Southwest Airlines’ recovery from its meltdown will be expensive and risky
The epic breakdown of management at Southwest Airlines over the past several days, which resulted in not just passengers, but crews and airplanes ready to fly but unable to file the requisite paperwork owing to information systems failure, will be studied in business schools for many years to come. The proximate causes of this catastrophic breakdown – antiquated computer systems for scheduling (and much more, see below) and partially eschewing a hub-and-spoke route structure – have been widely discussed in the media. But a few important details have largely escaped notice.
Management Information Systems (MIS)
Southwest has avoided heavy investment in computerized MIS for decades, preferring to keep operations simple, (the KISS principle: keep it simple, stupid). The most famous example is the absence of reserved seats, instead using the so-called cattle-call system of boarding in groups by a number determined by the time of check-in or payment of an extra fee. Southwest’s computers don’t have to keep track of seat reservations, relieving them of an enormous burden. But there are a number of other limitations to its information systems that are less well-known by the public.
Southwest cannot accept foreign currencies for air travel. For many years, it eschewed international flying and now flies exclusively to destinations in Mexico, Central America, and the Caribbean, where nearly all of the potential passengers buy their tickets in the United States and pay in dollars. Obvious markets in Canada and elsewhere are left unserved as a result. Toronto executives wanting to fly to New York or Chicago, for instance, must spend their money elsewhere.
Southwest’s computers are also unable to handle a flight scheduled past midnight, necessitating a date change. For this reason, Southwest has no red-eye flights at all, keeping its flight grounded in the middle of the night. For an airline that stressed low fares in its early years, that is a conspicuous absence. Incidentally, although Southwest offers advance purchase discount fares, it is no longer a low-fare leader, and its “walk-up” fares for immediate use are as high as anyone else’s coach fares. Southwest’s nonexistent business- and first-class offerings are another example of KISS at work. So, too, is its use of a single airplane family, the Boeing 737, for all its routes, enabling tremendous simplicity and flexibility in pilot and crew scheduling.
Southwest has managed to get along without an advanced MIS by structuring operations with an eye toward speed and simplicity and by investing in a corporate culture that stresses teamwork, flexibility, and trying to keep employees happy and devoted to doing their jobs well. I spent almost 3 decades traveling extensively in business and have had many good experiences with Southwest staffers who went out of their way to accommodate my needs and have even written letters to the company HQ praising the extra efforts they have shown. No other airline comes close in this respect, though Delta is a step above the rest of the domestic industry.
Aviation discussion boards have for years debated whether Southwest has or doesn’t have a hub-and-spoke system. There are several airports such as Denver, Phoenix, Chicago Midway, Nashville, and others where Southwest has over a hundred flights a day, and where lots of passengers change planes. But Southwest does not schedule “banks” of arrivals and departures concentrated in an hour or 90 minutes, and does not, for the most part, have planes and crews that mostly fly from the hub to a spoke and back again. Its airplanes and crews, therefore, are not concentrated as much in a few massive hubs, the way Delta’s are in Atlanta, Minneapolis, Detroit, and Salt Lake City, or American’s are in Dallas, Chicago, Miami, and Phoenix.
A Southwest 737-700 at Phoenix Sky Harbor Airport where Southwest has a large operation that it does not call a "hub."
Photo credit: Werner Lehman CC BY-SA 2.0 license
The absence of mega-hubs limited Southwest’s ability to undo the chaos when its MIS completely broke down, with planes and crews scattered in more locations. But it is the computer system failure that turned complexity into catastrophe.
How does Southwest solve the problem?
Unquestionably, Southwest will need to invest heavily in computerized information systems and in training its staff to use them. Both will be very, very expensive. With staff already overworked, finding time to train people in the new systems will be difficult. But compared to the loss of revenue in a peak travel period, the cost of compensating passengers for delays, and the loss of goodwill, even spending a billion dollars or more will not be excessive.
Once Southwest commits to computerized scheduling and has the hardware and software for other applications, such as accepting foreign currency and operating red-eye flights, new business opportunities will open up.
But there is a risk in moving toward a computer-driven as opposed to a team-driven approach. Staff inevitably will lose flexibility and decision-making authority. Many will see their tasks simplified and will enjoy the relief. But others will feel penned in.
The biggest risk, aside from the inevitable screw-ups as new systems are implemented, will be damage to the very positive corporate culture Southwest has worked hard to sustain. The basic reason why I always took a Southwest flight if it met my schedule was that the employees didn’t hate each other or hate the flying public the way that employees at other airlines often do. Southwest never went through bankruptcy and used that to chisel down employee compensation, the way many other airlines did. For the most part, Southwest had pride in its company.
Regaining that pride and keeping the positive points of its culture while relying more on MIS to handle tasks is the big challenge ahead for Southwest. I hope its management team and employees are up to it. The domestic airline business is largely a de facto cartel and losing the largest carrier of domestic passengers would be a huge blow.