No need to implement the penalties you described if you’re simply trying to align incentives. Their market cap has fallen by $1b, primarily due to this incident.
The reality is they save a lot of money by keeping virtually no slack in their system and not doing things like scaling up customer service during the holidays. If they lose some money in flight cancellations, it's still rational for them to operate like this. Plus the reality is they probably won't actually lose much - most people whose flights were cancelled will still end up taking Southwest because it's too expensive (or not possible) to book last minute tickets on other airlines. That means they just push them into the very end of Dec/early Jan when they have open capacity anyway.
For me it means that most customers would happily accept such a disaster once in a lifetime in exchange for, say, 10% ticket price reduction.
Which makes sense. The airlines have decided this as well.
Now whether the government should step in to protect people from that bias is entirely another question. I would argue yes, but I can very much see the other side that would say to simply let the market sort it out.
Well, if you believe this, go buy their stock (LUV). The market disagrees.
Here's some historical stock prices
9/1/2017 $134.64 - everything's fine
9/15/2017 $87.99 - scandal breaks and hits the news
9/17/2018 $130.55 - one year post scandal
people forget
That said, while in theory I actually think LUV is a decent trade right now, broader market conditions will keep me from messing with it.