AP

Southwest’s strong 2022 rebound soured by holiday debacle

Jan 6, 2023, 5:32 AM | Updated: 4:58 pm

FILE - A woman walks through unclaimed bags at Southwest Airlines baggage claim at Salt Lake City I...

FILE - A woman walks through unclaimed bags at Southwest Airlines baggage claim at Salt Lake City International Airport Thursday, Dec. 29, 2022, in Salt Lake City. With its flights now running on a roughly normal schedule, Southwest Airlines is turning its attention to luring back customers and repairing damage to a reputation for service after canceling 15,000 flights around Christmas. The disruptions started with a winter storm and snowballed when Southwest's ancient crew-scheduling technology failed. (AP Photo/Rick Bowmer, File)

(AP Photo/Rick Bowmer, File)

DALLAS (AP) — Southwest Airlines is anticipating a money-losing fourth quarter after a winter storm and technology meltdown led to nearly 17,000 canceled flights and stranded hundreds of thousands of holiday travelers.

The cancellations will result in a pretax hit of $725 million to $825 million from lost revenue, plus extra costs, including reimbursements for travelers and premium pay for employees, Southwest said Friday in a regulatory filing.

The storm and slow recovery was a devastating turn financially and reputationally for the Dallas-based carrier, which led all U.S. airlines in profit during the first nine months of 2022, a year of recovery for the pandemic-battered airline industry.

The massive disruptions started with a winter storm that hit much of the country before Christmas. They snowballed when Southwest’s outdated crew-scheduling technology was overwhelmed, leaving crews and planes out of position to operate flights. Managers and a cadre of volunteer employees at company headquarters were forced to manually reassign pilots and flight attendants to flights.

It took Southwest eight days to recover just before the New Year’s Day weekend, while other major airlines were up and running quickly after the storm passed.

Southwest said in the filing with the U.S. Securities and Exchange Commission that it canceled more than 16,700 flights between Dec. 21 and Dec. 31, causing a loss of $400 million to $425 million in revenue. In early December, before the meltdown, Southwest projected fourth-quarter revenue would rise by up to 17% over the same period in 2019, before the pandemic.

The airline said that expenses increased due to reimbursements to customers for out-of-pocket costs — the company has promised to cover “reasonable” bills for hotel rooms, meals and alternate transportation — along with the estimated value of frequent-flyer points it offered to customers, and premium pay and additional compensation for employees.

Analysts generally said Southwest’s estimate was toward the high end of their expectations but not shocking. Southwest’s shares gained 4.6%, and other U.S. airlines rose too, on a strong day for the stock market.

Since it resumed a normal schedule on Dec. 30, Southwest’s cancellations and flight delays have dropped sharply, roughly in line with other major U.S. airlines. The company is working on repairing its damaged reputation.

“I don’t know how many times I have, and can, apologize to our customers, but it’s not enough because we messed up,” CEO Robert Jordan said in an interview Thursday. “But the storm was historic in the number of places it hit, the length of time it stayed, the temperatures.”

Jordan said the airline has processed 75% of refund requests, is shipping lost bags to customers at no cost, and has hired an outside company to vet reimbursement requests.

Plenty of customers are complaining about the pace of reimbursements, which Southwest admits could take several weeks.

Bryce Burger said three of his family’s six bags were finally returned Friday, and they got refunds, $1,500 in vouchers for future flights, and 25,000 frequent-flyer points apiece. He is still waiting to hear if Southwest will cover the $7,500 cost of a cruise that they missed.

Burger, who owns a dental-implant company in Denver, said he will still fly on Southwest because he has a pass that lets a companion fly free, “but they will not be my first choice, no.”

Jordan said Southwest spends about $1 billion a year on technology and is reviewing how systems performed before making decisions on IT spending priorities.

Company officials have disputed union leaders’ claims that the company hasn’t invested enough to update technology, although they concede that the crew-scheduling systems did not get as much attention as other IT spending including aircraft-maintenance operations.

“One could criticize us for prioritizing ground operations and technical operations over crew operations when we started, but at the time that seemed like a proper sequence. Obviously it bit us in retrospect,” Chief Operating Officer Andrew Watterson said last week, “but there was significant modernization work going on.”

