The Great Southwest Meltdown Of 2022

A lot of people have been asking for an explainer on what is going on with Southwest Airlines and the massive meltdown that has occurred. I’m almost at a loss for words: Southwest is the largest US domestic airline. They serve 23 of the top 25 markets in the US. One of my friends is currently stranded with his cat in Las Vegas, and Southwest can’t get him back home until *checks notes* 2023.

Shelby is unimpressed by slot machines, which do not dispense kitty treats

When it suits them Southwest says, in effect, “we’re a small carrier serving small places, the rules shouldn’t really apply to us” (whether it’s safety or anything else) but the reality is that they’re a major airline. They should be considered as such, and treated accordingly.

However, Southwest is highly unusual. Their IT is almost entirely homegrown, with software they built themselves. It’s creaky and antiquated – you’ll observe this if you watch their schedules. They’re irregularly and manually loaded into the system. The majority of airlines use standardized reservations systems like Sabre, Amadeus, etc. which integrate well with other standardized tools. While Southwest has kinda sorta migrated to Amadeus, they only support limited integrations in specific circumstances.

Other airlines (apart from Allegiant, Southwest, Spirit, Frontier and a couple others like Avelo and Breeze) have relationships with airport hotels so they can issue vouchers to stranded passengers and crew. They also work with each other in a system called “interlining” where they take each other’s passengers to avoid total systemic meltdowns like these. For example, when Delta melted down in the past, American and United have bailed them out (and vice-versa). In this case, it’s the week between Christmas and New Year, and there are no seats on other airlines to book their passengers into. Even if there were, there is no interline agreement. So Southwest behaves like an ultra low cost carrier (where you expect poor service and paid a fare to match, rather than the above-market fares Southwest often charges), basically says “see you next week” and dumps you wherever they left you.

So, about aircraft positioning and crew scheduling – Southwest is essentially a short and medium haul airline. They mostly don’t do long haul services except for Hawaii. Southwest turns aircraft quickly, in less than 30 minutes. They have higher aircraft utilization than any other major US airline. They often run their crews on tight loops where they’re out from home and back the same day so they can save money on accommodating crews who overnight away from their home base. This is all really clever and it works really well until it doesn’t.

So when Southwest melted down due to weather events, they didn’t have nearly the number of rooms reserved that they needed for their own crew, and it was Christmas so hotels were full. Crews often did not get rooms. They just got dumped like passengers at airports. At least there are crew break rooms at most airports, but it’s not very comfortable. Major airlines usually have enough hotel relationships to be able to work something out (American has had some issues too) but Southwest does not.

The airline now has a problem where they need to figure out where all of their crews are (lacking accommodations, some have found their own way home), and where their planes are, and whether either are where they need to be, and basically redo their entire crew and aircraft scheduling plan for the whole airline. The only real way they have to do this (because of the way they operate and their limited IT capabilities) is to stop for an entire day and set to work inventorying their assets and crews and then build out entirely new trips for everyone.

However, they were also just really mean to everyone who works for them, and who knows what that will do for the motivation of their employees. They effectively required employees to come to work sick, making others sick just before they’re most needed to recover the operation. Given Southwest’s checkered past with safety, will they pressure employees to work when they really aren’t fit to fly? I personally hope the FAA is watching.

Anyway, how does Southwest fix this? Just like in IT security, every time there is a high profile problem, there is a vendor promising to magically fix everything with AI. Unfortunately, just like in IT security, the problem space is also very complicated and AI is not good at solving most of these problems. One way they could handle it is already proven, it’s just expensive: holding crews and aircraft in reserve to recover from irregular operations. Qantas successfully does this.

A week ago, Qantas had an A380 unexpectedly land in Azerbaijan. They thought there might be a fire in the cargo bay so they landed in Baku. It turned out there was a real problem with the aircraft and it couldn’t be promptly repaired in Azerbaijan, a country which doesn’t frequently see A380s. So, Qantas sent a rescue flight, something that Southwest has repeatedly proven they lack the capability to do. Because Qantas plans ahead for emergencies (and they absorb the expense of doing so), they were effectively able to recover their operation.

To be fair, it’s not just Southwest who does their route planning this way. You see the same sort of problems with Flair Airlines in Canada. They’re an extreme example but fairly representative. Flair serves 34 destinations with 24 aircraft. You can imagine the follow-on impact if any flight, on any leg, has a problem. So why would an airline do this? It seems crazy, right? Well, it’s a question of incentives.

This holiday season could have worked out really well for Southwest, had everything gone according to (a very aggressive) plan. Southwest did their route planning the same way that most American companies do supply chain planning: “just in time” with no slack or contingency planning. If it all melts down, they simply dump the problem on their customers. Southwest, after all, legally has no responsibility to practically anyone except for their shareholders. They are covered by their Contract of Carriage and US Department of Transportation rules (which are lasseiz-faire at best).

You didn’t get home for Christmas? You got stranded in Las Vegas for a week? Well, dear consumer, Southwest won’t help you, the government won’t help you, nobody will compensate you for the losses you suffered, and you also can’t sue because the federal government has given airlines a liability shield along with endless taxpayer bailouts. If you don’t like it, you’re looking at one middle finger from the federal government, and another from Southwest.

