By David Koenig and Michelle Chapman/Associated Press

Southwest Airlines is anticipating a money-losing fourth quarter after a winter storm and expertise meltdown led to almost 17,000 canceled flights and stranded tons of of 1000’s of vacation vacationers.

The cancellations will lead to a pretax hit of $725 million to $825 million from misplaced income, plus additional prices, together with reimbursements for vacationers and premium pay for workers, Southwest stated Friday in a regulatory submitting.

The storm and gradual restoration was a devastating flip financially and reputationally for the Dallas-based service, which led all U.S. airlines in profit in the course of the first 9 months of 2022, a 12 months of restoration for the pandemic-battered airline business.

The massive disruptions began with a winter storm that hit a lot of the nation earlier than Christmas. They snowballed when Southwest’s outdated crew-scheduling expertise was overwhelmed, leaving crews and planes out of place to function flights. Managers and a cadre of volunteer staff at firm headquarters had been pressured to manually reassign pilots and flight attendants to flights.

It took Southwest eight days to recuperate simply earlier than the New Year’s Day weekend, whereas different main airways had been up and working shortly after the storm handed.

Southwest stated within the submitting with the U.S. Securities and Exchange Commission that it canceled greater than 16,700 flights between Dec. 21 and Dec. 31, inflicting a lack of $400 million to $425 million in income. In early December, earlier than the meltdown, Southwest projected fourth-quarter income would rise by as much as 17 % over the identical interval in 2019, earlier than the pandemic.

The airline stated that bills elevated attributable to reimbursements to prospects for out-of-pocket prices — the corporate has promised to cowl “reasonable” payments for lodge rooms, meals and alternate transportation — together with the estimated worth of frequent-flyer points it provided to prospects, and premium pay and extra compensation for workers.

Analysts typically stated Southwest’s estimate was towards the excessive finish of their expectations however not stunning. Southwest’s shares gained 4.6 %, and different U.S. airways rose too, on a strong day for the stock market.

Since it resumed a standard schedule on Dec. 30, Southwest’s cancellations and flight delays have dropped sharply, roughly in keeping with different main U.S. airways. The firm is engaged on repairing its damaged reputation.

“I don’t know how many times I have, and can, apologize to our customers, but it’s not enough because we messed up,” CEO Robert Jordan stated in an interview Thursday. “But the storm was historic in the number of places it hit, the length of time it stayed, the temperatures.”

Jordan stated the airline has processed 75 % of refund requests, is transport misplaced luggage to prospects for gratis, and has employed an out of doors firm to vet reimbursement requests.

Plenty of shoppers are complaining in regards to the tempo of reimbursements, which Southwest admits might take a number of weeks.

Bryce Burger stated three of his household’s six luggage had been lastly returned Friday, and so they bought refunds — $1,500 in vouchers for future flights — and 25,000 frequent-flyer factors apiece. He continues to be ready to listen to if Southwest will cowl the $7,500 value of a cruise that they missed.

Burger, who owns a dental-implant firm in Denver, stated he’ll nonetheless fly on Southwest as a result of he has a cross that lets a companion fly free, “but they will not be my first choice.”

Jordan stated Southwest spends about $1 billion a 12 months on expertise and is reviewing how methods carried out earlier than making choices on IT spending priorities.

Company officers have disputed union leaders’ claims that the corporate hasn’t invested sufficient to replace expertise, though they concede that the crew-scheduling methods didn’t get as a lot consideration as different IT spending together with aircraft-maintenance operations.

“One could criticize us for prioritizing ground operations and technical operations over crew operations when we started, but at the time that seemed like a proper sequence. Obviously it bit us in retrospect,” Chief Operating Officer Andrew Watterson stated final week, “but there was significant modernization work going on.”

Southwest has not indicated whether or not the catastrophe will trigger it to extend spending on expertise, though analysts stated that was doubtless. JP Morgan Chase analyst Jamie Baker stated a “modest” enhance appeared affordable.

“We have no expertise in crew scheduling software, but if an airline can’t feasibly operate red-eyes or tell you if your bag has been loaded, our base assumption is that systems aren’t state-of-the-art,” Baker wrote in a word to shoppers. He stated the extent of Southwest’s expertise was not shocking, on condition that it’s a low-cost airline that likes to maintain issues easy.

Southwest is now on Washington’s radar. Transportation Secretary Pete Buttigieg has vowed to carry the airline accountable, though he has been imprecise on particular actions he may take. A Senate committee has promised hearings, and greater than two dozen House Democrats wrote a letter to Buttigieg on Thursday urging him to strengthen shopper safety for airline vacationers “and help prevent these types of mass cancellations from occurring in the future.”

Just final month, Southwest introduced that it could revive dividends for shareholders, which had been suspended after the pandemic devastated the airline business in early 2020. The airline estimates it might pay out $428 million in dividends per 12 months.

U.S. airways had been barred from paying dividends or shopping for again their very own inventory till October as a situation of taking $54 billion in federal pandemic support. Southwest obtained greater than $7 billion in support.