Southwest Airlines 2012 Annual Report Download - page 40

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• the challenges associated with integrating the Company’s workforce while maintaining focus on
providing consistent, high quality Customer Service; and
• potential unknown liabilities, liabilities that are significantly larger than the Company currently
anticipates, and unforeseen increased expenses or delays, including costs to integrate AirTran’s
business that may exceed the Company’s estimates.
Any of the foregoing factors could adversely affect the Company’s ability to maintain relationships with
Customers, suppliers, Employees and other constituencies or the Company’s ability to achieve the anticipated
benefits of the acquisition on a timely basis, or at all, or could reduce the Company’s earnings or otherwise
adversely affect the business and financial results of the Company. In addition, integration requirements have
caused, and may continue to cause, the Company to delay other strategic initiatives.
The Company’s future results will suffer if it does not effectively manage its expanded operations.
Upon completion of the Company’s acquisition of AirTran, the size of the Company’s business increased
significantly beyond the then current size of either the Company’s or AirTran’s businesses. The Company’s
future success depends, in part, upon its ability to manage this expanded business, which may pose substantial
challenges for management, including challenges related to the management and monitoring of new operations,
including new international operations, and associated increased costs and complexity. There can be no
assurances that the Company will be successful or that it will realize the expected operating efficiencies, cost
savings, revenue enhancements, and other benefits currently anticipated from the acquisition.
The need to integrate AirTran’s workforce presents the potential for delay in achieving expected synergies
and other benefits, or labor disputes that could adversely affect the Company’s operations and costs.
The successful integration of AirTran and achievement of the anticipated benefits of the acquisition depend
significantly on integrating AirTran’s Employees into the Company and on maintaining productive Employee
relations. Failure to do so presents the potential for (i) delays in achieving expected synergies and other benefits
of integration or (ii) labor disputes that could adversely affect the Company’s operations and costs. In addition,
disputes regarding the integration of AirTran Employees could negatively affect the Company’s historically
positive Employee culture.
Pending operational integration of AirTran with the Company, it will be necessary to maintain a “fence”
between Southwest and AirTran Employee groups subject to CBAs, during which time the Company and
AirTran will continue to keep the Employee groups separate, each applying the terms of its own existing CBAs,
unless other terms have been negotiated.
The Company is expected to continue to incur substantial expenses related to the acquisition and the
integration of AirTran’s business.
The Company is expected to continue to incur substantial integration and transition expenses in connection
with the acquisition of AirTran, including the necessary costs associated with integrating the operations of
Southwest and AirTran. There are a large number of processes, policies, procedures, operations, technologies,
and systems that must be integrated, including reservations, frequent flyer, ticketing/distribution, maintenance,
and flight operations. While the Company has assumed that a certain level of expenses will 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 will be incurred are, by their nature, difficult to estimate accurately. These
expenses could, particularly in the near term, exceed the financial benefits the Company expects to achieve from
the acquisition, including the elimination of duplicative expenses and the realization of economies of scale and
cost savings. These integration expenses likely will continue to result in the Company taking significant charges
against earnings in future periods, and the amount and timing of such charges are uncertain at present.
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