The Daily - The Southwest Airlines Meltdown

Episode Date: January 10, 2023

Air travel was a mess over the holidays — in the last 10 days of December, 30,000 flights were canceled. While every airline was affected, one stood out: Southwest, which over the past few decades has transformed how Americans fly, melted down. In the last 10 days of the year, it canceled as many flights as it had done in the previous 10 months. So what went wrong?Guest: Niraj Chokshi, a business reporter for The New York Times.Background reading: Southwest’s crisis shows what can go wrong when a company relied on by millions of people moves too slowly to invest in unglamorous parts of its operation.The airline’s customers incurred thousands in expenses as they scrambled to get home. For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Michael Barbaro. This is The Daily. Over the past few decades, Southwest Airlines has transformed how Americans fly, and in the process, has become a revered corporate brand. Until that is, it melted down over the holidays. Today, my colleague, Neeraj Chokshi, on what went wrong. It's Tuesday, January 10th. Well, Neeraj, welcome back to the show. I want to start by asking you to relive something that I know a lot of people are trying to forget. And that is evoke what it was like to travel by plane over the holidays.

Sure. It was a total mess. A major winter storm is moving coast to coast just before Christmas. And as it moves throughout the country, it is also delivering what is being described as life-threatening cold. There's this huge storm that hits the middle of the country called the bomb cyclone. It's dropping heavy snow and rain, strong winds. More than three feet of snow has buried Buffalo, New York. Wind chills as low as 70, below zero forecast for the high plains and the Midwest, expecting blizzard conditions. There's bad weather everywhere, and the days leading up to Christmas, the airlines are really doing everything they can to prepare, but there's only so much they can do. Every major airport from Los Angeles to Denver, Dallas to Chicago to New York, posting cancellations and delays on the boards. In the last 10 days of December, about 30,000 flights were canceled.

People were stranded in a lot of cases for days. After waiting in line for hours hoping to rebook, flyers at Houston's Hobby Airport tonight learned if their flight had been canceled, there are no flights available until December 31st, as in five days from now. You know, having gifts in their bags, not making it on time with them. I have my keys. I left my keys in my suitcase with all my presents. But you can see it's my keys and wallet are in D.C.

It's just all over the place. Right. It's not easy to get good numbers, but it's fair to say hundreds of thousands of people are affected, if not millions. And every airline is affected by this problem around Christmas. But one airline really stands out. This morning, Southwest Airlines is under fire after a stunning amount of passengers were left stranded. And that's Southwest.

Southwest passengers are seeing red, literally red. Look at all of these cancellations. If you look at the numbers in the last 10 days of the year, Southwest cancels something like 17,000 flights. And that's about the same as the rest of the other airlines combined. Another way to think about it is that in those 10 days, Southwest canceled as many flights as they did in the 10 months prior. That's incredible. Yeah.

Between on the phone and standing in line, it's probably been 10, 12 hours. 36 hours I didn't sleep because we're stuck in an airport. There's nothing we can do. I blame Southwest. Sorry, Southwest for putting them out there. Whatever they did, it messed up the whole situation. We've been stranded here in the rain. My pants are all wet.

I had to change shoes and everything. Basically, Southwest stole Christmas. For a lot of people, yeah, that's the case. The Department of Transportation is investigating Southwest Airlines, trying to figure out what happened with the scheduling. And what I think was surprising about that is that Southwest is such a storied airline. I mean, in many ways, a storied brand. And it always feels like our greatest disappointments as consumers always come when our most beloved brands let us down. Totally. And unfortunately, that's often the

case. And that's the case here, too. I mean, Southwest is this airline that, to this day, remains and has been a really beloved brand by a lot of people. And that's because of the way it was founded. It was founded with this customer-first, employee-first philosophy. And it's a really interesting story, and it's one that might actually hold some clues to how we ended up where we are today. Well, explain that origin story to us. Yeah. So Southwest, it was founded in 1967, but it wasn't exactly an easy time to found an airline.

Why is that? Well, so for the first four years, Southwest basically had to fight off lawsuits from its competitors to even get off the ground. They made it all the way to the Supreme Court. And then finally, in 1971, they were able to start flying. They started off with four Boeing 737 planes, and they flew basically just in Texas and in what's called the Texas Triangle, Dallas, Houston, and San Antonio. They were really a commuter airline. It was really for people who were traveling on business. And because they were flying in Texas, they were able to avoid some of the regulation at the federal level because they weren't crossing state lines. Interesting. And what was the reason for being for Southwest? I mean, there are so many airlines. Why did Southwest, in the eyes of those who created it, even need to exist? Yeah, so the founders saw an opportunity.

