Southwest Airlines 2014 Annual Report Download - page 38

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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
33 percent of the Company’s operating expenses for the year ended December 31, 2014. In addition, as
of December 31, 2014, approximately 83 percent of the Company’s 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,” the majority of Southwest’s unionized Employees, including its Pilots;
Mechanics; Ramp, Operations, Provisioning, and Freight Agents; Flight Attendants; Material
Specialists; and Facilities Maintenance Technicians, are in unions currently in negotiations for labor
agreements, which could continue to put pressure on 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 could adversely affect the Company’s
operations.
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. 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 if 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 aircraft type, whether as a result of downtime for part or all of the Company’s fleet or
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