membership; (iii) recommending a slate of nominees to be selected by the Board for the Annual Meeting of Shareholders; (iv) recommending to the Board the composition of the Board’s Committees; and (v) overseeing the evaluation of the Board and management. The Nominating and Corporate Governance Committee identifies potential candidates for first-time nomination as a Board member using a variety of sources, such as recommendations from current Board members, management, and contacts in communities served by the Company. The Board of Directors has determined that each of the members of the Nominating and Corporate Governance Committee is independent under the NYSE’s rules governing Board membership.

The Nominating and Corporate Governance Committee will also consider nominees submitted by Shareholders based on the criteria set forth in the Company’s Corporate Governance Guidelines; provided that such nominations are submitted in accordance with the requirements of the Company’s Bylaws. These requirements are discussed below under “Other Matters — Submission of Shareholder Proposals.” The Nominating and Corporate Governance Committee held four meetings during 2017.

Safety and Compliance Oversight Committee.Committee

The primary functions of the Safety and Compliance Oversight Committee include: (i) assisting the Board in overseeing the Company’s activities with respect to safety and operational compliance; (ii) periodically assessing the Company’s safety and operational compliance obligations and associated risks and performance relative to those standards; (iii) reviewing such policies, programs, and procedures as it shall deem necessary;necessary, including the Company’s safety and operational compliance reporting systems; (iv) meeting regularly with Company management to assess the Company’s safety and operational compliance practices generally; and (v) periodically reporting to the Board on the adequacy and effectiveness of the Company’s safety and operational compliance programs. The Safety and Compliance Oversight Committee held six meetings during 2017.

Executive Committee.

The primary function of the Executive Committee is to assist the Board in fulfilling its oversight responsibilities. The Executive Committee has authority to act for the Board on most matters during the intervals between Board meetings. The Executive Committee held four meetings during 2017 and otherwise acted once by unanimous written consent.

Certain Relationships and Related Transactions, and Director Independence

Review, Approval, or Ratification of Transactions with Related Persons; Director Independence Determinations. The Company does not have a formal written policy with respect to the review, approval, or ratification of transactions with related persons, but has established procedures to identify these transactions, if

any, and bring them to the attention of the Board for consideration. These procedures include formal written questionnaires to Directors and executive officers and written procedures followed by the Company’s Internal Audit Department to identify related person transactions.

The Company requires that all of its Directors and executive officers to complete an annual questionnaire that requires them to identify and describe any transactions that they or their respective related parties may have with the Company, whether or not material. Separately, the Company’s Internal Audit Department analyzes accounts payable records to search for payments involving (i) the Company’s Directors and executive officers, (ii) known relatives of the Company’s Directors and executive officers, (iii) companies and organizations with which the Directors and executive officers are associated, and (iv) security holders known to the Company to be the beneficial owner of more than five percent of the Company’s common stock. The questionnaire fornon-Employee Directors is also designed to elicit information that should be considered to determine that the Company satisfies the NYSE’s requirement that a majority of its Board members be independent within the meaning of the NYSE’s rules. Relevant information regarding Directors is then provided to the Nominating and Corporate Governance Committee, which is responsible for evaluating the qualifications of Board nominees, including independence, and for making recommendations to the Board regarding (i) nominations for Board membership; and (ii) individual qualifications for committee membership, taking into account various additional regulatory requirements, including independence requirements, that specifically apply to the different Board committees. In making its recommendations to the Board, the Nominating and Corporate Governance Committee considers the following regulatory guidance: (i) Item 404(a) of RegulationS-K of the Securities Act of 1933, as amended (Transactions with Related Persons); (ii) Accounting Standards Codification Topic 850 (Related Party Disclosures); (iii) Public Company Accounting Oversight Board Auditing Standard No. 18 (Related Parties); and (iv) the NYSE’s governance standards related to independence determinations. Based on the foregoing, the Board has determined that the following Board members are independent under applicable NYSE standards: David W. Biegler, J. Veronica Biggins, Douglas H. Brooks, William H. Cunningham, John G. Denison, Thomas W. Gilligan, Grace D. Lieblein, Nancy B. Loeffler, and John T. Montford.

Ongoing Reporting Obligations with Respect to Related Person Transactions. In order to provide an ongoing mechanism for monitoring related person transactions and Board member independence, each Board member and executive officer of the Company is required to sign an acknowledgement that he or she will promptly inform the Company of any new information that should be considered by the Board subsequent to the Director’s or executive officer’s completion of his or her annual questionnaire.

VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS

At the close of business on March 20, 2018,19, 2019, the record date for determining Shareholders entitled to notice of and to vote at the meeting, there were outstanding 582,009,140546,648,017 shares of common stock, $1.00 par value, each share of which is entitled to one vote.

Security Ownership of Certain Beneficial Owners

The following table sets forth, as of February 28, 2018,2019, information with respect to persons who, to the Company’s knowledge, beneficially own more than five percent of the Company’s common stock.

(4)

This address is listed in the Amendment to Schedule 13G filed with the SEC on February 14, 2018, as a group, by Warren E. Buffett, Berkshire Hathaway Inc., National Indemnity Company, and Medical Protective Company,2019, as the address of each of Mr. Buffett, Berkshire Hathaway Inc., and Berkshire Hathaway Inc.Consolidated Pension Plan Master Retirement Trust. The address of National Indemnity Company is listed as 1314 Douglas Street, Omaha, Nebraska 68102. The address of GEICO Corporation Pension Plan Trust is listed as One GEICO Plaza, Washington, DC 20076. The address of Precision Castparts Corp. Master Trust is listed as 4650 SW Macadam Ave., Portland, Oregon 97239. The address of Buffalo News Drivers/Distributors Pension Plan is listed as One News Plaza, Buffalo, NY 14240. The address of Medical Protective Company is listed as 5814 Reed Road, Fort Wayne, IN 46835.

