After the fallout that caused 16,700 flight cancellations and likely cost the airline more than $800 million, the fault lay with an outdated crew scheduling system and an unusual network of point-to-point routes. The Southwest was overwhelmed and unable to adapt when severe storms hit the US.
But behind that particular problem is an insular management team that critics say lacks the imagination and technological expertise to avert the crisis. While the bootstrap culture cultivated by founder Herb Kelleher turned Southwest into one of the nation’s largest carriers, the size of the company today demands new ways of thinking and investment in innovation.
“It makes you wonder if there is no correlation or cause and effect here, where you have an established, stagnant, leadership team that grows on its own because the airline is so small.” said Keith Meyer, global leader of the CEO and board practice at executive search firm Allegis Partners. “Founder-based culture can only take you so far.”
Southwest is full of lifers. Bob Jordan, who took over as CEO in February, has been with the airline for 34 years. The chief financial officer and chief communications officer have each worked there for 30 years, while the chief commercial officer and legal officer have at least 20. The closest to a newbie among Southwest’s top management may be Chief Operating Officer Andrew Watterson, who joined for a decade . past of Hawaiian Airlines.
Jordan doesn’t see it as a problem.
“We are always proud that we have developed leaders here and we have people with many positions,” he said in an interview. “They have very deep airline knowledge, functional knowledge and very deep relationships that can help you in normal times and when you go through something like this.”
Southwest doesn’t just hire from within. The chief executive of American Airlines Group Inc. have been together since the mid-1990s, first at America West Airlines, then US Airways before the merger with American. The first group began to break up when Scott Kirby moved to United Airlines Holdings Inc. in 2016 and later became the CEO there.
“The airline industry more broadly has been a little late in experimenting with outside executives, let alone their boards,” said Jason Hanold, CEO of executive search firm Hanold Associates.
Southwestern mindset
But Southwest is in a unique position, with major carrier challenges and a small mindset.
The airline, which began flying between several cities in Texas in 1971, has grown into a giant that carries more domestic passengers than any other airline in recent years. These expansions add complexity to established business models, and the cost pressures that result often make it impossible to offer the lowest prices.
Airlines focused on stretching each dollar have also been more conservative than other operators in a highly regulated, safety-focused industry that rewards consistency, said Samuel Engel, senior vice president for innovation at ICF, and former head of the aviation consulting group. It depends more on insiders because they “continue to believe that Southwest is different.”
Southwest’s 13-member board has an average tenure of nearly 12 years, compared with about six and a half at Delta Air Lines Inc. and America and five and a half in United, who agreed to revamp the space in 2016 at the behest of activists. investors. None of Southwest’s directors have a technology background.
The operator has a longstanding reputation for being slow to adopt new technology, and has spent years implementing new reservation systems and updating maintenance operations. It’s now spending $2 billion to improve its Wi-Fi system, add power ports to the seats and install bigger trash cans.
“Southwest is the largest domestic airline in the US and should act as such,” Helane Becker, an analyst with Cowen Inc., said in a research note. “There are probably a lot of smart tech people getting fired from tech companies that could help.”
Southwest has acknowledged updating its crew scheduling system behind other improvements, despite longstanding complaints from pilots and flight attendants. Watterson called the system the “Achilles heel” of the December breakdown.
The airline said it was examining every aspect of its operations to find out what caused the crisis, and expected to “soon” reach a conclusion. It did not say how many passengers were affected, but the company reimbursed travelers for canceled flights and hotels, meals and other related expenses.
The stock has fallen slightly since the trip’s failure, though the broader market has picked up. Southwest fell 21% in 2022, the second-worst performance among the five largest US carriers. Reputation damage could lead to more volatility, and the stock will underperform the S&P 500 Index by 5% over the next two months, according to Nir Kossovsky, CEO of reputation risk insurer Steel City Re.
Jordan said he is committed to getting the company back on track, regardless of what it takes.
“We have a 51-year history of doing very well, operating very well,” he said. “This one event, the important one, will not define us.”
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