2012 Southwest Airlines One Report // Performance // Strategic Plan

Strategic PlanWe are confident in our strategic plan, designed to achieve 15 percent pre-tax return on invested capital.

The new Dallas Love Field ticket counter opened on Nov. 1, 2012.

p. 25

2012 Southwest Airlines One Report // Performance // Strategic Plan

ForadditionalinformationaboutourROICcalculation,visithttp://southwest. investorroom.com/ financial-statements andclickon“Returnon InvestedCapitalCalculation.

Major Strategic Initiatives

AirTran IntegrationIn2012,wemadesignificantprogressintegratingAirTranintoSouthwest,reachingmanykeyintegrationmilestones,asfurtherdiscussedinourAirTranIntegrationfeaturestory.During2012,weincurred$183millioninpre-taxexpensesassociatedwiththeacquisitionandintegrationofAirTran,bringingtheamountspentsinceacquisitioncloseto$324millionof the expected total acquisition and integration costsof approximately$550million.Our2012resultsbenefitedfrom$142millioninnet,annualized,pre-taxsynergies(exclud-ingacquisitionand integrationexpenses), keepinguson trackwithourplan to realize$400millioninnet,annualized,pre-taxsynergiesin2013andtocompletetheintegrationbytheendof2014.

All-New Rapid RewardsWelaunchedourrevampedRapidRewards® frequent flyerprograminMarch2011,andthefirstfullcalendaryearoftheprogramexceededourexpectations.During2012,ourexistingRapidRewards®Membersflewmoreandonaveragepaidmoreforfares,thus,earningmoreRapidRewards® points. In addition,we saw increases in the numberofRapidRewards®Members,thenumberofSouthwestco-brandedChaseVisacreditcardholders, the number of points sold to business partners, and the number of RapidRewards®pointspurchasedbyMembers.In2012,RapidRewards®produced$180millioninincrementalrevenues,ascomparedto2011,andisexpectedtoproduceanother$80millioninincrementalrevenuesin2013.

Fleet ModernizationWe’re replacingourolder737-300sand737-500swithneweraircraft—includingNext-Generation737and737MAX—whicharelessmaintenanceintensive,morefuelefficient,andlonghaulcapable.Inaddition,wewilltransitionAirTran’s88717-200stoDeltabegin-ningAugust2013.Thiswillnotonlyprovidesubstantialflexibilitytomeetourfleetneedsinavarietyofeconomicconditions,butitalsowillreduceourunitoperatingcostsand

ROIC (pre-tax,non-GAAP)

2009 20082010201120120

3

6

9

12

15%Target

read more about our fleet modernization plans in our Fleet Modernization feature story.

p.26

2012 Southwest Airlines One Report // Performance // Strategic Plan

greenhousegasemissions.InMarch2012,webeganretrofittingSouthwest737-700swithournew, recyclableEvolve interior,whichprovidesnew revenueopportunitieswith sixadditional seatsandnewCustomercomfort features.WeanticipatecompletingEvolve cabinrefreshesonallSouthwest-700sand78ofour-300sbytheendof2013.AirTranaircraftwillcontinuetoberetrofittedwiththeEvolvecabininterior,asthoseaircraftareconvertedtoSouthwest.Our2012pre-taxincomecontributionfromfleetmodernizationwas$70million,andweanticipatea$300millionpre-taxcontributionin2013.

Boeing 737-800sAsanextensionofourfleetmodernizationplans,wereceivedthefirstofour-800ordersinMarch2012andendedtheyearwithatotalof34-800sinourfleet.Therearemanybenefitstoaddingthe-800toourfleet:over20percentmoreseatingcapacitycomparedto the -700; enhancedonboard comfort;more economical longhaul flyingwith loweroverallunitcosts;betterschedulingflexibilityinhigh-demand,slot-controlled,andgate-restrictedmarkets;anditssuperioreconomicsmakenear-internationaldestinationsmoreattractivetoSouthwest.