Security Ownership of Management

The following table sets forth, as of February 28, 2018,2019, information regarding the beneficial ownership of the Company’s common stock by each of the members of the Company’s Board of Directors, each of the executive officers of the Company named in the Summary Compensation Table, and all current executive officers and Directors as a group.

COMPENSATION OF EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS

Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

The Company is required to provide detailed compensation information in this Proxy Statement regarding its Chief Executive Officer, its Chief Financial Officer, and each of its three other most highly compensated executive officers who were serving as such at the end of fiscal 2017, and one former executive officer who would have been among the three next most highly compensated executive officers had he been serving as an executive officer on December 31, 2017.2018. For 2017,2018, these executive officers, who will be referred to in this Proxy Statement as the “named executive officers,” were (i) Gary C. Kelly, Chairman of the Board & Chief Executive Officer; (ii) Tammy Romo, Executive Vice President & Chief Financial Officer; (iii) Thomas M. Nealon, President; (iv) Michael G. Van de Ven, Chief Operating Officer; and (v) Robert E. Jordan, Executive Vice President Corporate Services; and (vi) Jeff Lamb, former Executive Vice President Corporate Services. For purposes of this Compensation Discussion and Analysis, the Compensation Committee will sometimes be referred to as the “Committee.”

COMPENSATION COMMITTEE’S CONSIDERATION OF 20172018SAY-ON-PAY VOTE

At its 20172018 Annual Meeting of Shareholders, votes in favor of approving the Company’s named executive officer compensation constituted over 9596 percent of the shares voted either for or against the proposal. The Committee interpreted the results of the Company’s 20172018say-on-pay vote as a continued endorsement of (i) the Committee’s overall compensation philosophy and structure, (ii) the Company’s executive pay levels generally, and (iii)  the Committee’s justifications for its individual executive compensation decisions.

ROLE OF INDEPENDENT COMPENSATION CONSULTANT; BENCHMARKING; MARKET DATA

The Committee receives information and input from its independent compensation consultant regarding, among other matters, market data and competitive compensation trends and practices. With respect to 2017,2018, the data provided by the independent consultant included reviews of the named executive officers’ base salary,salaries, annual bonus/short-term incentive compensation opportunities, total cash compensation opportunities (base salary plus annual bonus/short-term incentive compensation), long-term incentive compensation opportunities (equity), and total direct compensation opportunities (total cash compensation plus long-term incentive compensation) relative to similar positions reported in the databases below.

In

For 2018, in composing the Company’s peer groups, the Committee’s independent consultant placesCommittee placed its principal focus on comparable companies in consumer-oriented businesses (General Industry – Comparable Companies). The Committee viewsindependent consultant viewed this group as representative of organizations that arewere relevant for monitoring the adequacy of the Company’s executive pay levels and evaluating company performance. Other airlines arewere constituents of this group, and the independent consultant callscalled out practices of select airlines for additional context on key positions. In addition, to provide broader market context, the independent consultant providesprovided the Committee with data derived from other transportation and general industry companies.companies (General Industry – Total Sample).

In referencing market data, the Committee did not directly target any individual named executive officer’s compensation; rather, the market data provided context for the Committee’s judgment as to what it considered to be appropriate pay. The Committee doeshas not historically directly targettargeted named executive officer compensation to specific market data because (i) the market data is not necessarily comprehensive; and (ii) in

particular with respect to airlines, the data does not always include good matches to the Company’s executive positions, which in many cases involve a unique combination of responsibilities that do not correspond directly to the roles that are included in available market data. In addition, because of the limited amount of airline industry data, the Committee deemsdeemed it advisable to reference the broader compensation data provided by general industry surveys, which also serve as indicators of the named executive officers’ potential value to other organizations who might seek to hire them.

INTERNAL EQUITY; ROLE OF MANAGEMENT

Because approximately 83 percent of the Company’s Employees are subject to collective bargaining agreements that govern their compensation structure (these Employees are referred to as “contract Employees”), these negotiated agreements factor significantly into Company-wide compensation decisions, including executive compensation decisions. In approaching executive compensation decisions, the Committee seeks to balance market-appropriate levels of compensation and internal equity. The Committee considers internal equity by assessing the roles, responsibilities, and levels of accountability of the named executive officers relative to (i) each other; (ii) other officers; and (iii) other Employees, including contract Employees. The Committee also considers a named executive officer’s tenure in his or her current role.For purposes of this Compensation Discussion and Analysis, references to “internal equity” should be interpreted in this context.

At the Committee’s request:

The input from Mr. Kelly and the Company’s People Department Leader not only assists the Committee with its compensation determinations, it serves a valuable purpose in connection with the Company’s succession planning. Although the Committee is not obligated to accept any of Mr. Kelly’s recommendations, the Committee gives considerable weight to any such recommendations because of Mr. Kelly’s ability to directly observe, on aday-to-day basis, each officer’s contributions and performance. In addition, Mr. Kelly regularly travels to visit with Employees at all levels in varying locations and is able to relay Employee concerns that he believes should be considered by the Committee as it addresses matters of internal equity. Additional information regarding management’s role with respect to executive compensation determinations is included below.

