Q(A): Why is it necessary for the risk factors to be included in…

QuestionAnswered step-by-stepQ(A): Why is it necessary for the risk factors to be included in…Q(A): Why is it necessary for the risk factors to be included in the Annual Reports? Q(B): State accurately and fully the one Risk Factor from the 17 listed down below that you think carries the greatest risk for the company and do explain why you think that your answer is very correct.     Risk Factors of the Southwest Airlines: 1.The Company is currently dependent on Boeing as the sole manufacturer of the Company’saircraft. Further prolonged grounding by the FAA of the Boeing 737 MAX aircraft couldmaterially and adversely affect the Company’s business plans, strategies, and results ofoperations.The Boeing 737 MAX aircraft are crucial to the Company’s growth plans and fleet modernizationinitiatives. On March 13, 2019, the FAA issued an emergency order for all U.S. airlines to ground theMAX aircraft, including the 34 MAX aircraft in the Company’s fleet. The MAX aircraft remainsgrounded and, based on continued uncertainty around the timing of the MAX return to service, theCompany has removed the MAX from its flight schedule through June 6, 2020, and will likely furtherextend MAX-related flight schedule adjustments. Further, MAX deliveries have remained suspendedfollowing the MAX groundings, and Boeing is not currently manufacturing new MAX aircraft. TheCompany does not know whether, on what conditions, or when the MAX groundings willend. Regulatory approval of MAX return to service is subject to Boeing’s ongoing work with the FAA,who will determine the timing of MAX return to service.The MAX groundings adversely affected operating results for the year ended December 31, 2019, andcould have a material, adverse effect on the Company’s operating results in future periods. A continuedprolonged extension or permanent grounding of the MAX aircraft would require additional flightschedule adjustments and result in further delays in aircraft deliveries, as well as lower operatingrevenues, operating income, and net income due to a variety of factors, including, among others,(i) lost revenue due to flight cancellations and disruptions as a result of a smaller operating aircraft24fleet, (ii) the lack of ability to make corresponding reductions in expenses because of the fixed natureof many expenses, and (iii) possible negative effects on Customer confidence and airline choice.Boeing no longer manufactures versions of the 737 other than the 737 MAX family of aircraft. If the737 MAX aircraft were to remain unavailable for the Company’s flight operations, the Company’sgrowth would be restricted unless and until it could procure and operate other types of aircraft fromBoeing or another manufacturer, seller, or lessor, and the Company’s operations would be materiallyadversely affected. In particular, if the Company’s growth were to be dependent upon the introductionof a new aircraft make and model to the Company’s fleet, the Company would need to, among otherthings, (i) develop and implement new maintenance, operating, and training programs, (ii) secureextensive regulatory approvals, and (iii) implement new technologies. The requirements associatedwith operating a new aircraft make and model could take an extended period of time to fulfill andwould likely impose substantial costs on the Company. A shift away from a single fleet type could alsoadd complexity to the Company’s operations, present operational and compliance risks, and materiallyincrease the Company’s costs. Any of these events would have a material, adverse effect on theCompany’s business, operating results, and financial condition. The Company could also be materiallyadversely affected if the pricing or operational attributes of its aircraft were to become lesscompetitive.Further, even upon a rescission of the FAA order to ground the MAX aircraft, the Company willcontinue to be reliant on Boeing to provide necessary resources and support to return the MAX toservice. Boeing has recommended that pilots receive special flight simulator training before operatingthe MAX aircraft, although the FAA is ultimately responsible for establishing the training requirementsfor operating the MAX. Special simulator training would further delay the MAX return to service. Inaddition, following the MAX return to service, the Company could face significant operationalchallenges in efficiently taking delivery of a large number of MAX aircraft from Boeing andreintroducing the MAX aircraft into the Company’s network in a controlled and steady manner.   