Southwest Airlines’s dramatic emergency landing one week ago was an accident waiting to happen; and it should serve as a warning to us all about imprudent risk management in the airline industry.

During the last decade I have intermittently pointed out important psychological flaws in the culture at Southwest and for that matter at Boeing too.  I wrote about the experiences of both firms in in my book Ending the Management Illusion, which was published ten years ago, and more recently in my books Behavioral Risk Management and Behavioral Corporate Finance.
For the record, in Ending the Management Illusion I also pointed to psychological flaws at BP, noting vulnerability in BP’s operations in the Gulf of Mexico. Two years after the book was published, Deepwater Horizon exploded off the coast of Louisiana.

In Ending the Management Illusion, I described Southwest as having many strengths, but suggested that the airline had an Achilles’ heel, namely weak risk management associated with inspection and maintenance of its aircraft. In this respect, Southwest allowed many of its planes to fly without having been properly inspected to identify possible fractures that could crack open in flight.  This was more than a decade ago.
Southwest uses Boeing 737s to fly many short and medium distance flights. These flights feature frequent pressurization and depressurization, processes that place stress on fractures in the bodies of 737s. This kind of flight environment calls for conservative risk management, meaning the allocation of appropriate resources to inspection and maintenance of the airline’s fleet.

For failing to engage in conservative risk management in its inspection and maintenance policy, Southwest was fined by the FAA. Nevertheless, in 2011, the roof on a Southwest plane opened to the skies while in flight. Miraculously, nobody was killed, then. In 2016, an engine fan blade in a Southwest plane disintegrated in flight, nearly causing a crash. Nobody was killed, then. The Southwest accident last week also resulted from the disintegration of an engine fan blade. Only this time, debris broke through the engine casing and shattered a window on the plane, almost bringing the plane down. One passenger died, the first such fatality in the airline’s history.
There is now concern about systemic risk in Southwest’s aircraft; and Southwest is not alone when it comes to concerns about the structural integrity of its jet engines. Rolls-Royce engines that power Boeing’s 787 Dreamliner are now on the radar screen as well. By sheer coincidence, on the same day last week as the Southwest accident, FAA officials ruled that Boeing 787 Dreamliners powered by theses engines cannot be flown on extended flights that are over-water.
Like Southwest Airlines, Boeing has weaknesses in its risk management culture; or so I argue in my books. What I suggest is that the risk management flaws in these companies stem from the presence of specific psychological phenomena such as excessive optimism, overconfidence, and overly ambitious aspirations.
The New York Times reports that over time there has been a change in the way that risks are managed in the design of aircraft engines. In the past the practice among engine designers had been to follow engineering conventions, where risk is managed heuristically, by building redundancy buffers into failure mitigation systems. These buffers serve to counteract the effects of excessive optimism and overconfidence, as these biases encourage imprudent risk taking. However, recent advances in technology have led designers to reduce or eliminate safety buffers in an effort to optimize performance related to engine thrust. Notably, the reduction in safety buffers reflects aspirational risk taking.

In a perfectly rational world, optimization beats heuristics hand over fist.
In reality, sensible heuristics can outperform misguided optimization.
Commercial airline travel is still very safe, indeed much safer than traveling in automobiles. Airline accidents are much rarer now than they were several decades ago. Southwest Airlines is still a good company. However that does not mean that we have been correctly estimating the risks of airline crashes. Those risks are higher than most of us understand. This is not surprising given our collective tendency to be overconfident. Southwest does a lot of things well, but remember the adage about a chain only being as strong as its weakest link.
Southwest Airlines’s string of near crashes constitutes a series of warning shots across our bow. We need to pay attention to the signals.