Southwest Airlines 2015 Annual Report Download - page 33

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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,
increased maintenance costs, or because of a negative perception by the flying public. The Company
believes, however, that its years of experience with the Boeing 737 aircraft type, as well as the
efficiencies Southwest has historically achieved by operating with a single aircraft type, outweigh the
risks associated with its single aircraft supplier strategy. The Company is also dependent on sole
suppliers for aircraft engines and certain other aircraft parts and would therefore also be materially
adversely affected in the event of the unavailability of, or a mechanical or regulatory issue associated
with, engines and other parts.
Any failure of the Company to maintain the security of certain Customer-related information
could result in damage to the Company’s reputation and could be costly to remediate.
The Company must receive information related to its Customers in order to run its business, and the
Company’s online operations depend upon the secure transmission of information over public
networks, including information permitting cashless payments. This information is subject to the risk
of intrusion, tampering, and theft. Although the Company maintains systems to defend against this
from occurring, these systems require ongoing monitoring and updating as technologies change, and
security could be compromised, confidential information could be misappropriated, or system
disruptions could occur. In the ordinary course of its business, the Company provides certain
confidential, proprietary, and personal information to third parties. While the Company seeks to obtain
assurances that these third parties will protect this information, there is a risk the confidentiality of data
held by third parties could be breached. A compromise of the Company’s security systems could
adversely affect the Company’s reputation and disrupt its operations and could also result in litigation
against the Company or the imposition of penalties. In addition, it could be costly to remediate.
Although the Company has not experienced cyber incidents that are individually, or in the aggregate,
material, the Company has experienced cyber attacks in the past, which have thus far been mitigated
by preventative, detective, and responsive measures put in place by the Company.
The Company’s results of operations could be adversely impacted if it is unable to grow or to
effectively execute its strategic plans.
Southwest has historically been regarded as a growth airline. However, organic growth remains
challenging because (i) the opportunities for domestic expansion could be limited; (ii) the Company’s
international network is small and not yet developed; and (iii) the Company has faced an increased
presence of other low-cost, low-fare carriers. As a result, the Company is reliant on the success of its
revenue strategies to help offset certain increasing costs and to continue to improve Customer Service.
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