Virgin Australia has stopped issuing credits and refunds for cancelled flights, saying the matter now rests in the hands of the appointed administrators who continue to seek a buyer for the failed airline.
Travellers who had requested a refund or travel credit for a cancelled flight are now receiving emails to advise that neither will be forthcoming, as the airline has "temporarily paused issuing new travel credits and refunds while we wait for direction from the administrator."
The move comes the same week that Melbourne-based law firm Slater and Gordon announced plans for a class action lawsuit against airlines and travel agencies over their refusal to provide travellers with refunds for cancelled trips.
"We believe cash refunds should be returned to customers, who almost certainly need that money right now, rather than (remaining) in bank accounts gathering interest for airline shareholders," said Slater and Gordon Practice Group Leader Andrew Paull.
The high price of a refund
However, a spokesman for airline-appointed administrator Deloitte said that the team has "been logging customer requests for refunds and credits while they work on a solution for affected customers."
"The administrators will be able to provide more certainty on arrangements for those customers in coming days," he said, adding that the administrators aim to have a solution in place within a week.
Refunds would present a heavy drain on the airline's hollowed-out pockets, but holders of travel vouchers would be considered as unsecured creditors in a queue of over 10,000 credits owned close to $7 billion.
That list includes financiers, aircraft leasing firms, airports, suppliers, staff and even the airline's own Velocity Rewards frequent flyer arm, which in 2014 extended to Virgin a $150 million loan which was never repaid.
"Whilst the holder of the voucher will rank in the process as an unsecured creditor, their engagement with the business as a customer will also factor into the goodwill calculation," suggests Andrew Spring, partner at insolvency and turnaround specialists Jirsch Sutherland.
Will Virgin's new owner honour travel credit?
On that basis, the new owner of Virgin Australia could choose to honour outstanding travel credit as a measure of goodwill to customers.
Deloitte administrator Vaughan Strawbridge has said that travel credits issued to passengers on cancelled flights in lieu of a refund "are still there, they haven't gone anywhere and are intended to be used in the future."
"They are going to be be an important part of the restructure of the business and an important part of loyalty to Virgin Australia" would be customers "being able to access those credits."
Strawbridge revealed on April 30 that as many as 20 parties were circling the airline, describing them as "high-quality bidders with fantastic credentials and the ability to restructure this business."
The first round of "non-binding indicative offers" for Virgin Australia are due by May 15, 2020, with "binding offers" to be presented in June.
"We remain confident that our target of achieving a sale by the end of June is achievable," Strawbridge said.