Coronavirus cash crunch hits airlines as consumers claim refunds

In a world where flight cancellations stretch ahead for months rather than a day, consumers are pushing for refunds over vouchers.

By Businessweek , April 6 2020
Coronavirus cash crunch hits airlines as consumers claim refunds

The fight to survive the Covid-19 crisis is pitting airlines across the globe against their grounded customers.

Regulations in the U.S. and Europe generally call for carriers to offer passengers a refund if a flight is canceled, with exceptions for circumstances like bad weather.

It happens in normal times, but country lockdowns have dissolved schedules for weeks, with airlines parking their fleets and guarding their cash as revenue withers. Their customers are flooding Facebook and Twitter to complain they can’t get their money back for canceled trips.

Tamara Watts, from Northumberland, England, said she was due to fly to the U.S. for a family road trip through California, Nevada and Arizona, before jetting to New York and then home. With the pandemic spreading, the flights were canceled by the Dutch arm of Air France-KLM.

“I called them and they were just robotic, repeating the same information, that KLM has decided not to give refunds and offer a voucher,” said Watts, 32. “They wouldn’t deviate from the repetition and wouldn’t pass me over to anyone else. Just said I could log a complaint but that wouldn’t get me a refund.”

Airlines told to fly or pay

The U.S. Transportation Department is receiving more complaints as well, from people who say they were refused refunds for canceled flights. On Friday, it issued an enforcement notice ordering airlines to pay up.

“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 agency said in a statement.

It’s a blow to an industry that will burn through as much as US$61 billion in the second quarter, according to the International Air Transport Association, with revenue set to plummet by 68%. To weather the downturn, U.S. airlines have lined up for $50 billion in loans and payroll assistance payments from the government.

Most airlines rely heavily on money from ticket sales to provide a rolling cash balance.. Source: March 23 Credit Suisse report
Most airlines rely heavily on money from ticket sales to provide a rolling cash balance.
Source: March 23 Credit Suisse report

Their customers are hurting too, with unemployment surging worldwide and individual cash grants still weeks away in the U.S. The Transportation Department’s action came after a group of consumer advocates contacted the agency and asked it to intervene, said Charlie Leocha, president of Travelers United.

U.S. regulations are clear that when an airline acts to cancel or delay a flight on its own – as opposed to when flights are delayed by weather – the carrier is responsible for repaying passengers, Leocha said. Most travelers don’t know their rights, he said.

“They are taking advantage of the fact that 87% of the passengers only fly once a year and they just don’t know all the minutia of the rules and regulations,” Leocha said.

European confusion

In Europe, there’s been conflicting guidance from European Union regulators – who insist airlines must offer cash refunds for canceled flights should passengers prefer reimbursement to vouchers – and countries that have loosened the rules to prevent airlines’ collapse.

The Dutch arm of Air France-KLM is among several carriers handing out credits for flights it canceled, in line with rules in the Netherlands that insist passengers can get their money back if the vouchers aren’t used within 12 months, said KLM spokeswoman Marjan Rozemeijer. The company wouldn’t give the value of vouchers it’s issued.

Watts, the KLM passenger, said that after failing to secure a refund with the airline, she’s now trying to claim through her credit card company.

“Airlines must refund canceled flight tickets,” EU Transport Commissioner Adina Valean said in an emailed statement. “They can of course also offer a voucher but – and this is very important – only if the customer agrees to accept this.”

To entice customers, Germany’s Lufthansa has offered more flexible terms for rebookings. It had €4 billion in potential refund liabilities at year-end, and is trying to avoid handing over an equity stake to the government as part of a bailout.

When consumers cancel

In both the U.S. and Europe, the rules are different for people who opt to cancel travel themselves. In those cases, airlines may offer vouchers, but are under no obligation to refund the cost of the ticket.

U.S. passengers have been told by airlines they would only receive vouchers or credits for future travel, the transportation department said in its release. The rules have been in place for decades, and have been enforced after previous disruptions to the aviation system, such as the September 11, 2001, terrorist attacks and Hurricane Katrina in 2005, the agency said.

