Southwest Airlines 2011 Annual Report Download - page 24

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The Airport Noise and Capacity Act of 1990 gives airport operators the right, under certain circumstances,
to implement local noise abatement programs, so long as they do not unreasonably interfere with interstate or
foreign commerce or the national air transportation system. Some airports have established airport restrictions to
limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily
operations or the time of operations. These types of restrictions can cause curtailments in service or increases in
operating costs and could limit the ability of the Company to expand its operations at the affected airports.
As part of its commitment to corporate sustainability, the Company has published the Southwest One
ReportTM describing the Company’s sustainability strategies, which include efforts to reduce greenhouse gas
emissions and address other environmental matters such as energy and water conservation, waste minimization,
and recycling. As discussed above under “Operating Strategies and Initiatives - Cost Containment,” the Company
has also committed significant resources towards implementation of RNP procedures, which are designed to
conserve fuel and reduce carbon emissions. In addition, the Company’s “Green Team” targets areas of
environmental improvement in all aspects of the Company’s business, while at the same time remaining true to
the Company’s low-cost philosophy.
International Regulation
All international service is subject to the regulatory requirements of the appropriate authorities of the
foreign countries involved. To the extent the Company seeks to provide additional international air transportation
in the future, it will be required to obtain necessary authority from the DOT, as well as any applicable foreign
government or other authority.
Insurance
The Company carries insurance of types customary in the airline industry and in amounts deemed adequate
to protect the Company and its property and to comply both with federal regulations and certain of the
Company’s credit and lease agreements. The policies principally provide coverage for public and passenger
liability, property damage, cargo and baggage liability, loss or damage to aircraft, engines, and spare parts, and
workers’ compensation.
Through the 2003 Emergency Wartime Supplemental Appropriations Act (the “Wartime Act”), the federal
government has provided renewable, supplemental, first-party, war-risk insurance coverage to commercial
carriers at substantially lower premiums than prevailing commercial rates and for levels of coverage not available
in the commercial market. The government-provided supplemental coverage from the Wartime Act is currently
set to expire on September 30, 2012. Although another extension beyond this date is expected, if such coverage is
not extended by the government, the Company could incur substantially higher insurance costs or unavailability
of adequate coverage in future periods.
Competition
Competition within the airline industry is intense and highly unpredictable, and Southwest and AirTran
currently compete with other airlines on a majority of their routes. In addition, the airline industry generally has
low barriers to entry. Key competitive factors within the airline industry include (i) pricing and cost structure;
(ii) routes, schedules, and frequent flyer programs; and (iii) customer service, comfort, and amenities. Southwest
and AirTran also compete for customers with other forms of transportation, as well as alternatives to travel.
Pricing and Cost Structure
Pricing in the airline industry can be driven by a variety of factors. For example, airlines often discount
fares to drive traffic in new markets or to stimulate traffic when necessary to improve load factors and/or cash
flow. In addition, some airlines have been able to lower their operating costs (and thereby have been able to
reduce fares) as a result of reorganization within and outside of bankruptcy. Over the past ten years, several
airlines have reorganized through bankruptcy. These factors can reduce the pricing power of the airline industry
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