Monday, April 11, 2011

Southwest Airlines decision to cancel about 300 flights and then ultimately grounding 79 planes (about 1/7 of its fleet) will inconvenience passengers and will cost the airline several million dollars. The damage to Southwest's earnings will be reduced if stranded passengers rebook on other Southwest flights. But other airlines such as United offered standby seating for the stranded passengers.

The grounded planes are 137-seat Boeing 737-300s. Using the airline's most recent available figures for average occupancy, it's possible to estimate that more than 31,000 paying passengers were stranded Saturday. Southwest says on its website, updated this week, that its average one-way fare is $130.27, which would produce a $4.1 million loss in revenue. Southwest might provide an estimate on the cost of grounding this month, when it releases its first-quarter earnings report.

The airfare isn’t the only loss that Southwest will have, the added expense of accessing the true damage of each aircraft and then making the FAA and NTSB mandated repairs to get their fleet back in the air must be considered. (JetBlue stated that it lost $30 million due to late-December storms that caused it to cancel 1,400 flights.)

Taking it a step further there are 931, 737-300 such models in service worldwide, 288 of which are in the U.S. fleet. Boeing said its service bulletin will also require checks on larger 737 models too. So this will stretch much farther than Southwest.


Easton said...

I wonder why its taken so long to get around to inspection of the aircraft in question? I get the feeling that airlines chose not to inspect aircraft as often as they could have and instead opted to go the "if it aint broke dont fix it" route instead.

Arin McGovern said...

I agree with Easton. I think it is very likely that the airlines have overlooked minor, unnecessary repairs in an attempt to save money and time. Are there any other airlines experiencing such a large problem? Has Southwest released an expected timeline for anticipated repairs and for getting all airplanes back in the air? The revenue lost was substantial, but knowing airline companies they will figure out how to make up for their losses. I think that this major hit to Southwest’s revenue could cause them to charge for baggage. Southwest has regarded the lack of bag costs as a major selling point for their airline, but it has also cost them revenue. What do you think is the smartest way for Southwest to try and make up for their lost revenue? I believe consumers should expect major transformations to Southwest’s costs. In some way, Southwest will have to recover from it’s losses and the only recovery plan that makes sense is to raise prices or add extra ones.

Johne McMahon said...

I agree with you in that the airlines have over looked minor problems with the planes, that wouldn’t really be critical in flying the plane, in order to save money. Southwest plan’s to save money off of minor repairs on their planes totally backfired on them. As you said the total amount of revenue loss was around 4.1 million dollars. Not only did Southwest Airlines lose money off of the repairs they had to make to their planes, but did Southwest lose something more valuable than some money on their planes? I would say yes because when the problem broke out Southwest lost the trust of their customers. Like you said on Saturday more than 31,000 paying customers were stranded. I think the true loss in this situation is the customers respect towards Southwest airlines and there could be a high possibility that they will pick a more dependant airline the next time they fly. Southwest airlines will see a dramatic loss in demand in their company.