Southwest Airlines 2014 Annual Report Download - page 42

The airline industry is intensely competitive.
As discussed in more detail above under “Business - Competition,” the airline industry is
intensely competitive. The Company’s primary competitors include other major domestic airlines, as
well as regional and new entrant airlines, surface transportation, and alternatives to transportation such
as videoconferencing and the Internet. The Company’s revenues are sensitive to the actions of other
carriers with respect to pricing, routes, frequent flyer programs, scheduling, capacity, Customer
Service, comfort and amenities, cost structure, aircraft fleet, and codesharing and similar activities.
The Company’s future results will suffer if it does not effectively manage its expanded
operations, including its international operations.
As the Company expands its international flight offerings, the U.S. Customs and Border
Protection (“CBP”) will become an increasingly important federal agency. CBP personnel and CBP-
mandated procedures can affect the Company’s operations, costs, and Customer experience. The
Company will make significant investments in facilities, equipment, and technologies at certain
airports in order to improve the Customer experience and to assist CBP with its inspection and
processing duties; however, the Company is not able to predict the impact, if any, that various CBP
measures or the lack of CBP resources will have on Company revenues and costs, either in the short-
term or the long-term.
International flying requires the Company to modify certain processes, as the airport
environment is dramatically different in certain international locations with respect to, among other
things, common-use ticket counters and gate areas, local operating requirements, and cultural
preferences. In addition, international flying exposes the Company to certain foreign currency risks to
the extent the Company chooses to, or is required to, transact in currencies other than the U.S. dollar.
To the extent the Company seeks to serve additional foreign destinations in the future, it will be
required to obtain necessary authority from the DOT and approvals from the FAA, as well as any
applicable foreign government or other authority.
The Company’s expansion of its operations into non-U.S. jurisdictions also expands the scope
of the laws to which the Company is subject, both domestically and internationally. In addition,
operations in non-U.S. jurisdictions are in many cases subject to the laws of those jurisdictions rather
than U.S. laws. Laws in some jurisdictions differ in significant respects from those in the United States,
and these differences can affect the Company’s ability to react to changes in its business, and its rights
or ability to enforce rights may be different than would be expected under U.S. law. Furthermore,
enforcement of laws in some jurisdictions can be inconsistent and unpredictable, which can affect both
the Company’s ability to enforce its rights and to undertake activities that it believes are beneficial to
its business. As a result, the Company’s ability to generate revenue and its expenses in non-U.S.
jurisdictions may differ from what would be expected if U.S. law governed these operations. Although
the Company has policies and procedures in place that are designed to promote compliance with the
laws of the jurisdictions in which it operates, a violation by the Company’s Employees, contractors, or
agents or other intermediaries, could nonetheless occur. Any violation (or alleged or perceived
violation), even if prohibited by the Company’s policies, could have an adverse effect on the
Company’s reputation and/or its results of operations.
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