Southwest Airlines' CIO talks about $1.7 billion technology investment plan

Airlines' technology budget demands vary widely.

It's an oversimplification, but basically there's the commercial side of the business and the operational side of the business. There are internal systems such as human resources and finance, and then there are external systems, some of which are customer-facing and some of which are not. There are also ongoing maintenance and modernization requirements.

So deciding where and how much to invest is no mean feat and involves many, often moving parts.

Southwest Airlines recently planned to invest $1.7 billion in technology in 2024, including upgrades and maintenance, CEO Bob Jordan said during the airline's 2023 full-year earnings call in January. He suggested cloud migration as one of the areas of focus.

The investment is overseen and strategized by Lauren Woods, who was promoted to Southwest's senior vice president of technology and chief information officer just over a year ago.

“This is an iterative process and not a one-time question,” she explained, whether the technology team crunches the numbers and sets the budget, or the finance team dictates available funds. .

budget allocation

“There's a bit of a layer cake feel to it. There's a lot of different combinations of contracts we have and commitments we've made around products… [the] Cost structure and licensing based on our size and the number of planes we fly. So that's the core of the cost structure of what we have,” Woods said.

Airline operations are a fundamental part of its 'iterative process', after which investments in new capabilities are made. Here, the discussion branches into different parts of the business, including revenue, customer service, operations, and employee needs.

“So we are responding to all of these needs and demands, but as you can imagine, there are always demands that exceed the ability of technology to accommodate them. But we will work together to set good goals.”

Investment areas are discussed in terms of long-term risks and benefits for the company and how to best leverage existing technology platforms.

Southwest Airlines hasn't broken down exactly where the investment will go, but Woods said relatively similar amounts will be spent on customer and commercial and operational aspects.

“There are a variety of factors that will cause the percentage points between the two to change over time, but for the most part we weigh the merits,” she said.

“And that's not because we want to be even. It's because when you think about the benefits to the company, it's beneficial for Southwest Airlines to invest at this level in revenue, customer service and operations. Because these are things that we value. These are things that we feel are important and we're moving forward.”

He said two areas that will impact airlines and passengers are making aircraft turnaround more efficient and introducing self-service capabilities for passengers during boarding and re-accommodation in the event of disruption. Highlighted the project.

“What used to be necessary to call a call center or wait in line at the airport has been digitized. [instead to] Truly allows customers to enter the airport with their mobile device in hand [to do things for themself]”

Disruption likely comes to mind for many Southwest Airlines executives in 2023 after a multi-day winter storm in late 2022 caused mass cancellations and cost airlines more than $1 billion in losses. It will probably float.

In February, aviation data provider Infare said disruptions were 300% above historical norms, while an Amadeus report on managing disruptions found that 64% of airlines are taking steps to improve their response to disruptions. It turns out that they are investing in new technology.

Woods said Southwest Airlines has been working to modernize its systems since the pandemic, but the weather disruptions accelerated that process.

The hard part is not walking around with a 10-year-old cell phone in your pocket, right? Therefore, technology always requires upgrades and maintenance.

lauren woods

“We have been on a multi-year effort to modernize our operations, and that continues. The difficult thing about investing in technology is that it never ends,” she said.

“We continue to want to grow and evolve as an airline, and technology is one of the key ways we create competitive advantage. So even if we bring forward some of the plans we already had, , and after those plans we have plans to continue moving forward. Some of them are creating new features that we don't currently have. We have plans to continue to maintain what we've created. , some are making small enhancements. And of course, we always need to maintain the technical health of the system.”

The health of some aviation systems, especially around logistics, has been a hot topic in the industry for years. And the broader travel industry is also discussing technical debt issues with more urgency.

health check

As for how big the issue is for Southwest and the industry as a whole, Woods said any company that's been around for more than 20 years is likely “struggled with technical debt in some way.”

“Having said that, we believe that, again through acceleration in some places, we have made significant progress on some things that previously would have been highlighted as technical debt,” she said. said.

“The hard thing is, you don't walk around with a 10-year-old cell phone in your pocket, right? So technology has never-ending needs for upgrades and maintenance.”

He added that the airline will consider its goals here, balancing the needs of the various partners in the business, while also working to avoid creating technical debt in the future.

“Just like you have to train every day, you have to train regularly to maintain your technology. And as we continue to evolve as an airline, for me as a technology leader, , conversations with business partners are becoming easier and easier,” she said.

“We need to ensure that we maintain technical debt as part of our daily, monthly, and annual investment programs. It won't go away…

Within six months to a year, 18 months, you'll start feeling it again. ”

Investing in more modern technology – Southwest's partnership with Amazon Web Services and moving approximately 50% of its technology to the cloud, along with emerging technologies such as generative artificial intelligence, also helps reduce technical debt. This will help you solve the problem.

“I'm a big believer in cloud and cloud-native technologies as well as a way to maintain and deal with technical debt because AWS helps us do that. We have a responsibility to constantly update and improve our services because we maintain them very disciplined and fast and we are constantly improving them.”

He said Southwest Airlines has already been able to optimize its operations and improve its analytics platform and data structures as a result of the partnership.

“All of this enables us to create better technology solutions that are more reliable, safer, more effective, and create competitive advantage,” Woods said. Masu.

AI foundation

When the hype around generative AI started in late 2022, Woods called it “fun to watch.”

“Everyone's so excited about it. We all said, 'Hey, can you go get some of that GPT?' So that was funny too. ”

And she said investments made in airline data platforms during COVID-19 are now paying off as airlines are better positioned to take advantage of new tools. .

“We started really looking at things like cloud data warehouses, data lakes, real-time data streaming, event-driven architectures,” she said.

“Our thought process was that given how important data is as a competitive advantage going forward, this is something that will be fundamental. We were able to pivot and really leverage our data science capabilities on the platform.”

Woods added that on this basis, airlines are now looking at ways to learn about and leverage generative AI.

“In reality, we need to consider different possibilities as to how we can improve the productivity of customer service representatives and internal staff working in airlines. So how do we do that in the future? I’m really looking forward to taking advantage of it,” she said.

“Although it won't replace all of an airline's employees, airlines that learn how to use generative AI and leverage high-intensity data processing will be able to better serve their customers and address fairly complex problems in their operations. We will be a better airline in doing so.”

Despite the demands placed on Southwest Airlines' technology budget from various quarters and the enormous amount of work that must be done without getting distracted by shiny things, Woods said her biggest challenge is effective communication. I summarized it.

“With technology, it's easy to get stuck in the way we speak and understand things,” she says.

“It’s not always effective from a business perspective, and you always end up with: [the listener’s] perspective. One of the challenges I always have is making sure to vary the most effective communication depending on the audience. ”