Southwest Airlines meltdown underscores isolated management team
After a meltdown that resulted in 16,700 flight cancellations and could cost the airline more than $800 million, blame was laid on an outdated workforce scheduling system and an unusual point-to-point route network. Southwest was overwhelmed and unable to adjust when a severe storm swept across the United States.
Behind these specific problems, however, stands an isolated management team that critics say lacks the imagination and technological know-how to avoid such crises. While the bootstrap culture introduced by co-founder Herb Kelleher has made Southwest one of the largest airlines in the country, the company’s scale now requires new ways of thinking and investing in innovation.
“One wonders if there isn’t some sort of correlation or cause and effect here, where you have a pretty deadlocked, stagnant board, an executive team that you can build yourself because it was a very small, scrappy airline,” he said Keith Meyer, global head of the CEO and board practice at executive search firm Allegis Partners. “An entrepreneurial culture can only go so far.”
The southwest is full of life artists. Bob Jordan, who took over as Chief Executive Officer in February, has been with the airline for 34 years. The Chief Financial Officer and Communications Chief have each served 30 years while the Chief Commercial Officer and Chief Legal Officer have served at least 20 years. A newcomer to Southwest’s top management might come closest to Chief Operating Officer Andrew Watterson, who has been with Hawaiian Airlines for a decade before.
Jordan sees no problem with that.
“We have always been proud that we have trained managers here and that we have people with such long tenure,” he said in an interview. “You have very deep airline knowledge, functional knowledge and a very deep relationship that serves you well in normal times and when you get caught up in an incident like this.”
Southwest isn’t alone in recruiting from within. American Airlines Group Inc. senior management had been together since the mid-1990s, first at America West Airlines, then at US Airways before merging with American. The group first broke up when Scott Kirby moved to United Airlines Holdings Inc. in 2016 and later became CEO there.
“The airline industry in general is a bit behind when it comes to experimenting with outside executives, let alone their boards,” said Jason Hanold, CEO of executive search firm Hanold Associates.
The Southwest Mindset
But Southwest is in a unique position, with the challenges of a large airline and the mindset of a small one.
The airline, which began flying between a handful of Texas cities in 1971, has grown into a behemoth, carrying more domestic passengers than any other airline in recent years. This expansion has added complexity to the keep-it-simple business model, and the resulting cost pressures mean it often cannot offer the cheapest rates.
The airline’s focus on stretching every dollar has also made it more conservative than other airlines in a highly regulated, safety-centric industry that rewards consistency, said Samuel Engel, ICF’s senior vice president of innovation and former head of the consultant’s aviation group. It relies more on insiders because of “there’s an enduring belief that Southwest is different.”
Southwest’s 13-member board has an average tenure of nearly 12 years, compared to about six-and-a-half years at Delta Air Lines Inc. and American and five-and-a-half years at United, which agreed to a board reshuffle in 2016 at the behest of activist investors. None of Southwest’s directors have a technical background.
The airline has long had a reputation for being slow to adopt new technology and has spent years implementing a new reservation system and updating its maintenance operations. It’s now spending $2 billion to improve a stubborn Wi-Fi system, add in-seat power outlets, and install larger overhead bins.
“Southwest is the largest domestic airline in the United States and should act as such,” Helane Becker, an analyst at Cowen Inc., said in a research note. “There’s probably a lot of people with smart technology being laid off by tech companies that could help.”
Southwest has confirmed that updates to its crew planning system are behind other improvements, despite longstanding complaints from pilots and flight attendants. Watterson called the system his “Achilles heel” in the December collapse.
The airline has said it is examining every aspect of operations to find out what caused the meltdown and expects to reach conclusions “quickly”. It didn’t say how many passengers were affected, but the company is refunding travelers for canceled flights and hotels, meals and other related expenses.
Its shares have fallen slightly since the travel fiasco, although the broader market has rallied. Southwest collapsed 21% in 2022, the second-worst performance among the top five US airlines. The reputational damage could lead to more volatility, and its shares will underperform the S&P 500 index by 5% over the next two months, according to Nir Kossovsky, CEO of reputational risk insurer Steel City Re.
Jordan said he’s committed to getting the company back on track no matter what it takes.
“We have a 51-year history of doing really well and working really well,” he said. “This one event that matters will not define us.”
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