All this says to me is that the government does nothing to prevent hugely unsafe airlines from operating.
The cancellation loophole seems fine to me, it's the followthrough that's concerning. What am I missing here?
Thing is, you, as an external observer, can't tell.
There are a zillion things that slightly increase risk. If a manager ignores a couple to avoid having a black mark due to costing the company money its very unlikely to bite him in any way that can be pinned on him. But the combination of a very large number of these little decisions will eventually result in a crash.
And before you ask, no, saying "well you just tell everyone they must take no risks at all or its prison time" is not the answer as that will basically kill the airlines as a form of mass transit, leading to everyone taking the more dangerous car trips. There's always something more that can be done to reduce risk.
which is already illegal, and has consequences. The airline will probably lose reputation and business if the public catches wind of it. The exception for cancellation should not have been in place, except as a way for airlines to get out of the obligations but also allow law makers to be seen to be doing something. Basically theater.