For commercial pilots, no journey is over until they have safely landed the aircraft and taxied to a halt. Tell that to executives of Southwest Airlines, the US discount carrier.
At an early December investor presentation, bosses boasted about operating performance during the US Thanksgiving holiday. During that week in November, Southwest cancelled only 70 out of more than 26,000 flights, an industry-leading performance.
The 2022 Christmas holiday provided a humbling comeuppance. Following a cold snap and storms, Southwest cancelled thousands of flights. Passengers and their luggage were left scattered across America.
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This failure has been blamed on the airline’s “point-to-point” flight routing. Antiquated technology may have prevented pilots and flight attendants from knowing where to redeploy.
Southwest is a victim of its own success. Since 1995, the average airline fare dropped from $553 to $367 when expressed in 2022 dollars, according to the US Department of Transportation. Disrupters such as Southwest and JetBlue and ultra low cost carriers like Spirit and Frontier are responsible. They have brought down prices and boosted passenger growth. Southwest’s share price jumped nearly seven times.
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The airline had argued that 2023 would be the year it would escape the effects of the pandemic. Proving that to Wall Street and to passengers will be harder now.
The stock price exceeded its pre-pandemic level in early 2021. Since then, the shares have nearly halved. Wall Street worries about a long-term debt load that has jumped from $1.4bn to more than $8bn in three years. Southwest’s market capitalisation now stands at $20bn after its stock price fell 7 per cent last week.
Last month the airline reinstated its pre-pandemic dividend and committed to paying down its debt load. But Southwest now has additional financial priorities. First, it may have to pay compensation to passengers whose holidays were disrupted. Second, the business plainly needs to upgrade systems to forestall further crises.
These expenses will weigh on earnings this year. But in IT as in aviation, there is only so long you can fly by the seat of your pants.
The Lex team is interested in hearing more from readers. Please tell us whether Southwest’s recent problems have changed your view of the business in the comments section below