How could SouthWest Airlines spend A Billion Dollars for IT Modernisation


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One of the biggest news story this last Christmas season was the cascading effect of flights being cancelled by Southwest Airlines. According to their SEC filing, they had to cancel more than 16700 flights over the holiday period in December, costing them an estimated $725million-$825 million.

The reason for this cascading effect was a perfect storm of outdated technology, a natural storm and their very own business model (point to point service instead of the hub and spoke model that almost all the other airlines follow). In a recent press release, their CEO Bob Jordan shared the following:

We are currently budgeted to spend more than $1 billion of our annual operating plan on investments, upgrades, and maintenance of our IT systems. The recent disruption will accelerate our plans to enhance our processes and technology as we continue to focus on adding capabilities to bring rapid improvements for you, our valued Customers.

– Bob jordan, CEO, Southwest Airlines

In the same press release Bob Jordan also lays out a three point plan:

Taking Care of Customers: We’ve worked with great urgency to take care of the Customers directly impacted by the disruption by returning their bags, processing refunds and expense reimbursements, and offering those most significantly impacted 25,000 Rapid Rewards points as a gesture of goodwill for their inconvenience. As of the end of last week, we have returned virtually all of the bags we had on hand from the event, have processed nearly all refunds, and are processing tens of thousands of reimbursement requests a day.

Immediate Actions: Following the disruption, we moved swiftly to put mitigation elements in place to further reduce the risk of future operational disruptions that could impede Customer travel plans.

Going Forward: While we have mitigated risks in the short-term, we are taking additional steps to review the events and make thoughtful recommendations on future actions.

– Bob jordan, CEO, southwest airlines

Typical three horizon response by Bob and team – what they did right away, what they will do in the short term and the mid-term. I am pretty sure that they have a clear plan in mind for upgrading their technology.

However, I think that as leaders, there might be a good learning exercise for all of us to engage in.

If you were asked to respond to this situation, what would you do? Here is my thinking about this. Out of the three causes which created the perfect storm there is only one thing that they can do anything about. They know for sure that such storms will occur in the future and changing their operating model of running point to point flights is not something that they can change.

So, that leaves their ability to respond to such disruptions by upgrading their technology as the only practical course of action.

As they say, we should never let a crisis go to waste. This is a great opportunity for the airlines to think about their technology deployment with fresh eyes.

Instead of being tethered to their past and upgrade from there, they could look at the future they want to create and look back from there and do what needs to be in place to make that future a reality.

They can think of the technology refresh as a four step process, such that they can significantly increase value through deployment of technology:

Drive Efficiency:

When you deploy technology to improve the efficiency of your business process through (elimination, automation and digitisation). In my opinion, this could lead to a 2x Value for the same $ spent).

In the case of Southwest, this could be about deploying AI or ML based scheduling software. This could mean deploying technology (example – IoT sensors on their flight staff) to know the exact location of all their flight staff.

This could also mean deploying technology to predict extreme weather events and potential disruption that they can cause, in advance, so that the team can plan accordingly.

Drive Effectiveness:

When you deploy technology to improve effectiveness of your existing business processes, you find that the value you unlock is significantly higher (5x Value for the same $ spent).

In the case of Southwest, this could mean rebooking at how they run their overall scheduling. How do they run scenarios to manage the risk of disruption.

Deploying technology to enable them to test all sorts of potential disruption in low stake scenarios (read simulations) and their teams readiness to manage these disruptions, understand their points or nodes of failure and train their staff so that these failures don’t come to pass.

Enable Innovation:

When you deploy technology to enable innovation, within the current business context, and enable new capabilities that were unavailable before. (10x value for the same $ spent).

In the case of Southwest, this could potentially be about deploying technology to make the customer experience significantly better.

One of the first things that happens in a weather disruption is the flight need to be rescheduled and this puts an enormous pressure on the customer service staff, who bear the brunt of the frustrations of the customers. Can they deploy technology in a way that the customers dont have to call their customer service teams in times of disruption.

Can they bring about radical transparency on the situation and how they are responding to the disruption. Can they answer their customer’s most urgent and important questions before being asked about them?

This can only happen, if the previous stage (of operational readiness to weather through disruptions is already in place. This will not only free up your resources on the ground to focus on getting things back to normalcy instead of fielding customer complaints. If done well, this can become a competitive advantage for them in the mid-to-long term.

Enable Exploration:

When you deploy technology that enables you to explore new business opportunities outside of your existing business context, you are enabling exploration. In my opinion, this could lead to a 25x value for the same $ spent.

In the case of Southwest, once they have all these elements in place, they can then start exploring what more can they do with all of these capabilities in place.

Can they create a new line of business, can they offer this as a service for other airlines (where they are not directly competing, like Singapore Airlines, KLM, etc). This opens up a completely new revenue stream for them through the reuse of the technology already deployed and perfected within their own organisation.


Just like any other portfolio, I believe that they would do well to diversify their investments and invest in some project in each categories. In my personal opinion, 10:30:40:10 (Efficiency: Effectivenss: Innovation: Exploration) split across could provide significant value to their investment (money, time and executive attention) on these projects. What’s more, this would be the best use of a crisis, to kickstart a transformation, one that envisages the future and shapes the present to realise the future and not constrained by the past decisions.

Again, this is a thought experiment that we can use to stretch our thinking in a low or now stake situation. Since we don’t have any say in what Southwest Airlines does, we could be much more creative in our ideas and suggestions. I know that many may think of this exercise as a waste of time, but remember that a catastrophe like this could strike your own business anytime, given the kind of world we are living in. It is better to have built this muscle of being able to think both short term, tactical stuff and balance it with long term strategic stuff. What better way to do this via thought experiments. Remember even Albert Einstein used thought experiments to come up with his ground breaking theory of relativity (both general and special).

Never underestimate the power of a good thought experiment. So, what would your advice to Bob and his technology team be, if you were invited to present them as an advisor?

PS: You can watch my short video where I explain this portfolio approach to IT project planning here.

Republished with author's permission from original post.

Mukesh Gupta
I currently work for SAP as Customer advocate. In this capacity, I am responsible to ensure that the voice of the customer is being heard and play the bridge between customers and SAP. Prior to joining SAP, I have worked with different organizations serving in different functions like customer service, logistics, production planning & sales, marketing and business development functions. I was also the founder-CEO of a start-up called "Innovative Enterprises". The venture was in the retail & distribution business. I blog at


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