Can Southwest Airlines Survive? | Hard Landing | 1

0:08It's December 2022 in Denver. A wave of frigid Arctic air crashes into the Rocky Mountains and cascades down onto the Great Plains. Out on the vast expanse of Denver International Airport, winds gust up to 60 miles per hour. At Southwest Airlines gates, shivering ramp agents work through the cold, loading planes with bags and fuel even as their hands go numb. A worker perched in the cherry picker uses a hose to blast the planes with hot de-icing fluid. The process is slow going. And as some Southwest planes wait their turn, they're getting stuck on the ground. Literally. Plane tires are freezing to the tarmac.

0:51By midnight, when wind chills have nosedived to 40 below zero, Southwest and other airlines have delayed 700 flights and canceled nearly 200. And the worst is yet to come. The storm's freezing air blows from the Rockies to the Atlantic, snarling traffic across much of the country. It's a rapidly intensifying weather system known as a bomb cyclone. The storm has blown up operations in two of Southwest's most important cities, Denver and Chicago. A quarter of the airline's flight crews are based in those spots. That's having a devastating ripple effect on the rest of Southwest's flight network. On Christmas Eve, three days after the storm first hit, the airline cancels almost 40 % of its flights.

1:39Christmas Day isn't looking any merrier. Other airlines are recovering from the impact of the storm. But Southwest isn't. To get its planes back in the air, Southwest CEO Bob Jordan has brought all hands on deck inside Southwest's Network Operations Center at its Dallas headquarters. The facility, which everyone at Southwest calls the NOC, after its initials, NOC, resembles NASA's mission control. Big overhead screens display the position of every plane in Southwest's fleet, alongside the national weather forecast. But the software Southwest uses to navigate out-of-weather disruptions, a tool called SkySolver, was only programmed to fix smaller-scale disruptions.

2:25So Southwest staffers in the NOC are frantically sorting through crew records. They need to manually find available crews and match those crew members with available planes. The process is a mess. In airports across the country, Southwest flight attendants show up for work and hustle the gates, only to find there is no plane available. At other gates, pilots find they have a plane, but no flight attendants. Back at the knock in Dallas, phone lines are jammed with flight crews calling in to get new assignments. Many are put on hold. Some are left there for hours. Amid the Christmas Day chaos, one Southwest staffer is tasked with making outgoing calls.

3:10He's desperately looking for a Dallas pizza parlor that's open and can feed everyone in the knock. The pizzas will arrive, but Southwest's planes won't. Southwest cancels nearly half its flights on Christmas. The next day, five days after the storm arrived, even more cancellations are on the way. That day, an ABC News reporter heads out to cover the chaos and talk to stranded passengers at Chicago's Midway Airport. The Southwest Rebooking Line, a five-and-a-half-hour wait. Tara Anderson and her family stranded here since yesterday, unable to connect to their destination and unable to go back home to the East Coast.

3:52So my daughter lives in the St. Louis area. She's in school, so she's coming to pick us up, and we're just going to drive all the way to Virginia tomorrow. This Christmas, Southwest has played the Grinch. As the wave of cancellations continues to crash over the airline, it threatens to wash away the goodwill and reputation of friendliness and reliability that Southwest had built over five financially successful decades. And the holiday meltdown isn't the only turbulence Southwest will encounter. Southwest, along with other budget airlines that have styled themselves in Southwest's image, airlines like Spirit, JetBlue, Allegiant, and Frontier will soon find themselves navigating through skies where costs are soaring, and passengers are acquiring a taste for higher-end travel.

4:42The question now is this. Can Southwest and its low-fare brethren chart a smooth course through that changing landscape, or are they all headed for a tailspin?

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7:00From Wondery, I'm David Brown, and this is Business Wars.

7:29Buckle up. The story of Southwest Airlines' recent challenges is going to be a bumpy one. Southwest sent its first flight barreling down the runway at Dallas' Love Field back in 1971. It dubbed itself the Love Airline and built its early brand on free in-flight booze served by flight attendants clad in go-go boots and hot pants. Southwest leveraged its early Love branding alongside its operational excellence, offering frequent short-hop on-time flights to turn its first profit in 1973. It's been the most consistently profitable major U.S. airline ever since. While other carriers bled red ink through oil embargoes, wars in the Middle East, terror attacks, and global financial crises, Southwest stayed firmly in the black.

