Holiday meltdown will cost Southwest Airlines up to $825 million

Southwest Airlines’s holiday meltdown will cost the company between $725 million and $825 million, the airline said in a regulatory filing Friday. 

The airline will report a loss in the fourth quarter after canceling nearly 17,000 flights over the holidays, a fiasco that disrupted millions of travelers’ plans and left many stranded for days. 

Southwest said that it will lose up to $425 million in revenue on refunded flights alone. The company will also shell out huge sums to provide frequent flier points to customers and reimburse stranded travelers for their unexpected travel, lodging and food costs.

“The remaining impact relates to an estimated net increase in operating expenses, primarily due to estimated travel expense reimbursements to customers, the estimated value of Rapid Rewards points offered as a gesture of goodwill to customers that are expected to be redeemed, and premium pay and additional compensation for employees, which was partially offset by lower fuel and oil and profit-sharing expenses,” Southwest wrote in its filing.

In what experts called an unprecedented meltdown, Southwest’s scheduling systems went haywire after winter storms hit some of its hubs, preventing flight crews from getting to the right plane. The company had to shut down nearly two-thirds of its flights to get things under control. 

Top lawmakers and Transportation Secretary Pete Buttigieg have pledged to investigate the cause of the meltdown and scrutinize Southwest’s refund and reimbursement efforts.

Senate Commerce Committee Chair Maria Cantwell (D-Wash.) said in a statement this week that her committee will hold hearings to “examine how to strengthen consumer protections and airline operations.”

Critics of the airline industry hope that the debacle will lead to new rules to punish airlines that overbook flights or cancel flights at the last minute, and require that they pay for secondary expenses for stranded travelers.

They’re pushing for those measures to be included in Buttigieg’s proposed rule that would require airlines to swiftly refund customers when their flight is canceled or significantly delayed.