Southwest Airlines Earnings Hit by $220 Million Loss After Holiday Meltdown

Southwest scrubbed more than 16,700 flights from Dec. 21 through Dec. 31 as the impact of winter storms cascaded through its network. It was one of the most disruptive and expensive airline meltdowns the industry has experienced in recent years, attracting criticism from regulators and lawmakers.

U.S. airlines have said in recent weeks that demand generally remains strong on domestic routes, and Southwest said booking trends for March looked better as the company boosted its planned flying-capacity expansion in 2023, which is expected to lower its costs.

Carriers are forecast by analysts to boost flying capacity by around 15% this year compared with 2022, even with continuing pilot shortages, boosting competition in some markets.

American Airlines Group Inc.,

which on Thursday reported its first annual profit since 2019, said it didn’t see any gains from Southwest’s challenges.

Vasu Raja,

American’s chief commercial officer, said there was no recognizable benefit to recent bookings as a result of any other airline’s moves. American said it expects to break even in the first quarter.

U.S. airline shares fell on Thursday, with analysts citing the outlook for higher labor and fuel costs. The Dow Jones U.S. Airline Index was recently down around 2%.

Dallas-based Southwest said the December disruptions reduced its pretax profit in the quarter by $800 million, including $390 million in extra costs, mainly from customer compensation. Lingering effects from the incident are expected to depress revenue in the first quarter by up to $350 million.

The airline hasn’t said exactly how many travelers were affected, but it made awards of 25,000 frequent-flier points to nearly two million people.

The trigger was a severe winter storm that swept across the country before Christmas, which Southwest Chief Executive

Bob Jordan

has said is one of the worst he has seen. As temperatures plummeted, fuel turned to sludge, jet bridges froze and workers could only be outside for short bursts.

Those problems hit all airlines, but Southwest struggled to right itself even as rivals recovered within a few days. By Dec. 26, Southwest’s operation was spiraling, and the airline slashed nearly two-thirds of its schedule for three days to reset.

The extra costs and lost revenue left Southwest nursing a net loss of $220 million for the quarter to Dec. 31 compared with a profit of $514 million a year earlier. The 37-cent loss per share was worse than the consensus for a 7-cent deficit among analysts polled by FactSet

Southwest said it still plans to continue its rapid postpandemic expansion, guiding capacity to be up 16%-17% in 2023 compared with last year. In December, it forecast a 15% rise in flying.

The company said the additional flying is expected to lower average costs excluding fuel by 6%-8% compared with a 1%-3% drop in its prior forecast.

Capital spending this year remains pegged at up to $4.5 billion, about $1.3 billion of which Southwest said is tied to technology projects. A crew-scheduling system has been cited by the airline as a contributing factor to the December disruption.

Flying capacity fell 5.6% last year, with the extra flights planned for 2023 facilitated by the expected arrival of 100

Boeing Co.

737 MAX jets, including 30 in the first quarter.

Southwest and other airlines have suffered delays in receiving new jets as plane makers wrestled with supply-chain challenges, especially a shortage of engines.

Southwest reported a profit of $539 million for 2022. Its quarterly loss stands in contrast to rivals, with the wider industry buoyed by strong bookings and fares.

Delta Air Lines Inc.

and

United Airlines Holdings Inc.

earlier this month reported profits for the fourth quarter and the full year.

American, the world’s largest airline by revenue, reported a quarterly profit of $803 million, compared with a $931 million loss in the same period a year ago, when the emergence of the Omicron variant upended demand for air travel.

Write to Doug Cameron at [email protected]