Record Southwest penalty not enough to protect passenger interests -consumer groups

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(Reuters) – A $140 million U.S. penalty slapped on Southwest Airlines (NYSE:LUV) on Monday for a holiday meltdown last year has sent a “warning shot” to other carriers, but consumer groups argue more is needed to protect passengers, including legislative action.

U.S. airlines have for now avoided European-style rules that require carriers to compensate passengers for certain significant flight delays or cancellations, although President Joe Biden aims to require such payments.

The Southwest settlement with the U.S. Department of Transportation (USDOT) includes a $35 million cash fine and a three-year mandate for the Dallas-based airline to provide $90 million in travel vouchers of at least $75 to passengers with significant delays caused by the carrier. The DOT said it provides a strong “deterrent.”

But consumer advocates like Teresa Murray argue the DOT and U.S. Congress need to do more to make airlines accountable. She said airlines must be responsible with their scheduling and be asked to accommodate passengers when their flights are canceled or delayed.

Murray, consumer watchdog at U.S. Public Interest Research Group, also urged Congress to give the states the authority to enforce existing consumer protection laws.

“We book flights, we trust the airlines to get us where we want to go,” Murray said in an interview. “A lot of times it seems like the airlines just consider us to be ticket numbers – seats on a plane. We actually have lives.”

Southwest has been in the eye of a storm after a blizzard last December forced the company to cancel almost 17,000 flights, disrupting travel plans for about 2 million customers.

The high-profile operational meltdown cost the airline more than $1 billion and prompted scrutiny from U.S. Congress and other government agencies.

Henry Harteveldt, president of travel industry market research firm Atmosphere Research Group, argued that while the record fine was meaningful, it would not change the system.

“The U.S. government has shown that it would rather slap airlines on the financial wrists than shake airlines at their financial cores when it comes to penalties,” he said.

U.S. senators Edward Markey and Richard Blumenthal, both Democrats, said Southwest should provide cash, instead of vouchers, to passengers.

The settlement comes as the industry is gearing up for a record holiday travel. About 2.8 million passengers are estimated to fly per day for the Christmas and New Year holidays, up 16% from a year ago, according to Airlines for America (A4A), a trade body representing major U.S. carriers including Southwest.

Some analysts said the penalty has come so late that it is not expected to change the way airlines schedule their flights or run their operations at least during the holidays.

“If this is being done for public relations purposes, I would argue it has that benefit,” said Robert Mann, a former airline executive who now runs a consulting firm. “But it has no functional benefit in terms of governing airline performance.”