DALLAS– Southwest Airlines will pay a $35 million fine as part of a $140 million agreement to settle a federal investigation into a December 2022 debacle when the airline canceled thousands of flights and stranded more than 2 million travelers over the holidays .
Most of the settlement will go toward compensating future passengers, which the U.S. Department of Transportation sees as an incentive for Southwest to avoid a repeat of last winter's mess.
The government said the assessment was the largest it has ever imposed on an airline for breaching consumer protection laws.
Transportation Secretary Pete Buttigieg said the settlement demonstrates his agency's determination to let airlines take care of their passengers.
“This fine should encourage all airlines to take all possible steps to ensure that a crisis like this never happens again,” he said.
Southwest said it is “grateful to have reached a consumer-friendly settlement,” in which the airline will receive credit for the compensation it has already provided to customers. The airline said it “has learned from the event and can now shift its full focus to the future.”
The estimate stems from nearly 17,000 canceled flights a year ago, starting when a winter storm crippled Southwest operations in Denver and Chicago and then snowballing when a crew rescheduling system couldn't keep up with the chaos.
Even before the settlement, the nation's fourth-largest airline by revenue said the crisis had cost it more than $1.1 billion in refunds and fees, additional costs and lost ticket sales over several months.
The government said in a consent decree Friday that Southwest “has violated the law on numerous occasions,” including by failing to assist customers stranded at airports and hotels, leaving many of them scrambling for alternative flights.
Many who called the airline's overwhelmed customer service line received busy signals or were left on hold for hours.
Southwest also failed to keep customers informed of canceled and delayed flights and failed to comply with the requirement that airlines notify the public within 30 minutes of a change. Some said they never received an email or text message and could not access Southwest's website.
The government also accused Southwest of not issuing refunds quickly enough. People whose refund requests to a special Southwest website contained errors were not told to fix the errors, they simply did not get the money. Others did not receive immediate refunds for items such as pet fees and boarding upgrades that went unused due to canceled flights, the department said.
In the consent order, Dallas-based Southwest disputed many of the Transportation Department's findings, saying only a small percentage of refunds were made late, but the company said it entered into the agreement solely to resolve the matter.
Southwest said the 2022 storm, which brought record cold temperatures, snowstorms and power outages just days before Christmas, created “unforeseen operational challenges.” The airline said it soon began reimbursing travelers for meals, hotels and alternative transportation, as well as handing out frequent flyer points.
Southwest has added deicing equipment and will increase staffing during extremely cold temperatures at key airports, CEO Robert Jordan said.
Southwest had previously agreed to provide more than $600 million in refunds and refunds. Still, the airline announced in October that federal officials found its efforts fell short and that the airline faced a civil penalty over its service to customers.
The settlement stipulates that, in addition to the $35 million fine, Southwest will receive $33 million in credit for compensation already distributed, primarily for giving 25,000 frequent flyer points each, worth about $300, to affected customers. The company pledged to hand out $90 million in vouchers to future travelers.
The government values vouchers at 80% of their face value, so Southwest received a $72 million credit for the future vouchers, not the full $90 million that would be paid out $30 million per year between April 2024 and April 2027. If Southwest pays out less than promised, it will owe the government a penalty of 80% of any shortfall.
In exchange for Southwest agreeing to the fine and other measures, the government did not decide whether the airline advertised a schedule it knew could not be met. Buttigieg had publicly raised that charge.
The Transportation Department said it investigated thousands of consumer complaints, visited facilities in Southwest and met with senior company officials during the investigation.