Southwest Airlines stated that service disruptions that led to more than 16,700 canceled flights over the holidays could cost the embattled company as much as $825 million, according to a Jan. 6 regulatory filing.
The Dallas-based company declared an “estimated fourth-quarter 2022 pre-tax negative impact in the range of $725 million to $825 million,” according to the Securities and Exchange Commission filing.
Severe weather, staff shortages brought on by the pandemic, and an outdated computer system led the largest U.S. domestic airline to cancel thousands of flights from Dec. 21, 2022, to Dec. 31, 2022.
As a result of the cancellations, Southwest estimated that its fourth-quarter 2022 “available seat miles” or capacity took a 6 percent hit compared with the same period in 2019; that’s about 4 percentage points lower than previously expected, the company stated.
Almost half of the projected losses come from “an estimated revenue loss in the range of $400 million to $425 million,” according to the company.
The other half can be chalked up to additional operating expenses. Those include reimbursements to customers, “premium pay and additional compensation to employees,” and the value of frequent-flyer points “offered as a gesture of good will to Customers,” the filing states.
Earlier this week, Southwest CEO Bob Jordan announced that affected customers would be granted 25,000 rewards points, valued at more than $300, in addition to any refunds or reimbursements they’re owed.
Some customers claim the company failed to refund them properly; one filed a class-action lawsuit that could represent thousands of plaintiffs.
Storm Touched Off Trouble
The SEC report filed by the company, “results of operations and financial condition,” is required after certain events that could affect shareholders of publicly traded businesses.
In this case, the triggering event was the operational chaos that struck a blow to the company’s bottom line.
The storm touched off an unusually high number of changes to the company’s flight schedule. Those changes overloaded an outdated computer system that unions had begged the company to upgrade for years.
Then, customer service and employee rescheduling phone lines became jammed with calls.
As a result, crews were left sitting without being paired with aircraft. Passengers’ flights were often canceled, leaving them stranded with no available flights for days. Luggage went astray and piled up.
The U.S. Department of Transportation deemed that performance “unacceptable” and is investigating, along with a congressional committee.
Some Good News
There also were some bright spots amid the airline’s post-meltdown gloom.
Additional costs are being “partially offset by lower fuel and oil and profit-sharing expenses,” the company stated in its filing.
Jordan, in a public message released on Jan. 5, said the airline has made significant strides in recovering from the mess.
“Restoring the trust of our Customers and Employees is everything to us,” he said. “We disrupted holiday travel for millions. ... We are taking immediate steps to address the massive inconvenience as well as the issues that contributed to it.”
In the wake of the storm, the company engaged in an “all-hands-on-deck,” around-the-clock effort, Jordan said.
“We are making great progress by processing tens of thousands of refunds and reimbursements a day and will not let up until we have responded to every impacted Customer,” he said.
Jordan also said he was glad to report that the company has “the vast majority of these bags either reunited or on their way to our Customers.”
Efforts Praised, Improvements Promised
The CEO commended employees for coming together in “the Southwest spirit” under trying conditions. He said his leadership team is reviewing what went wrong and has “already taken immediate actions to mitigate the risk of this ever happening again.”
Labor unions have been asked to contribute information to the company’s examination of the issues.
Jordan said the company spends about $1 billion per year on technology. He pledged to upgrade systems so the 51-year-old airline can deliver on its promise to provide “friendly, reliable, and low-cost air travel.”
Jordan, who has been CEO for less than a year, said he can’t apologize enough to make up for the impact of the problems.
“We have a long and proud record of delivering on expectations, and when we fall short, we aim to do the right thing,” he said.
Ivan Pentchoukov contributed to this story.
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