The Signal January 10, 2023

Southwest Airlines Meltdown: A Supply Chain Management Perspective

A brand built on customer service and great value, Southwest Airlines disappointed customers with cancelled flights, stranded families, and missed gatherings over the holidays. So… what went wrong?

Kevin O'Marah Avatar
Kevin O'Marah

Cancelled flights, stranded families, and missed holiday gatherings made for a very bad news week at Southwest Airlines. How could this happen to an airline that was ranked #1 by JD Power in overall customer satisfaction for economy flights as recently as May 2022?  

The answer is not that its leaders are shameless hacks or even that they were unlucky victims of a perfect storm. Rather, it is because US airlines have the same problem that industries from semiconductors to baby formula saw laid bare over the last two years.  

It is too lean. 

Graph depicting a breakdown of airline carrier's cost structure. Source: Genuine Impact & Wealthyhood, November 2022.

So Many Root Causes 

What went wrong? First was obviously the mega-storm hitting North America with biblical snow and cold at a time of peak demand for air travel. As anyone who flies knows, it doesn't take much bad weather to cause delays which cascade through the system. Delays beget other delays because crews and equipment are suddenly short, which means planes can't fly even if the bad weather is past.  

Plus, it's worse when the passengers are mostly inexperienced, overloaded families rather than carry-on-only road warriors. Rebooking takes longer because novice customers with lots of stuff are harder to resolve, especially when there are fewer flights to choose from for rebooking. This is a classic vicious spiral, but not exactly an unfamiliar one. 

For Southwest two other failures magnified the misery. Tech was the first. The scheduling system used for assigning crews to flights couldn't handle the pace and volume and crashed. Manual scheduling was the fall back, but since it is slow and error prone (think spreadsheets), every time a new hiccup hit, the whole thing had to be redone. A system's inability to handle thousands of ‘what-if' planning questions, especially in safety-oriented, highly regulated operations like commercial airlines, is deadly.  

The second Southwest specific failure was its point-to-point operating model which fares worse in a crisis than the hub-and-spoke model used by American, United and Delta. This is because hub-and-spoke offers much more flexibility when flight cancellations require operations teams to find replacement planes or pilots for stranded passengers.  

Too Clever, Too Lean, Too Bad 

Southwest's bad week is not proof of incompetence. It is proof that we all still expect too much of the ultra-lean, cost-obsessed principles that got us in trouble when “supply chain issues” became the go-to excuse for everything that failed last year.  

Look at it through a supply chain management lens and the failures make sense: 

Inventory – This is how supply chain people buffer against uncertainty. Inventory gets you through problems with missed deliveries or surprise demand upsides. In commercial air travel passenger wait time is the “inventory” that operations managers use to buffer uncertainty. When things get crazy, customer wait time goes way up. It's a cash-smart way to handle volatility, but it sucks for customers. 

Capacity utilization – Southwest's point-to-point system is a feature, not a bug. They famously use quick turnarounds to minimize aircraft idle time, which is good for profitability and even good for customers, so long as the flights stay on schedule. When things don't go as planned, capacity (planes and crews) is suddenly out of place, so fixes take much longer. Southwest could keep the feature but limit the risk of cancellations with more aircraft and lower capacity utilization.  

Sales & Operations Planning – This is how supply chain managers scramble to match supply and demand. For years planners have gotten by with rather slow manual forecasting and production planning processes because things were reasonably smooth. When volatility goes off the charts however S&OP breaks down. Southwest's scheduling failure shows how much trouble comes from planning systems that aren't using the latest technology to handle huge, complex planning challenges. 

Resilience became the buzz word in supply chain management in 2022 because people learned to appreciate reliability more than ever. But resilience costs money. If we as consumers want to avoid a repeat of this snafu, we should prepare to pay more so airlines can upgrade their tech, add capacity to fleets, airports, and staffing, and find better ways to manage “inventory” that don't include a lottery of doom where losers end up sleeping on an airport floor.