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Southwest Airlines cancellations abate after holidays but costs pile up

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Pristine Floyde searches for a friend’s suitcase in a baggage holding area for Southwest Airlines at Denver International Airport on December 28, 2022 in Denver, Colorado.

Michael Ciaglo | Getty Images

Southwest Airlines stabilized its schedule over the weekend after about 16,000 cancellations, but its systemwide holiday meltdown could cost it tons of of tens of millions of dollars.

Southwest had canceled 304 flights since Friday, 2% of its schedule, most of them on Monday when U.S. airlines faced bad weather and ground stops in Florida tied to a Federal Aviation Administration equipment outage. For comparison, from Dec. 21 through Dec. 29 Southwest had scrubbed about 45% of its operation, a far larger share than other major airlines, based on FlightAware.

Now come two tougher tasks for Southwest: going through 1000’s of passenger reimbursement receipts and improving the interior technology that contributed to the meltdown.

“We’ve plans to take a position in tools and technology and processes, but there will likely be immediate work to grasp what lessons are learned here and the way we keep this from ever happening again, since it cannot occur again,” Southwest CEO Bob Jordan, who took the helm in February, told staff Friday.

Jordan said employees from other departments have volunteered to assist customers and process refunds.

Bad weather kicked off the problems, impacting flights throughout the U.S. But Southwest crews struggled to get reassigned routinely in any case of the changes and were forced to attend on hold for hours with crew scheduling services. Lots of of 1000’s of passengers were impacted, and Southwest continues to be working through a backlog of misplaced luggage.

The carrier had canceled about two-thirds of its flights for much of the last week in an try to get crews and planes where they needed to go, before operating near normally on Friday.

The chaos could cost Southwest between $600 million and $700 million, based on estimates from Bank of America airline stock analyst Andrew Didora on Tuesday. That features each lost revenue from refunds and the reimbursements to affected passengers, which could include expenses like hotels and rental cars.

Didora cut his fourth-quarter adjusted earnings forecast for Southwest to 37 cents a share from 85 cents.

A Southwest executive last week said the cancellations will “actually” hit its fourth-quarter results but that it should take weeks to work through customers’ reimbursement requests.

Transportation Secretary Pete Buttigieg vowed to carry Southwest accountable if it didn’t provide customers with refunds and reimbursements, though such fines related to a failure to pay back customers can take months if not years.

Southwest shares were down greater than 3% on Tuesday, greater than rivals. The Dallas-based airline is scheduled to report results on Jan. 26 but is more likely to preview the meltdown’s costs before then.

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