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The Street
The Street
Veronika Bondarenko

The U.S. government says Southwest Airlines seriously messed up

Those who found themselves stuck in an airport over Christmas 2022 are unlikely to forget the Southwest Airlines (LUV) -) holiday fiasco of last year.

Amid both bad weather in multiple parts of the country and a breakdown of the airline’s booking system software, nearly 4,000 or 75% of all of Southwest’s domestic flights were canceled on the day after Christmas alone. An additional 16,700 flights were affected in the coming days and U.S. Transportation Secretary Pete Buttigieg eventually stepped in and called such cancelation rates “unacceptable.”

Related: Holiday Travel Chaos and Government Callout Did Not Affect Southwest's Record Earnings

“While weather can disrupt flight schedules, the thousands of cancellations by Southwest in recent days have not been because of the weather," Buttigieg wrote in a Dec. 29 letter to Southwest CEO Bob Jordan. "Other airlines that experienced weather-related cancellations and delays due to the winter storm recovered relatively quickly, unlike Southwest."

Southwest passengers wait to hear news of a flight update.

Image source: Getty Images.

Southwest did not provide ‘proper and prompt refunds,’ regulators find

After almost a year of investigations into what exactly went wrong, regulators from the Department of Transportation determined that the airline had indeed failed to provide “adequate customer service assistance, prompt flight status notifications, and proper and prompt refunds." 

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While many details around the determination are yet to emerge, a regulatory filing first reported by Reuters shows that Southwest had been notified of the finding on Oct. 27 and also told that a civil penalty may be on its way as well.

No details around the amount or timing of the fine have yet been released but in announcing the information Southwest said that it would be working with the Department of Transportation to resolve the matter to the satisfaction of all.

Southwest promised to fix these issue – Did it?

“This level of close-in cancels led us to get behind and then we lost the use of the automation," the company said in announcing what went wrong during the holiday period in a January earnings call. “Consequently, without updated remember schedules, they can't reassign crew members to solve for flights with crew coverage issues. So the disruption uncovered a functional gap in our technology.”

As CEO, Jordan also apologized to the customers and the employees and promised to resolve the technology issues to ensure a similar level of disruption would not happen again.

On April 25, Southwest briefly grounded all flights "to work through data connection issues resulting from a firewall failure" but resolved the issue within a day. Analysts said that the issue lies with a wider need to modernize the entire software system that would come at a high cost to the airline.

Despite all this, Southwest still reported record revenue of $5.7 billion in the first quarter of 2023. Things started to turn downward later in the year amid general problems of understaffing and rising jet fuel costs faced by the airline industry.

Analysts at TD Cowen recently downgraded Southwest from Outperform to Market Perform after third quarter results that led Jordan to lower 2024 earnings per share estimates from $1.49 to $0.

At $22.21 as of Oct. 30, Southwest shares are also down 38% since 2022 and 32% in the year to date. 

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