United Airlines is one of the U.S. carriers that accounted for some complaints received by Travelers United, Leocha said.

In an emailed statement, United said eligible passengers can request a refund its website or by phone. The company has taken numerous steps to be flexible for passengers during the crisis, such as by waiving change fees, it said.

“We are proud of the role our company and our employees play during this crisis and continue to operate to nearly every domestic destination as well as six international markets across the globe including our partner hubs,” the company said.

Syndicated

This article was published under license from Bloomberg Media and the original article can be viewed here

Jetstar Airways - Qantas Frequent Flyer

18 Jun 2018

Total posts 8

The airlines need to review the voucher restrictions. I had a total of 11 effected booking's, some with my wife and kids and others with just myself. It is too hard to use these vouchers as they are all in different names and can not be combined etc. If they were to offer a combined voucher for the value of all the bookings, I would accept the voucher as opposed to a refund. I am assisting on the refund as this is the only option where I can easily re-book a family holiday later

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 293

Agree, the voucher system needs to be easy to manage and allow changes that wouldn't be accepted under normal circumstances eg different destination.

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 293

This is really being caught between a rock and a hard place. Yes under normal circumstances refunding is reasonable when planes are flying and cash is moving in the right directions but in this circumstance a mass flood of refunds of ever single passenger on every single flight on entire global networks will send airlines to the wall (probably just quicker than otherwise). I agree people should get a refund but this has real consequences, if just one airline goes under there is ramifications but if several at one time, a disaster for everyone.

Singapore Airlines - KrisFlyer

28 Jun 2019

Total posts 37

Simple, then: offer a voucher that is more appealing than a refund.

It can literally be anything, as long as that thing offers an actual incentive that makes passengers want the voucher. Otherwise, there is literally zero reason for them to take the voucher other than out of the graciousness of their hearts and a willingness to accept that the voucher may be rendered worthless if the airline doesn't survive (which is exactly part of why the airlines need to incentivise vouchers to more likely avoid that fare).

Examples:

1) Allow for rebooking in same the class for future travel (perhaps Christmas and other major blackout dates, but get too greedy and you defeat your own purpose).

2) Allow combination of multiple vouchers into one "pool" of funds that can be drawn from until exhausted.

3) Add 5-25% to value of voucher.

Goes without saying that at the very least, airlines must also do away with or materially lengthen expiration dates.

Pros and cons across to each for both passenger and airline, and technical limitations may force some airlines to take different approaches than others, but the current conditions of most vouchers are not tenable and that's exactly the problem: they're "conditions," not "benefits."

Jetstar Airways - Qantas Frequent Flyer

18 Jun 2018

Total posts 8

Good Post FlyingKangaroo

I agree

AT
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Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 293

Agree, see my post reply back to @spooncrusade

27 Nov 2019

Total posts 69

this discussion has really gone on way too long. Airlines can't refund or they'll close down before many refunds will actually be processed.

All airlines need to do, is tidy up the credit, to make it easily accessible by eg. family pooling.

QF

11 Jul 2014

Total posts 411

I wonder how you would go putting it through for a credit card refund? Good not received? I've done that before when an airline has gone belly up.

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 293

Credit cards are not accepting charge back for travel related purchases and CV-19. Airlines are disabling refund processing through GDS systems to stop the automation through travel agencies.

17 Jan 2017

Total posts 5

Virgin cancelled my flight to the USA and has offered me a refund (which I have accepted) but taken $400 in cancellation fees. Is there any recourse considering VA cancelled the flight? I will be voting with my feet and using another carrier when air travel resumes.

Qantas - Qantas Frequent Flyer

04 Nov 2011

Total posts 341

If Virgin cancelled your flight there should be no cancellation fees involved. I would be double checking that one to ensure its actually a cancellation fee.

22 May 2011

Total posts 64

In the tug-o-war graph - what does that mean for Qantas? They have no cash reserves and rely purely on the pink?

