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                                                                   EXHIBIT 10.16

                               EMPLOYMENT CONTRACT

         THIS EMPLOYMENT CONTRACT (hereinafter referred to as this "Agreement"),
dated as of June 19, 2001, by and between JAMES F. PARKER (hereinafter referred
to as the "Employee"), a resident of Dallas, Texas, and SOUTHWEST AIRLINES CO.
(hereinafter referred to as "Southwest", which term shall include its subsidiary
companies where the context so admits), a Texas corporation,

                                   WITNESSETH:

         WHEREAS the Employee has served as Vice President-General Counsel of
Southwest since February 1986; and

         WHEREAS the Employee and Southwest desire to enter into an agreement
for the continuing full-time services of the Employee;

         NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and promises contained herein, Southwest and the Employee agree as
follows:

                        I. POSITION, DUTIES AND AUTHORITY

A.       POSITIONS, DUTIES AND RESPONSIBILITIES. The Employee shall serve as
         Chief Executive Officer of Southwest, and, for so long as he shall be
         elected to the Board of Directors of Southwest, he shall serve as Vice
         Chairman of the Board without additional compensation hereunder. The
         Employee's duties and responsibilities as Chief Executive Officer shall
         include general oversight of the operational performance of Southwest;
         managing costs and generating revenues in order to achieve excellent
         financial performance; representing Southwest to its multitude of
         exterior constituencies; implementing Southwest's current and long
         range business policies and programs; handling, or overseeing, major
         contract negotiations; and, in general, maintaining employee morale and
         esprit de corps. In




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         addition, he shall perform such other corporate duties and discharge
         such other corporate responsibilities as are specified in the bylaws of
         Southwest or are designated from time to time by either the Chairman of
         the Board of Directors of Southwest or the full Board of Directors.

B.       AUTHORITY. The Employee shall be vested with all authority reasonably
         necessary to carry out his duties and responsibilities as set forth in
         this Article I.

C.       NECESSARY SUPPORT AND ENVIRONMENT. The Employee shall be provided with
         the secretarial and other support personnel (including a full-time
         administrative assistant) and general working environment (including a
         private, furnished office) reasonably necessary for him to carry out
         his duties and responsibilities as set forth in this Article I.

                           II. EMPLOYEE'S OBLIGATIONS

A.       TIME AND EFFORT. During the term of his employment hereunder, the
         Employee shall devote such time and effort as is required to perform
         his duties and to discharge his responsibilities hereunder. The
         Employee shall generally conform with all policies of Southwest as they
         apply to a person of his level of duties and responsibilities.

B.       NON-COMPETITION. The Employee recognizes and understands that in
         performing the duties and responsibilities of his employment as
         outlined in this Agreement and pursuant to his employment at Southwest
         prior to the execution of this Agreement, the Employee has occupied and
         will occupy a position of trust and confidence, pursuant to which the
         Employee has developed and acquired and will develop and acquire
         experience and knowledge with respect to various aspects of the
         business of Southwest and the manner in which such business is
         conducted. It is the expressed intent and agreement of the Employee and
         Southwest that such knowledge and experience shall be used in the
         furtherance of the




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         business interests of Southwest and not in any manner which would be
         detrimental to such business interests of Southwest. The Employee
         therefore agrees that, so long as the Employee is employed pursuant to
         this Agreement, unless he first secures the consent of the Board of
         Directors of Southwest, the Employee will not invest, engage or
         participate in any manner whatsoever, either personally or in any
         status or capacity (other than as a shareholder of less than one
         percent [1%] of the capital stock of a publicly owned corporation), in
         any business or other entity organized for profit engaged in
         significant competition with Southwest in the conduct of its air
         carrier operations anywhere in the States of Texas, Louisiana,
         Oklahoma, New Mexico, Missouri, Arizona, Nevada, California, Arkansas,
         Alabama, Tennessee, Kentucky, Michigan, Indiana, Ohio, Maryland,
         Illinois, Utah, Washington, Oregon, Nebraska, Florida, Idaho,
         Mississippi, New Hampshire, New York, Rhode Island, Connecticut, North
         Carolina and Virginia. Although the Employee and Southwest regard such
         restrictions as reasonable for the purpose of preserving Southwest and
         its proprietary rights, in the event that the provisions of this
         Paragraph II-B should ever be deemed to exceed the time or geographic
         limitations permitted by applicable laws, then such provisions shall be
         reformed to the maximum time or geographic limitations permitted by
         applicable laws.

