Southwest Airlines 2013 Annual Report Download - page 36

The Company is increasingly dependent on technology to operate its business and continues to implement
substantial changes to its information systems; any failure or disruption in the Company’s information
systems could materially adversely affect its operations.
The Company is increasingly dependent on the use of complex technology and systems to run its ongoing
operations. In addition, technology is critical to the success of the Company’s strategic initiatives. In recent years
the Company has been committed to technology improvements to support its ongoing operations and initiatives.
For example, the Company has invested in significant technology changes to support initiatives such as the
implementation of connecting capabilities between the Southwest and AirTran reservations systems, Southwest’s
Rapid Rewards frequent flyer program, introduction of the Boeing 737-800 to its fleet, enhanced southwest.com
website, WiFi implementation, and live television connectivity. In addition, the Company has added new
reservation system technology to support Southwest’s international itineraries and, in January 2014, began
selling its first international itineraries to be flown by Southwest aircraft. The Company intends to continue to
devote significant technology resources towards, among other things, (i) continued improvement of its revenue
management technical capabilities, (ii) replacement of Southwest’s existing domestic reservation system with a
comprehensive system that would provide Southwest with the ability to serve both domestic and international
markets, and (iii) a new suite of operational tools that the Company expects will improve operational
management.
Integration of complex systems and technology presents significant challenges in terms of costs, human
resources, and development of effective internal controls. Integration also presents the risk of operational or
security inadequacy or interruption, which could materially affect the Company’s ability to effectively operate its
business. The Company is also reliant upon third party performance for timely and effective completion of many
of its technology initiatives.
In the ordinary course of business, the Company’s systems will continue to require modification and
refinements to address growth and changing business requirements, including requirements related to
international operations. In addition, the Company’s systems may require modification to enable the Company to
comply with changing regulatory requirements. For example, new software was developed for Pilot scheduling in
response to the DOT’s and FAA’s new flight, duty, and rest regulations that went into effect in January 2014.
Modifications and refinements to the Company’s systems have been and are expected to continue to be expensive
to implement and may divert management’s attention from other key initiatives. In addition, the Company’s
operations could be adversely affected, or it could face imposition of regulatory penalties, if it is unable to timely
or effectively modify its systems as necessary.
The Company may occasionally experience system interruptions and delays that make its websites and
services unavailable or slow to respond, which could prevent the Company from efficiently processing Customer
transactions or providing services. This in turn could reduce the Company’s operating revenues and the
attractiveness of its services. The Company’s computer and communications systems and operations could be
damaged or interrupted by catastrophic events such as fires, floods, earthquakes, tornadoes and hurricanes, power
loss, computer and telecommunications failures, acts of war or terrorism, computer viruses, security breaches,
and similar events or disruptions. Any of these events could cause system interruptions, delays, and loss of
critical data, and could prevent the Company from processing Customer transactions or providing services, which
could make the Company’s business and services less attractive and subject the Company to liability. Any of
these events could damage the Company’s reputation and be expensive to remedy.
The Company’s business is labor intensive; therefore, the Company would be adversely affected if it were
unable to maintain satisfactory relations with its Employees or its Employees’ Representatives or if the
Company were unable to employ sufficient numbers of qualified Employees to maintain its operations.
The airline business is labor intensive. Salaries, wages, and benefits represented approximately 31 percent
of the Company’s operating expenses for the year ended December 31, 2013. In addition, as of December 31,
2013, 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
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