Southwest: The Ghost Of Jack Welch Part II

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Viral joke of the week: Why is COVID-19 better than Southwest Airlines? At least it’s airborne. If you’ve been following the epic meltdown of Southwest Airlines this week—and how could you not?—there’s a grim truth in the joke. It will be particularly stinging for Southwest employees, who don’t deserve it, and a nasty rebuke of the company’s C-suite, who do. Or, at the least, the executives who followed Herb Kelleher’s retirement in 2001 are surely culpable, according to what reporting we’ve seen.

If the jokes and memes write themselves, so do competitor ads. Delta’s slogan could be, We Make Schedules, Not Excuses. At American, We Board You Like People, Not Cattle. United could go with When Your Bag Arrives, So Do You. Did you hear the one about the midnight text Southwest CEO Bob Jordon got? “Sorry to bother you on Christmas Eve, boss, but we’re having trouble with the Windows 3.0 OS for crew scheduling.”

Enough with the stupid jokes. I’m sure the memes will trickle on through January. Now comes the political circus as politicians and bureaucrats try to make lemonade out of Southwest’s blunder. While I’m sympathetic, especially to the rank and file employees who always gave Southwest a unique, friendly customer-centric ethos, the very same people had been warning that such a collapse was not just possible, but likely.

Both the pilot’s union (Southwest Airlines Pilot Association) and the flight attendants (Transport Workers Union) had complained for years that Southwest’s outdated technology for reservations and crew scheduling was fragile and vulnerable to disaster. “For more than a decade, leadership shortcomings in adapting, innovating, and safeguarding our operations have led to repeated system disruptions, countless disappointed passengers, and millions in lost profits,” the pilot union said in a statement.

On SWAPA’s Facebook page, a veteran Southwest pilot named Larry Lonero said this in describing the leadership of Gary Kelly, who took over when airline founder Herb Kelleher retired: “…as time went on the operation began to deteriorate. There was little investment in upgrading technology (after all, how do you measure the return on investing in infrastructure?) or the tools we needed to operate efficiently and consistently.”

This is a familiar refrain in describing modern public companies. “Shareholder value,” as pioneered by the since tarnished GE superstar Jack Welch, continues to animate companies to prioritize driving stock price over delivering the basic product or service or tending to customer service.

Cutting expenses is management’s go-to for driving earnings and minimizing customer service is a popular—and often invisible—way to trim what some companies see as “fat.”  There’s a reason computer-driven phone interfaces are programmed to make it all but impossible to connect with a human. Some companies are worse at this than others but what appears to have happened to Southwest is that its system had eroded to the point of not being able to handle the tsunami of disruption caused by a major storm during peak holiday travel. This may have been aggravated by staffing shortages at some of its stations. And that doesn’t even touch on the breakdown of its crew scheduling system. Flight attendant union president Lyn Montgomery said one of her members was on hold for 17 hours trying to check in with crew scheduling.

Southwest’s collapse isn’t necessarily an isolated case in aerospace. In his book, Flying Blind: The 737 MAX Tragedy and the Fall of Boeing, author Peter Robison traces how acolytes of Welch turned the company from an engineering/product oriented organization to one focused on shareholder returns. In short, it lost its way in its quest toward driving stock price. Ironically, with its fleet of 737s, Southwest suffered from that debacle. So has its stock price from its current troubles: Down to $33.40 from a year high of $48.07.

Ignoring the stock price, what happens next? Congressional hearings are being discussed as well as probes from the Department of Transportation, which means we’re entering the noisemaking phase. These investigations may reveal some curious details, but I suspect they’ll be more heat than light. In this three-minute mea culpa video, Southwest CEO Bob Jordan admitted to the company’s shortcomings and it’s no mystery what it will have to do.

The DOT has the authority to force airlines to honor their terms of carriage and to pay refunds, vouchers and reimbursements where required. But it doesn’t have the authority to insist on state-of-the-art IT nor to require that no customer shall be kept on hold for more than, say, 30 minutes. We could only hope.

