Southwest Airlines says holiday meltdown will ‘certainly’ hit fourth-quarter results

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Travelers at Baltimore Washington International airport deal with the impact of Southwest Airlines canceling more than 12,000 flights around the Christmas holiday weekend across the country and in Baltimore, Maryland, December 27, 2022.
Michael McCoy | Reuters

Southwest Airlines’ holiday meltdown will “certainly” hit its fourth-quarter results, executives said Thursday, adding that it will take several weeks to work through affected travelers’ reimbursement requests.

The systemwide chaos stranded hundreds of thousands of customers over the holiday week and drew scrutiny from Washington.

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The low-cost airline slashed schedules over the last several days, flying just about one-third of its planned flights, in a desperate effort to stabilize its operation and get planes and crews where they need to go.

Southwest said it expects to operate a normal schedule on Friday. It’s canceled 39 flights scheduled for Friday, according to FlightAware, down from more than 2,300 on Thursday.

“We have all hands on deck and tested solutions in place to support the restored operation. I’m confident, but I’m also cautious,” CEO Bob Jordan said in a staff memo Thursday.

The airline also resumed selling tickets for Friday, after a pause it implemented before it stabilized its schedule, said Jordan, a more than three-decade Southwest veteran who became CEO in February.

Southwest’s operation unraveled over the holiday week after brutal winter weather swept across the U.S. When most airlines had recovered at the end of last week, Southwest’s problems worsened. Executives cited challenges including overloaded internal scheduling platforms crucial to getting crews matched with flights.

Executives on Thursday vowed to improve crew scheduling platforms and said that modernization efforts were already underway but noted such projects take years.

On a call with reporters on Thursday, Chief Commercial Officer Ryan Green said that there “will certainly be an impact to the fourth quarter.”

But executives declined to provide an estimate of how much the disruptions will cost the airline in total. A similar incident in October 2021 cost the airline about $75 million, the carrier said last year, but this event lasted longer, with more travelers flying because of the holidays and sharply higher fares.

The carrier previously said it expected quarterly revenue to rise as much as 17% over 2019, when it brought in close to $6 billion.

‘Not much love’

Southwest faces significant customer service challenges to reimburse travelers for costs relates to canceled flights. Some travelers incurred other expenses beyond hotels and meals, such as to replace toiletries and other essentials.

Jack Leon, a 34-year old teacher who planned to fly Southwest on Christmas Day, canceled his trip to Boston after a slew of flight changes that would have cut his vacation in half. Leon had to go back to the airport on Thursday, four days after his trip was derailed, to secure reimbursement for his return flight after being unable to reach customer service via phone, email or an online form.

“For a company that talks about love and has a heart as their graphic, there was not much love on Christmas day,” Leon said.

In an attempt to placate its most loyal customers, Southwest said Thursday it will extend the qualifying period for elite statuses such as free Wi-Fi, early boarding and in some cases, a companion pass.

Suzie Chism, a 33-year-old recording artist from Nashville, told CNBC her Dec. 26 Southwest flight home from Las Vegas was canceled, causing her to miss a week of work and her final musical performance of the year.

“My two night trip is suddenly a week long,” Chism said. “The loss of income is crushing.”

Chism said she was able to book a new flight with Frontier for Friday night.

“I simply do not trust Southwest to get me there,” she said.

Some competitors said they would cap fares for certain cities to help stranded Southwest passengers reach their destinations without surging prices, but fare searches on Thursday still returned some one-way flights for $600 or more.

The moves came after Transportation Secretary Pete Buttigieg urged carriers to cap fares.

In a letter to Southwest’s CEO on Thursday, Buttigieg said he would hold Southwest accountable if it doesn’t promptly refund travelers for canceled flights, reimburse them for expenses and return lost bags.

“No amount of financial compensation can fully make up for passengers who missed moments with their families that they can never get back — Christmas, birthdays, weddings, and other special events,” Buttigieg wrote. “That’s why it is so critical for Southwest to begin by reimbursing passengers for those costs that can be measured in dollars and cents.”

Buttigieg told NBC Nightly News the Transportation Department would put Southwest “under a microscope” and levy fines if necessary to ensure the airline does right by passengers.

Several lawmakers also said they would look into what caused Southwest’s outsized problems over the past week.

Southwest shares gained nearly 4% Thursday, but shares are still down more than 7% this week at about $33 per share. CFRA Research earlier Thursday cut its 12-month price target for Southwest from $47 to $41 but maintained its strong buy rating on the stock.

“History shows customers tend not to permanently ditch an airline even after an awful experience due to the commodity-like nature of the product,” CFRA analyst Colin Scarola wrote.

Not all customers agree.

Alex Kain, 37, was supposed to fly home on Christmas Eve to Seattle from Denver, one of the airports hit hardest by the disruptions. Instead, after Kain’s flight was canceled at 2 a.m., he and his girlfriend drove 18 hours in a rental car to an airport in Redmond, Oregon, where they took an Alaska Airlines flight home.

At minimum, the couple is planning to request reimbursement for the hotels, the rental car, the gas and the Alaska Airlines flight. Kain estimated the costs total as much as $3,000.

“There’s no amount of money they could give us to make us fly Southwest again,” Kain told CNBC.

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