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$825 Million A Costly Meltdown for Southwest

According to a report made by Southwest Airlines on Friday, the airline’s holiday flight cancellation mishap might cost them between $725 million and $825 million. 

A nationwide arctic blast grounded 16,700 Southwest aircraft, disrupting air travel and creating a snowball effect of issues for the Dallas-based airline. 

FlightAware data shows that it canceled nearly as many flights in the final weeks of the year as it had for the majority of the year when its old crew scheduling software failed. 

Company’s Response:

According to Southwest, between $400 million and $425 million of the expenses incurred during the fourth quarter of 2022 come from income lost as a result of canceled flights. 

According to the filing, the rest of the loss is caused by clients getting reimbursed for travel costs, customers getting loyalty points, and employees getting paid more. 

“The key is making sure this extent and magnitude of disruption doesn’t reoccur, ever,” airline industry expert Robert Mann, president of R.W. Mann & Co. in New York, told the Star-Telegram. 

“This involves having a Southwest “culture”—trust with staff and customers—aand IT difficulties that are properly handled.” 

The success of those initiatives will determine the revenue effect or recovery, the cost of the disruption, and earnings in subsequent quarters. 

While the airline sorts through passenger claims, it is still unclear how much exactly Southwest’s late-December collapse cost. 

The degree of the damage will depend on how liberal the carrier is with its reimbursements. 

The airline hasn’t said yet if it will pay for all of the extra costs that passengers have to pay or just a portion of them.

In a recent letter to Southwest CEO Bob Jordan, Transportation Secretary Pete Buttigieg stated that “no amount of monetary compensation can truly make up for travelers who lost moments with their families that they can never get back—Christmas, birthdays, weddings, and other significant events.” 

In the frantic days when the airlines battled to manage their operations to get planes back in the air, luggage to its owners, and stranded passengers rebooked, it was evidently the customers who paid the price. 

It would be an understatement to say that things were busy on the concourse at Dallas Love Field the day after Christmas. 

For a basketball tournament, 30 athletes, coaches, and parents from Lipan High School had to find a means to travel to Orlando, Florida.

Then, Chelsea Lott told the Star-Telegram, “Oh, this is just our luck.” Oh, well. 

After over a year of preparation, we finally get to the day of departure when all the airplanes decide to give up. 

The disastrous effects of Southwest’s operational failure hurt the airline’s brand, which used to have a lot of loyal customers who liked how reliable it was. 

Read: In business, its ALL OUT WAR.

Kyle Potter:

According to Kyle Potter, executive editor of Thrifty Travel, Southwest is the most prosperous airline in the United States. 

Before the outbreak, they hadn’t had a quarterly loss in more than ten years. 

It would be a significant loss, in Potter’s words, “to lose $825 million due to a meltdown that only lasted a few days.” 

“It serves as another illustration of how terrible this was for Southwest and, more significantly, for its clients. 

And Southwest will suffer particularly badly because they will end 2022 with a quarterly loss.

According to Potter, Southwest is counting on some of the passengers whose flights were canceled to not ask for refunds or compensation. 

Furthermore, they bet that many travelers will not bother claiming the 25,000 points Southwest issued as compensation and that those who do will never use them. 

Read: How Chinese Startups Are Breaking Into the U.S. Market

Henry Harteveldt:

According to Henry Harteveldt, president and travel industry expert at the Atmosphere Research Group, if the airline’s deficit is closer to $725 million, it will barely turn a profit. 

There could be a net loss for 2022 if expenses come in closer to $825 million. 

Harteveldt told the Star-Telegram that Southwest would not lose money, no matter how big the estimate was. 

The airline should be able to sustain the loss because it has more than $13 billion in cash. 

Southwest may still have to put off its goal of paying stockholders dividends again, depending on how much it will cost to invest in new technology to make up for this loss. 

Southwest’s nightmare was getting worse by the day, from messed-up crew scheduling to interactions with its armies of overworked ticket agents. 

Read: 10 Lessons to Learn from the Failures of Big Tech

Travelers:

Families with trips they couldn’t cancel were making other travel plans as Southwest worked to clean up its mess days after the storms. 

The four members of Kay Millerick’s family had to travel from West Texas to Orlando, Florida, in order to meet up with her 88-year-old grandparents. 

This might be their last opportunity to get together. 

Millerick then told the Star-Telegram, “So, we’re having a large family reunion to celebrate what is probably going to be the last time they come to the United States.” 

We yearned to visit my grandparents more than anything. 

After their flight from Lubbock was canceled, they drove 350 miles to Dallas, paid for long-term parking, and had an unexpected road trip. 

Millerick said, “We are fortunate; we have the means to drive, park, and board a different plane.”

Related: Meta Agrees to Pay $725M in Cambridge Analytica Lawsuit Settlement

 

 

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