Southwest Airlines is Discovering the True Cost of Outdated Tech

This post is part of a series sponsored by AgentSync.

If you’re looking for proof that outdated technology, manual processes, and data silos can result in catastrophe, all you need to do is peek under the hood of Christmas ’22 at Southwest Airlines. What can insurance professionals learn from the system breakdown, and what can you do to avoid a tech-induced snafu at your agency, carrier, or MGA?

Legacy industries with legacy problems

In a 100+ year old industry, it’s not surprising that some of the technology used in the early days would embed itself deeply into the system and be hard to shake. A major industry player, founded in 1967, Southwest was still using 1990s technology to power its operations in 2022. Throw in a bit of inclement weather, and you’ve got the recipe for disaster.

If this sounds familiar, it should, because we’ve been writing about the cost of outdated systems for quite some time. We’ve warned that holding onto outdated technology can put your company at risk financially, legally, and do massive reputational harm that makes it hard to retain customers and employees.

Our argument was proven right in the most unfortunate way over Christmas 2022. Because we’re not talking about the insurance industry or any legacy insurer: We’re talking about Southwest Airlines, whose internal technological infrastructure melted down with very public consequences.

Let’s be clear: We aren’t happy about being correct in this situation. What’s going on with Southwest Airlines, its workforce, its customers, and their families is a nightmare of epic proportions. No one should be stranded at an airport for days without any clue when they’ll make it home because of outdated technology!

In the airline industry, just like the insurance industry, weather happens. Natural disasters are unavoidable but risk management is something you can control. If you don’t think having outdated technology running your business is risky, just look at the magnitude of preventable damage Southwest is facing right now, largely because they didn’t heed the warnings to modernize before disaster struck.

The risks of outdated business technology

In the case of Southwest, insurance professionals can draw a direct parallel to the kind of fallout you might experience if your business was hit by a large-scale tech snafu. Overall, we’re talking about financial damage, reputational damage, and regulatory damage. These three buckets are intertwined to the point that it’s hard to know where one begins and the other ends, but it’s the cleanest way to discuss areas of risk that companies using outdated tech are susceptible to.

Financial risk from legacy systems

Southwest Airlines brings in annual revenues ranging from over $22 billion (in 2019) to over $15 billion (in 2021) – with a natural drop due to the 2020 pandemic and the airline industry’s recovery. Even in a down year, Southwest Airlines firmly holds its spot as a Fortune 500 company, coming in at No. 234 in 2022.

With earnings like that, there is no excuse for failing to keep up with the evolution of modern systems. According to Transport Workers Union of America Local 556, which represents Southwest’s flight attendants, its members have been complaining for years, and have repeatedly asked (or demanded) that the airline upgrade its technological infrastructure. It became obvious that Southwest never heeded these warnings as its systems utterly failed under the immense pressure of holiday travel combined with winter weather.

How much money this will end up costing Southwest Airlines remains to be seen, but the amount won’t be small. In a similar crisis during October, 2021, Southwest Airlines had to cancel more than 2,000 flights and it cost them $75 million. Just days into the current crisis, Southwest has canceled nearly 11,000 flights according to the New York Times. The financial fallout may include refunding flights, hotels and meals for stranded passengers and crew, baggage delivery, future flight credits, and of course public relations and legal costs associated with the crisis.

Certainly, the price of investing in a technological system overhaul years ago would have been worth it, right?

Reputational risk from outdated technology

The current crisis started with some epically bad weather. Winter storms and sub-zero temperatures raged across the U.S. just before Christmas. Naturally, this disrupted holiday travel and airlines were canceling flights left and right due to unsafe flying conditions. Staff shortages due to illness (a convergence of COVID-19, the flu, and RSV) certainly didn’t help.

But by Tuesday, December 27, most airlines were operating normally, reporting between 0 and 2 percent of flights canceled, compared to more than 60 percent of Southwest’s flights. By Wednesday, December 28, 90 percent of all canceled flights were from Southwest Airlines. Weather alone can’t account for this discrepancy. And it’s “not Southwest’s first rodeo,” as the airline has experienced two similar cancellation events in recent memory – in both June and October of 2021 – when problems were also chalked up to tech issues and “failures in network connectivity.”

Southwest Airlines will only be able to point the finger for so long, and time may be up as employees and union leaders are speaking out about “outdated processes and outdated IT.” As it becomes increasingly clear that Southwest Airlines should have known their 1990s scheduling systems (among other IT infrastructure) wouldn’t be able to handle the demands of the modern world, it’s hard to see how they can maintain a good reputation in an industry where they were once beloved.

Reputation matters to employees and customers alike. Southwest was already suffering from a weakened ability to attract crew, long before this year’s Christmas weather incident. The reason hasn’t been a mystery either. A report from October 2022 included a quote from pilots that “Southwest’s technology is simply not up to the task of efficiently scheduling staffing,” which turns potential employees off. In terms of consumer reputation, the airline is taking a major hit on customer review websites like TripAdvisor and AirlineQuality.

