After canceling more than 16,700 fights in just a few days over the holidays, Southwest Airlines (NYSE: LUV) reported a $220 million net loss for the last quarter of 2023 and more losses in the first quarter of this year. Including passenger-canceled trips, the airline expects the holiday meltdown to cost it more than $1 billion.
A major winter storm late last December lead to flight cancellations across the airline industry, but Southwest Airlines continued to delay and cancel flights long after its competitors had resumed their operations. The U.S. Department of Transportation (DOT) has launched an investigation into why Southwest's computer system struggled to resume operations for days following the storm.
"D.O.T. will leverage the full extent of its investigative and enforcement power to ensure consumers are protected, and this process will continue to evolve as the department learns more," reads a DOT statement.
A spokesperson for the DOT said that department officials are investigating whether or not the airline made unrealistic flight schedules, something "which under federal law is considered an unfair and deceptive practice."
"DOT has made clear to Southwest that it must provide timely refunds and reimbursements and will hold Southwest accountable if it fails to do so," the spokesperson told reporters.
For its part, Southwest says its holiday flight schedule was "thoughtfully designed", adding that nearly all refunds and more than 80% of reimbursement requests have been processed.
According to the company's President and CEO Bob Jordan, Southwest lost a total of $800 million due to December flight cancellations, including the cost of refunding customers. The cancellations alone cost the airline $410 million.
Even with the fourth quarter losses and losses due to the Omicron variant, Jordan noted that Southwest still posted a net income of $723 million for the year. The company also reported record high revenue of $6.2 billion in the fourth quarter.
"With regard to the operational disruptions, I am deeply sorry for the impact to our Employees and Customers," Jordan is quoted in the release. "We have swiftly taken steps to bolster our operational resilience and are undergoing a detailed review of the December events."
Jordan reported that Southwest has commissioned a third-party review of the holiday cancellations and the airline's Board of Directors has established an Operations Review Committee to help with the company's response. Jordan said that the airline will also be "reexamining the priority of technology and other investments planned in 2023."
"Our 2023 plan continues to support solid profits with year-over-year margin expansion for full year 2023," Jordan said. "We remain intent on achieving the long-term financial goals outlined at our December 2022 Investor Day. We also intend to regain our 51-year reputation for operational excellence."
While booking trends are starting to recover after the December fallout, Southwest still expects to lose $300 million in revenue in the first quarter of this year.