A Southwest Airlines investor has accused the carrier of fraud in a new class action lawsuit facing the Dallas-based airline following a disastrous operational meltdown over the Christmas holidays that is already estimated to have cost Southwest $825 million in costs and compensation payouts.
The latest lawsuit brought against Southwest following the meltdown was filed in the Southern District of Texas District Court on Thursday and alleges the airline repeatedly failed to warn investors and shareholders about the state of its antiquated computer systems.
Multiple airlines faced disruption in the lead-up to Christmas 2022 after severe winter weather swept across the United States, but while other airlines quickly recovered their operations, Southwest went into meltdown.
In the end, Southwest was forced to dramatically scale back its schedule so that it could regroup and reposition aircraft and aircrew where they were needed.
Analysts have identified two major causes of Southwest’s Christmas woes that created a snowball effect to effectively ground the airline. First, rather than operating a hub-and-spoke operation like many of its competitors, Southwest uses a point-point-point model that allows for more direct non-stop routings.
The disadvantage of a point-to-point network, however, is that in times of disruption it becomes a lot more difficult for the airline to locate its crew and regroup in a central location.
That task was made even harder for Southwest because its in-house ‘Sky Solver’ crew scheduling system was struggling to match up where crew and aircraft to where they actually were. In the end, the airline had to do this manually – a process that was “extraordinarily difficult” and very time-consuming.
The lawsuit claims Sky Solver is “outdated and ineffective technology”, but shareholders were never warned by Southwest that it was operating antiquated computer systems.
In fact, the lawsuit alleges that Southwest misled investors by repeatedly failing to disclose its internal IT issues in various financial filings. As a result, the suit claims Southwest Airlines’ “securities had been artificially and falsely inflated” by its “misleading statements”.
Even after several other high-profile IT hiccups, Southwest filed financial documents that warned about hypothetical technology issues rather than identifying specific computer systems that were already causing problems for the airline.
Southwest also highlighted the positive aspects of its point-to-point network but, the lawsuit alleges, failed to warn investors about the potential pitfalls of this type of network – especially in the event of ‘irregular operations’.
Chief executive Bob Jordan recently told reporters that Southwest needed to “dial up” its investment in IT systems and processes through 2023. The airline had already unveiled a five-year modernization plan, but Jordan now admits this timeline will need to be brought forward.
The lawsuit has been filed in the US District Court for the Southern District of Texas, Houston Division under case number: 4:23-cv-115.
Shareholders file suit because they didn’t do their due diligence on a company before investing and lost money. Good luck with that noise. Nobody cares about retail investors.