Southwest Reveals How Much Holiday Flight Meltdown Will Cost Them

Southwest Airlines estimates that between $725 million and $825 million will be lost in the aftermath of the company canceling thousands of flights during the holiday travel season.

Southwest canceled an elevated number of flights even after severe winter weather conditions had subsided in the days after Christmas. The company announced a return to normal operations beginning on December 30 and is currently at parity with other major airlines, which resumed normal operations more quickly than Southwest, according to data from FlightAware.

Southwest canceled some 16,700 flights between December 21 and December 31, according to a filing submitted to the Securities and Exchange Commission on Friday. The company estimated that the number of available seat miles, a metric used in the airline industry to approximate capacity for revenue generation, was 6% lower in the fourth quarter in comparison to the same period in 2019, marking a 4% decrease from previous forecasts.

The pre-tax negative impact of $725 million to $825 million is largely driven by anticipated revenue losses between $400 million and $425 million. The remaining loss comes from higher expenses from reimbursements, frequent flyer points distributed as a “gesture of goodwill” to affected customers, and additional employee compensation.

At least some customers whose flights were canceled or delayed for more than three hours received 25,000 reward points, equivalent to approximately $300 in value. “Southwest experienced a unique combination of events that started with severe weather at our busiest airports and transitioned into other operational challenges,” a message sent to customers read. “This caused unprecedented wide-scale cancellations and ultimately impacted your trip.”

Share prices for Southwest have fallen more than 7% over the past month as executives scramble to win back the trust of disgruntled customers. Executives in the carrier’s pilot union claimed the elevated number of cancelations arose from “a combination of processes, outdated technology, and infrastructure.” Southwest is unique among other major airlines in that flights are arranged in a point-to-point system rather than a hub model.

Southwest had earned record revenue of $6.2 billion in the third quarter and boasted liquidity of $14.7 billion, exceeding debt outstanding of $8.7 billion, according to an earnings report.

Policymakers have called for Southwest to quickly reimburse customers and have weighed reforms in airline regulations. Transportation Secretary Pete Buttigieg characterized the “level of disruption” experienced by Southwest customers “unacceptable” in a recent letter to Southwest CEO Bob Jordan and warned that his agency would exercise “the fullest extent of its investigative and enforcement powers” to ensure customers are refunded.

“While weather can disrupt flight schedules, the thousands of cancellations by Southwest in recent days have not been because of the weather. Other airlines that experienced weather-related cancellations and delays due to the winter storm recovered relatively quickly, unlike Southwest,” the former Democratic presidential candidate wrote. “For many, Southwest’s severe flight disruptions have resulted in missed time with loved ones during the holidays and in being separated for a prolonged period from their luggage even if they never boarded a flight.”

Members of Congress have also taken notice of the cancellations: Sen. Bernie Sanders (I-VT) and Rep. Ro Khanna (D-CA) claimed Buttigieg failed to implement new rules for the airline industry they had previously recommended, while Sen. Richard Blumenthal (D-CT) plans to reintroduce a “bill of rights” for airline customers that would provide various reimbursement guarantees to those impacted by future flight cancelations.

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