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series of flight cancellations announced by Southwest Airlines during the Christmas winter storm will cost the company up to $825 million while it processes refunds for customers.
Southwest expects that the operational interruptions will result in a net loss of between $725 million and $825 million in the fourth quarter of 2022, the company said in a securities filing.
Approximately $400 million is estimated revenue lost from canceled flights. The rest is part of the total amount that the airline expects spend on reimbursing customers and offer them additional benefits, such as travel rewards, to allay passenger frustrations, as well as overtime wages paid to employees.
The damage exceeds the approximately $760 million in net revenue the operator earned in the first nine months of 2022.
Lack of software modernization caused the disaster
Total, the airline canceled more than 16,700 flights during the Christmas holiday season, affecting hundreds of thousands of passengers.
Southwest home though blamed its collapse on winter weatherthe airline now faces scrutiny from the US Department of Transportation for the extent of the disruptions it faced compared to other national carriers.
“While weather can alter flight schedules, Southwest’s cancellations in recent days are not due to weather,” Transportation Secretary Pete Buttigieg said.
The Southwest Airlines Pilots Association union argued that the collapse was the result of the company failure to modernize its software pilot and crew programming, and more generally to modernize operations.
It is not known exactly how much it will cost Southwest to upgrade its pilot and crew scheduling systems, and how quickly these updates will be made.
What is Southwest’s refund policy
Southwest’s own contract of carriage requires it to provide refunds for canceled flights, in addition to refunds to customers for costs incurred such as hotels, meals and car rental.
Generally, when the airline cancels or changes a flight, it will reaccommodate passengers on another flight or refund the fare, the contract states.
The airline also agrees to provide refunds within seven business days of the request refund for tickets purchased with a credit card, or within 20 days for tickets purchased with cash.
As of Thursday, three-quarters of refunds to customers had been completed, the airline told CBSNews.
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