2.The airline industry is particularly sensitive to changes in economic conditions; in the event ofunfavorable economic conditions or economic uncertainty, the Company’s results of operationscould be negatively affected, which could require the Company to adjust its business strategies.The airline industry, which is subject to relatively high fixed costs and highly variable andunpredictable demand, is particularly sensitive to changes in economic conditions. Historically,unfavorable U.S. economic conditions have driven changes in travel patterns and have resulted inreduced spending for both leisure and business travel. For some consumers, leisure travel is adiscretionary expense, and short-haul travelers, in particular, have the option to replace air travel withsurface travel. Businesses are able to forego air travel by using communication alternatives such asvideoconferencing and the Internet or may be more likely to purchase less expensive tickets to reducecosts, which can result in a decrease in average revenue per seat. Unfavorable economic conditions,when low fares are often used to stimulate traffic, have also historically hampered the ability of airlinesto raise fares to counteract any increases in fuel, labor, and other costs. Although the U.S. economy hasexperienced modest growth over the course of the past several years, any continuing or future U.S. orglobal economic uncertainty could negatively affect the Company’s results of operations and couldcause the Company to adjust its business strategies. Further, because expenses of a flight do not varysignificantly with the number of passengers carried, a relatively small change in the number ofpassengers can have a disproportionate effect on an airline’s operating and financial results. Therefore,any general reduction in airline passenger traffic could adversely affect the Company’s results ofoperations.25 3.The Company’s business can be significantly impacted by high and/or volatile fuel prices, andthe Company’s operations are subject to disruption in the event of any delayed supply of fuel;therefore, the Company’s strategic plans and future profitability are likely to be impacted by theCompany’s ability to effectively address fuel price increases and fuel price volatility andavailability.Airlines are inherently dependent upon energy to operate, and jet fuel and oil representedapproximately 22 percent of the Company’s operating expenses for 2019. As discussed above under”Business – Cost Structure,” the cost of fuel can be extremely volatile and unpredictable, and even asmall change in market fuel prices can significantly affect profitability. Furthermore, volatility in fuelprices can be due to many external factors that are beyond the Company’s control. For example, fuelprices can be impacted by political, environmental, and economic factors, such as (i) dependency onforeign imports of crude oil and the potential for hostilities or other conflicts in oil producing areas;(ii) disruptions in domestic refining or pipeline capacity due to weather, natural disasters, or otherfactors; (iii) worldwide demand for fuel, particularly in developing countries, which can result ininflated energy prices; (iv) changes in U.S. governmental policies on fuel production, transportation,taxes, and marketing; and (v) changes in currency exchange rates.The Company’s ability to effectively address fuel price increases could be limited by factors such as itshistorical low-fare reputation, the portion of its Customer base that purchases travel for leisurepurposes, the competitive nature of the airline industry generally, and the risk that higher fares willdrive a decrease in demand. The Company attempts to manage its risk associated with volatile jet fuelprices by utilizing over-the-counter fuel derivative instruments to hedge a portion of its future jet fuelpurchases. However, energy prices can fluctuate significantly in a relatively short amount of time.Because the Company uses a variety of different derivative instruments at different price points, theCompany is subject to the risk that the fuel derivatives it uses will not provide adequate protectionagainst significant increases in fuel prices and in some cases could in fact result in hedging losses, andthe Company effectively paying higher than market prices for fuel, thus creating additional volatility inthe Company’s earnings. The Company is also subject to the risk that cash collateral may be requiredto be posted to fuel hedge counterparties, which could have a significant impact on the Company’sfinancial position and liquidity.In addition, the Company is subject to the risk that its fuel derivatives will no longer qualify for hedgeaccounting under applicable accounting standards, which can DOES additional earnings volatility.Adjustments in the Company’s overall fuel hedging strategy, as well as the ability of the commoditiesused in fuel hedging to qualify for special hedge accounting, could continue to affect the Company’sresults of operations. In addition, there can be no assurance that the Company will be able to costeffectivelyhedge against increases in fuel prices. See Note 2 to the Consolidated Financial Statementsfor information on changes in applicable standards for hedge accounting.The Company’s fuel hedging arrangements and the various potential impacts of hedge accounting onthe Company’s financial position, cash flows, and results of operations are discussed in more detailunder “Management’s Discussion and Analysis of Financial Condition and Results of Operations,””Quantitative and Qualitative Disclosures About Market Risk,” and in Note 1 and Note 10 to theConsolidated Financial Statements.The Company is also reliant upon the readily available supply and timely delivery of jet fuel to theairports that it serves. A disruption in that supply could present significant challenges to the26Company’s operations and could ultimately cause the cancellation of flights and/or the inability of theCompany to provide service to a particular airport.  