The airline is said to be cooperating with the investigation.
The United States Department of Transportation is investigating Southwest airlines after it scrubbed more than 16,000 flights during a busy week of holiday travel last month. The mass flight cancellation left travellers stranded last month.
A spokesperson told BBC that the department is in the initial phase of a 'comprehensive investigation into Southwest Airlines' holiday debacle that stranded millions."
According to media reports, the airline is said to be cooperating with the investigation.
CEO Bob Jordan told CNBC, "I can't say it enough. We messed up".
He added, "We took goodwill out of the bank. We know that. We have work to do to repair trust, but our customers are very loyal and we're seeing that loyalty."
The transport department is investigating if the airlines intentionally scheduled more flights in late December than the carrier could handle. It said doing so would be considered a deceptive practice under federal law, BBC report said.
The department has also communicated to the airlines that it should provide timely reimbursements and refunds to the affected passengers.
Several airlines had to cancel flights due to a huge winter storm that hit the US and Canada.
Southwest Airlines in a statement said that the travel chaos had cost it $800m.