Edgar Filing: SOUTHWEST AIRLINES CO

Performance Period

Vesting Date

ROIC in Performance Period(1)

Number of Performance-Based
RSUs Vesting and Settleable in
Common Stock as of the Vesting
Date

January 1, 2015 through

December 31, 2017

February 21,
2018(2)

13.0% or less

Grant Amount x 0%

Grant Amount x 100%

21.0% or greater

Grant Amount x 200%

DEF 14A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

Filed by the Registrant x Filed by a Party other than the Registrant ¨

Check the appropriate box:


¨		Preliminary Proxy Statement

¨		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

x		Definitive Proxy Statement

¨		Definitive Additional Materials

¨		Soliciting Material Pursuant to §240.14a-12

Southwest Airlines Co.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):


x		No fee required.
¨		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
		(1) Title of each class of securities to which the transaction applies:
		(2) Aggregate number of securities to which the transaction applies:
		(3) Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
		(4) Proposed maximum aggregate value of the transaction:
		(5) Total fee paid:

¨		Fee paid previously with preliminary materials.
¨		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
		(1) Amount Previously Paid:
		(2) Form, Schedule or Registration Statement No.:
		(3) Filing Party:
		(4) Date Filed:

LOGO

SOUTHWEST AIRLINES CO.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

WEDNESDAY, MAY 18, 2016

To the Shareholders:

The Annual Meeting of the Shareholders of Southwest Airlines Co. will be held at the Renaissance Blackstone Chicago Hotel located at 636 South Michigan Avenue, Chicago, Illinois on Wednesday, May 18, 2016, at 10:00 a.m., Central Daylight Time, for the following purposes:

(1)

to elect eleven Directors;

(2)

to conduct an advisory (non-binding) vote to approve named executive officer compensation;

(3)

to ratify the selection of Ernst & Young LLP as Southwest’s independent auditors for the fiscal year ending December 31, 2016;

(4)

if properly presented at the meeting, to consider and conduct an advisory (non-binding) vote on a Shareholder proposal to adopt a shareholder proxy access bylaw, as described in the accompanying proxy statement; and

(5)

to transact such other business as may properly come before the meeting or any adjournment or postponement thereof.

March 22, 2016, 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 to http://investors.southwest.com.

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 22, 2016 (such as an account statement from your broker showing your stock ownership as of March 22, 2016). 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 22, 2016, 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 22, 2016.

Your vote is important. Please sign and return the enclosed proxy or voting instruction card in the enclosed envelope to enable your shares to be represented at the meeting. Alternatively, you may vote via telephone or the Internet as described in 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,

LOGO

Mark R. Shaw

Corporate Secretary

April 8, 2016

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2016 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 18, 2016

Southwest’s Proxy Statement for the 2016 Annual Meeting of Shareholders and Annual Report to Shareholders for the fiscal year ended December 31, 2015, are available at

http://investors.southwest.com/financials

Table of Contents


	Page
GENERAL INFORMATION		1
Annual Meeting Admission		1
Voting Procedures		1
Quorum; Effect of Abstentions and Broker Non-Votes		2
PROPOSAL 1 — ELECTION OF DIRECTORS		2
CORPORATE GOVERNANCE		8
General		8
Board Membership and Qualifications		8
Board Leadership Structure		9
Executive Sessions and Communications with Non-Management Directors		10
Risk Oversight		10
Committees of the Board		12
Certain Relationships and Related Transactions, and Director Independence		15
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS		16
Security Ownership of Certain Beneficial Owners		16
Security Ownership of Management		17
COMPENSATION OF EXECUTIVE OFFICERS		19
Compensation Discussion and Analysis		19
Compensation Committee Report		38
Summary Compensation Table		39
Grants of Plan-Based Awards in Fiscal 2015		40
Outstanding Equity Awards at Fiscal 2015 Year-End		42
Option Exercises and Stock Vested During Fiscal 2015		43
Nonqualified Deferred Compensation in Fiscal 2015		43
Potential Payments Upon Termination or Change-in-Control		46
COMPENSATION OF DIRECTORS		49
Fiscal 2015 Director Compensation		49
AUDIT COMMITTEE REPORT		51
PROPOSAL 2 — ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS		52
PROPOSAL 3 — RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS		54
RELATIONSHIP WITH INDEPENDENT AUDITORS		54
SHAREHOLDER PROPOSAL — SHAREHOLDER PROXY ACCESS (PROPOSAL 4)		55
OTHER MATTERS		58
Submission of Shareholder Proposals		58
Section 16(a) Beneficial Ownership Reporting Compliance		58
Conduct of Meeting and Discretionary Authority		58
Householding		59
Costs of Solicitation		59
APPENDIX A		A-1
Southwest Airlines Co. Audit and Non-Audit Services Preapproval Policy Adopted March 20, 2003		A-1

Southwest Airlines Co.

P.O. Box 36611

Dallas, Texas 75235

(214) 792-4000

PROXY STATEMENT

FOR

ANNUAL MEETING OF SHAREHOLDERS

To be Held May 18, 2016

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 18, 2016, at 10:00 a.m., Central Daylight Time, at the Renaissance Blackstone Chicago Hotel, 636 South Michigan Avenue, Chicago, Illinois, 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 8, 2016.

Annual Meeting Admission

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 returning the enclosed proxy card. You may also vote by telephone from the United States, using the number on the proxy card, or through the Internet, using the instructions on the 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 as described in the applicable instructions your broker has provided with these proxy materials. 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 “broker non-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 Broker Non-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 22, 2016, are entitled to vote at the meeting. As of that date, the Company had issued and outstanding 638,637,043 shares of common stock. Abstentions and broker non-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 broker non-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 will not be able to vote your shares in its discretion with respect to Proposals 1, 2, or 4, and your vote will be counted as a “broker non-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 2017 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.


Name	Director Since	Age*
David W. Biegler	2006	69
J. Veronica Biggins	2011	69
Douglas H. Brooks	2010	63
William H. Cunningham	2000	72
John G. Denison	2008	71
Thomas W. Gilligan	2015	61
Gary C. Kelly	2004	60
Grace D. Lieblein	2016	55
Nancy B. Loeffler	2003	69
John T. Montford	2002	72
Ron Ricks	2015	66

*	As of February 29, 2016.

David W. Biegler has served as Chairman of Southcross Energy Partners GP, LLC (“Southcross GP”) since August 2011. Mr. Biegler served as Southcross GP’s 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 was formed to own, operate, develop, and acquire midstream energy assets. Mr. Biegler has served as Chairman of Southcross Holdings LP, which is currently the sole owner of Southcross GP, since August 2014, 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 companies that are or were publicly traded: Trinity Industries, Inc. (since 1992); Animal Health International, Inc. (2007-2011); and Dynegy Inc. (2003-2011). Mr. Biegler also serves as a Director for Austin Industries. 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 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 Biggins is 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 the following companies that are or were publicly traded: Avnet, Inc. (since 1997); Zep, Inc. (2007-2012); and AirTran Holdings, Inc. (2001-2011). Ms. Biggins has also served on a number of non-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; (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 in these areas.

Douglas H. Brooks served 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. During the

past five years, Mr. Brooks has served as a Director of the following companies that are or were publicly traded: Brinker International, Inc. (1999-2013); AutoZone, Inc. (since 2013); and ClubCorp Holdings, Inc. (since 2013). 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: 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 Presiding Director and as a member of the Audit Committee; and (ii) Dr. Cunningham has served on over 25 corporate boards and teaches corporate governance at The University of Texas Schools of Law and Business, which enables him to bring valuable and current governance expertise to the Board, particularly in his roles as Presiding 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 its Co-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. ATA filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in April 2008.

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, 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 as the Company explores additional international opportunities; 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. Kelly has served as the Company’s Chairman of the Board since May 2008, as its President since July 2008, and as its Chief Executive Officer since July 2004. Mr. Kelly also served as the Company’s Executive Vice President and as its Chief Financial Officer from June 2001 to July 2004 and Vice President Finance and 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 close to 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 a co-op student at the General Motors Assembly Division in Los Angeles and has 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 one publicly traded company other than Southwest: Honeywell International, Inc. (since 2012).

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 expansion of its 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. Loeffler has 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, as a Board member of The Cancer Therapy and Research Center, and as Chair of the Advisory Board of the School of Nursing at The University of Texas Health Science Center of San Antonio. 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 well as 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 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 an 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 Ricks has 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.

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 close to 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:


• Qualifications of Directors		• Board Self-Evaluation
• Board Meetings		• Ethics
• Director Responsibilities		• Director and Senior Management Compensation
• Independence of Directors		• Direct Stock Ownership
• Size of Board and Selection Process		• Access to Management
• Resignation Policy		• Access to Independent Advisors
• Board Committees		• Director Orientation and Continuing Education
• Executive Sessions; Communications with Non-Management Directors		• Public Communications
		• Other Practices

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, http://investors.southwest.com/corporate-governance. 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 (for non-management Directors); (iii) in the case of current Directors being considered for re-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 goal of obtaining diverse perspectives. 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 prohibit non-Employee Directors from serving on more than six public company boards and prohibit Employee Directors from serving on more than three 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 six meetings during 2015 (some of which spanned two days) and otherwise acted once by unanimous written consent. During 2015, 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. 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 at the time attended the 2015 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 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:

•

All members of the Board, other than the Chief Executive Officer and Vice Chairman of the Board, are independent, and each member is elected annually by the Company’s Shareholders.

•

All members of the Board’s Audit, Compensation, Nominating and Corporate Governance, and Safety and Compliance Oversight Committees are independent.

•

The Board meets, at a minimum, six times per year, and at each regular meeting of the Board, the Board is apprised of the Company’s operations and strategies through briefings by (i) the Chief Executive Officer, (ii) other members of senior management with key responsibilities for the Company’s ongoing operations and current initiatives, and (iii) any other Employees or advisors requested by the Board.

•

In addition to scheduled updates, the Board and its committees also request updates from management regarding matters deemed significant at any given time.

•

The non-management Board members hold executive sessions outside the presence of the Chief Executive Officer and other management.

•

The independent Board members hold executive sessions that include only independent directors.

•

The Board and its committees provide regular input regarding items to be covered in future agendas.

In addition, pursuant to the Company’s Corporate Governance Guidelines, the Board is required to appoint an independent member of the Board to serve as its Presiding Director. The duties of the Presiding Director, which is the Board’s lead independent Director, include the following:

•

presiding over executive sessions of the non-management Directors;

•

presiding over executive sessions of the independent Directors;

•

consulting with the Chairman of the Board concerning the Board’s agendas;

•

coordinating the activities of the non-management and independent Directors and the agenda for executive sessions;

•

communicating feedback to the Chief Executive Officer following executive sessions;

•

facilitating communications between the Board and the Chief Executive Officer;

•

at the standing invitation of the Board’s committees, attending meetings of Board committees on which the Presiding Director does not already serve;

•

assisting the Nominating and Corporate Governance Committee with its oversight of the annual evaluation of the Board and its committees and communicating results of individual Director assessments to individual Board members;

•

consulting with the Nominating and Corporate Governance Committee with respect to recommendations for the assignment of Board members to the Board’s committees; and

•

communicating (along with the Chair of the Compensation Committee) the results of the Board’s evaluation of the Chief Executive Officer.

The Board believes all of the foregoing factors provide an appropriate balance between effective and efficient Company leadership and sufficient oversight by non-Employee Directors.

Executive Sessions and Communications with Non-Management Directors

Pursuant to the Company’s Corporate Governance Guidelines, the non-management members of the Board of Directors are required to meet at regularly scheduled executive sessions without the presence of management. The Company’s Corporate Governance Guidelines also provide that to the extent that, at any time, the non-management members of the Board of Directors include Directors who are not independent, the independent Directors will also meet at least annually in an executive session that includes only independent directors. The Board’s Presiding Director, Dr. William H. Cunningham, presides over these executive sessions. Shareholders and any other interested parties may communicate directly with the Presiding Director or any or all of the non-management or other members of the Board by writing to such Director(s), c/o Southwest Airlines Co., Attn: Presiding Director, P.O. Box 36611, Dallas, Texas 75235.

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, 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 requests follow-up data and presentations to address any specific concerns and recommendations.

The Audit 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 cyber security and other risks relevant to the Company’s computerized information system controls and security.

The Safety and Compliance Oversight 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 levels be available to discuss their areas of responsibility and respond to questions.

The Nominating and Corporate Governance 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. 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:

•

The Compensation Committee’s bonus determinations take into account multiple general performance standards established by the Company to support its overall strategies and goals, rather than a single measure such as stock price performance or earnings. This has served as a multi-dimensional tool for the Compensation Committee to use in awarding bonuses, so that factors that are deemed significant to industry and operational performance are considered in addition to financial measures. This multi-dimensional approach reduces the risk that can be created when financial results are the only drivers of incentive payments. The Compensation Committee believes it is important to take into account multiple measures of financial and operational performance, as well as comparative pay in the market, for the following reasons, among others: (i) using a measure such as the Company’s stock price performance at any specified point in time is not necessarily indicative of the Company’s overall financial and operational performance, (ii) the Compensation Committee believes that rewarding Employees based solely on a measure such as stock price appreciation could create business risks by effectively encouraging Employees to focus on short-term results at the expense of the long-term financial and operational health of the Company, and (iii) the Compensation Committee believes that basing short-term incentive compensation on a single measure such as stock price performance presents undue retention risks.

•

The Compensation Committee has historically exercised a certain amount of discretion in awarding bonuses, in part to minimize the risk-taking that can result from a strict application of performance-based awards.

•

Incentive compensation is used responsibly, with appropriate focus on both Company and individual performance to effectively balance risks and rewards.

•

The Compensation 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.

•

The Company’s Insider Trading Policy prohibits Employees from entering into hedging transactions with respect to the Company’s securities.

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.


Name	Audit Committee	Compensation Committee	Nominating and Corporate Governance Committee	Safety and Compliance Oversight Committee	Executive Committee
David W. Biegler	X	Chair		X
J. Veronica Biggins		X	X
Douglas H. Brooks			X	X
William H. Cunningham	X		Chair		X
John G. Denison	X			Chair	X
Thomas W. Gilligan		X		X
Gary C. Kelly					Chair
Grace D. Lieblein
Nancy B. Loeffler		X	X
John T. Montford	Chair	X	X
Ron Ricks					X

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) business risks related to cyber security. The Audit Committee held nine meetings during 2015. 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 four 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.

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-based plans that are subject to Board approval; and (vi) making recommendations to the Board with respect to non-CEO

Reporting Officer compensation and incentive compensation plans that are subject to Board approval. The Compensation Committee is also responsible for reviewing non-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 Rule 16b-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 Compensation Committee held five meetings during 2015.

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 its Executive Vice President Corporate Services 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 Executive Vice President Corporate Services in connection with the Compensation Committee’s determinations are discussed in more detail below under “Compensation of Executive Officers — Compensation Discussion and Analysis.”

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 2015, 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 2015, 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 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 2014 and 2015, 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 for non-Employee members of the Board. Based on the information provided in 2014, the Compensation Committee decided to recommend an increase in the non-Employee Director annual equity retainer for 2015 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 2015, the Compensation Committee decided to recommend annual cash retainer increases for the Presiding Director and Committee Chairs, effective July 2015, to better align with market norms.

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 adequate for retention purposes and compensation that is appropriately linked to performance. 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; (ii) fees paid by the Company as a percentage of the consultant’s total revenue; (iii) policies or 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. Taking into account the foregoing, the Compensation Committee has concluded that the work of the independent consultant has not raised any conflict of interest.