DETERMINATION OF 20172018 EXECUTIVE COMPENSATION; ANALYSIS OF INDIVIDUAL COMPENSATION ELEMENTS

Set forth below is a discussion of (i) each of the elements of the Company’s compensation program for allnon-contract Employees, including the Company’s named executive officers; (ii) the purposes and objectives associated with each element; (iii) the manner in which each element fits within the Company’s overall compensation objectives and decisions with respect to other elements; (iv) the Committee’s determinations regarding the amounts paid to each of the named executive officers for 2017;2018; and (v) where applicable, the involvement of the Committee’s independent consultant and members of management in compensation decisions.

Salary

Objective of Base Pay.The Committee’s objective with respect to base pay is to provide a reasonable base level of monthly income relative to an Employee’s job responsibilities, skills, tenure with the Company and tenure in the current position with the Company, performance, and the market for the Employee’s skills (both within and outside of the airline industry).

Approach to 20172018 Base Pay; Individual Base Pay Determinations for the Named Executive Officers and Pay Relative to Each Other.During 2017, Mr. Kelly received his firstNotwithstanding market data that would have supported an increase in base pay since 2011. The Committee deemed it to be an appropriate time to increase Mr. Kelly’s base pay, considering the Company’s outstanding financial performance since 2011, in particular its exceptional performance over the three years

ended December 31, 2016. Mr. Kelly received an 11.1 percent base pay increase, which was still significantly lower than what market data would have supported. As discussed further below, the Committee continued to focus on variable, performance-based compensation, in particular equity, to bring Mr. Kelly’s overall pay opportunities closer to market. As a result, Mr. Kelly’s guaranteed base pay, decreased as a percentage of his total compensation opportunity.

Mr. Van de Ven received a 9.5 percent increase in base pay to reflect the increased level of responsibilities associatedaccordance with his role beginning in January 2017, as well as to bring his base closer to market median and adjust it relative to Mr. Kelly’s base pay. Mr. Nealon received a 13.0 percent increase in base pay, also to reflect the increased level of responsibilities associated with his role beginning in January 2017, and to adjust his base relative to Mr. Kelly’s base pay. In addition, reflecting internal equity considerations, Mr. Nealon’s increase aligned his base pay with Mr. Van de Ven’s.

Going into 2017, Ms. Romo’s base pay continued to be well below market. Therefore, she received a 3.3 percent increase in base pay to prevent it from dropping further below market, as well as to take into account her performance and her increased tenure and responsibility in her position as Executive Vice President & Chief Financial Officer. Reflecting internal equity considerations, Mr. Lamb received a base pay increase of 2.2 percent to match his base to that of Mr. Jordan, whowishes, he did not receive an increase in base pay during 2017. As a result of2018.

In February 2018, the Committee’s decisions, theother named executive officers received modest increases in base pay amountsranging from 2.9 percent to 3.2 percent year-over-year on an annualized basis, each of which the Committee believed was supported by market data. Reflecting internal equity, (i) the percentage increases for Ms. Romo,these named executive officers were in line with the Company’s merit structure for its othernon-contract Employees, which emphasized individual performance and position responsibilities; (ii) each of these named executive officer’s base pay increased relative to Mr. Jordan,Kelly’s base pay; (iii) Mr. Nealon’s and Mr. Lamb were allVan de Ven’s base pay remained equal; and (iv) Ms. Romo’s and Mr. Jordan’s base amounts remained within a 1.1 percent range.range of each other.

Short-Term Incentive Compensation

Objectives of Short-Term Incentive Compensation. The Committee believes short-term incentive compensation opportunities are necessary to attract and retain Employees at the supervisor level and above, in particular at the officer level, given the prevalence of performance-based compensation arrangements in the market in which the Company competes for executive talent. Short-term incentive compensation opportunities are also provided at these levels generally to (i) reflect the additional time, responsibility, and accountability associated with these positions, in particular senior executive positions; (ii) create total compensation opportunities that are within a reasonable range of median in the marketplace; and (iii) further incentivize management to contribute to the Company’s overall annual performance.

Approach to 20172018 Short-Term Incentive Compensation.

General.TheIn 2018, the Committee providescontinued to apply a structured and transparent approach to the named executive officers’ short-term incentive opportunities by providing mostpayouts, pursuant to which:

For 2017, (i) 80

In January 2018, the Incentive Plan based on Company performance.

The named executive officers were presented with a target short-term incentive opportunity (applicable to both the Incentive Plan opportunityportion and the discretionary bonus opportunity)subjective individual portion) equal to a percent of their base salary in accordance with the table below (the “STI Target”), with differences in percentages reflecting differences in levels of responsibility.

The total short-term incentive payout for each named executive officer could range between zero and 150 percent of As reflected in the named executive officer’s target short-term incentive opportunity depending on performance (both Company and individual).

In 2017,table below, in 2018, taking into account the Company’s sustained exceptional financial performance over the three years ended December 31, 2016,going into 2018, the Committee increased Mr. Kelly’s target short-term incentive opportunitySTI Target to address the significant gapgaps between market and Mr. Kelly’s short-term incentive, total cash, and total cashdirect compensation opportunities. Mr. Nealon and Mr. Van de Ven received increases in their

The short-term incentive opportunities, in equal percentages,payout for each of the named executive officers could range from zero to take into account their promotions150 percent of the named executive officer’s STI Target (applicable to both the Incentive Plan portion and related increased levels of responsibilities.the subjective individual portion).