And one of them, Herb Kelleher, really helped to define the philosophy behind the airline. I will bet you one thing, that I'm the only airline president in America that would go over to his maintenance hangar at two o'clock in the morning in a flowered hat with a feathered boa and a purple dress. Herb was this larger-than-life guy. He had this hearty laugh. What school of management is this? I think it's a school of management by fooling around, is what it is. He loved to drink bourbon. He loved to smoke. Have you been dying for a peanut?

And Herb himself would often board these flights to pass out peanuts and stay close to employees and customers. Well, gents, you ready for some more peanuts? And, you know, he looked around and he saw an industry that was complacent, that was expensive, and that was seen as a luxury. And he really wanted to disrupt that and transform the way that people fly. When we started out, we said, we're going to have a special niche in the industry. And if we're going to make it a really distinctive niche, we have to do things innovatively, and so we did.

What do you get when you fly the low fare airline? Fun fares. So, you know, they introduced these super low fares, they really try to keep costs low, and they try to make it fun. And just how cheap are the flights that Southwest is offering? We got to the point in the Dallas-San Antonio market back in the 1970s where Braniff's standard coach fare was $62. And our pleasure class fare, the evening and weekend fare, was $62. And our pleasure class fare, the evening weekend fare, was $15. So early on, they get into these famous fare wars, and they're offering $15, even $13 flights.

Well, of course, shareholders would write in and say, we've noticed this discrepancy. Don't you think you have the latitude to increase your fare to $18 or $20 against $62? We'd say, no, you don't understand the philosophy on which we're built. I mean, how on earth, Neeraj, can an airline offer $13 flights or even like $50 flights? You know, for Southwest, from the beginning, they were really focused on keeping costs low,

and they did it in a few ways. At Southwest Airlines, we want our passengers to spend their time in the air, not on the ground. One thing that they really focus on is keeping planes in the air, keeping crews in the air, and keeping crews working. So that would mean turning the plane around in record time. That's why we invented the 10-minute turnaround. Our planes pull into the jetway, board passengers, and pull out again in 10 minutes or less. The way we look at it, the quicker you're

in the air, the quicker you get where you're going. So before a plane even lands, flight attendants would start to clean up the plane. Once it landed, pilots would sometimes help. Pilots would help clean the planes. Yeah, yeah. There was an all-hands-on-deck mentality. Bags were being loaded, new passengers were being lined up outside, and the aim was to do it all within 10 minutes. And then as they continue to grow, what they really do innovatively is really about what they don't do, is that they don't set up the same kind of hub-and-spoke model that all these other airlines do. Explain that hub-and-spoke. Yeah. So, you know, you might think of like United Airlines in Chicago or Delta Airlines in Atlanta.

You know, these are these huge airports where the airline dominates and just they fly hundreds of flights every day. And it's where they bring people in, shuttle people back out. You kind of come in from wherever you're going and you might make a connection and keep on your way. Right. What Southwest does instead is it focuses on this point-to-point model. If you're flying from San Antonio to El Paso, you go to El Paso nonstop. We don't route you through Dallas or route you through Houston. And so it is a more convenient type of service.

The nice thing about the point-to-point model is you don't really waste any time forcing people to make connections. You just get straight to where you're going. We don't sell interlining. We don't do it because it inconveniences the passengers to whom we are primarily dedicated, the short-haul frequent flyer that does not want to be held up in the ticket line for 30 minutes or be on the phone getting a busy signal for 30 minutes while some other passenger is trying to arrange a very detailed and very time-consuming interline journey. And so this meant that Southwest was often flying to smaller cities or secondary airports,

So this meant that Southwest was often flying to smaller cities or secondary airports, just places where other airlines weren't flying. So they grow out of Texas to fly to some neighboring states, and very quickly they start to just grow into this national airline. is that they are lean and nimble, while rivals, I'm thinking of the biggest names, the Deltas, the United, the Americans, are just bigger and a bit more lumbering and expensive. Yeah, exactly. And they find other ways to keep costs low too. They don't serve meals, they just serve nuts. They don't invest in an expensive,

you know, luggage tracking system early on. They aren't a part of the expensive computer reservation systems. When they have boarding, they use these reusable boarding passes. I actually have one in my hand right now. It's this little plastic card, and you show it to the flight attendant, and then they take it, and they'll just hand it out on the next flight. So this literally just saves cost on paper. Yeah, it saves cost and time, right? I mean, all of these little things, these little ways to just keep things moving to kind of turn the plane around faster. Right, and stay, as you said, in the air constantly.