I think some in the industry will say that Southwest has outgrown its point-to-point route model and that the legacy airlines’ hub-and-spoke is more resilient to disruption. That was painfully obvious in this episode, but I lack the information and knowledge to say whether more up-to-date IT would have saved it. Certainly they can do far better with crew scheduling.  

Southwest has consistently scored well on airline customer satisfaction surveys because customers like what it offers: Friendly crews, no change fees, free baggage, on-time performance and open seating. It’s often ranked as a discount airline, but hasn’t been that for many years.

This could be an inflection point for Southwest. If Herb Kelleher were still around, he’d have some over-the-top PR program to acknowledge the enormity of the screw-up and pledge to fix it with generous, customer-centric actions. (Plenty of people think it wouldn’t have happened in the first place if Kelleher were still in command.)

The airline has already started to claw itself out of the hole with reimbursements and refunds for stranded passenger. The less it argues about how much to pay whom, the better. And as they rebuild the company, managers will have plenty of time to find out how much all the money they saved in band-aid IT will actually cost them. Hint: multiple millions.  

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42 COMMENTS

    • It’s similar to the Applenoids who fall back on when minor glitch is bothering them- “This would NEVER have happened if Steve were still alive…”

      Herb was renown for being cheap, refusing to train for or maintain aircraft systems, or passenger amenities, mocking other airlines for spending on technology. I’m not so sure it wouldn’t have been worse.

      AAPL has done remarkably well under Tim Cook.

  1. Hi Mr. Bertorelli! I have an unrelated question I haven’t found an answer to, I was wondering if you could shed light on the real numbers since I assume you have the tools and data to easily calculate such things. I posted this same question in the comments section of your latest Youtube video. So, the question is:

    What does the cost calculation look like for direct ultra-long-haul flights, for example New York to New Zealand, with a massive fuel load vs. making at least one stop? Does it necessarily make sense from a cost and emissions standpoint to fly nonstop? Or could it be more fuel-efficient and cost-efficient to have at least one stopover to fuel up?

    -Let’s assume that the airline would look to optimise cost so they’d have a stopover point optimally on the route and maybe even negotiate the right to use a very fuel-efficient glide slope to that airport (so no long legs of low-altitude flying on power, instead a very direct glide like I believe they’ve pioneered in Sweden?)
    -That means no passengers on or off, no cargo/baggage, only as quick of a refuel as possible and then back in the air!
    -I understand that many passengers are willing to pay for saving the time wasted on stopping for fuel (approx. 45 minutes in total in an optimised and specifically planned stopover? What do you think the delay would be in total?), but let’s assume we’re looking to optimise cost and environmental impact, so we’re looking at cost and total fuel burn. So a low-cost carrier (or environmental) viewpoint

    I’d be very interested to seeing the calculations. Does it come down to the extra fuel burn from the heavy fuel load carried at the first half of the flight vs. the following variables from the stopover:
    -Extra fuel burn if need to fly level at low altitude during descent and landing
    -Extra fuel burn from taking off and climbing back to altitude
    -Anything else?

    There are other things to take into account I guess if we go further: they’d save the need to design and certify new versions of aircraft for those ultra-long flights, as well as train their staff for one more type in their repertoire…surely that could be a massive saving? An airline would also save maybe a little (not as much as before with so much commonality and standardisation between the different aircraft models) for having one less aircraft type in their fleet? Do pilots need to be trained specially for the ultra-long-haul aircraft types?

    Is there a meaningful efficiency difference in aircraft types if for example some route wouldn’t necessarily require as big of an aircraft as the ultra-long-haul aircraft are? Could they increase efficiency by using smaller aircraft, or is for example a smaller Airbus pretty much the same in efficiency over that distance as a bigger long-haul plane flying at lower occupancy level?

    I guess a further negative would be extra cost of having pilots and crew need to not only do those already very long flights, but their work time would be extended even further.