There’s no telling what the dollar value of this reputational harm will be when all is said and done, but it’s clear they’ll need to “give away a lot of free stuff,” apologize, and make sure this doesn’t happen again, according to an MSU Denver business professor. One way Southwest Airlines can make sure history doesn’t repeat itself (again) is to immediately overhaul its internal operational technology and systems, which the airline’s CEO Bob Jordan says is already happening around the 1:30 mark of his apology video.

Regulatory risk from legacy systems

Like insurance, the aviation industry is heavily regulated for safety and consumer protection. So when a meltdown of this level occurs, it’s natural that regulators are asking questions. U.S. Transportation Secretary Pete Buttigieg is taking the situation seriously and, in remarks to CNN, said he’s made it clear to Southwest Airlines that he expects them to go above and beyond their legal obligations to compensate customers for the situation.

Buttigieg also spoke with airline union leaders from pilot and flight attendant associations. According to those conversations, the Southwest “meltdown” would have been largely preventable if the airline’s leadership made different choices regarding their technology. In an interview, Buttigieg says, “They made clear that they have been raising the alarm about these issues in their systems for some time, and that this really has to do with decisions and choices in terms of the investments that this airline has made – or has failed to make – over the years that seem to be catching up to them now.” See the conversation here.

Whether the Federal government will impose monetary fines on Southwest Airlines is still to be determined. Buttigieg is making it clear that he’ll be looking into the situation and that he expects Southwest Airlines to at least “pay cash refunds for canceled flights and cover stranded passengers’ hotel and meal costs” according to The Guardian. He said he’ll be looking closely to see if Southwest Airlines is meeting its legal obligations to consumers. The Guardian also reports, “In Congress, the Senate commerce committee also promised an investigation. Two Senate Democrats called on Southwest to provide “significant” compensation for stranded travelers, saying that the airline has the money because it plans to pay $428m in dividends next month.”

With all evidence pointing towards the crisis falling squarely on Southwest Airlines’ poor management and decision making in regards to its technological investments, regulators appear to have little patience for inaction and future snafus if the airline doesn’t make concrete upgrades.

Protecting yourself from the risks of outdated technology

If you’re reading this, you’re most likely an insurance professional, not an aviation one. Still, the types of decisions Southwest Airlines has made about its investment in technology (or lack thereof), and the consequences it’s now facing, are truly a cautionary tale for any industry still largely working with last century’s tech. Yes insurance, we’re looking at you.

At AgentSync, we’ve been doing our best to shout this message from the rooftops. Certainly, we’d love it if you’d check out how our solutions can reduce these risks at your insurance carrier, agency, or MGA/MGU. But even if you don’t conclude that AgentSync is the best modern insurance solution for you, these lessons still apply.

Here are a few ways to help prevent the kind of financial, reputational, and regulatory risks your company might face from outdated technology.

1. Upgrade to modern systems that were built in this millennium, if not this decade

Nothing says “crisis waiting to happen” like a tech stack from the 1990s. In Southwest Airlines’ case, when their technology failed, people had to try to manually do what a modern system should have been doing all along. It simply wasn’t possible. Southwest’s COO Andrew Watterson spoke about the immensely tedious and manual process of staff trying to match available crew with available aircraft by hand, describing it as “extraordinarily difficult.”

That’s why our first recommended step is to make sure your internal systems are working at the level you expect in 2023, not 1990.

2. Choose future-proof technology

Investing in a new, modern, tech solution today won’t mean much if it’s out of date next year. Make sure the partner you’re choosing is taking steps to future-proof their software. This means ongoing and active investments in development, regular updates and new releases, and a support team that takes customer feedback and incorporates it into the product. It’s entirely possible that Southwest Airlines systems were “best in class” 30 years ago. It’s also highly likely that the maker of their software hasn’t been providing them with updates and new developments to ensure their solution still works as well today as it did on day one.

3. Adopt technology that has regulatory compliance baked in.

We aren’t experts in federal aviation regulations, but when it comes to insurance, we’re fully aware how complex and nuanced the system of state-by-state regulation is. We even built a free Compliance Library to help you navigate state-specific rules.

As we’ve previously written about, we predict 2023 will be the year of compliance. What that means is we think more and more software solutions (regardless of industry) will start to prioritize automatic and built in compliance rules. When compliance is baked into the system, there’s less room – virtually no room, in fact – for missing steps or incurring violations.

4. Invest in technology that boosts your reputation

When choosing a modern solution to enhance your operations, look for one that helps you become known as easy to business with. This is equally important for employees, customers, and other partners. A reputation for being modern, efficient, and great to work with helps your organization attract and retain internal talent while others struggle. It also helps you attract upstream and downstream distribution channel partners that you need to grow and scale.

Southwest Airlines’ outdated systems certainly aren’t doing it any favors with finding and keeping captains and crew members. And after thousands of people experienced the consequences of the airline’s outdated technology, it’s not winning them new customers either.

So, if you’ve ever wondered whether the technology you use to run your back-end operations truly matters, we hope this has convinced you the answer is a resounding “yes!” If you’re ready to take a closer look at your producer onboarding, producer license compliance management, carrier appointments, and compliance at every point along the insurance distribution channel, see how AgentSync can help.

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InsurTech
Tech
Aviation