Southwest Airlines, a Blizzard, and the Cost of Customer Service
Businesses that are short sighted and don’t invest enough to provide good customer service pay huge price in lost revenue- and lost customers.
Sadly, the Christmas 2022 blizzard- and Southwest Airline’s management during the blizzard- provides a perfect example.
Now, no one can control the weather, and we can’t expect smooth sailing when trying to travel in extreme conditions. I totally get it. My problem is that Southwest Airlines could have taken action before the storm that would have sharply reduced customer complaints.
Now to my sad tale of woe.
My daughter was flying from Denver to St. Louis, and what should have been routine (it’s only a 2 to 2 ½ flight) took over 24 hours. Flights delayed, then cancelled, then on standby. She stood in customer service lines for hours.
Thankfully, she did get the last seat on one of the last flights out of Denver on the Thursday night before Christmas. If she didn’t make that flight, it would have been 3-4 days before making it home.
The weather was awful; planes couldn’t get ice removed quickly, given below-zero temperatures and high winds. Let’s set the weather issue aside and talk about the financial hit to Southwest, and two steps that the airline could have taken- before it all hit the fan.
Just how bad was it?
According to the Wall Street Journal: “The company estimates that the cancellation of more than 16,700 flights from Dec. 21 through Dec. 31 will reduce its pretax income by $725 million to $825 million in the fourth quarter, resulting in a loss for the period. That includes between $400 million and $425 million in lost revenue, as well as an additional hit from reimbursements to affected travelers, premium pay for employees and other related costs.”
Here are the big factors that contributed to the loss:
“Southwest has said that its crew-scheduling system couldn’t keep pace with the number of changes it was having to make, seizing up and eventually requiring the airline to manually assign flights to pilots and flight attendants.
As cancellations cascaded, the airline slashed nearly two-thirds of its schedule for three days last week in an effort to give itself a chance to reset before returning to normal operations on Dec. 30.”
Stunning.
There are two changes that could help reduce the impact of the storm.
“Where is my luggage?” I have the perfect answer
Every piece of baggage should have a GPS tracking device attached. Scanning tags is a flawed system that results in lost baggage.
Consider these issues:
· Bag tag isn’t scanned
· Bag tag is scanned, but the luggage never makes it on the intended flight
· Bag tag is torn, wet (think loading luggage in snow or rain), or missing
After my daughter landed in St. Louis Thursday night, she didn’t get her bag for days. When it did arrive, Southwest incurred the expense to deliver the luggage to our house. Multiply that by thousands of customers, and you can imagine the cost.
There’s a better way- attached a GPS tracing device to each bag.
Consumers use GPS devices all the time, and they’re not that expensive. Samsung makes a SmartTag that you can attach to “keys, wallets, luggage, pets and more” for $20. Southwest provided flights for over 123 million passengers in 2021, so I’m sure the airline can buy these in bulk and pay far less per luggage bag.
Let’s say the price is $5 per smart device, and Southwest adds that cost to each ticket price. When you check your bag, the Southwest agent attaches the smart device to your luggage, and gives you a link to check on the bag’s location. The agent also inputs your GPS information into the Southwest computer system.
For an extra $5, Southwest passengers and the airline can track the location of any bag. It doesn’t get you the lost bag immediately, but it ends the confusion about where a particular bag is. Was the bag really put on the 3pm bag to St. Louis, or is it still in Denver?
Now, both the passenger and the airline know.
Reduce the number of flights
Now, I know what you’re thinking: “They have enough trouble generating a profit flying a full schedule- they can’t afford to cut the number of flights!”
Let me explain.
In 2021, Southwest had $15.7 billion in sales and $977 million in net income (that is, net income available to common stockholders). Net income divided by revenue is about 6.7%, a pretty thin margin, because the airline earns about 6.7 cents on every dollar that comes in the door.
That’s not much of a profit cushion if things go wrong.
Also in 2021, the airline averaged nearly 3,000 flights per day, and 81.2% of flights were on time- a good percentage for the industry. The problem is that a typical Southwest plane may fly 3-4 different flights per day. More flights increase the odds of more problems, including a higher chance of bad weather, mechanical, or a crew staffing issue.
Think about the costs incurred when a plane is delayed or a flight is cancelled.
· Labor costs: Ticket agents and baggage handlers spend time trying to help customers with flight problems.
· Tech costs: IT systems have to be pushed, in order to resolve problems. The more pressure you put on the computerized reservation system, for example, the greater the chance of a malfunction- or a crash.
· Reimbursing customers: Southwest is giving out frequent flier miles (which result in free flights later that don’t generate revenue), and the airline is reimbursing people for food, lodging, and flights on other airlines.
Let’s say that the average ticket price for a cancelled flight is $300. The costs listed above may completely wipe out the $300 in revenue- and maybe generate a loss. Most important is the damage to brand loyalty: will the customer keep flying Southwest?
If Southwest delivers a great customer experience with 80% of the current number of flights scheduled, they might be better off financially.