Southwest Airlines shareholders brought a lawsuit against the Texas-based carrier on Thursday, claiming that it downplayed and didn't disclose issues about outdated technology that left it vulnerable during adverse weather conditions.
The lawsuit is expected to cost the airline as much as $825 million because Southwest is reeling from an operational meltdown that resulted in nearly 17,000 canceled flights over the holiday season.
In court documents filed in Houston, shareholders claim that Southwest Airlines ignored or downplayed the serious issues with the technology it used to schedule flights and crews, and how it stood to be affected worse than other airlines in the event of inclement weather. In its 2020 annual report, the court documents say that Southwest discussed positive aspects of its point-to- point route structure, which is different from the hub-and- spoke route structure that most domestic airlines use. According to court documents, the point-to-point structure could leave Southwest Airlines more adversely affected than its competitors in adverse weather conditions.
The statements made by shareholders about its business in its financial reports were materially false and misleading. The Christmas weekend caused delays for several major airlines to start. Southwest's problems continued to get worse, while other major domestic carriers recovered after the storm passed. Its outdated crew-scheduling technology was overwhelmed, leaving crews and planes out of position to operate flights for an extended period. It took the carrier eight days to recover.
The Southwest Airlines cancellations were caused by outdated and ineffective technology, in particular its crew scheduling system, Sky Solver, the compliant said. Southwest Airlines used an aggressive flight schedule that left it more susceptible to greater cancellations than its competitors in the event of unusual conditions, such as nationwide storms, which is another issue that has been compounded by this issue. The stock fell by more than 12% because of the news, according to the complaint.
Shareholders said Southwest officials were acting with reckless disregard for the truth when they failed to disclose the truth in statements made by them or other Southwest Airlines personnel to members of the investing public. According to court documents, the class action seeks damages on behalf of all Southwest investors from June 13, 2020, when the Baltimore Sun reported on problems with Southwest's computer system, to December 31, 2022.
The carrier, which is trying to rebuild its reputation, has promised to refund affected passengers and reimburse them for travel expenses incurred as a result of the lawsuits.