Performance-Based Short-Term Incentive Compensation Opportunities under the Incentive Plan and Related Payouts. Pursuant to the Incentive Plan, the Committee established 20172018 performance metrics and targets based on the Company’s 20172018 Management Short-Term Incentive Scorecard (the “Scorecard”). The Scorecard included teneleven specific metrics within four general Scorecard standards. The general Scorecard standards, each of which were weighted, corresponded with (i) the Company’s publicly stated Vision to become the world’s most loved, most flown, and most profitable airline; and (ii) the Company’s related key strategic and business objectives. The Company performed at 93.2 percent of target for 2018, compared with Company performance at 90.4 percent of target for 2017, compared with Company performance at 112.6 percent of target for 2016.2017. This resulted incontributed to the year-over-year decreasesincreases in the amounts shown for Ms. Romo, Mr. Van de Ven, and Mr. Jordanthe named executive officers in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Mr. Kelly’s payout would not have increased but for the increases in his base pay and targetshort-term incentive opportunity as a percentage of base pay, each of which is explained above. Due to his resignation from employment in June 2017, Mr. Lamb did not receive a short-term incentive payout.

The specific 2018 Scorecard metrics, targets, and weightings, established with respect to the Scorecard, as well as the results and payout percentages with respect to 2017,for 2018, are set forth in the table below.

20172018 Management Incentive Scorecard

*Additional information regarding special items is included in the accompanying reconciliation tables. See Note Regarding Use ofNon-GAAP Financial Measures at the end of this Compensation Discussion and Analysis.

The Committee believes the Scorecard provided appropriateconcept and its metrics and targets for use under the Incentive Planare an appropriate and effective short-term incentive mechanism because (i) the Scorecard metrics and targets directly tie to the Company’s Vision and key strategic and business objectives; (ii) the Scorecard creates a multi-dimensional mechanismtool to determine overall short-term incentive funding based on Company performance, so that factors that are deemed significant to the industry and operational performance may be considered in addition to financial measures; (iii) there is a strong correlation between the Scorecard and the manner in which the Company manages and measures its own performance generally, as the goals are highly relevant to the Company, its Shareholders, its Customers, and its Employees; (iv) the Scorecard has been in existence and communicated in varying forms for over a decade and therefore incorporates standards with which Employees are already familiar and to which Employees are likely to respond; (v) the Scorecard provides visibility to the Committee regarding what management communicates to its Employees as important; (vi) the Scorecard enables the Committee to take into account the Chief Executive Officer’s specific views regarding the areas within the Scorecard that require the most focus; (vii) the use of a multi-dimensional guide for short-term incentives mitigates the risk that can be created when financial results are the only drivers of incentive payments; and (viii) individualized objectives can be customized based on applicable goals within the Scorecard.

Discretionary BonusSubjective Short-Term Incentive Determinations for the Named Executive Officers and Pay Relative to Each Other; Use of Discretion. The Committee approved individual named executive officer discretionary bonussubjective short-term incentive amounts based on (i) the named executive officers’ individual contributions to the Company’s performance (including their individual performance relative to the factors covered by the Scorecard); (ii) the nature and extent of the Company’s accomplishments; (iii) input from the Chief Executive Officer with respect to the other named executive officers; (iv) individual contributions, roles, and responsibilities, which, by their nature, can involve subjective assessments; and (v) other factors the Committee deemed significant.

The Committee believed, and continues to believe, that it is appropriate and in the best interests of the Company for the Committee to ultimately retain some discretion to use its common sense in determining a portion of the named executive officers’ short-term incentive compensation based on a subjective view of individual performance. The Committee believes that retaining this discretion provides the Company and/or the Committee with the flexibility to:

In determining the size of the subjective portion of the named executive officers’ discretionary bonuses,individual short-term incentive opportunity, the Committee took into account the factors discussed below for each named executive officer. In determining the size of these bonusesthe payouts relative to other Employees of the Company, the Committee took into account the fact that these are the individuals who, because of their roles and responsibilities, have the ability to most directly impact the Company’s overall results, as well as the most accountability for the Company’s results.

Chief Executive Officer.The Committee awarded the subjective portion of Mr. Kelly received a discretionary bonus equal to 90.4Kelly’s short-term incentive based on individual performance at 100 percent of target. For 2017, theThe Committee deemed itthis to be appropriate thatbased on Mr. Kelly’s individual performance be tied to the Company’s overall performance, both positivestrong and negative, given hisstrategic overall leadership responsibility, and accountabilityduring 2018, in particular with respect to (i) the Company’s Vision, as well as each of the Company’s related strategic and business objectives, goals,each of which performed at or above target; and results.(ii) the

Company’s production of strong financial results for 2018, including its 46^th consecutive year of profitability, its record total operating revenues, its annualpre-tax return on invested capital of 23.6 percent (or 18.4 percent on anafter-tax basis), and its record operating cash flow, which enabled the Company to provide approximately $2.3 billion in returns to Shareholders through share dividends and share buybacks.

Other Named Executive Officers.As with Mr. Kelly, given Mr. Nealon’s and Mr. Van de Ven’s enhanced leadership roles withThe subjective portion of the Company, for 2017, the Committee deemed it appropriate to tie their discretionary bonus percentages to the Company’s overallother named executive officers’ short-term incentive was also based on individual performance relative to its Scorecard. The Committee considered Mr. Nealon’s and Mr. Van de Ven’s increased responsibility and accountability for the Company’s overall performance, compared to their narrower responsibilities in their prior roles.