4.The Company’s low-cost structure has historically been one of its primary competitiveadvantages, and many factors have affected and could continue to affect the Company’s abilityto control its costs.The Company’s low-cost structure has historically been one of its primary competitive advantages, asit has enabled it to offer low fares, drive traffic volume, grow market share, and protect profits. TheCompany’s low-cost position has become even more significant with the increased presence of ULCCsand changes to the fare offerings of other carriers, as discussed above; however, it has becomeincreasingly difficult for the Company to improve upon its industry cost position. For example, laborand fuel costs, as well as other costs such as airport costs and regulatory compliance costs, cannegatively affect the Company’s ability to control its costs. Furthermore, the Company has limitedcontrol over many of these costs.Jet fuel and oil constituted approximately 22 percent of the Company’s operating expenses during2019, and the Company’s ability to control the cost of fuel is subject to the external factors discussedin the third Risk Factor above.Salaries, wages, and benefits constituted approximately 43 percent of the Company’s operatingexpenses during 2019. The Company’s ability to control labor costs is limited by the terms of itscollective-bargaining agreements, and increased labor costs have negatively impacted the Company’slow-cost competitive position. As discussed further under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” the Company’s unionized workforce, which makes upapproximately 83 percent of its Employees, has had pay scale increases as a result of contractual rateincreases, which has put pressure on the Company’s labor costs. Additionally, as indicated above under”Business – Employees,” the majority of Southwest’s unionized Employee work groups, including itsPilots; Flight Attendants; Customer Service Agents, Customer Representatives, and Source of SupportRepresentatives; Aircraft Appearance Technicians; Dispatchers; Flight Crew Training Instructors; andMeteorologists, are in unions currently in negotiations for labor agreements or have labor agreementsthat become amendable in 2020, which could result in additional pressure on the Company’s low-coststructure.As discussed above under “Business – Regulation,” the airline industry is heavily regulated, and theCompany’s regulatory compliance costs are subject to potentially significant increases from time totime based on actions by regulatory agencies that are out of the Company’s control. Additionally,because of airport infrastructure updates and other factors, the Company has experienced increasedspace rental rates at various airports in its network. Further, the Company cannot control decisions byother airlines to reduce their capacity. When this occurs, certain fixed airport costs are allocated amonga fewer number of total flights, which can result in increased landing fees and other costs for theCompany.The Company is reliant upon third party vendors and service providers, and the Company’s low-costadvantage is dependent in part on its ability to obtain and maintain commercially reasonable terms withthose parties. Disruptions to capital markets, shortages of skilled personnel, geopolitical developments,and/or adverse economic conditions could subject certain of the Company’s third party vendors andservice providers to significant financial pressures which could lead to performance problems, ceased27operations, or bankruptcies among these third party vendors and service providers. If a third partyvendor or service provider is unable to fulfill its commitments to the Company, the Company may beunable to replace that third party vendor or service provider in a short period of time, or at competitiveterms, which could have a material adverse effect on the Company’s results of operations.As discussed above under “Business – Insurance,” the Company carries insurance of types customaryin the airline industry. Although the Company has been able to purchase aviation, property, liability,and professional insurance via the commercial insurance marketplace, available commercial insurancecould be more expensive in the future and/or have material differences in coverage than insurance thathas historically been provided and may not be adequate to protect against the Company’s risk of lossfrom future events, including acts of terrorism. Further, available cyber-security insurance with regardsto data protection and business interruption could be more expensive in the future and/or have materialdifferences in coverage than insurance that has historically been provided and may not be adequate toprotect the Company’s risk of loss. With respect to any insurance claims, policy coverages and claimsare subject to acceptance by the many insurers involved and may require arbitration and/or mediationto effectively settle the claims over prolonged periods of time. In addition, an accident or other incidentinvolving Southwest aircraft could result in costs in excess of its related insurance coverage, whichcosts could be substantial. Any aircraft