Southwest Airlines 2011 Annual Report Download - page 89

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Agents and Customer Service Representatives are subject to agreements that become amendable during 2012,
which represent approximately 29 percent of the Company’s (including AirTran’s) fulltime equivalent
Employees.
The Company attempts to minimize its concentration risk with regards to its cash, cash equivalents, and its
investment portfolio. This is accomplished by diversifying and limiting amounts among different counterparties,
the type of investment, and the amount invested in any individual security or money market fund.
To manage risk associated with financial derivative instruments held, the Company selects and will
periodically review counterparties based on credit ratings, limits its exposure to a single counterparty, and
monitors the market position of the program and its relative market position with each counterparty. The
Company also has agreements with counterparties containing early termination rights and/or bilateral collateral
provisions whereby security is required if market risk exposure 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.
The Company (including AirTran) currently operates an all-Boeing fleet, the majority of which are
variations of the Boeing 737. 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 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 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 considers its relationship with Boeing and other suppliers to be excellent and believes the
advantages of operating with a single aircraft supplier currently outweigh the risks of such a strategy.
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 2017. The Company believes the
financial benefits generated by the exclusivity aspects of these arrangements outweigh the risks involved with
such agreements.
2. Airtran Acquisition and Related Matters
AirTran Holdings, Inc.
As discussed in Note 1, on May 2, 2011 (the “acquisition date”), the Company acquired AirTran. AirTran
Airways offers scheduled airline services, using Boeing 717-200 aircraft and Boeing 737-700 aircraft, throughout
the United States and to select international locations. Approximately half of AirTran Airways’ flights originate
or terminate at its largest hub in Atlanta, Georgia. AirTran Airways also serves a number of markets with
non-stop service from smaller bases of operation in Baltimore, Maryland; Milwaukee, Wisconsin; and Orlando,
Florida. The Company believes the acquisition of AirTran positions it to respond better to the economic and
competitive challenges of the industry because, among other reasons: (i) it allows the Company to offer more
low-fare destinations by extending its network and diversifying into new markets, including significant
opportunities to and from Atlanta, the busiest airport in the United States and the largest domestic market
Southwest previously did not serve, (ii) it expands Southwest’s presence in slot-controlled markets (New York
LaGuardia/Ronald Reagan Washington National Airport), and (iii) it provides access to near-international leisure
markets in the Caribbean and Mexico.
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