Southwest Airlines lands $140M fine for that Christmas IT meltdown

The US Department of Transportation has, on paper at least, fined Southwest Airlines $140 million in addition to refunds the government strong-armed the biz to pay out, as a result of the budget airline’s massive Christmas outage last year.

It was nearly a year ago to the day that a massive winter storm forced Southwest to attempt to reschedule thousands of flights, causing its antiquated scheduling software to collapse under the pressure and ruin holiday travel plans for millions of fliers. The downtime, which lasted more than a week as the corporation struggled to catch up with its backlog, resulted in the cancellation of nearly 17,000 flights and drew the immediate attention of the eye of Transportation Secretary Pete Buttigieg, who demanded to know what happened. 

Now the DoT says it’s imposing a $140 million penalty that’s 30 times larger than any previous fine levied by the department for this sort of screw-up.

According to the DoT, Southwest failed to provide adequate customer service assistance for stranded travelers, whose calls overwhelmed its service desk, leaving customers with busy signals or stuck in long waiting queues.

The DoT also found that Southwest failed to provide useful flight status notifications as its passenger notification system broke down and that it also failed to provide refunds “in a prompt and proper manner.” 

Buttigieg told Southwest on December 28 last year the corporation had 20 days to issue refunds. That deadline was missed, resulting in a lawsuit from passengers. Southwest has since paid out more than $600 million in refunds and reimbursements. Per the DoT, Southwest’s total bill for the meltdown has amounted to more than $750 million.

In addition to the fine, the DoT has also required Southwest to establish a compensation system that will hold $90 million worth of vouchers in reserve “for future Southwest customers impacted by controllable cancellations and significant delays.”

“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,” Buttiegieg said of the latest penalty. 

Reading between the fines

As a result of the penalty, the DoT said it’s closing its investigation into Southwest for the meltdown “without making a finding,” the dept said, “as its goal is to obtain quick relief for the public.” 

Along with that dismissal of any public findings, Southwest is only going to have to pay a quarter of that so-called “30 times larger than any [fine] in DOT history,” with the rest being credited and waived.

Per a Southwest spokesperson, just $35m of the $140 million will be paid to the US Treasury, though, and even that will be split over the course of three years. 

As for the rest, $33m has been credited to Southwest “for issuing 25,000 Rapid Reward points to passengers impacted by [its] operational failures,” the DoT said, which it hopes “will encourage other airlines to follow suit to be proactive during operational disruptions.” Southwest can also “offset” $72 million of the total fine by setting up that $90 million voucher pool.

In other words, the airline is really only on the hook for the $35 million it has to pay Uncle Sam over the next three years, plus those vouchers it has to set aside as well as previous refunds. To put that all in perspective, the airline is cruising at $193 million in quarterly profit. Its 2022 full-year net income came to $540 million.

“We’re pleased to have reached this consumer-friendly settlement,” a Southwest spokesperson told us. 

Southwest’s public-facing statement about the fine steps around mentioning most of the particulars, but it does do a lot of back-patting in the form of describing its response to the mass holiday outage has having been done “with diligence and in good faith,” and highlighting the fact that it “went above and beyond requirements for customers.” 

“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,” said Southwest President and CEO Bob Jordan.

“Our commitment to Customers has been central to our success across our 52-year history and has helped us become one of the world’s most admired and trusted airlines,” Jordan added. ®


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