Southwest Airlines 2011 Annual Report Download - page 25

as a whole. In addition, the increased availability of fare information on the Internet allows travelers to easily
compare fares and identify competitor promotions and discounts. The Company believes its low-cost operating
structure provides it with an advantage over its airline competitors by enabling Southwest and AirTran to
continue to charge competitive fares. In addition, unlike all of its major competitors, Southwest does not charge
additional fees for items such as first and second checked bags, flight changes, seat selection, fuel surcharges,
snacks, curb-side checkin, and telephone reservations.
Routes, Schedules, and Frequent Flyer Programs
The Company also competes based on markets served, flight schedules, and frequent flyer opportunities.
Some major airlines have more extensive route structures than Southwest and AirTran, including significantly
more extensive international routes. In addition, many competitors have entered into significant commercial
relationships with other airlines, such as global alliances, codesharing, and capacity purchase agreements, which
increase the airlines’ opportunities to expand the routes they can offer. For example, an alliance or codesharing
agreement enables an airline to offer flights that are operated by another airline and also allows the airline’s
customers to book travel that includes segments on different airlines through just one airline. As a result,
depending on the nature of the specific alliance or codesharing arrangement, a participating airline may be able to
(i) offer its customers access to more destinations than it would be able to serve on its own, (ii) gain exposure in
markets it does not otherwise serve, or (iii) increase the perceived frequency of its flights on certain routes.
Alliance and codesharing arrangements not only provide additional route flexibility for participating airlines,
they can also allow these airlines to offer their customers more opportunities to earn and redeem frequent flyer
miles. A capacity purchase agreement enables an airline to expand its route structure by paying another airline
(e.g., a regional airline with smaller aircraft) to operate flights on its behalf in markets that it does not, or cannot,
serve itself. The Company continues to evaluate and implement projects to better enable Southwest and AirTran
to enter into relationships that offer additional international itineraries. Currently, Southwest Customers may
book international flights by connecting with Volaris, Mexico’s second largest airline. In addition, the
Company’s acquisition of AirTran enables the Company to expand its presence in key markets Southwest already
serves, extend service to many smaller domestic cities Southwest did not previously serve, and provide access to
key near-international markets in the Caribbean and Mexico.
Customer Service, Comfort, and Amenities
Southwest and AirTran also compete with other airlines in areas of Customer Service such as ontime
performance, passenger amenities, equipment type, and comfort. According to statistics published by the DOT,
Southwest consistently ranks at or near the top for Customer Satisfaction for having the lowest Customer
complaint ratio. Some airlines, including AirTran, have more seating options and associated passenger amenities
than does Southwest, including first-class, business class, and other premium seating and the amenities
associated therewith. Additionally, some major U.S. airlines have announced plans to add a significant number of
new aircraft to their fleets. Such efforts could provide cost benefits to these airlines through fleet simplification,
better fuel efficiencies, and lower maintenance costs. Additionally, such new aircraft could have newer and
different passenger amenities than those contained in the Company’s existing fleet. The Company is addressing
this competitive factor with its fleet modernization plans, which are discussed above under “Operating Strategies
and Initiatives – Introduction of the Boeing 737-800 and Other Fleet Renewal and Modernization Strategies.”
Other Forms of Competition
The airline industry is subject to varying degrees of competition from surface transportation by
automobiles, buses, and trains. Inconveniences and delays associated with air travel security measures can
increase surface competition. In addition, surface competition can be significant during economic downturns
when consumers cut back on discretionary spending. Because of the relatively high percentage of shorthaul travel
provided by Southwest, it is particularly exposed to competition from such surface transportation in these
instances. The airline industry is also subject to competition from alternatives to travel such as videoconferencing
and the Internet, which can increase in the event of travel inconveniences and economic downturns. The
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