Home IT management Southwest Airlines Crisis Exposes 3 Reasons Why Great Companies Stumble

Southwest Airlines Crisis Exposes 3 Reasons Why Great Companies Stumble

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Southwest Airlines Crisis Exposes 3 Reasons Why Great Companies Stumble

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Long known for staunch customer loyalty, affordable fares and industry-leading profitability, Southwest Airlines now faces the aftershocks of its biggest crisis.

In late December, while other major carriers reported modest disruption, nearly 16,000 cancelled Southwest flights stranded travelers, pilots and cabin crew.

Pundits swiftly offered simplistic perfect storm explanations, trumpeting how the airline’s lack of hubs and antiquated scheduling technology were no match for reinvigorated holiday travel demand and nationwide severe winter weather.

That all may be true, but, in a search for answers, Southwest’s CEO Bob Jordan has far deeper concerns. According to CNBC, he emphatically told employees, “There will be immediate work to understand what lessons are learned here and how we keep this from ever happening again, because it cannot happen again.”

The reality is that the meltdown’s roots are neither merely tech issues nor unique. The answers Jordan seeks lurk in three common corporate maladies that impede strategy execution, diminish competitiveness and erode cash flow. Each drags performance and, at times, rapidly mushrooms into grand disaster.

Plain view

Large scale enterprise complexity inherently fuels risk and fragility. While major crisis storylines often differ, three fixable modern management missteps rarely vary.

1. Leaders underestimate the real business cost of technical debt.

Companies in all industries are hobbled by outdated, fragmented, malfunctioning, non-scalable and vulnerable IT systems. Yet, many boards overlook technical debt and miss its far-reaching business implications. While typical fixed asset borrowing is repaid with interest over time, tech debt grows silently “off the books” without any funding requirements and stealthily imperils operational excellence aims.

In Southwest’s case, flight and crew scheduling is managed by a mainframe-based software called SkySolver. When the system is overwhelmed, schedulers, pilots and flight attendants surprisingly resort to manual processes. Last month, as the backlogs grew, phone lines jammed and wait times at overwhelmed passenger and crew call centers escalated. Southwest COO Andrew Watterson lamented, “There just was not enough time in the day to work through the manual solutions.”

Tim Crawford, CIO strategic advisor at AVOA, explained, “And that is just the crew problem. Planes were out of position too. For large airlines like Southwest, they often use antiquated flight and crew management systems that are decades old. While newer versions and products exist, operating an airline is incredibly complicated. Major systems include reservations, airline inventory, flight operations, crew operations, loyalty, departure control, revenue management, partner management and the list goes on.” Such scale and complexity compound faltering tech infrastructure’s risks.

Southwest estimates the cancellations will reduce its 2022 Q4 earnings by up to a staggering $825 million. That loss includes nearly $425 million in lost revenue and the rest in ticket refunds, expense reimbursements and overtime pay. The airline’s stock is down 16% in the past month and its company valuation now stands around $20 billion — just slightly above early pandemic levels.

Congressional inquiries, regulator scrutiny and class-action litigation will follow. Fines, attorney fees, time-consuming testimony and report preparation only up the real cost of technical debt. That’s a massive, additional cash flow burden as airlines grapple with price pressure, inflation, unions and marketwide talent battles.

2. “Trust, but don’t verify” management weakens business resilience.

Daily business complications should never preclude long-term investment, astute diligence and meaningful oversight. In all enterprises, senior leadership must understand redundancy reliability and the costs and consequences of system failure. In turn, CIOs and tech leaders must proactively convincingly demonstrate and test credible back-up plans, procedures and tools well before they are needed.

It seems unlikely that Southwest’s board and c-suite exercised sufficient oversight, demanded such verification or funded much-needed tech upgrades.

In an October 2021 CNBC television interview, Southwest’s current Executive Chairman of the Board and then CEO Gary Kelly characterized the airline’s technology as “wonderful,” but also acknowledged, “There’s technology that’s required to reschedule our flight crews, so we have flight attendants, we have pilots, we have airplanes and once it gets behind, it’s just difficult to get that back together so I think the opportunity is to improve on that process. It’s called repair. It’s complicated, but we definitely have some good opportunities there.”

That was 15 months before the December 2022 crisis and after several smaller-scale travel disruptions. Clearly, deeper questions and real fixes were comfortably deferred.

3. Executive resistance to bad news is most enterprises’ fatal flaw.

Even if Southwest’s board and c-suite were not proactive in resolving technical debt, instituting redundancy plans and monitoring implementation progress, the risks of antiquated scheduling technology was spotlighted by their unions for several years.

“We’ve been harping on them since 2015-ish every year,” Southwest pilots union vice president Mike Santoro said. Last year, the Southwest flight attendants union in a letter to management remarkably prioritized “modernization of the antiquated reserve system” and “improved communication tools to alleviate long scheduling hold times” above pay increases. These worrisome signals clearly weren’t just negotiating ploys.

There’s an important lesson for all companies. Southwest routinely makes best employer rankings. Executives cannot be content with employee satisfaction alone — they must persistently uncover, assess and resolve difficult workplace issues. After all, senior leaders’ fundamental stewardship obligations rests in ensuring “what must go right” as much as preventing “what could go wrong.” That takes open communication.

Love Lost

Permanent Equity CEO Brent Beshore best crystallized the quiet truth companies face, arguing, “All businesses are loosely functioning disasters, and some are profitable despite it. At 30,000 feet, the world is beautiful and orderly. On the ground, it’s chaotic and confusing. Nothing ever goes to plan. Surprises lurk around every corner. Things are constantly breaking. Someone is always upset. Mistakes are made daily. Expecting anything less is out of touch with reality.”

Southwest’s crisis offers a perfect, relatable example to compel all senior executives to demand excellence from their enterprises, systems and investments. Yet, too often the corporate mirror responds with what leaders want to hear. Where’s the tough love?

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