Southwest Airlines 2007 Annual Report Download - page 31

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• The adoption of regulations that impact customer
service standards, such as security standards; and
• The adoption of more restrictive locally-imposed
noise regulations.
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. Southwest’s revenues are sensi-
tive 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, ability to access capital or financing at
competitive rates in financial markets, and future financ-
ing decisions made by the Company. In addition, a key
contributor to the Company’s low cost structure is its use
of a single aircraft type, the Boeing 737. Although the
Company is able to purchase some of these aircraft from
parties other than Boeing, most of its purchases are direct
from Boeing. Therefore, if the Company were unable to
acquire additional aircraft from Boeing, or Boeing were
unable or unwilling to provide adequate support for its
products, the Company’s operations could be adversely
impacted. In addition, the Company’s dependence on a
single aircraft type could result in downtime for part or all
of the Company’s fleet if mechanical or regulatory issues
relating to the Boeing 737 aircraft type arise. However,
given the Company’s years of experience with the Boeing
737 aircraft type and its longterm relationship with
Boeing, the Company believes the advantages of operat-
ing a single fleet type outweigh the risks of its single
aircraft strategy.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Aircraft
Southwest operated a total of 520 Boeing 737 air-
craft as of December 31, 2007, of which 86 and 9 were
under operating and capital leases, respectively. The
remaining 425 aircraft were owned.
The following table details information on the 520 aircraft in the Company’s fleet as of December 31, 2007:
737 Type Seats
Average Age
(Yrs)
Number of
Aircraft
Number
Owned
Number
Leased
-300 ................................. 137 16.7 194 112 82
-500 ................................. 122 16.7 25 16 9
-700 ................................. 137 4.2 301 297 4
Totals ................................ 9.4 520 425 95
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