New Reservation System and International CapabilitiesReplacingourreservationsystemisamulti-yearinitiativethatisexpectedtobringinter-nationalandenhancedrevenuemanagementcapabilitiesalongwithoperationalbenefits.The firstphasebegan inApril2012whenweentered intoacontractwithAmadeus toimplementan international reservationsystemwith itsAlteareservationssolution.Thisinternationalsolution isexpectedtobe implemented in2014,atwhichtimeweexpectSouthwesttobeabletooperateinternationalflights.Weplantocompletethefulldeploy-mentofournewreservationsystembeyond2014.

Southwest’s First Flight Outside the Continental United StatesIn2012,weobtainednecessaryFAAapprovalstoconductoperationsoutsideofthecon-tinentalUnitedStatesundercertaincircumstances.Asaresult,SouthwestlaunchedourfirstserviceoutsidethecontinentalUnitedStatesbyintroducingSanJuan,PuertoRico,toourroutemapinApril2013.

AirTran provides international service to eight destinations in six countries—Cancun,MexicoCity, andCaboSanLucas inMexico;MontegoBay, Jamaica;Nassau,Bahamas;Oranjestad,Aruba;PuntaCana,DominicanRepublic;andBermuda.

International Terminal at Houston Hobby AirportThanks to the collective effort of ourEmployees, communities, andStakeholders,wesuccessfully petitioned to “FreeHobby” in early 2012.As a result, during the secondquarterof2012,theHoustonCityCouncilapprovedanexpansionplanthatallowsfortheconstructionofafive-gateinternationalterminalwithaU.S.customsfacilityatHouston’sWilliamP.HobbyAirport(HOU).ThisnewterminalwillallowSouthwesttoprovideinter-nationalservicefromfourofthefivegatesafteritsanticipatedcompletionin2015.Wehave agreed to fund the design and construction of this project, which the City ofHoustonestimatedwillcost$156million.

Other Strategic Initiatives

InDecember2012,weannouncednew2013revenueinitiativesintheareasofnetworkopti-mization,revenuemanagement,andancillaryrevenues.Thesenewinitiativesareexpectedtogeneratehundredsofmillionsinincrementalrevenuesin2013comparedto2012.

View our future aircraftdelivery schedule.

read about how our employees, communities, and Stakeholders petitioned to “Free hobby” in our communities section.

Forourmostcurrentfinancialresultsandoutlookandtodownloadour2012Form10-K,visithttp://southwest. investorroom.com.

p.27

2012 Southwest Airlines One Report // Performance // Strategic Plan

Network OptimizationDuring2012,wecontinuedtoaggressivelymanagecapacityandrouteexpansionthroughoptimizationofour flight schedules tobettermatchPassengerdemand.Theseeffortscontributedtohigheryields,strongloadfactors,andimprovedrevenuesduring2012.

Despitethetransitionalstateof theAirTranroutenetwork,ournetworkswerecomple-mentarywithlittlerouteoverlap.Inresponsetohighfuelprices,wediscontinuedservicein14AirTranairportsandredeployedAirTranaircraftinothermarkets.In2012,weaddedSouthwestservicetotwonewstates,GeorgiaandIowa,andsixnewairports:Hartsfield-JacksonAtlantaInternational(ATL),Akron-CantonRegional(CAK),DaytonInternational(DAY), Des Moines International (DSM), KeyWest International (EYW), and RonaldReaganWashingtonNational (DCA).AirTran launchedservicetoAustin,Texas;OrangeCounty,Calif.;andMexicoCityandCaboSanLucas,Mexico.AirTranalsolaunchednewinternationalservicefromDenverandChicago.

To further coordinate Southwest andAirTran flight schedules,we launched tools to allowCustomersofbothairlines tobook flightsoneithercarrierviasouthwest.comor airtran.com.WealsomadesignificantprogresstowardtheApril2013implementationofconnectingcapabilitiesbetweentheSouthwestandAirTranreservationssystemstoallowCustomerstobookconnectingitinerariesbetweenthetwocarriers.

