The Southwest Airline Debacle: What Role Should Regulators Play?

Lucas Bowerman

Associate Editor

Loyola University Chicago School of Law, JD 2024

To anyone who travelled by plane this last holiday season or tuned into the news, you’re well versed in the Southwest Airlines (Southwest) issues that plagued December 2022. Southwest ended up cancelling over 15,000 flights over the Christmas season, forcing thousands of stranded passengers to sleep at the airport and miss time with loved ones. With the disruptions leading to an estimated $825 million loss for the company, federal regulators have scrutinized Southwest to ensure compliance with its customer service plan and to take mitigating steps to prevent another catastrophe. This failure presents an opportunity beyond mere investigation for the Department of Transportation (DOT) to take important regulatory steps to ensure infrastructure and technology is aligned with the modern expectations of travel.

Causes of the Southwest Airline collapse

The issues affecting Southwest and its wave of cancellations stem from two underlying issues.

To start, Southwest operates on a ‘point-to-point’ route system, which focuses solely on origin and destination traffic and typically offers shorter distance travel. Although this model can prevent burdensome layovers, the requirement of consecutive routes can have a cascading effect when airports shut down. This, combined with staff shortages, made rerouting nearly impossible during the turbulent winter weather of December. In contrast, other companies like Delta, United, and American Airlines operate on a hub-and-spoke network, in which the airline connects passengers of longer distances to one of its central hubs, which is used to connect the flight to other cities. These companies handled the December weather problems with relative ease.

Another major issue was Southwest’s outdated technological infrastructure. Southwest has grown beyond the capabilities of its previous technology, but has consistently failed to modernize its IT infrastructure. Class actions have already been filed in states like Texas, in which plaintiffs allege the company failed on multiple occasions to mention its operations were linked to outdated technology.

Response from the Biden administration and the DOT

The response from the Biden administration, Transportation Secretary Pete Buttigieg, and lawmakers was immediate. Calls were made for compensation and investigation as customers frustrations mounted. In the months that followed, the DOT continued its investigation into the systemic issues surrounding the holiday collapse and vowed to hold the company responsible if it fails to reimburse affected passengers. Although Southwest has been cooperative and says it is willing to learn from the event, the DOT has been silent on a more comprehensive approach to regulating the company aside from ensuring those affected are properly reimbursed.

Should regulators force airline companies to update their practices?

Regulators should take this opportunity to reevaluate the lax standards on airline companies. Although the storm in December was “unprecedented,” global warming has led to an increase in severe weather events that will only increase in magnitude for decades to come. The DOT and the Federal Aviation Administration (FAA) should require airline companies to annually report that their technological infrastructure is up to date and can handle peak consumer capacity. In addition, the FAA should investigate the efficacy of point-to-point systems and issue guidance on best practices for airlines during adverse weather events. This would not only ensure that Southwest can mitigate any potential future harm, but would help future-proof airline practices from extreme weather events caused by human-induced climate change.

With the FAA admitting that it failed to conduct proper safety oversight of the company, and its own technological failures, Congress should increase appropriations to the FAA. The agency indicated that many of its systems are up to 50 years old, causing the agency to halt all domestic flights on January 11th of this year for the first time since September 11th, 2001.

Market pressures could also play an effective role in mitigating this kind of future behavior by airline companies. Due to customer dissatisfaction with its model, Southwest will be forced to reevaluate its point-to-point system, which sacrifices reliability for cost. In addition, the company reported a net loss of $220 million in Q4 2022, which will force the company to attract customers who now associate the company with its catastrophe.

However, market solutions will only go so far. To start, there is little indication that the more than $50 billion received by airline companies significantly altered technological infrastructure. Customer loyalty programs through credit cards, along with price and flight time continue to be the most significant factors driving consumer choice in airline loyalty. This places little incentive on Southwest to update its infrastructure and flight system as Southwest can continue to rely on cheap pricing and its rewards program to induce customers to fly with them again instead of enacting more systemic reforms. Therefore, it is time for the DOT to play a larger role in airline regulation and ensure that all companies are equipped to handle crisis effectively.