8:21It did so by keeping its costs in check and its service reliable and friendly, and sometimes funny. Some of Southwest's flight attendants have gone viral for their wacky in-flight announcements. But no one was laughing when the pandemic arrived and cratered air travel demand. That event in 2020 prompted Southwest's first unprofitable year since 1973. And although the airline got back in the black in 2021, it's still been a topsy-turvy time for Southwest since the pandemic subsided. Costs have skyrocketed, slicing into profit margins. Other low-cost carriers who modeled themselves after the early Southwest operations are also experiencing ballooning costs and dipping profits.

9:10We're going to explore why those rising costs have clipped the wings of budget airlines like Southwest. And as you'll see, higher costs are but one reason the budget airlines have been less able to undercut the big legacy airlines on fare prices. the way they did once upon a time. And there's another problem, too. A lot of flyers these days don't seem to be as price-sensitive as they used to be. Some flyers seem more than willing to pony up plenty for premium seats with extra legroom, or for very high-dollar overseas flights. Doeferral Southwest, which has long touted its in-flight meals as being nothing more than a bag of peanuts, ended 2022 with no premium offerings.

9:56No first class, no rows with extra leg room. In recent years, that approach sandwiched Southwest between the legacy carriers who have all the frills, you know, carriers like American, Delta, and United, including first-class service, international flights, partnerships with foreign airlines, and so-called ultra-low-cost carriers like Spirit, who routinely beat Southwest on price but lack Southwest's expansive network. Now, some industry watchers believe Southwest's business model has aged about as well as outfitting flight attendants in hot pants. To keep up with the times and the competition, Southwest may need to change just about everything if it doesn't want to get stuck in the middle.

10:41The question is, will passengers go along for that ride? This is Episode 1, Hard Landing.

10:57It's 1993 in Dallas. Southwest Airlines has just ranked first among U.S. airlines in the U.S. Department of Transportation's rankings for on-time performance, baggage handling, and customer service. Southwest decides to market that achievement as the Triple Crown. And it keeps on winning that Triple Crown for years to come. Southwest may be number one, but it isn't alone in the low fare market. Its success has spawned a copycat movement of airlines who promised point-to-point service and low fares just like Southwest. In 1992 came Spirit. In 1993, AirTran. In 1997, Allegiant. 1998, JetBlue. One eyewitness to that evolution is Bob Jordan.

11:44He joined Southwest in 1988 as a 27-year-old computer programmer, and he's been climbing the corporate ladder ever since. Jordan has kept his eye not only on low-fare startups, but on the efforts to copy Southwest. United and Delta both launched airline-within-an-airline models that aped Southwest's style. In 1994, United took off with Shuttle by United, which landed for good in 2001. Delta followed with a Southwest clone called Song from 2003 to 2006. And United tried again from 2004 to 2009 with a concept it branded as TED. Yep, really. In each case, the idea was to create a sort of subsidiary airline that, like Southwest, could save money by flying only one type of aircraft with only one class of service.

12:38No first class, no meals. United and Delta also tried to lower costs and thereby fares by staffing their subsidiaries with pilots and flight attendants who were on the lower end of their pay scales. All of which is to say that as Bob Jordan's career progresses, the Southwest way becomes the way much of America flies. And that will continue to be the way into the 21st century. But a global pandemic is about to change all of that. And that change will shoot Southwest's budget business model right out of the sky.

13:21It's May 2021 in the air over Southern California. A Southwest Airlines Boeing 737 has begun its descent into San Diego International Airport. And today, one Southwest flight attendant is going to have one of her toughest days ever. Ladies and gentlemen, in preparation for landing in San Diego, be certain your seat back is straight up and your seat belt is fastened. Please secure your carry-on items, stow your tray table, and pass any remaining service items and unwanted reading materials to the flight attendants. Thank you for flying Southwest Airlines. A Southwest flight attendant heads to the back of the cabin.

