DALLAS - Southwest Airlines will pay a $35 million fine as part of a $140 million agreement to settle a federal investigation into a debacle in December 2022 when the airline canceled thousands of flights and stranded more than 2 million travelers over the holidays.
Most of the settlement will go toward compensating future passengers, which the U.S. Department of Transportation considers an incentive for Southwest to avoid repeating last winter's mess.
The government said the assessment was the largest it has ever imposed on an airline for violating consumer protection laws.
Transportation Secretary Pete Buttigieg said the settlement demonstrates his agency's resolve to make airlines take care of their passengers.
"This penalty should put all airlines on notice to take every step possible to ensure that a meltdown like this never happens again," he said.
Southwest said it was "grateful to have reached a consumer-friendly settlement" giving the airline credit for compensation it already provided to customers. The airline said it has "learned from the event, and now can shift its entire focus to the future."
Southwest Airlines plane on the runway at Love Field in Dallas, TX. (File photo by: HUM Images/Universal Images Group via Getty Images)
The assessment stems from nearly 17,000 canceled flights a year ago, starting as a winter storm paralyzed Southwest operations in Denver and Chicago and then snowballing when a crew rescheduling system couldn't keep up with the chaos.
"I think ultimately this is good PR for the Department of Transportation. This allows them to point to the fact that, hey, they are doing something in a big, splashy way to benefit the consumer," said travel expert Gabe Saglie.
Even before the settlement, the nation's fourth-biggest airline by revenue said the meltdown cost it more than $1.1 billion in refunds and reimbursements, extra costs and lost ticket sales over several months.
The government said in a consent decree dated Friday that Southwest "violated the law on numerous occasions," including by failing to help customers who were stranded in airports and hotels, leaving many of them to scramble for other flights.
Many who called the airline's overwhelmed customer service center got a busy signal or were stuck on hold for hours.
Southwest also did not keep customers updated about canceled and delayed flights, failing to fulfill a requirement that airlines notify the public within 30 minutes of a change. Some said they never got an email or text notice and couldn't access Southwest's website.
The government also charged Southwest did not provide refunds quickly enough. People whose refund requests to a special Southwest website contained errors were not told to fix the mistakes, they simply didn't get the money. Others didn't receive immediate refunds for things like pet fees and boarding upgrades that went unused because of canceled flights, according to the department.
In the consent order, Dallas-based Southwest disputed many of the Transportation Department's findings and said only a small percentage of refunds were issued late, but the company said it entered the agreement just to settle the matter.
Southwest said the 2022 storm that produced record cold temperatures, blizzards and power outages a few days before Christmas created "unanticipated operational challenges." The airline said it quickly began reimbursing travelers for meals, hotels and alternative transportation and also distributed frequent flyer points.
Southwest has added de-icing equipment and will increase staff during extreme cold temperatures at key airports, CEO Robert Jordan said.
"I think that Southwest has looked at revamping the way that it does its scheduling. I don't think it's completely joined the forces of the other big players in the same way, just because part of the way that it saves money is by being able to hop around from airport to airport without having necessarily these major operations at major airports across the country," said Sagile.
Southwest had previously agreed to make more than $600 million in refunds and reimbursements. Still, the carrier disclosed in October that federal officials found its efforts fell short and the carrier could face a civil penalty over its service to customers.
The settlement provides that in addition to the $35 million fine, Southwest will get $33 million in credit for compensation already handed out, mostly for giving 25,000 frequent flyer points each, worth about $300, to affected customers. The company promised to give out $90 million in vouchers to future travelers.
The government values vouchers at 80% of their face value, so Southwest received credit for $72 million for the future vouchers, not the full $90 million to be distributed $30 million a year between April 2024 and April 2027. If Southwest pays out less than promised, it will owe the government a penalty of 80% of any shortfall.
In exchange for Southwest agreeing to the fine and other measures, the government stopped short of deciding whether the airline advertised a flight schedule that it knew could not be kept. Buttigieg had raised that charge publicly.
The Transportation Department said it reviewed thousands of consumer complaints, visited Southwest facilities and met with senior company officials during the investigation.
"I feel like Southwest was over fined for what happened," said Love Field traveler Kristen Sikute. "We had family that was stuck in that mess and it was a big mess but they did the best they could."
I think it is probably spot on," said Southwest passenger Jason Padilla. "That way, if it happens again, there is a little security for the customer to say if you fly Southwest they are going to take care of us and make the situation right."
In terms of whom the winner is from this situation, Saglie argues it is the customers.
"Not just the Southwest fliers who are going to be seeing some more efficient compensation when trouble does arise later on. But generally, I think that the consumer is going to feel out of this that someone's looking out for them and that there are measures in place and a system in place to make sure that airlines or any travel brand is held accountable, whether they make a mistake," he said.
Saglie went on to say that Southwest has already improved how it handles flights during Thanksgiving and over the summer holiday.