The collapse of the Southwest passenger experience this holiday season is an unlikely jumping off point for a conversation on how to own customer experience transformation. Unfortunately, it is not a surprising trigger for this conversation. Now, Wall Street analysts will be much more open to talk about investing in passenger experience. And that is exactly what the airline is positioned to do in the next few years. If they make the next right moves. The Southwest holiday breakdown exposed problems with system operations and technology implementation. But it also confirmed why technology and SysOps investments are worthwhile.
Let’s remember the roots of Southwest and its charismatic founder, Herb Kelleher, who taught the rest of us how to build a beloved customer-first brand in aviation. Southwest was founded on customer and employee experience in 1967 before any of its competitors thought of the flight experience and fun as a competitive advantage. Management schools teach the Southwest model; elements of it were even replicated by JetBlue Airways. Things like all hands on deck cleaning to shorten turnaround time is a unique culture tradition for both airlines. As recently as 2018, Southwest was ranked the highest in customer satisfaction among low-cost carriers in North America by J.D. Power.
Do not count Southwest out. The airline is poised to use hard-earned lessons to lead customer experience transformation.
Airline Network Planning 101
Let’s start by taking a quick look at Airline Network Planning 101. Airlines run two different models, the Hub-and-Spoke model and the Point-to-Point. Carriers like Delta, United, and American Airlines use the Hub-and-Spoke model.
In this case, airlines operate primarily out of major hubs. Think Atlanta, Houston, Chicago.
Hub-and Spoke Model
That means, if you are flying Delta, for instance, and you want to go from one point in the US to another, that flight is likely to go through Atlanta. With the Hub-and-Spoke model, travelers have more connections through the hubs. And airlines have more robust staffing in and around those hubs. Airlines like Delta, United, and American have centralized resources that allow them more flexibility during irregular operations like major storms that ground planes, pilots, and flight crews.
The tradeoff with the Hub-and-Spoke model is that planes sit on the ground. During disruptions, this model works to an airline’s advantage. The aircraft is parked in the “hub,” with its crews in relative proximity. During regular operations, planes on the ground, especially in the case of the smaller airlines like JetBlue and Southwest, mean loss of money.
JetBlue and Southwest operate under the Point-to-Point model. Driven by the idea that a plane sitting on the ground is losing money, in the Point-to-Point model, a plane jumps from place to place (one point to the next). The strategy is to use planes most efficiently. And to serve more customers by traveling to more cities, including the smaller locales that larger airlines will not service.
Think about this from a strategic point of view. The Point-to-Point model is not just about optimizing the utilization of the operation’s resources like planes. It is about finding new markets that are not served by the bigger airlines. It is a business strategy. Southwest made strategic decisions to serve customer needs. Remember, Point-to-Point enables airlines to offer flights to smaller cities in more diverse locales around the US. Further, the Southwest model makes air travel more affordable for more passengers.
In fact, the affordability of air travel comes largely from “hopping” rather than “hubbing.” So before we go on the attack too much, bear in mind the model that left Southwest vulnerable to the holiday collapse is also the model that helped democratize air travel.
Why was Southwest Vulnerable?
The downside to the Point-to-Point model is that everything is dispersed, including pilots and flight crews. Unlike with the hubs, there is not a large percentage of people in one place ready to serve customers during major weather events. At a hub, people are ready the moment the airline hits resume. With Southwest, no one was there. Passengers had to wait for planes – and people – to return.
This is a major reason why Southwest cancelled so many flights. Because their business model is the hyper-utilization of people and planes. But that model requires people and planes to be in constant motion so they can get in position for the next round of passengers. Over the holidays, this was impossible. When it was time to reset, the airline had to wait to regroup. And the passengers had to wait. And wait. And wait.
That said, the network planning model alone is not responsible for stranded passengers and scattered crewmembers. Southwest leadership must come to terms with the fact that serious technology issues prevented the airline from accessing and re-deploying crews efficiently.
One of the worst parts about the technology failure for scheduling is that it directly conflicts with the Southwest culture. We are, after all, talking about the airline whose ticker symbol on the Stock Exchange is LUV. Southwest identifies as a company that cares about customers and employees.
