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Airline Refunds: Carriers in a Catch-22

Requirements to offer cash refunds could send airlines into a downward spiral

April 7, 2020

Airlines are in a bind. On the one hand, they desperately need cash to get through the current financial crisis with operating funds and a backlog of revenues to pay out for refunds. And they can get much of those funds through the recent CARES act bailout aid voted through Congress last month.

On the other hand, that money requires them to refund the flights cancelled due to the coronavirus pandemic with cash to those passengers who qualify and request it. The problem is, according the airlines and the Montreal-based International Air Transport Association speaking for airlines on a global scale … paying passengers the cash refunds they deserve will pretty much drive the industry into certain ruin.

The Department of Transportation as well as members of Congress are demanding that qualifying passengers receive their due proceeds and should they want those sums returned to their bank accounts, then the Federal government believes that is their right and their due.

Airlines are making it much easier to receive vouchers for flights at a later time, plus the difference in ticket costs at that time. Many airlines are waiving cancellation and rebooking fees, and still other airlines are offering a bonus tip on top of the amount spent.

To the airlines, many on the brink of collapse, draining the coffers for passenger refunds is simply not a viable option, whether federal aid is involved or not. To passengers, taking a voucher during a pandemic that, so far has no end in sight and with an airline that may no longer be a going concern as the months march on, is also not an option worth considering.

“The impact of COVID-19 on the air transport industry continues to be devastating. The industry is burning through cash at a dangerous rate,” said IATA chairman Alexandre de Juniac at a press briefing. “Some $61 billion could disappear from cash reserves in the second quarter alone. Demand is in free-fall. Worldwide it’s down 70% compared to last year—90% in Europe. And it could even get worse. There are no words that can adequately describe how deeply this crisis is impacting aviation.”

Critics looking at the distribution the travel vouchers as a viable method of reimbursement claim these chits are doing little to create relief during the crisis.

“We write to urge your airline to issue full cash refunds to all customers who cancel their flights during the COVID-19 crisis, and to American citizens who encounter flight cancellations while stranded in countries that implemented travel restrictions,” wrote Sens. Ed Markey (D-Mass.), Elizabeth Warren (D-Mass.), Kamala Harris (D-Calif.), Bernie Sanders (I-Vt.), Amy Klobuchar (D-Minn.), Richard Blumenthal (D-Conn.), Chris Murphy (D-Conn.), Sheldon Whitehouse (D-R.I.) and Bob Casey Jr. (D-Pa.).

According to The Hill,  letter was sent to 11 airlines: Alaska Airlines; Allegiant Air; American Airlines; Delta Air Lines; Frontier Airlines; Hawaiian Airlines; JetBlue airways; Southwest Airlines; Spirit; Sun Country airlines; and United Airlines.

“It would be unacceptable to us for your company to hold onto travelers’ payments for canceled flights instead of refunding them, especially in light of the $25 billion bailout that the airline industry just received from Congress,” the senators wrote. “We urge you to offer cash refunds for flight cancellations so that Americans can better weather this crisis.”

Regulations in the U.S., Europe and other regions of the world require airlines to fully refund fares paid by customers when the airline cancels their flight. However, many airlines are offering only vouchers, most of which must be used by the end of the year. The past few days have seen a spate of individual and class action lawsuits filed by angry customers attempting to get proper redress – one by a passenger in Minnesota against United Airlines and another in Canada against a group of airlines and travel companies.

Airline industry lobbying groups are prevailing upon lawmakers to allow vouchers and travel credits during this very challenging time, only to get a terse reply from the Department of Justice.

“The obligation of airlines to provide refunds, including the ticket price and any optional fee charged for services a passenger is unable to use, does not cease when the flight disruptions are outside of the carrier’s control,” the department said in a statement.

Delta and United have responded to complaints by extending voucher expirations to the end of  May of 2022. American has extended its offer to waive change fees for customers who booked summer travel flights through Sept. 30, 2020. The offer is available for any of American’s fares, and customers will have until Dec. 31, 2021, for future travel – based on any ticket purchased on or before April 7, 2020, for travel through Sept. 30, 2020. They will not incur change fees prior to travel although will be required to pay any fare differences. Customers are allowed to change their origin and destination cities as part of this new offer. Travel must be completed by Dec. 31, 2021.