Southwest Airlines planes pass the gates at BWI in October 2021. (Photo by Kevin Dietsch)
There is no doubt that Oscar Munoz was good for United Airlines. He came in as CEO at a difficult time, solved problems, and then did what many executives fail to do: he managed succession well. Munoz hired Scott Kirby shortly after he was fired from American. Then Kirby put United in a position where most people in the airline industry think it is better than American today.
On Thursday, in Assets In an interview with the magazine, Munoz spoke out against ongoing efforts by a hedge fund to interfere in Southwest’s leadership, particularly by taking seats on the board and replacing CEO Bob Jordan.
“Believe me,” Munoz wrote. “Running an airline is a complex undertaking that requires more than just financial acumen. It requires a deep understanding of the industry, operational expertise and a commitment to the company’s core values. But it does not require changing the CEO just because progress has been slower than Wall Street would like.”
One could argue that Southwest should buy an ad to publicize Munoz’s argument, rather than have it published behind a paywall. But Southwest’s communications strategies have long been problematic.
Munoz also made a disturbing point in his article. Referring to the problems caused by CrowdStrike in July that led to thousands of cancellations across the airline industry, he wrote that Southwest “weathered the CrowdStrike outages better than its competitors, despite false reports that the company was using Windows 3.1.”
I was one of the reporters who wrote that Southwest’s good performance was due to its dependence on Windows 3.1. I found this information online and included it in my article, citing the source, a website that reports on technology. Before I published it, I emailed Southwest to ask if the information was correct. No one responded. As of Thursday, no one said the story was false.
As far as I know, Southwest only publicly admitted this week that using Windows 3.1 was not the protection. In fact, Munoz posted this on Thursday. The next day, the company said in an email, “The operation never ran on Windows 3.1.” In addition to our amazing frontline staff who helped us achieve a near-zero cancellation rate, we were able to operate securely due to two factors. First, we primarily use a competitor of CrowdStrike for endpoint cybersecurity protection. Second, investments in further modernizing core operational technology meant we had redundancies in place for some of our vendors who were struggling..”
I corrected my story.
If this was a “false report,” I believe it was enabled by an airline that failed to respond.
During its own crisis in December 2022, Southwest canceled 16,900 flights and stranded two million passengers due to the failure of its outdated technologies. At the time, the airline was widely criticized for not communicating with its passengers or reporters, whose calls and emails often went unanswered. Much of the information about the situation was provided by the airline’s unions.
As for hedge fund Elliot Management buying Southwest stock and demanding change, it can easily cite problems at Southwest, which is certainly not the low-cost carrier it wanted to be. As Scott Kirby said, United has been far better able to compete with Southwest since Kirby eliminated change fees in 2020, consistent with a longstanding Southwest practice. Others followed United. Southwest just changed its longstanding egalitarian seat policy. Market strategist Stephanie Link says Southwest has “lost its way.”
Nevertheless, there is clearly still room in the aviation industry for a high-frequency point-to-point carrier, while competition mainly comes from three global airlines that focus on flights to and from their hubs.
The perception of activist investor involvement in the airline industry was shaped by Carl Icahn’s failed takeover of TWA in 1985. TWA eventually filed for bankruptcy three times. Also in the 1980s, Frank Lorenzo took over several airlines. While Lorenzo fought the unions, he also built hubs in Denver, Houston and Newark. This enabled the success of Continental and now United.
As Munoz said, airlines are complex. They spend billions on safety for no direct profit. They are heavily unionized: battles with unions always seem tempting for investors looking to cut costs and outsource work. In addition, airlines have valuable assets, not just planes but gates and slots at congested airports, that can be sold or used as an investment.
And then there are the credit card businesses. Airlines are now seen as credit card companies with fleets. From the outside, it is easy to see many opportunities to make money at the expense of passengers and employees and boost the stock price.
And to paraphrase a quote by Bob Crandall: Everyone thinks they can run an airline better than the people currently running it.
There’s a lot of room for Southwest to improve communication with reporters today. I’m just not sure about the rest.
