The Transportation Department on Monday announced a $140 million fine against Southwest Airlines over a meltdown last winter that disrupted travel for about two million people during the holiday season.
Of the $140 million, Southwest Airlines will pay $35 million to the federal government. For the remaining amount, the ministry credits the airline with apologies for providing frequent flyer points to customers affected by the problems and for agreeing to issue tens of millions of dollars in vouchers to those affected by future delays and cancellations.
The fine is about 30 times the ministry's largest-ever fine against an airline for consumer protection violations, a $4.5 million settlement with Air Canada in 2021 over customer refunds.
“Today’s action sets a new precedent and sends a clear message: When airlines fail their passengers, we will use the full extent of our authority to hold them accountable,” Transportation Secretary Pete Buttigieg said in a statement. “Taking care of passengers is not only right but necessary, and this penalty should put all airlines on notice to take every step possible to ensure such a collapse never happens again.”
The department said Southwest violated federal law by failing to provide passengers with timely customer service, flight notifications and refunds. In an order setting the fine, the agency said Southwest disagreed with the government's conclusion that it violated the law but agreed to the penalty to avoid litigation.
The airline struck a more conciliatory tone in a statement, saying it was “grateful to have reached a consumer-friendly agreement.” Bob Jordan, the chief executive, said the company has been working to improve its service since last winter.
“Over the past year, we have focused heavily on efforts to improve the customer experience through significant investments and initiatives that accelerate operational resiliency, improve cross-team collaboration and strengthen overall preparedness for winter operations,” said Mr. Jordan.
As part of Monday's announcement, the Transportation Department said Southwest would have to issue at least $90 million worth of vouchers to customers who experience serious disruptions from the airline. Under the policy, which the airline plans to implement by May, passengers can apply for a voucher worth $75 or more if they arrive at their destination at least three hours late due to factors within Southwest's control . This voucher would be in addition to compensation for hotels and meals.
The penalty against Southwest comes nearly a year after the holiday disaster that began just before Christmas when the airline struggled to weather severe weather. Ultimately, Southwest canceled nearly 17,000 flights. Many travelers were forced to make expensive and stressful last-minute plans, some spending hundreds of dollars or having to travel long distances to reach their destination. Southwest customers also reported being on hold for hours to speak with customer service representatives.
The debacle cost Southwest about $1.2 billion, mostly in lost business and refunds. For weeks, the airline was the butt of jokes on late-night television and the subject of widespread criticism, culminating in a Senate hearing in February where lawmakers criticized the company's chief operating officer.
Southwest has identified three main causes of the problems: the airline was inadequately prepared for severe weather, lacked the ability to reassign aircraft and crews as quickly as necessary, and there were communication gaps between teams. To address these issues, the airline has invested in equipment and infrastructure to better respond to winter weather. The company has made organizational changes to better monitor and respond to disruptions and has accelerated investments in its operations, including modernizing workforce scheduling and notification systems.
So far, Southwest has avoided a repeat of last year's problems. In the first nine months of this year, the company performed similarly to the rest of the industry: According to federal data, about 75 percent of its approximately one million flights reached their destination within 15 minutes of their scheduled arrival time. Southwest also canceled slightly fewer flights than the industry average.
Despite a small loss earlier in the year, Southwest posted a profit of $717 million in the first nine months of 2023. In a securities filing last week, the airline said it had record revenue over Thanksgiving and that short-term ticket sales performed better than expected in recent weeks.
As part of its announcement Monday, the Transportation Department also said it was completing an investigation into whether Southwest offered an unrealistic flight schedule over the holidays last year, which the department considers an unfair and deceptive practice. The department said it was concluding the investigation without reaching a conclusion on the matter but would continue to monitor practices across the industry.