As a component of our new 2013 revenue opportunities, we intend to aggressivelyoptimizethenetworkbytighteningourscheduledaircraftflyinghoursperdayandturntimes.Asaresult,we’rebetterutilizingavailableaircraftduringpeakflyinghours,whichisestimatedtoresultinlessaircraftgroundtimeandincrementalrevenueproductionin2013.

Revenue ManagementWeintendtointroducethefirstphaseofanorigin-anddestination-basedrevenueman-agementsystemin2013,whichisexpectedtogenerateincrementalrevenues.Oncefullyimplemented, the new systemwill allow formore precisemanagement of Customerdemandand inventory, sowe canmanagedemand in termsofwhereourCustomerswanttofly,regardlessofhowtheyrouteorconnect.

Ancillary RevenuesIn2013,weareintroducingseveralnewancillaryrevenueopportunities,including:

• Selling open premium boarding positions at the gate:InJanuary2013,webegansellingopenpremiumboardingpositions,A1throughA15,atthegatetoCustomers45minutespriortodeparturefor$40perflight.ThisdoesnotreplaceourBusinessSelect fare or EarlyBird Check-InTM, but it is simply a creativeway to generaterevenuefromthesaleofavailablepremiumboardingpositions.

• Increasing the EarlyBird Check-In™ price:EarlyBirdCheck-InTMincreasedfrom$10to$12.50perone-wayfareinFebruary2013.

• increasing select baggage charges:OnAirTranflights,thechargeforaCustomer’sfirst checkedbag increased to$25and secondcheckedbag to$35 inFebruary2013.OnSouthwest flights,aCustomercanstill checkup to twobags,up to50poundseach,freeofcharge,butthechargeforathirdorsubsequentcheckedbag,orforanybaginexcessof50pounds,increasedto$75eachinFebruary2013.

• implementing a new policy: Currently, Customerswhodon’t showup for theirscheduledSouthwestflightsretainthefullvaluepaidfortheirticketsandcanreusesuchfundsforuptoayearaftertheoriginalflightdate.In2013,weplantoimple-mentanewpolicytochangeCustomerbehavior inawaythatallowsustoresellemptyseatspriortoflightdeparture.

read more in our Airtran integration story.

p.28

Inflight Internet and Live Television Connectivity Asof yearend2012, nearly400ofour aircraft offeredWiFi serviceonboard, and theremainderofour-700swereequippedbytheendoffirstquarter2013.Allofour-800senterservicewith inflight Internetconnectivity.OuragreementwithourWiFiprovider,Row44,allowsustosetthepricingofthisservice,whichasofFeb.1,2013,was$8adayperdevice,upfrom$5perdevice.During2012,webecamethefirstairlineintheworldtoprovideCustomersaccesstolivetelevision,consistingofcertainsportsandnewschannels,for viewingon their personalwirelessdevices. Live television is offered as a separatechargefromWiFi,soCustomersdonothavetopurchaseWiFitopurchaselivetelevision.Weofferlivetelevisionfor$5adayperdevice.Asannouncedin2012,onFeb.1,2013,welaunchedonallWiFi aircraftmoviesondemandandanupgraded televisionpackage,consistingofrecordedmoviesandtelevisionshowsthatarestoredontheonboardserverandstreamedwirelesslytoCustomerdevices.Wesetpricesat$5permovie,andtelevi-sionshowsare includedaspartof the$5televisionpackage,which includesaccesstolivechannels.AirTrancurrentlyoffersGogoinflightInternetconnectivityoneveryflight.Gogoestablishes thecharges forandreceives themajorityof revenueassociatedwiththisinflightInternetconnectivityonAirTran.

2012 Southwest Airlines One Report // Performance // Strategic Plan