Inside Southwest’s Digital Upgrade

The switch to a new reservation platform clears the way for growth

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Joseph Guinto


Tom Nealon was at Southwest Airlines’ headquarters at Love Field in Dallas on July 20, 2016, when a router failed and a backup system also collapsed, overloading IT systems and knocking the entire reservation system offline. The airline was virtually grounded—2,300 flights canceled, thousands of passengers stranded. 

“It shouldn’t have happened, but it did happen.” Nealon tells ThinkSet.

That’s the thing about digital disruption. It can be positive or negative. It can force your organization back to using pencil and paper, or it can create new opportunities if your company gets through the immense challenges of building, training and implementing a complex platform. 

Nealon has seen both. At midnight on May 9, 2017, Southwest switched over to a new reservation system. It cost an estimated US $500 million and took 500,000 hours of employee training to get online. The airline worked with Amadeus, a Spanish company that provides a technology backbone to much of the airline industry.  The upgrade, called Amadeus Altéa, was the first full-scale overhaul of Southwest’s passenger booking processes in more than two decades, and it has laid down a technological foundation for the future. 

That change, as well as a continuing investment in other technology systems, will move passengers more efficiently through Southwest’s route network, solving a growth challenge that was years in the making. 

Nealon likens technology reinvention to a jigsaw puzzle, and everyone from top executives to front-line employees has to understand the impact as it gets assembled.

"A multi-year plan is essentially the box top of a puzzle," he says. "You see what it's supposed to look like. You see what you're getting and a clear vision of how it all fits together."

GETTING EVERYONE “ON BOARD”

Since his early days working on an IT Help Desk, Nealon has understood technology and change. One of his earliest work projects involved replacing IBM 1288 scanners with handhelds. His father, Tom Nealon Sr., had helped developed the 1288 as an engineer at IBM.

Nealon’s leadership has included tech transformations at Frito-Lay Inc. and a consulting role as Southwest's CIO. As CIO at J.C. Penney Co., from 2006 to 2011, he revamped the E-commerce operations—a unique career path for a marketing major. In 2016, he rejoined Southwest and was elevated to president in 2017.

He won a 2010 MIT Sloan School of Management Award for Business Innovation and received other industry kudos for a savvy mix of technical understanding and implementation skills.

The Altéa upgrade was not a response to a one-time outage. Rival carriers had already merged into new combined systems or taken the plunge with new reservation platforms.

An internal analysis revealed that Southwest could not grow quickly and efficiently while using an outdated reservation system that didn’t allow payment in foreign currency, required the same flight schedules every day of the week and could not offer overnight, red-eye flights. 

Nealon says Southwest’s objective to be “the world’s most loved, most flown, most profitable airline—the best airline in the world,” was not aligned with the systems in place. 

Indeed, analysts had been wondering if Southwest would find ways to keep up with other carriers. Kevin Crissey, a senior analyst at Citi Research, said in a 2017 research note that a top investor concern is Southwest’s ability to add capacity. 

That’s one issue Altéa addresses. "It gives them scalability for future service,” Savanthi Syth, a Raymond James Financial analyst, told Bloomberg Businessweek about the new reservation system. “Southwest is definitely, more and more every day, looking more like a network carrier."

Most Southwest employees didn’t need a lot of convincing to buy into the big changes they were asked to make. Nealon’s leadership and listening skills are a strong match for Southwest’s legendary can-do culture. 

“It would be naïve of me to suggest that there wasn’t nervousness or anxiety,” Nealon says. “This was a hard change. A lot of our employees have been working on the same system since the day they came here. 

 “Of course, the new system has a huge technology element to it,” Nealon says. “But it was very much a business and technology thing. In fact, if it was only a technology thing, you could not have gotten it done because you wouldn’t have had the buy-in support. This change required a lot of effort and a lot of buy-in and a lot of organizational change.”

Technology provides enabling tools, but people determine success in serving customers. Change is hard, especially when it directly affects the work processes of 35,000 of your 55,000 employees. Thousands of people nationwide had to change their work ways, and all affected employees—operational network teams, ticketing agents, and front-line gate agents—had to be trained well before it went into use. 

“It was really tailored and customized to how Southwest did things," Nealon says, explaining how committed front-line workers were to the training. "And when they put the new system into use, they really nailed it,” he adds.

Southwest learned from the errors of other airlines. In March 2012, after United Airlines merged its reservation system with Continental Airlines, technical glitches were rampant. Flights were delayed. Kiosks didn’t work. Callers to the reservation centers mainly heard busy signals. Virgin America had similar problems in 2011 when it converted to a new system. 

Instead of converting on a single day, Southwest started in December 2016, using its new system to sell tickets for flights that would occur after May 8, 2017. The old system processed all other tickets. 

PREPARED FOR WHAT’S NEXT

Another reason for Nealon’s big-picture view is that he held an independent board of directors seat from 2010 to 2015, and he currently serves on the board of Fossil Inc. After returning to Southwest as an executive, he took charge of the finance and innovation operations with an eye on long-term strategy.

As big as the change was to Southwest’s technological backbone, though, for the airline’s customers, the switch needed to be seamless. Technology has to be consistent and reliable. The Altéa switchover had to be nearly invisible to travelers, he says.

“We did not want the customer to feel a change,”

Nealon adds. “It’s one thing training all of our 55,000 employees. It’s another thing training 125 million customers." 

Nealon says the new platform offers the airline new options. "We have much more sophisticated ways of managing the inventory blocks of our reservation management systems.” That means Southwest can change its flight schedule more easily—something that’s historically been rigid.

Southwest is already reporting a 10% improvement in on-time performance during inclement weather events as compared to 2016 results.

Southwest could also assign seats. The airline’s famed boarding process by groups has never matched flyers to seats in its 46-year history. 

“But it’s nice to have that capability,” Nealon says.


Joseph Guinto is a journalist based in Washington, DC. A former White House correspondent for Investor’s Business Daily, he writes for Politico Magazine, American Way, and Washingtonian about business, travel and politics.

 
Most of the airline’s 55,000 employees had to change the way they work without affecting daily flights and reservations.
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