Southwest starts on reputation repair after cancellations

With its flights running on a roughly normal schedule, Southwest Airlines is now turning its attention to repairing its damaged reputation after it canceled 15,000 flights around Christmas and left holiday travelers stranded.

The disruptions started with a winter storm and snowballed when Southwest’s ancient crew-scheduling technology failed. Southwest on Tuesday told customers whose flights were canceled or significantly delayed over the holidays that they would get 25,000 frequent-flyer points on top of refunds and reimbursement for unexpected costs like hotels and meals.

The airline created a page where customers can submit receipts for reimbursement but executives concede it will take many weeks to process all the requests.

Danielle Zanin is still waiting to hear whether Southwest will cover the $1,995.36 that she spent during a four-day odyssey getting her family of four home to Illinois after their flight was canceled in Albuquerque, New Mexico. Even if she eventually gets the money, it may not be enough for her to try Southwest again.

“It would take a lot for the airline to prove to me that they can fix whatever technology they use to get flight crews and planes where they need to go. It’s just not worth the hassle that I went through,” Zanin said. She plans to go back to flying on American Airlines even if it costs more.

Raymond James airline analyst Savanthi Syth estimated that the storm will cost Southwest about $585 million in lost revenue plus the cost of additional expenses. Airline consultant Robert Mann pegged the cost to Southwest at $500 million to $600 million in a mix of cash, vouchers and frequent-flyer points.

Southwest hopes that refunds, reimbursements and loyalty points will persuade people not to switch to other airlines, known in the industry as “booking away.”

“Book-away typically has a short half-life, perhaps as little as a month, given it appears from many accounts that Southwest is being very generous reimbursing not only flight but other out-of-pocket costs” and is serious about fixing the technological shortcomings that made the crisis worse, Mann said.

Airlines—including Southwest as recently as October 2021—have recovered quickly from previous meltdowns, whether they were caused by bad weather, crew shortages, IT outages or other factors. Passenger numbers, if they declined at all, recovered quickly.

“The reputational damage is only as relevant as what consumers can do about it,” said Michael Mazzeo, who teaches strategy at Northwestern University’s business school and has examined airline competition. “In a lot of markets, there is little or no competition to Southwest. When there is no outlet for consumers, the damage is more limited.”

Southwest, American, United and Delta control about 80% of the domestic air-travel market. Southwest—it started 50 years ago as a low-cost competitor to big airlines but has gradually become much more like them—has a particularly outsized presence in some big states including California, Arizona and Texas.

Southwest remained relatively quiet for several days even after it became clear that it was struggling while other airlines recovered from the winter storm—and after it came under repeated criticism from consumers, media reports and Transportation Secretary Pete Buttigieg.

After an update on attempts to fix the operation Dec. 24, Southwest went dark for three days until it posted a video apology by CEO Robert Jordan, followed a day later by a video with another executive. Company executives did not speak generally to the media until Dec. 29, when they announced that Southwest would resume normal operations the following day.

“The company was slow to come forward in terms of corporate PR communications until the government went after them, the (Transportation) secretary called the CEO directly and demanded they move fast to take care of those people,” said Larry Yu, a George Washington University professor who studies crisis management in the tourism industry. “Short-term, it’s big damage.”

But Yu also noted that Southwest has decades of reputation for relatively low fares and good service to fall back on. He praised the airline for promising refunds, reimbursements and frequent-flyer points.

“They have to do something to win back those customers,” Yu said. Now, he added, Southwest must make good on vows to improve its technology, “because you don’t want to equate low-cost with low-tech.”

The debacle has also focused attention on Southwest among lawmakers in Congress.

Sen. Richard Blumenthal, D-Conn., said Wednesday that he will re-introduce a “passenger bill of rights,” which failed to become law in the last Congress.

“The Southwest debacle creates a moment when the forces in favor of this kind of consumer-protection measure could prevail,” he said in an interview.

The Senate Commerce Committee said this week it will hold hearings on the Southwest meltdown. Blumenthal said witnesses should include executives from Southwest and other airlines.

“This problem (of flight disruptions) is hardly limited to Southwest, it’s hardly the first meltdown in airline travel, and it’s hardly unforeseeable,” Blumenthal said. He said it was baffling why Southwest had not improved its crew-scheduling technology after it had failed during previous disruptions in the summer and fall of 2021.

Consumer groups have given mixed grades to the U.S. Transportation Department’s oversight of airlines. They viewed the Trump administration as a low point, with few enforcement actions taken against airlines even in the face of record consumer complaints. The Biden administration fined Frontier Airlines and several foreign carriers last year for not quickly paying refunds to travelers whose flights were canceled during the early months of the pandemic, but advocates were disappointed that none of the four largest U.S. airlines were fined.

The Transportation Department has the burden of enforcing consumer-protection laws aimed at protecting airline travelers. Several consumer groups are urging Congress to let state officials and private parties sue airlines to enforce those laws — an effort that has been unsuccessful so far.

“The airlines are going to lobby hard to have as little regulation as possible, but with each passing meltdown it becomes more apparent that real change is needed,” said John Breyault, vice president of public policy at the National Consumers League.