The box-office hit The Perfect Storm (2000), starring George Clooney, highlighted a combination of three separate weather fronts that collided which led to one of the fiercest storms in recorded history in the North Atlantic Ocean.
During this past holiday season, several factors collided which led to major flight disruptions for Southwest Airlines. An historic number of flight cancellations and thousands of angry customers have resulted in major financial implications and operational challenges.
Let’s look at some of those factors to understand why Southwest’s ‘meltdown’ has similarities to The Perfect Storm.
One of the major problems identified in the Southwest Airlines meltdown was antiquated and unreliable scheduling systems. Southwest Airlines employs a low-cost business model whereby they compete by offering low prices (with corresponding low frills). In order to operate a low-cost business model, assets (i.e., airplanes) need to be heavily utilized (i.e., full of passengers) and moving throughout each day (i.e., flight crews servicing multiple airport locations).
Southwest Airlines uses a system called SkySolver to schedule flights (including fuel, pilots, and crews). With the major winter storm that wreaked havoc across large parts of the US during the holiday season, SkySolver did not have the technological capability to handle the massive number of changes, thereby creating a snowball effect (no pun intended) with even more flight cancellations as flight crews and airplanes could not be positioned from a network design perspective.
With over 13,000 flights cancelled, calls from frantic holiday travelers to Southwest’s customer service operators quickly overwhelmed that system as well. Customers were definitely not able to follow Southwest’s popular tagline of ‘You’re now free to move about the country.‘
In fact, many holiday travelers spent their holidays stuck in airport terminals across the US.
CEO Bob Jordan has identified spending on technology upgrades/improvements as a major initiative for Southwest to overcome these challenges and reduce the likelihood of them happening again.
Multiple employees commented that Southwest has had its head buried in the sand for years in terms of investments in operational processes and enhanced IT services. In an update to employees, Mr. Jordan shared “We can’t be our size and scope and have a lack of tools.”
This post is based on the Wall Street Journal article, How Southwest Airlines Melted Down , by Alison Sider, December 28, 2022; the Understanding Business blog post, Southwest’s Meltdown Creates Holiday Travel Nightmare, by Nichols/McHugh/McHugh, January 4, 2023; and the YouTube video in the Spotlight. Image source: l i g h t p o e t/Shutterstock
1. As businesses grow, so too does the need for additional investments to support the firm’s business model. In which areas could/should Southwest Airlines invest to reduce the likelihood of repeat problems?
Guidance: Suggestions include new ERP system with enhanced technology for optimizing flight scheduling; improved & redundant (i.e., backup) customer service processes; and investments in employee training.
2. How can modeling be used to proactively identify potential problems?
Guidance: ‘Black swan’ events—those that happen very infrequently but have major operational and/or financial implications—are nearly impossible to plan for. However, modeling can be used to identify potential problems across various systems (ex., airplane availability, flight crew readiness, customer service, etc.) such that a complete meltdown of business operations due to a ‘perfect storm’ can potentially be avoided.
3. What are some of the financial implications of operational processes failing, and what can be done to retain/win-back customers?
Guidance: Effective operations management (OM) has major implications for a firm’s financial performance. The combination of issues at Southwest Airlines led to lower asset utilization, higher costs, and lower revenue—three storms colliding for overall reduced profitability.
A few ideas for reducing customer dissatisfaction include discounts on future flights, letters or emails to all customers impacted by the disruption, and additional frequent flyer awards or miles.