Southwest Airlines meltdown to cost carrier up to $825mn

Southwest Airlines expects to take a hit of up to $825mn in the fourth quarter, leading to a net loss for the period, after an operational meltdown in December caused by disruption from a blizzard.

The Dallas-based carrier was unable to recover operations after a severe winter storm hit a large swath of the US just before Christmas.

Southwest, which cancelled more than 16,700 flights between December 21 to December 31, anticipated a “negative impact in the range of $725mn to $825mn” in the fourth quarter from the disruptions, the company said on Friday.

Between $400mn and $425mn of that figure is an estimated revenue loss, while the rest is related to reimbursing affected customers, giving them airline miles as a “gesture of goodwill” and providing overtime pay for employees.

While all US airlines were affected by the “bomb cyclone”, most recovered fairly quickly. Thousands of Southwest flyers, however, spent days sleeping in airports or going to great lengths to find alternative means of transport.

At the root of the carrier’s disruption was its point-to-point flight network, under which aeroplanes fly from place to place without returning to a central hub. The design caused performance issues to cascade throughout its operations.

Rivals American Airlines, United Airlines and Delta Air Lines use what is known as a hub-and-spoke system, where flights often return to a central location. That can help to restrict disruption to individual affected regions while protecting other areas.

Outdated technology, which struggled to keep track of pilots and flight attendants, exacerbated the problems and forced additional cancellations.

Southwest, the fourth-largest US carrier, said in October that it expected to fly 2 per cent less in the fourth quarter of 2022 than during the same period in 2019 and for revenue to be up 13-17 per cent over the $514mn in net income it made then. It instead flew 6 per cent less than the last three months of 2019.

The company will report fourth-quarter earnings on January 26.