The problem on the DOT side is that theirs is the stock response to all complaints. They will require the carrier to respond. AB has lawyers who have presumably advised the carrier of the EC 261/2004 and DOT potential consequences and have responses prepared or in process.

The response here will be that this was an "error fare" and that DOT should, pursuant to its published policy, take no action. Then, as AB has offered transport in Y as an alternative to a full refund, there are no consequential damages for non-refundable rooms/tours and the like.

At least AB has extended the decision point. I will be surprised if AB does much here without a court order, not because it cares much about any one passenger, but because the sheer numbers likely add up to a lot of money which its financials suggest that it doesn't have.