Southwest Airlines‘ (NYSE:LUV) summer started very poorly. The airline’s operations fell into disarray beginning in mid-June, leading to thousands of flight cancellations over a period of several weeks. Management responded by trimming the carrier’s schedule for the rest of the year. Until recently, it appeared that the changes were getting Southwest back on track.

Unfortunately, Southwest Airlines suffered an even bigger operational meltdown last weekend. This further damaged its reputation and will likely force the carrier to implement even deeper schedule cuts going forward.

Staffing shortages leave little room for error

Southwest’s reliability problems in June stemmed from trying to rapidly ramp up flight activity to near pre-pandemic levels in the midst of a staffing shortage. Many Southwest pilots accepted generous early retirement packages last year. Others took temporary leaves and weren’t able to resume flying yet. Some other work groups struggled to fill open positions due to the tight labor market.

These issues had a manageable impact on operations under normal conditions. However, they left Southwest Airlines with very little slack in the system in case of disruptions. Thus, a pair of relatively brief IT outages in mid-June along with a string of severe weather events caused cascading flight delays and cancellations lasting for weeks.

Image source: Southwest Airlines.

Operational performance improved beginning in July, but Southwest continued to delay more flights than its peers during the summer. In late August, management apologized to frustrated employees and said it would build more slack into the system for the fall.

Southwest Airlines subsequently said that it would reduce its schedule by an average of 27 daily flights from Sept. 7 to Oct. 6 and by 162 flights from Oct. 7 to Nov. 5. It also planned additional cuts in November and December, mainly during off-peak periods. In September, incoming CEO Bob Jordan said that the low-fare airline was struggling to meet its hiring goals due to the tight labor market. Nevertheless, he indicated that Southwest was determined to avoid a repeat of the problems that surfaced over the summer.

Another meltdown

This commitment to reliability didn’t last long. Southwest scheduled about 3,600 flights to operate last Sunday — the most since March 2020.

That quickly backfired. Southwest started the Columbus Day weekend on the wrong foot, as weather issues in Florida, a Navy training exercise, and staffing shortages at the Jacksonville air traffic control center led to a slew of cancellations on Friday. That left crews out of position and caused many Southwest Airlines pilots to hit their federally mandated duty limits.

As a result, Southwest canceled more than 2,000 flights over the long weekend. The disruptions peaked on Sunday when the airline scrapped over 1,000 flights — 30% of its schedule — and delayed a similar number. Southwest canceled another 435 flights on Monday and delayed over 1,500 more.

Image source: Southwest Airlines.

This reliability breakdown would have infuriated many customers no matter what. However, Southwest Airlines made things even worse for itself by initially putting all the blame on weather and air traffic control problems, which the FAA quickly refuted. The confusing messaging damaged the airline’s credibility and helped spark widespread (but unfounded) rumors that pilots were calling out sick to protest Southwest’s new vaccine mandate for employees.

Will management learn its lesson?

In the aftermath of last weekend’s operational breakdown, the head of Southwest’s pilot union alleged that the company had backtracked on its commitment to reduce flight levels. Indeed, it is puzzling that Southwest Airlines would try to operate even more flights than it did over the summer, considering how poorly that went in June and that demand is somewhat lower now.

Once again, Southwest is contemplating schedule reductions for the rest of 2021. It probably needs to rein in its aggressive growth plans for 2022 as well. While the carrier has historically had a very loyal customer base, it risks alienating those customers if its operational problems resurface. That could damage the company’s long-term profitability.

Until management is certain that it has adequate staffing in place, Southwest Airlines needs to operate a conservative schedule that builds in plenty of flexibility to recover from disruptions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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