Southwest Airlines 2012 Annual Report Download - page 24

(iv) provide information to passengers on how to file complaints; and (v) respond in a timely and substantive
fashion to consumer complaints. Airlines that violate the Passenger Protection Rule are subject to potential fines
of up to $27,500 per passenger, the maximum allowed for violating any aviation consumer rule. The DOT has
expressed its intent to aggressively investigate alleged violations of the Passenger Protection Rule.
In August 2011, the DOT implemented new rules expanding the Passenger Protection Rule by, among
other things, (i) increasing the maximum denied boarding compensation airlines must pay to passengers bumped
from flights from $800 to $1,300; (ii) requiring airlines to refund any checked bag fee for permanently lost
luggage; (iii) requiring airlines to prominently disclose all potential fees for optional services on their websites;
and (iv) requiring airlines to refund passenger fees paid for ancillary services if a flight cancels or oversells and a
passenger is unable to take advantage of such services.
Effective January 26, 2012, the DOT further expanded the Passenger Protection Rule by implementing a new
airfare advertising rule (the “full-fare advertising rule”) that requires all advertised airfares to include government-
mandated taxes and fees, including fuel charges and security fees. Other new and expanded components of the
Passenger Protection Rule require, among other things, that: (i) passengers be allowed to hold a reservation for up to
24 hours without making a payment; (ii) passengers be allowed to cancel a paid reservation without penalty for
24 hours after the reservation is made, as long as the reservation is made at least seven days in advance of travel;
(iii) fares may not increase after purchase; (iv) baggage fees must be disclosed to the passenger at the time of
booking; (v) the same baggage allowances and fees must apply throughout a passenger’s trip; (vi) baggage fees
must be disclosed on e-ticket confirmations; and (vii) passengers must be promptly notified in the event of delays of
more than 30 minutes or if there is a cancellation or diversion of their flight.
The DOT has announced its intention to further expand the Passenger Protection Rule, with particular focus
on the public disclosure of airline-imposed ancillary fees for the sale of optional products and services. The DOT is
reportedly considering, among other things, whether to require airlines to disclose and make such optional products
and services available for purchase through all sales channels, including “global distributions systems,” that an
airline uses to sell its flights rather than only through proprietary airline websites. The DOT’s proposed expansion
of the Passenger Protection Rule is expected to be released in the first half of 2013. The Company is not able to
predict the impact of such a requirement on its services, although the Company is likely to be affected to a lesser
degree than most other airlines, which generally offer more ancillary products and services.
In July 2011, the DOT proposed new rules that would require airlines to report more information to the
DOT on the amount and types of ancillary fees collected from passengers, as well as the number of checked bags
and mishandled wheelchairs. The proposal would revise current reporting requirements to increase data
collection on the amount airlines receive from different, specific types of fees. The proposed rule would require
airlines to report 18 categories of fee revenue. The DOT has not taken final action in this proceeding.
Aviation Taxes
The statutory authority for the federal government to collect most types of aviation taxes, which are used,
in part, to finance the nation’s airport and air traffic control systems, and the authority of the FAA to expend
those funds must be periodically reauthorized by the U.S. Congress. On February 6, 2012, Congress passed the
FAA Modernization and Reform Act of 2012, which the President signed into law on February 14, 2012. This
legislation extends most commercial aviation taxes through September 30, 2015. In addition to FAA-related
taxes, there are additional federal taxes related to the Department of Homeland Security. These taxes do not need
to be reauthorized periodically. In an effort to reduce the federal deficit and generate more government revenue,
Congress may consider increasing the tax burden on commercial aviation. Deficit reduction legislation and
comprehensive tax reform are expected to be considered in Congress during 2013. Such legislation could include
an increase in one or more of the taxes unique to commercial aviation. For instance, the Administration has
proposed increasing the $2.50 per enplanement security fee, which is assessed on passengers, as a way to help
pay for deficit reduction. Grants to airports and/or airport bond financing may also be affected through future
deficit reduction legislation, which could result in higher fees, rates, and charges at many of the airports the
Company serves.
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