Southwest Airlines 2010 Annual Report Download - page 27

Download and view the complete annual report

Please find page 27 of the 2010 Southwest Airlines annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 120

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120

The airline industry has faced on-going security concerns and related cost burdens; further threatened or
actual terrorist attacks, or other hostilities, could significantly harm the airline industry and the Company’s
operations.
Terrorist attacks and threatened attacks have from time to time materially impacted the demand for air travel
and have also resulted in increased safety and security costs for the Company and the airline industry generally.
Safety measures create delays and inconveniences and can, in particular, reduce the Company’s competitiveness
against surface transportation for short-haul routes. 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) would likely have a further significant
negative impact on the Company and the airline industry.
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 governments.
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 airspace in a safe, efficient, and affordable manner. As
discussed above under “Business — Regulation,” airlines are also subject to other extensive regulatory
requirements. 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 operations, including, but not limited to:
• Increases in airport rates and charges;
• Limitations on airport gate capacity or other use of airport facilities;
• Actions and decisions that create difficulties in obtaining access at slot-controlled airports;
• Changes to environmental regulations;
• Increases in taxes;
• Changes to laws that affect the services that can be offered by airlines in particular markets and at
particular airports;
• Restrictions on competitive practices;
• Changes in laws that increase costs for safety, security, or other Customer Service standards; and
• The adoption of more restrictive locally-imposed noise regulations.
Because expenses of a flight do not vary significantly with the number of passengers carried, a relatively
small change in the number of passengers can have a disproportionate effect on an airline’s operating and
financial results. Therefore, any general reduction in airline passenger traffic as a result of any of the factors
listed above could adversely affect the Company’s results of operations. In addition, when the airline industry
shrinks, airport operating costs are essentially unchanged and must be shared by the remaining operating carriers,
which can therefore increase the Company’s costs.
The airline industry is affected by many conditions that are beyond its control, which can impact the
Company’s business strategies.
In addition to the unpredictable economic conditions and fuel costs discussed above, the Company, like the
airline industry in general, is impacted by conditions that are largely unforeseeable and outside of its control,
including, among others:
• Adverse weather and natural disasters;
21