    ———
    Anyone else with real information on this subject please chime in too, but please don’t dismiss the stopover alternative outright just because you can think of one thing against it, please consider it an alternative that is really focused on by the airline and assume they’d invest a lot of work into optimising it. And please remember the issue we’re focusing on: cost and CO2 emissions. I do understand that one business model is based on customers who are prepared to spend more and cause a bit more emissions for a more time-efficient flight. I’d simply want to have people who really know their stuff provide concrete numbers for us to work with. It would be interesting to see the cutoff points in different scenarios, or if stopover flights can ever save any fuel at all even if it’s really invested into!
    I’d also appreciate insight into the economics of moving to stopover-refuel-flights from nonstop from the point of view of overall aircraft design, certification etc. costs and the cost of adding those new types into the fleet of the airlines and adding them to the servicing companies’ repertoires. How much would be saved if those ultra-long-haul aircraft were simply dropped altogether?

    • You would definitely enjoy university courses on aviation economics and flight planning. They can be accessed various ways around the world without necessarily enrolling for the whole lot. I can recommend visiting or phoning the relevant people when things are quiet between semesters.

      Your question specifically refers to striking a balance between the costs of tankering fuel vs the value to travellers of saving time and also avoiding an unnecessary airport en route. You also note a number of the factors airlines (I am thinking of Qantas in particular) are clearly interested to massage in their favour. I believe they’ve conducted successful “double sunrise” operations with excellent load factors.

      Aviation often boils down to a bunch of graphs and where the important lines cross or are maximally separate. From your post I do think you’d enjoy getting to the next level of understanding.

    • One important piece of info to remember is that the market isn’t very rational. I’m a huge fan of traditional economics, but here I think you will find that humans will pay a big enough premium for a non stop that the other costs are made moot. (I have zero actual knowledge here, just going off experience). Maybe it’s because I’m old, but stopping to stretch legs and eat better food isn’t a huge negative to me. Even small private planes with toilets often make unnecessary fuel stops for good prices when there’s also good food involved.

      You cannot calculate trade offs based on environmental factors without first having made determinations of the cost of the externalities. It seems to me most studies in this area are worthless because fudging those costs changes the conclusions, and bias is endemic. In fact, some of the bias is so obvious, it’s almost cute.

      You likely would enjoy some of the more serious games built around train and plane network building. If you are really determined, you might look into a company in Houston called PROS. They make software that helps airlines price tickets and run simulations.

  2. It’s sad but, the absolutely ‘ONLY’ thing on Southwest CEO Bob Jordan’s mind is if this computer disaster will hurt his pay check? The goldfish memory of the outraged public is very easily resolved with a couple months of lower fares. For the most part, Southwest Airlines appreciates all the free headline advertising they received over the Christmas holiday travel season. It will give Southwest more legitimacy going forward.

    . , if I may call you that?
    If you ever get involved with international flights you’ll find that customs, fees and taxes of taking-off, customs, fees and taxes of landing and customs, fees and taxes of taking-off again. Then customs, fees and taxes of landing again at the destination you would know that fuel burn is just a small portion of the flight’s expenses. Every country and every airport want their pound of flesh and it well exceeds the fuel cost.
    P.S. Ground support crews are not cheap either.

    • Hmm, for some reason my name appears as “.” instead of “CoiffedEagle” which I typed in and which AVweb shows as my login…

      Anyway: sure, that’s certainly a consideration, all the landing fees.
      But I’d think that if the airline only plans to land, refuel, then take off then they wouldn’t have to pay customs fees and ground support? Especially if they negotiate with the airport: either we get a good deal for a simple refuel or we don’t stop by.

      • Coiffed E, If you can negotiate fueling stop deals with bureaucrats you will be a multi-millionaire in a month. Every international airline in the world will knock your door down. The commercial charter outfits I know just do a 20 minute fuel stop between Washington State and Alaska at Port Hardy, B.C. Canada. Many times it has cost more then the fuel for the whole trip. Customs is a lottery, usually it goes as planned but, sometimes the aircraft, crew and passengers are held for week(s) at their own expense and we are calling our members of congress. Maybe Brittney Griner could tell a better story ❓

        Just look at the Southwest fiasco, fuel cost is the least of their fiscal worries right now. Transportation is much more complicated then the fuel burn. 😔

