Southwest Expects $825 Million Loss From Holiday Meltdown

Oh, nice Southwest got a Dreamliner.

Haha…Ben just needs his coffee.

This meltdown has also damaged their brand and will result in more losses

Just remember every other US airline is primed for a similar meltdown. They all are trying to operate with packed to the gills flights, less ground resources available for rebooking/rerouting, and systems that can't handle an overload. We will see this played out again.

Why is there a United plane shown in this article?

@ Eli -- Sorry for any confusion, that wasn't intended to be a mistake. The caption is "Southwest is reimbursing travelers who had to book on other airlines," and I decided to post a picture of a plane belonging to another airline (since presumably some people rebooked on United).

Southwest doesn't have a particularly varied fleet, so always posting the same Southwest plane pictures gets a bit boring, hence me switching it up.

Not an accountan, but wouldn't some (most?) of the reimbursement expenses be for 1Q23?

Yes and No.

Being lowcost by design, Southwest had a system that couldn't handle a meltdown of this magnitude and took them days to even restart.

Yes it could happen to AA DL UA, but when major airlines gets hit, they recover much faster.

Another difference is the leadership. How Southwest management deals with the problem in the early days leading to the total meltdown, their internal memo says it all.

Maybe to represent the "other airlines" that people had to rebook?

@Ben but the seat jacket emergency cards say Southwest

I wonder if they will recover some of the loss by not paying the executive team their bonuses, I doubt it.

An estimate of the future costs gets recorded in 2022, since the actual cause of those costs (their massive cancellation meltdown) happened in 2022.

Just like with the free points, I assume there will be a lot of "breakage" with reimbursements. How many won't bother, or just abandoned their trip (never started it and just stayed home) and have no expenses they can really report, or won't follow up with the appropriate documentation, etc.

Also, presumably expenses on a per-person basis become lower for groups traveling together - a family of 4 could rent one car, one hotel room, etc. Only food would be proportional. So, totally making this up here, but if the average traveling group over the holiday was 2 people, then that would probably cut the number of potential claims in half.

I’d also be shocked if the DOT does not issue fines in the coming months along with issuing certain mandates (I.e. a business plan with action steps to prevent another meltdown in the future). Their IT department is going to get a nice budget boost in 2023 for sure. When all is said and done the total loss will probably creep above $1 billion.

What ever accounting WN uses, if past airline reimbursement policy is any predictor of the current situation, WN will end up losing a lot less than what the passengers collectively lost. I have never been made whole when airlines have screwed up during my decades of air travel.

Hardly.

The other carriers are no saints, but there's plenty of difference between their capability to recover from something like this versus Southwest's... most notably their ability to swap significant gauge, and to reset overnight: two things severely limited by WN's ridiculously primitive IT capabilities.

The crazy thing is: the exact same thing can happen next month or even next week, with another severe winter storm.

They're still comparatively limited by their IT system. Still limited in moving the masses due to lack of larger gauge, or the ability to reorganize their ops/placement overnight to the same extent other carriers can.

Nothing's changed, nor can really be expect to, near term.

What counts in the "loss" (and when it is recognized) will depend in part on various accounting rules. So accounting loss vs. actual financial impact aren't quite the same.

Unfortunately, most of the people responsible will never pay a dime for this, except shareholders. Bob Jordan is the current CEO but only since 2/1/22. Decades of neglect caused the meltdown. The people responsible for making those decisions have likely moved on (with performance bonuses) because their quarterly profits were up.

These numbers are very much in line w/ the damage estimates I wrote about on this site and elsewhere even as the disastrous operations were still unfolding.
LUV has every reason to get their problems that caused this fixed

I agree with Kendall - I suspect that the true loss will be in the value of their brand. By all accounts - LUV worked has hard to build to build their brand name over the years. But if you were one of those 2.5MM people on those canceled flights - would you be looking to fly anywhere with them in the future?
I had several bad experiences on United about 20 years ago, and walked away swearing I would never fly another United flight. At the time, I was a United million miler - and left nearly 1 million frequent flier miles still in the "bank" (looking back - I acknowledge that was foolish!).
People have a long memory when you let them down.

Spirit and Frontier don't treat their customers well, but people keep coming back. Flying for most on a low cost airline is just a commodity product. People will often just book the lowest fare. If that is Southwest, they will fly it. Especially now with some flight credits to be used.

In six months, those not aligned in a rewards program will forget the meltdown while searching for the cheapest ticket.
It will be swept under the carpet as a footnote in the quarterly and year end financials of LUV as a cause/benefit expenditure for a new software package and all will be forgiven.

@Tim Dunn

While you're out there giving estimates, maybe you should disclose you positions on LUV and anything related. SEC read blogs too.

@Exit Row Seat -

Except WN flights aren’t sold on any online travel sites, only southwest.com. So anyone searching will have to specifically go to Southwest’s website and if they do that then they’re willingly taking a chance by seeking out WN flights specifically.

Technology issue, my foot. What they're not saying is the employees are actually striking over ridiculous COVID policies.