In December of 2022, severe winter weather that dominated much of the United States combined with point flu/COVID-created staff absences put Southwest’s data strategy to a rigorous test. As airports shut down, the cascading effect played out, with displaced planes and crews and a digital management system that couldn’t process the data needed to correct the situation. Thousands of flights were canceled over several days, stranding travelers and flight crews. It will take some time to fully understand how the airline’s digital strategy failed.
One of the root causes of this disaster is the company’s approach to net revenue management (NRM). NRM is a data-driven process aimed at maximizing sales and profits. In its simplest sense, it is about using data to make decisions that lead to selling the right product to the right customer at the right time for the right price.
It first took root in the airline industry, starting with early-bird discounts to stimulate demand, and was further refined through yield management, maximizing revenue through analytics-based inventory control. The impressive increase in sales that resulted from the strategy caught the attention of other industries, notably the hotel industry. NRM continued to yield higher sales, and the strategy took hold in more sectors like manufacturing, retail, and the food and beverage industry.