  3. One of the things I did before I retired was to work with my clients on something known as business continuity, or how to recover from a serious disruption and save your business. The first thing to recognize is whether your business is a conventional operation that can go down for a period of time, or whether your business is one that is considered essential and must be able to operate through an upset even while it is going on. The reason this is important is that the protective and recovery actions required are different for each type of business. But one thing that is essential in both cases is a robust communication system between management and the employees. Employees need to know what to do, where to go and they need to communicate back what they need to do their jobs. The other thing that is essential is to actually test the recovery program under real world conditions to see whether it actually works. It seems pretty clear that Southwest failed on both counts. Is such a program expensive? Absolutely. But then so is a disaster such as Southwest just encountered. The ultimate cost to repair their customer relations, pay any fines assessed by the government, and then actually put a functioning BC program in place will far exceed what it might have cost in the first place. Lest one thinks that such a program is not realistic, I had the privilege to work with the former Continental Airlines on their BC program. The final plan included a fully functioning offsite operations center, complete with a backup computer hot site that mirrored the main center’s operations. The system was put in operation during hurricane Ike and performed as expected. They shut down the main ops center, closed their Houston IAH airport hub and rerouted all flights to other locations without a single missed flight. Once the storm passed, the backup site continued until the airport was up again and the main ops center was back in business. Upper management said that the cost of the program was worth every penny. Yes, Southwest’s “disaster” was different, but winter storms are nothing new, and should be something they are able to handle. In the words of the old TV commercial, “You can pay now or pay later”.

    • Yes, and no…. This was different. I have no doubt SWA has a backup SOC and test drive it regularly. The issue is that the real-time planning and tracking software couldn’t keep up with a dynamic situation, and their data became stale so they lost the picture and control of their operation. Doesn’t matter where the data center is located, if the underlying software can’t handle the problems

      • Not necessarily true. The problem for Southwest was two-fold. The first was the planning software couldn’t handle the situation, and the second was their communication system with employees was totally inadequate. Both weaknesses could have easily been uncovered in a thorough system test. I don’t necessarily buy that point-to-point operations are any more difficult to handle than hub and spoke. Lose the hub for any reason and that system breaks down as well. As I said, winter storms are nothing new. All the airlines had plenty of warning that this one was coming, and it was going to be a doozy. The point of Continental’s backup ops center was that it forced them to conduct regular stress tests of the whole network to detect any weaknesses such as employee support and communications. Any recovery or continuity plan will only work if it is thoroughly and regularly tested.

    • Maybe someone smarter than me can figure out this question: Beyond a certain scale, is the point to point model just too tender to resist major disruption? And secondary question, if the crew scheduling had worked, could they have contained it?

      • Good to see this sort of questioning as opposed to the simplistic “it was entirely the fault of (answer supplied by author’s world outlook)”. Modern civilization has become exceedingly complex and, in the process, ever more vulnerable to cascading ‘perfect storm’ failures.

      • Aircraft tracking and crew scheduling are too complex to be handled other than by a good computer system. If that is working correctly, it doesn’t matter whether the airline is point-to-point or hub-and-spoke.

      • The point to point vs hub and spoke excuse is largely an outdated meme. SW, with a single aircraft type, has a simpler problem in the face of weather than a network carrier that flies seven to ten different aircraft types in complex, world wide operations. Flying in the US is easy, with lots of support and lots of options. SW doesn’t even fly redeyes, back side of the clock, because their scheduling system can’t integrate it efficiently enough to make it worthwhile. Even their Hawaii operations are primitive timing wise in comparison to other airlines and revenue capture.

        SW connects 30% of their traffic, they have more crew bases than the majors, and everyone wearing wings at SW can fly any jet that SW owns. That’s huge.

        Not sure about all airlines, but my carrier’s aircraft routings were extremely complex. The aircraft didn’t merely fly back and forth between a hub and outlying stations. They went all over the world. I’d also fly ten day trips, every other leg landing in Europe, with a different US city in between, and never touch a Hub other than the beginning or end of the trip.

        SW’s problem was 100% losing track of their crews because of the inability of crews to communicate with an overwhelmed crew scheduling staff.

        Their baggage woes, and some customers will never get their bags back, were moderately exacerbated by the “bags fly free” policy.