accident or other incident, even if fully insured, could also havea material adverse effect on the public’s perception of the Company, which could harm its reputationand business.The Company cannot guarantee it will be able to maintain or improve upon its current level of low-costadvantage over many of its airline competitors. ULCCs, which have increased capacity in theCompany’s markets, have surpassed the Company’s cost advantage. When competitors grow theirfleets and expand their networks, they are potentially able to better control costs per available seatmile. In addition, like Southwest, some competitors have added a significant number of new anddifferent aircraft to their fleets, which could potentially decrease their operating costs through betterfuel efficiencies and lower maintenance costs. Further, some of the Company’s competitors havelaunched multi-year cost savings efforts to meet specific financial and growth targets. Common effortsinclude fleet transformation to gain fuel efficiencies, fleet simplification, and increasing the number ofseats per trip through seat retrofits and the use of larger aircraft.As discussed below under “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations,” the Company experienced significant unit cost pressure in 2019 following the MAXgroundings. Historically, except for changes in the price of fuel, changes in operating expenses forairlines have been largely driven by changes in capacity. However, the Company’s operating expensesare largely fixed once flight schedules are published; and the Company experienced lower thanexpected capacity during 2019 due to the MAX groundings. Throughout the duration of the MAXgroundings, the Company has made schedule adjustments and canceled flights based on guidance fromBoeing estimating the timing of MAX return to service. Further changes to guidance relating to theexpected duration of the MAX groundings could require the Company to make additional scheduleadjustments and drive additional unit cost pressure and negatively affect fuel efficiency. The Companyoffers no assurances that current estimations and timelines related to the MAX groundings are correct.285.The Company is increasingly dependent on technology to operate its business and continues toimplement substantial changes to its information systems; any failure, disruption, breach, ordelay in implementation of the Company’s information systems could materially adversely affectits operations.The Company is increasingly dependent on the use of complex technology and systems to run itsongoing operations and support its strategic objectives. These technologies and systems include,among others, the Company’s website and reservation system, flight dispatch and tracking systems,flight simulators, check-in kiosks, maintenance record keeping management systems,telecommunications systems, flight planning and scheduling systems, crew scheduling systems, andfinancial planning, management, and accounting systems. The performance, reliability, and security ofthe Company’s technology infrastructure and supporting systems are critical to the Company’soperations and initiatives.Implementation and integration of complex systems and technology present significant challenges interms of costs, human resources, and development of effective internal controls. Implementation andintegration require a balancing between the introduction of new capabilities and the managing ofexisting systems, and present the risk of operational or security inadequacy or interruption, whichcould materially affect the Company’s ability to effectively operate its business and/or couldnegatively impact the Company’s results of operations.The Company is also reliant upon the performance of its third party vendors for timely and effectiveimplementation and support of many of its technology initiatives and for maintaining adequateinformation security measures. If any of the Company’s significant technologies or automated systemswere to cease functioning, or if its third party vendor service providers were to fail to adequately andtimely provide technical support, system maintenance, or software upgrades for any of the Company’sexisting systems, the Company could experience service interruptions, delays, and loss of critical data,which could harm its operations, and result in financial losses and reputational damage.In the ordinary course of business, the Company’s systems will continue to require modification andrefinements to address growth and changing business requirements. In addition, the Company’ssystems may require modification to enable the Company to comply with changing regulatoryrequirements. Modifications and refinements to the Company’s systems have been and are expected tocontinue to be expensive to implement and can divert management’s attention from other matters. Inaddition, the Company’s operations could be adversely affected, or the Company could face impositionof regulatory penalties, if it were unable to timely or effectively modify its systems as necessary orappropriately balance the introduction of new capabilities with the management of existing systems.The Company has experienced system interruptions and delays that have made its websites andoperational systems unavailable