Senators grill Southwest about Christmas meltdown

A Southwest 737 takes off from Manchester-Boston Regional Airport on Feb. 6 in Manchester, N.H.

The Senate Commerce Committee hearing into the Southwest meltdown brought out different views about how to fix the problem from the leading Democrat and Republican on the committee.

Committee chairman Maria Cantwell, a Democratic senator from Washington state, said the problem shows the need for the Department of Transportation to take tougher steps against airlines who cause problems for passengers,

“I believe this sector needs a more effective policeman on the beat,” said Cantwell. “This incident shows us we need to get serious about this.”

But Ted Cruz, the ranking Republican on the committee, said that greater regulation would harm, not help, the flying public.

“As frustrating as those several days were, the question of whether Southwest has made things right will be answered by the passengers,” said Cruz. “One of great changes in our lifetime is prices of flights have gone way down. The Biden administration should let the flying public vote with its feet.

“Regulatory overreach that egregious would undermine decades of progress in air travel, harming the various consumers that the DOT claims it is trying to protect,” he said.

But Illinois Democrat Tammy Duckworth said there needs to be greater oversight.

“We must crackdown on carriers who have gotten away with predatory practices that treats passengers like suckers,” said Duckworth.

Sen. Ted Cruz said Southwest Airlines understands its service meltdown during the Christmas holidays was “an epic screw up” — despite his general opinion that the airline on “most days does a fantastic job.”

When more than 16,000 flights were canceled between Dec. 20 and Dec. 29, many consumers were frustrated, he said.

Cruz said he hopes to hear some specific steps Southwest will take to ensure that such a meltdown never happens again.

U.S. Senator Maria Cantwell during her opening statement.

The Senate Commerce Committee hearing examining Southwest Airlines’ operations has begun.

In her opening statement, US Sen. Maria Cantwell laid out what consumers and lawmakers are looking for after Southwest’s service meltdown.

She also said she hopes Southwest COO Andrew Watterson — who is testifying today — can also explain why the concerns expressed about the company’s outdated technology went unheard.

All lawmakers present in the committee value the air transportation system and want to grow it, “but we can’t do it on the backs of consumers,” Cantwell added.

Lawmakers are grilling Southwest Airlines COO Andrew Watterson and other witnesses today as they examine Southwest Airlines’ operations at a Senate Commerce Committee hearing.

Here’s a list of witnesses on the panel:

Travelers wait in line at the Southwest Airlines ticketing counter at Nashville International Airport after the airline cancelled thousands of flights in Nashville, Tennessee, on December 27, 2022

One of the major problems during the service meltdown at Southwest was the company’s antiquated crew scheduling system.

While many airlines also faced bad weather just before Christmas, the others were able to recover quickly. But Southwest’s janky scheduling system, left it uncertain where its crews were, and who was available to fly on subsequent flights. So it had to cancel thousands of flights due to lack of crew, even if the crew members were at least theoretically available.

And part of the reason for the lack of knowledge is that rather than being able to notify the airline of their availability through an app or web site, Southwest crew members had to phone into the scheduling department. And the large number of crew members trying to phone in overwhelmed the system.

Southwest said it has already made some changes to the scheduling system that will prevent a repeat of some of the problem. And it will have more people assigned to answer calls from crew members.

But having a way for crew members to respond electronically rather than calling in will take more than a technological upgrade. It will take new labor contracts.

“Our contracts with our crews right now require telephone calls in these situations,” said Andrew Watterson, Southwest’s chief operating officer. The airline is in the process of negotiating new contracts with most of its employees, including the pilots and flight attendants. But those negotiations will have to reach an agreement on a wide range of issues, including contentious issues on wages and benefits, so reaching new deals are not likely to be complete in the near term.

A traveler searches for a suitcase in a baggage holding area for Southwest Airlines at Denver International Airport on December 28, 2022 in Denver, Colorado.

The losses from the service problems at Southwest didn’t end when its planes finally returned to their normal schedules just before New Year’s Eve. The company said it expects that it took a $300 million to $350 million hit from reduced bookings in January and February as passengers avoided the airline in the wake of the news reports about the problems.

The company warned investors that the hit to bookings is likely to cause it to post a loss once again in the first quarter. Most other airlines are forecast to be profitable once again in the first quarter, even though it is typically the slowest period of the year for US air travel.

Southwest being the least profitable major US airline is the opposite of the normal situation. Most of its rivals have had uneven results over the decades, with very profitable years followed by huge losses. In fact every other major airline had at least one bout in bankruptcy court sometime this century. But not Southwest, which had put together a string of 47 straight profitable years before it reported losses in 2020 and 2021 due to the pandemic.

But Southwest said despite the early-year hit to bookings, it is seeing strong bookings starting in March.

“We continue to feel good about our 2023 revenue plan,” said Ryan Green, Southwest’s chief commercial officer, to investors last month. “We believe the vast majority of the first quarter impact is isolated to January and February travel. For March 2023, leisure booking and [fare pricing] trends appear strong and in line with what we would expect from a high-demand travel month.”

Business travel is also returning to expected levels, he said.

Automated check-in kiosks at the Southwest Airlines departure counters inside Laguardia Airport terminal B as flight service returned to normal, in the Queens borough of New York City on December 29, 2022.

Southwest Airlines wasn’t the only one which paid millions due to its service meltdown in December. So did US taxpayers.

The company’s fourth quarter financial report said that the service problems cost the company about $800 million during the quarter. But it said that the “after-tax” impact of the problems came to about $620 million. Southwest took in less money, which meant it paid less money in taxes, accordingly. So the lost tax revenue for US taxpayers came to as much as $180 million.