14:02She notices a female passenger who is yet to buckle her seat belt. The passenger is also wearing a surgical mask around her chin and not over her nose and mouth. The COVID-19 pandemic has been raging for more than a year, and federal regulators require passengers to wear masks in flight unless they're actively eating or drinking. Some passengers hate these rules, but flight attendants have been tasked with enforcement. That's made their already tough job even tougher. The flight attendant orders the passenger in the last row to buckle up and wear her mask properly. Suddenly, the passenger leaps to her feet.

14:39She swings a fist at the flight attendant, catching the side of her head. More blows follow. The flight attendant is nearly knocked to the ground. Blood streams from her face. A male passenger jumps up and pushes the female passenger backward, ending the assault. The brutal encounter has left the flight attendant not only bloody and bruised, but with three chipped teeth. And it's just one of more than 5 ,700 incidents involving unruly passengers that the FAA will report in 2021 alone. That has airline workers stressed out at a moment when they're also feeling overworked. overworked. As 2022 begins, flyers slowly return to the skies.

15:26But in the face of that new demand, the airlines, like many other businesses, experience labor shortages. There aren't enough flight attendants or gate agents or ramp workers, those folks you see tossing bags into planes or driving around in those little tow tractors. There aren't enough of them to meet the demand. And even if there were, there aren't enough pilots. When the pandemic first idled much of the industry, many pilots took buyouts or retired early. One analysis found that about 9 ,400 pilots left the skies from 2020 to 2021, about 10 % of all certified pilots. That's creating some big headwinds for Southwest and some other airlines.

16:16It's February 2022 at Dallas' Love Field Airport. The captain of a Southwest Airlines 737-700 pushes the throttle forward. The plane barrels down runway 31 left, soaring into the sky. To his left, the captain can see Southwest's modern, massive corporate headquarters. There, a group of employees is taking a break on a rooftop deck. They wave as the plane goes past. Inside the building, though, Southwest's new CEO, Bob Jordan, is hard at work. Jordan is now a silver-haired 61-year-old executive, and today is the 34th anniversary of his very first day working for Southwest. The airline had 7 ,000 employees in a fleet of 90 jets on Jordan's first day as a computer programmer in 1988.

17:06Now, on his first day as CEO, there were about 65 ,000 people on staff and more than 700 planes in the fleet. Where Southwest was once a quirky regional carrier, today it carries more domestic passengers than any other U.S. airline. Problem is, Southwest doesn't have enough workers to transport all the passengers it would like. Jordan figures he needs to hire 25 ,000 more employees by the end of 2023. Jordan heads over to Southwest's marketing department, where he plans to discuss the labor shortage in a remote live shot for CNBC. Getting staffed is the key. Right now, I would tell you we probably have 35 to 40 aircraft that we are unable to operate simply because we're unstaffed.

17:56So our key to getting back to being efficient is getting staffed, and we are just absolutely laser-focused on that. But while Jordan is putting his focus on hiring thousands of new workers at Southwest, he's also facing even more discontent from his existing staff, especially those worn-out flight attendants. And those labor issues are going to begin hurting Southwest's profits.

18:28Ready or not? Yep, the holidays are coming, and I'll be honest, I love having friends and family over. But I don't love realizing at the last minute that my serving pieces look like they've been through one too many dinner parties, or that the guest room is more college dorm chic than holiday cozy. Know what I mean? Well, that's where Wayfair comes in. We just ordered some new serving plates, a new wreath for the door, a set of crisp new sheets, and suddenly the house feels just about guest ready. Even better, it didn't feel like a chore. It felt fun. But I've been here before, I'll be honest.

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21:19It's September 2022 at Phoenix's Sky Harbor Airport.

21:27Off-duty Southwest Airlines flight attendants have set up a picket line outside the airport terminal. They're protesting the way that Southwest has treated them in recent years. Similar pickets have been set up at nearly two dozen airports across the country. But this one has drawn local news coverage that includes an interview with the vice president of the union representing Southwest's flight attendants. Chance and cheers. This is what could be heard today from Terminal 4 at Sky Harbor, with dozens of airline workers turning to the picket lines for change. It's been wrong for way too long. It's time for Southwest Airlines to make it right.