        They won’t change routings. They can’t, until they invest in a far more sophisticated network software and hire a cadre of experienced network planning experts. Don’t look for major changes there.

      • My understanding is that a pilot with AA developed a flight trade off app that enables pilots to trade flights. According to pilot friends this adds a lot more flexibility and adaptability to AA’s system. The app compliments AA’s crew scheduling system. Another culprit is the FAA crew rest rules which takes a lot of computer processing power.

  4. Nice article, Paul. I tend to believe Jordan’s intent is to address the issue and to keep similar breakdowns from occurring in the future. I don’t know if I’m confident enough to buy Southwest stock low and wait it out though.

    • Several winters ago I was at West Palm Beach airport returning to Oklahoma City via Dallas when a major st orm caused a massive wave of cancellations, including my flight on American. Southwest got me home, but it took going through Long Island/Islip and Chicago first, including de=icing the aircraft in Chicago. Of course, it was all a matter of who had what equipment and personnel where, but nonetheless it created a soft spot in my heart for Southwest, So I hope they get their IT act together.

  5. While everyone is focused on SWA. A senior Delta captain who I know made a public FB post to the effect:

    “Delta was within a whisker of having the same meltdown – we got lucky.”

    Is the problem more systemic?

    • Reminds of the old Arnold Palmer joke when a wag from the gallery commented this is 12-foot putt was a lucky shot. “Ya know,” Palmer is reputed to have said, “the more I practice, the luckier I get.”

    • No, and airline captains don’t know what is going on with respect to irregular operations. They simply don’t have the big picture, to say the least on ship routings, or airport and crew status. Delta and major airlines have sophisticated tools to proactively cancel flights based on a myriad of detailed information, including deicing throughput, crews and work time available, etc. Southwest’s core problem is that they lost the ability to talk to flight crews via any means. They were primarily dependent upon phone contact, and the phone lines were saturated.

      Other airlines use a variety of communications means that SW doesn’t have (yet). I could sit in the cockpit typing on a phone or iPad via Wifi or Cellular, and get answers from gate agents, maintenance, dispatch, flight safety, flight training, crew scheduling, or specially trained pilots who did nothing but provide solutions to typical problems all day long. The wait was seconds, not seven hours like the crews at SW were experiencing.

      Despite the conventional wisdom being parroted, SW’s operation isn’t more difficult because of route structure. They have a single aircraft type in essentially all domesting operations. They have far fewer aircraft than the major airlines, and fly fewer flights per day. SW claims to be the largest airline in the US, but they don’t fly the most passengers in the US. Compare that to an airline flying multiple aircraft types in world wide operations including complex code sharing and interlining.

      Southwest is also the most heavily unionized airline in the USA, and seeing their union leadership publicly criticize their airline in the middle of a disaster was shocking, It speaks volumes. They have deep issues that need to be resolved, and won’t be explained away with goofy jokes by flight attendants. They’re going to have to quit the excuses and invest. They will do what it takes, but it’s going to be expensive in terms of hardware, software and training. Two to three years before it settles down.

      And then they’ll have to begin planning on replacing the 737’s.

  6. Paul, I’ll agree on all except the analysis that the linear route structure is obsolete. Normally hub and spoke may be more efficient, right until the point that your hub melts down due to weather, ATC issues, etc. then a huge part of your route system is paralyzed. As SWA has shown, as well as some ‘connect-the-dots’ routes that Jetblue has done, linear routes can keep your airline moving away from the trouble spot. The issue here is that when the overriding infrastructure fails, then the whole airline grinds to a halt. And it’s not just SWA. I think each of the majors have had their internal infrastructure melt down, causing system wide chaos. (Well, ok, maybe not Delta, yet)

    • Except SW’s system didn’t work. The hubs, and SW connects roughly 30% of their traffic, recovered relatively quickly.

      It’s like the quote from Money Ball, “If he’s a good hitter, why doesn’t he hit good?”

      It’s a mistake to keep referencing theory when reality keeps showing that you can’t hit the curveball.

