Dallas-based Southwest Airlines will pay $35 million as part of a $140 million settlement with the U.S. Department of Transportation and start offering vouchers to some delayed customers as penance for last year’s holiday meltdown that has already cost the company more than $1.1 billion.
The settlement includes $90 million for the new compensation system and a $33 million credit for credits it gave to passengers earlier this year.
The settlement with the federal government comes after a year-long investigation into the breakdown of Southwest’s network last year after winter storms crippled airline operations in Denver and Chicago in late December, forcing the carrier to cancel more than 16,000 flights even as the rest of the industry recovered quickly.
The Transportation Department said Southwest failed to “provide adequate customer service assistance,” provide “prompt flight status notifications” and did not give “refunds in a prompt and proper manner.”
It also closes the investigation into unrealistic scheduling “without making a finding as its goal to obtain quick relief for the public.”
“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,” said U.S. Transportation Secretary Pete Buttigieg 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.”
It’s the largest airline fine in the agency’s history, it said.
As part of the deal, Southwest will offer vouchers of $75 or more to customers delayed more than 3 hours and only for situations within the airlines’ control. That does not include issues like weather or air traffic control problems. The vouchers will be available upon request and Southwest said they will start offering the additional compensation by April 30, 2024.
The $140 million total comes from the $35 million fine, a $90 million compensation system which Southwest will receive a $72 million offset and another $33 million credit for the vouchers Southwest gave customers earlier this year.
“We have spent the past year acutely focused on efforts to enhance the customer experience with significant investments and initiatives that accelerate operational resiliency, enhance cross-team collaboration and bolster overall preparedness for winter operations,” Bob Jordan, Southwest Airlines president and CEO said in a statement.
While last year’s holiday meltdown started with weather issues, it exposed massive holes in Southwest’s entire operation, from how it operates its network with point-to-point flying to the technology it uses to schedule flight attendants and pilots. Airline officials called it a rare event that hit two of the carrier’s most important airports and have denied claims that its technology systems failed, even though it initially blamed it on crew-rescheduling software.
While the problem started with the weather, Southwest’s network operation buckled and then broke as pilots and flight attendants could not reach flights they were scheduled for later on. Eventually, the problem cascaded to the point where Southwest had to shut down most of its network for more than a day to reset.
More than two million customers were sidelined at a time when the rest of the industry was stretched thin and it was difficult to find travel on other airlines. Bags were delayed for weeks in many cases.
Southwest ended up paying about $600 million in refunds, compensation and goodwill gestures, including sending thousands of customers vouchers worth about $300 for future travel. Southwest chief operating officer Andrew Watterson was called before the U.S. Senate in February to try to explain where things went wrong.
As a result, the company, the largest domestic carrier in the country, accelerated spending on technology and operations, including plans to better prepare for the weather and come up with better staffing and planning during potential weather emergencies.
So far this holiday season, Southwest hasn’t faced the same kinds of issues that plagued it in 2022. With holiday travel hitting all-time highs, Southwest canceled only 17 flights between Friday and Sunday, according to Flightaware.com.
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