Widespread Flight Cancellations Cost Southwest Airlines $75 Million
Southwest Airlines reported its third-quarter 2021 financial results on Thursday, revealing that the carrier’s recent operational nightmare forcing it to cancel more than 2,400 flights and delay nearly 5,000 more over the course of four days cost the airline an estimated $75 million.
Southwest reported third-quarter net income of $446 million and a third-quarter net loss of $135 million. Meanwhile, Q3 2021 operating revenues reached $4.7 billion, down 17 percent compared with third-quarter 2019.
According to the company, “October operating revenues include two headwinds—an estimated $40 million negative impact due to the lingering effects of the Delta variant and an estimated $75 million negative impact as a result of flight cancellations from operational challenges experienced earlier this month and related customer refunds and gestures of goodwill.”
The airline has apparently learned from its mistakes, however, with CEO and Chairman of the Board Gary Kelly confirming that the carrier has “reined in our capacity plans to adjust to the current staffing environment,” resulting in improved on-time performance.
“Third quarter 2021 was a challenge for us, operationally. Despite the deceleration of traffic in August and September due to surging COVID-19 cases, the third quarter 2021 demand and revenue performance was quite strong and a dramatic improvement from a year ago,” Kelly said in a statement accompanying Thursday’s report. “That was a bright and encouraging sign of recovery, and I was especially pleased with July’s revenue and profit performance. We were aggressive with our capacity plans for third quarter 2021, coming close to pre-pandemic third quarter 2019 available seat miles. Our active (versus inactive) and available staffing fell below plan and, along with other factors, caused us to miss our operational on-time performance targets, and that created additional cost headwinds. The net effect, including a revenue penalty of $300 million due to the COVID-19 surge, was a loss of $135 million, excluding special items.”
Kelly added that Southwest is “aggressively hiring” with a goal of adding 5,000 new employees by the end of 2021. “We are currently more than halfway toward that goal. Our 2022 capacity planning reflects more conservative staffing assumptions, as well, all compared to historical norms. With respect to our fourth quarter 2021 revenue outlook, while there are lingering effects from the summer COVID-19 surge and recent operational challenges, we are encouraged with renewed momentum in leisure and business traffic, revenues, and bookings—especially over the holidays. Except for higher fuel prices, fourth-quarter 2021’s overall results are trending better than third quarter 2021.”
Despite the current momentum in revenue trends, Southwest doesn’t expect to be profitable in the fourth quarter of 2021 based on its current cost outlook.