US fines Southwest Airlines $140 million over holiday meltdown

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 holidays.

Of the $140 million, Southwest Airlines will pay $35 million to the federal government. For the remaining amount, the department credits the airline for providing frequent flyer points as an apology to customers affected by the crisis, and for agreeing to distribute tens of millions of dollars in vouchers to customers affected by future delays and cancellations.

The fine is roughly thirty times higher than previously the ministry’s highest fine against an airline for violating consumer protection. $4.5 million settlement with Air Canada in 2021 due to customer refunds.

“Today’s action sets a new precedent and sends a clear message: When airlines fail their passengers, we will use our full authority to hold them accountable,” Transportation Secretary Pete Buttigieg said in a statement. “Taking care of passengers is not just the right thing to do – it is necessary, and this fine should alert all airlines to take all possible steps to ensure a meltdown like this never happens again.”

The department said Southwest violated consumer protection laws by failing to provide prompt customer service, flight notifications and refunds to passengers affected by the meltdown. In a statement, Southwest CEO Bob Jordan said the airline has been working to improve its service since last winter.

“We have focused sharply over the past year on efforts to improve the customer experience with significant investments and initiatives that accelerate operational resilience, improve cross-team collaboration and increase overall preparedness for winter operations,” said Mr. Jordan.

As part of the announcement on Monday, the Transportation Department said it would require Southwest to hand out at least $90 million in vouchers to customers who experience serious future disruptions caused by the airline. Under that policy, which the airline plans to implement by May, passengers can request a voucher of $75 or more if they arrive at their final destination at least three hours late due to factors within Southwest’s control. That voucher would be in addition to the compensation for hotels and food.

The fine against Southwest comes nearly a year after the holiday crisis, which began as the airline struggled to overcome severe weather. Ultimately, Southwest canceled nearly 17,000 flights. Many travelers were forced to make expensive and difficult last-minute plans, with some having to spend hundreds of dollars or travel long distances to reach their destinations. Southwest customers also reported waiting on hold for hours to speak to the airline’s customer service team.

The crisis cost Southwest about $1.2 billion, mostly in lost sales and refunds. For weeks, the airline was the butt of late-night jokes and the subject of widespread criticism, culminating in a Senate hearing in February in which lawmakers grilled the company’s chief operating officer.

Southwest identified three main causes of the meltdown: the airline was not prepared for severe weather, it lacked the ability to redeploy planes 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 improve its response to cold winter weather. It has implemented organizational changes to better monitor and respond to disruptions, and it has accelerated investments in its operations, including upgrading crew scheduling and reporting systems.

So far, Southwest has successfully avoided a repeat of last year’s debacle. Through the first nine months of this year, the company performed in line with the rest of the industry, with about 75 percent of its approximately one million flights reaching their destination within 15 minutes of their scheduled arrival time, according to federal data. Southwest also canceled slightly fewer flights than the industry average.

Despite suffering a small loss early this year, Southwest has made a profit of $717 million through the first nine months of 2023. In a securities filing last week, the airline said it had achieved record revenue over the Thanksgiving holiday and that short-term ticket. sales have performed better than expected in recent weeks.

As part of the announcement on Monday, the Transportation Department also said it would close an investigation into whether Southwest offered an unrealistic flight schedule during the holiday season last year, which the department considers an unfair and deceptive practice. The department said it would close its investigation without reaching a conclusion in the case, but would continue to monitor industry-wide practice.