or slow to respond, which has prevented the Company from efficientlyprocessing Customer transactions or providing services. Any future system interruptions or delayscould reduce the Company’s operating revenues and the attractiveness of its services, as well asincrease the Company’s costs.The Company’s technologies and systems and functions could be damaged or interrupted bycatastrophic events beyond its control such as fires, floods, earthquakes, tornadoes and hurricanes,power loss, computer and telecommunications failures, acts of war or terrorism, computer viruses,security breaches, and similar events or disruptions. Any of these events could cause system29interruptions, delays, and loss of critical data, and could prevent the Company from processingCustomer transactions or providing services, which could make the Company’s business and servicesless attractive and subject the Company to liability. Any of these events could damage the Company’sreputation and be expensive to remedy.    6.The Company’s business is labor intensive; therefore, the Company could be adversely affectedif it were unable to maintain satisfactory relations with its Employees or its Employees’Representatives.The airline business is labor intensive. Salaries, wages, and benefits represented approximately43 percent of the Company’s operating expenses for the year ended December 31, 2019. In addition, asof December 31, 2019, approximately 83 percent of the Company’s Employees were represented forcollective bargaining purposes by labor unions, making the Company particularly exposed in the eventof labor-related job actions. Employment-related matters (some of which relate to negotiated items)that have impacted, and continue to impact, the Company’s results of operations include hiring/retention rates, pay rates, outsourcing, work rules, health care costs, and retirement benefits.  7.The Company is currently dependent on a single engine supplier, as well as single suppliers ofcertain other aircraft parts and equipment; therefore, the Company could be materiallyadversely affected (i) if it were unable to obtain timely or sufficient delivery of aircraft parts orequipment from Boeing or other suppliers or adequate maintenance or other support from anyof these suppliers, or (ii) in the event of a mechanical or regulatory issue associated with theCompany’s aircraft parts or equipment.The Company is dependent on Boeing as its sole supplier for many of its aircraft parts. The Companyis also dependent on sole or limited suppliers for aircraft engines and certain other aircraft parts,equipment, and services. If Boeing, or other suppliers, were unable or unwilling to timely provideadequate products or support for their products, or in the event of a mechanical or regulatory issueassociated with engines or other parts, the Company’s operations could be materially adverselyaffected. The Company could also be materially adversely affected if the pricing or operationalattributes of its aircraft equipment were to become less competitive.  8.Developing and expanding data security and privacy requirements could increase theCompany’s operating costs, and any failure of the Company to maintain the security of certainCustomer, Employee, and business-related information could result in damage to theCompany’s reputation and could be costly to remediate.The Company must receive information related to its Customers and Employees in order to run itsbusiness, and the Company’s operations depend upon secure retention and the secure transmission ofinformation over public networks, including information permitting cashless payments. Thisinformation is subject to the continually evolving risk of intrusion, tampering, and theft. Although theCompany maintains systems to prevent or defend against these risks, these systems require ongoingmonitoring and updating as technologies change, and security could be compromised, personal orconfidential information could be misappropriated, or system disruptions could occur. In the ordinarycourse of its business, the Company also provides certain confidential, proprietary, and personalinformation to third parties. While the Company seeks to obtain assurances that these third parties willprotect this information, there is a risk the security of data held by third parties could be breached. Acompromise of the Company’s security systems could adversely affect the Company’s reputation and30disrupt its operations and could also result in litigation against the Company or the imposition ofpenalties. In addition, it could be costly to remediate. Although the Company has not experiencedcyber incidents that are individually, or in the aggregate, material, the Company has experiencedcyber-attacks in the past, which have thus far been mitigated by preventative, detective, and responsivemeasures put in place by the Company.In addition, in response to these types of threats, there has been heightened legislative and regulatoryfocus on data privacy and security in the United States and elsewhere. As a result, the Company mustmonitor a growing and fast-evolving set of legal requirements in this area. This regulatory environmentis increasingly challenging and may present material obligations and risks to the Company’s