                                    III. TERM

A.       TERM. This Agreement and the Employee's employment hereunder shall
         commence and become effective on and as of June 19, 2001. The term of
         such employment shall expire on June 19, 2004, unless extended by
         consent of the parties hereto or earlier terminated pursuant to the
         provisions of Article V.




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                           IV. EMPLOYEE'S COMPENSATION

A.       BASE SALARY. The Employee's annual Base Salary for the year ending June
         19, 2002 which originally was to be the amount of $312,000 shall, in
         accordance with Employee's irrevocable agreement to terminate payment
         of Employee's salary for the period October 1, 2001 through December
         31, 2001, be $234,000, payable in 18 equal semi-monthly installments of
         $13,000 commencing with Southwest's second regular payroll date in
         June, 2001 and continuing through Southwest's first regular payroll
         date in October, 2001, at which point such semi-monthly installments
         shall temporarily cease (it being understood and agreed that no Base
         Salary shall be due or payable to Employee with respect to the period
         commencing October 1, 2001 and continuing through and including
         December 31, 2001); with such semi-monthly installments of $13,000 to
         recommence with Southwest's first regular payroll date in January, 2002
         and continuing through and including Southwest's second regular payroll
         date in June, 2002. The Employee's annual Base Salary for the years
         ending June 19, 2003 and 2004 shall be $324,480 and $337,460,
         respectively. The Employee's Base Salary for the years ending July 19,
         2003 and July 19, 2004 shall be payable to the Employee in equal
         semi-monthly installments. The Employee's Base Salary installment
         payments shall be subject to such payroll and withholding deductions as
         may be required by law.

B.       PERFORMANCE BONUS. The Board of Directors of Southwest (or the
         Compensation Committee thereof) may grant a Performance Bonus to the
         Employee, in addition to his Base Salary, at such times and in such
         amounts as such Board (or Committee) may determine.

C.       DEFERRED COMPENSATION. In addition to the Base Salary provided for in
         Paragraph IV-A above, Southwest shall set aside on its books a special
         ledger Deferred




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         Compensation Account (the "Account") for the Employee, and shall credit
         thereto Deferred Compensation determined as hereinafter provided.
         (Southwest at its election may fund the payment of Deferred
         Compensation by setting aside and investing such funds as Southwest may
         from time to time determine. Neither the establishment of the Account,
         the crediting of Deferred Compensation thereto, nor the setting aside
         of any funds shall be deemed to create a trust. Legal and equitable
         title to any funds set aside shall remain in Southwest, and the
         Employee shall have no security or other interest in such funds. Any
         funds so set aside or invested shall remain subject to the claims of
         the creditors of Southwest, present and future.) For each full or
         partial calendar year as the Employee shall remain in the employment of
         Southwest under this Agreement, Deferred Compensation shall accumulate
         in an amount equal to any contributions (including forfeitures but
         excluding any elective deferrals actually returned to the Employee)
         which would otherwise have been made by Southwest on behalf of the
         Employee to the Southwest Airlines Co. Money Purchase Plan but which
         exceed maximum annual additions under such Plan on his behalf under
         federal tax law. If such employment shall terminate prior to December
         31 in any calendar year, then Deferred Compensation shall accumulate
         and be calculated as provided under the terms of Southwest's Money
         Purchase Plan. The Deferred Compensation credited to the Account
         (including the Interest hereinafter provided) shall be paid to the
         Employee (or to the executors or administrators of his estate) at the
         rate of $100,000 per calendar year (subject to such payroll and
         withholding deductions as may be required by law), commencing with the
         calendar year following the year in which (i) the Employee shall become
         sixty-five (65) or (ii) the Employee's employment with Southwest shall
         terminate (whether such termination is under this Agreement or
         otherwise and whether it is before, on or after the




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         expiration of the initial term set forth in Paragraph III-A above, and
         irrespective of the cause thereof), whichever shall occur later, and
         continuing until the entire amount of Deferred Compensation and
         Interest credited to the Account shall have been paid. Although the
         total amount of Deferred Compensation ultimately payable to the
         Employee hereunder shall be computed in accordance with the provisions
         set forth above, there shall be accrued and credited to the Account,
         beginning on January 1, 2002 and continuing annually thereafter,
         amounts equal to simple interest at the rate of ten percent (10%) per
         annum, compounded annually ("Interest"), on the accrued and unpaid
         balance of the Deferred Compensation credited to the Account as of the
         preceding December 31. The Deferred Compensation and Interest to be
         paid in any one calendar year shall be paid on the first business day
         of such calendar year. Notwithstanding the foregoing, in the event of
         the Employee's death, Southwest, in its sole discretion, shall have the
         right to pay the unpaid balance of the Deferred Compensation (together
         with any accrued Interest thereon) to the executors or administrators
         of the Employee's estate in cash in one lump sum on the first business
         day of the calendar year next following the calendar year in which the
         Employee shall have died. No right, title, interest or benefit under
         this Paragraph IV-C shall ever be liable for or charged with any of the
         torts or obligations of the Employee or any person claiming under him,
         or be subject to seizure by any creditor of the Employee or any person
         claiming under him. Neither the Employee nor any person claiming under
         him shall have the power to anticipate or dispose of any right, title,
         interest or benefit under this Paragraph IV-C in any manner until the
         same shall have been actually distributed by Southwest.

