Cracks in Planes Could Blow a Hole in Southwest's Reputation

Southwest Airlines (LUV) has grounded 79 of its older 737-300 airplanes after one leaving Phoenix on Friday developed a hole in its roof. This led to hundreds of flight cancelations over the weekend.

There is currently no end in sight for the problem, although Southwest says it is inspecting the 737s to put them back into service. Three more planes with cracks were discovered Sunday. The National Transportation Safety Board is not sure what is causing the damage, further complicating the situation.

Plane inspections could end this week, as long as no problem is discovered that might raise concerns about the safety of all of the airline's 737s. Southwest flies 170 737-300s, out of a total fleet of 540 planes.

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Will passengers now be reluctant to board the the planes -- even if they all pass inspection?

Southwest may discover that a good reputation and a strong brand can be fleeting things. The airline is considered one of the best run and most innovative in the country. It regularly sits near the top of industry customer satisfaction rankings. Southwest's shares are up almost 90% over the last two years, compared to a 55% rise in the DJIA. Much of this increase is due to the airline's ability to keep costs low and attract loyal fliers.

Airlines are already facing the headwind of higher jet fuel prices brought on by oil prices of over $100 a barrel. This alone will challenge the financial resilience of the industry. The last thing Southwest needs is customers who are worried about boarding its planes.

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