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Southwest flight upheaval a 'system failure,' U.S. says

Published 12/28/2022, 09:25 AM
Updated 12/28/2022, 11:51 PM
© Reuters.
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By Kanishka Singh

WASHINGTON (Reuters) -U.S. Transportation Secretary Pete Buttigieg on Wednesday ratcheted up pressure on Southwest Airlines (NYSE:LUV), saying thousands more canceled flights indicated a system failure at the low-cost carrier.

"We are past the point where they could say this is a weather-driven issue," Buttigieg said in an interview posted by ABC News on its website. "Don't get me wrong, all of this began with that severe storm. We saw winter weather affecting the country and severely disrupting all airlines."

Nationwide, at least 60 people died in weather-related incidents in recent days, NBC News reported.

The rest of the aviation system and other airlines seemed to be back from the weather disruptions, Buttigieg said.

"So what this indicates is a system failure (at Southwest), and they need to make sure that these stranded passengers get to where they need to go and that they are provided adequate compensation, not just for the flights itself ... but also things like hotels, like ground transportation, like meals because this is the airlines' responsibility," he said, adding he had spoken to the company's leadership.

U.S. airlines had canceled thousands of flights as a massive winter storm swept over much of the country before and during the Christmas holiday weekend, but Southwest's woes have deepened while other airlines have largely recovered.

Southwest has canceled a total of more than 14,500 flights since Friday. On Wednesday it canceled 2,500 flights, according to the flight tracking website FlightAware.

Southwest told Reuters it would reimburse customers for travel-related costs and had already processed thousands of requests.

It also said employees across the airline were helping crews in many functions.

Delta Air Lines (NYSE:DAL) said in an email it had capped fares in all domestic and international markets where Southwest operates. The program includes over 700 nonstop markets and are valid through Dec 31. United and American announced similar programs.

U.S. Representative Rick Larsen, top Democrat on the House Transportation and Infrastructure Committee, said in a tweet that the company was treating flight cancellations as "controllable" beginning Dec. 24, which triggers reimbursement for incidental expenses and refunds for full fares.

Southwest CEO Bob Jordan said the low-cost carrier needed to upgrade its legacy systems and apologized to customers and employees in a video message.

Shares of Southwest tumbled over 5% on Wednesday after diving 6% on Tuesday. Some analysts said the cancellations will pressure profits in the fourth quarter.

© Reuters. Travelers at Baltimore Washington International airport deal with the impact of Southwest Airlines canceling more than 12,000 flights around the Christmas holiday weekend across the country and in Baltimore, Maryland, U.S. December 27, 2022.  REUTERS/Michael A. McCoy

"The total impact to revenue could be in the 9% range of our expected Q4 revenue, which compares to our current estimate with revenues 15% ahead of 2019 levels in 2022" Jefferies analyst Sheila Kahyaoglu said.

Kahyaoglu estimated total EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring or rent costs) impact from the cancellations could be in the range of $700 million.

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