Southwest Airlines 2011 Annual Report Download - page 23

Enhanced security measures have also impacted the Company’s business through the imposition of
security fees on Southwest and AirTran and their Customers. Under ATSA, funding for passenger security is
provided in part by a $2.50 per enplanement security fee (the “9/11 Fee”), subject to a maximum of $5.00 per
one-way trip. In September 2011, the White House proposed to Congress an immediate increase of the 9/11 Fee
to a minimum of $5.00 per one-way trip and also proposed additional yearly increases that would raise the 9/11
Fee to $7.50 per one-way trip by 2017. Congress may consider an increase in the 9/11 Fee, as well as other
changes to ATSA, as part of future security-related legislation. ATSA also allows the TSA to assess an Aviation
Security Infrastructure Fee (“ASIF”) on each airline. Southwest’s ASIF liability was originally set at $26 million
per year. Effective for calendar year 2005, the TSA unilaterally increased the amount by an additional
$24 million to a total of $50 million annually. The Company and many other airlines joined in litigation against
the TSA to challenge the agency’s increase to their respective ASIF fees. In February 2009, the U.S. Court of
Appeals for the District of Columbia Circuit ruled that the increased fees were excessive and remanded the
matter to the TSA to determine the amount of the excess. In June 2010, the TSA made a partial refund of $18
million to the Company for prior periods’ excess fees and reduced Southwest’s ASIF fees going forward by $3.5
million annually. The Company and other airlines petitioned the Court of Appeals to invalidate the TSA’s action
and require it to make larger refunds and reductions. In 2011, the Court of Appeals denied the airlines’ petition to
overturn the TSA’s 2010 calculation of refunds and reductions; therefore, the Company will not receive any
further refunds.
The Company has made significant investments to address the effect of security regulations, including
investments in facilities, equipment, and technology to process Customers and cargo efficiently and restore the
airport experience; however, the Company is not able to predict the ongoing impact, if any, that various security
measures will have on Passenger revenues and the Company’s costs, either in the short-term or the long-term.
Environmental Regulation
The Company is subject to various federal laws and regulations relating to the protection of the
environment, including the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act,
the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act,
as well as state and local laws and regulations. These laws and regulations govern aircraft drinking water and the
discharge or disposal of materials such as chemicals, hazardous waste, and aircraft deicing fluid. Additionally, in
conjunction with airport authorities, other airlines, and state and local environmental regulatory agencies, the
Company, as a normal course of business, undertakes voluntary investigation or remediation of soil or
groundwater contamination at several airport sites. The Company does not believe that any environmental
liability associated with these airport sites will have a material adverse effect on the Company’s operations, costs,
or profitability, nor has it experienced any such liability in the past that has had a material adverse effect on its
operations, costs, or profitability. Further regulatory developments pertaining to the control of engine exhaust
emissions from ground support equipment could increase operating costs in the airline industry. The Company
does not believe, however, that pending environmental regulatory developments in this area will have a material
effect on the Company’s capital expenditures or otherwise materially adversely affect its operations, operating
costs, or competitive position.
The federal government, as well as several state and local governments, are considering legislative and
regulatory proposals to address climate change by reducing green house gas emissions. At the federal level, the
Environmental Protection Agency’s Endangerment Finding in January 2010 regarding greenhouse gas emissions
set the stage for possible legislative or regulatory action to reduce greenhouse gas emissions from various
segments of the economy, including from aviation. The airline industry could be affected directly through new
unfunded mandates or indirectly through higher fuel costs as fuel providers pass on any additional costs to fuel
consumers. Regardless of the method of regulation, policy changes with regards to climate change are possible,
which could significantly increase operating costs in the airline industry and, as a result, adversely affect
operations.
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