Southwest Takes $825 Million Hit From Holiday Chaos

Customer reimbursements and related charges could cost the airline $400 million

By
Nathan Reiff
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Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016.
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Published January 06, 2023
Southwest Airlines Priority Fees Airplane
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Southwest Airlines Co. (LUV) expects to post a net loss for the fourth quarter after a winter storm caused the carrier to cancel thousands of flights over the busy holiday travel season.

Key Takeaways

  • Southwest Airlines expects flight cancellations from December to cost it as much as $825 million.
  • Lost revenue could account for over half of those costs, with the remainder made up of compensation for employees, customer reimbursements, and related charges.
  • The company canceled nearly 17,000 flights amid a nationwide storm and a meltdown of its scheduling system.
  • Southwest also faces a lawsuit over allegations that it did not provide refunds to stranded passengers.

The company said in an SEC filing on Jan. 6 that operational disruptions in the last 10 days of December would bring a pre-tax hit of $725 million to $825 million. Missed revenue opportunities could account for as much as $425 million of those losses, with the remainder attributable to expenses associated with customer reimbursements, additional compensation, and other factors.

Southwest led U.S. carriers in flight cancellations in the last two weeks of the year, eliminating nearly 17,000 flights. Available seat miles—a measure of airline capacity—for the final quarter are expected to drop by 6%, more than expected.

A meltdown with Southwest's scheduling system left the company slow to recover from a storm that pummeled much of the U.S. late in the year. Even into 2023, Southwest was adjusting flight schedules to reset the system, which a pilot union leader has described as outdated and in need of updates. The airline promised earlier this week to review the collapse.

The cost of last month's cancellations could continue to grow. On Jan. 3, Southwest was sued for allegedly failing to provide refunds to stranded passengers during the storm.

Article Sources
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  1. CNBC. "Southwest Airlines forecasts loss after mass cancellations."

  2. Southwest Airlines Co. "Form 8-K: January 6, 2023," Page 3.

  3. Reuters. "Frustrated Southwest pilot and union rep says the airline's flight meltdown was caused by outdated scheduling software."

  4. Reuters. "Southwest Airlines is sued for not providing refunds after meltdown."

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