Nominating and Corporate Governance 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. With respect to Mr. Ricks, who was appointed to the Board effective July 29, 2015, all members of the Nominating and Corporate Governance Committee and the full Board, having personal knowledge of Mr. Ricks’ credentials and character, collectively discussed and approved his appointment to the Board as the Board’s Vice Chairman. Mr. Ricks’ appointment to the Board filled the vacancy created by the death of Mr. Daniel D. Villanueva. With respect to Dr. Gilligan, who was appointed to the Board effective September 23, 2015, (i) Mr. Kelly and the Nominating and Corporate Governance Committee identified him as a potential candidate for the Board upon learning of his availability for a board membership(s) and based on his extensive qualifications and suitability for the Company’s Board; (ii) Mr. Kelly recommended Dr. Gilligan to the Nominating and Corporate Governance Committee based on Mr. Kelly’s personal knowledge of Dr. Gilligan’s credentials and character; and (iii) based on interviews of Dr. Gilligan and/or prior knowledge of Dr. Gilligan’s character and skills, each member of the full Board concurred with and approved Dr. Gilligan’s appointment to the Board. With respect to Ms. Lieblein, who was appointed to the Board effective January 27, 2016, (i) the Nominating and Corporate Governance Committee identified her as a proposed candidate for the Board following an extensive search that was performed with the assistance of the Executive Vice President Corporate Services and the Vice President People; (ii) the Nominating and Corporate Governance Committee, along with the other members of the Board, discussed Ms. Lieblein as a potential candidate over the course of multiple meetings; and (iii) all members of the Nominating and Corporate Governance Committee, as well as other members of the Board and multiple Company leaders, met with Ms. Lieblein, subsequent to which the Nominating and Corporate Governance Committee recommended her appointment to the full Board, and the Board unanimously approved her appointment to the Board. 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 five meetings during 2015.

Safety and Compliance Oversight 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; (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 seven meetings during 2015.

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 one meeting during 2015.

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 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 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 for non-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 Regulation S-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 22, 2016, the record date for determining Shareholders entitled to notice of and to vote at the meeting, there were outstanding 638,637,043 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 29, 2016, information with respect to persons who, to the Company’s knowledge, beneficially own more than five percent of the Company’s common stock.


Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership	Percent of Class(1)
PRIMECAP Management Company	74,088,358(2)		11.6%
225 South Lake Avenue, #400 Pasadena, CA 91101

FMR LLC	49,581,959(3)		7.8%
245 Summer Street Boston, MA 02210

BlackRock, Inc.	41,157,996(4)		6.4%
55 East 52^nd Street New York, NY 10022

The Vanguard Group	37,795,590(5)		5.9%
100 Vanguard Blvd. Malvern, PA 19355

Vanguard Chester Funds – Vanguard Primecap Fund	34,210,300(6)		5.4%
100 Vanguard Blvd. Malvern, PA 19355

(1)	Percentages are calculated based on the number of outstanding shares of the Company’s common stock as of February 29, 2016, which was 638,370,261.

(2)

Information is based on an Amendment to Schedule 13G filed with the SEC on February 12, 2016, by PRIMECAP Management Company. PRIMECAP Management Company reported sole voting power with respect to 12,718,846 shares, sole dispositive power with respect to 74,088,358 shares, and no shared voting or dispositive power.

(3)

Information is based on an Amendment to Schedule 13G filed with the SEC on February 12, 2016, by FMR LLC. FMR LLC, a parent holding company, reported sole voting power with respect to 3,882,855 shares, sole dispositive power with respect to 49,581,959 shares, and no shared voting or dispositive power. In addition, Abigail P. Johnson, a Director, the Vice Chairman, the Chief Executive Officer, and the President of FMR LLC, reported sole dispositive power with respect to 49,581,959 shares, no shared dispositive power, and no sole or shared voting power. Further, according to the Amendment to Schedule 13G, members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act of 1940 (the “Fidelity Funds”) advised by Fidelity

Management & Research Company, a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. Fidelity Management & Research Company carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees.

(4)

Information is based on an Amendment to Schedule 13G filed with the SEC on February 10, 2016, by BlackRock, Inc. BlackRock, Inc., a parent holding company or control person, reported sole voting power with respect to 36,396,636 shares, sole dispositive power with respect to 41,157,996 shares, and no shared voting or dispositive power.

(5)

Information is based on an Amendment to Schedule 13G filed with the SEC on February 11, 2016, by The Vanguard Group, a parent holding company. The Vanguard Group reported sole voting power with respect to 1,065,484 shares, sole dispositive power with respect to 36,705,887 shares, shared voting power with respect to 15,900 shares, and shared dispositive power with respect to 1,089,703 shares.

(6)

Information is based on an Amendment to Schedule 13G filed with the SEC on February 9, 2016, by Vanguard Chester Funds – Vanguard Primecap Fund. Vanguard Chester Funds – Vanguard Primecap Fund reported sole voting power with respect to 34,210,300 shares, no shared voting power, and no sole or shared dispositive power.

Security Ownership of Management

The following table sets forth, as of February 29, 2016, 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.


Name of Beneficial Owner	Amount and Nature of Beneficial Ownership(1)(2)		Percent of Class(2)
David W. Biegler(3)		48,315		*
J. Veronica Biggins(4)		31,140		*
Douglas H. Brooks(5)		50,608		*
William H. Cunningham		51,108		*
John G. Denison(6)		42,108		*
Thomas W. Gilligan		0		*
Gary C. Kelly(7)		528,959		*
Grace D. Lieblein		0		*
Nancy B. Loeffler		30,566		*
John T. Montford		25,334		*
Ron Ricks		106,379		*
Robert E. Jordan(8)		29,092		*
Jeff Lamb		64,594		*
Tammy Romo(9)		39,938		*
Michael G. Van de Ven(10)		82,685		*
Current Executive Officers and Directors as a Group (17 persons)(11)		1,156,792		*

*	Less than 1%

(1)	Unless otherwise indicated, beneficial owners have sole rather than shared voting and investment power with respect to their shares, other than rights shared with spouses pursuant to joint tenancy or marital property laws.

(2)	Amounts include shares subject to options that were exercisable within 60 days of February 29, 2016, whether or not such options were in-the-money.

(3)	Includes 4,707 shares held by Mr. Biegler’s spouse and 8,000 shares that Mr. Biegler had the right to acquire within 60 days pursuant to stock options.

(4)	Includes 32 shares held by Ms. Biggins’ spouse.

(5)	Includes 10,000 shares that Mr. Brooks had the right to acquire within 60 days pursuant to stock options.

(6)	Includes 10,000 shares that Mr. Denison had the right to acquire within 60 days pursuant to stock options.

(7)

Includes 100,000 shares that Mr. Kelly had the right to acquire within 60 days pursuant to stock options. Also includes (i) 55,834 shares held in a family trust with respect to which Mr. Kelly serves as trustee and (ii) 55,834 shares held in a family trust with respect to which Mr. Kelly’s spouse serves as trustee.

(8)	Includes 9,935 shares held for Mr. Jordan’s account under the Company’s profit sharing plan, with respect to which he has the right to direct the voting.

(9)	Includes 3,346 shares held for Ms. Romo’s account under the Company’s profit sharing plan, with respect to which she has the right to direct the voting.

(10)	Includes 681 shares held for Mr. Van de Ven’s account under the Company’s profit sharing plan, with respect to which he has the right to direct the voting.

(11)

In addition to the amounts disclosed in footnotes (3) through (10), with respect to the other executive officers of the Company, includes 787 shares held for an executive officer’s account under the Company’s profit sharing plan, with respect to which the executive officer has the right to direct the voting.

COMPENSATION OF EXECUTIVE OFFICERS

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, each of its three other most highly compensated executive officers who were serving as such at the end of fiscal 2015, and one former executive officer who would have been among the three other most highly compensated executive officers had he been serving as an executive officer on December 31, 2015. For 2015, 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, President, & Chief Executive Officer; (ii) Tammy Romo, Executive Vice President & Chief Financial Officer; (iii) Michael G. Van de Ven, Executive Vice President & Chief Operating Officer; (iv) Robert E. Jordan, Executive Vice President & Chief Commercial Officer; (v) Jeff Lamb, Executive Vice President Corporate Services; and (vi) Ron Ricks, former Executive Vice President & Chief Legal & Regulatory Officer. For purposes of this Compensation Discussion and Analysis, the Compensation Committee will be referred to as the “Committee.”

Executive Summary

Set forth below is a summary of (i) the Company’s key accomplishments for 2015; (ii) the Company’s overall compensation objectives; (iii) the Committee’s consideration of the Company’s 2015 say-on-pay vote; (iv) the Committee’s overall approach to executive compensation; and (v) the Committee’s executive compensation decisions for 2015.

Company Performance

The Committee’s compensation decisions for 2015 reflect the Company’s strong performance in multiple financial and operational areas. The year 2015 marked the Company’s 43^rd consecutive year of profitability, an accomplishment unmatched in the U.S. airline industry. Specific 2015 achievements included the following, among others:

Financial and Strategic Accomplishments

•

The Company set the following full year records:

•

Net income: $2.2 billion, or $3.27 per diluted share

•

Net income, excluding special items*: $2.4 billion, or $3.52 per diluted share

•

Total operating revenues: $19.8 billion

•

Operating income: $4.1 billion

•

Operating income, excluding special items*: $4.0 billion

•

Return on invested capital, before taxes and excluding special items* (“ROIC”): 32.7 percent

•

Net cash provided by operations: $3.24 billion

•

Load factor (revenue passenger miles divided by available seat miles): 83.6 percent

•

Revenue passenger miles: 117.5 billion

•

The Company returned approximately $1.4 billion to its Shareholders through payment of approximately $180 million in dividends and the repurchase of approximately 30 million shares of common stock for approximately $1.2 billion.

•

The Company ended 2015 with approximately $3.1 billion of cash and short-term investments.

•

The Company generated approximately $1.1 billion in free cash flow* in 2015.

•

The Company repaid $213 million of long-term debt and capital lease obligations during 2015.

•

Based on the most recent data available from the U.S. Department of Transportation, as of September 30, 2015, adjusted for stage length, Southwest had lower unit costs, on average, than the majority of major domestic carriers.

•

Moody’s upgraded the Company’s senior unsecured debt rating to “Baa1” from “Baa2,” and Fitch raised the Company’s debt rating to “BBB+” from “BBB.” The Company remained the only investment grade-rated U.S. airline by all three credit rating agencies.

•

The Company modernized its future fleet delivery schedule by adding 33 Boeing 737-800 aircraft and converting all of its remaining Boeing 737-700 firm orders to 737-800s, which enables the Company to accelerate the retirement of its less-efficient Boeing 737-300 and 737-500 fleet.

•

The results of the Company’s Rapid Rewards^® frequent flyer program continued to exceed the Company’s expectations with respect to the number of new frequent flyer members, the amount spent per member on airfare, the number of flights taken by members, the number of Southwest’s co-branded Chase^® Visa credit card holders added, the number of points sold to business partners, and the number of frequent flyer points purchased by program members.

•

The Company was recognized by Barron’s as one of America’s Top 500 companies.

Operational Accomplishments

•

Based on the most recent data available from the U.S. Department of Transportation, as of September 30, 2015, Southwest was the largest domestic air carrier in the United States, as measured by the number of domestic originating passengers boarded.

•

The Company added its first three destinations in Central America (San Jose, Costa Rica, Belize City, Belize, and Liberia, Costa Rica) and also commenced service to Puerto Vallarta, Mexico.

•

The Company’s international expansion in 2015 was facilitated by the completion of a newly constructed five-gate international terminal at Houston’s William P. Hobby Airport where the Company launched service to eight international destinations. The Company oversaw and managed the construction.

•

At Dallas Love Field, Southwest began serving 20 new non-stop destinations, which were made possible by the repeal of certain federal flight restrictions at Dallas Love Field in October 2014. At year-end 2015, Southwest offered a total of 180 weekday departures to 50 nonstop destinations from Dallas Love Field.

•

Southwest was recognized by Corporate Responsibility Magazine on its worldwide 100 Best Corporate Citizens List for leadership in commitment to transparency and responsible business practices related to environment, climate change, Employee relations, human rights, governance, finance, and philanthropy.

Customer Service Accomplishments

•

For the sixth consecutive year, Southwest was named Domestic Carrier of the Year by the Airforwarders Association.

•

For the 15th consecutive year, Southwest was recognized by Express Delivery and Logistics Association as Domestic Airline of the Year.

•

Southwest was recognized as the top airline in the TripAdvisor 2015 Travelers’ Choice Favorites Awards.

•

Southwest was named Best Low-Cost Carrier in North America from Premier Traveler-Best of 2015.

•

Southwest was recognized as having one of the top airline frequent flyer programs in U.S. News & World Report’s 2015 ranking of the Best Airline Rewards Programs.

•

Southwest was recognized for Best Airline Customer Service, Best Redemption Ability, and Best Loyalty Credit Card by InsideFlyer Magazine for Southwest’s Rapid Rewards program.

•

The Company was named to FORTUNE’s 2015 list of World’s Most Admired Companies for the 21^st consecutive year, ranking as the seventh most admired company in the world.

•

For the 19^th consecutive year, Southwest Airlines Cargo received the Quest for Quality Award by Logistics Management Magazine.

•

Southwest was recognized among the top airline scores for overall customer satisfaction in the airline industry in the J.D. Power 2015 North America Airline Satisfaction Study^SM.

Accomplishments as an Employer

•

The Company achieved its 43^rd consecutive year of profitability without ever having furloughed an Employee.

•

The Company was recognized as the top airline employer and one of the top 20 best employers overall according to the Forbes list of America’s Best Employers for 2015.

•

The Company was recognized among the top 50 best places to work by the Glassdoor.com Employees’ Choice Awards.

•

The Company was recognized as one of the Top 100 Military Friendly Employers^® by Victory Media, publisher of G.I. Jobs and Military Spouse.

•

The Company was recognized as a 2015 Most Valuable Employer for Military by CivilianJobs.com.

•

The Company was recognized as the top airline and sixth best overall on the Fortune 500 Top 100 Employment Brands.

•

The Company was recognized by Chief Executive Magazine as one of the best companies for leaders.

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

Company-Wide Compensation Objectives

The overall objective of the Company’s compensation program is to promote and reward productivity and dedication to the overall success of the Company and to thereby also support the Company’s overarching objective of attaining sustainable profits and preserving job security.

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 also factor significantly into Company-wide compensation decisions, including executive compensation decisions. The Company’s compensation program for contract Employees is generally the same in structure as its compensation program for non-contract Employees, except that the levels of compensation for contract Employees are generally determined pursuant to the terms of their collective bargaining agreements.

Compensation Committee’s Consideration of 2015 Say-on-Pay Vote

At its 2015 Annual Meeting of Shareholders, votes in favor of approving the Company’s named executive officer compensation constituted close to 95 percent of the shares voted either for or against the proposal. The Committee interpreted the results of the Company’s 2015 say-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.

Compensation Approach

In approaching executive compensation decisions, the Committee seeks to provide a balance between (i) compensation that is adequate for retention purposes and (ii) compensation that is appropriately linked to performance. The Committee also seeks to provide a balance between internal equity and retention when considering the relative compensation of the named executive officers.

Retention. The Committee believes that, to be competitive and retentive, executive compensation should be within a reasonable range of median compensation, based on available market data both within and outside of the airline industry.

For purposes of this Compensation Discussion and Analysis, references to the adequacy, retention value, appropriateness, competitiveness, and acceptability of compensation (and similar references), as well as comparisons to market, should be interpreted in the context of this Committee objective. The market data considered by the Committee is discussed below under “Role of Independent Compensation Consultant; Benchmarking; Market Data.”

Pay-for-Performance. To address pay-for-performance, over the past several years, the Committee has increasingly linked the named executive officers’ total compensation opportunities to performance. The Committee has accomplished this by increasing short-term (annual bonus) and long-term (equity) incentives as a percentage of total compensation. The named executive officers’ 2015 compensation included the following variable pay opportunities:

•

discretionary cash bonus opportunities, the ultimate value of which was based on subjective determinations regarding the named executive officers’ individual performance for 2015;

•

performance-based cash incentive opportunities, the ultimate value of which was based on the Company’s performance for 2015;

•

long-term performance-based equity incentive opportunities in the form of performance-based restricted stock units (“RSUs”), the ultimate value of which will be based on the Company’s ROIC performance over a multi-year period; and

•

long-term incentive opportunities in the form of service-based, time-vesting RSUs designed to serve as retention vehicles, the ultimate value of which will be based on the Company’s stock price performance over multiple years.

The charts on the following pages demonstrate the Committee’s commitment over the past several years to increase pay-for-performance, or “pay-at-risk,” as a percentage of total compensation (amounts include compensation to the extent required to be reported in the Summary Compensation Table pursuant to the compensation disclosure rules of the SEC).


