Southwest Airlines (NYSE:LUV) has been charged the largest-ever penalty of $140 million by the U.S. Department of Transportation. The airline was accused of violating consumer protection laws during the 10-day-long travel disruptions that occurred during the 2022 holiday season.
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Of the total penalty amount, $90 million will be used to create a fund for compensating future passengers affected by the airline’s shortcomings. The company will offer vouchers of $75 or more to those affected by future controllable disruptions, starting in April 2024. About $35 million of the fine will be paid to the U.S. Treasury.
Brief History of the Holiday Meltdown
Last winter, Southwest Airlines canceled about 17,000 flights and stranded 2 million passengers after the company’s rescheduling system could not manage the chaos caused by a storm that impacted its operations in Denver and Chicago.
The regulator accused LUV of failing to meet legal requirements by not helping stranded passengers and notifying them about disruptions within the mandatory timeframe. In addition to this, the airline company is said to have not provided timely refunds to passengers.
The company reported that the travel disruptions from the previous year resulted in a financial impact of almost $1.2 billion.
Is LUV a Good Buy Now?
Southwest Airlines’ strategic investments in de-icing equipment, AI-powered network predictions, and enhanced customer service might help prevent future travel disruptions. While last year’s setback had a considerable financial impact on the company’s bottom line, strong holiday demand in the current season led LUV to revise its Q4 revenue guidance upwards.
Overall, Wall Street analysts are sidelined on Southwest Airlines stock. It has a Hold consensus rating based on three Buys, seven Holds, and three Sells. The average LUV stock price target of $27.33 implies 5.7% downside potential.
