Southwest Airlines Crisis Exposes Close-Knit Network of Airline Executives

The operational chaos that engulfed Southwest Airlines Co. over the busy holiday period was a crisis that had been brewing for decades.

After a meltdown that led to 16,700 flight cancellations and may cost the airline more than $800 million, blame has fallen on an outmoded crew scheduling system and an unusual point-to-point route network. Southwest was overwhelmed and unable to adapt as a severe storm swept the US.

There is an insular management team at Southwest that is not very innovative and does not have the technology expertise to help avoid crises. The company has grown a lot since it was founded, and it needs to invest more in innovation.

According to Keith Meyer, global leader of the CEO and board practice at executive search firm Allegis Partners, it is possible that there is a correlation between a stagnant board and a lack of growth at an airline. He explains that a founder-based culture can only take an airline so far, and that a more diverse and experienced board may be necessary for further growth.

Southwest is full of long-time employees. Bob Jordan, who became CEO in February, has been with the airline for 34 years. The CFO and communications chief have each worked there for 30 years, while the chief commercial and legal officers have been with the company for at least 20 years. The closest thing to a newbie among Southwest's top management is Chief Operating Officer Andrew Watterson, who joined the company 10 years ago from Hawaiian Airlines.

Jordan does not see this as an issue.

"We're always proud of the fact that we've developed leaders here and that we have folks with so much tenure," he said in an interview. "They have a very deep airline knowledge, functional knowledge and very deep relationships that serve you well in normal times and when you get into an incident like this."

Southwest Airlines Co. is not the only company that recruits from within its ranks. American Airlines Group Inc.'s top leadership team had been together since the mid-1990s, first at America West Airlines and then at US Airways before the merger with American. The group first began to fracture when Scott Kirby moved to United Airlines Holdings Inc. in 2016 and later became CEO there.

"The aviation industry has been slow to experiment with executives from outside the industry, and even slower to appoint them to their boards," said Jason Hanold, CEO of executive search firm Hanold Associates.

Southwest Airlines is in a unique position, with the challenges of a major carrier and the mindset of a small one. The airline has been able to successfully navigate these challenges and continue to grow and thrive.

The airline, which started flying between a few cities in Texas in 1971, has grown into a huge company that has carried more domestic passengers than any other airline in recent years. That expansion has added complexity to its keep-it-simple business model, and resulting cost pressures mean it often can't offer the cheapest fares.

The airline's focus on cost-savings has made it more conservative than other carriers 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 consultant's aviation group. Southwest leans more on insiders because of "the continued belief that Southwest is different."

Southwest’s 13-member board has an average tenure that is nearly 12 years. This is compared to the average tenure of about six and a half years at Delta Air Lines Inc. and American. The average tenure is also five and a half years at United. United agreed to a board revamp in 2016 at the behest of activist investors. None of Southwest’s directors has a background in tech.

The carrier has a long-standing reputation of being slow to adopt new technology, and spent years implementing a new reservation system and updating its maintenance operations. It’s now spending $2 billion to improve a balky Wi-Fi system, add power ports at seats, and install larger overhead bins.

"Southwest is the largest domestic airline in the US, and it needs to start acting like it," said Helane Becker, an analyst with Cowen Inc. "There are probably a lot of smart technology people who are getting laid off from tech companies who could help it out."

Southwest has acknowledged that it has been putting updates to its crew scheduling system behind other improvements, despite long-standing complaints from pilots and flight attendants. Watterson called the system its “Achilles’ heel” in the December breakdown.

The airline is investigating what caused the meltdown, and expects to reach conclusions quickly. It hasn't said how many passengers were affected, but the company is reimbursing travelers for canceled flights and hotels, meals and other related expenses.

Southwest Airlines' shares have fallen slightly since the travel fiasco, even as the broader market has gained. The company's stock tumbled 21% in 2022, the second-worst performance among the five biggest US carriers. The reputational damage may lead to more volatility, and its shares 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 that he is committed to getting the company back on track, regardless of what it takes.

He said that they have a 51-year history of doing well and operating well and that this one significant event won't define them.