Name	Year
	2009	2015
Gary C. Kelly

Tammy Romo

Ron Ricks

Michael G. Van de Ven


Name	Year
	2009		2015
Robert E. Jordan

Jeff Lamb		(1)

(1) In accordance with SEC rules, 2015 was the first year for which Mr. Lamb was required to be included in the proxy statement executive compensation tables.

Summary of 2015 Executive Compensation

2015 Base Pay. For the fourth year in a row, in accordance with Mr. Kelly’s wishes, his base pay of $675,000 did not increase. With the exception of Ms. Romo, the other named executive officers only received nominal increases of one to two percent in February 2015. Ms. Romo received a five percent increase in February 2015 as part of the Committee’s efforts to gradually address her continued low pay relative to the market since being promoted to Chief Financial Officer in 2012. She received an additional two percent increase in August 2015 in connection with her promotion from Senior Vice President to Executive Vice President.

Additional information regarding 2015 base pay is provided below under “Determination of 2015 Executive Compensation; Analysis of Individual Compensation Elements – Salary.”

2015 Short-Term Incentive Compensation. For 2015, each of the named executive officers received a performance-based short-term incentive award that was based on the Company’s performance relative to multiple performance metrics set forth in the Company’s “Management Incentive Scorecard.” These amounts are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. Each of the named executive officers also received a subjectively-determined discretionary bonus. These amounts are disclosed in the “Bonus” column of the Summary Compensation Table. For purposes of this Compensation Discussion and Analysis, the terms “short-term incentive” and “short-term incentive compensation” are used to describe the amounts disclosed in both columns.

Of each of the named executive officer’s total short-term incentive compensation opportunity, 80 percent was performance-based and 20 percent was discretionary. Additional detail regarding 2015 short-term incentive compensation is included below under “Determination of 2015 Executive Compensation; Analysis of Individual Compensation Elements – Short-Term Incentive Compensation.”

2015 Long-Term Incentive Compensation. For 2015, each of the named executive officers received an increase in value of their total long-term incentive opportunity. In each case, reflecting the Committee’s

commitment to enhancing the performance-based aspect of the Company’s executive compensation program, (i) 50 percent of the increase in value of each named executive officer’s long-term incentive opportunity was in the form of service-based, time-vesting RSUs; and 50 percent of the increase in value was in the form of performance-based RSUs; (ii) the named executive officer’s aggregate long-term incentive opportunity increased as a percentage of total compensation; and (iii) performance-based RSUs increased as a percentage of total RSUs. The actual number of shares that may be received by the named executive officers upon settlement of the performance-based RSUs granted in 2015 will be dependent upon the Company’s three-year average ROIC performance for the period from January 1, 2015 to December 31, 2017.

Additional detail regarding the 2015 equity grants is included below under “Determination of 2015 Executive Compensation; Analysis of Individual Compensation Elements – Equity.”

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 2015, the data provided by the consultant included reviews of the named executive officers’ base salary, annual bonus/short-term incentive compensation, total cash compensation (base salary plus annual bonus/short-term incentive compensation), long-term incentive compensation (equity), and total direct compensation (total cash compensation plus long-term incentive compensation) relative to similar positions reported in the databases below.


Market Data		2015 Base Pay; Short-Term Incentive Targets for 2015; and Long-Term Incentive Compensation Granted in February 2015
General Industry – Comparable Companies		Towers Watson 2014 General Industry Executive Compensation Database. From this database, the compensation consultant identified 46 companies that were considered to be representative of consumer-oriented businesses.(1)
General Industry – Total Sample		Towers Watson 2014 General Industry Executive Compensation Database (446 Companies).
Airline Data		American Airlines Group, Inc., Delta Air Lines, Inc., and United Continental Holdings, Inc.(2)

(1)	Where possible, the data was adjusted by the independent consultant to take into account differences in company size.

(2)

Although the Committee referenced broader industry airline data for context, the Committee focused on these three airlines as the most relevant (e.g., from a competitive hiring standpoint). The airline data was representative of 2013 compensation data reported in these airlines’ 2014 proxy statements and was not aged. In addition, the data was discounted to take into account differences in revenues between these airlines and the Company.

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 would be appropriate pay. The Committee did not directly target named executive officer compensation to specific market data because (i) the market data was not necessarily comprehensive, and (ii) in particular with respect to airlines, the data did 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 deemed it advisable to reference the broader compensation data provided by general industry surveys, which also served as indicators of the named executive officers’ potential value to other organizations who might seek to hire them.

Internal Equity; Role of Management

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. For purposes of this Compensation Discussion and Analysis, references to “internal equity” should be interpreted in this context.

At the Committee’s request:

•

Mr. Kelly and Mr. Lamb (who oversees the Company’s People Department) (i) provide regular input regarding overall compensation designs and recommendations presented to the Committee and (ii) review with the Committee the relative roles and responsibilities of the Company’s other executive officers;

•

Mr. Kelly reviews with the Committee the relative performance of the Company’s other executive officers and provides input with respect to their compensation generally and their compensation relative to each other; and

•

Mr. Lamb works with the Committee Chair and the Committee’s independent consultant to provide market data and recommendations with respect to Mr. Kelly’s compensation.

The input from Mr. Kelly and Mr. Lamb 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 a day-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 2015 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 all non-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 or to be paid to each of the named executive officers for 2015; 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 Company’s objective with respect to base pay is to provide a reasonable (around the mid-range of market), as opposed to highly competitive, base level of monthly income relative to an Employee’s job responsibilities and the market for the Employee’s skills (both within and outside of the airline industry).

Approach to 2015 Base Pay; Individual Base Pay Determinations for the Named Executive Officers and Pay Relative to Each Other. Notwithstanding market data that would support an increase in Mr. Kelly’s base pay, in accordance with Mr. Kelly’s wishes, he did not receive an increase in base pay for 2015. Likewise, notwithstanding market data that would support a more significant increase in Ms. Romo’s base pay as Senior Vice President & Chief Financial Officer, she received a moderate $20,000 (five percent) increase in her role as Chief Financial Officer in February 2015. She received an additional $10,000 (two percent) increase in August 2015 to reflect her promotion to Executive Vice President and the expansion of her leadership to include Supply Chain Management. The other named executive officers received nominal increases ranging from one to two percent. Reflecting the Committee’s consideration of internal equity and tenure, this resulted in an equal annualized base salary of $470,000 for each of Messrs. Van de Ven, Jordan, and Ricks, and an annualized base salary of $450,000 for Mr. Lamb.

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 manager 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 2015 Short-Term Incentive Compensation.

General. The Committee believes the incentive compensation awards to the named executive officers for 2015 were justified based solely on the extensive accomplishments discussed above under “Executive Summary.” Nevertheless, the Committee used a more structured approach to the named executive officers’ short-term incentive opportunities by providing most of their opportunities pursuant to Company’s Senior Executive Short Term Incentive Plan (the “Incentive Plan”), which provides for the payment of cash bonuses based on performance measures and targets that are pre-established by the Committee.

For 2015, (i) 80 percent of each named executive officer’s short-term incentive compensation opportunity was pursuant to the Incentive Plan and was therefore dependent on Company performance relative to pre-established metrics; and (ii) 20 percent was based on the Committee’s subjective and discretionary determinations regarding the named executive officers’ individual contributions to Company performance. Poor individual performance could negate any compensation that might otherwise have been earned under the Incentive Plan based on Company performance. Each of the named executive officers was presented with a target short-term incentive opportunity (applicable to both the Incentive Plan opportunity and the discretionary bonus opportunity) equal to a percent of the officer’s base salary in accordance with the table below. These target short-term incentive opportunities were established based on the respective levels of responsibilities of the named executive officers.


		Target Short-Term Incentive Opportunity (Percentage of Base Salary)
Chief Executive Officer		150%
Executive Vice Presidents		120%
Senior Vice President(1)		100%

(1) Ms. Romo’s Target Short-Term Incentive Opportunity was established when she was a Senior Vice President.

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

Short-Term Incentive Compensation Opportunities under the Incentive Plan. Pursuant to the Incentive Plan, the Committee established 2015 performance metrics and targets that were based on the Company’s 2015 Management Incentive Scorecard (the “Scorecard”). The Scorecard included nine specific metrics within four general Scorecard standards. The general Scorecard standards, each of which were weighted, reflected (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 initiatives.

The specific metrics, targets, and weightings established with respect to the Scorecard, as well as the actual results and payout percentages with respect to 2015, are set forth below.


Scorecard Standards
Strategic Initiatives (25.00%)	Metric Weight	Target Range (Subjective: 0-150%)										Component Payout Percentage

New Reservation System	8.33%		Initiative Performing Below Target										91.7%

Fleet Modernization	8.33%		Initiative Performing Better Than Target										150.0%

International Growth	8.33%		Initiative Performing Better Than Target										146.7%
Most Loved (16.66%)	Metric Weight	Target Range										Result		Component Payout Percentage
Most Loved (16.66%)	Metric Weight	0% Threshold		50% Award		75% Award		100% Target		150% Max		Result		Component Payout Percentage
Net Promoter Score(1)	8.33%		58.1%		60.0%		61.5%		63.0%		65.0%		64.6%		138.9%
Voluntary Turnover(2)	8.33%		2.47%		2.37%		2.27%		2.17%		1.87%		2.62%		0.00%
Most Flown (8.33%)
Ontime Performance(3)	8.33%		73.0%		78.0%		80.0%		83.0%		85.0%		79.7%		71.3%
Most Profitable (50.00%)
Total Operating Revenue (Non-GAAP) ($ billions)(4)	16.66%		18.61		18.88		19.16		19.64		19.81		19.65		102.7%
Cost per available seat mile, excluding fuel and profitsharing (Non-GAAP) (Cents)(5)	16.66%		8.09		8.04		8.01		7.98		7.89		7.92		132.1%
ROIC(6)	16.66%		15.0%		17.5%		19.5%		21.2%		23.5%		32.7%		150.0%
		Total Payout for Company Performance												114.0%

(1)	(Total Promoters-Total Detractors)/Total Survey Participants.

(2)	Total Voluntary Terminations/Total Number of Employees Available for Termination.

(3)	Number of scheduled flights that arrived less than 15 minutes after scheduled arrival time divided by total scheduled flights.

(4)	Excludes a special revenue adjustment*.

(5)	Calculated as operating expenses (excluding fuel and oil expense, profitsharing expense, and special items*), divided by available seat miles of 140.5 billion, which is the average cost to fly an aircraft seat (empty or full) one mile.

(6)	ROIC is measured before taxes and excludes special items*.

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

The Committee believes the Scorecard provided appropriate metrics and targets for use under the Incentive Plan because (i) there is a strong correlation between the Scorecard and the manner in which the Company manages and measures its own performance generally (i.e., the goals are highly relevant to the Company, its Shareholders, its Customers, and its Employees); (ii) the Scorecard has been in existence and communicated in varying forms since the end of 2004 and therefore incorporates standards with which Employees were already familiar and to which Employees were likely to respond; (iii) the Scorecard provides visibility to the Committee regarding what management communicates to its Employees as important; (iv) 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; (v) the Scorecard creates a multi-dimensional mechanism 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; (vi) 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 (vii) individualized objectives can be customized based on applicable goals within the Scorecard.

Individual Bonus Determinations for the Named Executive Officers and Pay Relative to Each Other; Use of Discretion. The Committee approved individual named executive officer discretionary bonus amounts based on (i) the named executive officers’ individual contributions to the Company’s performance (including their performance relative to the factors covered by the Scorecard and the factors discussed below); (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:

•

consider a variety of factors in assessing individual contributions depending on the nature of an individual’s roles and responsibilities within the Company;

•

evaluate individual goals and payouts in light of unexpected events or changes in the industry and related changes in business strategies, thereby minimizing the risk that individuals will continue to focus on areas that become less relevant just to achieve a bonus payout;

•

reward individuals for the Company’s superior operational and financial performance relative to its peers during periods when the Company and its peers must react to adverse events that are out of the Company’s control (e.g., fuel costs, economic fluctuations, competitor actions, weather events, terrorist threats, and other events that can influence the Company’s business plan and strategies); and

•

re-focus Employee energy when an unanticipated opportunity arises that could lead to long-term benefits and reward related individual contributions.

In determining the size of the named executive officers’ discretionary bonuses, the Committee took into account the factors discussed below for each named executive officer. In determining the size of these bonuses 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. Key factors considered by the Committee in determining the bonus amounts for the Chief Executive Officer and the other named executive officers are discussed below.

Chief Executive Officer. In assessing the Chief Executive Officer’s individual performance, the Committee rewarded Mr. Kelly for his strategic vision and strong leadership with respect to all of the Company’s

2015 achievements and, in particular, his contributions with respect to (i) the Company’s multiple and significant record financial results and its return of $1.4 billion to its Shareholders; (ii) the Company’s operational achievements, in particular its fleet modernization and international expansion; (iii) the Company’ strong and positive brand recognition and customer relations; and (iv) Mr. Kelly’s continued development of a strong leadership team and positive Company culture.

Other Named Executive Officers. In assessing the individual performance of the other named executive officers, the Committee relied heavily on Mr. Kelly’s and Mr. Lamb’s input regarding the relative roles, scope of responsibilities, and performance of each of these officers with respect to the Company’s 2015 results, as well as their respective contributions to the Company’s ongoing initiatives. Specifically, the following contributions of the other named executive officers were key to the Company’s achievements:

•

the contributions of each of the other named executive officers with respect to the Company’s record financial results;

•

the contributions of each of the other named executive officers with respect to the Company’s international expansion;

•

the contributions of Mr. Van de Ven and Ms. Romo and their teams with respect to the Company’s fleet management and modernization;

•

the contributions of Mr. Van de Ven and Mr. Jordan and their teams with respect to the Company’s record load factors;

•

the contributions of Mr. Jordan and his teams with respect to the Company’s revenue results and continued success of the Company’s Rapid Rewards frequent flyer program;

•

the contributions of Mr. Ricks and his teams with respect to governmental and airport affairs (e.g., the Company’s completion of a newly constructed five-gate international terminal at Houston’s William P. Hobby Airport; the Company’s progress with other multiple airport modernization projects; and Mr. Ricks’ community outreach efforts and the Company’s related relationships with the communities the Company serves and with governmental leaders);

•

the contributions of Mr. Lamb and his teams with respect to the Company’s construction of the new international terminal at Houston’s William P. Hobby Airport, as well Mr. Lamb’s and his teams’ contributions to the advancement of other airport master plans;

•

the contributions of Ms. Romo’s Strategic Planning and Financial Planning and Analysis functions with respect to the Company’s financial and operational successes; and

•

the contributions of Ms. Romo and her teams with respect to the Company’s upgraded credit ratings and Shareholder returns.

Equity

Objectives of Equity Compensation. Equity awards are used by the Company (i) to attract and retain Employees; (ii) as an incentive and reward for achievement of the Company’s long-term objectives; (iii) to further align the interests of the Company’s Employees with those of its Shareholders; and (iv) to serve as a performance-based method to bring executive compensation closer to market median.

Because the Company is subject to limitations on the number of shares it may issue pursuant to awards under equity plans, during 2015 equity continued to be granted at the senior management level and to members of the Board of Directors. The Committee, with the input of its independent consultant, has concluded that senior management positions are currently 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. With respect to other Employees, the Company places more emphasis on cash compensation.

Approach to Equity Compensation. The Committee applies its judgment in determining the size of long-term incentive (equity) awards, which involves informing itself of practices and levels of equity pay in the market for a given position. The Committee also takes into consideration internal equity, prior year awards, total direct compensation for each individual, the Company’s performance relative to enhancing Shareholder value, and an individual’s specific performance in determining where equity pay should fall within the range of the market data the Committee reviews.

During 2015, 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; and each of the named executive officers received an increase in the aggregate value of their awards. Of the aggregate increase in value, 50 percent of each named executive officer’s increase was in the form of service-based, time-vesting RSUs; and 50 percent was in the form of performance-based RSUs. As shown in the Grants of Plan-Based Awards in Fiscal 2015 table, the ultimate value of each of the named executive officer’s performance-based RSUs will be based on the Company’s average 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 below. In addition, the percentage of performance-based RSUs that will vest will be interpolated between the targets below only after a minimum performance level has been achieved.

