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Southwest meltdown may cost the airline up to $825 million

<i>Michael Ciaglo/Getty Images</i><br/>
Getty Images
Michael Ciaglo/Getty Images

By Chris Isidore, CNN Business

The cost of the service meltdown at Southwest Airlines over the year-end holidays cost the airline nearly $1 billion and will cause the company to report a loss rather than a profit in the fourth quarter, the airline said in a filing on Friday.

The airline, the nation’s largest domestic carrier, said the cost of canceling more than 16,700 flights between December 21 and 29 will be somewhere between $725 million and $825 miilion. A bit more than half the cost – between $400 million and $425 million – will come from lost ticket revenue that will be refunded to customers.

Other costs include compensation for customers, both to pay for any out-of-pocket expenses and the cost of booking flights on other airlines, as well as providing 25,000 points to the frequent flier accounts of affected customers. There are also increased operating costs, such as additional compensation for employees, such as overtime pay.

These costs were partly offset by unspecified savings from reduced fuel consumption and reduced profit sharing payments to staff.

Shares of Southwest, which had already lost 8% of their value since December 21, lost another 2% in early trading Friday.

The costs did not include any possible fines that could be imposed by the Department of Transportation. DOT has said it is investigating the service problems at Southwest and members of Congress are calling on it to take firm action against the airline.

The costs also did not include any estimate for lost bookings in the future from customers who decide they no longer want to fly on Southwest, or the cost of upgrading its computer systems, specifically its crew scheduling system, which has been blamed for much of the service meltdown. While bad weather started the service problems, Southwest suffered far worse service problems, according to its employee unions, because the antiquated scheduling system left it without the crew members it needed to staff flights.

The company did not give an estimate for how large the fourth quarter loss would be. The company earned $316 million in the third quarter, excluding special items, and $950 million on that basis over the first nine months of the year. It had been poised to return to profitability after $4.8 billion in combined losses 2020 and 2021 caused by the pandemic, ending a streak of 47 straight year of annual profits.

This is not the first time the airline has suffered a costly service meltdown. It estimated similar problems during the Columbus Day weekend in 2021 cost it $75 million. But there were far fewer passengers flying then and far fewer flights canceled.

— CNN’s Greg Wallace contributed to this report

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