Southwest Airlines and its executives failed to warn investors that the company’s reliance on outdated technology posed a serious risk to its operations, culminating in thousands of flight cancellations over the 2022 winter holidays due to a system failure, a proposed class action alleges.
According to the 36-page case, Southwest, CEO Robert E. Jordan, Executive Vice President & Chief Financial Officer Tammy Romo and former CEO Gary Kelly “continuously downplayed or ignored” the risk that using an outdated system to schedule flights and crews would cause service interruptions and delays, especially in the event of inclement weather. Per the suit, stockholders who relied on Southwest’s misrepresentations were unaware that the airline’s stock value would drop drastically after its alleged misconduct was revealed in the aftermath of winter storm service delays.
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“Further compounding on this issue, Southwest Airlines used an aggressive flight schedule that left it prone to greater cancellations than its competitors in the event of unusual conditions, such as nationwide storms,” the filing adds.
On July 27, 2020, Southwest filed its first of many allegedly misleading reports withthe U.S. Securities and Exchange Commission (SEC), stating that air travel could be impacted by factors like “economic conditions, the amount of disposable income available to consumers, unemployment levels, [and] corporate travel budgets,” rather than its own internal control issues, the filing says.
Shortly thereafter, on August 12, a USA Today article described how Southwest’s system would re-schedule passengers to arrive at a given airport after their connecting flights had already left. In response, Southwest claimed that travelers who experienced the issue had received preliminary flight change information that had not been finalized, the complaint says.
The case adds that in a report filed on February 8, 2021, Southwest listed hypothetical scenarios in which its technology could cease functioning, like “fires, floods, earthquakes, tornadoes and hurricanes, power loss, computer and telecommunications failures, acts of war or terrorism, computer viruses, [or] security breaches,” but made no mention of the risks posed by its antiqued technology.
Also in that February report, Southwest detailed its “point-to-point” route structure, which supposedly enables it to provide more “frequent, conveniently timed flights” compared to other airlines that use a standard “hub-and-poke” strategy, the complaint relays. The problem with this “point-to-point” route structure, the filing contends, is that problematic weather conditions could pose a serious hiccup, particularly in light of Southwest’s outdated technology.
“However, executing this strategy in adverse conditions would only be possible with software that was more effective than Sky Solver, Southwest Airlines’ proprietary software that is used to match flight staff personnel with different flights,” the case says, citing a late-December 2022 Reuters article in which President of the Southwest Airlines Pilots Association Casey Murray discussed the airline’s system failure that month.
Southwest continued to file reports throughout 2021 and 2022 that contained identical misrepresentations, the suit argues. To compound matters, defendant Kelly explicitly denied during an October 2021 CNBC interview that outdated technology could negatively impact the company’s operations.
The complaint explains that after a December 2022 winter storm caused far more cancellations by Southwest than any other domestic airline, publications like Business Insider, CNN and Reuters exposed the reason why so many travelers were left stranded during the holidays. As a result of this news, Southwest’s stock price fell 12 percent between December 23 and 28, the case says.
From December 30, 2022 to January 3, 2023, Southwest’s stock price fell three percent as more news emerged about its desperate need to modernize its scheduling systems, which the New York Times reported was “an open secret” amongst the airline’s employees.
The case shares that this wasn’t Southwest’s first system failure as computer system issues on June 13, 2020 delayed more than 600 flights that day and resulted in 17 canceled flights.
The lawsuit looks to cover anyone who purchased or otherwise acquired publicly traded Southwest Airlines securities between June 13, 2020, and December 31, 2022.
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