Southwest’s Meltdown Could Cost It Up to $825 Million

The meltdown that forced Southwest Airlines to cancel more than 16,700 holiday flights could cost the carrier between $725 million and $825 million, the airline said in a filing on Friday. The total represents about as much as the airline earned in the first nine months of last year.

The crisis shows what can go wrong when a company that millions of people rely on moves too slowly to invest in crucial but unglamorous parts of its operation. Southwest struggled to recover from frigid weather after its crew scheduling processes failed to keep up with flight cancellations and quickly reassign pilots and flight attendants.

“A number of their employees, flight attendants and pilots, have been warning about this for years — that they were underinvesting and that they were one storm away from disaster,” said Helane Becker, a managing director and senior analyst at Cowen, an investment bank.

Southwest said on Friday that it now expects to report a loss in the final three months of 2022. About half of the cost it expects to incur in that quarter — $400 million to $425 million — relates to revenue lost from the canceled flights. The remaining amount stems from spending on customer reimbursements, the value of loyalty points offered to affected passengers and overtime pay for employees.

Southwest canceled about as many flights in the last 10 days of 2022 as it did in the 10 months prior, according to FlightAware data. The airline declined to disclose how many passengers were affected by the cancellations, though estimates run into the hundreds of thousands.

Southwest’s chief executive, Bob Jordan, told reporters on a call last week that Southwest would accelerate improvements to its systems, but he would not say how quickly it would act. The airline may provide more detail in the days and weeks ahead — Southwest is scheduled to report its complete financial results for the fourth quarter of 2022 at the end of this month. The carrier’s net income in the first nine months of 2022 was $759 million.

The ongoing cost to the airline will also depend on how many people file claims for reimbursements and how generous or stingy Southwest is in paying claims.

To understand how costs can add up, consider the case of the Horter family.

After their travel plans were upended last week, Julie and Len Horter spent hours trying to reschedule their flight over the phone and at the airport. They salvaged the trip, but not before spending $300 on car rentals and a hotel. The…