Southwest’s Meltdown Could Cost It Up to $825 Million

In a regulatory filing made on Friday, Southwest Airlines estimated that the costs associated with the disruptions that led to more than 16,700 canceled flights over the holidays could cost the company as much as $825 million.

From December 21st through December 31st, the largest domestic airline in the United States was forced to cancel thousands of flights due to severe weather, staff shortages brought on by the pandemic and an antiquated computer system. Due to the widespread cancellations, many people spent Christmas and New Year’s separated from their loved ones and unclaimed luggage piled up at airports across the country.

In some cases, customers have yet to receive their returned luggage. Brittney Buckley has been waiting for her canceled flight from Denver to Chicago since December 21. Still, she has no idea what happened to her bags.

She claims she hasn’t heard anything new from the airline, and that the portal isn’t letting her upload the receipts the company promised to reimburse. Just someday,” Buckley said, “I’m hoping I can find them.” “I’m not sure how much longer I can put my faith in Southwest.”

The company’s stock price dropped sharply after the holiday chaos, and one customer is suing Southwest Airlines because he says he and his daughter were not compensated fairly for a canceled flight. Starting on Wednesday, customers whose flights were either canceled or significantly delayed over the holidays would be eligible to receive 25,000 frequent flyer points, which is the equivalent of more than $300 in airfare.

Moreover, the airline’s operations came under fire as a result of the operational meltdown. Gary Kelly, the chairman and former CEO of Southwest Airlines, was the target of criticism in a letter published by the Southwest Airlines Pilots Association.

“In 2023 we will continue our work, from accountability for Southwest Airlines to further progress supporting all airline passengers through action on enforcement, rulemaking, and transparency,” Buttigieg, tweeted on December 31.

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The Company Claims That Lost Sales Accounted For Roughly Half Of The Total Cost

Extra compensation for employees and frequent flyer points offered as a “gesture of goodwill” ate up the rest of the budget, the company said. This week, Southwest Airlines announced that it would compensate affected customers with 25,000 frequent flier points, which the company estimated to be worth approximately $300.

Meanwhile, according to the Department of Transportation, a customer is legally entitled to a full refund if an airline cancels a flight. Southwest Airlines also said it would “honor reasonable requests for reimbursement for meals, hotel, and alternate transportation.”

The Company Claims That Lost Sales Accounted For Roughly Half Of The Total Cost

Southwest Airlines CEO Bob Jordan expressed regret for the incident last week during an exclusive interview on “Good Morning America.”There’s just no way almost to apologize enough because we love our customers, love our people, and really impacted their plans,” Jordan said. “A great many takeaways can be expected from this.”

Southwest Airlines projected healthy financial results for the last three months of 2022 in October, predicting an increase in operating revenue of up to 17% compared to the same period in 2019.

All hope for that seems to have been dashed in the holiday meltdown. The filing stated that the company expects a 6% decrease in carrying capacity, which is the total number of passengers transported over a combined number of miles, compared to the same period two years prior. Southwest Airlines stock rose slightly during Friday’s early trading session despite the news of the company’s financial blow.

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Southwest Airlines Stock Has Dropped By Around 6% Since The Crisis Began On December 21

According to Feinstein, the company’s reputation will recover from this setback. According to him, “future passengers will forget and move on” if Southwest resolves the problem to ensure it doesn’t recur. “When purchasing a flight, customers typically book based on price and time availability.”

Southwest Airlines Stock Has Dropped By Around 6% Since The Crisis Began On December 21

Experts on flight coordination, Southwest Airlines representatives, and union leaders previously told ABC News that the airline’s historically high rate of cancellations stemmed from the company’s unique and complex flight coordination model and its antiquated internal scheduling systems.

According to Feinstein, the estimated price tag for fixing the meltdown does not account for the possibility of doing so. As a result, he said, the company would have to absorb the additional expense of updating its internal programming system to prevent a new wave of cancellations.

He said, “Additional money will be spent and programmed for IT infrastructure.” It’s crucial to ensure that this won’t happen again before moving on to any other projects.

Secretary Of Transportation Pete Buttigieg Has Promised Vigilant Oversight Of Southwest To Ensure That Impacted Customers Are Fairly Compensated

On Twitter, he wrote, “In 2023 we will continue our work, from accountability for Southwest Airlines to further progress supporting all airline passengers through action on enforcement, rule-making, and transparency.”

Southwest expressed concern about potential regulatory penalties in a filing with the SEC last year, stating the company could be fined if it “failed to timely or effectively modify its systems.”Tourists like Gregg Saunders are among the most crucial demographics for Southwest to win over.

Saunders, his wife, and their two kids were in Connecticut visiting relatives on December 28 when they learned that their flight back to Denver had been canceled. They debated taking a flight with Frontier Airlines but ultimately decided to drive home to avoid the long layover. Saunders said that they spent about $900 on the trip due to the cost of the rental car, gas, lodging, food, parking, and tolls.

He stated that his family had been loyal to Southwest due to the airline’s convenient location near Denver International Airport and the perks offered to frequent flyers, such as the ability to bring a companion along on flights for free. He believes the business will always put the needs of its clients first.

Everyone messes up; things happen; but you have to make it better for people by fixing it or apologising, as Saunders put it. I believe Southwest is implementing these changes, so you can bet that we’ll continue using them.

Last words

Southwest has warned that refund requests for cancelled flights, missed hotels, and missed meals over the holidays may take some time to process. On the other hand, it has started making efforts to appease customers in other ways. According to Southwest, 25,000 frequent flier points are worth about $300, so the company has promised to compensate customers whose flights were cancelled or significantly delayed this week.

Author

  • Karan Sirari

    I am an author and a public speaker. I was born in India and have travelled to many different countries. I have a masters in public communication from California University and I love to write about famous peoples from different industries.

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