Dec 18, 2023 - Business

Southwest Airlines fined $140 million over last winter's meltdown

Photo illustration of Bob Jordan with Southwest airplanes.

Photo illustration: Shoshana Gordon/Axios. Photos: Kamil Krzaczynski/AFP, Christopher Goodney/Bloomberg via Getty Images

The U.S. Department of Transportation has fined Southwest Airlines $140 million over last year's disastrous winter meltdown that left nearly 17,000 holiday flights canceled and over 2 million passengers stranded.

Why it matters: Agency officials say the penalty — 30 times larger than any previous similar fine — sends a strong message to all airlines to up their customer service game.

Driving the news: As part of the penalty, Southwest must set aside $90 million in vouchers for passengers affected by future delays and cancelations.

  • "In the event Southwest causes a passenger to arrive at their destination three hours or more after their original scheduled arrival time due to an issue within Southwest's control, Southwest is required to provide the passenger with a transferrable $75 voucher for future use on the airline," per DOT.

Details: Southwest must also pay $35 million to the U.S. Treasury.

  • $72 million of the $140 million fine is being offset towards the future compensation program.
  • DOT is crediting Southwest another $33 million for having already issued frequent flyer miles to customers affected by last winter's meltdown.
  • The new fines are in addition to over $600 million in refunds that Southwest has already issued related to the meltdown, the agency says.

What they're saying: "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," Transportation Secretary Pete Buttigieg said in a statement.

  • Southwest "is grateful to have reached a consumer-friendly settlement that both credits past Southwest compensation that went above and beyond requirements for customers and incorporates a future commitment for Southwest customer care with a new industry-leading compensation policy," Southwest Airlines spokesperson Chris Mainz said in a separate statement.

Of note: Southwest previously disclosed that it was bracing for a fine as a result of a government investigation.

  • The airline failed to provide acceptable customer service and flight status notifications amid the meltdown, DOT found — nor did it offer refunds "in a prompt and proper manner" immediately afterwards.

Flashback: A poorly timed winter storm disrupted thousands of flights nationwide last Christmas.

  • While most airlines were able to recover relatively quickly, Southwest didn't return to normal operations for several days.
  • Crew members were stranded because they couldn't communicate with schedulers, and Southwest's older technology couldn't keep up with the rate of changes.

Southwest offered customers 25,000 "Rapid Rewards" points worth $300 toward a future flight — what it called "a goodwill gesture" — on top of other refunds and reimbursements.

  • The DOT says it "acknowledges Southwest's effort," but apparently it wasn't enough — which is why the agency is taking action now.

Between the lines: Southwest announced an "action plan" earlier this year calling in part for $1.3 billion in technology investments to help quickly restart operations during extreme weather.

  • CEO Robert Jordan recently told Axios he's confident the problems that paralyzed the company's operations last winter won't happen again.

The big picture: The Biden Administration has been turning up the heat on airlines after multiple disruptions in recent years.

  • The DOT is proposing new rules that would enhance airline refund policies and require carriers to be more transparent about surprise fees.
  • The agency also published a customer service dashboard allowing travelers to see which services and amenities they should receive from particular airlines if they experience delays or cancellations caused by problems within airlines' control, like mechanical or staffing issues.
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