Failure to invest in modernising its IT estate contributed to what Southwest Airlines anticipates will be a colossal $825 million writedown in Q4, after it cancelled 6,700 flights between December 21 to December 31.
The airline exposed the losses in an SEC filing ahead of its Q4 earnings, saying half of the sum is attributable to lost revenues, half to increased compensation to customers and employees after the crisis.
The airline was badly affected by extreme winter storms dubbed a “weather bomb” over the period.
Southwest Airlines’ ageing IT left it unable to track the whereabouts of pilots and flight attendants, further exacerbating the crisis. As one pilot put it: “The frontline employees were ready and on station.”
“ We were properly staffed. We were at the airports. Hell, we were ON the airplanes.
"But our antiquated software systems failed coupled with a decades old system of having to manage 20,000 frontline employees by phone calls. No automation had been developed to run this sophisticated machine…”
Southwest Airlines technical debt: Phones, lots of phones...
Southwest does not have a quick, automated way to contact crew members who get reassigned, CEO Bob Jordan admitted in December: “Someone needs to call them or chase them down in the airport and tell them.
Lyn Montgomery, the president of Southwest’s flight attendants’ union told the New York Times that any flight cancellations result in crew having to manually call in to tell the company where they are, and to get accomodation booked: She showed screenshots of employees being left on hold up to 17 hours.
(At the end of its last financial year, Southwest Airlines had approximately 55,100 employees including 23,500 flight, 21,000 ground, customer, and fleet service, and 3,200 maintenance staff.)
While other airlines recovered quickly, Southwest Airlines flailed and failed to adapt: US Transport Secretary Pete Buttegieg said it cancelled 59% of its flights on December 28; other “major airlines” cancelled 3%.
Executives were warned: In November, Southwest Airlines Pilots Association (SWAPA President) Casey Murray said: “I fear we are one thunderstorm, one ATC event, one router brownout from a complete meltdown. Whether that’s Thanksgiving, or Christmas, or New Year, that’s the precarious situation we are in.”
Six years earlier, SWAPA had voted 20-0 in a vote of no confidence in then-CEO Gary Kelly, saying in 2016: "There has been an inability to prioritize the expenditure of record-breaking revenues toward investments in critically outdated IT infrastructure and flight operations. These decisions have directly lead to the operational failure at Midway Airport in January 2014, chaotic crew scheduling during the summers and holidays of 2014-2016, and our most recent "meltdown" related to technological infrastructure this past month."
Southwest Airlines technical debt issues: Not a CIO problem
Numerous reports have blamed IT failures or Southwest Airlines technical debt for the crisis and a flurry of popular posts on social media suggest “lessons” that CIOs could learn from the crisis over the winter.
Yet when a company takes an $825 million hit because assets have been sweated so dry over the years that they die of dehydration -- to extend a familiar corporate metaphor -- that is not a CIO failure, it's a CEO one.
And that, in turn, suggests that the "lesson" instead may be that boards need to hold leadership to better account and pay closer attention to what employees are saying; whether through unions or Slack channels.
Whilst in recent weeks CEO Bob Jordan has had to face the flak, few staff hold him accountable: Jordan only took the reins in February 2022. A former programmer with a degree in Computer Science, he is widely held to be invested in modernising Southwest Airlines’ technology; it takes a long time to turn a tanker however.
Most ire, instead, has been aimed at former CEO Gary Kelly, an accountant who ran Southwest Airlines for 18 years from 2004. As SWAPA puts it: “The Vote of No Confidence in Gary Kelly... [that we] took in 2016 after what was, at the time, the worst meltdown in our Company’s history has never been rescinded.
"We took that vote then because it was evident that neglect for tech infrastructure investment in favor of maximizing stock price was becoming an existential threat to our careers and our Company’s longevity."
"During Gary Kelly’s tenure as CEO, Southwest Airlines has returned approximately $12 billion to shareholders while increasing his own total annual compensation by more than 700% [sending the] clear message that the Company has excess cash on hand but that the CEO thinks there is no better place for investment of capital within his Company... all while subject matter experts, including our analysts at SWAPA, pleaded with management to make the investments into our tech infrastructure before we suffered an existential meltdown."
Gary Kelly remains Chairman of the Board at Southwest Airlines and his shareholders will be grateful to him for the financial management over the years that has generated such ample dividends. To build a lasting company however, you need to invest, including digital transformation. New York Stock Exchange’s (NYSE's) Corporate Accountability and Standards Committee proposed in the wake of the Enron scandal that the majority of listed corporation’s directors be independent. Perhaps this would have made a difference. Perhaps not. But it certainly drives home the importance of having robust independent voices on a board who understand the risks of failing to invest in digital transformation -- and failing to listen to the warnings from staff over many years.