Ms. Romo and Mr. Jordan each received a discretionary bonus equal toat 100 percent of target, reflecting their individualcoordinated contributions to the Company’s Visionstrategic and initiatives,business objectives and financial results, including, among others, (i) Ms. Romo’s overallMr. Nealon’s leadership and contributions with respect to the Company’s strategiccommercial revenue initiatives and technology initiatives; (ii) Mr. Van de Ven’s leadership and contributions with respect to the Company’s year-over-year improvements inon-time performance and reduction of DOT complaints; (iii) Mr. Van de Ven’s and Ms. Romo’s leadership and contributions with respect to the Company’s fleet modernization initiatives; (iv) Ms. Romo’s leadership and contributions with respect to the Company’s financial planning and, in particular, her highly successful management of the Company’s capital and liquidity plans and related preservation of the Company’s upgraded credit ratings from Moody’sinvestment-grade balance sheet; and Standard & Poor’s, and the Company’s issuance of unsecured debt at the tightest spreads and lowest yields in the Company’s history; and (ii)(v) Mr. Jordan’s productive transition to Executive Vice President Corporate Services, his relatedleadership and contributions with respect to the progress and success of the Company’s construction and Employee experience initiatives, its succession planning and his continued contributions with respect to the Commercial Team’s Reliabilityleadership development pipeline, and Hospitality initiatives, in particular the Company’s resulting outstanding Net Promoter Score. Due to his resignation from employment in June 2017, Mr. Lamb did not receive a discretionary bonus.its implementation of new human resources technology.

In assessing the individual performance of the named executive officers other than Mr. Kelly, the Committee relied heavily on Mr. Kelly’s input regarding such officers’ relative roles, scope of responsibilities, and performance with respect to the Company’s 2017 results.for 2018.

Long-Term Incentive Compensation

Objectives of Equity Compensation. Equity awards are used by the Company (i) to serve as a performance-based method to bring executive compensation closer to market median;address the competitiveness of the Company’s compensation; (ii) to attract and retain Employees; (iii) as an incentive and reward for achievement of the Company’s long-term objectives; and (iv)(iii) to further align the interests of the Company’s EmployeesCompany and its senior leadership with those of its Shareholders. BecauseThe Committee awards long-term incentive compensation opportunities to attract and retain Employees at the Company is subject to regulatory limits on the number of shares it may issue pursuant to awards under equity plans,director level and above, as well as other targeted positions where equity awards are limited to senior management level Employees and to members ofprevalent in the Board of Directors. The Committee, withmarket in which the input of its independent consultant, has concluded that senior management positions continue to be the positions with respect to which equity can most effectively serve as an attraction and retention mechanism. In addition, equity serves as a mechanism to further align senior management’s compensation with the Company’s overall business results.Company competes for those positions. With respect to other Employees, the Company places more emphasis on cash compensation.

Approach to Equity Compensation.The Committee believes that equity, as a long-term performance incentive, should constitute a strong component of overall compensation. The Committee applies its judgment in determining the size of long-term incentive (equity)equity awards, which involves informing itself of practices and levels of equity pay in the market for a given position. Based on this information, the Committee has established the size of equity awards as a percentage of base pay, having taken into account internal equity, prior year awards, total direct compensation for each individual, and an individual’s specific performance.

During 2017,2018, the Committee granted equity awards in the form of service-based, time-vesting RSUs and performance-based RSUs that are settleable in shares of common stock. Reflecting its desire to continue to increase performance-based compensation as a percentage of total compensation, over the past few years, the Committee has been gradually increasingincreased the value of performance-based RSUs as a percentage of total RSUs for all participants in the Company’s equity plan. For 2018, total equity for all participants, including each of the named executive officers, with the eventual goalconsisted of achieving a 50/50 split. percent performance-based RSUs and 50 percent time-vesting RSUs.

As shown in the Grants of Plan-Based Awards in Fiscal 20172018 table, the ultimate value of each of the named executive officer’s performance-based RSUs will be based on the Company’s averageafter-tax ROIC over a three-year period. The number of performance-based RSUs and the number of shares of the Company’s common stock to be issued, if any, as of the vesting date will be based on the achievement of the targets in the following table.below. In addition, the percentage of performance-based RSUs that will vest will be interpolated between the targets in the following tablebelow only after a minimum performance level has been achieved.

Individual Equity Determinations for the Named Executive Officers.

Chief Executive Officer. During 2017,2018, the Committee granted long-term equity incentive awards to Mr. Kelly with a total grant date fair value of $5,250,010,$5,250,019, representing an increase from 600700 percent of his annualized base pay in 2016 to 700 percent of base for 2017 and a 30 percent year-over-year increase in value.2018. In approving this increase,value, the Committee considered retention and also referenced market data, which indicated that Mr. Kelly’s long-term incentive and total direct compensation continued to be significantly below market. Reflecting the Committee’s commitment to variable, performance-based compensation, the Committee chose to focus most on increasing Mr. Kelly’s equity to bring his total compensation closer to market. For the same reason, Mr. Kelly’s performance-based RSUs increased as a percentage of his total RSUs, from 35 percent of total RSUs in 2016 to 40 percent in 2017.2017 to 50 percent in 2018.

Other Named Executive Officers.Mr. Nealon’sIn accordance with the Committee’s philosophy that equity award increasedshould constitute a strong component of total compensation, (i) as set forth in the table below, each of the other named executive officers received an increase in equity as a percentage of annualized base pay from 300 percentpay; and (ii) these increases were the largest contributor to 400 percentthe increases in connection with his promotion and to bring his percentage in line with Mr. Van de Ven’s, whose award remained at 400 percent of base from 2016 to 2017; however, Mr. Van de Ven’s performance-based RSUs increased as a percentage of total RSUs from 25 percent to 35 percent. Mr. Nealon’s performance-based RSUs as a percentage of total RSUs remained at 50 percent. Likewise reflecting the Committee’s focus on performance-based compensation Ms. Romo’s equity compensation increased as a percentage of base pay from 300 percent to 380 percent, and Mr. Lamb’s equity compensation increased as a percentage of base pay from 360 percent to 380 percent, which aligned both Ms. Romo and Mr. Lamb with Mr. Jordan. In addition, Ms. Romo’s performance-based RSUs increased as a percentage of total RSUs from 40 percent to 50 percent and Mr. Jordan’s and Mr. Lamb’s from 25 percent to 35 percent. for these named executive officers.

