Southwest Airlines has agreed to a record-setting $140 million civil penalty as a result of the December 2022 holiday meltdown that caused widespread travel disruption. The US Department of Transportation (USDOT) announced the settlement on Monday after a lengthy investigation into the incident, which saw 16,900 flight cancellations and left 2 million passengers stranded. The penalty includes a $35 million cash fine and a three-year mandate for Southwest to provide $90 million in travel vouchers to passengers who experienced delays of at least three hours due to airline-caused issues or cancellations.

The settlement marks the introduction of a first-of-its-kind delay compensation program in the US, which will be implemented by April. This initiative is part of the Biden administration's push for stricter regulations on airlines and aims to ensure that passengers receive proper compensation for significant flight delays or cancellations. Southwest Airlines has stated that the vouchers will be awarded upon request.

Transportation Secretary Pete Buttigieg emphasized the importance of holding airlines accountable for their treatment of passengers, stating, "If airlines fail their passengers, we will use the full extent of our authority to hold them accountable."

The winter storm in 2022 and the subsequent chaos caused numerous travel horror stories, with people missing important events such as funerals and long-awaited holiday gatherings. Some passengers with canceled flights were even forced to make grueling cross-country drives lasting 17 hours or more. Additionally, cancer patients were unable to receive necessary treatment. During a Senate hearing in February, Southwest Airlines' senior executive admitted, "We messed up."

Southwest Airlines has already made significant investments in technology, consumer service upgrades, and de-icing equipment across its network. As a result, the airline has seen significant operational improvements this year. While Southwest did not admit to any wrongdoing, it agreed to the settlement in order to avoid litigation. The company expressed gratitude for reaching a consumer-friendly settlement and stated that it can now focus on the future.

The penalty imposed on Southwest Airlines is the largest ever imposed by the USDOT, surpassing the previous record of $4.5 million imposed on Air Canada in 2021. The fine, which includes the $35 million payable over three years, is more than the total penalties assessed by the USDOT since 1996. The department announced in January that it planned to seek higher fines in the future.

The USDOT found that Southwest Airlines violated consumer protection laws by failing to provide adequate customer service assistance via its call center, failing to provide prompt flight status notifications to over 1 million passengers, and failing to issue prompt refunds to thousands of impacted travelers. However, as part of the settlement, the agency closed its "unrealistic scheduling investigation" without making any findings.

Southwest Airlines was given credit towards the penalty for voluntarily awarding frequent flyer points to impacted passengers, amounting to $33 million. This was done in an effort to incentivize other airlines to take similar measures during operational difficulties.

President Joe Biden had previously announced plans to propose new rules that would require airlines to compensate passengers with cash for significant flight delays or cancellations caused by the carriers themselves. USDOT had asked carriers last year if they would pay at least $100 for delays of at least three hours caused by airlines, but none of them agreed. Most carriers, including Southwest, committed in August 2022 to provide hotels, meals, and ground transportation for delays or cancellations caused by the airline, but cash compensation was resisted.

The penalty against Southwest Airlines comes nearly a year after the holiday meltdown that began due to severe weather conditions and resulted in nearly 17,000 flight cancellations. The airline incurred significant losses, totaling around $1.2 billion, and faced widespread criticism and jokes in the aftermath. However, Southwest Airlines has since made significant improvements to its operations, investing in equipment, infrastructure, and organizational changes to better respond to disruptions. The airline has successfully avoided a repeat of last year's debacle and has performed in line with the rest of the industry.

As part of its announcement, the Transportation Department also revealed that it would be closing an investigation into whether Southwest Airlines had offered an unrealistic flight schedule over the holidays in 2022, which is considered an unfair and deceptive practice. Although no findings were made in this matter, the department will continue to monitor such practices across the industry.