Southwest Faces Class Action Lawsuit Over Holiday Flight Meltdown. CEO Bob Jordan Says It 'Just Can't Happen Again.' The company said it knows it needs to "rebuild trust" with customers.
By Gabrielle Bienasz •
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Outrage and scrutiny are mounting over Southwest's widespread flight cancellations during the holiday season, and now, there's a class action lawsuit, inspired by the company's legendary meltdown.
The complaint, which was filed on Thursday, is designed for individual shareholders, according to Insider, and names the Dallas-based company and several top executives as defendants. The suit is seeking damages that have not been specified yet.
It contends that the company misled and concealed information from investors about how Southwest's approach to scheduling, "outdated technology," and point-to-point operations — i.e. more direct flights, rather than funneling customers through places like Houston and Chicago — could be disrupted more in severe weather.
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"As flights were getting canceled around the country, it soon emerged that the root cause behind Southwest Airlines' cancellations was outdated and ineffective technology, in particular, its crew scheduling system," the suit says.
Shareholder lawsuits are a fairly common occurrence. Tesla, for example, is currently facing one over CEO Elon Musk's salary package and his statements about Twitter in 2018.
Generally speaking, these kinds of lawsuits can deal with a publicly traded company's legal duties to people who hold individual stock in the company, such as disclosing risks to the business, which affects someone's decision about whether or not to invest.
Southwest's stock dropped from around $38 a share to about $32 from December 14 to December 28, after flight issues emerged. As Reuters noted, from Dec. 23 to Jan. 3, the company lost $2 billion-plus in shareholder value.
Shareholders can sue over perceived failures to discuss risks or share information with stockholders. This class action can include anyone who had shares in Southwest within a certain time period, from June 2020 to Dec. 31, 2022.
The start date was chosen, per the lawsuit, because of an article in the Baltimore Sun that suggested a spate of delayed Southwest flights was due to a computer system being down. It was published in June 2020.
The idea is that when the information about the problem became publicly available, it became a fiduciary issue that the company did not disclose, and then made "misleading" statements about the scheduling issues in interviews, for example.
Southwest, unlike most airlines, uses a point-to-point system. It gives customers more direct flights, which has contributed to its growth, per The Dallas Morning News.
But, most major airlines operate on a hub and spoke system that funnels most flights through major airports.
The difference is, as the outlet notes, that crew members operating Southwest flights are more likely than other airlines to be scattered all over the place, rather than stranded at a central hub, making rescheduling more complicated. This can be fine in normal times but increases issues during weather delays, it noted.
Southwest was also apparently using old software. "It's been an open secret within Southwest for some time, and a shameful one, that the company desperately needed to modernize its scheduling systems," an op-ed writer said in The New York Times in late December.
So, when the historical winter storm hit the middle of the U.S., it hit Southwest the hardest. On December 26, the carrier canceled 71% of its flights, for example.
The company has since offered affected customers 25,000 Rapid Rewards points. The Department of Transportation and the Senate have promised inquiries and hearings, in the case of the latter.
CEO Bob Jordan gave an interview to Reuters Thursday where he acknowledge the company will have to "rebuild trust" with customers and employees and somehow fix the issue.
"I have put everything on the table here because it just can't happen again," he told the outlet. He also said he was not worried about being ousted over the issue.
The firm leading the class action, Johnson Fistel, called on other investors in the company to join the suit in a press release posted Friday morning. It declined to comment in response to a call from Entrepreneur.
Securities-related suits, like this one, are often knocked out in the early stages, however.
"We don't have anything to share at this time regarding the pending litigation," Southwest wrote in an email to Entrepreneur. It pointed to prior statements about the weather issues.
"I've said it before, but I can't say it enough how sorry I am for the impact these challenges have had on our Employees and our Customers. We have a long and proud record of delivering on expectations, and when we fall short, we aim to do the right thing," Jordan said in an earlier company statement.
