Up to $825M Lost in Epic Meltdown, Southwest Airlines Says

That’s the impact Southwest estimates so far in a new, government-required financial update.

Because the company canceled “more than 16,700 flights” from Dec. 21-31, Southwest declared an “estimated fourth quarter 2022 pre-tax negative impact in the range of $725 million to $825 million.”

As a result of the massive cancellations, Southwest estimates 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 points lower than previously expected, the company said.

The crowded Montreal International Airport on Dec. 27, 2022, after a winter storm delayed flights. (Photo courtesy of Cassidy Charette)

Almost half of the projected losses come from “an estimated revenue loss in the range of $400 million to $425 million,” the company said.

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 said.

Earlier this week, 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 that the company filed, “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 meltdown that struck a blow to the company’s bottom line.

Residents take in the view from atop a gigantic snow pile in front of Central Terminal in Buffalo, New York, on Dec. 29, 2022. (Joed Viera/AFP via Getty Images)

Southwest’s acute crisis began just before Christmas, as a winter storm swept much of North America. Although other U.S. airlines weathered the storm reasonably well, it took Southwest several days to get back on track.

The storm touched off an unusually high number of changes to the company’s flight schedule. Those overloaded an outdated computer system–which unions had begged the company to upgrade for years.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 said in its filing.

“Restoring the trust of our Customers and Employees is everything to us,” he said, acknowledging, “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.

As a result, “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.

In addition, Jordan said he was glad to report that “we have 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.

Jordan 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.

He said the company spends about $1 billion a year on technology. Jordan 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 couldn’t apologize enough times 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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