(1)	See Note Regarding Use of Non-GAAP Financial Measures at the end of this Compensation Discussion and Analysis.

(2)	Vesting is subject to the individual’s continued service as an Employee, Board member, or advisor through the vesting date.

Individual Equity Determinations for the Named Executive Officers.

Chief Executive Officer. During 2015, the Committee granted long-term equity incentive awards to Mr. Kelly with a total grant date fair value of $3,780,011, representing a 26 percent increase compared with his 2014 awards. Mr. Kelly’s equity awards also increased as a percentage of total compensation, from 60 percent of total compensation for 2014 to 64 percent of total compensation for 2015. In addition, Mr. Kelly’s performance-based RSUs increased as a percentage of total RSUs, from 25 percent of total RSUs in 2014 to 30 percent in 2015. In determining an appropriate aggregate value for Mr. Kelly’s long-term incentive awards (time-vesting and performance-based), the Committee referenced market data, which indicated that Mr. Kelly’s total compensation was most significantly under-market with respect to long-term incentives. In addition, the value and form of Mr. Kelly’s long-term incentive awards reflects the Committee’s commitment to enhancing the performance-based aspect of Mr. Kelly’s total compensation.

Other Named Executive Officers. During 2015, each of the other named executive officers received significant increases in their long-term incentive opportunities, as well as significant increases in performance-based RSUs as a percentage of total RSUs. As with the Chief Executive Officer’s grants, the Committee referenced market data as a guide for determining an appropriate aggregate value for these individuals’ long-term incentive awards, with Ms. Romo’s historic equity awards being particularly low relative to market. The Committee also considered the other named executive officers’ respective roles and responsibilities and related internal equity considerations and tenure, which resulted in Messrs. Van de Ven’s, Jordan’s, Lamb’s, and Ricks’ equity as a percentage of total compensation falling within a three percent range of each other.

Tax Considerations; Timing of Grants.

Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), generally limits to $1,000,000 the federal tax deductibility of compensation paid to certain named executive officers, including compensation deemed to be received upon vesting of RSUs. Section 162(m) provides an exception to such limitation for certain performance-based compensation (the “162(m) Exception”). The Company’s equity awards are granted pursuant to the Company’s Amended and Restated 2007 Equity Incentive Plan, which has been designed to satisfy the conditions of such exception to the extent necessary, feasible, and in the best interests of the Company.

In recent years, the Committee awarded regular discretionary Employee equity grants in May of each year. This timing was originally established when the Committee was granting stock options. The Committee chose the timing to coincide with a time at which the stock option exercise prices would be established when the Company typically was not in possession of material non-public information. Beginning with 2015, the Committee moved the timing of its RSU grants to the first quarter of the year to enable the Company to benefit from the 162(m) Exception with respect to performance-based RSUs.

Overall, the Committee seeks to balance its objective of providing an effective compensation package for the named executive officers with the need to maximize the immediate deductibility of compensation. However, the Committee does have the discretion to design and use compensation elements that may not be deductible under Section 162(m).

The Company and the Committee have also addressed the final regulations that were enacted under Section 409A of the Internal Revenue Code. These regulations impacted Committee decisions with respect to the Company’s change-in-control agreements and nonqualified deferred compensation arrangements.

Qualified Retirement Benefits

Southwest offers tax-qualified 401(k) and profit sharing plans to all eligible Employees, including the named executive officers. Southwest’s 401(k) and profit sharing plans are intended to be competitive in the market and include five-year vesting provisions that are designed to contribute to Employee loyalty and retention. Southwest’s 401(k) plans provide for a dollar-for-dollar match on Employee contributions, subject to limits specified by the Board, applicable collective bargaining agreements, and the Internal Revenue Code and applicable Treasury Regulations. Southwest’s profit sharing plan provides for an annual Company contribution to Employee accounts equal to a uniform percentage of each Employee’s compensation up to an amount that is cumulatively equal to 15 percent of the Company’s operating profit (as defined in the plan) for the 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. Therefore, it effectively serves as a bonus component of compensation for the Company’s Employees at all levels. The numbers in the “All Other Compensation” column of the Summary Compensation Table reflect fluctuations in profit sharing contributions based on fluctuations in the Company’s profitability for the three years covered by the table.

The Committee did not consider the value of its retirement plans when establishing other compensation elements and amounts for the named executive officers in 2015 because of the broad-based nature of these benefits and the relatively small portion of total executive compensation represented by them.

Deferred Compensation

Southwest offers nonqualified deferred compensation arrangements to 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 are not considered when establishing salary and bonus elements and amounts. The Company’s excess benefit plan is available to 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 pursuant to the terms of the excess benefit plan. 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 2015.”

The Company has also adopted the 2015 Deferred Compensation Plan for Senior Leadership and Non-Employee Members of the Southwest Airlines Co. Board of Directors (the “2015 Deferred Compensation Plan”). Pursuant to such plan, members of the Company’s Senior Management Committee who are not eligible to participate in the Company’s 2005 Deferred Compensation Plan for Pilots 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 have 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. In addition, pursuant to the 2015 Plan, non-Employee members of the Board may, prior to each plan year, irrevocably elect to contribute a portion of their annual cash retainer fees otherwise payable to them with respect to such plan year.

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 arrangement 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 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 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 Chairman Emeritus, Mr. Herbert D. Kelleher. Mr. Kelly’s deferred compensation arrangement is discussed in more detail below under “Nonqualified Deferred Compensation in Fiscal 2015.”

Change-in-Control Arrangements

The Company has established change-in-control arrangements for all of its Employees for the purpose of offering protection in the event of a termination of employment following a change-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 a 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 a change-in-control. The terms of these arrangements are discussed in detail below under “Potential Payments Upon Termination or Change-in-Control.”

The remainder of the Company’s Employees are provided change-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’s change-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 a change-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 retention of the Company’s officers to carry on the Company’s business as usual in the event of any real or rumored possibilities of a change-in-control of the Company. In particular, with respect to the Chief Executive Officer, a change-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 members of the Company’s Senior Management Committee, including the named executive officers, and their spouses and dependent children are eligible to fly free on Southwest Airlines on a reserved seat basis. In addition, during 2015, members of the Company’s Senior Management Committee were entitled, at their election, to an annual deposit of 225,000 Rapid Rewards points to their Rapid Rewards account. During 2015, the Company’s officers 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 the differences in the rights of 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 difference reflects a cost/benefit analysis associated with whether or not to provide officer level flight privileges to all Employees. The named executive officers, like the Company’s other contract and non-contract Employees, also participate in various Employee benefit plans, including medical and dental care plans; life, accidental death and dismemberment and disability insurance; and vacation and sick time. These elements of compensation are not taken into account when establishing 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 and Pre-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 USE OF 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) unrealized non-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 not indicative of its ongoing operational performance.

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 supplemental non-GAAP financial information, which the Company’s management utilizes to evaluate its ongoing financial performance and the Company believes provides greater transparency to investors as supplemental information to its GAAP results. The Company’s non-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, fuel and oil expense on a non-GAAP basis 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 are reflected for both GAAP and non-GAAP purposes in the period of contract settlement. The Company believes these non-GAAP results provide a better measure 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 fuel and oil expense. This enables the Company’s management, as well as investors, to consistently assess the Company’s operating performance on a year-over-year or quarter-over-quarter basis after considering all efforts in place to manage fuel expense. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate the measures in the same manner. As a result, the aforementioned measures, as presented, may not be directly comparable to similarly titled measures presented by other companies.

Further information on (i) the Company’s fuel hedging program, (ii) the requirements of accounting for derivative instruments, and (iii) the causes of hedge ineffectiveness and/or mark-to-market gains or losses from derivative instruments is included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

In addition to the non-GAAP financial measures discussed above, the Company has also provided other non-GAAP financial measures, including results that it refers to as “excluding special items,” as a result of items that the Company believes are not indicative of its ongoing operations. These include a one-time special revenue adjustment due to the July 2015 amendment of the Company’s co-branded credit card agreement with Chase Bank USA, N.A. and a resulting change in accounting methodology, expenses associated with the Company’s acquisition and integration of AirTran, a gain resulting from a litigation settlement received in January 2015, and union contract bonuses recorded for certain workgroups. The Company believes that evaluation of its financial performance can be enhanced by a presentation of results that exclude the impact of these items in order to evaluate the results on a comparative basis with results in prior periods that do not include such items and as a basis for evaluating operating results in future periods.

The Company has also provided free cash flow and ROIC, which are non-GAAP financial measures, as measures considered by the Committee as part of its short-term incentive compensation decisions. The Company believes free cash flow is a meaningful measure because it demonstrates the Company’s ability to service its debt, pay dividends and make investments to enhance Shareholder value. Although free cash flow is commonly used as a measure of liquidity, definitions of free cash flow may differ; therefore, the Company is providing an explanation of its calculation for free cash flow. For the year ended December 31, 2015, the Company generated $1.1 billion in free cash flow, calculated as operating cash flows of $3.2 billion less capital expenditures of $2.0 billion less assets constructed for others of $102 million plus reimbursements for assets constructed for others of $24 million. The Company believes ROIC is a meaningful measure because it quantifies how well the Company generates operating income relative to the capital it has invested in its business. Although ROIC is commonly used as a measure of capital efficiency, definitions of ROIC may differ; therefore, the Company is providing an explanation of its calculation for ROIC in the accompanying reconciliation tables.

Reconciliation of Reported Amounts to non-GAAP Financial Measures (unaudited) (in millions, except per share amounts)


	Year Ended December 31, 2015
Operating revenues, as reported	$	19,820
Deduct: Special revenue adjustment		(172)

Operating revenues, non-GAAP	$	19,648


Total operating expenses, as reported	$	15,704
Deduct: Fuel and oil expense		(3,616)
Deduct: Union contract bonuses		(334)
Deduct: Acquisition and integration costs		(39)
Add: Litigation settlement		37

Total operating expenses, non-GAAP excluding fuel	$	11,752
Deduct: Profitsharing expense		(620)

Operating expense, non-GAAP excluding profitsharing and fuel	$	11,132


Operating income, as reported	$	4,116
Deduct: Reclassification between Fuel and oil and Other (gains) losses, net, associated with current period settled contracts		(72)
Deduct: Contracts settling in the current period, but for which gains and/or (losses) have been recognized in a prior period (a)		(251)
Deduct: Special revenue adjustment		(172)
Add: Acquisition and integration costs		39
Add: Union contract bonuses		334
Deduct: Litigation settlement		(37)

Operating income, non-GAAP	$	3,957


Net income, as reported	$	2,181
Add: Mark-to-market impact from fuel contracts settling in future periods		373
Deduct: Ineffectiveness from fuel hedges settling in future periods		(9)
Deduct: Other net impact of fuel contracts settling in the current or a prior period (excluding reclassifications)		(251)
Deduct: Income tax impact of fuel contracts		(42)
Deduct: Special revenue adjustment (b)		(108)
Add: Union contract bonuses (b)		210
Add: Acquisition and integration costs (b)		24
Deduct: Litigation settlement (b)		(23)

Net income, non-GAAP	$	2,355


Net income per share, diluted, as reported	$	3.27
Add: Net impact to net income above from fuel contracts divided by dilutive shares (b)		0.06
Add: Impact of special items (b)		0.19

Net income per share, diluted, non-GAAP	$	3.52

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

(b) Amounts net of tax.

Return on Invested Capital (in millions) (unaudited)


	Year Ended December 31, 2015
Operating Income, as reported	$	4,116
Deduct: Special revenue adjustment		(172)
Add: Union contract bonuses		334
Deduct: Net impact from fuel contracts		(323)
Add: Acquisition and integration costs		39
Deduct: Litigation settlement		(37)

Operating Income, non-GAAP	$	3,957
Net adjustment for aircraft leases (1)		114
Adjustment for fuel hedge accounting		(124)

Adjusted Operating Income, non-GAAP	$	3,947

Average invested capital (2)	$	11,037
Equity adjustment for hedge accounting		1,027

Adjusted average invested capital	$	12,064

Return on Invested Capital, pre-tax		32.7%

(1) 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).

(2) Average invested capital is an average of the five most recent quarter end balances of debt, net present value of aircraft leases, and equity adjusted for hedge accounting.

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 Form 10-K for the year ended December 31, 2015, and in this Proxy Statement.

COMPENSATION COMMITTEE

David W. Biegler, Chair

J. Veronica Biggins

Thomas W. Gilligan

Nancy B. Loeffler

John T. Montford

Summary Compensation Table

The following table provides information with respect to compensation earned by the named executive officers for the years ended December 31, 2015, 2014, and 2013.


Name and Principal Position	Year	Salary ($)(1)	Bonus ($)(2)	Stock Awards ($)(3)	Non-Equity Incentive Plan Compensation ($)(2)(4)	Nonqualified Deferred Compensation Earnings ($)(5)	All Other Compensation ($)	Total ($)
Gary C. Kelly	2015	675,000	232,875	3,780,011	923,400	30,554	305,665(6)	5,947,505
Chairman of the Board, President, & Chief Executive Officer	2014	675,000	224,775	2,999,886	904,770	23,561	174,793	5,002,785
	2013	675,000	202,500	2,250,003	726,570	19,286	162,808	4,036,167

Tammy Romo	2015	451,250	101,200	1,102,543	419,520	—	65,363(7)	2,139,876
Executive Vice President & Chief Financial Officer	2014	426,250	103,200	666,691	384,248	—	47,604	1,627,993
Executive Vice President & Chief Financial Officer	2013	391,250	85,000	500,007	243,984	—	39,064	1,259,305

Michael G. Van de Ven	2015	469,375	124,080	1,879,998	514,368	—	65,363(7)	3,053,184
Executive Vice President & Chief Operating Officer	2014	465,000	139,500	1,325,237	498,629	—	47,604	2,475,970
Executive Vice President & Chief Operating Officer	2013	465,000	122,760	1,197,003	400,421	—	39,064	2,224,248

Robert E. Jordan	2015	469,375	112,800	1,785,971	514,368	—	65,363(8)	2,947,877
Executive Vice President & Chief Commercial Officer	2014	465,000	123,876	1,325,237	498,629	—	47,604	2,460,346
Executive Vice President & Chief Commercial Officer	2013	465,000	111,600	1,197,003	400,421	—	39,064	2,213,088

Jeff Lamb	2015	448,750	124,200	1,620,038	492,480	—	65,363(8)	2,750,831
Executive Vice President Corporate Services (9)

Ron Ricks	2015	468,750	129,720	1,879,998	514,368	—	65,363(8)	3,058,199
Former Executive Vice President & Chief Legal & Regulatory Officer	2014	457,500	132,480	1,311,013	493,267	—	47,604	2,441,864
	2013	440,000	116,160	1,197,003	378,893	—	39,064	2,171,120

(1)

Salary increases for 2015 were approved effective as of February 1, 2015. As a result, on an annualized basis, Messrs. Van de Ven, Jordan, and Ricks were aligned at $470,000, and Ms. Romo and Mr. Lamb were aligned at $450,000. Ms. Romo received a $10,000 increase in August 2015 in connection with her promotion from Senior Vice President to Executive Vice President. Mr. Kelly did not receive a salary adjustment for 2015, 2014, or 2013.

(2)	In accordance with the SEC’s rules, for each year, the amount disclosed reflects bonuses/non-equity incentive plan compensation earned with respect to such year, whether or not actually paid in such year.

(3)

Awards consist of RSUs and performance-based RSUs that are settleable in shares of common stock. The values included in this column represent the grant date fair value of these awards computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 determined without regard to forfeitures. The assumptions used in calculating the values for fiscal 2015 are included in Note 9 to the Company’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015. With respect to the grants of performance-based RSUs, at the maximum number, the value for Mr. Kelly would be $2,279,924; for Ms. Romo $769,257; for Mr. Van de Ven $811,210; for Mr. Jordan $717,228; for Mr. Lamb $720,068; and for Mr. Ricks $797,012.

(4)

Amounts consist of short-term incentive compensation earned based upon performance measures and targets established pursuant to the Company’s Senior Executive Short Term Incentive Plan. This plan and the awards earned thereunder are discussed in detail above under “Compensation Discussion and Analysis.”

