Wilfredo Lee/AP Photo
Passengers who are stranded in future Southwest delays will get some compensation.
Last December, Southwest Airlines’ internal software systems melted down after a severe winter storm, causing nearly 17,000 flights to be canceled and stranding more than two million passengers in the middle of the holiday season. More than half of all Southwest flights were canceled on December 26, 27, 28, and 29, 2022.
After a yearlong investigation, the Department of Transportation (DOT) today issued a consent order that includes a fine of $140 million, 30 times larger than any civil penalty in the agency’s history. More than half of that money will go toward requiring Southwest to adequately compensate travelers for future delays and cancellations.
In its announcement, DOT explained that Southwest has paid out over $600 million in refunds, hotels, meals, ground transportation, and rebooking for the delays last year. Those payouts were made amid pressure from the department to require such reimbursements for travel disruptions, and DOT officials have been auditing Southwest as far back as January to ensure that travelers received what they deserved. Thousands of customers did not get prompt compensation, the department said, in part because of errors on the website the company set up to facilitate submissions for refunds.
Combined with the record-setting $140 million fine, Southwest has paid $750 million in compensatory damages, about as much as the company earned in the first nine months of 2022. (This is in line with Southwest’s projections for what the 2022 delays would cost.)
Of the $140 million civil penalty, $35 million goes to the federal Treasury, and another $33 million is offset by Southwest’s granting last year of 25,000 frequent-flier miles to each impacted passenger. But the additional $72 million of the penalty will seed a $90 million fund Southwest has agreed to reserve over the next three years to assist passengers in the event of flight delays or cancellations.
Starting April 30, 2024, if a flight is delayed for more than three hours or canceled, passengers will receive a $75 voucher toward a future flight, in addition to the required compensation for expenses incurred as a result of the delay or cancellation (including rebooking, meals, hotel, and ground transportation).
JetBlue and Alaska Airlines offer $50 credits for delays over three hours. The department believes the Southwest order ups the ante and sets a higher standard for the industry right before the holidays. DOT aims to propose a rule to make additional compensation for delays and cancellations mandatory. That could require cash compensation rather than just a travel voucher, and it could rise higher than $75.
In Europe, delays or cancellations can entitle passengers to as much as 600 euros per flight.
The Southwest framework and the forthcoming compensation rule, DOT believes, aligns airlines with passengers, by offering a financial incentive to eliminating cancellations and getting planes off the ground on time.
“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. “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.”
The Southwest framework and the forthcoming compensation rule, DOT believes, aligns airlines with passengers, by offering a financial incentive to eliminating cancellations and getting planes off the ground on time.
Southwest’s problems sprang from its razor-thin personnel margins and lack of investment in infrastructure. The company uses outdated software systems for scheduling and managing crews. When they failed last December, crews had to call in to a telephone scheduling system, which was quickly overwhelmed, leaving pilots and flight attendants on hold for hours. Because Southwest flies point-to-point rather than through hubs, substitute crews were not properly aligned at airports, and passengers couldn’t get routed into hubs to send them on their way.
DOT found in its investigation that Southwest customer service centers couldn’t handle calls from passengers, leading to constant busy signals and hours in delays on the phone. Passengers were also not given timely updates on flight status, with some finding out about the cancellation only after arriving at the airport.
In a statement to the Prospect, Southwest said that it “is committed to delivering the highest standard of excellence in customer service. We’re pleased to have reached this consumer-friendly settlement, which includes a new, industry-leading policy to compensate customers during significant delays and cancellations.”
Southwest expressed in the consent order “that it sincerely regrets the inconvenience to all customers,” but it disagreed that it violated consumer protection laws, and did not admit to such violations as part of the settlement.
DOT has been criticized in the past for failing to hold airlines accountable for all-too-routine mass cancellation events. The Southwest fine is the department’s biggest consumer protection action since Jen Howard, former chief of staff under both Rohit Chopra and Lina Khan at the Federal Trade Commission, joined DOT as its chief competition officer.
Throughout 2022 and 2023, DOT has secured agreements with the top airlines around delays and cancellations. All of the leading U.S. airlines now guarantee free rebooking and meals in the event of a travel disruption, and nine out of ten guarantee hotel accommodations. The forthcoming rule would make this compensation mandatory, with the cash award on top of that.
The department has several open investigations into other airlines that have experienced mass cancellations and delays. In particular, DOT is looking at so-called “unrealistic scheduling,” where airlines book flights that they know they cannot operate due to a lack of staff. These are considered an unfair and deceptive practice under federal law.
Coming just a week before the holiday travel rush, DOT sees the announcement as a warning to airlines that they are prepared to protect passengers from unnecessarily long delays or canceled flights.
