Southwest Airlines Stock In Spotlight On Federal Lawsuit For Operating Chronically Delayed Flights: Retail Sentiment Plummets

The Department of Transportation (DOT) on Wednesday announced a lawsuit against Southwest Airlines Co (LUV) for illegally operating multiple chronically delayed flights and disrupting passengers’ travel. Southwest shares traded nearly 2.5% lower in Thursday’s pre-market session following the news.

The lawsuit highlighted that a “chronically delayed flight” means any domestic flight operated at least 10 times a month and arrives more than 30 minutes late (including canceled flights) more than 50% of the time during that month.

The DoT said that after reviewing flight performance data submitted by Southwest to its Bureau of Transportation Statistics, the Office of Aviation Consumer Protection (OACP) determined that Southwest operated two chronically delayed flights in 2022 for four consecutive one-month periods from April 2022 through July 2022.

The lawsuit also explained that the holding out (i.e., offering to the public) of a chronically delayed flight for over four consecutive one-month periods represents one form of unrealistic scheduling and is an unfair or deceptive practice and an unfair method of competition.

“After having operated these chronically delayed flights for four consecutive one-month periods from April to July 2022, Southwest continued to hold out these flights without adjusting their schedules, and they continued to be chronically delayed,” the document stated.

The lawsuit against Southwest seeks maximum civil penalties.

Meanwhile, the DoT has fined Frontier Airlines $650,000 in civil penalties for operating multiple chronically delayed flights. Of this, $325,000 will be paid to the U.S. Treasury, and the remaining $325,000 will be suspended if the carrier does not operate any chronically delayed flights in the next three years.

Following the development, retail sentiment about Southwest Airlines dipped into the ‘extremely bearish’ territory (24/100), accompanied by ‘extremely high’ message volumes.

LUV’s Sentiment Meter and Message Volume as of 8:15 a.m. ET on Jan. 16, 2025 | Source: Stocktwits

Southwest Airlines has been in the news lately as CEO Bob Jordan reportedly told his staff in a note that the firm is halting corporate hiring and promotions, suspending most summer internships, and doing away with some employee team-building events to reduce costs and better margins.

Meanwhile, Citi analyst Stephen Trent downgraded Southwest to ‘Sell’ from ‘Neutral’ while revising the price target to $29.50 from $31.50. According to TheFly, Southwest’s earnings quality and free cash flow conversion look weaker than they did before the pandemic, the analyst wrote in a note.

Southwest Airlines shares have gained over 14% over the past year.

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