New Civil Penalty Brings Southwest Total Meltdown Payouts To $750M

The settlement agreement for Southwest Airlines’ December 2022 operational disruption divides a record $140 million fine levied by the U.S. Transportation Department (DOT) into three parts, allocating more than half of the total toward future passenger compensation.

Under the terms, Southwest is required to provide $90 million in transferable vouchers evenly split over a three-year period beginning April 30, for which it can use $72 million of the civil penalty to offset. The vouchers, with a mandated minimum value of $75, will be issued—upon customer request—for controllable cancellations and delays of three hours or more.

Describing the overall settlement figure as 30 times larger than any airline penalty in its history, DOT will also credit $33 million of the assessed total for past compensation and require Southwest to pay the remaining $35 million over three years.

Cumulatively, the Dallas-based carrier’s disruption-related payments will now total over $750 million, DOT said, including $600 million in refunds and reimbursements already issued.

“The compromise assessment is appropriate considering the nature and extent of the violations described herein and serves the public interest,” DOT writes in its consent order released Dec. 18. “It establishes a strong deterrent to future similar unlawful practices by Southwest Airlines and other carriers.” In the interest of settlement, the agency notes it has closed an investigation into whether unrealistic scheduling of flights contributed to the disruption.

Southwest’s operational disruption began Dec. 21, 2022, as cascading, close-in flight cancellations caused by Winter Storm Elliot overwhelmed its processes, snowballing into a multi-day event. Nearly 17,000 canceled or significantly delayed flights drove Southwest to report a $220 million loss for the 2022 fourth quarter.

Southwest’s 2023 first quarter net losses included a negative revenue impact of roughly $325 million from holiday return travel cancellations and a deceleration in bookings for the first two months of the year. 

DOT’s investigation into the matter was announced in January, and in October the agency said it had determined that the airline “failed to provide adequate customer service assistance, prompt flight status notifications, and proper and prompt refunds,” for which a civil penalty was warranted. In a response included within the consent order, Southwest maintains that call volumes experienced during the winter storm “far eclipsed any previous demand” while it worked to increase its call center capacity; that isolated flight status notification issues were not an unfair or deceptive practice; and that only a “very small percentage” of requested refunds were issued late. The consent order notes that the airline “believes that it has learned a great deal from the Winter Storm Elliott disruption,” and in addition to operational resiliency measures, has undertaken customer experience improvements including enhanced digital self-service capabilities, increased day-of-travel communication, and improved flight change flexibility.

CEO Bob Jordan has vowed no repeats of the event, having implemented a multi-prong action plan with investments in staffing; airport infrastructure, equipment, and preparedness; and tools and technology including an internally developed solution to streamline—in tandem—the rerouting of aircraft and crews during irregular operations.

During a Wings Club event in New York on Dec. 14 Jordan said, “It will never happen again; I promise you that.”