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TheStreet Open House

Southwest Triumphs, Knight Doesn't, as Computers Go Wild

Stocks in this article: KCGLUV

DALLAS ( TheStreet) -- Uncontrolled sprees by malfunctioning computers, one at a brokerage firm and one at an airline, made news this week. But the airline's problem was small enough to fix.

In fact, Southwest > (LCC) , provided a positive outcome for its customers, making them whole and also issuing $150 vouchers to each of them in what S&P Capital IQ analyst Jim Corridore said was likely a "very minor" financial event.

By contrast, Knight Capital Group (KCG) lost $270 million after taxes, its shares have fallen 69% this month, and its CEO, fighting to save the company, had to sell 73% of it at a cut-rate price

"Our problem was much more contained," said Southwest spokesman Brad Hawkins.

Knight Capital's problem occurred on Wednesday, Aug. 1, when a software glitch led to a series of unintended trades that left the company holding $4.5 billion of unwanted securities. Two days later, a computer glitch that followed a discounted ticket promotion by Southwest meant that customers who tried to book single tickets somehow found themselves buying multiple tickets -- at times, as many as 20 -- and paying for each of them.

"The problem with computer software is that as it gets better and better, the bugs become more difficult," said Eric Scott Hunsader, founder and CEO of trading software and technology firm Nanex. "With well-developed software, the only bugs left are the impossible ones."

Imperial Capital airline analyst Bob McAdoo said both glitches led to unrestrained computer behavior. In the case of Southwest, "money was sucked out of some people's bank accounts," McAdoo said. "I have never seen anything like that before. If you bought a ticket with a credit card, it would buy more and more tickets automatically until the credit card maxed out."

Southwest's problem occurred between 4 p.m. and 5 p.m. Friday, Aug. 3, shortly after the carrier decided to thank all of its 3 million Facebook friends by offering half-price tickets on select fares. Many of those friends -- Hawkins would not say how many -- responded to the promotion, leading to a technical glitch that was apparently related to the overwhelming response.

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