Southwest Airlines 2011 Annual Report Download - page 34

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The Company’s business is labor intensive; therefore, the Company would be adversely affected if 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 approximately 29 percent
of the Company’s operating expenses for the year ended December 31, 2011. In addition, as of December 31,
2011, approximately 82 percent of the Company’s Employees (including AirTran Employees) were represented
for collective bargaining purposes by labor unions, making the Company particularly exposed in the event of
labor-related job actions. Employment-related issues that may impact the Company’s results of operations, some
of which are negotiated items, include hiring/retention rates, pay rates, outsourcing costs, work rules, and health
care costs. The Company has historically maintained positive relationships with its Employees and its
Employees’ Representatives. However, as indicated above under “Business-Employees,” a majority of the
Southwest Employee groups have labor agreements that are either currently in negotiations or become amendable
in 2012, which could contribute to the Company’s labor cost pressures. Increasing labor costs, combined with
curtailed growth, could negatively impact the Company’s competitive position. In addition, disputes regarding
the integration of AirTran Employees could negatively affect the Company’s historically positive Employee
culture.
The airline industry has faced on-going security concerns and related cost burdens; further threatened or
actual terrorist attacks, or other hostilities, could significantly harm the airline industry and the
Company’s operations.
Terrorist attacks and threatened attacks have from time to time materially adversely affected the demand
for air travel and have also resulted in increased safety and security costs for the Company and the airline
industry generally. Safety measures create delays and inconveniences and can, in particular, reduce the
Company’s competitiveness against surface transportation for short-haul routes. Additional terrorist attacks, even
if not made directly on the airline industry, or the fear of such attacks or other hostilities (including elevated
national threat warnings or selective cancellation or redirection of flights due to terror threats) would likely have
a further significant negative impact on the Company and the airline industry.
Airport capacity constraints and air traffic control inefficiencies could limit the Company’s growth;
changes in or additional governmental regulation could increase the Company’s operating costs or
otherwise limit the Company’s ability to conduct business.
Almost all commercial service airports are owned and/or operated by units of local or state governments.
Airlines are largely dependent on these governmental entities to provide adequate airport facilities and capacity
at an affordable cost. Similarly, the federal government singularly controls all U.S. airspace, and airlines are
completely dependent on the FAA to operate that airspace in a safe, efficient, and affordable manner. As
discussed above under “Business — Regulation,” airlines are also subject to other extensive regulatory
requirements. These requirements often impose substantial costs on airlines. The Company’s initiatives and
results of operations could be negatively affected by changes in law and future actions taken by domestic and
international governmental agencies having jurisdiction over its operations, including, but not limited to:
• increases in airport rates and charges;
• limitations on airport gate capacity or other use of airport facilities;
• limitations on route authorities;
• actions and decisions that create difficulties in obtaining access at slot-controlled airports;
• changes to environmental regulations;
• new or increased taxes;
• changes to laws that affect the services that can be offered by airlines in particular markets and at
particular airports;
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