Southwest Details Operational Meltdown Impact, Vows Improvement

January 7, 2023

As a result of operational disruptions during the recent holiday period which included the cancellation of more than 16,700 flights between Dec. 21 and Dec. 31, Southwest Airlines has updated select fourth-quarter 2022 guidance points, according to a Friday U.S. Securities and Exchange Commission filing. 

The carrier now forecasts fourth-quarter 2022 capacity to decline about 6 percent compared with the fourth quarter of 2019, which is approximately four points lower than previous guidance. Southwest also expects to report a net loss in the fourth quarter, driven by a pre-tax negative impact in the range of $725 million to $825 million, with a significant portion of this impact from an estimated revenue loss of between $400 million to $425 million, according to the filing. 

The remaining balance of the loss relates to an estimated net increase in operating expenses mostly due to estimated travel expense reimbursements, the estimated value of Rapid Rewards points, and premium pay and additional compensation for employees, which was partially offset by lower fuel and oil and profit-sharing expenses. 

Southwest this week announced that it had sent 25,000 Rapid Rewards points to all customers "significantly disrupted" during the holiday period. This was in addition to the special forms for customers disrupted between Dec. 24 and Jan. 2 that the carrier created to enable requests for refunds and reimbursements or missing checked luggage. "That goodwill gesture is above and beyond the refunds and reimbursements work that continues around the clock," Southwest CEO Bob Jordan said Thursday in a statement. 

Southwest Business Town Hall 

Dave Harvey, VP of Southwest Business, on Thursday led a virtual town hall to reassure Southwest Business customers of the carrier's operational plans.  

"We are very actively working through lessons learned and how we can apply those people, process[es and] tools to improve going forward and ensure this never happens again," Harvey said. "Our account managers have been equipped with talking points. As we have information, we want to get that to you. We do not have all the information, all the answers today, but do expect us to continue to get that out in a timely manner." 

One audience member asked, "Why shouldn't my travelers move off from booking Southwest?"  

Harvey noted that from Jordan on down, the company was committed to take care of the customer, and "make the right investments," he said. "It will allow us to lean in and make those investments, and as I think about the long term, it will make us even stronger. It will make Southwest Business stronger. But we have to prove it to you. Right now, it's just lip service, so we will be working hard, and the commitment from all of us is to ensure you keep coming back and build the trust with Southwest." 

Southwest SVP of operations and hospitality Steve Goldberg put it succinctly: "We have a really good track record, and we threw it out the window. I don't think there is a doubt in any of our minds here, we will be better for this. The ultimate commitment is to our customers and employees … and to elevate that great service even more. You have our commitment on that, and we will go prove it to you all." 

The U.S. Department of Transportation has warned Southwest to live up to refund and reimbursement expectations. The airline has "thousands of people" working on refunds and reimbursements "to get those done very quickly," said Southwest VP of customer experience and engagement Tony Roach. "Our top priority right now is to improve those processes and also to make those customers whole who went through those disruptions at the time." 

Roach also outlined three ways Southwest is addressing those passengers who may have been traveling with status. For A List, A List Preferred and Companion Pass customers, the carrier will count flights booked Dec. 20-31 that were canceled by Southwest or the customer for the requalifying process, Roach said.  

Second, the carrier gave all customers, regardless of tier, until Jan. 31, 2023, to try to qualify for tier status as well as for Companion Pass status. Third, the carrier is allowing the status of tier customers interrupted during Dec. 20-31 to continue through Jan. 31 "to give them another month with their current status, because a lot of those trips pushed into January, so [they] can use those benefits still," Roach added. 

There weren't many specifics shared during the call other than to promise some short-term solutions had been put in place to ensure this doesn't happen again, and that the company was learning from the experience and applying lessons to its 2023 development.  

But after the call, a Southwest spokesperson said there are plans to modernize the tools employees use as part of overall modernization efforts. The company also recently has updated its call-center functions. "Our representatives are now fully remote, and we are using a new phone system to handle calls," the spokesperson said. 

Goldberg also gave a high-level overview of what occurred, including a winter storm "severely impacting" 50 to 60 "stations," which accounted for more than 50 percent of the carrier's locations, along with network problems with pilots, flight attendants and ground crew. To navigate out of it, Southwest last week cut its schedule of just under 4,000 daily flights to about 1,500 flights for each of three days, then on Dec. 30 ramped back up to just under 4,000. 

"We did that successfully and were back on track through the weekend," Goldberg said. "As we navigate this weekend, we're in pretty good shape." 

On Jan. 5, Southwest had 42 flights canceled, or about 1 percent, and 845 delays, or 21 percent of its schedule, according to flight tracker Flight Aware. As of noon on Jan. 6, the carrier had no cancellations and about 128 or 3 percent of its flights delayed so far. 

Government Hearings 

Still, the U.S. Senate Committee on Commerce, Science and Transportation plans to hold hearings on Southwest Airlines' "massive operational and customer service failures," committee chair Sen. Maria Cantwell (D-Wash.) announced Wednesday.  

"Southwest's customers are rightfully dissatisfied and deserve better," Cantwell said in a statement. "These consumers need refunds and reimbursements for their expenses. I have spoken with CEO Bob Jordan and Secretary [Pete] Buttigieg about these concerns. The Committee will be holding hearings for [Federal Aviation Administration] reauthorization to examine how to strengthen consumer protections and airline operations." 

RELATED: Southwest Operational Performance Still Lags Other Major U.S. Carriers as It Recovers from Holiday Meltdown

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