Southwest Airlines collapse could cost the airline up to $825 million

New York

Southwest Airlines said in a filing on Friday that the cost of a service collapse during the year-end holidays cost the airline nearly $1 billion and would cause the carrier to report a loss instead of a profit in the fourth quarter.

The airline, the largest U.S. domestic carrier, said it would cost between $725 million and $825 million to cancel more than 16,700 flights between Dec. 21 and 29. More than half of the cost — between $400 million and $425 million — will come from lost ticket revenue, which will be refunded to customers.

Other costs include compensation to customers, including payment of any out-of-pocket expenses and fees to book flights with other airlines, and the provision of 25,000 points to frequent flyer accounts of affected customers. There is also an increase in operating costs, such as additional compensation for employees, such as overtime pay.

These costs were partially offset by unspecified savings from reduced fuel consumption and reduced employee profit-sharing payments.

Shares of Southwest Airlines (LUV), which has fallen 8 percent since Dec. 21, fell another 2 percent in early trading Friday.

These fees do not include any fines that the Department of Transportation may impose. The DOT said it was investigating Southwest Airlines’ service problems, and members of Congress called on it to take firm action against the airline.

Nor do the costs include any estimates of future lost reservations for customers who decided not to fly Southwest, or the cost of upgrading its computer systems, particularly its crew scheduling system, which has been blamed for much of the service’s collapse. While bad weather caused service problems, Southwest Airlines’ service problems were far worse because an outdated scheduling system left it without the crew it needed for flights, according to its workers’ union.

The company did not give an estimate for the size of the fourth-quarter loss. Excluding special items, the company earned $316 million in the third quarter and $950 million in the first nine months of the year on that basis. The company is on track to return to profitability after posting combined losses of $4.8 billion in 2020 and 2021 due to the pandemic, ending a 47-year streak of annual profits.

This is not the first time the airline has suffered a costly service breakdown. Similar issues cost it an estimated $75 million over the 2021 Columbus Day weekend. But far fewer passengers were flying at the time, and fewer flights were canceled.

– CNN’s Greg Wallace contributed to this report

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