Southwest Airlines 2011 Annual Report Download - page 32

other things, the Company completed the implementation of a new SAP Enterprise Resource Planning
application, which replaced several of the Company’s back office legacy systems, such as the general ledger,
accounts payable, accounts receivable, payroll, benefits, cash management, and fixed asset systems. The
Company has also invested in significant technology changes to support its All-New Rapid Rewards frequent
flyer program, introduction of the Boeing 737-800 to its fleet beginning in 2012, enhanced southwest.com
website, and WiFi implementation. In addition, the Company has announced its intent to replace its reservation
system. Integration of complex systems and technology presents significant challenges in terms of costs, human
resources, and development of effective internal controls. Integration also presents the risk of operational or
security inadequacy or interruption, which could materially affect the Company’s ability to effectively operate its
business. The Company is also reliant upon third party performance for timely and effective completion of many
of its technology initiatives.
In the ordinary course of business, the Company’s systems will continue to require modification and
refinements to address growth and changing business requirements, including requirements related to
international operations. In addition, the Company’s systems may require modification to enable the Company to
comply with changing regulatory requirements. For example, the Company was required to invest in the redesign
of the southwest.com and airtran.com websites in order to comply with the DOT’s full-fare advertising rule that
went into effect in January 2012. Modifications and refinements to the Company’s systems may be expensive to
implement and may divert management’s attention from other key initiatives. In addition, the Company’s
operations could be adversely affected, or it could face imposition of regulatory penalties, if it is unable to timely
or effectively modify its systems as necessary.
The Company may occasionally experience system interruptions and delays that make its websites and
services unavailable or slow to respond, which could prevent the Company from efficiently processing Customer
transactions or providing services. This in turn could reduce the Company’s operating revenues and the
attractiveness of its services. The Company’s computer and communications systems and operations could be
damaged or interrupted by catastrophic events such as fires, floods, earthquakes, tornadoes and hurricanes, power
loss, computer and telecommunications failure, acts of war or terrorism, computer viruses, security breaches, and
similar events or disruptions. Any of these events could cause system interruptions, delays, and loss of critical
data, and could prevent the Company from processing Customer transactions or providing services, which could
make its business and services less attractive and subject the Company to liability. Any of these events could
damage the Company’s reputation and be expensive to remedy.
The Company is currently dependent on single aircraft and engine suppliers, as well as single suppliers of
certain other parts; therefore, the Company would be materially adversely affected if it were unable to
obtain additional equipment or support from any of these suppliers or in the event of a mechanical or
regulatory issue associated with their equipment.
The Company is dependent on Boeing as its sole supplier for aircraft and many of its aircraft parts and is
dependent on other suppliers for certain other aircraft parts. In 2011, the Company announced its commitment to
purchase a significant number of additional Boeing aircraft. Although the Company is able to purchase some
aircraft from parties other than Boeing, most of its purchases are directly from Boeing. Therefore, if the
Company were unable to acquire additional aircraft 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 affected. In addition, the Company would be materially adversely affected in the event of a
mechanical or regulatory issue associated with the Boeing 737 or Boeing 717 aircraft type, whether as a result of
downtime for part or all of the Company’s fleet or because of a negative perception by the flying public. The
Company believes, however, that its years of experience with the Boeing 737 aircraft type, as well as the
efficiencies Southwest has achieved by operating with a single aircraft type, currently outweigh the risks
associated with its single aircraft supplier strategy. The Company is also dependent on sole suppliers for aircraft
engines and certain other aircraft parts and would therefore also be materially adversely affected in the event of
the unavailability of, or a mechanical or regulatory issue associated with, engines and other parts.
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