Southwest Airlines lost $425M in revenue during holiday meltdown

Southwest Airlines has revealed that last month’s massive flight cancellations over the holidays cost the company up to $425 million in lost revenue.

In a regulatory filing on Friday, Southwest revised its fourth-quarter forecast to a net loss for “solid earnings” after a technology meltdown forced it to cancel thousands of flights around Christmas and New Years.

The company said that in the 10 days from December 21 to 31, it canceled 16,700 flights, after the software it uses to reschedule flights and crews collapsed in the chaos of a massive winter storm.

The saga has been both financial and reputational devastating for Southwest, which led earnings for all US airlines for the first nine months of 2022, a recovery year for the airline industry.

“It may take time for Southwest to repair its brand perception among investors,” Bernstein analyst David Vernon said in a note earlier this week.

Shares of the airline fell more than 2 in premarket trading after it estimated a pre-tax hit of $725 million to $825 million from the mass cancellations, which also invited government scrutiny.

Most of that impact came from lost revenue in outages, which is expected to range from $400 million to $425 million, but higher costs also contributed, Southwest said.

Dallas-based Southwest is the largest domestic carrier in the US, which typically runs an aggressive schedule connecting large swathes of the country.

Southwest shares have lost 15.5% over the past month as the company struggled over the holidays after leading US airlines in profitability for the first three quarters of 2022.

Unclaimed bags are seen in Southwest Airlines baggage claim at Salt Lake City International Airport December 29 during the airline’s mass collapse.

The airline relies on a point-to-point service rather than operating from large hubs like most other major airlines.

That model led Southwest to cancel thousands of flights after its software connecting crews to planes collapsed under the weight of rescheduling requests as staff were stranded across the country in a massive storm.

Southwest’s flights now run on a more or less normal schedule, and the airline is working to repair its damaged reputation.

In a video statement Thursday, CEO Bob Jordan apologized again for the disruptions, saying “the vast majority” of the luggage lost in the chaos has now been returned or is on its way.

Southwest CEO Bob Jordan apologized again for the interruptions, saying “the vast majority” of the luggage lost in the chaos has already been returned.

“We are taking immediate action to address the massive inconvenience, as well as the issues that contributed to it,” Jordan said.

“I’ve said it before, but I can’t say enough how sorry I am for the impact these challenges have had on our employees and our customers,” he added.

Southwest said Friday that cancellations are likely to have reduced its capacity by 6 percent in the fourth quarter compared to 2019, about 4 points below its previous forecast.

The impact of refunds Southwest processed for customers who faced outages was included in the net loss forecast, the airline added.