See "normalization of deviance", a concept promoted by Diane Vaughan and based in large part on ideas of Charles Perrow (books: Normal Accidents and The Next Catastrophe).
I've tried to ballpark SWA's losses from this event. Total flight cancellations were reported several days ago as 5,400 by NPR. SWA is a single-airframe fleet, based on the 737 (though several models). I'm estimating 150 seats per aircraft (147 in the 737-800, others vary), so that's 810,000 seats lost.
Loading factors (airlines typically have some unfilled seats, though they aim to fill as many as possible) also matter. SWA were reporting 79% as of April 2021. The sector's picked up since then, I'll bump that to a round 80%.
There's revenue per seat. Based on 2019 financials and estimates on total flights/day, I'm coming up with about $100/seat revenue per flight, or $15,350/flight.
So 5,400 flights * 150 seats * $100 = $81 million lost revenue.
There's also avoided cost, principally fuel, which runs 20--30% of expenses. I'm presuming employees are salaried and paid (though this may not be the case).
Someone with more expertise at this than I has estimated higher losses:
Robert Mann, an aviation consultant and former airline executive, said the Transportation Department could force Southwest to pay refunds for all flights that were canceled for reasons within the airline’s control, such as lack of crews. He estimated that could total 6,000 cancellations affecting 1 million customers and adding up to $300 million.
And that $300 million allocated across a year would support up to $820,000/day in mitigation efforts to still come out net positive, which is an interesting point to raise in risk-management discussions. Put another way, that would pay for about 1,500 staff at $200k/year compensation in addressing the issue, probably not an unreasonable rate in Texas divided amongst engineers and support staff.
________________________________
Notes:
1. 2019 financials: <https://www.southwestairlinesinvestorrelations.com/~/media/F...> Total revenue: $22.5 billion, or $61.4 million/day. Based on 2,400 flights being 60% of daily, 4,000 daily flights, at 150 seats/flight, 600k daily net seats. $102/offered-seat revenue, net of load factor.
They’re also on the hook for lodging and alternative travel arrangements for stranded travelers. The losses are probably significantly higher than your estimates.
I'm estimating based on fundamentals / first principles, and of course other factors can bump that up.
I suspect that there are also performance fines possible from government --- Federal quite probably, state/local possible.
Possibly also from various airport authorities.
Note that this is speculation though grounded in some prior experience, e.g., $7.5 million in fines levied by the US Federal Government (Dept. Trans.) this past November:
And, as I noted, offset operational costs (e.g., fuel, as noted), which reduce total losses.
Still, the basic point is that this is hundred-million-dollars level expensive, and that mitigations against that risk could themselves be expensive and still ultimately worthwhile.
7 comments
[ 3.6 ms ] story [ 29.8 ms ] threadFrom OP.
[0] https://www.nytimes.com/2022/12/31/opinion/southwest-airline...
<https://en.wikipedia.org/wiki/Normalization_of_deviance>
This played a large role in the 1986 Challenger space shuttle explosion:
<https://www.nytimes.com/2014/06/02/us/challenger-columbia-an...>
(And, of course, many other disasters.)
I've tried to ballpark SWA's losses from this event. Total flight cancellations were reported several days ago as 5,400 by NPR. SWA is a single-airframe fleet, based on the 737 (though several models). I'm estimating 150 seats per aircraft (147 in the 737-800, others vary), so that's 810,000 seats lost.
Loading factors (airlines typically have some unfilled seats, though they aim to fill as many as possible) also matter. SWA were reporting 79% as of April 2021. The sector's picked up since then, I'll bump that to a round 80%.
<https://simpleflying.com/southwest-79-load-factor-april/>
(Load Factor had fallen as low as 8% in April 2020: <https://simpleflying.com/southwest-announces-8-april-load-fa...>)
There's revenue per seat. Based on 2019 financials and estimates on total flights/day, I'm coming up with about $100/seat revenue per flight, or $15,350/flight.
So 5,400 flights * 150 seats * $100 = $81 million lost revenue.
There's also avoided cost, principally fuel, which runs 20--30% of expenses. I'm presuming employees are salaried and paid (though this may not be the case).
Someone with more expertise at this than I has estimated higher losses:
Robert Mann, an aviation consultant and former airline executive, said the Transportation Department could force Southwest to pay refunds for all flights that were canceled for reasons within the airline’s control, such as lack of crews. He estimated that could total 6,000 cancellations affecting 1 million customers and adding up to $300 million.
<https://abcnews.go.com/US/wireStory/southwest-airlines-fligh...>
And that $300 million allocated across a year would support up to $820,000/day in mitigation efforts to still come out net positive, which is an interesting point to raise in risk-management discussions. Put another way, that would pay for about 1,500 staff at $200k/year compensation in addressing the issue, probably not an unreasonable rate in Texas divided amongst engineers and support staff.
________________________________
Notes:
1. 2019 financials: <https://www.southwestairlinesinvestorrelations.com/~/media/F...> Total revenue: $22.5 billion, or $61.4 million/day. Based on 2,400 flights being 60% of daily, 4,000 daily flights, at 150 seats/flight, 600k daily net seats. $102/offered-seat revenue, net of load factor.
I'm estimating based on fundamentals / first principles, and of course other factors can bump that up.
I suspect that there are also performance fines possible from government --- Federal quite probably, state/local possible.
Possibly also from various airport authorities.
Note that this is speculation though grounded in some prior experience, e.g., $7.5 million in fines levied by the US Federal Government (Dept. Trans.) this past November:
<https://www.npr.org/2022/11/14/1136678315/u-s-fines-airlines...>
And, as I noted, offset operational costs (e.g., fuel, as noted), which reduce total losses.
Still, the basic point is that this is hundred-million-dollars level expensive, and that mitigations against that risk could themselves be expensive and still ultimately worthwhile.
The December 2022 meltdown is roughly 3x as many flights.