D.       DISABILITY INSURANCE. Southwest shall provide long term disability
         insurance providing for payment, in the event of disability of the
         Employee, of $10,000 per month to




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         age seventy (70). Except as to amounts payable, the terms and
         conditions of such policy shall be identical, or substantially similar,
         to the disability insurance provided by Southwest for its other
         officers as of the date of this Agreement.

E.       MEDICAL AND DENTAL EXPENSES. During the term of this Agreement,
         Southwest shall reimburse the Employee for all medical and dental
         expenses incurred by the Employee and his spouse. Expenses for medical
         and dental care shall be deemed to include all amounts paid with
         respect to hospital bills, doctor and dental bills and drugs for which
         the Employee is not compensated by insurance or otherwise.

F.       STOCK OPTION GRANT. Southwest shall grant to the Employee, effective as
         of the date hereof, ten-year options to purchase 180,000 shares of its
         common stock at $17.11 per share pursuant to Southwest's 1996
         Non-Qualified Stock Option Plan, with one-third of such options to be
         exercisable immediately and one-third to become exercisable on each of
         June 19, 2002 and June 19, 2003.

G.       OTHER BENEFITS. The Employee shall be eligible to continue to
         participate in all employee pension, profit-sharing, stock purchase,
         group insurance and other benefit plans or programs in effect for
         Southwest managerial employees generally to the extent of and in
         accordance with the rules and agreements governing such plans or
         programs, so long as same shall be in effect, with full service credit
         where relevant for the Employee's prior employment by Southwest.
         Southwest shall reimburse the Employee for reasonable expenses incurred
         by him in the performance of his duties and responsibilities hereunder.
         The Employee shall be entitled to vacation of three (3) weeks per year
         or such longer period as may be established from time to time by
         Southwest for its managerial employees generally.




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                            V. TERMINATION PROVISIONS

A.       EXPIRATION OR DEATH. The Employee's employment hereunder shall
         terminate on June 19, 2004 (or such later date to which the term of
         this Agreement may be extended by consent of the parties hereto, in
         either case without prejudice to the Employee's privilege to remain an
         employee of Southwest thereafter), or upon the Employee's death,
         whichever shall first occur, without further obligation or liability of
         either party hereunder, except for Southwest's obligation to pay
         Deferred Compensation as provided in Paragraph IV-C of this Agreement.

B.       TERMINATION FOR CAUSE. Southwest may terminate the Employee's
         employment hereunder upon the determination by a majority of its whole
         Board of Directors that the Employee has willfully failed and refused
         to perform his duties and to discharge his responsibilities hereunder.
         Such determination shall be final and conclusive. If the Board of
         Directors of Southwest makes such determination, Southwest may (a)
         terminate the Employee's employment, effective immediately or at a
         subsequent date, or (b) condition his continued employment upon the
         circumstances and place a reasonable limitation upon the time within
         which the Employee shall comply with such considerations or
         requirements. If termination is so effected, Southwest shall have no
         further liability to the Employee hereunder except for the obligation
         to pay Deferred Compensation as provided in Paragraph IV-C hereof.

C.       TERMINATION FOR DISABILITY. Southwest may terminate the Employee's
         employment hereunder on account of any disabling illness, hereby
         defined to include any emotional or mental disorders, physical diseases
         or injuries as a result of which the Employee is, for a continuous
         period of ninety (90) days, unable to perform his duties and




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         to discharge his responsibilities hereunder on a full-time basis.
         Southwest shall give to the Employee thirty (30) days' notice of its
         intention to effect such termination pursuant to this Paragraph V-C.
         If, within such notice period, the Employee shall have recovered from
         his disability sufficiently well to resume performance of his duties
         and discharge of his responsibilities on a full-time basis (although
         still undergoing treatment or rehabilitation), Southwest shall not have
         the right to effect such termination. If such disabling illness occurs
         as a result of a job-related cause, Southwest shall continue to pay the
         Employee regular installments of his Base Salary in effect at the time
         of such termination for the remainder of the term of this Agreement. It
         is expressly understood and agreed, however, that any obligation of
         Southwest to continue to pay the Employee his Base Salary pursuant to
         this Paragraph V-C shall be reduced by the amount of any proceeds of
         long-term disability insurance provided for the Employee pursuant to
         Paragraph IV-D above, and shall also be reduced by the amount of the
         proceeds of any worker's compensation or other benefits which the
         Employee receives as a result of or growing out of his disabling
         illness.

