By David Shepardson
WASHINGTON (Reuters) -Southwest Airlines agreed to a record-setting $140 million civil penalty over the December 2022 holiday meltdown that led to 16,900 flight cancellations and stranded 2 million passengers, the U.S. government said on Monday.
The U.S. Department of Transportation (USDOT) consent order resolves a lengthy government investigation into the massive travel disruption and provides "a strong deterrent," the agency said.
The settlement includes a $35 million cash fine and a three-year mandate that Southwest provide $90 million in travel vouchers of $75 or more to passengers delayed at least three hours getting to final destinations because of an airline-caused issue or cancellation.
The "industry leading" U.S. delay compensation program, which will start by April, is part of the Biden administration's aggressive efforts to get tough on airlines as it aims to require new passenger compensation. Vouchers will be awarded "upon request," Southwest said.
"If airlines fail their passengers, we will use the full extent of our authority to hold them accountable," said Transportation Secretary Pete Buttigieg.
The 2022 massive winter storm and subsequent chaos prompted travel horror stories: people missing funerals or long-awaited holiday gatherings, passengers with canceled flights forced to make cross-country drives of 17 or more hours across and some cancer patients could not get treatment. One senior executive told angry lawmakers bluntly: "We messed up."
Southwest, which paid over $600 million to passengers impacted by the storm that cost it more than $1 billion, has over the last year made significant technology and consumer service upgrades and other investments including more de-icing equipment across its network, new staffing and software and using artificial intelligence to predict network health.
The airline has seen significant operational improvements this year.
"We are absolutely prepared for winter," Southwest CEO Bob Jordan said in a Reuters interview on Monday pointing to its strong performance this year.
He said the airline was pleased to resolve the investigation even though it did not admit wrongdoing. "It was a historic storm that led to a historic week of operational disruption," Jordan said. A disruption of that magnitude "is not going to happen again."
The largest penalty previously was $4.5 million imposed on Air Canada after USDOT initially sought $25.5 million. Southwest's penalty -- which includes the $35 million fine payable over three years -- is more than all penalties assessed by USDOT combined since 1996. USDOT said in January it planned to start seeking higher fines.
USDOT found Southwest violated consumer protection laws by failing to provide adequate customer service assistance "via its call center to hundreds of thousands of customers" as well as failing to provide prompt flight status notifications to more than 1 million passengers and prompt refunds to thousands.
Jordan, who said over 99% of refunds were processed within seven days, said the $30 million in vouchers annually is "roughly equivalent to our operational performance.... It's the right number."
He said Southwest would make it "really easy" to request the compensation. Asked if Southwest would end the program after three years, Jordan said consumer programs "rarely change or go away."
USDOT also said it closed its "unrealistic scheduling investigation" without making any finding. The agency credited Southwest with $33 million toward the penalty for voluntarily awarding frequent flyer points to hundreds of thousands impacted passengers "to incentivize other airlines to take similar measures" during operational woes.
In May, President Joe Biden said USDOT would propose new rules requiring airlines compensate passengers with cash for significant flight delays or cancellations when carriers are responsible.
USDOT last year asked carriers if they would pay at least $100 for delays of at least three hours caused by airlines and none agreed.
Most carriers - including Southwest - voluntarily committed in August 2022 to provide hotels, meals and ground transportation for airline-caused delays or cancellations but resisted providing cash compensation.