Southwest Airlines 2012 Annual Report Download - page 36

2012, approximately 83 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 vast majority of
Southwest’s unionized Employees, including those represented by Southwest’s five largest unions, have labor
agreements that are either currently in negotiations or become amendable in 2013, which could further impact the
Company’s labor costs. Increasing labor costs, whether or not combined with curtailed growth, could negatively
impact the Company’s competitive position.
The Company’s success also depends on its ability to attract and retain skilled personnel. Competition for
skilled personnel may intensify if overall industry capacity increases and/or if high levels of current personnel
reach retirement age. The Company may be required to increase existing levels of compensation to retain or
supplement its skilled workforce. The inability to recruit and retain skilled personnel or the unexpected loss of
key skilled personnel may adversely affect the Company’s operations.
The Company may be unable to successfully complete the integration of AirTran’s business and realize the
anticipated benefits of its acquisition of AirTran. In addition, delays in integration could cause anticipated
synergies to take longer than anticipated to realize.
Risk factors associated with the Company’s acquisition and integration of AirTran are discussed below
under “Risk Factors Related to the Company’s Acquisition and Integration of AirTran.”
The Company is currently dependent on single aircraft and engine suppliers, as well as single suppliers of
certain other parts; therefore, the Company would be materially adversely affected if it were unable to
obtain additional equipment or support from any of these suppliers or in the event of a mechanical or
regulatory issue associated with their equipment.
The Company is dependent on Boeing as its sole supplier for aircraft and many of its aircraft parts and is
dependent on other suppliers for certain other aircraft parts. In 2011, the Company announced its commitment to
purchase a significant number of additional Boeing aircraft. Although the Company is able to purchase some
aircraft from parties other than Boeing, most of its purchases are directly from Boeing. Therefore, if the
Company were unable to acquire additional aircraft 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 affected. In addition, the Company would be materially adversely affected 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 believes, however, that its years of experience with the Boeing 737 aircraft type, as well as the
efficiencies Southwest has historically achieved by operating with a single aircraft type, currently outweigh the
risks associated with its single aircraft supplier strategy. In order to enable Southwest to sustain the benefits
associated with operating a single aircraft type, in July 2012 the Company entered into an agreement with Delta
Air Lines, Inc. and Boeing Capital Corp. to lease or sublease all 88 of AirTran’s Boeing 717-200 aircraft to
Delta. Deliveries to Delta are expected to begin in August 2013 at the rate of approximately three aircraft per
month. The Company is also dependent on sole suppliers for aircraft engines and certain other aircraft parts and
would therefore also be materially adversely affected in the event of the unavailability of, or a mechanical or
regulatory issue associated with, engines and other parts.
Any failure of the Company to maintain the security of certain Customer-related information could result
in damage to the Company’s reputation and could be costly to remediate.
The Company must receive information related to its Customers in order to run its business, and the
Company’s online operations depend upon the secure transmission of information over public networks,
including information permitting cashless payments. This information is subject to the risk of intrusion,
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