(5)

Consists of above-market earnings on deferred compensation provided pursuant to a deferred compensation letter agreement between the Company and Mr. Kelly. Mr. Kelly’s deferred compensation arrangement is discussed in more detail above under “Compensation Discussion and Analysis” and below under “Nonqualified Deferred Compensation in Fiscal 2015.”

(6)

(7)

Includes (i) Company matching contributions to the Southwest Airlines Co. 401(k) Plan of $24,000; (ii) a Company contribution of $11,000 to be made to the Company’s profit sharing plan in 2016, but that was earned with respect to 2015; and (iii) a cash amount of $30,363 (to be paid directly to the named executive officer in 2016), which amount was earned with respect to 2015 pursuant to the Company’s profit sharing plan, but could not be contributed to the profit sharing plan because of IRS limits on amounts that may be contributed to tax-qualified plans.

(8)

Includes (i) Company matching contributions to the Southwest Airlines Co. 401(k) Plan of $24,000; (ii) a Company contribution of $11,000 to be made to the Company’s profit sharing plan in 2016, but that was earned with respect to 2015; and (iii) a Company contribution of $30,363 to be made to the Company’s excess benefit plan on behalf of the named executive officer in 2016, which amount was earned with respect to 2015 pursuant to the Company’s profit sharing plan, but could not be contributed to the profit sharing plan because of IRS limits on amounts that may be contributed to tax-qualified plans.

(9)	In accordance with SEC rules, 2015 was the first year for which Mr. Lamb was required to be included in the proxy statement executive compensation tables.

Mr. Kelly has an individual deferred compensation arrangement pursuant to which the Company makes contributions to Mr. Kelly’s account to the extent such amounts cannot be contributed to the qualified 401(k) and profit sharing plans due to contribution limits and compensation limits established by the Internal Revenue Code. Mr. Kelly’s deferred compensation arrangement is discussed in more detail above under “Compensation Discussion and Analysis” and below under “Nonqualified Deferred Compensation in Fiscal 2015.” The Compensation Committee’s determinations regarding the amount of executive salary and bonus/non-equity incentive plan compensation in proportion to total compensation are discussed in detail above under “Compensation Discussion and Analysis.”

Grants of Plan-Based Awards in Fiscal 2015

The following table provides information with respect to grants of plan-based awards to the named executive officers in 2015.


		Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1)			Estimated Future Payouts Under Equity Incentive Plan Awards(2)			All Other Stock Awards: Number of Shares of Stock or Units (#)(3)	Grant Date Fair Value of Stock Awards ($)(4)
Name	Grant Date	Threshold ($)	Target ($)	Maximum ($)	Threshold (#)	Target (#)	Maximum (#)
Gary C. Kelly	—	N/A	810,000	1,215,000	—	—	—	—	—
	1/28/2015	—	—	—	N/A	24,890	49,780	—	1,139,962
	1/28/2015	—	—	—	—	—	—	57,643	2,640,049
Tammy Romo	—	N/A	368,000	552,000	—	—	—	—	—
	1/28/2015	—	—	—	N/A	8,398	16,796	—	384,628
	1/28/2015	—	—	—	—	—	—	15,675	717,915
Michael G. Van de Ven	—	N/A	451,200	676,800	—	—	—	—	—
	1/28/2015	—	—	—	N/A	8,856	17,712	—	405,605
	1/28/2015	—	—	—	—	—	—	32,192	1,474,394
Robert E. Jordan	—	N/A	451,200	676,800	—	—	—	—	—
	1/28/2015	—	—	—	N/A	7,830	15,660	—	358,614
	1/28/2015	—	—	—	—	—	—	31,165	1,427,357
Jeff Lamb	—	N/A	432,000	648,000	—	—	—	—	—
	1/28/2015	—	—	—	N/A	7,861	15,722	—	360,034
	1/28/2015	—	—	—	—	—	—	27,511	1,260,004
Ron Ricks	—	N/A	451,200	676,800	—	—	—	—	—
	1/28/2015	—	—	—	N/A	8,701	17,402	—	398,506
	1/28/2015	—	—	—	—	—	—	32,347	1,481,493

(1)	These columns show the potential value of the annual cash incentive payout under the Company’s Senior Executive Short Term Incentive Plan for each named executive officer based on achievement at threshold, target,

and maximum performance levels. The potential payouts were performance-driven and therefore completely at risk. The amount of the award, beginning at zero percent of the target payout, was interpolated between performance targets only after a minimum performance level was achieved. The business metrics and targets used to determine the amounts of the awards paid are described above under “Compensation Discussion and Analysis.”

(2)

The awards consist of performance-based RSUs granted under the Company’s Amended and Restated 2007 Equity Incentive Plan (the “2007 Equity Plan”) with respect to the performance period from January 1, 2015 to December 31, 2017 (the “Performance Period”). The performance-based RSUs vest on February 21, 2018 (the “Vesting Date”), and are settleable in shares of common stock. These columns show the potential number of shares of common stock to be paid out upon vesting of the performance-based RSUs for each named executive officer based on achievement at the threshold, target, and maximum performance levels. The potential payouts are performance-driven and therefore completely at risk. The number of performance-based RSUs that will vest and the number of shares of the Company’s common stock to be issued, if any, as of the Vesting Date will be determined based on the achievement of ROIC targets. The percentage of performance-based RSUs vesting will be interpolated between ROIC performance targets only after a minimum ROIC performance level has been achieved as follows: (i) if the ROIC in the Performance Period is 13.0% or less, zero percent of the performance-based RSUs granted will vest; (ii) if the ROIC in the Performance Period is 16.0%, one hundred percent of the performance-based RSUs granted will vest; and (iii) if the ROIC in the Performance Period is 21.0% or greater, two hundred percent of the performance-based RSUs granted will vest. “ROIC (pre-tax)” means Adjusted Operating Income divided by Adjusted Average Invested Capital. “Adjusted Operating Income” means Operating income (calculated in accordance with Accounting Principles Generally Accepted in the United States (GAAP) as adjusted to reflect the impact to Operating income from (a) fuel contracts (net), (b) special items, as disclosed from time to time in the Company’s earnings releases and filings with the Securities and Exchange Commission, (c) aircraft leases (net), and (d) fuel hedge premium expense. “Average Invested Capital” is an average of the five most recent quarter end balances of debt, net present value of aircraft leases, and equity adjusted for hedge accounting. ROIC for the Performance Period will be the average of the ROIC over the three full fiscal years within the Performance Period. The Company does not pay dividends on unvested performance-based RSUs.

(3)	The awards consist of RSUs granted under the 2007 Equity Plan. The RSUs are settleable in shares of common stock and will vest with respect to one-third of the shares covered thereby annually, beginning on February 21, 2016. The Company does not pay dividends on unvested RSUs.

(4)

The values included in this column represent the grant date fair value of these awards computed in accordance with FASB ASC Topic 718 determined without regard to forfeitures. The assumptions used in calculating the values for fiscal 2015 are included in Note 9 to the Company’s financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Outstanding Equity Awards at Fiscal 2015 Year-End

The following table provides information with respect to stock options and RSUs (including performance-based RSUs) held by the named executive officers as of December 31, 2015. Stock options and RSUs (including performance-based RSUs) are the only types of equity awards that have been granted to the named executive officers.


	Option Awards				Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)(1)	Market Value of Shares or Units of Stock That Have Not Vested ($)(2)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Gary C. Kelly	100,000	—	6.75	02/01/2019	170,160(4)	7,327,090	109,988(5)	4,736,083

Tammy Romo	—	—	—	—	40,678(6)	1,751,595	30,180(7)	1,299,551

Michael G. Van de Ven	—	—	—	—	92,051(8)	3,963,716	28,008(9)	1,206,024

Robert E. Jordan	—	—	—	—	91,024(10)	3,919,493	25,956(11)	1,117,665

Jeff Lamb	—	—	—	—	77,518(12)	3,337,925	23,752(13)	1,022,761

Ron Ricks	—	—	—	—	92,206(14)	3,970,390	26,556(15)	1,143,501

(1)	The awards consist of RSUs that are settleable in shares of common stock.

(2)	Market value is computed by multiplying the number of RSUs or performance-based RSUs by $43.06, which was the closing price per share of the Company’s common stock on December 31, 2015, on the NYSE.

(3)

The awards consist of performance-based RSUs that are settleable in shares of common stock, including (i) performance-based RSUs that were granted on May 14, 2014, with respect to the performance period from January 1, 2014 to December 31, 2016, and that will vest on May 14, 2017; and (ii) performance-based RSUs that were granted on January 28, 2015, with respect to the performance period from January 1, 2015 to December 31, 2017, and that will vest on February 21, 2018. In accordance with SEC rules, the amount represents the maximum number of performance-based RSUs that may vest on the May 14, 2017 and February 21, 2018 vesting dates. The potential payouts are performance-driven and therefore completely at risk. The number of performance-based RSUs that will vest and the number of shares of the Company’s common stock to be issued, if any, as of the May 14, 2017 and February 21, 2018 vesting dates will be determined based on the achievement of ROIC targets during the applicable performance period.

(4)	Of these RSUs (i) 19,215 vested on February 21, 2016; (ii) 30,108 will vest on May 14, 2016; (iii) 52,301 will vest on May 15, 2016; (iv) 19,214 will vest on February 21, 2017; (v) 30,108 will vest on May 14, 2017; and (vi) 19,214 will vest on February 21, 2018.

(5)	Of these performance-based RSUs, the maximum number that may vest on May 14, 2017 is 60,208; and the maximum number that may vest on February 21, 2018 is 49,780.

(6)	Of these RSUs (i) 5,225 vested on February 21, 2016; (ii) 6,691 will vest on May 14, 2016; (iii) 11,622 will vest on May 15, 2016; (iv) 5,225 will vest on February 21, 2017; (v) 6,690 will vest on May 14, 2017; and (vi) 5,225 will vest on February 21, 2018.

(7)	Of these performance-based RSUs, the maximum number that may vest on May 14, 2017 is 13,384; and the maximum number that may vest on February 21, 2018 is 16,796.

(8)	Of these RSUs (i) 10,731 vested on February 21, 2016; (ii) 16,018 will vest on May 14, 2016; (iii) 27,824 will vest on May 15, 2016; (iv) 10,731 will vest on February 21, 2017; (v) 16,017 will vest on May 14, 2017; and (vi) 10,730 will vest on February 21, 2018.

(9)	Of these performance-based RSUs, the maximum number that may vest on May 14, 2017 is 10,296; and the maximum number that may vest on February 21, 2018 is 17,712.

(10)	Of these RSUs (i) 10,389 vested on February 21, 2016; (ii) 16,018 will vest on May 14, 2016; (iii) 27,824 will vest on May 15, 2016; (iv) 10,388 will vest on February 21, 2017; (v) 16,017 will vest on May 14, 2017; and (vi) 10,388 will vest on February 21, 2018.

(11)	Of these performance-based RSUs, the maximum number that may vest on May 14, 2017 is 10,296; and the maximum number that may vest on February 21, 2018 is 15,660.

(12)	Of these RSUs (i) 9,171 vested on February 21, 2016; (ii) 13,381 will vest on May 14, 2016; (iii) 23,245 will vest on May 15, 2016; (iv) 9,170 will vest on February 21, 2017; (v) 13,381 will vest on May 14, 2017; and (vi) 9,170 will vest on February 21, 2018.

(13)	Of these performance-based RSUs, the maximum number that may vest on May 14, 2017 is 8,030; and the maximum number that may vest on February 21, 2018 is 15,722.

(14)	Of these RSUs (i) 10,783 vested on February 21, 2016; (ii) 16,018 will vest on May 14, 2016; (iii) 27,824 will vest on May 15, 2016; (iv) 10,782 will vest on February 21, 2017; (v) 16,017 will vest on May 14, 2017; and (vi) 10,782 will vest on February 21, 2018.

(15)	Of these performance-based RSUs, the maximum number that may vest on May 14, 2017 is 9,154; and the maximum number that may vest on February 21, 2018 is 17,402.

Option Exercises and Stock Vested During Fiscal 2015

The following table provides information with respect to stock options exercised by, and stock awards vested for, the named executive officers during 2015.


	Option Awards		Stock Awards
Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)(1)	Number of Shares Acquired on Vesting (#)		Value Realized on Vesting ($)(2)
Gary C. Kelly	—	—		173,762		7,285,815
Tammy Romo	—	—		31,306		1,312,947
Michael G. Van de Ven	593	12,201		92,441		3,876,038
Robert E. Jordan	—	—		92,441		3,876,038
Jeff Lamb	4,620	133,426		77,228		3,238,159
Ron Ricks	—	—		92,441		3,876,038

(1)	Calculated by determining the difference between the market price of the underlying common stock at the time of exercise and the exercise price of the stock option.

(2)

Calculated by multiplying the number of shares acquired upon the May 14, 2015, May 15, 2015, and May 16, 2015 vesting of RSUs by $42.12, $41.89, and $41.89, respectively, the closing prices of the Company’s common stock on the respective dates of vesting (or, where vesting did not occur on a trading day, the last trading day prior to vesting).

Nonqualified Deferred Compensation in Fiscal 2015

As discussed above under “Compensation Discussion and Analysis,” the Company maintains tax-qualified 401(k) and profit sharing plans for its eligible Employees. The 401(k) plans provide for a Company match on Employee contributions, and the profit sharing plan provides for an annual Company contribution equal to a percentage of Company profits that is allocated among participant accounts as a uniform percentage of compensation. In conjunction with these tax-qualified plans, the Company offers a non-qualified excess benefit plan, which is designed to provide benefits with respect to Company contributions (“excess amounts”) that cannot be contributed to the 401(k) and profit sharing plans due to qualified plan contribution limits established by the Internal Revenue Code. Employee contributions to the excess benefit plan are not allowed. Pursuant to the

excess benefit plan, Employees, including the named executive officers, with excess amounts of at least $1,000 who have previously properly elected to participate in the plan, may defer payment of their excess amounts by making a timely deferral election under the excess benefit plan. Employees are immediately 100 percent vested in their benefits under the excess benefit plan; however, the benefits are unsecured obligations of the Company in the event of its bankruptcy or insolvency. Prior to the beginning of each plan year, participants are allowed to select a rate of return to apply to the contributions to be made with respect to the upcoming plan year. The excess benefit plan currently allows participants to select a rate of return equal to either or both of two investment options: (i) the Citibank 90 Day Treasury Bill Index plus two percentage points and (ii) the Vanguard Institutional Standard & Poor’s 500 Index Fund. During fiscal 2015, the Citibank 90 Day Treasury Bill Index plus two percentage points earned a rate of return equal to 2.03 percent, and the Vanguard Institutional Index Fund option earned a rate of return equal to 1.36 percent. Once an excess amount is credited to a participant’s account, the participant may not change that investment election for that amount or transfer amounts between funds. Participants are entitled to a distribution of their accounts upon separation from service with the Company and must elect the time and form of distribution of their accounts prior to their first year of participation in the excess benefit plan. Distribution may be in a lump sum payout or in equal annual installments over a period of up to five years and may be received or commenced (i) in the calendar year of separation from service or (ii) the calendar year following the year in which separation from service occurs.

The Company also offers a separate non-qualified deferred compensation plan, the 2015 Deferred Compensation Plan, which is designed to provide benefits with respect to Employee contributions that cannot be contributed to the Company’s 401(k) plans due to qualified plan limits established by the IRS. Pursuant to the 2015 Deferred Compensation Plan, members of the Company’s Senior Management Committee (including the named executive officers) who are not eligible to participate in the Company’s 2005 Deferred Compensation Plan for Pilots may, prior to the beginning of a plan year, irrevocably elect to defer a portion of their eligible compensation otherwise payable to them with respect to such plan year; provided that they have also irrevocably elected to contribute to the Company’s 401(k) plan the lesser of (i) the maximum elective deferral permitted under Section 402(g)(1) of the Internal Revenue Code with respect to the taxable year coinciding with the applicable plan year or (ii) the maximum elective contributions permitted under the terms of the Company’s 401(k) plan with respect to the applicable plan year. Non-Employee Board members are also eligible to participate in the 2015 Deferred Compensation Plan and may, prior to the beginning of a plan year, irrevocably elect to defer a percentage of their annual cash retainer fees otherwise payable to them with respect to such plan year. The 2015 Deferred Compensation Plan currently provides a rate of return equal to the Citibank 90 Day Treasury Bill Index plus two percentage points. During fiscal 2015, the Citibank 90 Day Treasury Bill Index plus two percentage points earned a rate of return equal to 2.03 percent. Participant benefits are unsecured obligations of the Company in the event of its bankruptcy or insolvency. Participants are entitled to a distribution of their accounts upon separation from service with the Company and must elect the time and form of distribution of their accounts prior to their first year of participation in the 2015 Deferred Compensation Plan. Distribution may be in a lump sum payout or in equal annual installments over a period of up to five years and may be received or commenced (i) in the calendar year of separation from service or (ii) the calendar year following the year in which separation from service occurs.

