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

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.