One last piece of airline trivia before I leave you all to digest this post. American Airlines cancelled less than 1% of its schedule yesterday. Southwest cancelled over 70% of its schedule. Southwest will likely (successfully) claim that under the Contract of Carriage, they do not have to pay for stranded passengers’ hotels. Keep this in mind any time that politicians show up saying that every problem will be fixed with tort reform to keep evil class action lawyers from driving up costs.

What’s the fix? Liability. Airlines are actually run by really smart people. They’re just allowed to optimize for only one thing: shareholder returns. As it turns out, this hasn’t worked out any better for essential services like airlines than it has for any other sector of the US economy. We need to be OK with the idea that corporations have obligations other than shareholder value, and those obligations extend for longer than this quarter’s earnings call. Create damages which aren’t excluded from class action liability, and airlines will suddenly become extremely interested in reliability (as well as extremely interested in a DOT-regulated standard for weather delays and disruptions).

I don’t personally think re-regulating is the solution, as many pundits have proposed. Instead, financial accountability is the solution. The US should just copy EU 261 from the European Union. It has worked very well to improve airline reliability in Europe because there are actual financial penalties paid to consumers. There have still been occasional meltdowns, but far smaller scale than the largest domestic passenger airline in the US entirely collapsing for multiple days.

Some people will say that this will drive up costs, making flying more expensive. With respect, I observe that you can routinely fly over 1,500 miles within Europe for under 22 euros:

It’s long past the time that airlines should get a free pass (if they ever should have). Real, financial penalties are a market-based solution to encourage airlines to improve reliability. Organizations respond to incentives, and the federal government must create the right ones.

12 thoughts on “The Great Southwest Meltdown Of 2022

  1. DKF says:

    Great article tprophet! As a former executive at several public companies, i could not agree more with your assessment on the near maniacal focus of short term earnings.. Shareholder return is obviously very important but it should not be (and doesnt have to be) a trade off for the long term health of a company or the consumer experience. I can only imagine every annual budget meeting at southwest leading up to this year where the CIO has repeatedly asked for IT infrastructure investments only to be denied because it would hurt earnings or disrupt the pe ratio for the quarter.

  2. 3ric says:

    It’s been awhile since I’ve read it but I could have sworn there was some very specific rules related to canceled flights and delayed flights in the contract of carriage.

    something something $2,500 if a flight is over 4 hours late?

    1. TProphet says:

      I see nothing of the sort, but feel free to prove me wrong! The Contract of Carriage is here:

      1. Lucky225 says:

        4.c. Refunds
        (6) Significant Delays or Involuntary Cancellations. If a Passenger’s scheduled transportation
        is significantly disrupted by the Carrier before the Passenger has reached his or her final
        destination as a result of a flight cancellation, Carrier-caused missed connection,
        significant flight delay, significant schedule change, or omission of a scheduled stop
        caused by the Carrier, Carrier may do one of the following:
        (i) Transport the Passenger at no additional charge on another of Southwest Airlines
        (ii) Refund the fare for the unused transportation in accordance with this Section 4; or
        (iii) Provide a Flight Credit or a Transferable Flight Credit depending on the fare
        purchased for the unused portion of the Customer’s fare in accordance with this
        Section 4. See also Section 9.a.

  3. Bob Washburne says:

    Anything that will force a corporation to even entertain the prospect of an obligation besides maximizing profit is a form of regulation. Giving the FAA teeth & incentive to enforce the regulations currently on the books would help as well.

    Thank you for that excellent explainer. No real shocking reveals, but great information!

  4. Haley says:

    Does this constitute as involuntary denied boarding, for which customers are entitled to financial compensation? DOT (allegedly) requires a payout to customers who are kicked onto delayed flights. If the delay is 2 or more hours they’re entitled to 4x the cost of their flight or $1550, whichever is lower. Source: Money Lawyer Erika on TikTok, 12/20/21 post.

    1. TProphet says:

      Unfortunately not. Involuntary denied boarding relates to overbooking situations (e.g. where the airline sold more seats than is on the plane, and the flight operated). Whether or not the airline overbooked, if the flight doesn’t operate, it’s not treated as an overbooking situation.

      1. Lucky225 says:

        9. Service Interruptions
        Refer to Section 8 for conditions applicable to international travel.
        a. Failure to Operate as Scheduled
        (1) Canceled Flights or Irregular Operations. In the event the Carrier cancels or fails to
        operate any flight according to Southwest Airlines published schedule, or significantly
        changes the schedule of any flight, or there is a significant delay, Carrier will, at the
        request of a Passenger with a confirmed Ticket on such flight, take one of the following
        (i) Transport the Passenger at no additional charge on Southwest Airlines next flight(s)
        on which space is available to the Passenger’s intended destination, in accordance
        with Southwest Airlines established re-accommodation practices; or
        (ii) Following a request by the Customer, refund the unused portion of the Customer’s
        fare in accordance with Section 4.c.


  5. vysyus says:

    I don’t know what the exact regulations are, but I can say that I had my ticket fully refunded for having a 5+ hour delay in the EU (with Vueling, a low-cost Iberia Airlines subsidiary). All I had to do was to file a claim through their website and after confirming flight and banking details via e-mail, I got the full refund fairly quickly, so at least in my case the system seems to have worked OK.

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