Spirit Airlines 2011 Annual Report Download - page 29

increasing costs. For example, the DOT finalized rules, effective on April 29, 2010, requiring new procedures for customer handling during long
onboard tarmac delays, as well as additional reporting requirements for airlines that could increase the cost of airline operations or reduce
revenues. The DOT has been aggressively investigating alleged violations of the new rules. In addition, a second set of DOT final rules, most of
which became effective beginning in late August 2011, addresses, among other things, concerns about how airlines handle interactions with
passengers through advertising, the reservations process, at the airport and on board the aircraft, including requirements for disclosure of base
fares plus a set of regulatorily dictated options and limits on cancellations and change fees. The DOT has extended the effective date for certain
of these rules that are the subject of current litigation (in which we are a party) to January 24, 2012. On January 24, 2012 we became fully
compliant with the new DOT rules. Failure to remain in full compliance with these rules may subject us to fines or other enforcement action,
including requirements to modify our passenger reservations system, which could have a material effect on our business. Further, the DOT has a
pending notice of proposed rulemaking addressing additional accommodations required for passengers with certain disabilities and on December
21, 2011 announced a new final rule related to flight crew duty and rest requirements. We cannot assure you that compliance with these new
rules will not have a material adverse effect on our business.
On August 3, 2010, the Airline Baggage Transparency and Accountability Act was introduced in the United States Senate. This legislation,
if enacted, would increase disclosure regarding fees for airline ticket sales, impose federal taxes on charges for carry-on and checked baggage,
authorize the DOT’s Aviation Consumer Protection Division to oversee lost and stolen baggage claims, and require data collection and the
public release of collected data concerning airline handling of lost, damaged and stolen luggage. More recently, the United States Senate passed
an amendment to the FAA reauthorization bill that, if enacted, would impose federal taxes at a rate of 7.5% on charges for carry-on baggage. If
the Airline Baggage Transparency and Accountability Act, the Senate amendment to the FAA reauthorization bill or similar legislation were to
be enacted, it is uncertain what effect it would have on our results of operations and financial condition.
We cannot assure you that these and other laws or regulations enacted in the future will not harm our business. In addition, the TSA
mandates the federalization of certain airport security procedures and imposes additional security requirements on airports and airlines, most of
which are funded by a per ticket tax on passengers and a tax on airlines. The federal government has on several occasions proposed a significant
increase in the per ticket tax. The proposed ticket tax increase, if implemented, could negatively impact our financial results.
Our ability to operate as an airline is dependent on our maintaining certifications issued to us by the DOT and the FAA. The FAA has the
authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-
related items and removal and replacement of aircraft parts that have failed or may fail in the future. A decision by the FAA to ground, or require
time consuming inspections of or maintenance on, our aircraft, for any reason, could negatively affect our business and financial results. Federal
law requires that air carriers operating large aircraft be continuously “fit, willing and able” to provide the services for which they are licensed.
Our “fitness” is monitored by the DOT, which considers factors such as unfair or deceptive competition, advertising, baggage liability and
disabled passenger transportation. While the DOT has seldom revoked a carrier’s certification for lack of fitness, such an occurrence would
render it impossible for us to continue operating as an airline. The DOT may also institute investigations or administrative proceedings against
airlines for violations of regulations. In 2009, we entered into a consent order with the DOT for our procedures for bumping passengers from
oversold flights and our handling of lost or damaged baggage. Under the consent order, we were assessed a civil penalty of $375,000, of which
we were required to pay $215,000 based on an agreement with the DOT, subject to our not having similar violations in the year after the date of
the consent order.
International routes are regulated by treaties and related agreements between the United States and foreign governments. Our ability to
operate international routes is subject to change because the applicable arrangements between the United States and foreign governments may be
amended from time to time. Our access to new international markets may be limited by our ability to obtain the necessary certificates to fly the
international routes. In addition, our operations in foreign countries are subject to regulation by foreign governments and our business may be
affected by changes in law and future actions taken by such governments, including granting or withdrawal of government approvals and
restrictions on competitive practices. We are subject to numerous foreign regulations based on the large number of countries outside the United
States where we currently provide service. If we are not able to comply with this complex regulatory regime, our business could be significantly
harmed. Please see “Business—Government Regulation.”
We may not be able to implement our growth strategy.
Our growth strategy includes acquiring additional aircraft, increasing the frequency of flights and size of aircraft used in markets we
currently serve and expanding the number of markets we serve where our low-cost structure would likely be successful. Effectively
implementing our growth strategy is critical for our business to achieve economies of scale and to sustain or increase our profitability. We face
numerous challenges in implementing our growth strategy, including our ability to:
25