Southwest Airlines 2012 Annual Report Download - page 42

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.
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 alleged, among other things, that AirTran attempted to
monopolize air travel in violation of Section 2 of the Sherman Act, and conspired with Delta in imposing
$15-per-bag fees for the first item of checked luggage in violation of Section 1 of the Sherman Act. 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. After 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; and Las Vegas, Nevada. All of the
cases were consolidated before a single federal district court judge in Atlanta. A Consolidated Amended
Complaint was filed in the consolidated action on February 1, 2010, which broadened the allegations to add
claims that Delta and AirTran conspired to reduce capacity on competitive routes and to raise prices in violation
of Section 1 of the Sherman Act. In addition to treble damages for the amount of first baggage fees paid to
AirTran and to Delta, the Consolidated Amended Complaint seeks injunctive relief against a broad range of
alleged anticompetitive activities, as well as attorneys’ fees. On August 2, 2010, the Court dismissed plaintiffs’
claims that AirTran and Delta had violated Section 2 of the Sherman Act; the Court let stand the claims of a
conspiracy with respect to the imposition of a first bag fee and the airlines’ capacity and pricing decisions. On
June 30, 2010, the plaintiffs filed a motion to certify a class, which AirTran and Delta have opposed. The Court
has not yet ruled on the class certification motion. The original period for fact and expert discovery was
scheduled to end on February 25, 2011, but on February 3, 2012, the Court granted plaintiffs’ motion for
supplemental discovery because Delta discovered that it had not produced certain electronic documents. The
period for supplemental discovery against AirTran ended on May 3, 2012, but discovery disputes between
plaintiffs and Delta have continued. On June 18, 2012, the parties filed a Stipulation and Order that plaintiffs
have abandoned their claim that AirTran and Delta conspired to reduce capacity. AirTran and Delta moved for
summary judgment on all of plaintiffs’ remaining claims on August 31, 2012. The plaintiffs filed motions to
compel Delta to produce additional documents and for sanctions based on alleged failures to produce electronic
data. On November 19, 2012, the Court ordered plaintiffs to appoint an expert to examine Delta’s production of
electronic data and suspended the briefing schedule for the summary judgment motion until the expert has
completed his work. It is AirTran’s understanding that the expert’s work is ongoing. While AirTran has denied
all allegations of wrongdoing, including those in the Consolidated Amended Complaint, and intends 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 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.
The application of the acquisition method of accounting resulted in the Company recording a significant
amount of goodwill, which could result in significant future impairment charges and negatively affect the
Company’s financial results.
In accordance with applicable acquisition accounting rules, the Company recorded goodwill on its Consolidated
Balance Sheet to the extent the AirTran acquisition purchase price exceeded the net fair value of AirTran’s tangible
and intangible assets and liabilities as of the acquisition date. Goodwill is not amortized, but is tested for impairment at
least annually. Impairment charges could be recorded in the Company’s results of operations as a result of, among
other items, extreme fuel price volatility, a significant decline in the fair value of certain tangible or intangible assets,
unfavorable trends in forecasted results of operations and cash flows and the uncertain economic environment, as well
as other uncertainties. The Company can provide no assurance that a significant impairment charge will not occur in
one or more future periods. Any such charges may materially negatively affect the Company’s financial results. See
Note 1 to the Consolidated Financial Statements for further information.
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