Exactly. How did this all end up not just feeling like a cheapskate airline for passengers as well as for employees who are constantly in the air? Yeah, that's a good question. I think it really comes down to Herb and the culture that he instilled. Just play fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, fun, for people who have these big personalities that they want and people who are just willing to work hard too. And so they used to play this video for new hires at orientation. You came to us first and you sure were nervous.

I love to work with people and I want to be a service. With insurance benefits and 401k, we called you back up and said you're okay. We gave you a number. It's this kooky video where employees are rapping and Herb himself is there rapping along. And it's got this sort of, you know, 80s music video feel. It's kind of ridiculous. Bud very much captures the spirit of a brand that is self-consciously trying to say to the world, we are different. Right.

And this makes its way to the customers, right? I mean, they walk on the plane. They're choosing their own seats. The flight attendants might be, you know, singing or laughing. This is flight 372 on SWA. The flight attendant's on board serving you today. Teresa in the middle, David in the back. My name is David and I'm here to tell you that. Flight attendants were encouraged to be spontaneous. Pilots were telling jokes.

You know, it's just this sort of casual atmosphere on the plane. Before we leave, our advice is put away your electronic devices. And it just made it such a fun experience to fly. It no longer felt like this buttoned up, fancy experience. It was casual. It was fun. It was easy. Thank you for the fact that I wasn't ignored. This is Southwest Airlines. Welcome aboard. Thank you very much for my B. I appreciate that.

You will not get that on United Airlines, I guarantee. Right, right appreciate that. You will not get that on United Airlines, I guarantee you. Right, right, right. And it's funny because flying can either be very serious and kind of scary and awful, or in the case of Southwest in the beginning, it can just be fun, right? And like, at a moment when flying wasn't fun, but probably needed to be fun, Southwest clearly understood that. Right. And that's why Southwest ends up being so successful. I mean, it's not just fun. Herb is taking his customers seriously. He's taking his employees seriously. The airline becomes this phenomenon and Herb ends up on magazine covers. Southwest is like routinely getting praise for the way it treats its employees from customers. They're doing their job. They're

doing it right. They're doing it on time. I mean, it's just this incredible success story. Right. And how about as a business? It's a success story as a business, too. I mean, Southwest is earning profits every year. They're making investors happy. They're swatting down the competition. This is an industry that's riddled with bankruptcy, and Southwest has never had one. They never have a major furlough of staff. Things are going really well. And by the time Herb retires from the company in 2008, the airline is just on top of the world. Right. And this is always the moment, and I say this as a former business reporter,

when something goes wrong, right? When a company is flying high, literally, in this case, Southwest, and it seems like nothing could possibly go wrong, that's what it does. Right. I mean, you know, in many ways, Southwest is still very much the same airline that it was 10, 15, 20 years ago. But it's interesting. Some people inside the airline start to worry that some things are being overlooked. Pilots and flight attendants are raising concerns about these internal processes, that something's just amiss. And in the last year, they really start to ring the alarm bell.

They go to the media, and they accuse the company of focusing too much on the stock price and not enough on operations. And in the fall, the head of the Pilots' Union goes on a podcast, and he warns that he feels like the airline is just one storm away, whether it's Thanksgiving or Christmas or New Year's, from a complete meltdown. We'll be right back. So, Neeraj, with that premonition from the Southwest union official in mind, how did we get from that fun, high-performing, enormously profitable version of Southwest to this complete meltdown that we all witnessed over the holidays?

Well, two big things happen, and they're both related to what makes Southwest Southwest. And that's the sort of the lean structure that the airline embodies. Mm-hmm. So explain those, Neeraj, one by one, these two issues. Yeah. So the first is, you know, Southwest's famous point-to-point group model. This is what allows Southwest to really be the airline that it is. It allows them to keep their planes in the air. It allows them to, you know, use few connections.

