The U.S. Department of Transportation (DOT) has slammed American Airlines with a staggering $4.1 million penalty for dozens of incidents where passengers were trapped on the aircraft during extended ground hold-ups. According to an official statement by DOT on Monday, this constitutes the heaviest fine for an airline concerning prolonged ground delays in roughly a decade.
Details of the Consent Order
- Between 2018 and 2021, American Airlines detained 43 domestic flights on the tarmac for a minimum of three hours, neglecting the chance for 5,821 passengers to leave the aircraft.
- The DOT investigation clarified that none of the exceptions, like safety and security concerns, that permit airlines to overrule the regulations, were evident in the flights they pinpointed.
- The airline is mandated to settle half the fine within the coming 30 days. The other half, which is just above $2 million, is credited to the airline as it matches the compensation that American Airlines disbursed to the delayed passengers.
Transportation Secretary Pete Buttigieg stated, “This is the latest action in our continued drive to enforce the rights of airline passengers.” He further expressed the commitment of the department to holding airlines accountable under consumer-protection regulations. Learn more about DOT’s initiatives here.
Factors Leading to the Delays
The majority of these delays transpired at Dallas-Fort Worth International Airport, a hub where America plays a dominant role. However, some disruptions also took place in San Antonio and Houston, primarily when flights bound for DFW were rerouted to these cities. Numerous delays happened amidst thunderstorms, and the airline found it challenging to efficiently organize its airport gates to permit passengers to disembark.
American Airlines’ Response
- The airline confirmed that the highlighted 43 flights only represent less than 0.001% of the nearly 7.7 million flights managed by American and its associates, American Eagle, from 2018 to 2021.
- They have emphasized that substantial compensation was handed to the passengers affected by the delays.
- American Airlines conveyed that they continuously strive to circumvent any prolonged ground halts. Post these incidents, more management focus has been directed towards mitigating delays.
- The company also communicated that these hold-ups were majorly due to exceptional meteorological conditions.
Historical Context
This isn’t the first time American Airlines has come under the scanner for tarmac delays. In 2016, the DOT had levied a then-record fine of $1.6 million on the airline for similar issues. Furthermore, in May, DOT proposed a rule that would necessitate airlines to compensate passengers and cover associated expenses when airlines are the cause of passengers being stranded.
Stock Market Repercussions
Analyst Perspective
On Monday, Evercore analyst Duane Pfennigwerth adjusted the price target for American Airlines, marking it down from $19 to $17, while upholding a Hold rating on the stock. This change was due to anticipated shifts in the fuel curve and the aftermath of the Hawaii wildfire. As per Pfennigwerth, surprising revenue outlook upgrades are expected in early September conferences.
- Wall Street’s stance on American Airlines stock is neutral, indicated by a Hold consensus rating. This rating is based on one Buy, nine Holds, and two Sells.
- The stock’s average price target suggests a potential upside of 19.1%. Notably, its shares have seen an appreciation of approximately 16% year-to-date, marking a noteworthy performance amidst the prevailing industry challenges.
