Southwest Reports Q4 Net Loss Due to December Operational Issue; We See Improving Margins Ahead

As we expected, Southwest Airlines reported a fourth-quarter net loss due to costs related to the firm’s widespread operational issues that caused over 16,700 flight cancellations in late December. Expenses tied to travel expense reimbursements, disbursement of rapid rewards travel points (to build customer goodwill), and increased employee compensation totaled $800 million during the quarter, which was within management’s guidance (announced on Jan. 6). Furthermore, management noted that the firm will likely realize another net loss during its fiscal first quarter.