Southwest Airlines 2013 Annual Report Download - page 39

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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 operating that airspace in a safe and efficient manner. The air traffic control
system, which is operated by the FAA, could continue to face airspace and/or airport congestion challenges in the
future, which could limit the Company’s opportunities for growth. 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 initiatives and results of operations could be negatively
affected by changes in law and future actions taken by domestic and foreign governmental agencies having
jurisdiction over its operations, including, but not limited to:
• increases in airport rates and charges;
• limitations on airport gate capacity or use of other airport facilities;
• limitations on route authorities;
• actions and decisions that create difficulties in obtaining access at slot-controlled airports;
• actions and decisions that create difficulties in obtaining operating permits and approvals;
• changes to environmental regulations;
• new or increased 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, compliance, or other Customer Service
standards, such as the new FAA regulations with respect to Pilot flight/duty time limitations and rest
requirements discussed above under “Business -Regulation”;
• changes in laws that may limit the Company’s ability to enter into fuel derivative contracts to hedge
against increases in fuel prices;
• changes in laws that may limit or regulate the Company’s ability to promote the Company’s business
or fares, such as the DOT’s full-fare advertising rule discussed above under “Business -Regulation”;
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, in instances where the
airline industry shrinks, many airport operating costs are essentially unchanged and must be shared by the
remaining operating carriers, which can therefore increase the Company’s costs.
31