(Bloomberg) — Southwest Airlines Co. said it expects a fourth-quarter loss as it grapples with costs associated with an operations meltdown that forced it to cancel more than 16,700 flights in late December.
(Bloomberg) — Southwest Airlines Co. said it expects a fourth-quarter loss as it grapples with costs associated with an operations meltdown that forced it to cancel more than 16,700 flights in late December.
The chaos over the holiday period will result in a negative fourth-quarter impact in the range of $725 million to $825 million, leading to a net loss for the period, the company said Friday in a filing. Southwest had predicted a quarterly profit early last month.
A significant portion of the impact is from an estimated revenue loss of as much as $425 million, while the remaining hit relates to an increase in operating expenses, primarily tied to reimbursements to customers. Flying capacity in the quarter was likely down about 6% compared with late 2019, four points below previous guidance.
Shares of Southwest fell less than 1% to $33.26 at 9:36 a.m. in New York. The Dallas-based company is scheduled to report full quarterly results on Jan. 26.
The wave of cancellations was triggered by a winter storm that tore across the northern half of the US and overwhelmed Southwest’s outmoded crew scheduling system. The carrier scrambled to get planes, pilots and flight attendants in the right locations.
While operations have largely returned to normal, investors have been bracing for a hit to Southwest’s results. Citi previously estimated net profit would be hurt by as much as 5% in the quarter, and Raymond James analyst Savanthi Syth had predicted a negative impact of about $585 million. Southwest Chief Executive Officer Bob Jordan told Bloomberg Thursday that guidance would be revised to reflect the “significant” events of last month.
The impact was “toward the upper end of investor expectations” that ranged from $400 million to $800 million, Syth said in a note Friday. She estimated a fourth-quarter earnings per share hit of 97 cents, implying a loss of 20 cents for the quarter.
Weighed Down
“We believe sentiment and, in turn, shares will continue to be weighed down by the longer-term implications of the operations meltdown,” she said. Still, she said she is confident management can address the issues and retained a “strong buy” recommendation on the stock.
The airline had been expecting total revenue to rise 13% to 17% above fourth-quarter 2019, Southwest said Dec. 7, implying sales of as much as $6.7 billion.
Southwest has been wading through thousands of claims for ticket refunds and reimbursements for things like meals and hotel rooms.
The carrier has been working to return delayed baggage along with an “around the clock effort” to process refunds. Southwest hasn’t disclosed how many customers were affected. Jordan has promised a full review of the meltdown.
(Updates with analyst estimates of impact in sixth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.
