Southwest Airlines (NYSE: LUV) was forced to cancel nearly 70% of its flights and warned that disruptions are likely to continue due to a combination of severe weather and a system malfunction.
In total, the airline is seeing significantly more cancellations which is a consequence of more of its routes affected by the weather and due to its business model, where the company has shorter routes with planes often making multiple spots in different cities in the same day. While many carriers operate with a 'wheel and spoke' model, Southwest operates more like a bus, which means that small disruptions can have major ripple effects.
As a result, many of its crews and planes are stranded and not where they need to be. By cutting capacity, Southwest is hoping to rest its system and schedule so it can resume operating at full capacity.
According to the company, it's been a combination of the extremely cold weather in parts of the country, heavy fog in California, staffing shortages, and a system malfunction that contributed to these issues. The company is planning to issue refunds to affected customers. Southeast shares have been sliding lower all week due to these events.
According to analysts, these issues are expected to cause about a $300 million impact to the company's revenues. It could also have longer-term impacts in terms of negatively affecting the company's brand and could invite scrutiny from Congress and regulators. Already, the Senate Committee on Commerce, Science and Transportation, indicated that it would be looking into these disruptions.
The inconveniences were felt by not only passengers, many who missed their holiday plans, but also crew members being stranded with many forced to stay overnight at the airport due to a lack of available accommodations.
There's nothing unusual about flights being cancelled, delayed, or rescheduled due to inclement weather. However, it is concerning and indicative of deeper stress that Southwest's entire national schedule was seemingly disrupted by these issues. This is certainly why regulators and Congress are interested, and why the company could be on the hook for damages given that its internal system seems to be at fault more than Mother Nature, given that other carriers had much fewer issues.