U.S. Airlines: Artic Blizzard Causes Full Meltdown

For airlines, the past years have been challenging. The pandemic eroded demand for air travel and the recovery was complicated by infection spikes which also affected flight crews and air traffic controls making reliable scheduling challenging. With the pandemic fading crew and aircraft shortages started putting constraints on the pace of the recovery. The latest hurdle now is the artic weather conditions that have affected the US for the past days and we are now seeing significant impact to airline schedules as I discuss in this report.

A Chilling Reality: Significant Disruptions To Airline Schedules

While airlines are upbeat about the fourth quarter, we are now seeing that extreme winter weather is causing disruption to the operations and one can wonder how that will affect fourth quarter performance. One thing is certain, it can’t be positive. Delta Air Lines recently provided upbeat expectations for the fourth quarter as well as the years ahead, but that was before the winter weather hit parts of the US.

So, let’s have a look at the disruptions:

Date	Cancellations	Delays
22/12/2023	2,700	11,300
23/12/2023	5,934	10,400
24/12/2023	3,487	6,000
25/12/2023	3,184	7,855
26/12/2023	3,777	6,859
27/12/2023	2,162	–
Total	21,244	42,414

Click to enlarge

Typically travel increases towards Christmas Eve and after peaks again after Christmas. So, while adverse weather impact never has a good timing the artic conditions come at a very bad time for airlines which were looking to capitalize on the strong demand. While we do not have data for all days, Friday the 23^rd of December showed that American Airlines (AAL), United Airlines (UAL), Delta Air Lines (DAL) and Southwest Airlines (LUV) accounted for 40% of all cancellations. Southwest Airlines accounted for one out of every five cancellations scrapping nearly 1,250 flights or nearly 30% of its scheduled flights while Alaska Airlines was hit even harder cancelling 64% of its flights or over 500 flights accounting for nearly 8.5% of the cancellations on Friday.

On Sunday, things did not get better. Southwest Airlines once again topped the ranking with 1,635 flights cancelled accounting for half of the cancelled flights and nearly 25% of the cancellations. Delta Air Lines followed with 484 flights cancelled and 569 delays while United Airlines saw 216 flights or 9% of its schedule cancelled with 44% or 1,025 of its schedule being delayed. Alaska Airlines saw some improvement with 143 cancellations accounting for 21% of its schedule scrapped and 308 flights delayed.

At the time of writing on Monday, the number of delayed flights are climbing. Since I constructed the table above another 21 flights were cancelled and another 426. So, which airlines are topping the list today? Once again, Southwest Airlines is topping the list with 2,811 flights cancelled accounting for nearly 75% of all cancellations with 17% of the flights delayed. Spirit Airlines saw 19% of its flights cancelled, while Alaska Airlines saw 15% of its flights cancelled which was a day over day improvement. At United Airlines and Delta Air Lines we saw an improvement as well. Cancellations at Delta Air Lines dropped from 21% to 9% and at United Airlines the drop was from 9% to 5% while American Airlines seemingly seems to be unaffected with no cancellations reported.

For tomorrow we see that Southwest Airlines is once again topping the list with 50% of the flights scheduled being dropped equating to over 2,000 (2,006 to be precise) flight while at Delta, Alaska and United things normalize. From the 25^th of December until the 27^th of December, there are over 9,000 flight cancellations and Southwest Airlines comes out as the big loser here accounting for over 71% of the cancellations.

During the Investor Day, Southwest Airlines said that it was looking into ways to reduce impact of disruptions meaning that they were looking to faster normalize operations after adverse impacts. We now see that they have a lot to learn in that regard. That Southwest Airlines is hit hard is not necessarily a sign that the airline is doing badly, but weather is hitting at the markets where the airline is strong which gives them higher cancellations and bigger struggles to normalize operations. While I do like the strategy the airline employs, one cannot deny that Southwest Airlines has been involved in disruptions quite more frequently not just the past days but also last year due to adverse weather and in the past also due to technical ground stops and it seems that the company has not learned from it. Southwest Airlines is and admirable company under normal circumstances but when things go South (no pun intended), the airline is not able to repair its operations in a prompt manner. Currently the chaos is so big that flights are cancelled because crews are not showing up and Southwest Airlines simply has no clue where all its crews are. It shows complete lack of oversight at Southwest Airlines.

The carrier just released an update on the challenges:

With consecutive days of extreme winter weather across our network behind us, continuing challenges are impacting our Customers and Employees in a significant way that is unacceptable.

And our heartfelt apologies for this are just beginning.

We’re working with Safety at the forefront to urgently address wide-scale disruption by rebalancing the airline and repositioning Crews and our fleet ultimately to best serve all who plan to travel with us.

We were fully staffed and prepared for the approaching holiday weekend when the severe weather swept across the continent, where Southwest is the largest carrier in 23 of the top 25 travel markets in the U.S. This forced daily changes to our flight schedule at a volume and magnitude that still has the tools our teams use to recover the airline operating at capacity.

This safety-first work is intentional, ongoing, and necessary to return to normal reliability, one that minimizes last-minute inconveniences. We anticipate additional changes with an already reduced level of flights as we approach the coming New Year holiday travel period. And we’re working to reach to Customers whose travel plans will change with specific information and their available options.

Our Employees and Crews scheduled to work this holiday season are showing up in every single way. We are beyond grateful for that. Our shared goal is to take care of every single Customer with the Hospitality and Heart for which we’re known.

On the other side of this, we’ll work to make things right for those we’ve let down, including our Employees.

With no concern higher than ultimate Safety, the People of Southwest share a goal to take care of each and every Customer. We recognize falling short and sincerely apologize.

For Southwest Airlines this is of course bad business and bad promotion. I regard the company as one of the most underappreciated as its management is rock solid, but the way they are being hit hard is not going to help investors see the value in its stock and customers are unlikely to be happy with this, especially since this is not the first meltdown at Southwest.

Conclusion: Disruptions To Q4 Earnings Possible

With over 20,000 (and counting) flights cancelled over a 6-day period and over 40,000 delayed flights, things obviously are not looking good for airline Q4 earnings. I do expect that there will be impact to the Q4 results. Southwest Airlines will likely suffer the biggest relative impact, followed by Alaska Airlines and Delta Air Lines. These three airlines account for over 20% of the assets held by the JETS ETF, so we do expect some pressure on airlines and associated ETFs.

While the airlines I just mentioned are among the airlines that are my favorite in terms of strategy, they seemingly will also see the biggest impact. Maybe that is also why I am not a huge fan of airline investment. It seems that there is always something that justifies lower share prices even when management is executing very well on long-term targets. One target Southwest Airlines should set itself is better oversight and service resumption after adverse impact because what the airline is putting on display now is incapability.