As with the Chief Executive Officer’s grants, the Committee considered retention and referenced market data as a guide for determining an appropriate relative value for these individuals’ long-term incentive awards. The Committee also considered internal equity.

Tax Considerations; Timing of Grants.Considerations. Section 162(m) (“Section 162(m)”) of the Internal Revenue Code, generally limits to $1,000,000 the U.S. federal income tax deductibility of compensation paid in one year to certain named executive officers, including compensation deemed to be received upon vesting of RSUs. Prior to the Tax Cuts and Jobs Act (“2017 Tax Reform Act”) that was signed into law on December 22, 2017, Section 162(m) provided an exception to such limitation for certain performance-based compensation (the “162(m) Exception”), including for performance-based RSUs.

The 2017 Tax Reform Act eliminated the 162(m) Exception. As a result, except to the extent that compensatory awards or agreements granted on or prior to November 2, 2017, are “grandfathered” (as provided in the 2017 Tax Reform Act), and are not materially modified after November 2, 2017, the Company’s ability to rely on the 162(m) Exception was eliminated beginning in 2018 and the limitation on deductibility under Section 162(m) was expanded to include all named executive officers and certain former named executive

officers. As a result, although performance-based compensation granted to the named executive

officers prior to the 2017 Tax Reform Act, including performance-based RSUs that were granted under the Company’s Amended and Restated 2007 Equity Incentive Plan, were designed to satisfy the conditions of the 162(m) Exception, the Company maywill be precluded from taking a federal income tax deduction for any compensation paid to its named executive officers, and former named executive officers, in excess of $1,000,000.$1,000,000, including compensation attributable to performance-based RSUs granted in 2018 and later years.

Retirement and Related Benefits

401(k) and Profit Sharing.The Committee does not specifically consider the value of itstax-qualified retirement plans when establishing other compensation elements and amounts for the named executive officers because of the broad-based nature of these benefits. Southwest offerstax-qualified 401(k) and profit sharing plans to all eligible Employees, including the named executive officers. Southwest’s Company 401(k) and profit sharing plans are intended to be competitive in the market and include five-year graded vesting provisions that are designed to contribute to Employee loyalty and retention. Southwest’s company 401(k) plan provides for adollar-for-dollar match on contributions made to the 401(k) plan bynon-Pilot Employee contributions,Employees, subject to limits specified by the Board, applicable collective bargaining agreements, and the Internal Revenue Code and applicable Treasury Regulations. Southwest also sponsors a Pilots’ 401(k) plan that gave each eligible Pilot a fully-vestednon-elective Company contribution equal to 13.414.2 percent of such Pilot’s eligible compensation for 2017.2018, whether or not the Pilot made his or her own contributions to the plan.

Southwest’s profit sharing plan provides for an annual Company contribution to Employee accounts equal to an amount determined by the Board in its sole discretion. Historically, this has been a uniform percentage of each Employee’s compensation up to an amount that is cumulatively equal to 15 percent of the Company’s annual net operating profit (as defined in the plan) for the year. With respect to the 20172018 plan year, for all Employees other than the Pilot work group, the Company has allocated 10 percent of each Employee’s eligible compensation as a contribution to the profit sharing plan and paid approximately 1.370.88 percent of the Employee’s eligible compensation in cash (“Cash Profit Sharing”). In accordance with the Pilots’ election under their collective bargaining agreement, Pilots received approximately 11.3710.88 percent of their eligible compensation as a contribution to the profit sharing plan. These combined profit sharing and cash contributions for all eligible Employees equaled approximately 15 percent of the Company’s annual net operating profit (as defined in the profit sharing plan) for the 2018 plan year. The profit sharing plan is intended to serve as an incentive and reward to Employees because the plan is based on overall Company profitability. The numbers in the “All Other Compensation” column of the Summary Compensation Table reflect, in part, fluctuations in profit sharing contributions based on fluctuations in the Company’s profitability for the three years covered by the table.table, as well as the number of total Employees eligible to participate in the plan. The Committee has approved a cash payment to all of the Company’s officers equal to Company contributions they would have received in profit sharing, but for the application of the limits set forth in Section 401(a)(17) of the Internal Revenue Code. The Committee’s decision aligned this officer benefit with the benefits to which the Company’s Pilots are entitled pursuant to their collective bargaining agreement, as well as Mr. Kelly’s right to the excess amount pursuant to his individual deferred compensation arrangement discussed below.

Nonqualified Deferred Compensation

Compensation.Southwest offers nonqualified deferred compensation arrangements to a select group of Employees who are subject to certain limits established by the Internal Revenue Code with respect to qualified plan contributions. Because these arrangements, by their nature, are tied to the qualified plan benefits, they have not been considered when establishing salary and bonus elements and amounts. The Company’s excess benefit plan is available to a select group of Employees with amounts that cannot be contributed to the 401(k) or profit sharing plans due to limits under Section 415(c) of the Internal Revenue Code. Named executive officers who do not elect to participate in the Company’s excess benefit plan receive payment in the form of cash equal to the contribution the executive would have otherwise been entitled to receive under the profit sharing and 401(k) plans, but for the application of the limits of Section 415(c) of the Internal Revenue Code. The cash payment is made at the same time as the named executive officer would have otherwise received a contribution to the excess benefit plan. The excess benefit plan is discussed in more detail below under “Nonqualified Deferred Compensation in Fiscal 2017.2018.”