I absolutely understand what it is like not to know where your crew is. You are consumed by the safety risks to your people and your operation, in addition to the impact on your customers. I have vivid memories of what it was like to shut down the airline when I was at JetBlue during Hurricane Sandy. Resuming took days. In addition to working hard, coming together, and supporting each other, those days were filled with fear for the wellbeing of our displaced employees.
It is part of why, as a member of the finance group that funded the automation of JetBlue’s crew scheduling system, I was acutely aware of the fusion of technology and culture. We know by now that to be truly customer-centric, an organization must be employee-focused. But what we forget is that, to serve customers and employees, we must design and implement technologies that help us manage both experiences. In the case of an airline, those systems also must be able to manage major events like Hurricane Sandy and Holiday 2022.
We will talk more about how to do that from a technology perspective. But first, it is time to address the elephant in the room: revenue management and system operations (SysOps).
Last month, Brian Sumers shared in his Airline Observer Newsletter that Southwest is trialing new revenue management systems, working on modernizing the Excel-based approach to Revenue Management across the aviation industry. For starters, we understand the risk Southwest is taking by trying three revenue management systems. Not many people know about this, and very few airlines attempt it. Tinkering with revenue management systems is risky, and we commend Southwest for trying. Historically, across the airline industry, revenue management is complex, based on historical information, and, largely, manual.
Revenue management is a back office function. Yes, it defines the price of your ticket at any point in time. But it is not explicitly part of the experience. As much as passengers buy based on price, revenue management is not a live, real-time customer experience element. In contrast, anything implemented in systems operations has a direct impact on employee and customer experience.
Yet, the screaming customers do not see all the complexities behind the scenes. They do not see how many things need to happen in a coordinated way for even one plane to arrive on time.
Behind the Scenes of System Operations (SysOps)
SysOps is the nerve center of an airline, where airlines manage their biggest challenges in real-time. SysOps is a 24h operation center that makes hundreds decisions every day. Think shuffling crew members, maintenance parts, deicing trucks, and gates so you can arrive on time more often. Those complexities we just mentioned are the complexities on a normal day of operations. However, when you build SysOps, you want to “build for the church on Sunday.” Or better yet, the church on Christmas! In his book, “From Worst to First”, Gordon Bethune shares that, when he was the CEO of Continental Airlines, he always checked on the SysOps floor to see if it is busy. If it was busy, he knew the airline was losing money,
That is why we need technology to bring digital intelligence to SysOps. But with technology transformations in live environments comes the risks of disrupting the operation. And cost. Employees in SysOps are paid hourly. For a transformation team to collect requirements, Southwest may have to pay overtime or extra hours to those who know the SysOps processes and procedures. Other costs are cultural. What if you have people who have worked there for many years and are not open to new technologies? They fear technology will make the wrong decision. As we know, every technology implementation has a period of learning and trial-and-error.
Remember, again, the genesis of Southwest is customer experience. It is an airline that really cares, made up of employees who really care. Introducing new SysOps technology, especially when operations are proceeding normally, disrupts the kind of service they are committed to providing. In an environment like Southwest, that is a hard sell culturally.
The irony is, not allowing for a controlled disruption of operations during normal times is what caused the breakdown of the operation when it mattered the most.
The Hard Business Case
Technology is complex and expensive. And when we speak about an airline, both triple, if not quadruple. Implement any digital tool in an airline and you see the number of scenarios and permutations your “out-of-the-box” version has is only a starting point of your airline implementation. Airline use cases are full of exceptions and customer-facing scenarios that vendors have not considered. “What about a woman, who does not speak English, with a child with disabilities who is connecting and lost her bag?” If an airline truly wants to invest in technology for the church on Sunday, they must invest Millions. And such a number will inevitably catch the attention of both the CFO and Wall Street analysts.
