Southwest Airlines 2014 Annual Report Download - page 37

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have continued to grow their fleets and expand their networks, potentially enabling them to better
control costs per available seat mile. In addition, some competitors have announced plans to add a
significant number of new aircraft to their fleets, which could potentially decrease their operating costs
through better fuel efficiencies, and lower maintenance costs. Some of the Company’s competitors
have taken advantage of reorganization in bankruptcy, and even the threat of bankruptcy, not only to
lower employee pay scales, but also to decrease operating costs through renegotiated supply and
financing agreements. In addition, some airlines have consolidated and reported significant expected
cost synergies.
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 and, as discussed above under “Business - Management Information
Systems,” the Company has invested in significant technology changes to support its initiatives. For
example, during 2014, the Company selected Amadeus’ Altéa reservations solution as the Company’s
future single reservation system for both domestic and international reservations. This single
reservation system is expected to be delivered over a multi-year period. The Company intends to
continue to devote significant technology resources towards, among other things, (i) the development
of new systems to improve both revenue management and network optimization capabilities,
(ii) replacement of Southwest’s existing domestic reservation system with the comprehensive
Amadeus’ Altéa reservations solution, 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,
in connection with the increase to the Transportation Security Fee discussed above under “Regulation -
Aviation Taxes,” modifications and refinements to the Company’s systems were required in
connection with both the July 2014 implementation of the Transportation Security Fee increase and
amendments to this increase in December 2014. In addition, software was developed for Pilot
scheduling in response to the DOT’s and FAA’s 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
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