  7. A quick Wikipedia lookup on Mr. Kelly will explain the entire issue. The second sentence is the key in that article, It lists his academic credentials as BofA in ACCOUNTING. That explains everything. Money people should never, ever be allowed on the “Top Floor” unless called for or attending a meeting.
    Someone mentioned Boeing in a response and that is the best example of why money people are bad at management. Boeing was a top notch engineering and production company until the money folks got into the top offices. Then everything became about the bottom line and stock prices. The net result of numerous faulty decisions there are the 737Max issues, 787 production issues, and the KC-46 ongoing production-related problems that have infuriated the AF.

    Money people do NOT and NEVER WILL understand the intrinsic value in quality. That is not a measurable factor for them thus is totally irrelevant in their thinking. Keeping prices high and cutting costs (read corners) in production are measurable factors that they will glomp onto in a heartbeat. They will “cut-cut-cut” at every opportunity to try to raise that stock price and improve the bottom line. In almost every instance, this leads to failure with SWA, after Boeing, being the most current example. SWA did not invest in their infrastructure and, it appears, paid dearly for it. I work for a global transportation company and we suffer from this same issue. We have way too many computer programs that we rely heavily on that are still “green-screen”. Really? In this day and age, Cobalt, C+, C++ based programming? Programming that almost no one knows how to “fix” or “tune”? It is possible that they are going to move to more modern software but I’ll believe it when I am seeing it on the screen.
    Now, I do not say “slay the b*****ds” because financial folks are necessary. Someone has to keep the accounts balancing and the taxes being filed on time. However, they should never be in charge. Their training and inclinations are all headed in the wrong direction to be effective managers. They cannot fathom the value of training, infrastructure updating, and the amount of work an employee can really produce. They can’t understand that, like that road bridge they drive over daily has to be maintained and, sooner or later, replaced. Like that steel understructure, the same applies to IT but that is costly and they refuse to spend the money. When they do, they often cheap out and always fail to test enough to see if the program can withstand the stress of unforeseeable problems.

  8. The ability of a company to properly trade-off short term vs. long term investments is hampered by being publicly listed. The incentives are just too biased toward short term decisions. This fiasco is a perfect example. Ordinary leaders in public companies inevitably fall into this same trap. Only a rare kind of leader is able to make long term decisions in spite of these incentives. Often that leader is the original founder, who still carries with them a larger vision and focus on the company’s long term success.

    Contrast SouthWest with (for example) Chick-fil-a, which is private. When Covid hit, they reconfigured their app and all their parking lots for curbside delivery without missing a beat. The last time Chick-fil-a started really going downhill was… never.

    • GE is actually worse than the others because they have spun off disciples of the “GE way” to run other companies. If you own a Cessna or Beechcraft airplane, you probably remember that the price of replacement parts shot up a few years ago. That was because several former GE managers moved into the corporate office of Textron. They decided to make the parts department a profit center, and because of the virtual monopoly the manufacturer has over replacement parts, they could charge whatever they wanted with no recourse to customers. That’s the “GE way”.

  9. We can debate the economics on both sides regarding SW airlines debacle and what fixes it needs to truly be ‘fix’ the shortcomings and prevent (maybe) –another complete collapse until the “Texas steers come home -” — and hub v. spoke, etc., etc, SOC, IT, but as Klaus stated above: “The goldfish memory of the outraged public is very easily resolved with a couple months of lower fares.” —
    I was talking with a ” Z ” Generation couple – over this weekend that was caught up in this meltdown of cancellations themselves and their COMMENT was : ” Well, in a few months, when we need to be on the move again; we’ll see what their airfares $$ are… ”
    This, after they slept on terminal tile for 72 hours…

  10. The airline has put so many people in a state of “I can’t believe the airline has done this to us”. This will drive them away from ever flying with the airline again.

    My son got caught up in the mad mess and now has second thoughts of ever flying the airline again.

    Maybe a couple of flights being cancelled could be brushed aside, but to shut the entire operation down is just not acceptable. This was all brought on by the airline’s own failure to keep it’s computer flight crew system updated and their own customer call in phone system up to date.

    Shame on you SW. You created this system meltdown yourself. Now take your lumps on what the Federal Government hands down and how your customers react.

    Don’t try to blame this all on weather problems.