The Company has also adopted the Deferred Compensation Plan for Senior Leadership andNon-Employee Members of the Southwest Airlines Co. Board of Directors (the “SMC Deferred Compensation Plan”). With respect to plan years priorPursuant to the 2018 plan year, pursuant to such plan,SMC Deferred Compensation Plan, officers of the Company who wereare not eligible to participate in the Company’s 2005 Deferred Compensation Plan for Pilots could,may, prior

to each plan year, irrevocably elect to defer a portion of their compensation otherwise payable to them with respect to such plan year; provided that they had also irrevocably elected to contribute to the Company’s 401(k) plan the lesser of (i) the maximum elective deferral permitted by the Internal Revenue Code or (ii) the maximum elective contributions permitted under the terms of the 401(k) plan with respect to such plan year. Beginning with the 2018 plan year, the SMC Deferred Compensation Plan is no longer connected to the Company’s 401(k) plan. This means that officers who elected in 2017 to participate in the SMC Deferred Compensation Plan in 2018 could irrevocably elect to defer up to 50 percent of their compensationsalary otherwise payable to them for 2018such plan year and 100 percent of any bonus amounts they earn for 2018, regardless of how much they contribute

earned with respect to the 401(k) plan.such plan year. Pursuant to the SMC Deferred Compensation Plan,non-Employee members of the Board also may, prior to each plan year, irrevocably elect to contribute all or a portion of their annual cash retainer fees otherwise payable to them with respect to such plan year. The SMC Deferred Compensation Plan is discussed in more detail below under “Nonqualified Deferred Compensation in Fiscal 2018.” Southwest also maintains two nonqualified deferred compensation plans that are available to Pilots only, pursuant to the terms of their collective bargaining agreement. In addition, Mr. Kelly has an individual deferred compensation arrangementletter agreement, pursuant to which the Company credits to Mr. Kelly’s account an amount equal to any Company contributions that would have otherwise been made on his behalf to the Company’s qualified 401(k) and profit sharing plans, but that exceed the limits under Sections 415(c) and 401(a)(17) of the Internal Revenue Code for qualified plans. Mr. Kelly’s deferred compensation bears interest at a rate of ten percent, the interest rate established in 1982 when the first arrangement of this type was put into place with respect to the Company’s former Chairman Emeritus, Mr. Herbert D. Kelleher. Mr. Kelly’s deferred compensation arrangement is discussed in more detail below under “Nonqualified Deferred Compensation in Fiscal 2017.2018.”

Change-in-Control Arrangements

The Company has establishedchange-in-control arrangements for all of its Employees for the purpose of offering protection in the event of a termination of employment following achange-in-control. All officers of the Company, including the Chief Executive Officer and the other named executive officers, are parties to the Company’s Executive Service Recognition Plan Executive Employment Agreements. In general, in the event of termination subsequent to achange-in-control,change-in control, these agreements provide for a maximum incremental benefit approximately equal to (i) one year of salary and (ii) two years of bonus. In addition, the Company’s equity plans provide for acceleration of any unvested stock options (but not RSUs) at the time of achange-in-control. The terms of these arrangements are discussed in detail below under “Potential Payments Upon Termination orChange-in-Control.”

The remainder of the Company’s Employees are providedchange-in-control benefits through the Company’s Change of Control Severance Pay Plan (to the extent they are not otherwise beneficiaries of an enforceable contract with the Company providing for severance payments in the event of a reduction in force or furlough).

The Company’schange-in-control arrangements were all put in place in the 1980s and do not have any impact on the Company’s other compensation elements because any incremental benefit from these arrangements is not triggered unless there is a termination of employment following achange-in-control. The Company believes it is appropriate to keep these arrangements in place, in particular for the Company’s officers, because the Company believes they serve to (i) continue to attract and retain well-qualified executive personnel and (ii) enhance the ability of the Company to retain officers to carry on the Company’s business as usual in the event of any real or rumored possibilities of achange-in-control of the Company. In particular, with respect to the Chief Executive Officer, achange-in-control arrangement is intended to provide some assurance that, should the Company receive proposals from third parties with respect to its future, he can, without being influenced by the uncertainties of his own situation, (i) assess such proposals, (ii) formulate an objective opinion as to whether or not such proposals would be in the best interests of the Company and its Shareholders, and (iii) take any other action regarding such proposals as the Board might determine to be appropriate.

Perquisites and Other Benefits

All of the Company’s Employees and their immediate family members are eligible to fly free on Southwest Airlines on a standby basis, and officers of the Company and their spouses and dependent children are eligible to fly free on Southwest Airlines on a reserved seat basis. In addition, during 2017,2018, officers of the

Company were entitled, at their election, to an annual deposit of 225,000 Rapid Rewards points to their Rapid Rewards account. The annual deposit of Rapid Rewards points to officer accounts has been increased to 240,000 points for 2019. During 2017,2018, the Company’s officers and their spouses were also eligible, at their election, to participate in an executive health program that is part of the Southwest Airlines Co. Welfare Benefit Plan.

The Committee believes these benefits are commensurate with the differencesbenefits offered by others in the rights ofmarket in which the Company’s officers compared to the rights of other Employees are justified based on the additional time, responsibilities, and accountability associated with the officer positions. In addition, the differences reflect a cost/benefit analysis associated with whether or not to provide officer level flight privileges to all Employees. Company competes for executive talent.

The named executive officers, like the Company’s other contract andnon-contract Employees, also participate in various Employee benefit plans, including medical and dental care plans; life, accidental death and dismemberment and disability insurance; and paid time off. These elements of compensationoff, which are not taken into account bywhen establishing the Committee when establishingnamed executive officers’ salary and bonus elements and amounts.

