Southwest Airlines 2015 Annual Report Download - page 97

exceeds a specified threshold amount or credit ratings fall below certain levels. Collateral deposits
provided to or held from counterparties serve to decrease, but not totally eliminate, the credit risk
associated with the Company’s hedging program. See Note 10 for further information.
As of December 31, 2015, the Company operated an all-Boeing fleet, all of which are variations of the
Boeing 737. Following the 2011 acquisition of AirTran, the Company also operated a fleet of Boeing
717’s, but these aircraft were removed from the Company’s operations prior to the end of 2014. See
Note 7 for further information. If the Company were unable to acquire additional aircraft or associated
aircraft parts from Boeing, or Boeing were unable or unwilling to make timely deliveries of aircraft or
to provide adequate support for its products, the Company’s operations would be materially adversely
impacted. In addition, the Company would be materially adversely impacted in the event of a
mechanical or regulatory issue associated with the Boeing 737 aircraft type, whether as a result of
downtime for part or all of the Company’s fleet, increased maintenance costs, or because of a negative
perception by the flying public. The Company is also dependent on sole suppliers for aircraft engines
and certain other aircraft parts and would, therefore, also be materially adversely impacted in the event
of the unavailability of, or a mechanical or regulatory issue associated with, engines and other parts.
The Company has historically entered into agreements with some of its co-brand, payment, and loyalty
partners that contain exclusivity aspects which place certain confidential restrictions on the Company
from entering into certain arrangements with other payment and loyalty partners. These arrangements
generally extend for the terms of the partnerships, none of which currently extend beyond May 2022.
The Company believes the financial benefits generated by the exclusivity aspects of these
arrangements outweigh the risks involved with such agreements.
2. NEW ACCOUNTING PRONOUNCEMENTS AND ACCOUNTING CHANGES
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers.
Following the FASB’s finalization of a one year deferral of this standard, the ASU is now effective for
fiscal years, and interim periods within those years, beginning on or after December 15, 2017, with
early adoption permitted for fiscal years, and interim periods within those years, beginning on or after
December 15, 2016. The Company currently believes the most significant impact of this ASU on its
accounting will be the elimination of the incremental cost method for frequent flyer accounting, which
will require the Company to re-value its liability earned by Customers associated with flight points
with a relative fair value approach, resulting in a significant increase in the liability. The Company is
continuing to evaluate the new guidance and plans to provide additional information about its expected
financial impact, including the expected method and period of adoption, at a future date.
On February 18, 2015, the FASB and the International Accounting Standards Board issued a final
standard that amends the current consolidation guidance. The standard amends both the variable
interest entity and voting interest entity consolidation models. The standard is effective for public
reporting entities in fiscal periods beginning after December 15, 2015, and early adoption is permitted.
Once adopted, the Company will need to assess the potential for entity consolidation under a new
consolidation model; however, the Company does not believe this will result in changes to its previous
consolidation conclusions. The Company will adopt this new standard during first quarter 2016.
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