Southwest’s service meltdown cost it $75 million

By Chris Isidore, CNN Business

Southwest Airlines says that its recent service problems, which prompted it to cancel more than 2,000 flights over a four-day period, cost the airline $75 million.

That’s just one of the headwinds facing the discount airline. Southwest warned Thursday that it believes revenue will take a $100 million hit this quarter from the lingering effects of the Covid surge caused by the Delta variant — even though bookings have improved recently, especially during the upcoming holiday travel period. About $40 million of that hit is expected to come in October.

Still, that’s an improvement from the revenue hit in the third quarter, when the airline believes it lost $100 million in sales in August alone and $200 million in September because of reduced flying caused by the Covid surge.

Overall the airline reported that third-quarter revenue reached $4.7 billion, up 161% from a year ago but down 17% compared with third quarter of 2019 ahead of the pandemic.

The company reported a third-quarter loss, excluding special items, of $135 million. That was a bit smaller than forecast by analysts. Including the $763 million it received from the most recent round of federal assistance, the company posted net income of $446 million in the quarter.

Southwest blamed the service meltdown in early October on a combination of bad weather in Florida, a brief problem with air traffic control in the area and a lack of available staff to adjust to those problems. It has admitted it was having service problems caused by short staffing even before the thousands of canceled flights stranded hundreds of thousands of passengers, angering many of them.

“We have reined in our capacity plans to adjust to the current staffing environment, and our ontime performance has improved, accordingly,” said CEO Gary Kelly. “We are aggressively hiring to a goal of approximately 5,000 new employees by the end of this year, and we are currently more than halfway toward that goal.”

American Airlines

American Airlines reported it lost $641 million in the quarter, excluding special items. Like Southwest, that was a bit less than analysts had forecast. American also reported net income of $169 million, with the help of $992 million in federal assistance.

Revenue at American nearly reached $9 billion, up 183% from a year ago, but it was still down 25% from where it was in the third quarter of 2019, before the start of the pandemic.

The third quarter included a summer travel period which started out strong for most airlines before the Covid surge caused people to cut back on travel.

The airlines had also been counting on a rebound in more lucrative business travel after Labor Day, when many businesses were expected to reopen their offices. But the surge also caused many businesses to delay those office reopenings, which put a large-scale rebound in business travel on hold.

Still the airlines are reporting that bookings during the holiday travel season, one of the busiest times of the year, remain strong.

Shares of Southwest and American were both slightly higher in pre-market trading Thursday.

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