Two weeks before Southwest Airlines’ epic meltdown, the company’s chief executive was overjoyed about the company’s profitability, performance and customer service, describing his team to Wall Street analysts as an “aviation industry.” Not just the best on the planet.
Dallas-based Southwest is beginning to stabilize operations, but industry observers say the impact of this week’s implosion could affect its legendary reputation for customer service. For Southwest Airlines, known as an industry pioneer, this is a rare moment. It is the only U.S. airline known for being consistently profitable for over 50 years.
Southwest prepares for near-normal operations after meltdown
But experts say the company’s business model and recent growth made the debacle inevitable this week.
“This is more than just the storm of the century,” said Andrew Inkpen, a management professor at Arizona State University’s Thunderbird School of International Management, citing a union statement that Southwest has delayed upgrading its information technology systems. “This exposed them, but they will be exposed one day.”
Although the winter storms that affected Southwest Airlines’ operations were extreme, some of the logistical problems that ensued were not entirely unforeseen.
In October 2018, then-CEO Gary Kelly said on an earnings call that controlling costs was the company’s top priority, and that other items may have to wait. He cited upgrading the investment team’s technology, according to records compiled by S&P Capital IQ. “For the last 10 years we’ve been starving them a little bit because our focus has been on the more commercial side,” he said.
In February 2021, Southwest updated its information technology risk disclosures in its securities filings, noting that it “postponed a significant number of technology projects” during the pandemic. The company continues to invest in technology, including “flight planning and scheduling,” he added.
Southwest declined to give its executives an interview. “It is too early to speculate on the root cause or cause of this week’s disruption,” the company said in a written statement.
The sudden turmoil cast a shadow over Southwest’s strong recent performance. The airline expanded to 18 new cities during the pandemic, more than any other airline in its industry, and this month became the first airline to restore dividends to shareholders. Southwest posted record quarterly earnings this summer, had its best operating performance on Thanksgiving, and had less than 1% of its flight cancellations, management said.
Southwest turned a deaf ear to calls to upgrade technology ahead of meltdown, union says
The company says it now operates 742 aircraft in 42 U.S. states and 10 other countries, starting in 1967 as a cocktail napkin in a San Antonio hotel bar. Attorney Herb Kelleher and pilot Lauryn King sketched the idea of a low-cost airline that would shuttle passengers between Dallas, Houston, and San Antonio.
Southwest has established itself as a bearish airline whose flight attendants donned go-go boots and hot pants and whose marketing evolved from the airline’s beginnings in the Dallas area of Love Field. The airline logo is a heart and the LUV is a stock quote.
Business went well. As it has grown, Southwest has become a model for corporate success, lauded for business school case studies, and known for its healthy corporate culture and customer relationships. Unlike other major U.S. airlines, Southwest has remained consistently profitable and has grown to be one of the largest domestic airlines by passenger numbers.
For years, Michael Mazeo, a professor of strategy at Northwestern University’s Kellogg School of Management, said, “If you want a case study of a well-run company, it’s Southwest Airlines.”
Company reports for shareholders are full of praise for the workplace and customer service, and punctuality and customer satisfaction metrics are incorporated into executive bonus calculations. They also have loyal customers, thanks to relatively cheap flights and simple perks like travel vouchers that never expire.
Before the pandemic, the Southwest had a steady annual profit in a turbulent industry dating back to at least 1978, according to Capital IQ data. Experts say Southwest Airlines is the only major U.S. airline that has never been forced into bankruptcy.
As the airline expanded to other cities, it kept fares low by routing passengers to smaller airports in big city hubs like Chicago’s Midway. , stripped it down, offered peanuts instead of in-flight meals, and did not offer a designated seat. Importantly, it has adopted a system that flies passengers from city to city, rather than routing passengers through a central hub like other airlines. This is a strategy aimed at reducing costs and reducing layovers.
But this strategy, known as point-to-point, also has vulnerabilities. A problem at his one airport or point in the network can set off a chain reaction that is harder to contain than a centralized hub model.
“If you don’t start on time, it’s hard for a point-to-point network to keep up with on-time performance,” Southwest COO Andrew Watterson told analysts earlier this month. “We are planning initiatives to reduce the impact of the disruption and reduce recovery time.”
Upgrading technology in outdated systems can be expensive, and Southwest Airlines spent a lot of money improving ground operations such as reservation systems, maintenance records and baggage handling.
The task of ensuring crews stay in the same place as planes and scheduled flights is part of modern aviation’s highly complex dance, largely invisible to the in-flight public until something breaks down. When a sphere blast blew through much of the United States, bringing Denver and Chicago airports to a near halt, the Southwest’s aging software was suddenly exposed to the public eye.
Southwest was unable to place crews in those cities on the rest of the network. The software the company relies on to restart operations was overwhelmed, and much of the work had to be done manually, company officials said.
Mazzeo, a professor at Northwestern University, said Southwest University, despite its reputation as a model company, is known to invest in technology upgrades and has the ability to quickly address such issues. said it was not.
“The irony here is that all the typical surprises of the Southwest as a business model have their downsides,” he said. “It’s like fine china. It looks great.”“
Southwest Airlines faces regulatory scrutiny as thousands of flights canceled
This isn’t the first time in recent memory that Southwest Airlines has been forced to cancel flights en masse for days. In October 2021, a minor disruption cost him $75 million. Analysts at Raymond James & Associates expect the company, which reportedly made $277 million in revenue last quarter, could turn a profit in his final three months of the year. .
Donna Roberts, a professor of psychology at Embry-Riddle Aeronautical University, said in some ways fixing broken scheduling technology is more important than repairing Southwest Airlines’ reputation with stranded consumers. She has never taken a Southwestern flight, but said she knows the company’s founder very well in an industry that is often colorless. .
“The Southwest is like America’s sweetheart,” she said. “They need to win back the hearts and minds of consumers and regain their trust.” I urge you to be flashy about what you create.”
Jeff Garaska, a 37-year-old Dallas-area resident, told the Post that after waiting nine hours with his family at Love Field on Christmas Day, he ended up having to go home. He said the experience was awkward, especially since his bag arrived at its destination without him and his family.
However, the father of two said the bag had now been delivered to him and the airline had fully refunded his ticket and included an additional travel ticket.
“This kind of situation seems like a one-in-a-million type. [Southwest]”I’m sure we’ll probably go back and use them again in the future.”