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Will the majority of travelers forgive Southwest Airlines and start buying tickets on the major U.S. air carrier again?
To answer the question, it helps to have a deep knowledge in commercial aviation information technology operations, which safe to say, is not something most travelers possess or travel websites offer to consumers researching the latest airfares.
Southwest Airlines accepted the blame for its technological meltdown during the holidays, and it has committed over $1 billion to fixing it. The airline conceded what critics had ben saying for years and after the crisis were able to say even more forcefully — and to a much wider, angrier audience. It had not invested enough in scheduling software and as a result didn’t have staff in place properly, and couldn’t catch up once the system started cascading with flight cancellations.
According to airline experts who took part in a recent CNBC Technology Executive Council Town Hall, there’s been some signs of panic from the airline in answering this question itself.
“People have been booking away from Southwest in January and February. Southwest is, from my perspective, in a moderate state of panic,” said Henry Harteveldt, Atmosphere Research Group president and a travel industry analyst and advisor who formerly worked in airline marketing. He pointed to $29 fare sales, “something I haven’t seen Southwest offer in a long time,” he said. Bonus offers and other incentives to sign up for credit cards, and companion passes for frequent fliers, are other examples of great benefits for passengers worth considering as a return traveler to Southwest, he said, but added, “These are not the actions of an airline that is seeing business flow across the transom at the level they expect.”
Leisure travelers will return if the airline can prove its return to a former level of reliability, he said, but business travelers may be more reluctant, he added, depending on where they live and what other flight options they have. The biggest problem, though, isn’t the front-facing consumer efforts but that even a billion-plus dollars on operations spending can’t guarantee that Southwest steers clear of another tech meltdown in the future. Another very bad storm could produce similar results before an effective tech solution can be implemented.
Part of the issue is industrywide. While Harteveldt said there are examples of airlines doing a better job of investing in specialized systems required for the largest operators, it is only a few of the over 5,000 airlines worldwide that are making the necessary investments. In the U.S., he highlighted United Airlines, and globally, he pointed to like Singapore, Emirates, Air France, KLM group, IAG and Qantas, “that are doing a lot of smart things.” But he also said, “Every airline is just one bad storm, one major event, away from a disruption.”
“I don’t see a path for them to recover from complex, irregular operations like this on a normal day, with 100 to 200 flight cancellations,” said Eash Sundaram, JetBlue Airways former chief digital and technology officer. “I feel the pain of what the Southwest team went through. It’s not going to be easy for them to manage that kind of a one-off storm that hit them hard.”
Southwest declined an opportunity to take part in the Town Hall, but offered emailed comments from a spokeswoman afterwards addressing concerns voiced by the aviation experts, including the following:
“Over the past five years, we implemented numerous large-scale technology and business projects. This year, we have planned a $1.3 billion spend on upgrades and maintenance of our IT systems. The recent disruption accelerated plans to enhance our processes and we are heavily focused on assuring our customers experience Southwest’s 51-year history of safe, reliable, and hospitable air travel.”
Here are some of the highlights from the TEC conversation in which the aviation experts explained the reasons for their ongoing wariness.
Why $1 billion can’t buy confidence in Southwest
Part of the problem is within the company. This is a criticism that you don’t need to be an aviation expert to now know after all of the headline attention and hearings on Capitol Hill. Southwest’s plan to invest more than $1 billion in technology upgrades is a start, but Harteveldt told TEC members it is hard to have much confidence in Southwest as a tech company given the longer history.
“Southwest Airlines has a culture of kicking the technology can down the road for all 52 years of its history, started under Herb Kelleher, who is a great guy, great personality, but hated to spend money on anything that didn’t fly or bring a customer in,” he said.
Harteveldt noted that until 2017, Southwest was running on a reservation system “whose guts belong to Braniff,” an airline that went out of business in 1980s. “They have failed, summarily and consistently,” he said. “You can spend $1.3 billion on tech, but if it’s not spent on the right systems in the right way, you’re still going to have problems,” he added.
He also noted the recent warning signs ultimately went unheeded. In October 2021, there were air traffic control systems issues in Jacksonville that led to a temporary shut down, and “a little bit of bad weather that threw Southwest off for days and cost them $75 million. They didn’t choose to learn from that,” he said.
How the airline talks about technology is part of the problem
Helane Becker, airlines analyst at Cowen & Co, has covered the industry for decades and watched Southwest grow from being a small airline within the state of Texas to the largest domestic U.S. airline with about 21% market share.
Becker says that the way Southwest runs its network, a “point to point” approach that can send a Southwest Airlines’ plane from Fort Lauderdale to Dallas, LA to San Francisco to Denver to Dallas, “in a day” without a hub being used like a United Airlines’ plane out of Newark, makes its network unique when it comes to crew management.
“They were under investing in crew scheduling,” she said.
The Southwest spokeswoman said the airline has a long history of innovation and pioneering technology in the airline industry. “As one of the first airlines to issue paperless tickets, launch a website, introduce a mobile app and more, we’ve continued to invest in modernizing our operations,” she said.
But Becker said the focus on the consumer-facing technology is part of the problem given the complex nature of its hub-less network. “They did a lot of investment in customer facing things, making it easier to book on the app, making it easier to book through the web, and so on. Joining Amadeus and joining Sabre, making it easy for business people to book. They didn’t make it very easy for their employees. That’s the part that’s been missing,” she said.
