People are angry with Southwest Airlines. Southwest was the only major airline that suffered a complete collapse of service in the wake of the megastorm. Southwest was still operating less than half of its flights as of Thursday.
What happened to this thing? I would love to write a column about the effects of greed on society. That isn't the main story here.
Greed definitely played a part in the disaster. Southwest didn't spend the money needed to upgrade a scheduling system that many people inside the airline knew was inadequate Billions of dollars were spent on stock buy backs.
Nothing I say here should be seen as an argument against demanding that Southwest compensate the travelers it failed, not just as a matter of fairness but to create the right incentives. If we want companies that serve the public to spend money to reduce the risks of catastrophic failure, we need to make sure that they pay a high price for letting their customers down.
We shouldn't be stopped from trying to understand why things went wrong.
When the airline industry was deregulated in 1978 the roots of Southwest's unique meltdown can be found. The point to point service that interstate carriers were forced to offer was over. Many passengers changed planes at major centers like Chicago's O'Hare or Atlanta after major airlines switched to "hub and spoke" systems.
There are some advantages to hub-and-spoke. In order to connect 10 cities point-to-point requires 45 routes, but sending everyone via a central hub requires only 9. The flexibility created by the system is due to the fact that planes and flight crews can be relocated to compensate for equipment breakdown.
There are drawbacks to a hub-and-spoke system. If something goes wrong, it can force passengers to accept long layovers. I did not like my recent night in Miami. With hub-and-spoke, airlines have increased their monopoly power.
Some airlines moved back to point-to-point on the eve of the Pandemic. Southwest had remained in that system. It flew people straight from origin to destination without having to change planes.
Southwest was able to pass on some of its low costs in the form of cheaper fares. Southwest leads J.D. Power's rankings for customer satisfaction in its economy class.
Point-to-point is particularly vulnerable to disruptions. Most of Southwest's planes and personnel were stuck in scattered locations because of the snow and cold. The airline is attempting to put the pieces together again.
The lack of agreements that would have made it possible to rebook passengers on other airlines made the situation worse. These were only part of the problem. A system that has some advantages in normal times fell apart when faced with a perfect storm.
There are lessons to be learned from this disaster.
Southwest's debacle was thought to be a reflection of a managerial culture that encourages "cheeseparing", increasing profits by slicing off costs until there is no margin for error. The root of worker anger that nearly shut down America's freight railways was a focus on holding down expenses.
I agree with that view. Corporations are more willing to invest in resilience if they were less focused on their short-term bottom lines. Public policy should encourage such investment.
The events at Southwest remind us that we are still living in a material world. There is a strong resemblance between the Southwest meltdown and the supply chain crisis of 2021, when a series of unusual events left many of the shipping containers central to modern commerce stranded in the wrong places.
It can sometimes feel like you are already living in the metaverse if you click on your mouse. There is a lot of work going on behind the scenes. At our risk, we forget that reality.
All Rights Reserved © 2024