Southwest has not indicated whether the disaster will cause it to increase spending on technology, although analysts said that was likely. JP Morgan Chase analyst Jamie Baker said a “modest” increase seemed reasonable.

“We have no expertise in crew scheduling software, but if an airline can’t feasibly operate red-eyes (overnight flights) or tell you if your bag has been loaded, our base assumption is that systems aren’t state of the art,” Baker wrote in a note to clients. He said the level of Southwest’s technology was not surprising, given that it is a low-cost airline that likes to keep things simple.

Southwest is now on Washington’s radar screen. Transportation Secretary Pete Buttigieg has vowed to hold the airline accountable, although he has been vague on specific actions he might take. A Senate committee has promised hearings, and more than two dozen House Democrats wrote a letter to Buttigieg on Thursday urging him to strengthen consumer protection for airline travelers “and help prevent these types of mass cancellations from occurring in the future.”

Just last month, Southwest announced that it would revive dividends for shareholders, which were suspended after the pandemic devastated the airline industry in early 2020. The airline estimates it could pay out $428 million in dividends per year.

U.S. airlines were barred from paying dividends or buying back their own stock until October as a condition of taking $54 billion in federal pandemic aid. Southwest received more than $7 billion in aid.

___

Chapman reported from New York. Thalia Beaty in New York contributed to this report.

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Arizona and New York attorneys feud over extraditing suspect...

Associated Press

Why Alvin Bragg and Rachel Mitchell are fighting over extraditing suspect in New York hotel killing

Maricopa County Attorney Rachel Mitchell says she isn't into extraditing a suspect due to her lack of faith in Manhattan’s top prosecutor.

2 days ago

A Gila monster is displayed at the Woodland Park Zoo in Seattle, Dec. 14, 2018. A 34-year-old Color...

Associated Press

Colorado man dies after being bitten by pet Gila monster

A Colorado man has died after being bitten by his pet Gila monster in what would be a rare death by one of the desert lizards if the creature's venom turns out to have been the cause.

3 days ago

Police clear the area following a shooting at the Kansas City Chiefs NFL football Super Bowl celebr...

Associated Press

1 dead, many wounded after shooting at Kansas City Chiefs’ Super Bowl victory parade

One person died after 22 people were hit by gunfire in a shooting at the end of the Kansas Chiefs' Super Bowl victory celebration Wednesday.

10 days ago

This image from House Television shows House Speaker Mike Johnson of La., banging the gavel after h...

Associated Press

GOP-led House impeaches Homeland Security Secretary Mayorkas — by one vote — over border management

Having failed to impeach Homeland Security Secretary Alejandro Mayorkas the first time, House Republicans are determined to try again Tuesday.

11 days ago

Defense Secretary Lloyd Austin, right, and Kenya's Defense Minister Aden Duale, left, listen during...

Associated Press

Defense Secretary Lloyd Austin hospitalized with bladder issue

Defense Secretary Lloyd Austin has been hospitalized following symptoms pointing to an “emergent bladder issue."

13 days ago

Joel Osteen, the pastor of Lakewood Church, stands with his wife, Victoria Osteen, as he conducts a...

Associated Press

Woman firing rifle killed by 2 off-duty officers at Houston’s Lakewood Church run by Joel Osteen

A woman entered the Texas megachurch of Joel Osteen and started shooting with a rifle Sunday and was killed by two off-duty officers.

13 days ago

Sponsored Articles

...

Collins Comfort Masters

Here’s 1 way to ensure your family is drinking safe water

Water is maybe one of the most important resources in our lives, and especially if you have kids, you want them to have access to safe water.

...

Collins Comfort Masters

Avoid a potential emergency and get your home’s heating and furnace safety checked

With the weather getting colder throughout the Valley, the best time to make sure your heating is all up to date is now. 

...

Sanderson Ford

The best ways to honor our heroes on Veterans Day and give back to the community

Veterans Day is fast approaching and there's no better way to support our veterans than to donate to the Military Assistance Mission.

Southwest’s strong 2022 rebound soured by holiday debacle