Southwest Airlines 2015 Annual Report Download - page 31

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coverage via the commercial insurance marketplace. Although the Company was able to purchase
comparable coverage via the commercial insurance marketplace, available commercial insurance in the
future could be more expensive and/or have material differences in coverage than is currently provided
and may not be adequate to protect against the Company’s risk of loss from future acts of terrorism. In
addition, an accident or other incident involving Southwest aircraft could result in costs in excess of its
related insurance coverage, which costs could be substantial. Any aircraft accident or other incident,
even if fully insured, could also have a material adverse effect on the public’s perception of the
Company.
The Company cannot guarantee it will be able to maintain or improve upon its current level of low-cost
advantage over many of its airline competitors. Some of the Company’s competitors have achieved
lower employee pay scales through bankruptcy. Further, some competitors have continued to grow
their fleets and expand their networks, potentially enabling them to better control costs per available
seat mile. In addition, like Southwest, some competitors have 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 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, disruption, or breach 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 recent years the Company has been committed to technology improvements to
support its ongoing operations and initiatives and, as discussed above under “Business - Technology
Initiatives,” the Company has invested in significant technology changes. The Company is in the midst
of a multi-year project to completely replace its reservation system. In 2014, the Company launched
the Amadeus Altéa reservations solution to support the Company’s international service. The Company
has since begun implementing 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 implemented in 2017. The Company intends to continue to devote significant
technology resources towards, among other things, (i) the continued development of systems to
improve both revenue management and network optimization capabilities, (ii) the aforementioned
replacement of Southwest’s existing domestic reservation system with the comprehensive Amadeus’
Altéa reservations solution, and (iii) tools to 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. Modifications and refinements to the
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