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Holiday Travel Chaos Could Cost Southwest Airlines $825 Million

Southwest canceled more than 16,000 flights over the holiday period, facing an eye-watering bill of up $825 million to cover lost revenue and compensation costs

by Lauren Smith

January 10, 2023

Photo: Courtesy of Southwest Airlines

Southwest Airlines could take a hit of $825 million, in lost revenue and compensation costs, after canceling 16,700 flights and delaying thousands of others in the aftermath of a Christmas blizzard.

The Dallas-based low-cost carrier has attributed the meltdown to the vast “bomb cyclone” storm that struck North America between December 21 and 26, sending temperatures plunging and blanketing the continent with snow and ice. However, while rival airlines recovered quickly from the weather, Southwest was still mired in chaos until the New Year.

On Boxing Day, with the storm fading, the low-cost carrier scrapped nearly 3,000 flights and delayed hundreds of others, disrupting 80% of its schedule. Two days later, on December 28, 90% of all flights canceled in the United States belonged to Southwest, the country’s fourth-largest airline.

Thousands of its passengers faced days’ long waits in airports, a scramble to find alternative transportation, and missing luggage, some of which still needs to turn up two weeks later.

The reason behind Southwest’s Meltdown

Analysts attributed Southwest’s difficulties to staffing shortfalls, exacerbated by outdated scheduling software, which left the airline’s employees manually matching flight crews with available planes. Southwest has also underinvested in its phone systems, and both flight crews and stranded passengers faced waits of eight hours to more to speak to someone at the airline.

Another cause was the airline’s point-to-point network of routes, with planes flying from destination to destination without returning to a central hub. This meant a disruption in one region cascaded throughout the network.

In contrast, rivals such as American AirlinesDelta, and United operate hub-and-spoke systems, with planes returning to a central location. This helps to contain disruption to affected regions while flights to other places continue unhampered.

Southwest Airlines operations in Denver. Photo: Courtesy of Southwest Airlines / Stephen M. Keller

In filings with the Securities and Exchange Commission (SEC), Southwest estimated that the holiday disruptions would cost it between $725 and $825 million, including a range between $400 and $425 million in lost revenue.

Other costs include overtime pay for staff and reimbursement for customers who incurred expenses such as hotel stays and alternative transportation when their flights were axed.

Transportation Secretary Pete Buttigieg has warned the airline that the DOT will take action if it fails to meet its obligation to refund and compensate passengers, including for alternative transportation, meals, hotels, and baggage reunifications.

“No amount of financial compensation can fully make up for passengers who missed moments with their families that they can never get back – Christmas, birthdays, weddings, and other special events,” Buttigieg wrote to Southwest CEO Bob Jordan. “That’s why it is so critical for Southwest to begin by reimbursing passengers for those costs that can be measured in dollars and cents.”

The airline hasn’t confirmed how many refunds it has processed or how much compensation it has awarded. However, it said it is giving customers 25,000 of its Rapid Rewards frequent flyer points, valued at more than $300, as a “gesture of goodwill.”

But settling the bill for last month’s disruption may continue Southwest’s troubles. The Senate Commerce Committee said it expects to hold hearings ahead of the airline’s reauthorization by the FAA, which must be completed by the end of September.

“Southwest’s customers are rightfully dissatisfied and deserve better,” committee chair Maria Cantwell said.

At least one disgruntled customer has filed a class action lawsuit against Southwest for the debacle. Louisiana resident Eric Capdeville alleges that the airline provided only credit vouchers and not a direct refund – as is required under federal law – when his flight was canceled.