- Southwest Airlines' shares rebounded Thursday as cancellations for Friday declined drastically.
- Criticism of the firm's missteps and lagging technology has intensified, with CEO Bob Jordan taking the brunt of it.
- The airline's cancellation debacle occurred less than a month after a company executive called its scheduling system "the best in the world."
Southwest Airlines CEO Bob Jordan sits at the center of the storm after thousands of canceled flights during the holiday travel season, even as the company's shares rebounded Thursday amid falling cancellations.
Southwest shares rose 3.7% as the airline canceled just 39 flights Friday. That's a stark improvement from the 2,363 it canceled Thursday—58% of its flights—and the 2,510 it canceled Wednesday.
Less than a month after one Southwest executive called the airline's scheduling system "the best in the world," the carrier's stock fell 11% in this week's first two trading days as it remained the sole U.S. airline unable to recover in a timely fashion from the blizzard that pummeled the U.S. just prior to and during Christmas weekend. That storm killed at least 50 people across the country, devastated western New York with up to four feet of snow, and canceled thousands of flights.
By early this week, though, flight schedules for all but one U.S. airline had returned to normal. Southwest, on the other hand, has faced unprecedented scrutiny from passengers, airline unions, industry analysts, and members of Congress for its system-wide breakdown—scrutiny that could have far-reaching implications for the company and, in particular, its relatively new CEO.
This week marks the second time in 14 months that Southwest has canceled thousands of flights in a matter of days. In October 2021, the airline blamed bad weather, air traffic control problems in Florida, and staffing shortages for four days of logistical problems.
Last week's winter storm inevitably shut down air travel as it moved across the country. But Southwest's unique approach to passenger service left it unable to recover quickly, analysts and airline unions contend.
"Once one card falls, the whole house falls here at Southwest," said Casey A. Murray, president of the Southwest Airlines Pilots Association, representing most of the carrier's 10,000 pilots. "That's our problem. We couldn't keep up with cascading events."
Southwest, founded in 1971, revolutionized U.S. air travel by offering non-stop flights between smaller cities. Other large airlines then, and still do, implement a model that maintains large amounts of staff and airplanes at central hubs, requiring passengers en route to smaller cities to fly through those hubs.
"Once one card falls, the whole house falls here at Southwest."
Casey A. Murray, president of Southwest Airlines Pilots Association
Passengers quickly embraced Southwest's model, which negated the need for layovers and changing planes at hubs while traveling to smaller cities. However, analysts say the tighter turnaround times and shorter flights that model requires leaves Southwest vulnerable to storms affecting large parts of the country.
That's because it spreads staff and airplanes across dozens of locations rather than concentrating them at hubs, making it harder to access needed crews and planes in areas hit by bad weather—and harder to recover quickly after weather improves. Southwest said the recent wave of Covid, flu, and RSV surging across the country has made it even more difficult to find healthy replacement staff.
Weather and staff shortages aside, David Banmiller, president of the Falcon Group and former CEO of three airlines, told CNBC in an interview Thursday that Southwest's years-long expansion—it now serves 121 cities and 11 countries—has outgrown its model.
"The company is behind its competitors in 'sophisticated technology' required to quickly annualize, forecast, and alter schedules," Banmiller said.
Bullseye on Jordan
Blame this week has steered toward Jordan, who just a month ago lauded the company's smooth Thanksgiving travel performance, calling it "just incredible."
Southwest named Jordan, a longtime senior executive with the company, as its CEO in February. He replaced Gary Kelly, who had guided Southwest since 2004. Now, less than a year into Jordan's new role, the carrier's cancellation debacle already has critics wondering why the company continues lagging in technological innovation.
In a video Southwest released Tuesday, Jordan apologized for the company's troubles, admitting "this giant puzzle is taking us several days to solve" mainly "because we build our flight schedule around communities, not hubs."
Jordan said this week's cancellations represent a calculated decision to "reposition our people and planes," adding that he's optimistic the airline will get "back on track before next week."
Though Friday's vastly lower number of cancellations may indicate progress, Jordan likely will spend the next several months explaining how Southwest can avoid a repeat of the past week's mess.
"Our scheduling system is the best in the world,"
Andrew Watterson, Southwest's COO, at a media event Nov. 30
"People have a right to be really angry and annoyed," said Helane Becker, an industry analyst with Cowen Inc., in a Bloomberg TV interview Wednesday. "They should have invested years ago in these systems and didn't."
Aside from how much blame Jordan should shoulder for that, he conceded at a media event Nov. 30 that Southwest is "behind" the technological times.
"As we've grown, we've outrun our tools," he said.
But not all of Jordan's management team agrees. At the same event, Andrew Watterson, the company's chief operating officer, downplayed criticism of the company's technology. "
"That's a leftover image from decades ago -- I don't think it's true," Watterson said. "Our scheduling system is the best in the world."
Jordan, though, seems to recognize that his legacy as Southwest's CEO relies on fixing the causes of the cancellation nightmare while persuading everyone -- from passengers and investors to government officials and the company's workers -- that it won't happen again.
"Ultimately, though, this stops with me," he said in a message to employees. "I'm accountable for this and I own our issues and I own our recovery."
U.S. Transportation Secretary Pete Buttigieg agreed with analysts' assessments, telling ABC's "Good Morning America" that Southwest's breakdown goes beyond weather-related problems. He said the department "will mount an extraordinary effort" to ensure that Southwest fully compensates customers for the travel woes its cancellations caused.
Rep. Sam Graves, R-Mo., and expected head of the House Transportation Committee when Congress reconvenes next month, also indicated he expects the same. Just last month, three U.S. senators, including Senate Commerce, Science and Transportation Committee chair Maria Cantwell, D-Wash., urged the Department of Transportation to finalize a proposed rule ensuring airlines fairly compensate consumers for cancellations and delays, including hotel and meal costs.
"Southwest has built its reputation on customer service, and I expect them to do everything possible to make their loyal customers whole," Graves told Politico.
Meanwhile, Rep. Stanton, D-Ariz., said Congress should conduct hearings forcing Jordan, Southwest's CEO, to explain "why the airline has had two major episodes of flight cancellations within 14 months."