Southwest Airlines’ top executives say the company’s technology, staffing and scheduling plans didn’t fail in late December, even after a holiday meltdown in which 16,700 flights were canceled and the carrier forced the shutdown of two-thirds of its operations.
Facing a Department of Transportation inquiry for “unrealistic scheduling of flights” and a slowdown in bookings to start the year, Southwest CEO Bob Jordan defended the company’s maligned technology systems and operating plans. He also tried to assure travelers that a breakdown of the magnitude that happened in December won’t “ever happen again.”
“Based on what we know at this point, our processes and technology generally worked as designed,” Jordan said during the company’s year-end financial results call Thursday in which Dallas-based Southwest announced a $220 million loss for the last three months of 2022.
That includes an $800 million hit from the operational meltdown and another $300 million to $350 million revenue loss from fewer bookings in January and February “associated with the operational disruptions in December 2022.”
Southwest also refused to back down on calls to reduce the number of flights to start 2023 while it steadies its operational issues, saying it will hold with plans to fly about 10% more in the first quarter than it did a year ago.
While Southwest’s cancellation problems have settled since December, Southwest is still outpacing other carriers, said Cowen analyst Helane Becker.
“We are surprised to see that capacity growth expectations have not changed significantly for FY23 or the March quarter,” Becker wrote in a note to investors. “This could be a cause for future concern given the severe operational issues previously experienced in their network over the holiday season and in the months prior.”
Southwest has been under pressure to deliver solutions to the problems behind December’s cancellation event in which its crew rescheduling software was unable to keep up with a large number of flight cancellations caused by a winter storm that hit important airports in Denver and Chicago.
Other airlines including Fort Worth-based American and Chicago-based United have taken shots at Southwest for the cancellations.
“We were very adequately staffed to operate our fourth quarter flight schedule, feel very confident in our aircraft network, and we have a sophisticated technology product that we call ‘the Baker’ that produces new aircraft solutions during irregular operations,” Southwest chief operating officer Andrew Watterson said. “At no time during the disruption did the point-to-point journeys of the aircraft present us with an unsolvable problem.”
Even while defending the technology shortfalls, Jordan said the company is on track to spend $1.3 billion this year on technology and infrastructure upgrades, not including money to upgrade Wi-Fi and add power outlets to flights. That includes existing plans to upgrade technology for its ground operations team, flight planning and operations.
“The recent disruptions will likely accelerate some of our plans to enhance our processes and technology,” Jordan said.
Southwest has hired consulting firm Oliver Wyman to dissect the meltdown and figure out what is needed to prevent another.
Company leaders initially blamed the company’s crew rescheduling software, calling it “overmatched in situations of this scale.”
During the crisis between Dec. 21 and 29, Southwest Airlines was unable to keep up with the need to reassign pilots and flight attendants to new flights after their old flights were delayed or canceled. At one point, Southwest lost track of many of its crew members while pilots and flight attendants waited on hold for eight hours or more to talk to crew scheduling representatives.
Those problems grew after bad weather cleared on Dec. 23 until Dec. 26, when the crew scheduling fiasco became so unmanageable that the company had to shut down two-thirds of its flights for the next three days to “reset” the network.
Union pilots and flight attendants at Southwest have called for technology upgrades for years after smaller-scale meltdowns in 2021 and early 2022 that left crew members without hotels and transportation during stretches of heavy cancellations.
But now Jordan is saying the company’s crew rescheduling software, a GE Digital product commonly called SkySolver, worked as designed.
“I wouldn’t call it a GE Digital issue,” Jordan said. “That software they sold to us and others performs well in normal times.”
Instead, Watterson called it a “functional gap” because of the large number of cancellations causing reassignments for hundreds of pilots and flight attendants across the country in a short period of time.
“It is that not a common practice to get so far behind,” Watterson said.
The company is working with GE Digital on an upgrade to prevent the kind of problems Southwest faced in December. Southwest is testing the software patch and it should be ready soon.
Even after committing $1.3 billion to technology infrastructure spending, Third Bridge analyst Chris Raite said Southwest likely needs to spend another 5% to 10% on technology to keep up.
“It’s incredibly difficult to do a complete overhaul of your systems because it is very disruptive to operations,” Raite said. “There is a certain limit to the pace that these initiatives can happen given the 24/7 nature of airlines.”
Jordan said the cancellations weren’t caused by inadequate staffing either. The company hired more than 10,000 workers in 2022 and is planning to hire about 7,000 workers this year, especially pilots, who have been in high demand across the industry.
As with other interviews over the last two weeks, Jordan said the meltdown was a unique set of circumstances caused by freezing temperatures hitting important airports with Southwest crew bases.
“I think this event was very different, but I would acknowledge that there are things that we need to work on as we continue to grow the operation and become even more efficient and use technology,” Jordan said.
