Spirit Airlines 2012 Annual Report Download - page 20

We are subject to extensive and increasing regulation by the Federal Aviation Administration, the Department of Transportation, and other U.S. and foreign
governmental agencies, compliance with which could cause us to incur increased costs and adversely affect our business and financial results.
Airlines are subject to extensive and increasing regulatory and legal compliance requirements, both domestically and internationally, that involve significant costs. In
the last several years, Congress has passed laws, and the DOT, FAA and TSA have issued regulations, relating to the operation of airlines that have required significant
expenditures. We expect to continue to incur expenses in connection with complying with government regulations. Additional laws, regulations, taxes and increased airport
rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce the demand for air travel. If adopted, these
measures could have the effect of raising ticket prices, reducing revenue and 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, which became
effective in August 2011 and January 2012, 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 service charges for changes and cancellations. 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. 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.
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.”
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