Southwest Faces $140 Million Penalty for 2022 Holiday Meltdown

The Department of Transportation is sending a clear message about accountability to Southwest and other airlines.
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Written by Sean Cudahy
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Edited by Meghan Coyle
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With just days to go until holiday travel kicks into high gear, Southwest Airlines learned this week it will face a significant penalty for its 2022 holiday season meltdown.

The U.S. Department of Transportation (DOT) announced a $140 million penalty against Southwest on Dec. 18. It’s a punishment 30 times larger than any civil penalty in DOT history for violating consumer protections.

The penalty was levied for almost 17,000 flight cancellations that cascaded across Southwest’s network during the 2022 holiday season. The airline said a winter storm precipitated the initial cancellations, but the situation was made far worse by the network effects of the resulting scheduling meltdown. The disruptions ultimately affected more than 2 million Southwest customers.

As part of its punishment, Southwest will also be required to set aside tens of millions of dollars to help future passengers affected by delays and cancellations within the airline’s control.

“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.

Why the DOT is penalizing Southwest

The DOT’s penalties against Southwest followed a year-long investigation by the Biden administration.

Though the DOT did not ultimately rule whether Southwest engaged in unrealistic scheduling (in other words, scheduling more flights than it could handle) the agency found the airline violated consumer protection laws regarding customer service, timely notifications and refunds.

Customer service

During the meltdown, Southwest customers ran into busy signals and hours-long waits on hold to connect with a customer service agent to seek help. Other passengers had calls dropped. In short, Southwest’s call center was overwhelmed.

Southwest has touted the improvements it made this year to bolster its call center capacity as part of the airline’s larger efforts to prevent a similar future disaster.

Failure to provide prompt notifications

The federal government also found that Southwest, in some cases, did not provide prompt flight status notifications to customers during the meltdown. Many passengers received inaccurate messages or no messages at all. Some only found out about cancellations when they arrived at the airport.

In response, Southwest said the volume of flight alerts over a short period led to delayed notifications. However, most passengers still received flight updates at least four hours before departure. The airline has since upgraded its customer communication tools to handle higher volume.

Failure to provide refunds in a prompt/proper manner

Though Southwest praised its efforts to refund passengers affected by last December’s meltdown, a DOT audit found the airline fell short of its obligations.

Thousands of customers were not promptly refunded, the agency said. Plus, the government said Southwest did not do enough to help customers fix refund requests with mistakes or errors.

Southwest’s response maintains the company processed requests as quickly as possible, providing more than $600 million in ticket refunds and expense reimbursements. The airline also gave Rapid Rewards points to affected travelers as a goodwill gesture.

What the Southwest penalty entails

Money for future passengers who face delays

The DOT is requiring Southwest to set aside $90 million to compensate future passengers affected by significant cancellations or delays.

That money will be reserved for vouchers of at least $75 to compensate flyers whose flights are canceled or delayed. A significant delay is defined as travelers arriving at their destination at least three hours late due to an issue within Southwest’s control (generally, a controllable disruption does not include weather). These vouchers would be compensation on top of any flight rebookings or food and hotel reimbursements.

Southwest says this policy will be implemented by April 30, 2024.

Southwest fined for meltdown

Southwest will also have to pay the government a $35 million fine. Though the total penalty is $140 million, the DOT will count some of Southwest’s other efforts toward that cost.

The government will give Southwest a $72 million credit for the $90 million it’s spending on future vouchers. Plus, the airline is receiving a $33 million credit for issuing 25,000 Rapid Rewards points to members affected by last December’s meltdown. (NerdWallet values 25,000 Rapid Rewards points at around $375).

The penalties come almost a year after the meltdown. It’s worth noting Southwest’s operation ran relatively smoothly over the busy Thanksgiving week, with the airline canceling just 0.1% of flights between Nov. 19 and Nov. 26, according to data from FlightAware. Around 20% of Southwest flights were delayed during that period.

(Top photo courtesy of Southwest Airlines)

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