Southwest Airlines 2011 Annual Report Download - page 35

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• restrictions on competitive practices;
• changes in laws that increase costs for safety, security, compliance, or other Customer Service
standards;
• changes in laws that may limit or regulate the Company’s ability to promote the Company’s business
or fares, such as the DOT’s full-fare advertising rule discussed above under “Business - Regulation”;
and
• the adoption of more restrictive locally-imposed noise regulations.
Because expenses of a flight do not vary significantly with the number of passengers carried, a relatively
small change in the number of passengers can have a disproportionate effect on an airline’s operating and
financial results. Therefore, any general reduction in airline passenger traffic as a result of any of the factors
listed above could adversely affect the Company’s results of operations. In addition, when the airline industry
shrinks, airport operating costs are essentially unchanged and must be shared by the remaining operating carriers,
which can therefore increase the Company’s costs.
The airline industry is affected by many conditions that are beyond its control, which can impact the
Company’s business strategies.
In addition to the unpredictable economic conditions and fuel costs discussed above, the Company, like the
airline industry in general, is affected by conditions that are largely unforeseeable and outside of its control,
including, among others:
• adverse weather and natural disasters;
• outbreaks of disease;
• changes in consumer preferences, perceptions, spending patterns, or demographic trends;
• actual or potential disruptions in the air traffic control system;
• changes in the competitive environment due to industry consolidation, industry bankruptcies, and
other factors;
• air traffic congestion and other air traffic control issues; and
• actual or threatened war, terrorist attacks, and political instability.
The airline industry is intensely competitive.
As discussed in more detail above under “Business — Competition,” the airline industry is intensely
competitive. The Company’s competitors include other major domestic airlines, as well as regional and new
entrant airlines, surface transportation, and alternatives to transportation such as videoconferencing and the
Internet. The Company’s revenues are sensitive to the actions of other carriers with respect to pricing, routes,
capacity, scheduling, Customer Service, frequent flyer programs, comfort and amenities, cost structure, aircraft
fleet, and codesharing and similar activities.
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