Southwest Airlines 2015 Annual Report Download - page 32

Company’s systems have been and are expected to continue to be expensive to implement and may
divert management’s attention from other matters. In addition, the Company’s operations could be
adversely affected, or it could face imposition of regulatory penalties, if it were 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 41
percent of the Company’s operating expenses for the year ended December 31, 2015. In addition, as of
December 31, 2015, 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; Facilities Maintenance Technicians; Flight Crew Training Instructors; and Source of
Support Representatives, are in unions currently in negotiations for labor agreements, which could
continue to put pressure on the Company’s labor costs. Increasing labor costs 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.
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