Above the Fold    

What Really Happened at Southwest? 

This week has been one that Southwest Airlines (SWA) and thousands of travelers would soon like to forget. What started as a larger-than-normal disruption for weather turned into an absolute disaster for the discount airline, triggering the cancellation of 70%+ of their total flights in and around North America. In what was another “perfect storm” (no pun intended), heavy holiday traffic, understaffing, weather and an antiquated/overloaded scheduling platform helped create a systematic meltdown that could not be avoided. Southwest, and many other airlines, use scheduling software that needs updating. In the case of SWA, their platform was created in the 1990s and simply cannot handle the sheer number of staff, destinations and dynamic changes occurring today. In the words of Michael Santoro, vice president of the Southwest Airlines Pilot Association (SWAPA), “That software just can’t keep track of where we are at any given time. When they lose track of where pilots are, the system just breaks down, and that’s what happened.” When the system broke down, SWA also became unable to determine if pilots and flight attendants were “legal to fly” under Federal Aviation Administration rules, as they are both limited in flight time between breaks.  

The U.S. Department of Transportation (DOT) has been pressuring several major U.S. airlines to improve their operations following the bevy of increasing mass cancellations we’ve seen since flights resumed after the pandemic. The DOT will be examining the events of this week to determine if the cancellations were controllable and if SWA is complying with its customer service plan. Internally, this is a big blow to the morale of a company that is known for their excellent service, kind staff and laid-back approach to what can be a stressful experience for many. And right now, it’s not just stranded travelers, but also pilots and flight attendants who are trying to get back to their homes or other locations. The company will keep flights limited as it “resets” its staff to resume normal operations. Unfortunately for travelers, both the software that several airlines use, along with the decades-old methods that airlines move staff around, may need to experience dramatic change if future disruptions are to be avoided. 

Three Things                                   

Investment Firms Capitalize on Crypto Meltdown 

The Wall Street Journal reported that hundreds of customers are selling their assets (which are essentially bankruptcy claims) at pennies on the dollar to institutional investors who are willing to wait out the proceedings of companies such as FTX, Celsius Network LLC and Voyager Digital Ltd. Roughly $1 billion in FTX claims, along with more than $100 million in Celsius claims, are being shopped to an online market run by Cherokee Acquisition, a bankruptcy claims broker and buyer. Another bankruptcy claims trading startup, Xclaim, has also listed close to $92 million in FTX claims. Regular investors, who understand the risks of owning a bankruptcy trade claim, can also bid to purchase assets. 

Southwest’s Rivals Finally Cap Fares 

With more than 13,000 Southwest Airlines flights cancelled since last Thursday, its competitors have been taking advantage by upping fares by factors of up to 5x or more. Some flights, such as those from Dallas to San Diego, normally around $200-$300 each way, were selling close to $2,500 Tuesday. Rivals such as American, Delta, United, Spirit and others had let fares rise due to a serious supply/demand issue, but many have now decided to cap ticket prices in select cities to help ease consumers’ costs during an already rough period. Frontier and Delta have set rates at “pre-crisis” levels for certain popular destinations, while Spirit Airlines is also waiving ticket modification fees to and from more than a dozen cities until Jan. 3.   

Saying Goodbye to Negative-Yield Bonds 

All during the late 2010s and up until recently, large swaths of investors were forced to pay in order to hold the debt of several countries in Europe and Japan (normally the bondholder gets to collect interest from the country it’s lending to). The lop-sided phenomenon was triggered by ultra-low, hyper-stimulative monetary policies intended to boost economies and even prices. But as the world emerged from the pandemic facing recording inflationary pressures and declining economic outlooks, negative yield assets have just about fizzled. The amount of negative-yield debt now stands at $254 billion, down from more than $18.4 trillion just two years ago. Japan is the last country where short-term (a year or less) notes are still negative, but as the country stands poised to raise its target interest rate from 0.1% to above zero next year, these bonds may be history.  

In the Know                                   

Sherlock Holmes Gets Rights Release 

Though copyright protection for some of Sir Arthur Conan Doyle’s Sherlock Holmes stories expired in 2019, the final tales of the famous detective will lose their copyright protection starting in 2023. Now that they will be part of the public domain, his stories and likeness will have no intellectual property rights and not require any special permission by the author, estate or otherwise. In other words, it’s more than likely we may see more spinoffs or versions of Holmes’ adventures in the coming years from the likes of Netflix, Amazon Prime and others. Of notable mention is that Mickey Mouse becomes part of the public domain in 2024.