Airline forecasts loss after mass cancellations

Southwest Airlines said on Friday it expects to post a loss in the fourth quarter after it canceled over 16,700 flights between Christmas and New Year’s Eve due to a tech meltdown.

 

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The mass cancellations during the peak season for U.S. airlines will result in a pre-tax hit of $725 million to $825 million to quarterly earnings, said Southwest, which had earlier forecast a strong profit. Shares fell 2.8% before the bell.

On Thursday, the largest U.S. domestic airline promised a thorough review of the operational collapse after a union leader blamed its outdated scheduling system and said the carrier had not identified how to avoid a repeat.

But the impact from the cancellations will spill over in the current quarter as the company scrapped many flights in a bid to reset its system, Cowen analyst Helane Becker said.

Southwest, which typically has an aggressive schedule that connects vast swathes of the country, relies on a point-to-point service instead of operating out of large hubs.

Though that model makes the low-cost airline a popular option for customers looking for quick travel times, adverse weather could make it difficult for it to marshal staff scattered across the country as easily as its rivals who operate out of hubs.

During winter storm Elliott, Southwest’s crew scheduling software failed to bear the load of staffing changes made by the airline. Workers had to manually match crew and planes that led to huge waiting times for pilots and cabin crew.

Southwest, which led cancellations among U.S. carriers for much of the last two weeks of December, has invited scrutiny from the U.S. government and a lawsuit.

It said on Friday that cancellations were likely to have cut its capacity by about 6% in the fourth quarter compared with 2019, roughly 4 points lower than its previous forecast.

Revenue loss from the disruptions is expected to be between $400 million and $425 million, it said.

The impact from refunds Southwest has processed for customers who faced disruptions has been included in the net loss forecast, the airline added.

“It may take time for Southwest to repair its brand perception with investors,” Bernstein analyst David Vernon said in a note earlier this week.