Mr. Kelly has an individual deferred compensation arrangement pursuant to which the Company makes contributions to Mr. Kelly’s account to the extent such amounts cannot be contributed to the tax-qualified 401(k) and profit sharing plans due to contribution limits and compensation limits established by the Internal Revenue Code. The individual deferred compensation arrangement with Mr. Kelly provides for accrual and crediting to Mr. Kelly’s account, each January, of simple interest at a rate of ten percent, compounded annually, on the accrued and unpaid balance of the deferred compensation credited to his account as of the preceding December 31. Subject to any applicable requirements of Section 409A of the Internal Revenue Code, the deferred compensation credited to Mr. Kelly’s account will be paid to him at the rate of $200,000 per calendar year, commencing with the calendar year following the year in which (i) he attains age 65 or (ii) his employment terminates, whichever occurs later.

The following table provides information with respect to nonqualified deferred compensation earned by the named executive officers for 2015.


		Nonqualified Deferred Compensation for Fiscal 2015
Name	Plan	Executive Contributions in Last Fiscal Year ($)			Southwest Contributions in Last Fiscal Year ($)			Aggregate Earnings in Last Fiscal Year ($)			Aggregate Withdrawals/ Distributions in Last Fiscal Year ($)		Aggregate Balance at December 31, 2015 ($)
Gary C. Kelly	Letter Agreement		—			270,66	5(1)		60,98	7(2)		—		1,081,81	1(3)(4)
	Excess Benefit Plan		—			—			1,23	2(5)		—		61,61	4(6)
	Deferred Compensation Plan		1,126,71	6(7)		—			—			—		1,126,71	6(8)
Tammy Romo	—		—			—			—			—		—
Michael G. Van de Ven	—		—			—			—			—		—
Robert E. Jordan	Excess Benefit Plan		—			30,36	3(1)		93	7(5)		—		116,88	5(9)(10)
Jeff Lamb	Excess Benefit Plan		—			30,36	3(1)		2	0(5)		—		49,29	5(11)(12)
	Deferred Compensation Plan		524,32	3(13)		—			58	8(5)		—		524,91	1(14)
Ron Ricks	Excess Benefit Plan		—			30,36	3(1)		1,09	4(5)		—		128,36	9(15)(16)

(1)	All of this amount is also reported for the named executive officer in the “All Other Compensation” column of the Summary Compensation Table for 2015. This amount was earned with respect to fiscal 2015, but will not be contributed to the named executive officer’s account until 2016.

(2)	Includes the $30,554 disclosed in the “Nonqualified Deferred Compensation Earnings” column of the Summary Compensation Table for 2015.

(3)	This includes the $270,665 reported as nonqualified deferred compensation contributions earned for 2015, but that will not be contributed to Mr. Kelly’s account until 2016. Mr. Kelly’s actual cash balance at December 31, 2015 was $811,146.

(4)	Of this amount, $584,760 has been reported as compensation to Mr. Kelly in the Summary Compensation Table for previous years.

(5)	None of these earnings were above-market or preferential. Therefore, no portion of this amount has been reported as compensation to the named executive officer for the last completed fiscal year in the Summary Compensation Table.

(6)	None of this amount has been required to be reported as compensation to Mr. Kelly in the Summary Compensation Table for previous years.

(7)	All of this amount is also reported for Mr. Kelly in the “Bonus” or “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table for 2015. This amount was earned with respect to fiscal 2015, but was not contributed to Mr. Kelly’s account until 2016.

(8)

This consists of $1,126,716 deferred from Mr. Kelly’s bonus/non-equity incentive plan compensation earned for 2015, but that was not contributed to Mr. Kelly’s account until 2016. Mr. Kelly’s actual cash balance at December 31, 2015 was $0. None of this amount has been required to be reported as compensation to Mr. Kelly in the Summary Compensation Table for previous years.

(9)	Of this amount, $20,655 has been reported as compensation to Mr. Jordan in the Summary Compensation Table for previous years.

(10)	This includes the $30,363 reported as excess benefit plan contributions earned for 2015, but that will not be contributed to Mr. Jordan’s account until 2016. Mr. Jordan’s actual cash balance at December 31, 2015 was $86,522.

(11)	Mr. Lamb was not a named executive officer of the Company in prior years. None of this amount has been required to be reported as compensation to Mr. Lamb in the Summary Compensation Table for previous years.

(12)	This includes the $30,363 reported as excess benefit plan contributions earned for 2015, but that will not be contributed to Mr. Lamb’s account until 2016. Mr. Lamb’s actual cash balance at December 31, 2015 was $18,932.

(13)

This amount includes $61,813 that is also reported for Mr. Lamb in the “Salary” column of the Summary Compensation Table for 2015. This amount also includes $462,510 that is also reported for Mr. Lamb in the “Bonus” or “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table for 2015. The bonus/non-equity incentive plan compensation amounts were earned with respect to fiscal 2015, but will not be contributed to Mr. Lamb’s account until 2016.

(14)

This includes $462,510 deferred from Mr. Lamb’s bonus/non-equity incentive plan compensation earned for 2015, but that was not contributed to Mr. Lamb’s account until 2016. Mr. Lamb’s actual cash balance at December 31, 2015 was $62,401. None of this amount has been required to be reported as compensation to Mr. Lamb in the Summary Compensation Table for previous years.

(15)	Of this amount, $24,042 has been reported as compensation to Mr. Ricks in the Company’s Summary Compensation Table for previous years.

(16)	This includes the $30,363 reported as excess benefit plan contributions earned for 2015, but that will not be contributed to Mr. Ricks’ account until 2016. Mr. Ricks’ actual cash balance at December 31, 2015 was $98,006.

Potential Payments Upon Termination or Change-in-Control

Executive Service Recognition Plan Executive Employment Agreements

In 1987, the Board of Directors of the Company established Executive Service Recognition Plan Executive Employment Agreements (the “executive change-in-control agreements”). All of the named executive officers are, and were during 2015, parties to executive change-in-control agreements with the Company. Although these agreements are titled “Employment Agreements,” their terms can only be invoked in the event of a change-in-control of the Company, and they do not provide for any incremental compensation to be paid to the named executive officers unless, subsequent to a change-in-control, an executive’s employment is terminated other than for cause or disability, or the executive resigns for good reason.

The executive change-in-control agreements provide that, in the event of a change-in-control of the Company, the Company agrees to continue to employ the executives, and the executives agree to remain in the employ of the Company, for one year after the occurrence of the change-in-control (the “Employment Year”). In such event, the executives would continue to be entitled to a base salary in an amount at least equal to the highest salary received by them during the preceding 12-month period. In addition, for any fiscal year that ends during the Employment Year, they would continue to be entitled to an annual bonus in an amount at least equal to the highest bonus (the “Change-in-Control Bonus Amount”) paid or payable to them in respect of either of the two fiscal years immediately prior to the fiscal year in which the change-in-control has occurred. If, during the Employment Year, an executive’s employment is terminated other than for cause or disability, or the executive resigns for good reason, then the executive is entitled to a lump sum payment equal to:

(a)

a bonus, the maximum amount of which would be equal to the annual bonus paid to the executive for the last full fiscal year of the Company prior to the fiscal year of the date of termination, but which would be prorated to reflect the actual portion of the year during which the executive has been employed;

(b)

an amount equal to the executive’s annual base salary in effect at the time of notice of termination; and

(c)

the Change-in-Control Bonus Amount paid to the executive for the last full fiscal year of the Company (being the year in which the change-in-control has occurred, but not the date of termination of employment) or, if no such bonus has been paid, the Change-in-Control Bonus Amount that would have been payable to the executive for the then current fiscal year (being the year in which the date of termination of employment has occurred).

For purposes of the executive change-in-control agreements:

•

a “change-in-control” is generally deemed to occur in the event a third party acquires 20 percent or more of the Company’s voting securities or a majority of the Directors of the Company are replaced as a result of a tender offer or merger, sale of assets, or contested election;

•

“cause” means (i) an act or acts of dishonesty taken by an executive and intended to result in substantial personal enrichment of the executive at the expense of the Company or (ii) violations by an executive of the executive’s duties under the agreement that are (a) grossly negligent or (b) willful and deliberate on the executive’s part and that, in any case, result in material injury to the Company; and

•

“good reason” is generally defined as the assignment to the executive of duties inconsistent with the executive’s duties prior to the change-in-control, relocation, or a failure of the Company to abide by the provisions of the executive’s agreement.

Additionally, pursuant to the terms of the 2007 Equity Plan, in the event of the termination of a participant’s service as a result of death or disability, (a) any of the participant’s outstanding RSUs or stock options that have not yet vested will fully vest as of the date of termination and (b) any of the participant’s performance-based RSUs will remain outstanding as if the participant’s service has not terminated and shall otherwise be settleable in accordance with the terms of the grant. “Disability” means the inability of a participant to continue to perform services for the Company because of the sickness or injury of the participant, as determined by the Company’s Chief Executive Officer, Chief People Officer (or equivalent), Chief Financial Officer, and/or General Counsel. Such a determination will be made in good faith and in the sole discretion of one or more of these officers, who shall also have sole discretion to determine the effective date of a participant’s termination of service as a result of disability.

Incremental amounts receivable by the named executive officers pursuant to the arrangements discussed above are set forth in the table below.


Name	Termination by the Company at any time for cause ($)		Change- in- control ($)		Termination after a change-in-control (i) by the executive for good reason or (ii) by the Company for reasons other than for cause, death, or disability ($)(1)		Estimated benefits from termination due to death or disability ($)(2)
Gary C. Kelly		—		—		2,934,090		7,327,090
Tammy Romo		—		—		1,434,896		1,751,595
Michael G. Van de Ven		—		—		1,746,258		3,963,716
Robert E. Jordan		—		—		1,715,010		3,919,493
Jeff Lamb		—		—		1,657,642		3,337,925
Ron Ricks		—		—		1,721,494		3,970,390

(1)

Represents amounts payable pursuant to the Executive Service Recognition Plan Executive Employment Agreements and assumes the triggering event took place on December 31, 2015.

(2)

Represents amounts payable with respect to the acceleration of RSUs under the 2007 Equity Plan. Also assumes the triggering event took place on December 31, 2015, and reflects the aggregate market value of unvested RSUs that would become vested under the circumstances. The aggregate market value is computed by multiplying the number of RSUs by $43.06, which was the closing price per share of the Company’s common stock on December 31, 2015, on the NYSE. In the event of the termination of a participant’s service for any reason other than as a result of death or disability, the participant’s outstanding unvested RSUs would be forfeited.

Pursuant to the terms of all of the Company’s equity incentive plans under which stock options have been granted, if the Company is not the surviving entity in any merger or consolidation (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company) or if the Company is to

be dissolved or liquidated and if the surviving corporation refuses to assume or substitute new stock options for currently outstanding Company stock options, all unvested stock options then outstanding will fully vest and become exercisable in full on or before a date fixed by the Company, which date must be prior to the effective date of the merger, consolidation, dissolution, or liquidation. Therefore, to the extent these amounts are payable, they will be payable prior to the effective date of a change-in-control and therefore will not be payable at the same time as the amounts shown in the table above. The Company’s equity incentive plans do not provide for acceleration of RSUs in the event of a change-in-control. The following table sets forth the estimated benefits to the named executive officers in the event the surviving corporation refuses to assume or substitute new options for the named executive officer’s outstanding options.


Name	Estimated Benefits($)(1)
Gary C. Kelly		—
Tammy Romo		—
Michael G. Van de Ven		—
Robert E. Jordan		—
Jeff Lamb		—
Ron Ricks		—

(1)	Assumes the triggering event took place on December 31, 2015. None of the named executive officers held unvested stock options at December 31, 2015.

In addition to the amounts discussed above, in the event of termination of their employment for any reason other than for cause, each of the named executive officers would be eligible to participate in any non-contract retiree medical benefit plan or program that the Company may then make available to its retirees generally on the same terms as other retirees. In addition, these individuals would be entitled to the amounts credited to their accounts pursuant to the Company’s qualified retirement plans, as well as nonqualified deferred compensation amounts credited to their accounts pursuant to the Company’s excess benefit plan and, with respect to Mr. Kelly, his individual deferred compensation arrangement, each as disclosed in more detail above under the heading “Nonqualified Deferred Compensation in Fiscal 2015.”

COMPENSATION OF DIRECTORS

Fiscal 2015 Director Compensation

The following table provides information with respect to compensation earned by the non-Employee members of the Board of Directors for the year ended December 31, 2015.


Name	Fees Earned or Paid in Cash ($)			Stock Awards ($)(1)(2)	Option Awards ($)(3)	All Other Compensation ($)	Total ($)
David W. Biegler		124,301	(4)	130,001	—	—		254,302
J. Veronica Biggins		97,000		130,001	—	—		227,001
Douglas H. Brooks		101,500		130,001	—	—		231,501
William H. Cunningham		138,782		130,001	—	—		268,783
John G. Denison		124,001		130,001	—	—		254,002
Thomas W. Gilligan		25,178	(5)	—	—	—		25,178
Nancy B. Loeffler		98,500		130,001	—	—		228,501
John T. Montford		129,041		130,001	—	—		259,042
Thomas M. Nealon		101,500		130,001	—	—		231,501
Daniel D. Villanueva		48,500		130,001	—	35,000(6)		213,501

(1)

Awards consist of shares of common stock. Each of the Company’s non-Employee members of the Board received 3,150 shares of common stock on May 13, 2015. The values included in this column represent the grant date fair value of these awards computed in accordance with FASB ASC Topic 718. Each amount is equal to the number of shares of common stock multiplied by $41.27, the closing price of the Company’s common stock on the date of the grant.

(2)

Through May 2009, non-Employee members of the Board received annual grants of performance shares pursuant to the Company’s Outside Director Incentive Plan, which terminated effective March 18, 2010, with respect to future grants. The aggregate number of performance shares outstanding at December 31, 2015, for each of the Directors listed in the table was as follows: Mr. Biegler — 5,000; Ms. Biggins – 0; Mr. Brooks — 0; Dr. Cunningham — 6,750; Mr. Denison — 0; Dr. Gilligan — 0; Ms. Loeffler — 5,250; Mr. Montford — 6,000; Mr. Nealon — 0; Mr. Villanueva — 0. Pursuant to the terms of the Outside Director Incentive Plan, on the 30^th calendar day following the date on which a non-Employee Director ceases to serve as a Director of the Company for any reason, the non-Employee Director is entitled to an amount in cash equal to the average fair market value of the Company’s common stock during the 30 days preceding the Director’s last date of service multiplied by the number of performance shares then held by such Director.

(3)

Prior to May 19, 2010, pursuant to the terms of the Company’s 2007 Equity Plan, non-Employee members of the Board received automatic grants of stock options upon their appointment or election to the Board. None of the Directors received option awards during 2015. The aggregate number of shares underlying stock options outstanding at fiscal year-end for each of the Directors listed in the table was as follows: Mr. Biegler — 8,000; Ms. Biggins – 0; Mr. Brooks — 10,000; Dr. Cunningham — 0; Mr. Denison — 10,000; Dr. Gilligan — 0; Ms. Loeffler — 0; Mr. Montford — 0; Mr. Nealon — 0; Mr. Villanueva — 0.

(4)

Of this amount, $35,288 (Board cash retainer fee earned with respect to 2015) and $10,082 (Compensation Committee Chair retainer fee earned with respect to 2015) were deferred pursuant to the Company’s Deferred Compensation Plan for Senior Leadership and Non-Employee Members of the Southwest Airlines Co. Board of Directors.

