Southwest Airlines 2013 Annual Report Download - page 24

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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. In 2012, Congress adopted the FAA
Modernization and Reform Act of 2012, which 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. However, in an effort to reduce the federal
deficit and generate more government revenue, Congress approved legislation in December 2013 that will
generate more net federal revenue by (i) increasing the Transportation Security Fee paid by passengers from
$2.50 per passenger segment to $5.60 per one-way passenger trip, effective July 2014; and (ii) eliminating a
duplicative security fee paid by airlines directly, called the Aviation Security Infrastructure Fee, effective
October 2014. In 2014, Congress may consider comprehensive tax reform legislation, which could result in a
lower corporate tax rate and the elimination of certain tax deductions and preferences, as well as separate
legislation that could increase one or more of the passenger-paid fees used to support the operations of U.S.
Customs and Border Protection (“CBP”). 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.
The Wright Amendment
Section 29 of the International Air Transportation Competition Act of 1979, as amended (commonly
known as the “Wright Amendment”), prohibited the carriage of non-stop and through passengers on commercial
flights between Dallas Love Field and all states outside of Texas, with the exception of the following states (the
“Wright Amendment States”): Alabama, Arkansas, Kansas, Louisiana, Mississippi, Missouri, New Mexico, and
Oklahoma. Originally, the Wright Amendment permitted an airline to offer flights between Dallas Love Field
and the Wright Amendment States only to the extent the airline did not offer or provide any through service or
ticketing with another air carrier at Dallas Love Field and did not market service to or from Dallas Love Field
and any point outside of a Wright Amendment State. In other words, a Customer could not purchase a single
ticket between Dallas Love Field and any destination other than a Wright Amendment State. These restrictions
did not apply to flights operated with aircraft having 56 or fewer passenger seats. The Wright Amendment also
did not restrict Southwest’s intrastate Texas flights or its air service to or from points other than Dallas Love
Field.
In 2006, the Company entered into an agreement with the City of Dallas, the City of Fort Worth, American
Airlines, Inc., and the DFW International Airport Board, pursuant to which the five parties sought enactment of
legislation to amend the Wright Amendment. Congress responded by passing the Wright Amendment Reform
Act of 2006, which immediately repealed the original through service and ticketing restrictions by allowing the
purchase of a single ticket between Dallas Love Field and any destination (while still requiring the Customer to
make a stop in a Wright Amendment State), and reduced the maximum number of gates available for commercial
air service at Dallas Love Field from 32 to 20. Pursuant to the Wright Amendment Reform Act and local
agreements with the City of Dallas with respect to gates, the Company can expand scheduled service from Dallas
Love Field. The Wright Amendment Reform Act also provides for substantial repeal of the remainder of the
Wright Amendment in October 2014. At such time Southwest will be able to fly to any U.S. destination from
Dallas Love Field unless such destination is restricted or otherwise limited by law. Nonstop international service
from Dallas Love Field will continue to be prohibited. The Company currently leases 16 gates at Dallas Love
Field and expects to lease at least 16 gates at the airport following substantial repeal of the remainder of the
Wright Amendment in October 2014.
Operational, Safety, and Health Regulation
The FAA has the authority to regulate safety aspects of civil aviation operations. Specifically, Southwest,
AirTran, and their third-party service providers are subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, ground facilities, dispatch, communications, flight training
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