Shareholders of Southwest Airlines have filed a lawsuit against the company accusing the carrier of failing to publicly disclose serious shortcomings in its outdated flight scheduling software technology, which prompted thousands of flight cancellations in December.
The proposed class action lawsuit (pdf) was filed by the Rosen Law Firm on behalf of the shareholders, led by Arthur Teroganesian, in the Southern District of Texas on Jan. 12.
It lists former Chief Executive Gary Kelly, his successor Bob Jordan, and Chief Financial Officer Tammy Romo as defendants, as well as the airline itself.
Shareholders allege that the airline failed to disclose issues with its scheduling systems or downplayed them in quarterly reports, including in its report for the quarter ending June 30, 2020, which plaintiffs said “ignored the serious risk that having outdated technology posed to the Company’s business.”
That report stated that air travel can be significantly impacted by general economic conditions, unemployment levels, changes in consumer behavior, global pandemics such as COVID-19, extreme or severe weather and natural disasters, and other factors beyond the company’s control.
“These and other factors, such as the price of jet fuel in some periods, the nature of the Company’s fuel hedging program, and the periodic volatility of commodities used by the Company for hedging jet fuel, have created, and may continue to create, significant volatility in the Company’s financial results,” the report stated, without mentioning the carrier’s internal control issues.
Airline Made ‘Materially False and Misleading Statements’
Multiple other quarterly reports also failed to mention the issues with the airline’s scheduling systems, or downplayed them, and how it could be worse affected than other airlines in the event of adverse weather conditions, according to the plaintiffs.
The lawsuit also points to media appearances by executives at the carrier, including by former Chief Executive Gary Kelly, during which he claimed that previous scheduling issues were down to “human error,” and not “a lack of technological capability.”
Plaintiffs said these statements, along with the inadequate disclosures, were “materially false and misleading.”
Additionally, the lawsuit states that Southwest made false or misleading statements about its unique flight structure.
According to the shareholders, the airline emphasized positive aspects of its “point-to-point” route structure, which differs from the “hub-and-spoke” structure at other large U.S. airlines but failed to mention that in adverse weather conditions, the “point-to-point” structure could leave Southwest Airlines more adversely affected than its competitors.
The complaint states that following reports detailing the airline’s issues with its technology in December, Southwest Airlines stock dropped by more than 12 percent between Dec. 23 and Dec. 28.
Plaintiffs in the lawsuit are thus seeking damages for investors who purchased or otherwise acquired Southwest shares between June 13, 2020, when the Baltimore Sun published an article about problems with the company’s scheduling technology that caused significant flight delays, and Dec. 31, 2022.
Holiday Travel Chaos
The lawsuit comes shortly after Southwest canceled more than 16,000 flights over the busy Christmas holiday period in December when a powerful storm hit much of the United States. At times, the cancellations totaled 60 percent of the airline’s daily schedule.
The carrier largely resumed normal operations on Dec. 30, while other airlines were able to recover from the storm relatively quickly, although many passengers were left waiting for their misplaced luggage returned to them for days after.
Southwest Airlines initially blamed the weather and problems with its scheduling system—which have plagued the airline for years—for the thousands of flight cancellations, but Transportation Secretary Pete Buttigieg later said that the delays were actually “due to circumstances within the airline’s control.”
The Dallas-based carrier estimates it lost around $825 million during the Christmas holiday meltdown, almost half of which comes from lost revenue and much comes from reimbursements to passengers.
In an interview with Reuters on Thursday, Jordan said the airline has hired consultancy Oliver Wyman to investigate the disruption and failures and established a new Operations Review Committee to oversee management. General Electric Co. is also working on updating the company’s software, Jordan said.
The company has since offered 25,000 frequent-flyer points to travelers who were affected by the ordeal.
The Epoch Times has contacted Southwest Airlines for comment.
Reuters contributed to this report.