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Southwest Airlines Co.’s weekend of canceled fights was made worse by the deep cuts the airline and others had to make on their flight schedules that are likely to add to the airline’s labor strains and costs.
Southwest
LUV
canceled nearly 2,000 flights over the weekend with hundreds more delayed, leaving passengers stranded. The stock ended 4.2% lower on Monday, compared with losses of 0.8% for the U.S. Global Jets ETF
JETS
and 0.7% for the S&P 500 index
SPX.
Despite the stock losses, Wall Street seemed to view the weekend snags as having a limited impact on the stock and the company’s bottom line.
More worryingly, however, the cancellations “bring into question whether (Southwest) is operating too stretched a schedule, relative to its limited staffing levels,” Stephen Trent at Citi said in a note Monday.
Savanthi Syth at Raymond James said it would also add to Southwest’s unit cost pressure, and “may exacerbate strained labor union relations.”
The airline blamed the widespread cancelations on weather “challenges” in some of its Florida airports, compounded by “unexpected” air-traffic control issues in the same areas.
The FAA said Sunday on Twitter that no air traffic staffing shortages had been reported since Friday. Flight delays and cancellations did occur “for a few hours” on Friday afternoon and evening due “to widespread severe weather, military training, & limited staffing” in the Jacksonville, Fla., area, it said.
“Some airlines continue to experience scheduling challenges due to aircraft and crews being out of place,” the FAA said.
Other airlines, however, did not report problems as acute as Southwest’s, even those with several Florida hubs. The pilots’ union have said that the cancellations were not part of labor-related protests.
The situation was made worse because there were fewer flights available for rebooking.
Southwest in August said it would run fewer flights through the end of the year, apart from holiday windows, in a bid to match flights to demand and to its ability to operate and staff flights.
“Southwest’s high volume of cancellations this past weekend is a reminder of how precariously balanced all the moving parts in an airline must be to operate smoothly,” said Sooho Choi, a travel and hospitality consultant at Publicis Sapient.
Southwest has the unique advantage of having built a very homogeneous fleet, he said. Their point-to-point network, however, means there is “less contingency for operations to run smoothly if the right equipment and crew are not in the right place at the right time.”
Not only do fewer flights mean fewer options for rebooking, “it also adds to the risk of a domino effect to the overall network which in turn results in greater havoc in operations and for the customer,” Choi said.
Southwest has made a push to hire more workers, offering referral bonuses for its employees and other incentives, with an eye on November and December holiday travel.
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Southwest was not alone in either strategy: Airlines cut capacity to stay afloat as bookings dried up during the pandemic and continue to be below 2019 bookings despite an uptick in the summer.
And new demands related to the pandemic, including more incidents involving unruly passengers, have led to overworked employees.
Earlier this month, IATA said it expects demand to reach 61% of 2019 levels in 2022 and remain at 40% this year. The airline industry worldwide is still looking at losses of $11.6 billion in 2022.
IATA also turned more pessimistic for this year, expecting losses of $$51.8 billion versus an estimate for $47.7 billion in losses estimated in April.
“The magnitude of the COVID-19 crisis for airlines is enormous. Over the 2020-2022 period total losses could top $200 billion,” IATA said. “To survive airlines have dramatically cut costs and adapted their business to whatever opportunities were available.”
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Bright spots include airlines’ air cargo business, and domestic travel is likely to near pre-crisis levels by next year, IATA said. International travel remains a “challenge.”
U.S. airlines, in particular, also have had to make do without a demand bump from business travel, historically a bridge between the end of the summer and the start of the holiday season.
With the continuing resurgence of COVID-19 cases and concerns about the delta variant, however, a resurgence in business travel is expected for the January conference season.
Southwest and others will have to juggle how best to invest “precious few dollars available,” balancing demand with their network, staffing needs, fleet, ground operations, crew incentives, technology, and “other aspects of a complicated business,” Choi said.
Shares of Southwest have gained nearly 12% so far this year, compared with advances of around 7% for the Jets ETF and of around 17% for the S&P.
