Southwest mass cancellations debacle cost $75M, company says

Will Feuer

Southwest Airlines revealed Thursday that the debacle that led to thousands of canceled flights earlier this month cost the company $75 million.

Photo: Phil Velasquez/Chicago Tribune

The cancellations as well as customer refunds and “gestures of goodwill” all contributed to the estimated cost, Southwest said in a release announcing better-than-expected third-quarter earnings.

The Dallas-based company posted quarterly revenue of $4.68 billion, topping analysts expectations of $4.58 billion, and a loss of 23 cents per share, on an adjusted basis, beating expectations of a 27 cents-per-share loss.

Despite the $75 million charge, the company reiterated its forecast for October “as the recent improvement in travel demand trends offsets the aforementioned headwinds.”

“Our active (versus inactive) and available staffing fell below plan and, along with other factors, caused us to miss our operational on-time performance targets, and that created additional cost headwinds,” CEO Gary Kelly said Thursday in a statement. 

Photo: Jacek Boczarski/Anadolu Agency via Getty Images

Staffing challenges along with a surge in COVID-19 cases that dented demand for air travel resulted in a revenue hit of $300 million, he added.

Earlier this month, Southwest cancelled thousands of flights over a four-day stretch, leaving passengers stranded around the country and sparking speculation that the mess was caused by a worker shortage related to the company’s vaccine mandate, which was announced just a week earlier.

The Federal Aviation Administration, the company and the airline that represents Southwest pilots all denied allegations that the cancellations were the result of a protest by unvaccinated workers. 

“There’s just no evidence of that,” Kelly said at the time. “Our people are working very hard. I’m very proud of them, especially when we get into a difficult situation like this.”

In various media appearances, Kelly said the nationwide cancellations and delays were sparked by weather issues in Florida and compounded by air traffic control issues in the surrounding area, triggering a chain reaction of cancellations.

Aviation industry analysts agreed that the cancellations were not likely caused by a so-called sick-out or protest by pilots over the company’s recently announced COVID-19 vaccine mandate – despite speculation by politicians and others.

CEO Gary Kelly said the nationwide cancellations and delays were sparked by weather issues in Florida and compounded by air traffic control issues.Jacek Boczarski/Anadolu Agency via Getty Images

Still, analysts were skeptical of Southwest’s explanation, saying that the company is not being transparent about management’s own role in the debacle that left thousands of people stranded across the country.

“Gary Kelly was trying to pull the wool over the viewers’ eyes,” Henry Harteveldt, president of the Atmosphere Research Group, said at the time of Kelly’s appearances on TV.

“For Southwest, to say ‘the dog ate my homework is ridiculous,” he told The Post, referring to the airline’s efforts to blame air traffic control problems in Jacksonville.

The debacle was the result of cost-cutting during the pandemic that went too far, argued Arthur Wheaton, an expert in airline industries.

Photo: Luke Sharrett/Bloomberg

Southwest should have been flexible enough to see the bad weather in Florida coming and adjust around it as well as to fix its schedule to deal with the alleged staffing problems at the air traffic control towers.

“Gary Kelly can’t blame others for the faults of Southwest Airlines. This clearly reflects a failure to anticipate and plan for operational disruptions, and clearly illustrates the airline’s lack of adequate strategies and programs to recover from these disruptions,” Harteveldt said.

The debacle was the result of cost-cutting during the pandemic that went too far, argued Arthur Wheaton, an expert in airline industries at Cornell University’s School of Industrial and Labor Relations.

“They don’t have enough wiggle room to handle a small hiccup in the system,” he said in a phone interview, adding that the airline has embraced just-in-time delivery and so-called Lean production, two increasingly popular industrial business practices focused on cutting excess.

The cost-cutting has weighed on pilots and flight attendants, who have been burned out by excessive scheduling in recent months as demand for flying snapped back from the pandemic.

Southwest’s efforts to blame the disruptions on the weather was likely an attempt to avoid having to refund customers for flights and pay for accommodations, he speculated.

If a missed flight is the airline’s fault, they must pay for all accommodations, but if it’s an “act of God,” no one is responsible, he noted, adding that he expects thousands of lawsuits to come.

Will Feuer, New York Post, October 21, 2021 9:45am 

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