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Southwest Airlines reported a loss in the fourth quarter due to a collapse in the company’s services during the holiday travel season, and warned that the costs of those problems would lead to another loss in the first quarter.
The airline had to cancel more than 16,700 flights between December 21 and 29, nearly half of its schedule over that period. Thursday, Southwest said the crash cost the airline about $800 million, resulting in an adjusted net loss for the quarter of $226 million. However, it managed to report an adjusted annual profit of $723 million, a turnaround from the $1.3 billion it lost in 2021 amid the pandemic.
It said it expected another loss in the first quarter due to the continuing impact and costs associated with the crash. The first quarter is typically the slowest and least profitable for air travel in the United States. Still, Southwest said it was encouraged by strong bookings for March.
Southwest
(LUV)The quarterly loss of 38 cents per share was much worse than Wall Street analysts expected. Southwest arrow
(LUV) He lost 4% in the middle of the afternoon due to this particular error and bad outlook.
The airline said it expected a loss in the first quarter due to an increase in the number of canceled passengers and a lower level of bookings for January and February, which the company said was “presumably related to operating disruptions in December.” Those lost bookings in the current quarter are expected to cost $300 million to $350 million.
To repair customer relations, Southwest awarded affected passengers an additional 25,000 points in the Frequent traveler accounts, as well as travel vouchers. In addition to refunding fare for canceled flights, it compensates passengers who have purchased tickets on other airlines or incur other unexpected travel costs.
Even with the crash, which cost Southwest $410 million in lost revenue when it had to return tickets to travelers on canceled flights, it posted record fourth-quarter sales of $6.2 billion, up 7% from the same quarter in 2019, just before the pandemic. .
Southwest brought in that record revenue even though the number of seats that were able to fly in the quarter was down 6% from the same period in 2019, before the pandemic, when adjusted for miles flown.
Strong demand means Southwest commuters paid 10.6% more per mile traveled than they did in late 2019.
A massive winter storm started to cause service problems, but Southwest was having a more difficult time recovering from the weather than other airlines due to an aging crew scheduling system that quickly became overwhelmed, leaving the airline unable to get the staff it needed to locations to fly the flights. weather. Almost half of its schedule from December 20 to 29 was cancelled. On some days, up to 75% of its scheduled flights were grounded.
The airline said it is “conducting a third-party review of the events of December and… re-examining the priority of technology and other investments planned for 2023.”
In an interview with CNBC on Thursday, CEO Bob Jordan defended Southwest’s investment in technology, saying the company has been spending about $1 billion a year updating its technology and will spend nearly $1.3 billion this year.
“The idea that we don’t invest in technology is not right,” he said. “Now there are always things to work on, and we have things to work on in the crew scheduling area, for example, and we’ll do that.”
He said GE Digital has already come up with a fix that is being tested for some of the problems the crew scheduling system encountered during the crash. He said having more staff scheduling staff in place is also part of the solution.
“It’s not one thing [that caused the meltdown.] He told CNBC that this was a very complicated chain of events.
On a call with analysts and reporters later Thursday, Southwest officials said they weren’t sure the computer system used for crew scheduling needed to be replaced, and that current fixes from GE being tested now could address deficiencies discovered during the operation. collapse.
“Based on what we know at this point, our processes and technology in general have worked as designed,” Jordan said. “We were shocked by the sheer volume of close-in cancellations, which left us behind in creating crew solutions.”
Part of what created worse problems on Southwest than on other airlines is that crew members had to call the airline, rather than notify it electronically, to let them know of their availability.
“That was a problem,” said Andrew Waterston, Southwest’s chief operating officer. “It wasn’t the problem of the situation. It was a symptom of the problem.”
Jordan said the shift to electronic notification would require changing employment contracts with the pilot and flight attendants. Negotiations are now under way to replace existing contracts covering all issues, including wages and benefits.
So far Southwest was the No. 1 on-time performer among US airlines in January, Jordan said.
“So, of course, we’re applying what we’ve learned and we’re actually doing very well.”
He again apologized to both customers and Southwest employees, but said bookings for March and beyond indicate the airline is not losing its customer base.
“There is a lot of evidence that our loyal customers are still with us,” he said on CNBC. He told investors that 25% of customers who get bonus frequent flyer points have already booked future travel in Southwest, some using those points, some paying cash.
Southwest has long been the most profitable US airline by a large margin. Many of its competitors have been in and out of bankruptcy in recent decades due to losses from recessions and events like the September 11 attack, but Southwest had put together a streak of 47 consecutive profitable years before the pandemic. in 2020Southwest and all other airlines to I mentioned a loss.
All other airlines lost money again in 2021, except for special items such as financial support from the federal government, and most airlines reported another quarterly loss in the first three months of 2022 as Covid cases increased due to limited demand for the Omicron variant on travel.
But demand for flying has been so strong starting with the spring break travel season, airfares have skyrocketed as passengers pay top dollar for long-haul flights. Southwest and most other US airlines reported earnings in the second and third quarters, and most either reported profits in the fourth quarter or are expected to do so — as Southwest did before the crash.
Three more American airlines – American
(AAL)Jet Blue
(JBLU) and Alaska
(ALK) I mentioned each Fourth quarter earnings Near Thursday forecasts, though, are JetBlue
(JBLU) He warned of a loss much larger than expected in the current quarter.
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