Qantas - Qantas Frequent Flyer

21 Jan 2014

Total posts 247

Airlines need to ensure the vouchers are easily spent with online bookings, and not some convoluted scheme that makes pax call the call centre etc, I will be really annoyed if they do that, but won't be all that shocked, airlines have a history of making things as difficult as possible, when they already have your cash.

Pos
Pos

04 Jan 2017

Total posts 2

I am supposed to fly Singapore Airlines 14 May SYD-CDG , but all they offer at the moment is a voucher valid till the end of March 2021.

No use , as I try to escape the winter in Sydney , so a voucher such as Qantas has given to their customers with validity till end September 2021 , makes sense.

I do hope that Singapore Airlines, whom I have flown business class, for many years , sees the logic in this and will follow Qantas example for their loyal Krisflyer clients.

Qantas - Qantas Frequent Flyer

08 Jun 2018

Total posts 9

Foolishly, I opted for the voucher for a return Business Class trip to Singapore scheduled for May this year. The cheapest (Business Sale) fare on the Qantas web site for a comparable period next year (February) is over $1000 more for exactly the same itinerary and same fare category. Don't have any sympathy for the airline, go for the refund if it cannot honour the same itinerary as the original at no extra cost!

Qantas - Qantas Frequent Flyer

08 Dec 2012

Total posts 6

Exactly my thoughts Tonyo! Allow rebooking of same route and class of travel for price originally paid. I would then have no issue taking a voucher over a cash refund.

27 Nov 2019

Total posts 69

there are always fare difference. By this argument, you could have bought a cheap business class fare in low season

Qantas - Qantas Frequent Flyer

08 Dec 2012

Total posts 6

100% but this could be the perk in return for the airline holding your money for potentially 18 months and not having to find it to pay a full refund. I'm no CEO or expert but if the airline had to refund every ticket surely they wouldn't have enough cash to do that so as a thanks for taking a credit you can book whenever suits you. The interest earned probably would cover any fare difference anyway.

27 Nov 2019

Total posts 69

Airlines aren't holding your money. In many cases your money is spent straight away, it's not held in trust until you travel.

Qantas - Qantas Frequent Flyer

04 Jan 2016

Total posts 5

Very happy with China Airlines, got full refunds for return airfares to London which booked last year and were previously non-refundable.

Got vouchers from BA for flights from Amsterdam to London which must be taken by May 2021. Happy with that.

Travel insurance was useless.

Qatar Airways

06 Jul 2016

Total posts 41

I've reluctantly accepted vouchers from AF/KL for J/F flights to/from Brazil. Disappointing that vouchers can't be used for flights booked through SkyTeam, as I would be interested in a Round The World flight through that alliance next year.

Etihad - Etihad Guest

01 Feb 2019

Total posts 4

I run a small business (We used to do large events back in March...) and all my work has cancelled till the end of the year. Silly me booked $20k worth of flights on the double status points offer at the end of Feb (Remember the one that was extended because of the booking centre meltdown SNAFU on the 25 Feb?)

Can't help but feel in hindsight that someone in marketing saw it as a great way to grab a lot of cash before the poo hit the fan.

I could really use that $20k now to pay my employees and feed my family.

QF

11 Jul 2014

Total posts 411

There is always someone worse off, I know a guy who booked 250 flights for the rest of the year.

Virgin Australia - Velocity Rewards

07 Dec 2015

Total posts 43

The one thing I have learnt during this whole process - it's going to change the way I book future travel and with whom I book. No ‘long tails' anymore, particularly on personal travel, I am going to be much more book and go. I'll take the hit on the extra cost for peace of mind and if those extra costs are too high, I just won't go

The best response from the travel industry I've had in recent weeks is Marriott Bonvoy - full refund, no penalties even on restrictive bookings, no questions asked, landed back in my account within 2 weeks.

27 Nov 2019

Total posts 69

massive differences between buying a long way ahead

27 Nov 2019

Total posts 69

I think you'll find there will be a number of new ways of paying for travel, that haven't been used a lot in the past.

1stly, in a recession


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