Dive Brief:
- Dallas, Texas-based airline Southwest will be upping its technology spend for 2023, a move which follows a fourth quarter loss due to “operational disruptions” caused by December holiday traveling woes, the company stated Thursday in its fourth quarter and full year 2022 earnings report.
- Southwest, which has been spending approximately $1 billion on technology annually, will allocate $1.3 billion of its operating budget on investments to upgrade its IT systems, CEO Bob Jordan said Thursday on the airline’s earnings call. The “recent disruptions will likely accelerate some of our plans to enhance our processes and technology,” he said.
- The $1.3 billion will be allocated towards “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 Thursday in response to questions.
Dive Insight:
Southwest’s expanded technology budget comes after the airline suffered heavy losses in the fourth quarter due to its December traveling disruption, caused by a combination of winter storm flight cancellations and delays as well as the overloading of the airline’s scheduling system in response, the Wall Street Journal previously reported.
The airline’s December woes — over 16,700 canceled flights between Dec. 21 and 31 — cost it $800 million (or $620 million on an after-tax basis) leading to a $220 million net loss for its fourth quarter, according to its Thursday earnings release.
Unlike other airlines which operate on a “spoke and hub” model — which connects smaller airports to larger “hubs” — Southwest operates on a “point to point” model. This could have exacerbated its holiday travel troubles by leaving pilots and crews left in cities without access to available airplanes, CNN reported in late December.
Southwest, which has experienced a slump in bookings as well as an uptick in cancellations for January and upcoming February travel, also expects a negative impact to its first quarter 2023 revenue of between $300 million to $350 million, the airline said.
Despite its fourth quarter challenges, “we remain steadfast in our focus to generate consistent quarterly profitability,” Romo said Thursday during the call.
“And even with the first quarter headwinds, our 2023 plan continues to support solid profits with year-over-year margin expansion for full year 2023,” she said.
Technology has been top-of-mind for the airline for a number of years; a “significant portion” of the airline’s annual non-craft capital spend is related to such investments, and Southwest has been spending on “numerous large-scale technology and business projects” over the past five years, according to a Southwest spokesperson.
Technology is “always a journey and so there are always things to work on,” Jordan said of the airline’s approach on the Thursday call in response to questions.
As they face continued economic headwinds, CFOs across industries are weighing the pros and cons of their technology spend more carefully than ever, as failing to spend on key technologies now can often prove costly later. Digital transformation generally has remained a key priority for finance leaders even as they look to cut costs in 2023, CFO Dive previously reported.
Meanwhile, IT spending in particular is expected to increase for the year, with Gartner recently predicting worldwide enterprise IT spending will tick upwards 2.4% in 2023 to a total of $4.5 trillion.
While this forecast is down from the 5.1% increase Gartner predicted for the previous quarter, IT spending “remains recession-proof,” John-David Lovelock, VP analyst for Gartner, said in a statement.