Someone always asks, “100M investment in SysOps? Can’t you buy a plane for that much? How much will you lose in revenue if you choose to invest in SysOps instead of getting a revenue-generating asset?” This is the reality every airline faces when they have to invest in a tool like a CrewScheduling system or an Airport Operations management system. These are the hardest business cases to defend. I can say it, since I have done it in front of not one, but two CFOs. You also always get the argument of “what is not working today?” followed by “we are still running the operation with the current tools?
So, I would give a break to Southwest on this one. In a capital-intensive business, like airline management, no one is looking to incur extra costs. Least of all Wall Street.
Ten to fifteen years ago, we woke up, and suddenly running an airline had become a digital business. Airlines needed to recalibrate with strategic technology investments in hardware and talent. And we knew that. But how do you invest in expensive infrastructure (back in 2010 we did not have cloud storage) with a thin-layer margin business? If the money is not there, technology cannot be there. Moreover, it cannot be implemented and maintained overnight.
And consider this. Southwest and JetBlue, those Point-to-Point carriers who aimed to lead the industry in customer experience with fewer resources than the big guys, have never entered bankruptcy. All the big guys have. And they have come out the other side with fresh money to spend on things like digitization. Just watch the presentation of Ed Bastian at CES 2020 on parallel reality! Conversely, everything Southwest and JetBlue invest in, is with money they have to earn.
Technology and Airline Complexities
In the ten years since the airline world has gone digital, the smaller carriers in particular struggle with the price of implementing technology in-house. Recruiting IT talent is one of the biggest challenges. Even with specialized IT pay scales in Compensation, it is nearly impossible for airlines to attract the right talent and compete against employers like Amazon and Meta. They neither offer the same compensation, nor the access to the modern technology that IT employees want to work with and learn from.
On top of that, airline requirements and the complexities of air travel are so significant that customized software is as necessary as it is expensive. Add to that license and implementation costs. And the need to set up internal teams to customize and test applications that are not really transferrable outside the aviation world. The reality of what it costs to implement any kind of technology in an airline surprises executives and investors. And it would shock passengers!
The ROI Question
Have you met a CFO that doesn’t ask about the ROI on an investment?
The argument for a CrewScheduling system investment? Plan for risk. This technology, like customer experience, is not a nice-to-have. Recent litigation against Southwest and national press coverage confirms that, if nothing else. So, next time you are defending investment in employee-facing technologies, tell the CFO that you understand the 500M price tag on the digital transformation is the cost of 4-5 planes. But don’t let that end the conversation. Not after this holiday season.
We can no longer rest on the old argument that those 4-5 planes make money and technology and SysOps transformations do not. Airlines and Wall Street are looking at ROI. Digitization and customer experience are that ROI. Because you can’t run planes without people. And if you can’t find your people, those planes are losing money on the ground.
Southwest, we see you. It feels like an argument you can’t win. You have been living with insufficient technology for all this time and nothing catastrophic happened. But then it did. So, what happens now?
Use a Third Party to Implement Transformation
Let’s assume you get the money. And you can get the IT experts. What’s next? From our experience in JetBlue, you need a third party who is impartial to the internal team dynamics of your airline. Because of the complexities, doing this correctly is labor intensive. The process is too comprehensive to pull someone internal off their job for so long. This is not a sprint. It is a 2-3 year initiative after you have the money to go through all the scenarios.
Technology transformation is not a magic wand. It is a strategic, guided effort led by someone who ensures the passion for the project does not fade. Because a project like this can’t get dropped. So, work it through another pandemic, changes in leadership, and anything else that comes along.
Recognize that a transformation project of this scope requires extensive reporting, including updates during earnings calls and Board meetings. Anyone who has managed reporting knows how much time this takes! The complexity of reporting to Wall Street comes from the hours of connecting with all the stakeholders to craft the right messaging to the public. These are real people. Real meetings.
A consultant can operate independently in the best interest of the project, outside of fear of an Executive. And that is a must. Because operational transformation and digitalization must survive any power dynamic or member of the Senior Leadership Team. Because this transformation will help your airline survive the next Holiday Season, regardless of the weather forecast.
Let’s talk about how to take the next steps to survive – and thrive – in this new year, and beyond.