Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss as the fallout extends into 2023 from a fiasco that resulted in thousands of canceled flights and prompted a federal probe into its operations.
(Bloomberg) — Southwest Airlines Co.’s operations meltdown last month will lead to a first-quarter loss as the fallout extends into 2023 from a fiasco that resulted in thousands of canceled flights and prompted a federal probe into its operations.
Revenue in the first three months of this year will be reduced as much as $350 million through a combination of ongoing cancellations and reduced bookings, which Southwest attributed to the December disruptions. The carrier also expects non-fuel costs to rise as much as 4% in the period, up from a prior outlook of flat to up 2%, according to a statement Thursday that also revealed a worse-than-expected fourth-quarter loss.
Chief Executive Officer Bob Jordan said the “current revenue and cost trends” will lead to a net loss in the first quarter, without disclosing a specific range. Analysts had expected profit of 20 cents a share on average, according to estimates compiled by Bloomberg.
The disruptions kept Southwest from benefiting from a surge in holiday travel and strong pricing that lifted its three largest rivals to quarterly profits. The Dallas-based airline is working with a consulting firm to determine the root causes, which Jordan has pledged to fix.
It also is under investigation by the Department of Transportation, which on Wednesday said it is conducting a “rigorous” review of Southwest’s scheduling practices.
Southwest shares fell 2.3% at 9:30 a.m. in New York. The stock gained 9.5% this year through Wednesday’s close, the worst performance in a Standard & Poor’s index of the five largest carriers.
Strong Spring?
Still, Southwest sees signs of operations returning to normal in the near term. March leisure bookings and average fares “appear strong,” the airline said, and managed business revenues for the month are on track to match levels from prior to the pandemic.
“We are encouraged by current booking trends in March 2023,” Jordan said in the statement. “Our 2023 plan continues to support solid profits with year-over-year margin expansion for full year 2023.”
The December meltdown was triggered by a winter storm, but spiraled out of control when a crew scheduling system was overwhelmed by a rapidly growing number of cancellations. More than 2 million holiday travelers were affected by 16,700 grounded flights, many of which occurred after Southwest decided the only remedy was to reset its entire network.
Southwest is “re-examining the priority of technology and other investments” planned this year as part of the review, the airline said Thursday.
Read more: Southwest Chaos Is Told-You-So Moment After Warnings on Tech
Southwest isn’t slowing growth as a result of the disruptions, maintaining plans to expand 10% this quarter. It will grow as much as 17% for all of 2023, compared to a prior forecast of about 15%. Revenue will increase as much as 24% this quarter, it said.
Costs Trending Higher
An adjusted fourth-quarter loss of 38 cents a share was worse than the average 7-cent deficit expected by analysts. Revenue of $6.17 billion exceeded expectations of $6.16 billion. Non-fuel costs in the period to fly each seat a mile, a gauge of efficiency, climbed 45% from 2019. Excluding the effect of the disruptions, Southwest said unit costs were trending higher than expected as the carrier accounts for rising spending on labor.
Costs from the December disruptions include the award of 25,000 loyalty points each to passengers, fare refunds, reimbursement of hotel, meal and other spending while travelers were stranded and overtime and “gratitude pay” for employees. The December events increased costs by $390 million in the fourth quarter and reduced revenue by $410 million on a pre-tax basis — in line with levels that Southwest disclosed earlier this month.
Federal regulators are pushing Southwest to speed up those refunds and reimbursements to passengers impacted by the cancellations and delays.
Supply chain disruptions at Boeing Co. and delays in the US certification of its 737 Max 7 model resulted in fewer-than-expected aircraft deliveries last year, Southwest said. A remaining 46 deliveries “will shift to future years.” Southwest expects to get 100 737s this year, it said.
(Updates with share trading in sixth paragraph.)
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