Southwest Airlines operation failures during blizzard to cost up to $825mn

Southwest Airlines, one of the biggest carriers in the US, expects a profit wipeout in the fourth quarter after a December blizzard triggered an operational meltdown.

The Dallas-based carrier, a pioneer in low-cost aviation, was unable to recover operations, and expects a net loss for the period after taking a hit of up to $825mn.

The losses are a result of the airline’s inability to recover from the severe winter storms that swept across the US just before Christmas, stranding thousands of passengers and drawing a rebuke of the carrier from the White House.

The fourth-largest airline in the US cancelled more than 16,700 flights between December 21 and December 31.

The company on Friday said it anticipated a “negative impact in the range of $725mn to $825mn” in the fourth quarter from the disruptions.

Between $400mn and $425mn of that figure is an estimated revenue loss, while the rest is related to reimbursing affected customers, giving them airline miles as a “gesture of goodwill” and extra compensation for employees.

The loss is at the high end of what investors expected, said Savanthi Syth, an analyst at Raymond James.

The figure implies the company lost between $43,000 and $50,000 for each cancelled flight — still less than the high-water mark seven years ago at Delta Air Lines when a systemwide outage cost the airline $65,000 per cancelled flight.

“We believe sentiment and, in turn, shares will continue to be weighed down by the longer term implications of the operations meltdown,” she said.

While all US airlines were affected by the “bomb cyclone”, a term given to an explosive storm that intensifies rapidly, most recovered fairly quickly.

Thousands of Southwest flyers, however, spent days sleeping in airports or going to great lengths to find alternative transport. Travellers stood in snaking lines, the airline’s call centres were overwhelmed, and baggage piled up.

At the root of the carrier’s disruption was its point-to-point flight network. This is where aircraft fly to locations without returning to a central hub — a design that caused flight disruptions to cascade throughout Southwest’s network.

In contrast, rivals American Airlines, United Airlines and Delta use what is known as a hub-and-spoke system, where flights often return to a central location. That can help to restrict disruption to affected regions while protecting other areas.

Outdated technology, which struggled to keep track of pilots and flight attendants, exacerbated the problems and forced additional cancellations.

But industry analyst Brett Snyder, who runs the website the Cranky Flier, said he expected few customers to balk at choosing Southwest in the future.

Travellers who were stranded are “currently being showered with money and points, so that helps get you back on the plane again”.

Moreover, many US airports are dominated by a single carrier, and consumers tend to have short memories.

“People like to talk a big game, but they don’t actually do anything about it,” he said. “If I wanted to walk away and make a statement as a traveller, it means I would either have to pay more or go to a different airport. It’s a trade-off of convenience, and Southwest knows that. Every airline knows that.”