Southwest loss is bigger than expected after December chaos

Southwest Airlines Co. fell the most in four months after reporting a worse-than-expected loss in the first quarter as the carrier contended with fallout from an operations breakdown that disrupted flights in December.

The adjusted net loss was 27 cents a share in the period, the company said in a statement Thursday as it also cut its expected aircraft deliveries. That compared with a 22-cent deficit expected on average from analyst estimates compiled by Bloomberg. Revenue of $5.71 billion was roughly in line with estimates.

The December turmoil resulted in a financial hit of $380 million before taxes in the quarter, including higher costs and lost revenue tied to travel cancellations and slower bookings in January and February. The company said trends were more favorable in March and it expects to return to profitability this quarter.

“While we are mindful of the uncertain economic environment, demand for domestic air travel remains strong, thus far,” Chief Executive Officer Bob Jordan said in the statement.

The repercussions of the late-year issues, which overwhelmed its scheduling system and led to the cancellation of more than 16,000 flights over the holiday period, are being closely watched by Southwest investors. The airline still faces a US Transportation Department review of the disruptions that also attracted attention from members of Congress.

Southwest shares fell 6.5% at 9:39 a.m. in New York, the biggest intraday slide since Dec. 27. They were down 8.2% this year through Wednesday while the S&P 500 Index rose 5.6%.

Questions about the carrier’s technology were raised anew when Southwest had to briefly ground all flights on April 18 after a vendor-supplied firewall failed, blocking the flow of data needed for operations. About 64% of Southwest’s flights that day were delayed, according to FlightAware.

Fewer Planes

The carrier also said Thursday that ongoing production delays at Boeing Co. forced it to cut expected 2023 aircraft deliveries for a second time. Southwest now expects to receive 70 of the planemaker’s 737 Max 8 aircraft in 2023, down from 90, resulting in a percentage point decline in planned capacity growth late this year. The airline reduced the number of deliveries it expected from 100 last month.

Southwest expects non-fuel costs for each seat flown a mile, a gauge of efficiency, to increase as much as 8% this quarter over 2022 on higher labor rates and aircraft maintenance. While such costs will likely be down for the full year, the carrier now expects less of a decline than it had earlier forecast, in part on lower capacity expansion due to the aircraft delays. Revenue on the same basis will fall as much as 11% this quarter and flying capacity will rise 14%.

Leisure demand and yields, or average fares per mile, are strong headed into the summer travel season, but Southwest said corporate revenue trends will “continue to be choppy.”