business,including significantly expanded compliance burdens, costs, and enforcement risks.The Company has a dedicated cyber-security team and program that focuses on current and emergingdata security matters. The Company continues to assess and invest in the growing needs of the cybersecurityteam through the allocation of skilled personnel, ongoing training, and support of the adoptionand implementation of technologies coupled with cyber-security risk management frameworks.The Company carries a cyber-security insurance policy with regards to data protection and businessinterruption associated with both security breaches from malicious parties and from certain systemfailures. However, available cyber-security insurance with regards to data protection and businessinterruption could be more expensive in the future and/or have material differences in coverage thaninsurance that has historically been provided and may not be adequate to protect the Company’s risk ofloss.  9.The Company’s results of operations could be adversely impacted if it is unable to effectivelyexecute its strategic plans.The Company is reliant on the success of its revenue strategies and other strategic plans and initiativesto grow and to help offset increasing costs. The timely and effective execution of the Company’sstrategic plans could be negatively affected by (i) the Company’s ability to timely and effectivelyimplement, transition, and maintain related information technology systems and infrastructure; (ii) theCompany’s ability to effectively balance its investment of incremental operating expenses and capitalexpenditures related to its strategies against the need to effectively control costs; and (iii) as discussedfurther above, the Company’s dependence on third parties with respect to the execution of its strategicplans.  10.The airline industry has faced on-going security concerns and related cost burdens; furtherthreatened or actual terrorist attacks, or other hostilities, even if not made directly on the airlineindustry, could significantly harm the airline industry and the Company’s operations.Terrorist attacks or other crimes and hostilities, actual and threatened, have from time to timematerially adversely affected the demand for air travel and also have resulted in increased safety andsecurity costs for the Company and the airline industry generally. Safety and security measures createdelays and inconveniences and can, in particular, reduce the Company’s competitiveness againstsurface transportation for short-haul routes. Additional terrorist attacks or other hostilities, even if notmade directly on the airline industry, or the fear of such attacks or other hostilities (including elevatednational threat warnings, government travel warnings to certain destinations, travel restrictions, orselective cancellation or redirection of flights due to terror threats) would likely have a furthersignificant negative impact on the Company and the airline industry.31           11.The Company is subject to extensive FAA regulation, which may materially and adversely affectthe Company’s business plans, strategies, and results of operations.The FAA promulgates and enforces regulations affecting the airline industry, and exercises extensiveregulatory oversight of the Company’s operations. The FAA from time to time also issues orders ordirectives relating to the maintenance and operation of aircraft that require significant expenditures oroperational restrictions. FAA orders and directives can be issued with little or no notice, and in certaininstances, require the temporary grounding of aircraft. Recently, the Company reviewed a draft reportfrom the Office of Inspector General (OIG) for the DOT regarding its audit of the FAA’s oversight ofthe Company. The Company strongly disagrees with many of the draft statements and conclusions inthe report and is not aware of any action the FAA might take against the Company arising from theOIG’s audit of the FAA; however, the issuance of new FAA regulations, regulatory amendments, ororders or directives could result in flight schedule adjustments and groundings or delays in aircraftdeliveries, as well as lower operating revenues, operating income, and net income due to a variety offactors, including, among others, (i) lost revenue due to flight cancellations and disruptions as a resultof a smaller operating aircraft fleet, (ii) the lack of ability to make corresponding reductions inexpenses because of the fixed nature of many expenses, and (iii) possible negative effects on Customerconfidence and airline choice. Government regulation affecting the Company is discussed in moredetail in the below risk factor and above under “Business – Regulation.”   