Southwest Airlines Finally Facing Penalties After Stranding Millions of Passengers Last Year

The U.S. government said that it would issue a fine to Southwest Airlines over a customer service mishap that left nearly 17,000 flights canceled and over 2 million travelers stranded last December. In many cases, customers were forced to wait in hours-long lines and the airline would not reimburse the cost of hotels or accommodations.

The U.S. Department of Transportation first said back in January that it was conducting an investigation into Southwest over the December incident, which included a probe into whether the airline was scheduling more flights than it could handle. "DOT is in the initial phase of a rigorous and comprehensive investigation into Southwest Airlines’ holiday debacle that stranded millions," a department spokesperson said at the time.

On Friday, the agency said that "it has determined the company had failed to provide adequate customer service assistance, prompt flight status notifications, and proper and prompt refunds." As such, it was determined that "the assessment of a civil penalty is warranted."

In a regulatory filing on Monday, Southwest indicated that it would not be able to estimate the cost of a fine, in addition to damages from lawsuits filed by customers and shareholders. This is on top of at least $1.1 billion in lost sales and other costs including refunds that the airline suffered as a result of the breakdown in customer service.

The filing comes just days after Southwest announced that its third-quarter profit from July through September fell 30 percent this year, and that the airline would scale back growth plans early next year. The carrier blamed changes in travel, including a slow recovery in business travel, for the loss.

"The whole sector is under pressure obviously," CEO Robert Jordan told CNBC last week. "Costs are rising, and a lot of that is labor cost.”

Southwest executives said during a third quarter earnings call on Thursday that heading into the 2023 holiday season, the airline is taking proactive measures in an effort to avoid a repeat of last year. The same day, the company announced that it would also be introducing a baggage tracking tool to allow travelers to trace their checked luggage in transit by using the company’s website or mobile app.

And while that's certainly an attractive feature, it remains to be seen whether it will be enough to offset the bad publicity.