Southwest Offers 25,000 Miles for Holiday Flight Disruptions. Is It Sufficient?

Now that its flights are operating on a nearly normal schedule, Southwest Airlines is focusing on rebuilding its tarnished reputation after canceling 15,000 flights during Christmas, which left many holiday travelers stranded.

CEO Robert Jordan announced on Thursday that Southwest has processed around 75 percent of the refund requests it has received. The airline has also successfully returned the majority of lost luggage to its owners and engaged an external firm to manage claims for reimbursements related to expenses like hotels and meals incurred by stranded passengers, he stated.

The widespread disruptions started on December 22 due to a winter storm and worsened when Southwest’s outdated crew-scheduling technology became overloaded, causing crews and planes to be misallocated for flights. The airline required eight days to recover from the chaos.

In a brief interview, Jordan mentioned that Southwest is still investigating the causes of the issues, and he prefers not to implement technological changes until the review is complete. He expressed optimism but provided limited details on how to prevent a similar crisis in the future.

Southwest is offering 25,000 frequent flyer points to customers whose flights were canceled or significantly delayed between December 24 and January 2. The airline appears to be making headway on processing refunds, but executives acknowledge that it will take several weeks to handle the reimbursement requests.

Will Southwest lose its loyal customers?

Danielle Zanin is still awaiting confirmation on whether Southwest will reimburse the $1,995.36 she spent during a four-day journey to get her family of four back to Illinois after their flight was canceled in Albuquerque, New Mexico. Even if she receives the refund, it may not be enough to convince her to fly with Southwest again.

"It would take a significant effort for the airline to demonstrate that they can resolve whatever issues they have with their technology for coordinating flight crews and aircraft. The hassle I experienced just isn’t worth it," Zanin stated. She mentioned her intention to return to flying with American Airlines, even if it means paying more.

Southwest hopes that offering refunds, reimbursements, and loyalty points will encourage customers to remain loyal rather than switching to other airlines, a trend known in the industry as "booking away."

"The impact of customers booking away tends to be short-lived, lasting perhaps just a month, especially since many reports suggest that Southwest is being quite generous in reimbursing not only flights but also other out-of-pocket expenses," said Robert Mann, an airline consultant based in New York, adding that the airline is committed to addressing the technological issues that exacerbated the crisis.

It is essential for Southwest to retain its loyal customers to mitigate the financial repercussions of the meltdown. The company has not disclosed the total monetary loss resulting from the canceled flights; however, Jordan has promised to provide more information before the quarterly earnings report on January 26.

Savanthi Syth, an airline analyst at Raymond James, estimated that the storm could cost Southwest around $585 million in lost revenue, in addition to increased expenses. Mann believes the total impact, including cash, vouchers, and frequent flyer points, ranges between $500 million and $600 million.

Airlines, including Southwest, have historically bounced back quickly from previous crises, whether due to adverse weather, crew shortages, IT failures, or other issues. Passenger numbers have typically rebounded swiftly, if they decreased at all.

Michael Mazzeo, a strategy professor at Northwestern University’s business school, remarked, "The reputational damage is only significant in terms of what consumers can do about it. In many markets, there is little to no competition for Southwest. When consumers lack alternatives, the impact of the damage is more constrained."

Southwest, American, United, and Delta dominate approximately 80 percent of the domestic air travel market. Originally founded 50 years ago as a low-cost rival to larger airlines, Southwest has increasingly adopted practices similar to its competitors and has a notably significant presence in major states such as California, Arizona, and Texas.

Delayed Response to the Crisis

Despite struggling while other airlines bounced back from the winter storm, Southwest remained largely silent for several days. This came after facing mounting criticism from consumers, media coverage, and Transportation Secretary Pete Buttigieg.

As the number of canceled flights continued to rise daily, Southwest offered few updates and declined requests for interviews with key executives. On December 27, the company posted a video apology from Jordan, followed by another video featuring a different executive the next day. Company leaders did not engage with the media until December 29, when they announced plans to resume normal operations the following day.

"The company was slow to react in terms of corporate public relations until governmental pressure mounted; the Transportation Secretary directly contacted the CEO and insisted they act quickly to assist affected passengers," remarked Larry Yu, a professor at George Washington University who specializes in crisis management within the tourism sector. "In the short term, this results in significant damage."

However, Yu pointed out that Southwest has a long-standing reputation for affordable fares and quality service to rely on. He commended the airline for its commitment to providing refunds, reimbursements, and frequent flyer points.

"They must take action to regain the trust of their customers," Yu stated. He emphasized that Southwest needs to follow through on its promises to enhance its technology, stating, "You don't want to associate low-cost with low-tech."

Jordan mentioned that Southwest possesses competent technology, but he indicated that the airline will reassess its IT priorities once it has a clearer understanding of what caused the December breakdown.

Lawmakers and federal regulators respond to the crisis

The crisis has also drawn scrutiny from lawmakers in Congress, putting Southwest in the spotlight.

Senator Richard Blumenthal (D-Conn.) announced on Wednesday that he plans to reintroduce a "passenger bill of rights," which did not pass in the previous Congress. He stated, "The Southwest crisis presents an opportunity for advocates of consumer protection measures to succeed," during an interview.

This week, the Senate Commerce Committee declared it will conduct hearings regarding the Southwest incident. Blumenthal suggested that executives from Southwest and other airlines should be among the witnesses called.

"This issue of flight disruptions is not exclusive to Southwest; it’s not the first crisis in airline travel, and it’s certainly not unexpected," Blumenthal noted. He expressed confusion over why Southwest had not upgraded its crew-scheduling technology after it had faltered during earlier disruptions in the summer and fall of 2021.

Transportation Secretary Buttigieg has repeatedly stated that his department is closely monitoring Southwest and will hold the airline accountable for treating its customers fairly.

Consumer advocacy groups have given mixed reviews regarding the Transportation Department’s regulation of airlines. They criticized the Trump administration as a low point, noting a lack of enforcement actions against airlines despite a surge in consumer complaints. The Biden administration did impose fines on Frontier Airlines and several international carriers last year for failing to promptly issue refunds to passengers whose flights were canceled during the early pandemic period, but advocates were let down that none of the four largest U.S. airlines faced penalties.

The Transportation Department is responsible for enforcing consumer protection laws designed to safeguard airline passengers. Various consumer advocacy groups are pushing Congress to empower state officials and private individuals to sue airlines to uphold these laws, though this initiative has yet to gain traction.

"Airlines will vigorously lobby to minimize regulation, but as each crisis unfolds, it becomes increasingly clear that significant reform is necessary," stated John Breyault, vice president of public policy at the National Consumers League.