12.Airport capacity constraints and air traffic control inefficiencies have limited and couldcontinue to limit the Company’s growth; changes in or additional governmental regulationcould increase the Company’s operating costs or otherwise limit the Company’s ability toconduct business.Almost all commercial service airports are owned and/or operated by units of local or stategovernments. Airlines are largely dependent on these governmental entities to provide adequate airportfacilities and capacity at an affordable cost. In order to operate efficiently, as well as to add service incurrent and new markets, the Company must be able to maintain and/or obtain space and facilities atdesirable airports with adequate infrastructure. As airports become more congested, space, facility, andinfrastructure constraints may prevent the Company from maintaining existing service and/orimplementing new service in a commercially viable manner.Similarly, the federal government singularly controls all U.S. airspace, and airlines are dependent onthe FAA controlling that airspace in a safe and efficient manner. The current air traffic control systemis mainly radar-based, supported in large part by antiquated equipment and technologies, and heavilydependent on skilled personnel. The FAA’s protracted transition to a satellite-based air traffic controlsystem, as well as the implementation of policies and standards that account for the precision ofGPS-supported aircraft technologies, could continue to adversely impact airspace capacity and theoverall efficiency of the system, resulting in limited opportunities for the Company to grow, longerscheduled flight times, increased delays and cancellations, and increased fuel consumption and aircraftemissions. The current air traffic control system faces challenges in supporting the growing demand forU.S. air travel and may not be able to effectively keep pace with future air traffic growth. Thecontinuation of these air traffic control constraints or the FAA’s inability to meet staffing needs on along-term basis may have a material adverse effect on the Company’s operations.As discussed above under “Business – Regulation,” airlines are also subject to other extensiveregulatory requirements. These requirements often impose substantial costs on airlines. The32Company’s strategic plans and results of operations could be negatively affected by changes in law andfuture actions taken by domestic and foreign governmental agencies having jurisdiction over itsoperations, including, but not limited to:• increases in airport rates and charges;• limitations on airport gate capacity or use of other airport facilities such as the annualreallocation of capacity at John Wayne Airport in Orange County, California, which hascaused the Company to reduce service at that airport in each of the last several years;• limitations on route authorities;• actions and decisions that create difficulties in obtaining access at slot-controlled airports (a”slot” is the right of an air carrier, pursuant to regulations of the FAA, to operate a takeoff orlanding at a specific time at certain airports);• actions and decisions that create difficulties in obtaining operating permits and approvals;• changes to environmental regulations;• new or increased taxes or fees;• changes to laws that affect the services that can be offered by airlines in particular marketsand at particular airports;• restrictions on competitive practices;• changes in laws that increase costs for safety, security, compliance, or other CustomerService standards;• changes in laws that may limit the Company’s ability to enter into fuel derivative contracts tohedge against increases in fuel prices;• changes in laws that may limit or regulate the Company’s ability to promote the Company’sbusiness or fares;• airspace closures or restrictions;• grounding of commercial air traffic by the FAA; and• the adoption of more restrictive locally-imposed noise regulations.  13.The airline industry is affected by many conditions that are beyond its control, which can impactthe Company’s business strategies and results of operations.In addition to the unpredictable economic conditions and fuel costs discussed above, the Company,like the airline industry in general, is affected by conditions that are largely unforeseeable and outsideof its control, including, among others:• adverse weather and natural disasters such as the weather-related disruptions in fourthquarter 2019, which resulted in approximately 2,100 canceled flights;33• changes in consumer preferences, perceptions, spending patterns, or demographic trends(including, without limitation, changes in travel patterns due to government shutdowns orsequestration);• actual or potential disruptions in the air traffic control system (including, for example, as aresult of inadequate FAA staffing levels due to government shutdowns or sequestration);• actual or perceived delays at various airports resulting from government shutdowns(including, for example, longer wait-times at TSA checkpoints due to inadequate TSAstaffing levels);• changes in the competitive environment due to industry consolidation, industry bankruptcies,and other factors;• delays in deliveries of new aircraft (including, without limitation, due to FAA groundings ofcertain aircraft types or due to the closure of the FAA’s aircraft registry during governmentshutdowns);• outbreaks of disease; and• actual or threatened war, terrorist attacks, government travel warnings to certain destinations,travel restrictions, and political instability.   