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An American Airlines 737-800 parked at DCA. (Photo: AirlineGeeks | William Derrickson)

Debate Over Refunds for Canceled Flights Emerges

Less than a week after releasing preliminary terms for airlines receiving aid from the U.S. government, the Department of Transportation (DOT) filed another memo for airlines on April 3, this one mandating airlines continue to provide refunds per previous guidance, even in the wake of the economic and travel industry fallout precipitated by COVID-19.

“U.S. and foreign airlines remain obligated to provide a prompt refund to passengers for flights to, within, or from the United States when the carrier cancels the passenger’s scheduled flight or makes a significant schedule change and the passenger chooses not to accept the alternative offered by the carrier,” a statement accompanying the official release read.

More specifically, the DOT said its Aviation Enforcement Office would continue to monitor airlines’ refund policies to ensure all passengers have the same rights as before, emphasizing that the “focus is not on whether the flight disruptions are within or outside the carrier’s control, but rather on the fact that the cancellation is through no fault of the passenger.”

Airlines, however, don’t appear ready to give in quite yet, seemingly in an attempt to preserve their existing reservations. Almost across the board, U.S. airlines are allowing customers to rebook flights without change fees or at a discount, and many are offering vouchers — some that are valid for extended periods — to travelers in lieu of giving a full refund.

The argument against maintaining old refund policies revolves around the idea that having to dish out too much cash too quickly could devastate carriers that are all but running on fumes already. In a news conference earlier this week, the director-general of the International Air Transport Association, the Montreal-based body that serves as a trade organization for the world airlines, Alexandre de Juniac, said, “The key element for us is to avoid running out of cash so refunding the canceled ticket for us is almost unbearable financially speaking.”

While firm figures are hard to come by, Bloomberg last week suggested that Lufthansa, a German carrier that is currently fighting the same battle with European regulars, had approximately 4 billion euros ($4.35 billion) in unused ticket money at the end of 2019. Conversely, the airline had approximately 5.1 billion euros in “cash and undrawn credit facilities” at the same time, meaning the carrier would burn through all of its remaining assets in less than a month if it refunded all its tickets.

While an extreme representation of the issue, Luftansa’s potential troubles help illustrate the troubles that could plague the industry in the U.S. in the months ahead. But as airlines prepare to receive tens of billions of dollars in aid from the federal government, the DOT wants to ensure customers are properly protected as well.

On the other side, airlines continue to make changes to their contracts of carriage, putting out more stringent terms regarding when they will provide refunds to customers. As recently as April 8, American Airlines released yet another change for travel booked as of that same day, saying the airline would only provide refunds when the passenger is delayed more than four hours, is downgraded to a different class of service or is changed to a connecting itinerary from a nonstop flight.

Parker Davis
Parker Davis
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