Southwest Airlines' meltdown
Southwest Airlines' catastrophic December meltdown came as no surprise to any of the airline's frontline workers. Years in the making, this meltdown happened because Southwest's management lost touch with its employees and became fixated on accounting metrics, stock buybacks and institutional investors. This meltdown was predictable and preventable, and the pilots of Southwest saw it coming.
Herb Kelleher, the late legendary CEO of Southwest, was an operational leader. Kelleher spent time on the front lines of the airline; he lived and breathed the day-today operation, and he knew the people who ran it. Everyone in the airline, from the front office to the front end of Southwest's fleet, had a shared goal: Take care of customers by running an efficient operation and take care of one another. Customers loved it, and employees loved working for Southwest.
In 2004, Gary Kelly became the new CEO after Kelleher retired. An accountant, Kelly rose to prominence at Southwest by creating a unique fuel-hedging program that protected Southwest from historically volatile jet fuel prices. When fuel prices spiked in the late 2000s, Kelly's program saved Southwest approximately $3.5 billion and propelled the airline to dominance over the domestic market. Yet, under Kelly, it was the balance sheet - not taking care of employees so they could take care of customers that became Southwest's new focus.
Kelly's and his accountants' battle cry was "return on invested capital" (ROIC). No decision at Southwest was made without evaluating its impact on ROIC. Employees were now referred to as "cost units" instead of Herb's "warriors." Wall Street was pleased as stock buybacks grew. Under Kelly, the airline expanded to more than 700 airplanes and added 60 new markets. Southwest generated enormous amounts of revenue, acquired AirTran Airways and scooped up new market share with promises of "Bags Fly Free" and "No Change Fees." But trouble was on the horizon.
The airline had doubled in size, yet it continued to operate with the same 1990s technology. Our pilots saw reliability begin to suffer and warned managers on multiple occasions that the airline had outgrown Southwest's homegrown IT infrastructure. Kelly's handpicked managers in Southwest Flight Operations, who didn't frequent the front line, pointed to metrics and costs, and summarily dismissed our suggestions to invest in the stability of the operation. Kelly had allowed Southwest to drift from Herb's focus on operational excellence.
Small-scale operational failures started happening with alarming regularity starting in 2014 and have occurred every year since. After each meltdown, Southwest Airlines Pilots Association (SWAPA) offered recommendations and solutions to make the operation more stable and efficient. Instead of partnering with us, Southwest's ROIC-focused managers doubled down on their outdated way of doing business. One of our airline's captains, a 35-year veteran of Southwest Airlines, summarized it perfectly when he said that "we could see that the wheels were about ready to fall off the bus. But no one in leadership would heed our pleas."
Kelly announced his retirement in early 2022, and Bob Jordan was named the new CEO. Prior to this meltdown, Jordan and his chief operating officer told Southwest employees that they recognized the need for new tools and technology to run the airline, but it was already too late.
Less than six weeks ago, on Nov. 14, I recorded a podcast for Southwest's pilots. On it, I said: "I fear that we are one thunderstorm, one ATC (air traffic control) event, one IT router failure away from a complete meltdown. Whether that's Thanksgiving or Christmas or New Year, that's the precarious situation we are in."