How Southwest can win back its angry, stranded customers

By Chris Isidore, CNN

Southwest Airlines’ customers are furious about the company’s Christmas week service meltdown. But fliers may forgive the company sooner than you think.

The airline is paying the price for canceling about half of its schedule between December 20 and December 29 — more than 16,700 flights during the busy holiday season — because of a combination of bad weather and an antiquated crew scheduling system. Southwest said that it lost about $350 million in ticket sales for January and February because people have avoided bookings on the airline. No wonder: the holidays are perhaps the worst time of the year to strand customers.

“It’s difficult to overstate how sour a taste this left in the hundreds of thousands of people at one of the most emotionally charged periods of the year,” said Scott Keyes, founder and chief flight expert for Going.com, a discount flight web site.

“If it had happened in July, it’d be one thing. But they were the airline Grinch that stole Christmas,” said airline consultant Michael Boyd.

Complicating Southwest’s recovery effort: Winter weather continues to batter the United States, and the airline (and its competitors) repeatedly canceled hundreds of flights a day last month.

Even so, Boyd, Keyes and other experts expect Southwest will recover the overwhelming majority of its customer base, despite the aftereffects of the meltdown and flyers’ lingering anger.

“Right now there are millions of people sitting there saying, ‘I was abused, [given] no information and abandoned at Midway Airport,'” said Boyd. “But I think by the middle of the year it’ll be a single digits percentage of people who won’t be willing to fly.”

Southwest executives say that there already are signs that customers are staying loyal. While bookings in January and February — typically the slowest travel months of the year — are down, bookings from March forward are strong, they say.

And last week, when reporting a fourth quarter loss and warning of another loss in the current period, the company disclosed that 25% of customers who had been given 25,000 frequent flier points as compensation for the meltdown had already booked flights for future travel on Southwest, using either the points or paying cash.

“I take that as a sign of confidence that customers understand. They understand that we messed up there,” said Ryan Green, the airline’s chief commercial officer. “We did everything that we could to make it right, and that one quarter of them already have future travel booked on Southwest.”

Why customers are in a forgiving mood

There are several reasons why the Southwest passengers may have been relatively forgiving.

First, the airline has done a fairly good job reaching out to refund fares on canceled flights, awarding bonus frequent flier points and compensating flyers for their out-of-pocket expenses. That compensation covers not only the cost of travel on other airlines but also car rentals, hotels and meals.

Southwest estimates it is spending $390 million between the estimated cost of the frequent flier points it is offering and the cash reimbursements, not counting refunded fares for the canceled flights. That’s nearly half the estimated total $800 million in meltdown-related costs in just the fourth quarter — and that’s before counting any lost revenue going forward.

Green said that decisions on what is reasonable compensation are often subjective, but that the customer service staff handling the refunds were told “to be generous in that regard and lean towards the customer.”

The airline says it also is taking steps to immediately improve its crew scheduling system so the problem won’t be repeated. And it has committed to a long overdue upgrade to its computer system which should help it in the long-term.

“They were never an industry leader in the area of technology,” said Helane Becker, airline analyst with Cowen. “They’re a follower, and not a particularly fast follower. Their employees have told them for years they needed to invest more in technology.”

Also, the airline had a pretty good reputation heading into the crisis. The most recent report from the Bureau of Transportation Statistics shows Southwest had the lowest rate of complaints per passenger, only 1 per 100,000 passengers, compared 2.24 for Delta, 4.1 for United and 4.6 for American. All of that is helping it to weather customer backlash.

“It’s been a fiercely loyal flyer base, those who love the two free checked bag, its quirky vibe,” said Zach Griff, senior reporter for The Points Guy, a travel and airline web site.

Few options

But the main reason Southwest could be in good shape is for a lot of its passengers, as with customers on other major airlines, there really aren’t a lot of options available.

Southwest is the largest US domestic airline. The three larger carriers — American, United and Delta — offer far more international travel. In terms of capacity, the four have nearly equal shares of domestic airline seats available, when adjusted for miles traveled, with the four splitting about 75% of the market among them.

Each dominates their own corner of the market.

Southwest specializes in secondary, somewhat smaller airports. For a passenger who prefers Chicago Midway Airport or Love Field in Dallas to the those cities’ massive primary airports of O’Hare and Dallas Fort Worth, there really is no alternative to flying Southwest. And that’s especially true if you want direct flights rather than changing planes at one of those other airlines’ hubs.

“There’s a dwindling number of airlines and competition on routes. It obviously depends on routes,” said Going.com’s Keyes. “And I don’t think anyone has ever made a bad bet that people’s memories will be short when it comes to airline service meltdowns.”

And the fact that other airlines have suffered their own travel woes in recent years is probably also working in Southwest’s favor, even if those other meltdowns were as massive, and badly timed, as the one at Southwest.

“Because these things happen so often, it’s not easy to say ‘I’m never again flying an airline that canceled my flight,” said Cowen’s Becker.

One group that has clearly not forgiven Southwest as of yet is airline investors.

Southwest shares closed Tuesday down only 1% from where they closed December 19, the day before the meltdown started. But that’s well behind the gains posted by other major airline stocks in that same time, as well as the broader market. Shares of American and United are up 29% each, while Delta shares gained 19% in that same six-week period, while the S&P 500 is up 7%.

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