Southwest Airlines earnings drop 34% on credit card accounting, tech outage

Southwest Airlines reported a 34% decline in net earnings Wednesday, missing analyst expectations just after a one-time adjustment for an accounting change for a branded credit card plus a technical outage that snarled flights in July cut into earnings.

The Dallas-based airline's $388 million in net cash flow for July, August and September compared to $584 million to the very same time period a 12 months earlier.

The results of 62 cents per diluted share missed the 81 cent prediction of analysts polled by S&P Global Market Intelligence.

But the results came right after a $172 million adjustment for accounting methodology from July 2015 for any co-branded credit card with Chase Bank and a $55 million revenue loss from a technology outage in July. Excluding special items, net earnings of $582 million, or 93 cents per share, would have exceeded estimates.

The results came on a 3.4% decline in revenue, to $5.1 billion, stemming largely from the credit-card adjustment. Passenger revenue declined 1% decline, to nearly $4.7 billion.

Lower fuel prices have caught up with Southwest, which reported a 4.6% decline in fuel expenses, to $1 billion, soon after a time period of double-digit drops.

Southwest CEO Gary Kelly said in a statement the airline was delighted to reach tentative agreements with unions representing pilots, flight attendants, facilities maintenance technicians and aircraft appearance technicians.

Kelly also commended workers for “truly heroic” efforts to serve customers despite the technical outage in July. The first release of a new reservation system is expected in December and preparations are proceeding as planned, he said. Besides the $55 million in lost revenue, the company spent $24 million on the outage, Kelly told reporters during an earnings call Wednesday.

“The outage was really odd,” Kelly said. “I think I would readily admit to everybody that it is impossible to have a failsafe backover for every conceivable scenario that can happen. But we’re in really good shape and have a lot of experience in preventing outages like that.”

Southwest has blamed a router failure for starting a cascading technology glitch on July 20 that knocked reservations systems offline and took several days to fully resolve. It took until July 25 that Southwest said it was back to a near-normal operation after more than 2,300 cancellations -- about 12% of its schedule over the period. An estimated 8,000 flights were delayed.

The company is updating two major technologies, for its reservations system and its communications for flight crews.

“Hardening or fortifying our technology is absolutely a component of our spending,” Kelly said. “Right now we are in the midst of establishing a new data center, which in effect has a complete redundant data center in the same place, in addition to a backup facility.”

The airline will also launch new service to Cuba from Florida, and to Mexico from Los Angeles International Airport in the fourth quarter, Kelly said.

No comments:

Post a Comment