Southwest Airlines 2005 Annual Report Download - page 26

Southwest relies on technology to operate its business insurance premiums and a decrease in the insurance
and any failure of these systems could harm the coverage available to commercial airline carriers. Ac-
Company's business. cordingly, the Company's insurance costs increased
significantly. The federal Homeland Security Act of
Southwest is increasingly dependent on automated 2002 requires the federal government to provide third
systems and technology to operate its business, enhance party, passenger, and hull war-risk insurance coverage to
Customer service, and increase Employee productivity, commercial carriers through a period of time that has
including the Company's computerized airline reserva- now been extended to December 31, 2006. If the
tion system, flight operations systems, telecommunica- federal insurance program terminates, the Company
tion systems, website, Automated Boarding Passes would likely face a material increase in the cost of war
system, and the RAPID CHECK-IN self service kiosks. risk insurance.
Any disruptions in these systems due to internal failures
of technology or large-scale external interruptions in
Changes in or additional government regulation
technology infrastructure, such as power, telecommuni-
could increase the Company's operating costs or
cations, or the internet, could result in the loss of
limit the Company's ability to conduct business.
revenue or important data, increase the Company's
expenses, and generally harm the Company's business.
Airlines are subject to extensive regulatory require-
ments. These requirements often impose substantial
The travel industry continues to face on-going costs on airlines. Additional laws, regulations, taxes, and
security concerns and cost burdens. airport rates and charges have been proposed from time
to time that could significantly increase the Company's
The attacks of September 11, 2001 materially costs or reduce revenues.
impacted, and continue to impact, air travel and the
results of operations for Southwest and the airline
industry generally. Substantially all security screeners at The airline industry is intensely competitive.
airports are now federal employees and significant other
elements of airline and airport security are now overseen The airline industry is extremely competitive.
and performed by federal employees, including federal Southwest's competitors include other major domestic
security managers, federal law enforcement officers, and airlines as well as regional and new entrant airlines, and
federal air marshals. Enhanced security procedures, in- other forms of transportation, including rail and private
cluding enhanced security screening of passengers, bag- automobiles. The Company's revenues are sensitive to
gage, cargo, mail, employees and vendors, introduced at the actions of other carriers in the areas of capacity,
airports since the terrorist attacks of September 11 have pricing, scheduling, codesharing, and promotions. Ad-
increased costs to airlines. ditional mergers and acquisitions in the airline industry,
and airline restructuring through bankruptcy may make
Additional terrorist attacks, even if not made di- other carriers more competitive with the Company.
rectly on the airline industry, or the fear of such attacks
(including elevated national threat warnings or selective
cancellation or redirection of flights due to terror Disruptions to operations due to factors beyond
threats) could negatively affect Southwest and the air- Southwest's control could adversely affect the
line industry. The war in Iraq further decreased demand Company.
for air travel during the first half of 2003, and additional
international hostilities could potentially have a material Like all other airlines, Southwest is subject to
adverse impact on the Company's results of operations. delays caused by factors beyond its control, including
adverse weather conditions, air traffic congestion at
airports, and increased security measures. Delays frus-
Insurance cost increases or reductions in insurance
trate passengers, reduce aircraft utilization, and increase
coverage may adversely impact the Company's
costs, all of which negatively affect profitability. During
operations and financial results.
snow, rain, fog, storms, or other adverse weather condi-
The Company carries insurance for public liability, tions, flights may be cancelled or significantly delayed.
passenger liability, property damage, and all-risk cover- Catastrophic weather conditions such as hurricanes may
age for damage to its aircraft. The terrorist attacks of disrupt operations, and revenues, for a substantial period
September 11, 2001 led to a significant increase in of time.
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