Three lessons for CEOs from Southwest Airlines’ meltdown
A major winter storm over the 2022 Christmas holidays stranded thousands of passengers; Southwest canceled more than 15,000 flights, starting on Dec. 15. Much of the blame for this disaster has been assigned to Southwest’s network operating model: Southwest planes follow routes from one city to another, rather than operate from a hub where planes fly back and forth between two cities.
The network model provides greater utilization of planes and less time on the ground, but it is highly sensitive to disruptions, like those from major storms. Southwest managers failed to fully understand the weaknesses in their operating model and failed to mitigate them, and much of this failure came from massive under-investments in information technology.
What can CEOs learn from Southwest? Below are three lessons they would be wise to take to heart.
1. Understand the extent to which your firm’s strategy and operations depend on technology.
2. Assess whether the firm’s information technology is keeping the firm competitive and helping it innovate for the future.
3. Allocate scarce resources to developing new apps and refreshing old technology to remain competitive.
The CEO and other executives at Southwest failed in these areas. In a recent essay in the New York Times, Columbia University Professor Zeynep Tufekci describes some of the antiquated technology at Southwest. For example, the flight attendants’ union placed updating scheduling technology above its demand for increased pay. If a flight is canceled, evidently flight attendants must phone Southwest to let the company know where they are and arrange for hotel rooms. Attendants report being on hold for three to 17 hours making these calls. Tufekci asks why there is no smartphone app or website for the attendants.
It appears from a Southwest spokesperson in the essay that the company does have technology for scheduling crews and aircraft, but it was overwhelmed by the magnitude of the disaster and the airline had to revert to manual scheduling. The scheduling system is either old and has not kept up with the growth of the airline or it has not been stress tested or both.
Underinvestment in IT by an airline is surprising because American Airlines and IBM developed the first online reservations system over 50 years ago. And a jet airplane is one of the most complex machines built today: A 737 has over 367,000 parts from hundreds of vendors. For many industries the cost of computer hardware and software can seem daunting in comparison with other investment costs, but that 737 has a list price of over $100 million. And according to Planespotters.net, Southwest has 745 planes in service, though I would guess they get a quantity discount ordering multiple planes at once and probably lease a good number of their aircraft. To staff the cabins, Southwest has over 60,000 flight attendants. The Southwest Pilots association claims a membership of almost 10,000 pilots. These flight crews fly to around 121 destinations.
The Southwest flight and crew scheduling app was overwhelmed by the holiday storm. So imagine human schedulers trying to restore a network covering 121 destinations served by over 700 aircraft flown by almost 10,000 pilots with over 60,000 flight attendants. It is amazing that it only took about a week to restore operations to normal.
Without the opportunity to review Southwest’s systems, it is difficult to make recommendations to the airline, but I do have two suggestions for getting started. First, search for existing software from third parties or other airlines to drastically improve the process for crew members to notify the airline of their location and arrange lodging. Second, acquire expertise in operations research, especially network analysis, and simulation to develop a robust recovery system for disruptions to the Southwest network. As an aside, the University of Maryland’s Robert H. Smith School of Business, where I’m an emeritus professor of information systems, has faculty members who are experts in operations research, simulation and information technology.
Tufekci points out that in the years before the pandemic, Southwest bought back its shares using $8.5 billion of “excess” cash. Shareholders, and certainly customers and employees, would have been better served if some of the excess cash had been invested in technology to improve operations and make them more robust. I wonder how many firms have undertaken stock buybacks while underinvesting in technology?