D.       CHANGE OF CONTROL TERMINATION. In the event of any change of control of
         Southwest, the Employee may, at his option, terminate his employment
         hereunder by giving to Southwest notice thereof no later than sixty
         (60) days after the Employee shall have determined or ascertained that
         such change has occurred, irrespective whether Southwest shall have
         purported to terminate this Agreement after such event but prior to
         receipt of such notice. If termination is so effected, no later than
         the date of such termination Southwest shall pay the Employee as
         "severance pay" a lump sum equal to (i) $750,000 plus (ii) an amount
         equal to the unpaid installments of his Base Salary in effect at the
         time of such termination for the remaining term of this Agreement. If
         termination is so effected,




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         Southwest shall have no other further liability to the Employee
         hereunder except for its obligation to pay Deferred Compensation as
         provided in Paragraph IV-C above. For purposes of this Paragraph V-D, a
         "change of control of Southwest" shall be deemed to occur if (i) a
         third person, including a "group" as determined in accordance with
         Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the
         beneficial owner of shares of Southwest having twenty percent (20%) or
         more of the total number of votes that may be cast for the election of
         directors of Southwest, or (ii) as a result of, or in connection with,
         any cash tender or exchange offer, merger or other business
         combination, sale of assets or contested election, or any combination
         of the foregoing transactions (herein called a "Transaction"), the
         persons who were directors of Southwest before the Transaction shall
         cease to constitute a majority of the Board of Directors of Southwest
         or any successor to Southwest.

E.       VOLUNTARY TERMINATION. The Employee's employment hereunder shall
         terminate forthwith upon his resignation and its acceptance by
         Southwest, without further obligation or liability of either party
         hereunder, except for Southwest's obligation to pay Deferred
         Compensation as provided in Paragraph IV-C above.

                                VI. MISCELLANEOUS

A.       ASSIGNABILITY, ETC. The rights and obligations of Southwest hereunder
         shall inure to the benefit of and shall be binding upon the successors
         and assigns of Southwest; provided, however, Southwest's obligations
         hereunder may not be assigned without the prior approval of the
         Employee. This Agreement is personal to the Employee and may not be
         assigned by him.




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B.       NO WAIVERS. Failure to insist upon strict compliance with any provision
         hereof shall not be deemed a waiver of such provision or any other
         provision hereof.

C.       AMENDMENTS. This Agreement may not be modified except by an agreement
         in writing executed by the parties hereto.

D.       NOTICES. Any notice required or permitted to be given under this
         Agreement shall be in writing in the English language and shall be
         deemed to have been given to the person affected by such notice when
         personally delivered or when deposited in the United States mail,
         certified mail, return receipt requested and postage prepaid, and
         addressed to the party affected by such notice at the address indicated
         on the signature page hereof.

E.       SEVERABILITY. The invalidity or unenforceability of any provision
         hereof shall not affect the validity or enforceability of any other
         provision hereof.

F.       COUNTERPARTS. This Agreement may be executed in multiple counterparts,
         each of which shall be deemed an original but all of which taken
         together shall constitute a single instrument.

G.       ENTIRE AGREEMENT. This Agreement contains all of the terms and
         conditions agreed upon by the parties hereto respecting the subject
         matter hereof, and all other prior agreements, oral or otherwise,
         regarding the subject matter of this Agreement shall be deemed to be
         superseded as of the date of this Agreement and not to bind either of
         the parties hereto.

H.       GOVERNING LAW. This Agreement shall be subject to and governed by the
         laws of the State of Texas.




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         IN WITNESS WHEREOF, the Employee has set his hand hereto and Southwest
has caused this Agreement to be signed in its corporate name and behalf by one
of its officers thereunto duly authorized, all as of the day and year first
above written.

                                        SOUTHWEST AIRLINES CO.



                                        By: /s/ HERBERT D. KELLEHER
                                            -----------------------------------
                                              Herbert D. Kelleher
                                              Chairman of the Board of Directors






                                        THE EMPLOYEE


                                        /s/ JAMES F. PARKER
                                        -------------------------------------
                                              James F. Parker

                                              Address:  P.O. Box 36611
                                              Dallas, Texas  75235-1611




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