(5)	Dr. Gilligan was appointed to the Board of Directors, effective September 23, 2015. His cash fees represent a prorated portion of his retainer fee for the period from September 23, 2015 to June 30, 2016.

(6)	Represents a payment made following the June 2015 death of Mr. Villanueva pursuant to the Company’s Amended and Restated Severance Plan for Directors discussed below.

Directors’ cash retainer fees for Board membership and standing committees are paid on an annual basis. Board of Director and committee fees paid and to be paid to non-Employee Directors are set forth in the table below:


	July 2014 – June 2015		July 2015 – June 2016

Board of Directors:
Retainer Fee	$	70,000	$	70,000
Presiding Director Retainer Fee	$	15,000	$	25,000
In-person Meeting Attendance Fee Per Meeting	$	1,500	$	1,500
Telephonic Meeting Attendance Fee Per Meeting	$	1,500	$	1,500

Audit Committee:
Chair Retainer Fee	$	15,000	$	25,000
In-person Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500
Telephonic Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500

Compensation Committee:
Chair Retainer Fee	$	7,500	$	20,000
In-person Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500
Telephonic Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500

Nominating and Corporate Governance Committee:
Chair Retainer Fee	$	5,000	$	15,000
In-person Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500
Telephonic Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500

Safety and Compliance Oversight Committee:
Chair Retainer Fee	$	7,500	$	20,000
In-person Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500
Telephonic Committee Meeting Attendance Fee Per Meeting	$	1,500	$	1,500

Executive Committee:
Chair Retainer Fee	$	5,000	$	15,000
Retainer Fee for all Non-Employee Members of the Executive Committee	$	7,200	$	7,200

During 2015, the Company provided free travel on Southwest Airlines on a reserved basis for Board members and their spouses. In addition, for 2015, Board members were provided up to 25 free roundtrip flight passes, which they could give to anyone on an unrestricted basis (e.g., for charitable purposes).

Southwest Airlines Co. Severance Plan for Directors. The Board of Directors adopted the Southwest Airlines Co. Severance Plan for Directors in 2000. Pursuant to this plan, upon retirement from the Board of Directors, a non-Employee Director who has served at least five years as of the date of retirement is entitled to a cash payment of $35,000, and a non-Employee Director who has served at least ten years is entitled to a cash payment of $75,000.

AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed with management the audited financial statements of the Company for the year ended December 31, 2015. In addition, the Audit Committee has discussed with Ernst & Young LLP, the Company’s independent auditors, the matters required to be discussed by Auditing Standard No. 16, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board.

The Audit Committee has also received the written disclosures and the letter from Ernst & Young required by applicable requirements of the Public Company Accounting Oversight Board regarding Ernst & Young’s communications with the Audit Committee concerning independence, and has discussed with Ernst & Young its independence.

Based on the foregoing review and discussions and relying thereon, the Audit Committee recommended to the Company’s Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

AUDIT COMMITTEE

John T. Montford, Chair

David W. Biegler

William H. Cunningham

John G. Denison

PROPOSAL 2

ADVISORY VOTE TO APPROVE THE COMPENSATION OF THE COMPANY’S

NAMED EXECUTIVE OFFICERS

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), as well as Section 14A of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, the Company is providing its Shareholders with the opportunity to cast a non-binding advisory vote on a resolution to approve the compensation of the Company’s named executive officers as disclosed in this Proxy Statement (the “Say-on-Pay Resolution”). This vote is not intended to address any specific element of compensation, but instead is intended to address the overall compensation of the named executive officers as disclosed in this Proxy Statement.

As discussed in greater detail above under “Compensation of Executive Officers — Compensation Discussion and Analysis,” the Board and its Compensation Committee believe the compensation of the Company’s named executive officers for 2015 was reasonable and appropriate for the following reasons, among many others:

•

The named executive officers deserve to be rewarded for the Company’s 2015 financial and other accomplishments discussed above under “Compensation of Executive Officers — Compensation Discussion and Analysis — Executive Summary.”

•

The named executive officer compensation structure for 2015 reflects the Compensation Committee’s continuing efforts to provide compensation (i) that is adequate for retention purposes, (ii) that is appropriately linked to performance, and (iii) that reflects internal equity. To link pay to performance, the Compensation Committee tied 80 percent of each named executive officer’s short-term incentive compensation opportunity to pre-established, multi-dimensional targets and metrics that related to financial and operational performance, as well as Customer Service accomplishments and accomplishments as an employer. In the Compensation Committee’s view, the resulting short-term incentive pay for 2015 was strongly tied to the Company’s core objectives for creating long-term Shareholder value. The named executive officers’ equity awards reflected the Compensation Committee’s continued efforts to provide an appropriate percentage of total pay in the form of equity in order to accomplish the purposes of (i) aligning a significant percentage of the named executive officers’ future compensation opportunities with the interests of other Shareholders, (ii) providing appropriate total compensation opportunities relative to market, and (iii) providing a sufficient percentage of total pay at risk when combined with short-term incentive compensation. Additional detail regarding the Compensation Committee’s rationale for its short-term incentive and equity award determinations is provided above under “Compensation of Executive Officers – Compensation Discussion and Analysis – Determination of 2015 Executive Compensation; Analysis of Individual Compensation Elements.”

•

During 2015, the Company provided minimal perquisites to the named executive officers and did not provide for tax gross-ups of executive compensation.

•

During 2015, none of the named executive officers was party to an employment contract with the Company.

•

None of the named executive officers has a severance arrangement related to termination of employment other than in connection with a change-in-control, and the change-in-control arrangements are “double trigger” in that they require both a change-in-control and termination of employment prior to any payout.

Effect of the Proposal

Pursuant to the provisions of the Dodd-Frank Act and the rules of the SEC, the vote on the Say-on-Pay Resolution set forth below (i) is advisory and is therefore not binding on the Company, the Board, or the Compensation Committee; (ii) is not to be construed as overruling any decisions of the Company, the Board, or the Compensation Committee; and (iii) does not create or imply any additional fiduciary duties or changes to fiduciary duties of the Company, the Board, or the Compensation Committee. The Board believes that the Board and its Compensation Committee are in the best position to consider the extensive information that from time to time should be taken into consideration in determining named executive officer compensation. Nonetheless, the Company, the Board, and the Compensation Committee value the opinions of the Company’s Shareholders and will take into consideration the outcome of this vote as part of their future deliberations regarding named executive officer compensation.

Current Frequency of Shareholder Advisory Votes to Approve the Compensation of the Company’s Named Executive Officers

Based on the voting results at the Company’s 2011 Annual Meeting of Shareholders with respect to the frequency (the “Frequency Vote”) of Shareholder advisory votes to approve the compensation of the Company’s named executive officers, the Company decided to include an advisory vote to approve the compensation of its named executive officers in its proxy materials on an annual basis. The next required Frequency Vote is scheduled for the Company’s 2017 Annual Meeting of Shareholders.

Text of the Resolution to be Adopted

“RESOLVED, that the Shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2016 Annual Meeting of Shareholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and any related narrative disclosures.”

Vote Required

Provided a quorum is present at the meeting, the affirmative vote of the holders of a majority of the shares entitled to vote on, and voted for or against, this proposal is required to approve this proposal.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote FOR the approval, on an advisory basis, of the compensation of the Company’s named executive officers, as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and any related narrative disclosures. Proxies solicited by the Board of Directors will be so voted unless Shareholders specify a different choice.

PROPOSAL 3

RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, independent auditors, has been selected by the Board of Directors to serve as the Company’s independent auditors for the fiscal year ending December 31, 2016. Shareholder ratification of the selection of Ernst & Young LLP as the Company’s independent auditors is not required by the Company’s Bylaws or otherwise. However, the Board of Directors is submitting the selection of Ernst & Young to the Shareholders for ratification as a matter of good corporate practice. If the Shareholders fail to ratify the selection, the Audit Committee and Board of Directors will reconsider whether or not to retain Ernst & Young. Even if the selection is ratified, the Board of Directors and its Audit Committee, in their discretion, may direct the selection of a different independent accounting firm at any time during the year if the Board of Directors believes this change would be in the best interests of the Company and its Shareholders.

Vote Required

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote FOR the ratification of the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2016. Proxies solicited by the Board of Directors will be so voted unless Shareholders specify a different choice.

RELATIONSHIP WITH INDEPENDENT AUDITORS

Ernst & Young LLP has served as the Company’s independent auditors since the inception of the Company. A representative of Ernst & Young is expected to be present at the Annual Meeting and will have the opportunity to make a statement if he so desires and to respond to appropriate questions.

The following table sets forth the various fees for services provided to the Company by Ernst & Young in 2015 and 2014:


Year	Audit Fees(1)		Audit–Related Fees		Tax Fees(2)		All Other Fees(3)		Total Fees
2015	$	2,186,994	$	—	$	60,000	$	2,160	$	2,249,154
2014	$	2,157,200	$	—	$	45,000	$	2,089	$	2,204,289

(1)

Includes fees for the annual audit and quarterly reviews, SEC registration statements, accounting and financial reporting consultations, and research work regarding Generally Accepted Accounting Principles, passenger facility charge audits, the attestation of management’s Report on Internal Controls, and the audit of the Company’s wholly-owned captive insurance company.

(2)	Includes services for tax compliance, tax advice, and tax planning.

(3)	Consists of fees for other permitted advisory services and products, including Ernst & Young subscriptions.

A copy of the Audit Committee’s Audit and Non-Audit Services Preapproval Policy is attached to this Proxy Statement as Appendix A. All of the services rendered by the independent auditors during 2015 were pre-approved by the Audit Committee or by its Chairman pursuant to his delegated authority.

SHAREHOLDER PROPOSAL

SHAREHOLDER PROXY ACCESS

(PROPOSAL 4)

The Company has been notified by Mr. Kenneth Steiner that the following proposal is to be presented for consideration at the Annual Meeting. This proposal will be voted on if it is properly presented at the Annual Meeting. The Company will provide to any Shareholder, promptly upon receipt of the Shareholder’s written or oral request, the name and address of the proponent of this proposal and the number of shares of the Company’s common stock held by the proponent of this proposal.

Proposal 4 – Shareholder Proxy Access

RESOLVED: Shareholders ask our board of directors to adopt, and present for shareholder approval, a “proxy access” bylaw as follows:

Require the Company to include in proxy materials prepared for a shareholder meeting at which directors are to be elected the name, Disclosure and Statement (as defined herein) of any person nominated for election to the board by a shareholder or an unrestricted number of shareholders forming a group (the “Nominator”) that meets the criteria established below.

Allow shareholders to vote on such nominee on the Company’s proxy card.

The number of shareholder-nominated candidates appearing in proxy materials should not exceed one quarter of the directors then serving or two, whichever is greater. This bylaw should supplement existing rights under Company bylaws, providing that a Nominator must:

a) have beneficially owned 3% or more of the Company’s outstanding common stock, including recallable loaned stock, continuously for at least three years before submitting the nomination;

b) give the Company, within the time period identified in its bylaws, written notice of the information required by the bylaws and any Securities and Exchange Commission (SEC) rules about (i) the nominee, including consent to being named in proxy materials and to serving as director if elected; and (ii) the Nominator, including proof it owns the required shares (the “Disclosure”); and

c) certify that (i) it will assume liability stemming from any legal or regulatory violation arising out of the Nominator’s communications with the Company shareholders, including the Disclosure and Statement; (ii) it will comply with all applicable laws and regulations if it uses soliciting material other than the Company’s proxy materials; and (iii) to the best of its knowledge, the required shares were acquired in the ordinary course of business, not to change or influence control at the Company.

The Nominator may submit with the Disclosure a statement not exceeding 500 words in support of the nominee (the “Statement”). The Board should adopt procedures for promptly resolving disputes over whether notice of a nomination was timely, whether the Disclosure and Statement satisfy the bylaw and applicable federal regulations, and the priority given to multiple nominations exceeding the one-quarter limit. No additional restrictions that do not apply to other board nominees should be placed on these nominations or re-nominations.

The Security and Exchange Commission’s adotped a universal proxy access Rule 14a-11 that was unfortunately vacated by a 2011 a court decision. Therefore, proxy access rights is being established on a company-by–company basis.

Proxy access would “benefit both the markets and corporate boardrooms, with little cost or disruption,” raising US market capitalization by up to $140 billion according to a cost-benefit analysis by the CFA Institute (Chartered Financial Analyst), Proxy Access in the United States: Revisiting the Proposed SEC Rule.

Please vote to enhance shareholder value:

Shareholder Proxy Access – Proposal 4

BOARD OF DIRECTORS STATEMENT IN OPPOSITION TO PROPOSAL 4

After careful consideration, the Board of Directors unanimously recommends a vote AGAINST the adoption of this Shareholder proposal.

The Board believes this proposal is not in the best interests of the Company and its Shareholders. While the Board recognizes proxy access is a topic of growing interest to investors, the Board believes this proposal advances a solution for a problem that does not exist at the Company and in any event fails to include market-based safeguards to prevent abuse. For purposes of this section, the Board’s Nominating and Corporate Governance Committee will be referred to as the “Nominating Committee.”

To the Company’s knowledge, the proponent of this proxy access proposal did not submit this proposal based on any perceived Company-specific governance shortcoming, and the Board believes the proponent’s proposal advances a solution for a problem that does not exist at the Company.

Shareholders have supported the Company’s current director nomination practices, as evidenced by the strong Shareholder support received by the Company’s directors at past Annual Meetings of Shareholders. For example, at the 2015 Annual Meeting of Shareholders, each director standing for election received at least 96% of the votes cast.

The Nominating Committee is able to more thoroughly evaluate potential Board nominees through its established processes than would be the case with respect to a proxy access nominee.

Pursuant to its charter and the rules of the New York Stock Exchange, the Nominating Committee is responsible for overseeing the evaluation of the Board’s structure and effectiveness and recommending qualified candidates for election to the Board. To do so, the Committee regularly assesses whether or not the Board as a whole possesses the skills, credentials, diversity, and other attributes that are most significant, relevant, and beneficial to the Company and its Shareholders at any given point in time. A formal search can take months and typically includes (i) a survey of candidates with appropriate and relevant attributes who also have sufficient time to devote to the Board, (ii) in-person interviews by members of the Committee and others, and (iii) discussions of potential candidates at multiple meetings of the Committee. This proxy access proposal does not require a proxy access nominee to be subject to the critical evaluation performed by the Nominating Committee.

In the Board’s view, this proxy access proposal lacks appropriate and market-based safeguards to prevent abuse.

Although this proposal provides for a 3% ownership threshold before a Shareholder(s) may submit a director nomination, it would enable an unlimited number of Shareholders to form a group to satisfy this threshold, which the Board believes is not typical for companies that have adopted proxy access bylaws. As a result, large groups of Shareholders with very low individual ownership stakes in the Company (and, unlike the Board, no fiduciary duties to the Company or the Company’s other Shareholders) could seek to change the Board composition and priorities to promote a narrowly-focused or short-term agenda that may not be in the best interests of the Company and its Shareholders as a whole. The proposal also does not include other market-based safeguards, including, among others: (i) a requirement that compensation arrangements between the nominating Shareholder/group and the Shareholder nominee be disclosed, (ii) the inclusion of a provision barring Shareholder nominees from re-nomination for two years if they do not receive at least 25 percent of the votes cast, and (iii) a requirement that the nominating Shareholder/group or its representative be present at the annual meeting. Furthermore, the Board believes most companies that have adopted proxy access bylaws have limited the number of board seats available to proxy access nominees to 20% of the current Board seats, as opposed to the proposed 25%.

The Board intends to continue to monitor developments in the area of proxy access and to listen to Shareholders, but believes it is not in the best interest of the Company and its Shareholders to adopt this particular proxy access proposal. The Board believes the Company and its Shareholders are best served by a deliberate approach on this issue, informed by further Shareholder engagement and consideration of best practices as they emerge. Given the Board’s strong record of Shareholder support, this proposal does not warrant support and has the potential for creating significant risk to Shareholders.

