Southwest Airlines 2012 Annual Report Download - page 29

implement initiatives to better enable Southwest and AirTran to offer additional itineraries. In addition, the
Company’s acquisition of AirTran enabled the Company to (i) expand its presence in key markets Southwest
already served, (ii) grow the Company’s presence in key markets Southwest did not previously serve, (iii) extend
service to many smaller domestic cities Southwest did not previously serve, and (iv) provide access to the
Commonwealth of Puerto Rico and key near-international markets in the Caribbean and Mexico.
Customer Service, Comfort, and Amenities
Southwest and AirTran also compete with other airlines in areas of Customer Service such as ontime
performance, passenger amenities, flight equipment type, and comfort. According to statistics published by the
DOT, Southwest consistently ranks at or near the top for Customer Satisfaction for having the lowest Customer
complaint ratio. Some airlines, including AirTran, have more seating options and associated passenger amenities
than does Southwest, including first-class, business class, and other premium seating and related amenities.
Additionally, some major U.S. airlines have announced plans to add a significant number of new aircraft to their
fleets. Such efforts could provide cost benefits to these airlines through fleet simplification, better fuel
efficiencies, and lower maintenance costs. Additionally, such new aircraft could have newer and different
passenger amenities than those contained in the Company’s existing fleet. The Company is addressing this
competitive factor with its fleet modernization initiatives, which are discussed above under “Operating Strategies
and Initiatives – Fleet Modernization” and “Operating Strategies and Initiatives – Incorporation of the Larger
Boeing 737-800 into the Southwest Fleet.”
Other Forms of Competition
The airline industry is subject to varying degrees of competition from surface transportation by automobiles,
buses, and trains. Inconveniences and delays associated with air travel security measures can increase surface
competition. In addition, surface competition can be significant during economic downturns when consumers cut
back on discretionary spending and fewer choose to fly. Because of the relatively high percentage of shorthaul
travel provided by Southwest, it is particularly exposed to competition from surface transportation in these
instances. The airline industry is also subject to competition from alternatives to travel such as videoconferencing
and the Internet, which can increase in the event of travel inconveniences and economic downturns. The Company
is subject to the risk that air travel inconveniences and economic downturns may, in some cases, result in permanent
changes to consumer behavior in favor of surface transportation and electronic communications.
Seasonality
The Company’s business is somewhat seasonal. Generally, in most markets the Company serves, demand
for air travel is greater during the summer months, and therefore, revenues in the airline industry tend to be
stronger in the second (April 1 – June 30) and third (July 1 – September 30) quarters of the year than in the first
(January 1 – March 31) and fourth (October 1 – December 31) quarters of the year. As a result, in many cases,
the Company’s results of operations reflect this seasonality. Factors that could alter this seasonality include,
among others, the price of fuel, general economic conditions, extreme or severe weather, fears of terrorism or
war, or changes in the competitive environment. Therefore, the Company’s quarterly operating results are not
necessarily indicative of operating results for the entire year and historical operating results in a quarterly or
annual period are not necessarily indicative of future operating results.
Employees
At December 31, 2012, the Company had 45,861 active fulltime equivalent Employees, consisting of 19,575
flight, 3,208 maintenance, 20,374 ground, Customer, and fleet service, and 2,704 management, accounting,
marketing, and clerical personnel (associated with non-operational departments). The Railway Labor Act
establishes the right of airline employees to organize and bargain collectively. As of December 31, 2012,
approximately 83 percent of the Company’s Employees were represented by labor unions. The various labor
groups are covered by 19 different collective-bargaining agreements (“CBAs”). Under the Railway Labor Act,
collective-bargaining agreements between an airline and a labor union generally do not expire, but instead
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