Southwest Airlines warns of first-quarter loss after tech meltdown

Southwest Airlines warns of first-quarter loss after tech meltdown
© Reuters. A Southwest Airlines jetliner departs from Chicago Midway International Airport in Chicago, Illinois, U.S., December 27, 2022. REUTERS/Kamil Krzaczynski

By Kannaki Deka and Rajesh Kumar Singh

(Reuters) -Southwest Airlines Co on Thursday warned of a loss in the current quarter, as passengers shunned the carrier in the immediate aftermath of a tech meltdown that forced it to scrap thousands of flights between Christmas and New Year’s Eve.

The forecast heaps more pain on the largest U.S. domestic carrier, which is facing regulatory scrutiny over its flight scheduling and handling of over 16,700 cancellations that disrupted holiday plans for tens of thousands of passengers.

Southwest, which also reported a loss in the fourth quarter, said it expects a revenue hit of between $300 million and $350 million in the first quarter.

The Dallas-based carrier also expects non-fuel operating costs in the March quarter to be higher than its previous estimate, in part due to extra pay it has offered to workers for dealing with the December meltdown.

“Thus far in January 2023, the company has experienced an increase in flight cancellations and a deceleration in bookings, primarily for January and February 2023,” Southwest said. But current booking trends for March were encouraging, it added.

The company’s shares were down 2.4% in pre-market trade.

Operating revenue for the first quarter, when travel demand tends to slow after the holiday season, is expected to rise 20% to 24% against a period last year which was hit by the pandemic.

The company’s under-fire chief executive, Bob Jordan, on Thursday again apologized for the mass cancellations, which were attributed to Southwest’s outdated crew scheduling software.

The software buckled under the weight of reassignments that had to be done after severe winter weather left the carrier’s crew stranded all over the country.

Jordan, who took the airline’s helm last February, told Reuters this month that the company was looking at all options to prevent a repeat.

Southwest has hired consultancy Oliver Wyman to investigate the disruption and is working with General Electric (NYSE:GE) to automate its crew scheduling systems in order to make it more reliable.

The company’s board has set up a new Operations Review Committee to oversee management following the systems collapse.

The company is “reexamining the priority of technology and other investments planned in 2023,” Jordan said in a statement.

The meltdown led to an adjusted loss of $226 million in the quarter through December. Southwest said it suffered a revenue hit of $410 million and saw about a $390 million jump in operating expenses last quarter due to the flight cancellations.

For 2023, Southwest has forecast “solid profits” with year-over-year margin expansion.

Capacity is expected to rise 16% to 17% year-over-year in 2023, higher than originally planned, whereas costs excluding fuel are forecast to fall 6% to 8%, compared with an earlier expectation of a decline of 1% to 3%.

Source: Reuters