Spirit Airlines 2011 Annual Report Download - page 34

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 and our not having similar violations in the year after the date of the consent order. Our reputation and business
could be materially adversely affected if we fail to meet customers’ expectations with respect to customer service or if we are perceived by our
customers to provide poor customer service.
We depend on a limited number of suppliers for our aircraft and engines.
One of the elements of our business strategy is to save costs by operating a single-family aircraft fleet - currently Airbus A320-family,
single-aisle aircraft, powered by engines manufactured by IAE. We currently intend to continue to rely exclusively on these aircraft and engine
manufacturers for the foreseeable future. If Airbus or IAE (or any other engine manufacturer for future deliveries) becomes unable to perform its
contractual obligations, or if we are unable to acquire or lease aircraft or engines from other owners, operators or lessors on acceptable terms, we
would have to find other suppliers for a similar type of aircraft or engine. If we have to lease or purchase aircraft from another supplier, we
would lose the significant benefits we derive from our current single fleet composition. We may also incur substantial transition costs, including
costs associated with retraining our employees, replacing our manuals and adapting our facilities and maintenance programs. Our operations
could also be harmed by the failure or inability of aircraft, engine and parts suppliers to provide sufficient spare parts or related support services
on a timely basis. Our business would be significantly harmed if a design defect or mechanical problem with any of the types of aircraft or
components that we operate were discovered that would ground any of our aircraft while the defect or problem was corrected, assuming it could
be corrected at all. The use of our aircraft could be suspended or restricted by regulatory authorities in the event of any actual or perceived
mechanical or design problems. Our business would also be significantly harmed if the public began to avoid flying with us due to an adverse
perception of the types of aircraft that we operate stemming from safety concerns or other problems, whether real or perceived, or in the event of
an accident involving those types of aircraft or components. Carriers that operate a more diversified fleet are better positioned than we are to
manage such events.
Reduction in demand for air transportation, or governmental reduction or limitation of operating capacity, in the South Florida,
Caribbean, Latin American or Northeast U.S. markets could harm our business, results of operations and financial condition.
A significant portion of our operations are conducted to and from the South Florida, Caribbean, Latin American or Northeast U.S. markets.
Our business, results of operations and financial condition could be harmed if we lost our authority to fly to these markets, by any circumstances
causing a reduction in demand for air transportation, or by governmental reduction or limitation of operating capacity, in these markets, such as
adverse changes in local economic or political conditions, negative public perception of these destinations, unfavorable weather conditions, or
terrorist related activities. Furthermore, our business could be harmed if jurisdictions that currently limit competition allow additional airlines to
compete on routes we serve. Many of the countries we serve are experiencing either economic slowdowns or recessions, which may translate
into a weakening of demand and could harm our business, results of operations and financial condition.
Increases in insurance costs or significant reductions in coverage could have a material adverse effect on our business, financial
condition and results of operations.
We carry insurance for public liability, passenger liability, property damage and all-risk coverage for damage to our aircraft. As a result of
the September 11, 2001 terrorist attacks, aviation insurers significantly reduced the amount of insurance coverage available to commercial air
carriers for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events (war risk
insurance). Accordingly, our insurance costs increased significantly and our ability to continue to obtain certain types of insurance remains
uncertain. While the price of commercial insurance has declined since the period immediately after the terrorist attacks, in the event commercial
insurance carriers further reduce the amount of insurance coverage available to us, or significantly increase its cost, we would be adversely
affected. We currently maintain commercial airline insurance with several underwriters. However, there can be no assurance that the amount of
such coverage will not be changed, or that we will not bear substantial losses from accidents. We could incur substantial claims resulting from an
accident in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition.
We have obtained third-
party war risk insurance, which insures against some risks of terrorism, through a special program administered by
the FAA, resulting in lower premiums than if we had obtained this insurance in the commercial insurance market. If the special program
administered by the FAA is not continued, or if the government discontinues this coverage for any reason, obtaining comparable coverage from
commercial underwriters could result in substantially higher premiums and more restrictive terms, if it is available at all. Our business, results of
operations and financial condition could be materially adversely affected if we are unable to obtain adequate war risk insurance. The FAA war
risk hull and liability
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