Southwest Airlines Meltdown Prompts Investor Questions

“Clearly this crisis has resulted in profound customer dissatisfaction and is expected to generate significant costs to the company,” Mr. DiNapoli said in a letter Friday to Southwest Chief Executive

Bob Jordan.

“The magnitude of the meltdown has drawn heavy regulatory scrutiny and may have lasting impact on the public’s confidence in the company’s operational integrity.”

Southwest didn’t immediately respond to questions about Mr. DiNapoli’s letter. A spokeswoman on Monday said the airline has taken immediate actions to mitigate the risk of another disruption, and is reprioritizing work that was already underway to improve crew scheduling platforms.

Mr. Jordan told employees in a message Monday that the airline is working to understand what went wrong and prevent similar upsets in the future. “While we will have disruptions in the future, all airlines do. We can never, never have an event of this magnitude again,” he said.

A spokesman for Mr. DiNapoli said the comptroller’s office has no immediate plans beyond waiting for Southwest’s response. New York’s state pension system owned $17.6 million worth of Southwest stock as of Sept. 30, according to a securities filing. The stake accounts for 0.10% of the company’s outstanding shares, according to FactSet.

Southwest said it canceled over 16,700 flights from Dec. 21 through Dec. 31, likely wiping out its anticipated fourth quarter profits and reducing pre-tax income by $725 million to $825 million during the fourth quarter. The airline now expects to book a loss during the quarter when it reports earnings later this month.

The airline has said that the severity and breadth of a severe winter storm that swept across much of the country before Christmas overwhelmed the crew scheduling system that it uses to reassign pilots and flight attendants after disruptions. That’s one reason the airline was thrown off track for over a week even as rivals restored normal operations within a few days.

The episode has led to sharp rebukes from lawmakers, regulators, and Southwest’s labor leaders. It has also raised questions about the pace of the airline’s investments in technology as well as long standing business practices, such as scheduling flights with quick turnaround times, and a network structure that has planes and crew hopscotching around the country rather than back and forth to a hub.

Mr. Jordan said the airline has taken steps to prevent another similar snafu as it works to investigate the underlying causes and examines longer-term solutions. Volunteers who stepped in to assist crew schedulers have now been trained and can help again if the airline’s systems are in danger of falling behind, and the airline is monitoring additional early warning indicators for signs of stress, Mr. Jordan said.

“We’ve put things in place right now to help ensure that we’re mitigating the risk,” he said in an interview last week.

Modernizing some of Southwest’s technology had been a priority for Mr. Jordan, a longtime executive who became the airline’s CEO last year.

“Longer term, we’ve already engaged the work to understand lessons learned––what happened, how does this affect the plans that we already have in place, where are we going to dial up investment, those kinds of things,” he said. “That work will be done very quickly.”

Mr. Jordan told employees Monday that roughly 98% of the bags that were caught up in the disruption have been returned to customers or are on their way, and the airline has processed more than 75% of requests for refunds, with an average turnaround time of about three days.

Mr. DiNapoli’s office has a recent history of weighing in on high-profile corporate troubles.

His office emerged as a lead plaintiff in a shareholder lawsuit that took aim at

Boeing Co.

’s directors over their response to two 737 MAX crashes in 2018 and 2019. The accidents took 346 lives and cost shareholders billions of dollars. 

The Boeing lawsuit resulted in a $237.5 million settlement and internal oversight changes, including the addition of a board member with safety expertise and an ombudsman tasked with helping company engineers who work on behalf of U.S. air-safety regulators.

Write to Andrew Tangel at [email protected] and Alison Sider at [email protected]

“Clearly this crisis has resulted in profound customer dissatisfaction and is expected to generate significant costs to the company,” Mr. DiNapoli said in a letter Friday to Southwest Chief Executive

Bob Jordan.

“The magnitude of the meltdown has drawn heavy regulatory scrutiny and may have lasting impact on the public’s confidence in the company’s operational integrity.”

Southwest didn’t immediately respond to questions about Mr. DiNapoli’s letter. A spokeswoman on Monday said the airline has taken immediate actions to mitigate the risk of another disruption, and is reprioritizing work that was already underway to improve crew scheduling platforms.

Mr. Jordan told employees in a message Monday that the airline is working to understand what went wrong and prevent similar upsets in the future. “While we will have disruptions in the future, all airlines do. We can never, never have an event of this magnitude again,” he said.

A spokesman for Mr. DiNapoli said the comptroller’s office has no immediate plans beyond waiting for Southwest’s response. New York’s state pension system owned $17.6 million worth of Southwest stock as of Sept. 30, according to a securities filing. The stake accounts for 0.10% of the company’s outstanding shares, according to FactSet.

Southwest said it canceled over 16,700 flights from Dec. 21 through Dec. 31, likely wiping out its anticipated fourth quarter profits and reducing pre-tax income by $725 million to $825 million during the fourth quarter. The airline now expects to book a loss during the quarter when it reports earnings later this month.

The airline has said that the severity and breadth of a severe winter storm that swept across much of the country before Christmas overwhelmed the crew scheduling system that it uses to reassign pilots and flight attendants after disruptions. That’s one reason the airline was thrown off track for over a week even as rivals restored normal operations within a few days.

The episode has led to sharp rebukes from lawmakers, regulators, and Southwest’s labor leaders. It has also raised questions about the pace of the airline’s investments in technology as well as long standing business practices, such as scheduling flights with quick turnaround times, and a network structure that has planes and crew hopscotching around the country rather than back and forth to a hub.

Mr. Jordan said the airline has taken steps to prevent another similar snafu as it works to investigate the underlying causes and examines longer-term solutions. Volunteers who stepped in to assist crew schedulers have now been trained and can help again if the airline’s systems are in danger of falling behind, and the airline is monitoring additional early warning indicators for signs of stress, Mr. Jordan said.

“We’ve put things in place right now to help ensure that we’re mitigating the risk,” he said in an interview last week.

Modernizing some of Southwest’s technology had been a priority for Mr. Jordan, a longtime executive who became the airline’s CEO last year.

“Longer term, we’ve already engaged the work to understand lessons learned––what happened, how does this affect the plans that we already have in place, where are we going to dial up investment, those kinds of things,” he said. “That work will be done very quickly.”

Mr. Jordan told employees Monday that roughly 98% of the bags that were caught up in the disruption have been returned to customers or are on their way, and the airline has processed more than 75% of requests for refunds, with an average turnaround time of about three days.

Mr. DiNapoli’s office has a recent history of weighing in on high-profile corporate troubles.

His office emerged as a lead plaintiff in a shareholder lawsuit that took aim at

Boeing Co.

’s directors over their response to two 737 MAX crashes in 2018 and 2019. The accidents took 346 lives and cost shareholders billions of dollars. 

The Boeing lawsuit resulted in a $237.5 million settlement and internal oversight changes, including the addition of a board member with safety expertise and an ombudsman tasked with helping company engineers who work on behalf of U.S. air-safety regulators.

Write to Andrew Tangel at [email protected] and Alison Sider at [email protected]