Southwest Airlines 2014 Annual Report Download - page 40

Instability of credit, capital, and energy markets can result in pressure on the Company’s credit
ratings and can also negatively affect the Company’s ability to obtain financing on acceptable
terms and the Company’s liquidity generally.
During the recession in 2009, the Company’s credit ratings were pressured by weak industry
revenue and an extraordinarily volatile fuel price environment. While the Company’s credit rating is
“investment grade,” factors such as future unfavorable economic conditions, a significant decline in
demand for air travel, or instability of the credit and capital markets could result in future pressure on
credit ratings, which could negatively affect (i) the Company’s ability to obtain financing on
acceptable terms, (ii) the Company’s liquidity generally, and (iii) the availability and cost of insurance.
A credit rating downgrade could subject the Company to credit rating triggers related to its credit card
transaction processing agreements, the pricing related to any funds drawn under its revolving credit
facility, and some of its hedging counterparty agreements. The potential effect of credit rating
downgrades is discussed in more detail below under “Quantitative and Qualitative Disclosures About
Market Risk.”
The airline industry has faced on-going security concerns and related cost burdens; further
threatened or actual terrorist attacks, or other hostilities, could significantly harm the airline
industry and the Company’s operations.
Terrorist attacks and threatened attacks have from time to time materially adversely affected
the demand for air travel and also have resulted in increased safety and security costs for the Company
and the airline industry generally. Safety measures create delays and inconveniences and can, in
particular, reduce the Company’s competitiveness against surface transportation for short-haul routes.
Additional terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks
or other hostilities (including elevated national threat warnings or selective cancellation or redirection
of flights due to terror threats) would likely have a further significant negative impact on the Company
and the airline industry.
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;
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