Where there’s never enough money spent on airline IT
Sundaram said having been an airline chief tech executive, it’s important to understand there is always a budget challenge in place when it comes to investment in operations tech relative to commercial systems.
“Living the life of an airline CIO, CTO for 10 years, there was never enough money to spend,” he said. “There’s always a constrained budget. The commercial systems always take the priority because that’s the obvious visible stuff.”
“Historically, the operations space is the least invested,” Sundaram added.
BALTIMORE, MD – DEC 27: Hundreds of passengers wait in line to handle their baggage claim issues with Southwest Airlines at Baltimore/Washington International Thurgood Marshall Airport in Baltimore, Maryland on December 27, 2022.
The Washington Post | The Washington Post | Getty Images
There is also the issue of the sheer number of systems in use. Airlines don’t run on one big system, or two big systems split between operations and commercial. JetBlue had hundreds of different systems, he said, “that talk to each other to get that plane flying and customers checked in.” And the systems were developed over 50-plus years of advancements in aviation, as far back as things built in 1970s that communicate in the aviation industry.
From crew management to crew scheduling and crew communication, “it’s a whole ecosystem of multiple systems. It’s not just one big system that runs it. At JetBlue, we tried to extensively scan the marketplace, and there isn’t one single provider that actually could fit the needs of JetBlue,” he said.
Airlines also don’t like to change the systems not seen by consumers. Unlike a commercial system, which can be changed multiple times a year, “the operations folks, whether it’s crew scheduling or flight planning or communication, there is regulation surrounding these technologies that are like kind of rigid, and that you don’t want to change every day,” he said.
Combine that with the lack of return on investment from IT, and based on his experience at JetBlue, Sundaram said it’s an issue that may require airlines to work together rather than pointing to Southwest as the problem.
The complexity and the lack of ROI have historically pushed many companies to say, “We’ll wait for the next person to build this,” but he added, “Somebody needs to take a look at it as a macro industry and say we’re gonna invest in this platform and serve 100-plus airlines. … It’s too expensive to build one-off tooling for a Southwest or JetBlue or an American. And it’s going to take way too long unless the industry comes together.”
A chief information officer decision that is questioned
Harteveldt pointed to an organizational reason why he remains less than confident in leaving this problem to Southwest.
As part of its post-crisis decisions, Southwest named a new chief information officer, Lauren Woods, but she is not a direct report to the CEO. Woods reports to chief administration & communications officer Linda Rutherford. “They’re having the person report to the executive who also runs PR. That’s not how you structure it,” Harteveldt said. “Every CIO on this call knows the CIO needs to report to the CEO or at least the president of the company.”
The Southwest spokeswoman called that a mischaracterization of Rutherford’s role. “The Chief Information Officer position has reported to various Leaders over the years, including the position that Linda Rutherford currently holds. Linda Rutherford’s role as Chief Administration and Communications Officer brings together technology work happening throughout the Company,” she wrote.
But many tech executives agree with Harteveldt. In the current business world, regardless of industry, technology is so fundamental to operations that the top tech officer needs a direct line to the CEO. The Southwest issues are a good, cautionary tale for top tech officers to take into the CEO’s office, Harteveldt said. “If you don’t have strong technology, infrastructure, if you are not innovating or at least testing things, you will not have a strong P&L. You will not have a strong balance sheet.”
That’s an argument that a CTO or CIO can win, though it may take time, and not having a direct line to the CEO won’t help. One transportation executive told peers on the Town Hall — TEC members, unlike guest speakers, participate under Chatham House rules so they can speak freely — that three years ago his CEO pushed back against his requests for investment and told him something similar to what contributed to the Southwest issues: to focus on the technology for the company’s consumer-facing products, “and not the other side.”
“It took me three years to convince him that we are now a technology company. And we should focus on technology first,” the executive said.
What ultimately led to the CEO’s agreement: seeing all of the company’s competitors placing these technology aims at the top of the list.
Avoiding the next flight system meltdown may take too long
Even with over $1 billion to spend on technology, Becker estimates it will take at least a year to a year-and-a-half, sometime between now and 2025, for Southwest to do what it can on the IT end. And between now and then, there is no guarantee another set of issues, weather and systems related, won’t result in a similar situation for travelers.
“I’m not saying the same thing will repeat,” Sundaram said. “We’ve all learned from our past mistakes,” he said, noting JetBlue experienced at least a handful of major storms, not all of which resulted in “complete meltdowns,” though the airline did experience meltdowns, too. Procedurally, he said there are other things airlines can do while IT investments are falling short, with workforce management and cancellation policies as examples, to “mitigate some of this risk.”
But he was clear about the high hurdle to a quick tech fix: “You’re not going to find a system in the next 12 months to solve this. And the likelihood they’re going to have a storm in the next 12 months is pretty much there.”
“The question is, how long does it take to invest in a comprehensive crew management ecosystem? There is none today that addresses the need of a large airline like Southwest,” Sundaram said. “If they had one out of the box available, they would have gone and bought that. This is multiple years to go build it and with Southwest taking the risk of building it all by themselves. Or should the industry say we have 100-plus commercially viable airlines which can use this and somehow figure out a way to invest in building that?”
(With inputs from CNBC)