Southwest Airlines 2007 Annual Report Download - page 30

Passes system, and its self service kiosks. The Company
has become increasingly dependent on its systems and
technology to maintain and support the growth of its
business. Therefore, the Company’s ability to expand and
update its information technology infrastructure in
response to its growth and changing needs is increasingly
important to the operation of its business generally and
the implementation of its new initiatives. Any issues with
transitioning to upgraded or replacement systems, or any
material failure, inadequacy, interruption, or security
failure of these systems, could harm the Company’s
ability to effectively operate its business. In addition,
the Company’s growth strategies are dependent on its
ability to effectively implement technology
advancements.
The Company’s inability to successfully implement its
revenue initiatives could adversely affect its results
of operations.
As discussed above, the Company has implemented
and intends to continue to implement revenue initiatives
that are designed to help offset increasing costs. The
implementation of the Company’s initiatives has and will
involve significant investments by the Company of time
and money and could be impacted by (i) the Company’s
ability to timely implement and maintain the necessary
information technology systems and infrastructure (as
discussed above), and (ii) the extent and timing of the
Company’s investment of incremental operating expenses
and capital expenditures to develop and implement its
initiatives and the Company’s corresponding ability to
effectively control operating expenses. Because the Com-
pany has limited experience with some of its strategic
initiatives, it cannot ensure that they will be successful or
profitable either over the short or long term. The Com-
pany’s ability to effectively and timely prioritize and
implement its initiatives will also affect when and if they
will have a positive impact on the Company’s
profitability.
The travel industry continues to face on-going
security concerns and cost burdens; further
threatened or actual terrorist attacks, or other hos-
tilities, could significantly harm the Company’s
industry and its 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.
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. The Company’s results of operations may be
affected by changes in law and future actions taken by
governmental agencies having jurisdiction over its oper-
ations, including, but not limited to:
• 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;
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