Now some of that tax revenue was made up when other airlines reported higher revenue from selling tickets to Southwest passengers who needed to get somewhere. But of course some passengers who had their flights canceled just stayed where they were and didn’t travel.

Southwest ended up posting a $222 million adjusted loss in the quarter due to the cost of the meltdown, making it the only major US airline to post a loss for the quarter. Southwest did manage to post a profit for the year, though, its first profitable year since before the pandemic.

The company said about half the $800 million cost came from the cost of refunding tickets to passengers who were on the more than 16,700 flights that it canceled between December 29. The rest was due to increased costs, including reimbursing customers for out of pocket expenses such as flights on other airlines, hotels, car rentals and meals, the estimated cost of future travel that will occur when affected passengers use the 25,000 bonus points they had added to their frequent flyer accounts, and additional employee compensation, such as overtime, and what Southwest called “gratitude pay,” or a pay premium for employees who were affected by the problems.

Beyond the lower tax bill, Southwest did see some cost savings from the service issues, primarily a drop in fuel costs since it didn’t fly the canceled flights.

Stranded travelers search for their luggage at the Southwest Airlines Baggage Claim at Midway Airport on December 27, 2022 in Chicago, Illinois. 

Southwest Airlines is paying the price for canceling about half of its schedule between Dec. 20 and Dec. 29 – more than 16,700 flights during the busy holiday season — perhaps the worst time of the year to strand customers.

So will Southwest customers who were affected by the service meltdown forgive the airline and return? Many already have.

During last month’s earnings call, Southwest said that of the passengers who were affected by the problem who were compensated with 25,000 bonus points in their frequent flyer accounts, 25% have already booked flights for future travel on the airline.

Some of those passengers are using the points for travel. Others are paying cash for their tickets.

“I take that as a sign of confidence that customers understand,” said Ryan Green, Southwest’s chief commercial officer, to investors last month. “They understand that we messed up there. We did everything that we could to make it right, and that 1/4 of them already have future travel booked on Southwest.”

Here are some reasons why experts think the overwhelming majority of Southwest customers may forgive the airline:

Southwest responded well after the meltdown: The airline did a fairly good job reaching out to refund fares on canceled flights, awarding bonus frequent flier points and compensating flyers for their out-of-pocket expenses. That compensation covers not only the cost of travel on other airlines but also car rentals, hotels and meals.

It is improving its crew scheduling system: So the problem won’t be repeated. And it has committed to a long overdue upgrade to its computer system which should help it in the long-term.

It had a good market reputation: Prior to the crisis, the Bureau of Transportation Statistics shows Southwest had the lowest rate of complaints per passenger, only 1 per 100,000 passengers, compared 2.24 for Delta, 4.1 for United and 4.6 for American. All of that is helping it to weather customer backlash.

Lack of other options: Southwest is the largest US domestic airline and it specializes in secondary, somewhat smaller airports. For a passenger who prefers Chicago Midway Airport or Love Field in Dallas to the those cities’ massive primary airports of O’Hare and Dallas Fort Worth, there really is no alternative to flying Southwest. And that’s especially true if you want direct flights rather than changing planes at one of those other airlines’ hubs.

And the fact that other airlines have suffered their own travel woes in recent years is probably also working in Southwest’s favor, even if those other meltdowns were as massive, and badly timed, as the one at Southwest.

A ground operations crew member walks past a Southwest Airlines jet sitting at a gate, Dec. 28, 2022, at Sky Harbor International Airport in Phoenix. 

Southwest Airlines reported a loss for the fourth quarter in 2022 and it warned of another loss in the first quarter after the airline was forced to cancel more than 16,700 flights between Dec. 21 and Dec. 29, roughly half its schedule during that period.

The numbers:

To repair customer relations, Southwest has given affected passengers 25,000 bonus points in frequent flier accounts, as well as travel vouchers. And in addition to refunding fares for canceled flights, it is reimbursing those passengers who bought tickets on other airlines or incurred other unexpected travel costs.

Southwest has traditionally been the most profitable US airline by a large margin. Many of its rivals were in and out of bankruptcy in recent decades due to losses brought on by recessions and events like the 9/11 attack, but Southwest had put together a string of 47 consecutive profitable years before the pandemic. In 2020, Southwest and all other airlines to reported a loss.

All other airlines lost money again in 2021, excluding special items such as financial support from the federal government, and most airlines reported another quarterly loss in the first three months of 2022 as the surge in Covid cases caused by the Omicron variant limited demand for travel.

But demand to fly had been very strong starting with the spring Bbeak travel season, and air fares soared as passengers paid top dollar to take long-delayed trips. Southwest and most other US airlines reported profits in the second and third quarters, and most have either reported profitable fourth quarters or are forecast to do so – as Southwest had been before the meltdown.

Hundreds of Southwest Airlines checked bags are piled at baggage claim at Midway International Airport as Southwest continues to cancel thousands of flights across the country Wednesday, Dec. 28, 2022, in Chicago.

Southwest will attempt to move forward from its pitfalls under the watchful eye of the US government.

The Department of Transportation said it is investigating Southwest’s spate of cancellations and customer service delays. President Joe Biden said his administration “is working to ensure airlines are held accountable.”

Democratic Sens. Ed Markey of Massachusetts and Richard Blumenthal of Connecticut issued a letter at the time of the meltdown calling on Southwest to pay up for what they say were avoidable holiday cancellations.

US Sen. Maria Cantwell, who chaired the Senate committee hearing in 2021, also issued a statement in December, pledging the panel would be looking into the causes behind Southwest Airlines cascade of flight cancellations.

“The problems at Southwest Airlines over the last several days go beyond weather,” she said in a statement. “The committee will be looking into the causes of these disruptions and its impact on consumers.”