Southwest’s holiday mass cancellations could cost the airline up to $825M, filing shows
Southwest Airlines’ flight cancellation fiasco over the holidays could cost the carrier between $725 million and $825 million, the airline said in a filing Friday.
An Arctic blast disrupted air operations around the country freezing 16,700 Southwest flights and causing an avalanche of problems for the Dallas-based airline. It canceled nearly as many flights in the waning days of the year as it had for most of the year, according to FlightAware data, after its outdated crew scheduling software stopped working.
About half of that cost incurred during the the fourth quarter of 2022 is from revenue lost due to canceled flights —between $400 million and $425 million, Southwest said. The remaining loss comes from travel expense reimbursements to customers, loyalty points offered to customers and additional compensation for employees, per the filing.
“The key is making sure this extent/magnitude of disruption doesn’t re-occur, ever, which means getting Southwest ‘culture’ — trust with employees and customers — and IT issues durably resolved,” airline industry analyst Robert Mann, president of R.W. Mann & Co. in New York, told the Star-Telegram. “How those efforts go will dictate future impact or recovery to revenue, disruption expense, and earnings in future quarters.”
The exact cost of Southwest’s late December meltdown is not yet clear as the airline sifts through passenger claims. How generous the carrier is in its payouts will determine the extent of the damage. The airline still hasn’t said whether it will reimburse travelers for all of their additional expenses or just a portion.
“No amount of financial compensation can fully make up for passengers who missed moments with their families that they can never get back — Christmas, birthdays, weddings, and other special events,” Transportation Secretary Pete Buttigieg wrote in a recent letter to Southwest CEO Bob Jordan.
Clearly it was the consumers who paid the price in the chaotic days when the airlines struggled to organize its operations to get planes back in the air, luggage to their owners and stranded passengers rebooked.
To call the scene chaotic on the concourse of Dallas Love Field on the day after Christmas would be an understatement. A group of 30 athletes, coaches and parents from Lipan High School were forced to figure out a way to get to Orlando, Florida, for a basketball tournament.
“Oh, this is just our luck,” Chelsea Lott told the Star-Telegram then. “Go figure. We’ve been planning this trip for almost a year, and then the day comes, we’re about to leave, and all the airplanes decide to quit.”
The crippling ripple effect of the breakdown in Southwest operations put a dent on the reputation of an airline that had enjoyed a fiercely loyal customer base that celebrated the carrier’s reliability. Kyle Potter, executive editor of Thrifty Travel, said Southwest is the most financially successful airline in the U.S. Prior to the pandemic, they hadn’t reported a quarterly financial loss in more than a decade.
“An $825 million loss due to a meltdown that really lasted just a few days would be absolutely massive,” Potter told the Star-Telegram. “It’s another reminder of just how bad this was for Southwest and, more importantly, its customers. And it hurts particularly bad for Southwest as it will push them into a quarterly loss to close out 2022.”
Southwest is banking on a certain amount of the travelers whose flights were canceled not submitting requests for refunds or reimbursement, Potter said. They’re also betting that many travelers won’t bother claiming the 25,000 points Southwest offered as an apology — and that some who do will never get around to using them.
If the loss is closer to $725 million, says Henry Harteveldt, president and travel industry analyst at the Atmosphere Research Group, the airline will eke out an extremely slim profit. If costs turn out to be closer to $825 million, there will be a possible net loss for 2022.
“However, as large an amount this estimate is, it will not financially destabilize Southwest,” Harteveldt told the Star-Telegram. “The airline has more than $13 billion in cash, meaning it should be able to absorb the loss. However, depending on the amount of investment needed in new technology systems, against this loss, Southwest may need to postpone its intention to resume paying dividends to stockholders.”
From botching the scheduling of flight crews to communications with its ranks of overwhelmed ticket agents, Southwest’s nightmare was compounding by the day.
As Southwest dug itself out of its mess days after the storms, families who had trips they could not postpone were making alternative travel arrangements. Kay Millerick needed to get her family of four from West Texas to Orlando, Florida, for a reunion with her 88-year-old grandparents. This could be their final chance for a get-together.
“So, we’re having a big family reunion to celebrate what is probably going to be the last time they come to the United States,” Millerick told the Star-Telegram then. “We were desperate to be with my grandparents.”
They drove 350 miles to Dallas after their flight from Lubbock was canceled, paid for longterm parking, and endured a roadtrip they did not anticipate.
“We are the fortunate ones. We have the financial resources to drive, park and get on another flight,” Millerick said.
This story was originally published January 6, 2023 at 11:47 AM.
