Southwest Apps Technology spent up to 1.3 billion dollars

Dive Brief:

• Dallas, Texas-based airline Southwest will increase its technology spending for 2023. The move follows a fourth-quarter loss due to an “operational disruption” in December 2022, the company said Thursday in fourth-quarter and full-year 2022 earnings. Report it.
• Southwest, which spends about $1 billion a year on technology, will allocate $1.3 billion of its operating budget to investments to upgrade its IT systems, CEO Bob Jordan said on the airline’s earnings call Thursday. “The recent disruption will accelerate some of our plans to improve our processes and technology,” he said.
• The $1.3 billion is earmarked for “technology investments, upgrades and system maintenance,” according to the company’s earnings report, and also includes spending related to the airline’s back-end infrastructure, CFO Tammy Romo said in response to questions.

Dive Insight:

Southwest’s technology budget expanded after the airline suffered a fourth-quarter loss in December due to travel disruptions caused by winter storm flight cancellations and delays, as well as the airline’s scheduling system being overwhelmed in response, the Wall Street Journal previously reported.

The airline’s December woes — more than 16,700 canceled flights between Dec. 21 and 31 — cost it $800 million (or $620 million after taxes), leading to a net loss of $220 million for the fourth quarter, according to Thursday’s earnings release.

Unlike other airlines that operate on a “Spoke and Hub” model – connecting smaller airports with larger “hubs” – Southwest operates on a “Point to Point” model. That could have exacerbated the holiday travel crisis by leaving pilots and crews stranded in cities without planes, CNN reported in late December.

Southwest, which experienced booking declines and cancellations in January and next February’s flights, expects a $300 million to $350 million negative impact on revenue in the first quarter of 2023, the airline said.

Despite the challenges of the fourth quarter, “we remain focused on generating consecutive quarters of profitability,” Romo said Thursday during the call.

“And even with the first quarter headwind, our 2023 plan continues to deliver strong profit year-over-year margin expansion in 2023,” she said.

The technology of the airline has been high-tech for several years; A “significant portion” of the airline’s annual non-craft capital spending is related to such investments, and Southwest has been spending on “a number of large-scale technology and commercial projects” over the past five years, a Southwest spokeswoman said.

Technology “is always a journey and therefore there are always things that need to be done,” said Jordan Airline in response to questions on Thursday’s call.

As they face an ongoing economic storm, CFOs across the sector are weighing the pros and cons of their technology spend more carefully than ever, as not spending on key technologies now can often prove costly later. Digital transformation remains a key priority for finance leaders in general even as they look to cut costs through 2023, CFO Dive previously reported.

Meanwhile, IT spending in particular is expected to increase for the year. Gartner recently predicted that global enterprise IT spending will rise 2.4% to a total of $4.5 trillion in 2023.

While this forecast is down from Gartner’s 5.1% increase last quarter, IT spending “remains recession-proof,” Gartner VP analyst John-David Lovelock said in a statement.