Southwest Airlines received $7.2 billion in U.S. subsidies and contracts, but couldn’t keep in the air for Christmas, reports OpentheBooks.
Southwest Airlines received $7.2 billion in federal subsidies for payroll and operations since 2020. However, the airline stranded tens of thousands of passengers around the country on the Christmas holiday when it canceled 5,400 flights in less than 48 hours. Our auditors at OpenTheBooks.com verified the federal aid using government disclosures.
What Happened
Southwest is blaming the failure on a crash of its internal systems that schedule flight crews and pilots. A union for Southwest Airlines flight attendants attributed the meltdown to outdated scheduling systems that should have been upgraded years ago.
Feds Announce Investigation
Late yesterday [December 26], the U.S. Department of Transportation announced that it opened a federal investigation into the airline. The USDOT cited concern about an “unacceptable rate of cancellations and delays and reports of lack of prompt customer service.”
Indeed. The Southwest mobile app, phone lines, and website were offline for much of yesterday afternoon and evening. In major hubs like Chicago Midway, some in-person customer service personnel walked off the job with hundreds of stranded passengers waiting to reschedule cancelled flights.
Once bags were checked, the bags flew to final destinations even though no flights were available for canceled passengers. Stranded passengers found this baggage policy completely unacceptable – passengers were not able to reclaim checked luggage after flights were cancelled.
It was absolute chaos for thousands and a logistical nightmare for the airline that won’t be solved for weeks.
Government Subsidies Since 2020
Where could Southwest have found the money to upgrade their systems?
In September 2020, as part of massive COVID relief packages, Southwest received a $3.3 billion from the federal government. The government received stock agreements as a mechanism to partially recoup taxpayer money, however, those warrants are worth only a small fraction of the overall subsidy payments.
In April 2021, as a part of the American Rescue Plan Act and other subsidies, Southwest received another $3.8 billion, according to data on the federal transparency website and disclosed company 10-K reports to Wall Street.
In total, federal aid to the entire airline industry amounted to $64 billion in cash and loans during the Covid-period. The subsidies were meant to backstop the entire airline industry which had been decimated.
Aid was conditional on employee retainment, restrictions of executive compensation, and pausing stock dividends and buybacks. While some of the aid was technically a loan, for example, Southwest only has to pay back 30% of the first $3.3 billion ($976 million) at a low interest rate over a ten year period.
Southwest received so much federal aid, they turned a net income profit of $116 million by Q1 2021. They were the first airline to return to profitability after the pandemic.
“While the pandemic is not over, we believe the worst is behind us, in terms of the severity of the negative impact on travel demand,” Chairman and CEO Gary Kelly said in a statement (April 2021).
Other airlines were also received their cut of pandemic aid, of course, with the Treasury awarding over $37 billion of the first $54 billion in payroll support to the top ten airlines alone.
During the 2022 Christmas holiday period, those airlines were able to keep their planes flying, by and large.
Originally published by OpentheBooks. Republished with permission.
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