Vote Required

Provided that a quorum is present at the meeting, the affirmative vote of the holders of a majority of the shares entitled to vote on, and voted for or against, this proposal is required to approve, on an advisory basis, this proposal.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote AGAINST this Shareholder proposal. Proxies solicited by the Board of Directors will be so voted unless Shareholders specify a different choice.

OTHER MATTERS

Submission of Shareholder Proposals

To permit the Company and its Shareholders to deal with Shareholder proposals in an informed and orderly manner, the Company’s Bylaws establish an advance notice procedure with regard to the nomination (other than by or at the direction of the Board of Directors) of candidates for election to the Board of Directors and with regard to certain other matters to be brought before an Annual Meeting of Shareholders. The Company’s Bylaws provide that, in order for a proposal that is not intended to be included in the Company’s Proxy Statement to be properly and timely submitted as business to come before the Company’s 2017 Annual Meeting of Shareholders, the proposal must be received by the Corporate Secretary of the Company not less than 60 days nor more than 90 days prior to the meeting. If less than 30 days’ notice or prior public disclosure of the date of the meeting is given or made to Shareholders, written notice must be received not later than the close of business on the tenth day following the day on which such notice of the date of the Annual Meeting is mailed or such public disclosure is made. Any Shareholder proposal or nomination must contain the information specified in the Company’s Bylaws concerning the matter to be brought before the meeting or the person to be nominated and the Shareholder submitting the proposal. Any notice relating to a Shareholder nomination of a person or persons for election to the Board must contain (i) as to each nominee, all information required to be disclosed in solicitations of proxies for election of Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including the nominee’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) the name and address of the Shareholder giving the notice; and (iii) the number of shares of the Company beneficially owned by the Shareholder giving the notice. Based on a 2017 Annual Meeting date corresponding to this year’s Annual Meeting date (and assuming a 30-day notice or public disclosure of such Annual Meeting date), if the Company does not receive notice of a proposal between February 17, 2017 and March 19, 2017, it will be considered “untimely” and the proxy committee may properly use its discretionary authority to vote for or against the proposal. A copy of the applicable Bylaw provisions may be obtained, without charge, upon written request to the Corporate Secretary of the Company at the address set forth on page 1 of this proxy statement.

Notwithstanding the above provisions, any Shareholder who wishes to submit a proposal for inclusion in the Company’s Proxy Statement and Proxy relating to the 2017 Annual Meeting of Shareholders must forward such proposal to the Corporate Secretary of the Company, at the address indicated on the first page of this Proxy Statement, so that the Corporate Secretary receives it no later than December 9, 2016.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers, Directors, and persons who beneficially own more than ten percent of the Company’s common stock to file reports of ownership and changes in ownership of Company common stock with the SEC and the NYSE. These persons are also required by SEC regulation to furnish the Company with copies of all such reports they file. To the Company’s knowledge, based solely on its review of its copies of such reports, or written representations from such persons, the Company believes that all filing requirements applicable to its Directors, executive officers, and beneficial owners of more than ten percent of the Company’s common stock have been satisfied.

Conduct of Meeting and Discretionary Authority

The Chairman has broad responsibility and authority to conduct the annual meeting in an orderly and timely manner. This authority includes establishing rules for Shareholders who wish to address the meeting. Only Shareholders as of the record date for the meeting or their valid proxy holders may address the meeting. Copies of these rules will be available at the meeting. The Chairman may exercise broad discretion in recognizing Shareholders who wish to speak and in determining the extent of discussion on each item of business. The Chairman may also exercise broad discretion regarding disruptions or disorderly conduct to ensure that the meeting is conducted in a manner that is fair to all Shareholders. Further, in the event a quorum is not present at the meeting, the Chairman may adjourn the meeting in order to solicit the required quorum.

In the event a quorum is present at the meeting but sufficient votes to approve any of the items proposed by the Board of Directors have not been received, the persons named as proxies may propose one or more adjournments of the meeting to permit further solicitation of proxies. A Shareholder vote may be taken on one or more of the proposals in this Proxy Statement prior to such adjournment if sufficient proxies have been received and it is otherwise appropriate. Any adjournment will require the affirmative vote of the holders of a majority of those shares of common stock represented at the meeting in person or by proxy. If a quorum is present, the persons named as proxies will vote the proxies they have been authorized to vote on any other business properly before the meeting in favor of such an adjournment.

The Board of Directors does not know of any other matters that are to be presented for action at the meeting. However, if other matters properly come before the meeting, it is intended that the enclosed Proxy will be voted in accordance with the judgment of the persons voting the Proxy.

Householding

In some cases, only one copy of the Company’s Proxy Statement and Annual Report to Shareholders is being delivered to multiple Shareholders sharing an address unless the Company has received contrary instructions from one or more of the Shareholders. Upon written or oral request at the address or phone number indicated on the first page of this Proxy Statement, the Company will promptly deliver a separate copy of these documents to a Shareholder at a shared address to which a single copy has been delivered. A Shareholder can notify the Company at the address or phone number indicated on the first page of this Proxy Statement if the Shareholder wishes to receive separate copies in the future. In addition, Shareholders sharing an address who are currently receiving multiple copies may also notify the Company at such address or phone number if they wish to receive only a single copy.

Costs of Solicitation

The Company will pay the costs of solicitation of proxies by the Board. In addition to solicitation through distribution of these proxy materials, solicitation of proxies may be made personally or by telephone by the Company’s regular Employees, and arrangements will be made with brokerage houses or other custodians’ nominees and fiduciaries to send proxies and proxy material to their principals. In addition, the Company has hired Georgeson Inc. to solicit proxies for a fee of $22,000 plus expenses.

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, including the financial statements and the financial statement schedules, if any, but not including exhibits, will be provided at no charge to each person to whom this Proxy Statement is delivered upon the written request of such person addressed to Southwest Airlines Co., Attn: Investor Relations, HDQ-6IR, P.O. Box 36611, Dallas, Texas 75235.

By Order of the Board of Directors,

LOGO

Gary C. Kelly

Chairman of the Board

April 8, 2016

TO: Participants in the Southwest Airlines Co. ProfitSharing Plan

The Accompanying Notice of Annual Meeting of Shareholders and Proxy Statement are related to shares of common stock of Southwest Airlines Co. held by the Trustee for your ProfitSharing Plan account, as well as any shares you may own in your own name.

Under the ProfitSharing Plan, each participant has the right to direct the Trustee to vote stock credited to his or her account. If you do not direct the Trustee to vote stock credited to your account, the ProfitSharing Plan provides that the Trustee will vote your shares in the same proportion as the shares for which the Trustee receives voting instruction from other participants.

The Trustee is required to vote the shares held for your account in accordance with your instructions or, if you do not provide instructions, in accordance with the ProfitSharing Plan. If you wish to instruct the Trustee on the vote of shares held for your account, you should vote via telephone or the Internet or complete and sign the form enclosed and return it in the addressed, postage-free envelope. Your vote must be received by May 16, 2016.

APPENDIX A

Southwest Airlines Co.

Audit and Non-Audit Services Preapproval Policy

Adopted March 20, 2003

I. Purpose

Under the Sarbanes-Oxley Act of 2002 (the “Act”) and the rules of the Securities and Exchange Commission (the “SEC”), the Audit Committee of the Board of Directors is responsible for the appointment, compensation, and oversight of the work of the independent auditor. The Audit Committee is required to pre-approve the audit and non-audit services performed by the independent auditor in order to assure that they do not impair the auditor’s independence from the Company. Accordingly, the Audit Committee has adopted, and the Board of Directors of Southwest Airlines Co. (the “Company” or “Southwest”) has ratified, this Audit and Non-Audit Services Preapproval Policy (the “Policy”), which sets forth the procedures and the conditions pursuant to which services proposed to be performed by the independent auditor may be preapproved.

The SEC’s rules provide that proposed services may be preapproved without consideration of specific case-by-case services by the Audit Committee (“general preapproval”) or may require the specific preapproval of the Audit Committee (“specific preapproval”). The Audit Committee believes that the combination of these two approaches in this Policy will result in an effective and efficient procedure to pre-approve services performed by the independent auditor. Accordingly, unless a type of service has received general preapproval, it will require specific preapproval by the Audit Committee if it is to be provided by the independent auditor. Any proposed services exceeding preapproved cost levels or budgeted amounts will also require specific preapproval by the Audit Committee.

For each preapproval, the Audit Committee will consider whether the services are consistent with the SEC’s rules on auditor independence. The Audit Committee will also consider whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors will be considered as a whole, and no one factor will necessarily be determinative.

The independent auditor has reviewed this Policy and believes that implementation of the policy will not adversely affect the auditor’s independence.

II. Delegation

The Act and the SEC’s rules permit the Audit Committee to delegate preapproval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any preapproval decisions to the Audit Committee at its next scheduled meeting.

III. Audit Services

The annual Audit Services Engagement Terms and Fees will be subject to the specific preapproval of the Audit Committee. The Audit Committee will monitor the Audit services engagement as necessary, but no less than on a quarterly basis, and will also approve, if necessary, any changes in terms, conditions and fees.

In addition to the annual Audit services engagement approved by the Audit Committee, the Audit Committee may grant preapproval to other Audit services, which are those services that only the independent auditor reasonably can provide. Other Audit services may include services associated with SEC registration statements or other documents issued in connection with securities offerings.

IV. Audit-related Services

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the independent auditor. Because the Audit Committee believes that the provision of Audit-related services does not impair the

A-1

independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant general preapproval to Audit-related services. Audit-related services include, among others, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit services”; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of Employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.

V. Tax Services

The Audit Committee believes that the independent auditor can provide Tax services to the Company such as tax compliance, tax planning and tax advice without impairing the auditor’s independence and the SEC has stated that the independent auditor may provide such services. The Audit Committee believes it may grant general preapproval to those Tax services that have historically been provided by the auditor, that the Audit Committee has reviewed and believes would not impair the independence of the auditor, and that are consistent with the SEC’s rules on auditor independence. The Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee will consult with the Chief Financial Officer or Vice President — Finance to determine that the tax planning and reporting positions are consistent with this policy.

The Audit Committee must preapprove tax services to be provided by the independent auditor to any Executive Officer or Director of the Company, in his or her individual capacity, where such services are paid for by the Company.

VI. All Other Services

The Audit Committee believes, based on the SEC’s rules prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes it may grant general preapproval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, would not impair the independence of the auditor, and are consistent with the SEC’s rules on auditor independence.

A list of the SEC’s prohibited non-audit services is attached in this policy as Exhibit 1. The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of these services and the applicability of exceptions to certain of the prohibitions.

VII. Preapproval Fee Levels or Budgeted Amounts

Preapproval fee levels for all services to be provided by the independent auditor will be established by the Audit Committee. Any proposed services exceeding these levels or amounts will require specific preapproval by the Audit Committee. The Audit Committee is mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services.

VIII. Procedures

All requests or applications for services to be provided by the independent auditor that do not require specific approval by the Audit Committee will be submitted to the Chief Financial Officer and must include a detailed description of the services to be rendered. The Chief Financial Officer will determine whether such services are included within the list of services that have received the general preapproval of the Audit Committee. The Audit Committee will be informed on a timely basis of any such services rendered by the independent auditor.

Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Chief Financial Officer and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.

A-2

Exhibit 1

Prohibited Non-Audit Services

•

Bookkeeping or other services related to the accounting records or financial statements of the audit client

•

Financial information systems design and implementation

•

Appraisal or valuation services, fairness opinions or contribution-in-kind reports

•

Actuarial services

•

Internal audit outsourcing services

•

Management functions

•

Human resources

•

Broker-dealer, investment adviser or investment banking services

•

Legal services

•

Expert services unrelated to the audit

A-3

LOGO

SOUTHWEST AIRLINES CO.

2702 LOVE FIELD DRIVE

DALLAS, TEXAS 75235

VOTE BY INTERNET - www.proxyvote.com

Use the Internet to transmit your voting instructions until 11:59 P.M. Eastern Time on May 17, 2016 (May 16, 2016 for participants in the Southwest Airlines Co. ProfitSharing Plan). Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS

If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards, and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE - 1-800-690-6903

Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on May 17, 2016 (May 16, 2016 for participants in the Southwest Airlines Co. ProfitSharing Plan). Have your proxy card in hand when you call and then follow the instructions.

VOTE BY MAIL

Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.


TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
	E02317-P74115	KEEP THIS PORTION FOR YOUR RECORDS

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — –

DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

SOUTHWEST AIRLINES CO.

Company Proposals

The Board of Directors recommends a vote "FOR"

all of the nominees listed below:

Election of Directors

For

Against

Abstain

1a.

David W. Biegler

1b.

J. Veronica Biggins

The Board of Directors recommends a vote "FOR" Proposals 2 and 3.

For

Against

Abstain

1c.

Douglas H. Brooks

2. Advisory vote to approve named executive officer compensation.

1d.

William H. Cunningham

3. Ratification of the selection of Ernst & Young LLP as the Company's independent auditors for the fiscal year ending December 31, 2016.

1e.

John G. Denison

1f.

Thomas W. Gilligan

B. Shareholder Proposal

The Board of Directors recommends a vote "AGAINST" Proposal 4.

1g.

Gary C. Kelly

For

Against

Abstain

1h.

Grace D. Lieblein

4. Advisory vote on shareholder proposal to adopt a shareholder proxy access bylaw.

1i.

Nancy B. Loeffler

1j.

John T. Montford

1k.

Ron Ricks

For address changes and/or comments, please check this box and write them on the reverse side where indicated.

Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized individual.

Signature [PLEASE SIGN WITHIN BOX]

Date

Signature (Joint Owners)

Date

SOUTHWEST AIRLINES CO.

ANNUAL MEETING OF SHAREHOLDERS

Wednesday, May 18, 2016

10:00 a.m. Central Daylight Time

Renaissance Blackstone Chicago Hotel

636 South Michigan Avenue

Chicago, Illinois, USA 60605

DIRECTIONS TO THE ANNUAL MEETING

The Renaissance Blackstone Chicago Hotel is located at 636 South Michigan Avenue, Chicago, Illinois.

From Chicago Midway Airport, take S. Cicero Ave./IL-50 North. Merge onto I-55N/Adlai E. Stevenson Expy N. toward Chicago. Merge onto I-90W/I-94W/Dan Ryan Expy N. via Exit 292A toward Chicago/Wisconsin. Take Exit 52B toward Roosevelt Rd. Turn right on Roosevelt Rd. Take Roosevelt Rd. to Michigan Ave. Turn left on Michigan Ave. Drive 5 blocks North to Balbo Ave. Turn left on Balbo Ave. Hotel is located at the Northwest corner of Michigan Ave. and Balbo Ave.

Valet parking is available as well as self parking options in local lots.

Please note the admission requirements on the front of the Proxy Statement if you plan to attend this year’s meeting in person.

Our Annual Meeting will be broadcast live on the Internet. To listen to the broadcast, log on to http://investors.southwest.com/.

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — –

E02318-P74115



PROXY		SOUTHWEST AIRLINES CO.
		2702 LOVE FIELD DRIVE
		DALLAS, TEXAS 75235

This proxy is solicited on behalf of the Board of Directors.

The undersigned hereby appoints Gary C. Kelly, Tammy Romo, and Mark R. Shaw, and each of them, as proxies, each with full power of substitution, and hereby authorizes each of them to represent and to vote, as designated on the reverse side of this form, all shares of Common Stock of Southwest Airlines Co. that the undersigned is entitled to vote at the Annual Meeting of Shareholders of Southwest Airlines Co. to be held at the Renaissance Blackstone Chicago Hotel, 636 South Michigan Avenue, Chicago, Illinois, on May 18, 2016, at 10:00 a.m., Central Daylight Time, or at any adjournment or postponement thereof.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” EACH OF THE NOMINEES LISTED IN PROPOSAL 1; “FOR” PROPOSALS 2 AND 3; “AGAINST” PROPOSAL 4; AND AT THE DISCRETION OF THE PROXY HOLDERS WITH REGARD TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.

YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE TO ENABLE THE SHARES TO BE REPRESENTED AT THE MEETING.

YOU MAY ALSO VOTE VIA THE TELEPHONE OR THE INTERNET.



Address Changes/Comments:

(If you noted any Address Changes and/or Comments above, please mark the corresponding box on the reverse side.)

Continued and to be signed on reverse side