Here’s The Long-Term Damage To Southwest Airlines From Holiday Meltdowns

Southwest Airlines experienced an operational crisis greater than any in its history – and this is an airline that managed to operate a four aircraft schedule with just three planes, and developed the 10 minute turn – in order to survive.

It didn’t just cancel flights broadly across its system for the holidays, it kept doing it day after day, unable to recover effectively. That ruined the holidays for more and more people, compounding the issues – and hits to their business.

As they’re recovering we can now look at what the long-term damage here is? Reputationally, I’d argue there’s very little. However there’s likely a bigger long-term impact to the airline’s finances.

Southwest’s reputation will recover with customers.

  • United recovered from David Dao. A passenger being dragged off of a plane and bloodied was a worldwide phenomenon and customers all over swore they’d never fly the airline again. That didn’t last.

  • Spirit Airlines recovered from an operational meltdown at similar scale last summer.

  • The media stopped referring to AirTran as ‘formerly ValuJet,’ after a couple of years and Southwest even acquired AirTran. That was a far worse disaster.

Customers either perceive airlines as being all the same, or anchor their expectations. Southwest’s reputational hit will be temporary. Nonetheless there will be long term costs.

  • Their operational debacle exposed long-term underinvestment in technology which Southwest has been addressing very slowly. That will need to accelerate. That will mean a lot of capital spending and shifted focus away from growth opportunities.

    They simply don’t have the tools to properly track crew and rebuild flights after major disruptions, and they won’t be able to defer those investments any longer.

  • A huge percentage of employees are new. The culture has taken a hit, and fewer employees remember what things were like – this will have a bigger impact on how employees see their company than it will how customers see it. Southwest hired more than 15,000 people in 2022. Nearly 20% of their workforce has been with he company less than a year. They don’t have a career in which to put this in context – being stranded themselves, or having their friends stranded, and feeling that their company has failed rather than being on board a winner will loom large.

  • There will be a big hit to revenue and one-time costs from this. But there will be longer-term cost to growth and higher costs and that could weigh on the stock and the business.

    They will see hundreds of millions of dollars of revenue loss from customers they weren’t able to fly, and hundreds of millions of dollars in expenses to cover for passengers they stranded. But the higher capital spend will be even greater, the re-prioritization will mean other lost opportunities as well.

Historically markets valued Southwest’s business differently than the rest of the industry. Some of what made them special may have already eroded, but this incident accelerates those changes.

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