Southwest Airlines 2008 Annual Report Download - page 31

and benefits represented 32 percent of the
Company’s operating expenses for the year ended
December 31, 2008. In addition, as of December 31,
2008, approximately 77 percent of the Company’s
Employees were represented for collective
bargaining purposes by labor unions. As discussed
above in “Item 1. Business – Employees,” the
Company is currently in discussions with several
Employee Representatives. 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.
Southwest’s inability to timely and effectively
implement its revenue initiatives could adversely
affect its results of operations.
Southwest has implemented and intends to
continue to implement revenue initiatives that are
designed to help offset increasing costs and improve
Customer Service. The timely and effective
implementation of these initiatives has involved, and
will continue to involve, significant investments by
the Company of time and money and could be
impacted by (i) Southwest’s ability to timely and
effectively implement, transition, and maintain
related information technology systems and
infrastructure; (ii) the timing of Southwest’s
investment of incremental operating expenses and
capital expenditures for these purposes, while
balancing the need to effectively control operating
expenses; and (iii) Southwest’s dependence on third
parties to assist with implementation. Because
Southwest has limited experience with some of its
strategic initiatives, it cannot ensure the timing of
their implementation or that they will be successful
or profitable either over the short or long term.
Southwest is increasingly reliant on technology to
operate its business and continues to implement
substantial changes to its information systems;
any failure or disruption in Southwest’s
information systems could adversely impact the
Company’s operations.
Southwest’s operations have become
increasingly dependant on the use of sophisticated
technology and systems, including those used for its
point of sale, ticketing, revenue accounting, payroll,
and financial reporting areas. Systems and
technology are also crucial to the timely and effective
implementation of Southwest’s revenue initiatives.
As discussed above under “Business – Operating
Strategies and Marketing – Management Information
Systems,” Southwest has multiple technology
projects underway, many of which are reliant upon
third party performance for timely and effective
completion. Any issues with transitioning to
upgraded or replacement systems, or any material
failure, inadequacy, interruption, or security failure
of these systems, could materially impact
Southwest’s ability to effectively operate its business.
The airline industry is affected by many
conditions that are beyond its control.
Southwest’s business and the airline industry in
general are also impacted by other conditions that are
largely outside of Southwest’s control, including,
among others:
• Actual or threatened war, terrorist attacks, and
political instability;
• Changes in consumer preferences, perceptions,
spending patterns, or demographic trends;
• Actual or potential disruptions in the air traffic
control system;
• Increases in costs of safety, security, and
environmental measures; and
• Weather and natural disasters.
Because expenses of a flight do not vary
significantly with the number of passengers carried, a
relatively small change in the number of passengers
can have a disproportionate effect on an airline’s
operating and financial results. Therefore, any
general reduction in airline passenger traffic as a
result of any of these factors could adversely affect
Southwest’s results of operations. In addition, when
the airline industry shrinks, as it did during 2008,
airport operating costs are essentially unchanged and
must be shared by the remaining operating carriers,
which can therefore increase Southwest’s costs.
The airline industry faces on-going security
concerns and related cost burdens; further
threatened or actual terrorist attacks, or other
hostilities, could significantly harm the
Company’s industry and its business.
The attacks of September 11, 2001, and
resulting aftermath materially impacted air travel and
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