But the problem is when there's a problem, a nationwide problem like there was over the holidays, the planes end up being scattered everywhere. Your crews are everywhere. And there's no central place to kind of get back to to fix the problem. And that's where the airlines with hub airports were able to do, right? Is that, you know, yeah, if there's a problem in a particular part of the country, you can kind of shut down operations there, get everyone ready in another hub airport. And when the storm moves on, you can start to kind of restore that peace. Right. So this is an example of where leaner wasn't better, because when you have a hub, you have more planes, more people on standby to kind of act as a rescue operation for some other

part of the country where perhaps planes are stuck in snow, Southwest doesn't have that slack in their system. Right. Well, and, you know, operationally, the hub and spoke model is just easier. It's more resilient. But it's not like the point-to-point model can't be, right? I mean, this is a model that airlines have used around the world for years that Southwest itself has used to great success without these kinds of problems. But the thing is, to do it well, you have to have the right systems in place. Right. And that brings us to the second and more important problem. And that was this crew scheduling system that Southwest uses and some other related processes.

At Southwest, when a flight attendant or pilot is somewhere where they aren't supposed to be because of a cancellation or delay, they typically will have to call into the head office to talk to someone to try to figure out where they're going to stay, what other flight they should be getting on. I just want to interrupt you. Call in as in like it's 1985 and we're like dialing a number. This is how pilots and crew at Southwest reach headquarters to talk about scheduling? Yeah, I mean, you know, these processes are complicated, and so there's always some need for human involvement. But, you know, this could be a lot more automated.

Hmm. So what happened to this dial-in to the headquarters system during the storm over the holidays? Right. So during the first few days leading up to and over Christmas, it just got totally overwhelmed. And the airline just could not handle the volume of calls. There were stories of flight attendants and pilots being on the phone for hours just trying to figure out where to go. That literally sounds like the experience of a customer. Yeah, exactly. It's supposed to be the experience of a pilot.

Right, exactly. It's not supposed to be the experience of a pilot. Right, exactly. You know, there was this union official who told this story where there was a plane ready to go that was missing one flight attendant. And they had several on board already as passengers, but none of them could reach the headquarters quickly enough to tell them, look, we'll work this flight. And so the flight ended up getting canceled. Even though the flight attendants were on the plane. Right, exactly. And so this kind of thing was happening across the board, and the airline just could not keep up with the nature of the problem.

Because basically, they had an antiquated scheduling system. Right, right. And Southwest has acknowledged that, too, even before this crisis. After Thanksgiving, they invited a group of journalists to Dallas and I was there. And the CEO was telling us about his goal of modernizing the operation. There are all these sorts of systems that they want to upgrade, they want to make better. And he mentioned this system. He said, you know, we've got flight attendants who have to call in. This is a process that could be automated. And he said, it's not okay. And so they knew they had started work on it. That's what they say. But unfortunately, they were still working on it when Christmas comes.

And I'm curious, did the CEO mention why Southwest hadn't addressed this problem before? I mean, this is a reliably profitable airline. Presumably they have the money to do it. Why did they wait until employees sounded the alarm to take action on it? You know, he really didn't. The airline says it's been working on a lot of major system upgrades. These can take years to complete. They can be really expensive. And it's not really totally clear whether this was due to some oversight or some employees claim whether Southwest was just too focused on the bottom line.

Basically, they just didn't want to spend the money there. So if I could just put these two things together, and I think I can based on what you told us, what happens during the holidays is that this point-to-point system ends up marooning planes because of the storm, and there's no hub to fall back on to rescue it. And then this old creaky scheduling system where everyone's trying to call into the headquarters but can't reach them, ends up stranding Southwest's workers. And the result of these two things together are these waves of cancellations. Right, exactly. And so while every other airline is able to recover in the days after Christmas, Southwest is so overwhelmed by the problem in those first few days that it proactively takes down thousands of flights

just so we can right the ship. And it does. You know, by New Year's Eve, you know, it's able to get its cancellations under control, but not before stranding hundreds of thousands of people. And just to explain that, why did the airline need to proactively cancel all the flights based on the two problems you just walked us through? Yeah, and I think that's the big question. It just seems that their system wasn't equipped to handle the volume of problems that they needed to solve. And frankly, the only way out was to just cancel a ton of flights and hit

reset. And so what ended up being the experience of Southwest travelers as the airline is proactively canceling thousands of flights? It's this terrible situation at the worst possible moment for a lot of these people. They have to frantically find an alternative. There was a family I spoke with, a man named Greg Saunders, who was in Connecticut with his wife and two kids, visiting family. And they're from Denver. And he told me that they found out their return trip to Denver was canceled. And so they immediately started looking for another flight.

