Southwest Airlines 2010 Annual Report Download - page 33

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The Company is expected to incur substantial expenses related to the merger and the integration of
AirTran’s business.
The Company is expected to incur substantial expenses in connection with the merger and the integration of
AirTran’s business. There are a large number of processes, policies, procedures, operations, technologies and
systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue
management, reservations, frequent flyer, ticketing/distribution, maintenance, flight operations, marketing and
benefits. While the Company has assumed that a certain level of expenses would be incurred, there are many
factors beyond its control that could affect the total amount or the timing of the integration expenses. Moreover,
many of the expenses that would be incurred are, by their nature, difficult to estimate accurately. These expenses
could, particularly in the near term, exceed the savings that the Company expects to achieve from the elimination
of duplicative expenses and the realization of economies of scale and cost savings. These integration expenses
likely will result in the Company taking significant charges against earnings following the completion of the
merger, and the amount and timing of such charges are uncertain at present.
Following the merger, the Company will need to launch certain branding or rebranding initiatives that may
take a significant amount of time and involve substantial costs and that may not be favorably received by
customers.
The Company may incur substantial costs in rebranding AirTran’s products and services, and it may not be
able to achieve or maintain brand name recognition or status under the Southwest brand that is comparable to the
recognition and status previously enjoyed by AirTran in any of AirTran’s markets. The failure of any such
rebranding initiative could adversely affect the Company’s ability to attract and retain customers after the
merger, which could cause the Company not to realize some or all of the benefits contemplated to result from the
merger.
AirTran is currently subject to pending antitrust litigation, and if judgment were to be rendered against
AirTran in the litigation, such judgment could adversely affect the Company’s operating results following
the merger.
A complaint alleging violations of federal antitrust laws and seeking certification as a class action was filed
against Delta Air Lines, Inc. (“Delta”) and AirTran in the United States District Court for the Northern District of
Georgia in Atlanta on May 22, 2009. The complaint alleges, among other things, that AirTran conspired with
Delta in imposing bag fees for the first item of checked luggage. The initial complaint sought treble damages on
behalf of a putative class of persons or entities in the United States who directly paid Delta and/or AirTran such
fees on domestic flights beginning December 5, 2008. Subsequent to the filing of the May 2009 complaint,
various other nearly identical complaints also seeking certification as class actions were filed in federal district
courts in Atlanta, Georgia; Orlando, Florida; Las Vegas, Nevada; and Oakland, California. All of the cases were
consolidated before a single judge in Atlanta. An amended complaint filed in February 2010 in the consolidated
action broadened the allegations to add claims that Delta and AirTran also agreed to cut capacity on competitive
routes and raised prices. The amended complaint seeks injunctive relief against a broad range of alleged
anticompetitive activities and also seeks attorneys fees. On August 2, 2010, the Court dismissed that portion of
the plaintiffs’ claims alleging that AirTran had violated Section 2 of the Sherman Act; however, the Court let
stand the claims of a conspiracy with respect to the imposition of a first bag fee. In addition, the Las Vegas and
Oakland cases have been voluntarily dismissed. While AirTran has denied all allegations of wrongdoing,
including those in the amended complaint, and has indicated its intention to defend vigorously any and all such
allegations, results of legal proceedings such as this one cannot be predicted with certainty. Regardless of its
merit, this litigation and any potential future claims against the Company or AirTran may be both time
consuming and disruptive to the Company’s operations following the merger and cause significant expense and
diversion of management attention. Should AirTran and the Company fail to prevail in this or other matters, the
Company may be faced with significant monetary damages or injunctive relief that could materially adversely
affect its business and might materially affect its financial condition and operating results.
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