The Southwest DOT Settlement: The Good, the Bad and the Ugly

The Good: First is the $35 million fine that goes to the U.S. Treasury. This represents the largest enforcement action taken against an airline. Southwest had to disclose to its investors that its poor behavior last year would have consequences on their earnings.

Second, $72 million of the “fine” will benefit future Southwest passengers who face carrier-caused delays by providing them with a transferable voucher worth at least $75.

This is a step in the right direction in returning passenger money back to passengers who are harmed by airline misconduct and by instituting some form of American flight delay compensation two decades after U.S. airlines started paying out delay compensation to European travelers.

The Bad

Passengers must ask for their voucher, and it expires in one year.

As to the more than two million passengers, across 16,900 flights, who were stranded or excessively delayed during the Southwest Christmas Meltdown of 2022, this fine provides them nothing beyond the refunds they were owed and any meal vouchers, hotel vouchers, or frequent flyer miles they may have received.

The Ugly

Southwest vehemently objects to and denies the findings of the DOT consent order. Southwest denies wrongdoing, refusing to acknowledge that it engaged in unfair and deceptive practices. Southwest also refutes the facts presented by DOT. Southwest’s scheduling system melted down, and when passengers needed help, Southwest’s call centers were unresponsive.

The first step for Southwest Airlines, and for the other airlines, is to admit when they have a problem. Time and time again, they prove allergic to self-accountability or remorse.

The headline fine of $140 million is deceptively larger than the true cost to Southwest because one dollar of an expiring voucher does not cost Southwest nearly as much as one dollar of real money. Most passengers fly only once per year. Unless the gifting of Southwest delay compensation vouchers becomes a popular stocking stuffer, many passengers will find themselves unable to use the voucher before it expires.

If the vouchers are used, they redound to the benefit of Southwest, who may see travelers locked in to a future Southwest flight that will cost them more than the voucher and more than a ticket on a competitor airline (if their route even has competition).

Unlike fines that are routinely imposed on passengers and individuals, part of Southwest’s fines and voucher program are deferred for up to three years. The immediate out of pocket cost to Southwest is only $12 million, less than $6 per passenger harmed. The remainder of the $35 million fine is payable in 2025 and 2026.

For each of the more than 2 million passengers stranded by Southwest’s mismanagement (enabled by the lack of a delay compensation system similar to Europe’s or Canada’s system), Southwest is paying less than $17 to the Treasury and granting up to an additional $15 in vouchers to future passengers for each of the next three years.

DOT closed its investigation into unrealistic scheduling for the Southwest Christmas Meltdown. If they won’t call it deceptive scheduling, we can all at least call it incentive-based scheduling.

And these incentives need to change.