Southwest Airlines (NYSE:LUV) has been handed a $140 million fine from the US Department of Transportation (DOT) for violations of consumer protection laws during and after operational failures during the 2022 holiday season.
The airline cancelled 16,900 flights stranding 2 million passengers during last year’s holiday period after failing to effectively restart its operations following a storm.
Specifically, Southwest violated consumer protection laws by failing to provide adequate customer service assistance, prompt fight status notifications, or refunds in a timely and appropriate manner, the DOT found in its investigation of the matter.
The DOT noted that Southwest's $140 million penalty was 30 times larger than any previous one for consumer protection violations to deter other airlines from failing to protect customers during disruptions.
The penalty is on top of more than $600 million in refunds and reimbursements paid by Southwest to passengers impacted by disruptions, bringing the total paid by the airline for the holiday meltdown to more than $750 million.
Southwest has also been ordered to establish a $90 million compensation system for future passengers impacted by significant delays and cancellations.
Should a passenger arrive more than three hours after their original scheduled arrival time due to an issue within the airline’s control, Southwest is required to provide them with a transferrable $75 voucher for future use.
Of the $140 million fine, $35 million is to be paid in cash, $72 million will be offset by Southwest’s new DOT-ordered compensation system, and $33 million has been credited against the penalty as Southwest issued 25,000 Rapid Rewards points to passengers impacted by the airline’s operational failures.
“Today’s action sets a new precedent and sends a clear message: if airlines fail their passengers, we will use the full extent of our authority to hold them accountable,” US Transportation Secretary Pete Buttigieg said in a statement.
“Taking care of passengers is not just the right thing to do — it's required, and this penalty should put all airlines on notice to take every step possible to ensure that a meltdown like this never happens again.”
Southwest said in a statement that it was “pleased” to reach the settlement with the DOT.
It highlighted that the agreement includes “a new, industry-leading policy to compensate customers during significant delays and cancellations.”
Southwest shares traded down 1.5% at about US$29 late morning on Monday.