Significant Corporate Governance and Compensation Policies and Practices

Clawback Policy.The Committee has adopted a clawback policy, pursuant to which, to the extent permitted by governing law, the Company may seek to recoup certain incentive-based compensation in the event the Company is required to restate its publicly reported financial statements due to material noncompliance with any financial reporting requirement under the securities laws as a result of misconduct.

Share Ownership Guidelines. The Committee has adopted share ownership guidelines for the Company’s executive officers and Board members. The Company’s Chief Executive Officer is expected to meet a share ownership level with a value equal to or exceeding five times his annual base salary, and all other executive officers are expected to meet a share ownership level with a value equal to or exceeding three times their annual base salary. Members of the Board are expected to meet a share ownership level with a value equal to or exceeding three times their annual cash retainer for Board services. “Share ownership” is defined to include shares of the Company’s common stock (including shares held in the Company’s profit sharing plan), unvested RSUs, and performance shares held pursuant to the Company’s Outside Director Incentive Plan. The Company’s executive officers are expected to meet the stated ownership levels within five years of becoming an executive officer. Members of the Board are expected to meet the stated ownership level within three years of becoming a Board member. The Committee has the authority to monitor and adjust these ownership guidelines as it deems appropriate from time to time. All of the Company’s executive officers, including the named executive officers, and all of the Company’s Board members meet the requirements of the Company’s share ownership guidelines. In addition to the Company’s share ownership guidelines, (i) the Company’s Insider Trading Policy prohibits Employees from entering into hedging transactions with respect to the Company’s securities; and (ii) the Company’s Blackout andPre-Clearance Procedures, which supplement its Insider Trading Policy, prohibit the Company’s officers and Board members from holding Company securities in a margin account or pledging Company securities as collateral for a loan.

NOTE REGARDING USEOF NON-GAAP FINANCIAL MEASURES

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These GAAP financial statements include (i) unrealizednon-cash adjustments and reclassifications, which can be significant, as a result of accounting requirements and elections made under accounting pronouncements relating to derivative instruments and hedging; and (ii) other charges and benefits the Company believes are unusual and/or infrequent in nature and thus may make comparisons to its prior or future performance difficult.

As a result, the Company also provides financial information in this Compensation Discussion and Analysis 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 supplementalnon-GAAP financial information (also referred to as “excluding special items”), 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 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 compare results to industry trends: Total operating expenses,non-GAAP, excluding fuelFuel and oil expense and profitsharing expense; Fuel and oil expense,non-GAAP; Operating income,non-GAAP; Adjusted operating income,non-GAAP; and Income tax rate,non-GAAP. The Company’snon-GAAP financial results differ from GAAP results in that they only include the actual cash settlements from fuel hedge contracts -– all reflected within fuel and oil expense in the period of settlement. Thus, fuelFuel and oil expense on anon-GAAP 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 andnon-GAAP purposes in the period of contract settlement. The Company believes thesenon-GAAP results provide further insight on of the impact of the Company’s fuel hedges on its operating performance and liquidity since they exclude the unrealized,non-cash adjustments and reclassifications that are recorded in GAAP results in accordance with accounting guidance relating to derivative instruments, and they reflect all cash settlements related to fuel derivative contracts within fuelFuel 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 fuelFuel and oil 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/ormark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on FormForm 10-K for the fiscal year ended December 31, 2017.2018.

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 to industry trends. Financial measures identified asnon-GAAP (or as excluding special items) have been adjusted to exclude special items. Special items include:include a gain recognized in first quarter 2018 associated with the sale of 39 owned Boeing737-300 aircraft and a number of spare engines to a third party. These aircraft were previously retired as part of the Company’s exit of its737-300 fleet. The gain was not anticipated and the Company associates it with a grounding charge recorded in third quarter 2017.

leased aircraft prior to their return to the lessors as of thecease-use date. The Company had not budgeted for the lease return requirements, as they are subject to negotiation with third party lessors.

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 compare results to industry trends: Total operating expenses,non-GAAP, excluding fuel and oil expense and profitsharing expense; and Operating income,non-GAAP; Adjusted operating income,non-GAAP; and Income tax rate,non-GAAP.

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, usingnon-GAAP financial measures. Thosenon-GAAP financial measures are utilized for the same reasons as those noted above for Operating income,non-GAAPnon-GAAP. - theThe 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 onnon-GAAP results since in the vast majority of cases the “special items” cannot be reliably predicted or estimated. The Company believesnon-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 fornon-GAAP return on invested capital in the accompanying reconciliation in order to allow investors to compare and contrast its calculation to those provided by other companies.

Reconciliation of Reported Amounts tonon-GAAPNon-GAAP Financial Measures (excluding special items) (unaudited) (in millions)

(a) As a result of prior hedge ineffectiveness and/or contracts marked to market through earnings.ineffectiveness.

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

(a) 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.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis contained in this Proxy Statement with the Company’s management. Based on such review and discussion and relying thereon, we have recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis contained in this Proxy Statement be included in the Company’s Annual Report on Form10-K for the year ended December 31, 2017,2018, and in this Proxy Statement.

Summary Compensation Table

The following table provides information with respect to compensation earned by the named executive officers for the years ended December 31, 2018, 2017, 2016, and 2015.2016.

The ultimate value of each of the named executive officer’s performance-based RSUs and the number of shares to be issued, if any, as of the vesting date will be based on the Company’s averageafter-tax ROIC over a three-year period. The maximum potential value of each of the named executive officer’s performance-based RSUs is set forth in the table below.