Southwest Airlines maintains disclosure controls and procedures intended to provide reasonable assurance that the information required to be disclosed by the company in the reports that it files with the U.S. Securities and Exchange Commission. According to Southwest Airlines annual 10-K report, these include controls and procedures that are designed to ensure that this information is accumulated and communicated to Southwest Airlines management. Management, including the Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of these controls and procedures as of December 31, 2007 and have concluded that the disclosure controls and procedures were effective. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even systems considered to be effective can provide only a "reasonable assurance" of achieving its stated objectives (2008). This internal control mechanism could be characterized as largely successful.
According to its 10-K annual report, Southwest Airlines enters into fuel derivative contracts from time to time to control and hedge against rising fuel costs. Changes in the company's overall fuel hedging strategy and the effectiveness of its fuel hedging program significantly impact Southwest Airlines' financial performance. Fuel and oil expense increased $398 million in 2007, an increase of 10.4 percent compared to 2006. Approximately 60 percent of the dollar increase was due to an increase in fuel prices, and the remainder was from an increase in gallons consumed to support the 7.5 percent capacity increase versus 2006. The fuel derivative hedging instruments Southwest Airlines used in 2007 were not as favorable as those held in 2006. Nevertheless, the hedging program resulted in $727 million in cash settlements during 2007. These settlements generated a 2007 reduction in fuel and oil expense ...