They found one on Frontier Airlines. It included a really long overnight layover. And they bought the tickets. And then a few hours later, they decided, you know, that layover just sounds awful. And so they decided instead to keep their rental car and just drive all the way back to Denver. From Connecticut to Denver, which is basically the longest distance you can travel in continental Mexico. Exactly.

They did it quickly. They got a nice Stephen King novel to listen to along the way. But all told, they spent, you know, two plus days and, you know, $900 to get there. So does Southwest try to make a family like that whole somehow to compensate them in any way? Yeah, so Southwest is giving everyone who had a canceled or significantly delayed flight Southwest tried to make a family like that whole somehow to compensate them in any way? Yeah.

So Southwest is giving everyone who had a canceled or significantly delayed flight about $300 in loyalty credit. They're also offering – they haven't given a lot of definition around this, but Southwest is offering to reimburse reasonable expenses on hotels, alternative flights, cars. So theoretically, the family could get reimbursed. Theoretically. Theoretically. But can you ever be reimbursed for spending two days in the same car with your family? You know, that's a philosophical question that I'm not sure I have the answer to. Right. So I'm curious, does an experience like this mean that a family like that,

a customer like that, is soured on Southwest? I mean, it could. I think, I'm sure there are customers out there who are completely swearing off of the airline. But, you know, from the folks that I've spoken to, and including the Saunders, is it doesn't seem like it's going to have a huge impact. They were loyal customers before. They loved that Southwest flew a lot out of Denver. They loved that frequent flyers could bring companions along for free. And, you know, George told me that he probably will continue flying with the airline. I mean, that's really interesting. And I wonder if that's the payoff of having created a very unique culture and a very large reservoir of goodwill among consumers. Is that how you're thinking about this?

Yeah, I think so. I mean, you know, to this day, flying is not generally a great experience. It's confusing. You never know what you're paying for, what you're not paying for, what you have to pay extra for. And frankly, that's not the case with Southwest. You get two free bags. They've never charged change fees. It can be an easy airline and, frankly, the only choice in a lot of cases to get you from a smaller city to a smaller city. So at this point, how should we think about the Southwest story and about the lessons of what happened here? You know, hopefully we'll find out more. Congress is planning to hold hearings, and hopefully Southwest itself will tell us a little bit more about what went wrong and how it went wrong.

But I think one lesson is that you can be this incredible disruptive force in an industry, but there are just some things you have to get right. And, you know, they can be unglamorous bits of the operation. Like a scheduling system. Exactly. So you're saying a company like Southwest can come along, they can break all the rules, but there are some rules that can't be broken. Exactly.

I mean, you can be lean and really focus on efficiency as Southwest has done so successfully. Right. But only if you have the right systems in place so that you're reliable, right? It's great to be affordable and fun and disruptive, but at the end of the day, you have to be able to get your planes in the air.

And that's especially true during the holidays. Aniraj, thank you very much. We appreciate it. Thank you. We'll be right back. Here's what else you need to know today. President Biden's lawyers discovered classified documents in his former office at a Washington think tank last fall, dating to his time as vice president, prompting the Justice Department to review the situation.

The discovery could complicate the Justice Department's approach to Donald Trump's handling of classified documents at Mar-a-Lago after he left office. But unlike Trump, who deliberately withheld classified documents after they were requested by the government, Biden immediately and voluntarily turned the documents over to the National Archives, according to his staff. And in Brazil's capital city on Monday, police began a widespread crackdown on supporters of former president Jair Bolsonaro after thousands of them stormed government buildings over the weekend. Police

detained at least 1,500 protesters for questioning and dismantled a tent city where those loyal to Bolsonaro have camped out since he lost re-election in October. At the same time, Bolsonaro's successor, President Luiz Inácio Lula da Silva, visited the damaged buildings, signed an emergency decree putting federal authorities in charge of securing Brazil's capital, and promised that those who had carried out the attack would be prosecuted. That attack and its aftermath will be the subject of tomorrow's Daily. Today's episode was produced by Jessica Chung and Muj Zaydi. It was edited by Michael Benoit with help from M.J. Davis-Lynn.

Contains original music by Roan Emisto, Marion Lozano, Alicia Baetube, and Dan Powell, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsberg of Wonderly. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.