In the week leading up to Christmas 2022, a severe cold front hit the US. Flight delays and cancellations were inevitable. However, Southwest Airlines (SWA) canceled over 60% of its flights in a two-day period with over 15,000 flights canceled during the ensuing crisis. To put this in perspective, on December 25 and 26, SWA canceled over 5,500 flights (CHRISTMAS DAY!), while competitor Delta canceled 311. The issue? Technology systems and processes from the 1990s that staff and unions had pleaded with the carrier to upgrade for years. While other airlines were able to recover from the literal storm with automated rebooking of passengers - SWA was painstakingly moving passengers manually between flights. Seats were available, they just couldn't put people in them fast enough.
SWA's lack of investment in technology is the primary cause of a crisis that has done irreparable damage to its brand and customer loyalty. EVERY BANK AND CU SHOULD READ THIS AS A WARNING.
Good enough until it wasn't
I'm not going to retell the SWA Christmas fiasco here. There are dozens, if not hundreds, of stories recounting what happened and the failures of the company to take action. But what I do want to highlight are the things that were ignored.
Growth: The airline was still using systems today, (for example SkySolver - their crew assignment software system) that were in use when the airline was 1/10th of its current size. A by-product of things like growth and increased customer expectations is the NEED to invest in technology to keep up. It may seem like the current technology is 'satisfactory', and upgrading is an unnecessary expense. But that's akin to being 3 months pregnant and convincing yourself that a bicycle is still going to meet your travel needs. This growth at SWA has happened over a few decades - they didn't have some kind of over night success. But they failed to make progressive technology investments that matched their growth. FAIL!
Prior issues: In June and October of 2021 Southwest canceled a huge number of flights when technology systems failed to allow them to quickly deal with the consequences of poor weather. Sound familiar? In October 2021, SWA canceled over 2,000 flights, blaming a combination of weather, insufficient staff, and air traffic control. However, the impact of this adverse weather on other airlines was significantly lower. Why? SWA didn't have the technology and processes to recover because they'd delayed technology investment over the years. These weren't even warning signs. They were failures and significant enough failures that they should not have been ignored. But they were. FAIL!
Staff warnings: This is the real indictment for me. In March of 2022, the union representing SWA workers published an open letter where it prioritized the updating of legacy scheduling technology above its demands for increased pay. WHAT!?! Don't believe me? Here's the list as it appeared in the letter - unsurprisingly, safety and security were listed first as they should be. But look at what follows:
Prioritization of safety and security
Modernization of the antiquated reserve system and an end to the exhausting 24 hour on call requirement
Improved communication tools for use between Crew Scheduling and Flight Attendants to alleviate the need to contact scheduling which should help alleviate with long scheduling hold times
An increase in A pay for the first time since 1982.
As one executive said, the "systems served us well until they didn't". The problem is, there were MULTIPLE very public warnings that this was going to happen and they were ignored so the airline could focus on profits.
What banks and CUs can learn from SWA
Unfortunately, SWA now finds itself in a situation where they NEED to upgrade their systems and this is not going to be a quick fix. I'm not an aviation expert, but my guess is that they are looking at a miniujm of 12 months if not 36 months before the required systems are finally replaced. And in the meantime, they will be under immense public and regulatory scrutiny. Every failure that occurs during this time will be amplified by the memory of what's just happened in December 2022. Just like Wells Fargo after the 'account opening scandal', we will be reminded by the media of SWA's failures in 2021 and 2022 whenever something goes wrong in 2023 and beyond. Until it's fixed.
So, let me ask you, how old is your core banking system? How long since you upgraded your Digital Banking solution?
Do you find yourself saying "It's fine, and there are hundreds of other banks using it too."
Do you think that answer will hold water with your customers if something goes wrong? Will they be OK with you blaming FIS, Fiserv or Jack Henry? Are the delays in upgrading your systems keeping you awake at night? Are you putting off what you know you should be investing in right now?
Remember PPP? Probably the first time in your bank's history where you struggled to get a vendor to return your call 🤣 Well, if there's an issue with one of the legacy systems that you and hundreds of other banks are running today - then every one of you will be trying to contact that same vendor for help. And they will have a finite amount of capacity, as they did in PPP. And its likely to be "first come first served" or "First In First Out" (FIFO) queue as I think back to my programming training.
And I'm not putting all this on the financial institutions! Come on Fintechs...are you encouraging your clients to stay current, to upgrade, to move to the cloud? Or are you milking them? @Fiserv - was your acquisition of Finxact a defensive one so that if a progressive client said "We're evaluating cloud native cores" you could protect your revenue stream and say "Great, we've got one of those you can look at!". Or are you proactively talking to all your legacy core clients about the upgrade path to Finxact and packaging upgrade solutions for them to make it easy?
Disaster Recovery Testing doesn't cover this!
I've been working in the technology industry for almost 30 years. And as long as I can remember there have been Disaster Recovery (DR) Tests and Business Continuity Plans (BCP). And the thing that I've always found interesting is that those plans and tests cover known and anticipated events. Now - that's REALLY important. Losing a data center or restoring a corrupt database are absolutely possible events that there should be plans and tests for. But, your core systems no longer working...how do you prepare for that? How do you test for that?
Remember the pandemic (again). Almost overnight, approximately 2.2 million people employed in commercial banking in the US were trying to work from home. Along with millions in other industries. But the entire laptop industry accounted for 17 million sales in Q4 of 2022. So the banking sector was probably trying to buy up 10-20% of the country's laptops almost overnight. Competing with every other industry. And it was a challenge! And then those laptops needed to be secured and set up at home, with VPN access etc. I remember trying to buy a Chromebook for my son and the only ones available were $1,200 when the typical price was more like $250.
Now I know no bank (not even Chase) has bottomless cash reserves to spend on tech every year. I've sold to banks...I know! 🤣 However, when the typical cost to open a new branch runs around $1.5 - $2.0M and around $600,000 per year to operate that branch, WHY are we prioritizing branch opening over technology modernization?
SWA did invest in technology - customer facing technology to book more tickets. But staff were screaming out (forgoing salary increases) to have internal systems upgraded - and those requests were ignored, until now, when they can no longer be ignored. And not, SWA is looking at a long path to modernized technology under very public scrutiny. Is that going to be you?