14.The airline industry is intensely competitive.As discussed in more detail above under “Business – Competition,” the airline industry is intenselycompetitive. The Company’s primary competitors include other major domestic airlines, as well asregional and new entrant airlines, surface transportation, and alternatives to transportation such asvideoconferencing and the Internet. The Company’s revenues are sensitive to the actions of other carrierswith respect to pricing, routes, loyalty programs, scheduling, capacity, customer service, operationalreliability, comfort and amenities, cost structure, aircraft fleet, and code-sharing and similar activities.  15.The Company’s future results will suffer if it does not effectively manage its expandedinternational operations and/or Extended Operations (“ETOPS”).The Company’s international flight offerings are subject to CBP-mandated procedures, which can affectthe Company’s operations, costs, and Customer experience. The Company has made, and is continuing tomake, significant investments in facilities, equipment, and technologies at certain airports in order toimprove 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 CBPresources 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 isdramatically different in certain international locations with respect to, among other things,common-use ticket counters and gate areas, local operating requirements, and cultural preferences.Certain international routes served by the Company are also subject to specific aircraft equipagerequirements and unique consumer behavior. Route-specific equipage requirements and uniqueconsumer behavior, together or individually, may (i) restrict the Company’s flexibility whenscheduling and routing aircraft and crews, (ii) require the Company to modify its policies orprocedures, and (iii) impact the Company’s operational performance, costs, and Customer Experience.34In addition, international flying exposes the Company to certain foreign currency risks to the extent theCompany chooses to, or is required to, transact in currencies other than the U.S. dollar. To the extentthe Company seeks to serve additional international destinations in the future, or to renew its authorityto serve certain routes, it may be required to obtain necessary authority from the DOT and/or approvalsfrom the FAA, as well as any applicable foreign government entity.The Company’s operations in non-U.S. jurisdictions may subject the Company to the laws of thosejurisdictions rather than, or in addition to, U.S. laws. Laws in some jurisdictions differ in significantrespects from those in the United States, and these differences can affect the Company’s ability to reactto changes in its business, and its rights or ability to enforce rights may be different than would beexpected under U.S. laws. Furthermore, enforcement of laws in some jurisdictions can be inconsistentand unpredictable, which can affect both the Company’s ability to enforce its rights and to undertakeactivities that it believes are beneficial to its business. As a result, the Company’s ability to generaterevenue and its expenses in non-U.S. jurisdictions may differ from what would be expected if U.S.laws governed these operations. Although the Company has policies and procedures in place that aredesigned to promote compliance with the laws of the jurisdictions in which it operates, a violation bythe Company’s Employees, contractors, or agents or other intermediaries could nonetheless occur. Anyviolation (or alleged or perceived violation), even if prohibited by the Company’s policies, could havean adverse effect on the Company’s reputation and/or its results of operations.In first quarter 2019, the Company began service to Hawaii after receiving approval from the FAA forETOPS, a regulatory requirement to operate between the U.S. mainland and the Hawaiian Islands. TheCompany is subject to additional, ongoing, ETOPS-specific regulatory and procedural requirements,which present operational and compliance risks to the Company’s business, including costs associatedtherewith.  16.The Company is currently subject to pending litigation, and if judgment were to be renderedagainst the Company in the litigation, such judgment could adversely affect the Company’soperating results.As discussed below under “Legal Proceedings,” the Company is subject to pending litigation.Regardless of merit, these litigation matters and any potential future claims against the Company maybe both time consuming and disruptive to the Company’s operations and cause significant expense anddiversion of management attention. Should the Company fail to prevail in these or other matters, theCompany may be faced with significant monetary damages or injunctive relief that could materiallyadversely affect its business and might materially affect its financial condition and operating results.   17.acThe Company’s reputation and brand could be harmed if it were to experience significantnegative publicity, including through social media.The Company operates in a public-facing industry with significant exposure to social media. Negativepublicity, whether or not justified, can spread rapidly through social media. To the extent that theCompany is unable to respond timely and appropriately to negative publicity, the Company’sreputation and brand can be harmed. Damage to the Company’s overall reputation and brand couldhave a negative impact on its financial results.BusinessManagementProject ManagementMGMT 702Share Question