Southwest Airlines 2006 Annual Report Download - page 28

system, and the E-Ticket Check-In self service kiosks.
Any disruptions in these systems due to internal failures
of technology or large-scale external interruptions in
technology infrastructure, such as power, telecommuni-
cations, or the internet, could result in the loss of revenue
or important data, increase the Company’s expenses, and
generally harm the Company’s business. In addition, our
growth strategies may be dependent on our ability to
effectively implement technology advancements.
The travel industry continues to face on-going
security concerns and cost burdens; further
threatened or actual terrorist attacks, or other
hostilities, could significantly harm our industry
and our business.
The attacks of September 11, 2001, materially
impacted, and continue to impact, air travel and the
results of operations for Southwest and the airline indus-
try generally. The Department of Homeland Security and
the TSA have implemented numerous security measures
that affect airline operations and costs. Substantially all
security screeners at airports are now federal employees,
and significant other elements of airline and airport
security are now overseen and performed by federal
employees, including federal security managers, federal
law enforcement officers, and federal air marshals.
Enhanced security procedures, including enhanced secu-
rity screening of passengers, baggage, cargo, mail,
employees, and vendors, introduced at airports since
the terrorist attacks of September 11 have increased costs
to airlines and have from time to time impacted demand
for air travel.
Additional terrorist attacks, even if not made
directly on the airline industry, or the fear of such attacks
or other hostilities (including elevated national threat
warnings or selective cancellation or redirection of flights
due to terror threats) could have a further significant
negative impact on Southwest and the airline industry.
The war in Iraq further decreased demand for air travel
during the first half of 2003, and additional international
hostilities could potentially have a material adverse
impact on the Company’s results of operations.
Airport capacity constraints and air traffic control
inefficiencies could limit the Company’s growth;
changes in or additional governmental regulation
could increase the Company’s operating costs or
otherwise limit the Company’s ability to conduct
business.
Almost all commercial service airports are owned
and/or operated by units of local or state government.
Airlines are largely dependent on these governmental
entities to provide adequate airport facilities and capacity
at an affordable cost. Similarly, the federal government
singularly controls all U.S. airspace, and airlines are
completely dependent on the FAA to operate that air-
space in a safe, efficient, and affordable manner. As
discussed above, under “Business — Regulation,” airlines
are also subject to other extensive regulatory require-
ments. These requirements often impose substantial costs
on airlines. Our results of operations may be affected by
changes in law and future actions taken by governmental
agencies having jurisdiction over our operations,
including:
• Increases in airport rates and charges;
• Limitations on airport gate capacity or other use
of airport facilities;
• Increases in taxes;
• Changes in the law that affect the services that
can be offered by airlines in particular markets
and at particular airports;
• Restrictions on competitive practices;
• The adoption of regulations that impact customer
service standards, such as security standards; and
• The adoption of more restrictive locally-imposed
noise restrictions.
The airline industry is intensely competitive.
As discussed in more detail above under “Busi-
ness — Competition,” the airline industry is extremely
competitive. Southwest’s competitors include other major
domestic airlines, as well as regional and new entrant
airlines, and other forms of transportation, including rail
and private automobiles. The Company’s revenues are
sensitive to the actions of other carriers in the areas of
capacity, pricing, scheduling, codesharing, and
promotions.
Southwest’s low cost structure is one of its primary
competitive advantages, and many factors could
affect the Company’s ability to control its costs.
Factors affecting the Company’s ability to control
its costs include the price and availability of fuel, results of
Employee labor contract negotiations, Employee hiring
and retention rates, costs for health care, capacity deci-
sions by the Company and its competitors, unscheduled
required aircraft airframe or engine repairs, regulatory
requirements, availability of capital markets, and future
financing decisions made by the Company.
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