expensive mistakes
The Southwest Airlines meltdown, by the numbers
Southwest's 2023 is already off to a rocky start.
The airline's chaotic infrastructure meltdown, which left an estimated thousands of customers stranded and separated from their bags over the holidays, is poised to cost the company "between $725 million and $825 million," The New York Times reports Friday, per a filing from the carrier. That total, roughly half of which will come from lost revenue in ticket refunds, "represents about as much as the airline earned in the first nine months of last year."
The compounding turmoil began with a massive winter storm and ended with more than 16,700 flights scrapped between Dec. 21 and Dec. 31, after the company's "crew scheduling processes failed to keep up with flight cancellations and quickly reassign pilots and flight attendants," the Times writes. It was a lesson in what can fail when a company "that millions of people rely on moves too slowly to invest in crucial but unglamorous parts of its operation."
Many Southwest employees had been warning of such a mess "for years," Helane Becker, an investment bank analyst, told the Times. They believed the airline was "underinvesting and that they were one storm away from disaster."
The company has said it plans to reimburse customers for expenses incurred as a result of canceled flights, and will also award those who were significantly delayed or canceled entirely with 25,000 in frequent-flier miles, a gift worth roughly $300. But the question now, the Times notes, is whether the carrier will go the extra mile and quickly update the infrastructure and processes that led to the meltdown in the first place.
Previously, money was never a problem for Southwest; in fact, the carrier was "so flush with profits that it paid out nearly $10 billion to shareholders over the five years leading up to the pandemic, equivalent to half the cash generated by its operations over that period," the Times writes. But critics — like the pilot's union and labor groups — have argued that money could have been spent updating Southwest's technology years ago.
Now, the company is expecting a loss in Q4 of 2022. And of course, the "ongoing cost" to its operations will depend on how many impacted customers take advantage of its reimbursement offer and how "generous or stingy" the carrier is in paying out those claims.
Per CNN, shares of Southwest lost another 2 percent in early trading on Friday, but had already lost "8 percent of their value since Dec. 21."