Southwest Lost $220 Million Because of Its Holiday Meltdown
Southwest Airlines lost $220 million in the final three months of last year because of a holiday meltdown that affected an estimated two million passengers, the company reported Thursday.
Southwest executives said they also expect to report a loss in the first three months of this year, as customer cancellations rise and sales slow in January and February. The airline said fallout from the holiday turmoil would contribute to an estimated dent to revenue in the first quarter of this year of up to $350 million.
“With regard to the operational disruptions, I am deeply sorry for the impact to our employees and customers,” the airline’s chief executive, Bob Jordan, said in a statement. He reiterated his confidence in the airline’s long-term financial goals and pledged “to regain our 51-year reputation for operational excellence.”
The airline reported record fourth-quarter revenue of $6.2 billion, contributing to an annual profit of $539 million for the full year. And despite its expectation for a loss in the current quarter, Southwest said it expected revenue to rise between 20 and 24 percent for the period. The airline’s share price fell in premarket trading.
The release of the company’s quarterly financial results on Thursday came a day after the Department of Transportation said it had started a “rigorous and comprehensive” investigation into Southwest’s holiday breakdown. The agency said it was looking into whether the company’s executives had scheduled flights that the airline could not realistically fulfill, a violation of federal law banning unfair and deceptive practices. It also said that Southwest must provide timely refunds and reimbursements to travelers affected by the meltdown, which it has said it plans to do.
What to Know About the Southwest Airlines Chaos
Severe winter weather plunged Southwest, a low-cost carrier, into crisis during the holiday season, causing thousands of flights to be canceled.
- Anatomy of a Crisis: While other carriers bounced back after severe winter weather wreaked havoc on holiday travel, Southwest Airlines struggled. What happened?
- What Caused the Chaos: Southwest’s use of a “point-to-point” route model, which lets passengers fly directly from smaller places without having to stop at a central hub, was partly to blame.
- Stranded and Stuck: The airline’s customers incurred thousands of dollars in expenses as they scrambled to find alternate ways to get home.
- A Daunting Task: In an interview, Southwest’s chief executive, Bob Jordan, discussed the challenge of regaining the trust of employees and customers after the meltdown.
“D.O.T. will leverage the full extent of its investigative and enforcement power to ensure consumers are protected and this process will continue to evolve as the department learns more,” the agency said in a statement.
In response, Southwest said that its holiday schedule was “thoughtfully designed” and that it would cooperate with “any inquiry or request from government oversight or elected officials.”
Bad weather across the country in the days before Christmas had forced airlines to cancel thousands of flights. But as conditions improved, Southwest struggled to return to normal operations.
Eventually, the airline canceled thousands more flights to reset its network, stranding customers and forcing them to make alternative plans. All told, the airline canceled 16,700 flights, more than a third of its schedule, from Dec. 21 through Dec. 31.
Southwest reported Thursday that the episode cost it about $800 million, about half of that from lost revenue and the rest in payments to customers, mainly to reimburse them for new travel arrangements.
The airline’s unions blamed the debacle on a failure to update crew scheduling systems and software. Southwest said that it spends about $1.3 billion annually on technology and that its systems had functioned as designed, but were overwhelmed by the number of changes that needed to be made because planes and crews were scattered around the country, far from where they needed to be.
“You’re trying to solve these problems. And as you’re solving them, you have more problems,” Mr. Jordan said in an interview with The Times this month. “More cancels, more problems; more cancels, more problems. We just couldn’t keep up with the volume — volume we’d never seen before.”
The airline has hired Oliver Wyman, a consulting firm, to investigate what went wrong. Southwest has also already started to make changes to its procedures and systems.
The episode has angered lawmakers, who are planning to hold hearings on how to protect consumers and improve airline operations. In a letter to Mr. Jordan last month, the transportation secretary, Pete Buttigieg, called the disruptions “unacceptable.”
Other large carriers, including United Airlines and Delta Air Lines, have been more optimistic, reporting large profits for last quarter and forecasting strong demand over the next few months. United, Delta and American Airlines, the other major U.S. carriers with Southwest, each recently reported profits of more than $800 million in the fourth quarter of last year.