Southwest's Holiday Crisis Could Cost It Up To First Nine Months Of FY22 Earnings, Analysts Say

Benzinga · 01/06/2023 13:31
  • The crisis that cost Southwest Airlines Co (NYSE:LUV) over 15,000-holiday flights could cost the carrier up to earnings for nine months of 2022 in lost revenue and customer reimbursements, industry analysts say. 
  • Southwest struggled to recover from frigid weather after its crew scheduling processes failed to keep up with flight cancellations and quickly reassign pilots and flight attendants, Ney York Times reports.
  • "A number of their employees, flight attendants, and pilots have been warning about this for years — that they were underinvesting and that they were one storm away from disaster," said Helane Becker of Cowen.
  • Analysts at Jefferies estimate that the debacle could cost the airline up to $800 million. 
  • The carrier's net income in the first nine months of 2022 was $759 million. Other analysts came up with similar estimates. 
  • Southwest has said it could take some time to process and pay claims for unused tickets, lodging, meals, or alternate travel arrangements from its holiday cancellations. 
  • But it has begun trying to appease customers with frequent-flier points for canceled and delayed flights. 
  • Southwest said it had already taken some steps to modernize the system. 
  • However, upgrading complex operations and software systems is always expensive and challenging. Doing so under pressure can be even more so.
  • "You're looking at a fairly substantial hit in what is already an inflationary environment," said Scott Forbes of Jefferies.
  • Southwest's low debt and profitability left ample cash to reward shareholders in the last five years. Southwest decided to reinstate its stock dividend after facing flak.
  • Analysts sought more transparency and disclosures from the airlines, like the amount spent on upgrading its technology to appease regulators and lawmakers.
  • Southwest held $13.7 billion in cash and equivalents as of September 30.
  • Price Action: LUV shares traded lower by 3.91% at $32.23 in the premarket on the last check Friday.