22:03Members of the union that represent flight attendants are demanding new contracts after experiencing many complications due to the pandemic, including rude passengers. That unruliness is directed at flight attendants because we are the face of the airline. And during the pandemic, the face of the airline sometimes took a beating. Hey, remember how during our Starbucks series, baristas were deemed essential workers and ended up facing the wrath of customers because of masking policies? Flight attendants got the same kind of abuse. Some Starbucks baristas eventually unionized and demanded better working conditions.

22:42And late in the pandemic, unionized airline workers made the same plea. At JetBlue, workers balked back in March 2022 when executives suggested that the airline wasn't flying a complete schedule because flight attendants continued to refuse assignments. A month later, flight attendants at Spirit picketed in Orlando, Dallas, and Las Vegas after the airline canceled about a third of its flights, leaving flight attendants stranded across the country. Flight attendants at United Airlines and Delta have picketed, too. But for low-cost carriers like Southwest, JetBlue, and Spirit, the problems are a little different.

23:21Union leaders allege that budget airlines, which compete mainly by offering the lowest price, are locked in what they call a race to the bottom. The unions accuse the budget carriers of treating workers less like people and more like robots, all in the name of saving a buck. And by the fall of 2022, budget carriers like Southwest are feeling serious pressure to pinch pennies. You know what? As your friendly flight attendants might say, this might be a good time to sit back and relax, because we're going to try and understand a little bit about why costs matter so much in the airline world, and why they became so much harder to control after the pandemic.

24:04Let's begin this brief journey with a little industry terminology, shall we? In the U.S., the airline business consists of three types of carriers, basically. You've got your legacy airlines. That's American, United, and Delta. Some would also add in there Alaska. Then you've got your low-cost airlines. That's like Southwest and some of the airlines that copied aspects of the Southwest model, like JetBlue. After that, you've got a group that has even lower costs. They offer even lower fares. They're called ultra-low-cost carriers. That group includes Spirit, Frontier, and Allegiant. The key to the low-cost and ultra-low-cost model, well, that's keeping costs low.

24:49I mean, duh, right? One way to keep costs low is to keep productivity high. In other words, you're doing more with less. Now, Southwest was really good at that for a very long time. Back in 93, for example, Southwest had an average of 81 employees per aircraft. Look at that same year, United and American, those legacy carriers, they employed almost twice as many people per plane. A few years later, in 1996, Southwest planes were in the air for more than 11 hours each day, on average, while the rest of the industry averaged just 8 hours of flight time per day. You see how this is sorting out, right?

25:32In the name of efficiency, Southwest flies only one type of aircraft, the Boeing 737, and has open seating instead of assigned seats, which costs more and can slow down boarding. These things, along with a productive workforce and fleet, it's all added up to a robust bottom line for Southwest. While they racked up profits, the competition went boom and bust. After deregulation in 1978, major carriers like Eastern Airlines and Braniff went under. In the 1990s, Alaska Airlines lost money in part because of fair wars with Southwest. In the 2000s, JetBlue swung from big profits to big losses, and by 2012, United, American, and Delta had all declared bankruptcy.

26:20Then came the pandemic. When air travel cratered in 2020, Southwest posted its first annual loss in 47 years. And it also broke the hole that low-cost carriers once had on the business, in part, because their costs have gone up a lot. Now, maybe you've noticed it takes more money these days to gas up your car, right? Well, it costs more to gas up a plane, too. And just like we're all paying more in the grocery store, airlines are paying more for just about everything they buy. Add to that stressed-out airline employees who've demanded higher pay and better working conditions, all of which comes at a cost.

27:00At Southwest, as Bob Jordan's first year as CEO heads to a close in 2022, his airline's costs have risen by nearly 30 % compared to 2019. There's another problem, too. Remember, the key to success as a low-cost carrier is to be highly efficient, right? Getting more out of each person and each plane in the fleet. In airline lingo, they call that the aircraft utilization rate. And in 2022, Southwest's utilization rate is 40 minutes less per day than it was in the year before the pandemic. Why? Well, in part, because Southwest doesn't have enough people to fly its planes as often as it would like.