The impact of last December’s disruptions on Southwest’s finances
That a delayed or canceled flight is a burden for passengers is no secret to anyone. However, whenever you are standing in front of the gate, and a delay or cancellation is announced, have you ever asked yourself how this will also impact the airline? Southwest, the forefather of all low-cost carriers (LCCs), surely knows the answer to this question.
On boxing day alone, ie, during the peak of the winter holiday season, Southwest canceled nearly 3,000 flights, representing 70% of its domestic flights and more than 50% of all canceled flights on December 26th worldwide. Passengers who had not been affected by cancellations had to deal with other nightmares of the likes of delays, lost baggage, or the inability to be rebooked on another flight – a heavy blow to Southwest’s reputation.
Photo: Vincenzo Pace I Simple Flying
Commenting on last month’s operational meltdown, Southwest’s President stated the airline is currently reviewing what went wrong. Notably, the carrier is conducting a third-party review of last month’s unprecedented disruption with the aim of identifying the airline’s priorities in terms of technology and investment for next year. Additionally, the carrier’s Board of Directors has established an Operations Review Committee whose aim is to cooperate with the airline’s management to help overview Southwest’s response to disruptions of such magnitude. Southwest’s President also addressed the airline’s employees and passengers, stating:
A month later, on January 26th, the airline disclosed its fourth quarter and full-year financial results for 2022. The numbers mirror the massive impact of December’s operational meltdown, with the airline reporting a net loss of $226 million for fourth quarter of 2022. Southwest’s President and CEO, Bob Jordan, stated that last month’s massive operational disruption was the number one cause of the fourth quarter’s negative financial result.
“With regard to the operational disruptions, I am deeply sorry for the impact to our Employees and Customers”.
An overall strong performance, notwithstanding December’s disruptions
Although last December’s operational meltdown negatively impacted the carrier’s operating revenues by approximately $410 million, Southwest’s revenue performance up to the wave of disruptions was particularly strong. More precisely, not only has the North American budget airline reported positive operating revenue for the fourth quarter, but they also represent a record in the airline’s history. Indeed, Southwest’s operating revenue for the fourth quarter of 2022 equals an unprecedented $6.2 billion, a 7.7% increase compared to the fourth quarter of 2019.
The positive trend in the fourth quarter operating revenue also characterized the previous quarters, translating in Southwest posting a record full-year operating revenue of $23.8 billion, ie, 6.2% more than full year 2019. Notwithstanding the negative economic impact of December’s total operational meltdown , Southwest’s strong financial performance in the other three quarters enabled the carrier to generate full year 2022 net income of $723 million.
Photo: Eliyahu Yosef Parypa/Shutterstock
What does Southwest expect for the financial year 2023?
Although the December total operational meltdown did not compromise Southwest’s full-year net result, the consequences of this unprecedented disruption are likely to cause a net loss for the first quarter of 2023.
This month, the airline has experienced an increase in flight cancellations and a decrease in bookings for January and February, which, according to the airline, have all been induced by the December chaos. Consequently, the carrier expects a negative revenue impact in the range of $300 million to $350 million in first quarter 2023. Nonetheless, the airline bookings and yield trends look positive for March 2023, in line with what the airline had forecast at the time of its investor day in early December.
Photo: Vincenzo Pace I Simple Flying
Last December’s massive flight cancellations caused Southwest’s full-year capacity to drop 5.6% compared to 2019, one point lower than the airline had initially expected. Before last month’s disruptions, Southwest had forecasted capacity to grow by 15% year-on-year. Currently, the airline reckons this trend will remain unchanged. However, given the capacity decrease induced by the operational meltdown last month, 2023 capacity should now increase by 16%-17% vis-à-vis 2022. To satisfy its demand-growth, Southwest should be delivered a total of 136 Boeing 737 MAX aircraft, as per the table below.
Boeing 737 MAX-7
Boeing 737 MAX-8
Boeing 737 MAX-7 / MAX-8 options
What do you think is Southwest’s receipt to overcoming such an unprecedented operation meltdown? Let us know by clicking on the comment button below!
- IATA/ICAO Code:
- Airline Type:
- Low-Cost Carrier
- Baltimore/Washington International Thurgood Marshall Airport, Dallas Love Field, Denver International Airport, Harry Reid International Airport, Hartsfield-Jackson Atlanta International Airport, Houston Hobby Airport, Los Angeles International Airport, Midway International Airport, Oakland International Airport, Orlando International Airport, Phoenix Sky Harbor International Airport
- Year Founded:
- Robert Jordan
- United States