Why Southwest Airlines suffers the most in winter storm?

Winter storm seems to have been a regular topic these years. Generally speaking, bad winter weather will affect

1. Energy. natural gas is the most common energy in winter. Fortunately, Gas price is not high since the government paid lots of attention since Ukraine War.

2. Utilities. The electricity price would rise in winter. Texas also experienced power outages last winter.

3. Real estate. New constructions down a lot in winter.

4. Jets.

Aviation industry should have not been the biggest loser, but this year, major airlines have cancelled flights.

Over 20,000 flights have been cancelled in the US with twice as many delayed.

Data from Dec. 25 onward shows 14,315 flights cancelled. The vast majority of these cancellations come from the Southwest Airlines operations.$Southwest Airlines(LUV)$.

A total of 14,315 flights have been cancelled since Dec. 25, with Southwest Airlines accounting for 84%.

This is very interesting. All airlines have problems such as frozen or damaged equipment, but only Southwest Airlines has cancelled a large number of flights, affecting more than 60% of its flights. At the same time, while other airlines can reduce their impact on their operations in three to four days, for Southwest Airlines, the situation is getting worse and worse.

Why is Southwest Airlines so chaotic in this cold wave?

First, there is a lack of enough ground crew to manage the equipment affected by the cold wave.For example, in Denver, its largest operating city, due to the cold wave, ground staff began to take time off for personal reasons, but there were not enough employees to stand by, and newly recruited employees could not do their jobs in bad weather, thus creating job vacancies.

The labor gap is also prominent in the employment reports in recent months. After the pandemic, the labor participation rate is low, and many industries have not recovered to the previous level.

Second, due to the constant cancellation of flights, there is a mismatch between the crew and the aircraft, which leads to a wider range of impacts.For example, the crew should have flown at point A, but the plane was at point B, so it was impossible to reschedule the plane and the operation schedule. Southwest had to do this manually, which obviously took more time than using an algorithm to set the rescheduling mode. As a result, most flight operations have come to a standstill.

These two important reasons are operational problems.

Obviously, the large-scale cancellation of flights will not only affect the Q4 performance of Southwest Airlines, but also make it receive more complaints about user compensation. In 2021, nearly 2,000 flights were cancelled, and Southwest lost about $75 million. According to this calculation, more than 12,000 flights were cancelled during the cold wave this year, and the stranded passengers attached to the company paid for accommodation and food, which I conservatively estimated at about 450 million US dollars.

This is also the latest investor sell-off$Southwest Airlines(LUV)$The main reason.

Therefore, it is very important to promote the improvement of operation quality in 2023. Increasing the number of site command centers is a key link.