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The Business of Passenger Experience

Cancelled flights, vouchers and the airline cash flow crunch

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Tens of thousands of cancelled flights. Millions of impacted travelers. Billions of dollars in limbo. And airlines are doing everything they can – including ignoring laws – to keep the money.

Airlines’ initial reaction to the COVID-19 pandemic were marginally positive. Increased flexibility and waiver of change fees came along, though initially only for new bookings. As cancellations mounted, however, the industry changed its tack. Rather than following their typical policy of refunding fares where the flight no longer operates many airlines are now pushing passengers to accept a credit for future travel, hoping to keep that cash on hand to ride out the downturn.

Cash flow is key for airlines around the globe to remain in business

IATA now estimates airlines hold $35 billion in paid fares against cancelled flights. That’s $35 billion that should be refunded to travelers. The industry also anticipates a $39 billion loss in Q2 2020. Nearly doubling that with cash outflow would be catastrophic for many airlines. It is no wonder, then, that the carriers are lobbying hard for passengers to accept vouchers in lieu of cash refunds.

Generally speaking regulators have opposed that option, though there are some exceptions. Transport Canada offered a ruling very favorable to the airlines (and unfavorable to passengers):

On the one hand, passengers who have no prospect of completing their planned itineraries with an airline’s assistance should not simply be out-of-pocket for the cost of cancelled flights. On the other hand, airlines facing huge drops in passenger volumes and revenues should not be expected to take steps that could threaten their economic viability.

While any specific situation brought before the CTA will be examined on its merits, the CTA believes that, generally speaking, an appropriate approach in the current context could be for airlines to provide affected passengers with vouchers or credits for future travel, as long as these vouchers or credits do not expire in an unreasonably short period of time (24 months would be considered reasonable in most cases).

Other regulatory bodies, including the EU, were not so kind to the airlines, instead continuing to protect consumer rights. Brazil, Colombia, and the Netherlands also relaxed regulations regarding refunds in recent weeks.

IATA’s Director General and CEO Alexandre de Juniac opined that a hybrid solution could be offered, satisfying all parties. He believes that consumers should accept vouchers in the short term that could be converted to a proper refund in 3-6 months, after the main cash crunch passes. This is very similar to United Airlines‘ recent policy changes that are seen nearly universally as anti-consumer, particularly as they changed after tickets were purchased.

In addition to changing the terms of the contract after well after it was executed the voucher scenario presumes to shift the financial risk to consumers. The refunds due convert to an unsecured, interest-free loan to the airlines. The “loan” is necessary owing to the likelihood of financial collapse of those businesses. This suggests that, at a minimum, it not be granted interest free.

Some airlines are offering a bonus of 10-20% in value for customers who choose the voucher over a refund. This seems a more reasonable compromise but it is, unfortunately, not the path that IATA endorsed nor that most airlines offer.

Perhaps vouchers are a reasonable option and some customers would accept that as an outcome voluntarily. But airlines’ and travel agencies’ behavior on the matter has not always been above board, furthering the frustration on the matter. One traveler recently explained that only the return half of a trip was cancelled so the airline expected that they would still fly the outbound and did not want to refund that fare. Another had two vacation packages on hold with a travel agency. When the first cancelled as a result of border closings the agent forced a credit rather than a full refund but did not apply that credit to the second trip when the payment came due, instead charging the traveler anew.

In the US some legislators are calling on airlines to revert to giving out refunds, owing to the multibillion dollar bailout package just passed. But that policy was not included in the law and it is unclear that the airlines care enough to voluntarily cooperate.

For a (generally) up-to-date listing of airlines and their operational levels check out this spreadsheet maintained by PaxEx.Aero and other industry experts.

More on COVID-19 and the airlines affected

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About Seth Miller

Seth Miller has over a decade of experience covering the airline industry. With a strong focus on passenger experience, Seth also has deep knowledge of inflight connectivity and loyalty programs. He is widely respected as an unbiased commentator on the aviation industry.

He is frequently consulted on innovations in passenger experience by airlines and technology providers.

You can connect with Seth via email, on Twitter, Instagram, and LinkedIn.

Reader Interactions

Comments

  1. tim says

    Great article. Even worse is that many airlines are still not allowing refunds of award reservations. And you can’t charge anything back to a credit card, because they want a redeposit fee in order to return your miles. Last night I tried to cancel a BA Avios domestic award reservation on AA metal. When I bought the ticket the terms were that I could pay the $5.60 fee to cancel the ticket and get my miles back. Now BA has changed the terms and said all I can get back is a CREDIT VOUCHER -even though getting my miles back is a voucher in itself.

    Reply

  2. Jeff Pelham says

    Hi Seth,
    I feel that the airline/travel industry is acting in bad faith and taking advantage of the Canadian Travel Agency’s opinion statement of credits versus refunds. I booked as part of a group and the Airline cancelled our trip (booked last summer for March 30-April 6/20). The travel agent said our travel credit voucher was redeemable for 24 months but we had to travel as the same group to the same resort. After much back and forth they said we did not have to travel as same group but we absolutely had to travel to the same resort. I checked and the same trip/resort next year costs more. For one of the families of 4 in my group they will have to pay an additional $1100 to redeem their travel voucher. If they are not able to afford the additional cost they will not be able to redeem their travel credit. We understand that there is a pandemic and that it more favourable to the Airlines to grant travel credits instead of the normal refund but they are attaching strict conditions to these vouchers. I don’t understand why if they cannot offer a refund why they will not provide a straight monetary value exchange in the form of a credit. We the individual citizens are being asked to do our part and accept credits instead of the reunds we are suppose receive. Yet. the offered travel credits with the attached strict conditions will require that we pay more out of pocket to be able to redeem them. I am at a loss of how they are able to take advantage of the CTA opinion statement in this way and get away with it. I am trying to reach out to anyone that will listen. These travel credits are being offered with multiple strings attached for many. For some, these travel vouchers will be unredeemable if they cannot afford the cost of the price increase difference of the resort they are being forced to go back to. I chose my trip based on the price and my ability to pay not based on the resort. My take away from this is not to book via a travel agent again and to go direct to the airline carriers online trip forum. Air Transat had tried to offer us a straight monetary exchange credit without the strict conditions but Sell Off Vacations got involved and said Air Transat could not offer that to us. Air Transat is now pulling there original offer of a 24 month credit for any travel with them (no stings) and telling us as per Sell Off Vacations we have to go back to same resort. I thought my agreement of carriage was with Air Transat not Sell Off Vacations. There are many more folks like me out there in the same position.

    Thank You,
    Jeff Pelham

    Reply

    • Seth Miller says

      Agreed that requiring the exact same destination is an unreasonable ruling. I also wish that there were no scenario that would require additional outlay and strongly believe that company’s insisting on vouchers should give the full value in a very flexible manner. But I also would not insist that the higher priced itinerary necessarily be included. It is a very tough situation.

      Also, being stuck between the airline and the tour operator is a tough spot. I’m not sure where it’ll end up eventually.

      Good luck!

      Reply

  3. michael tucker says

    the government really needs to do something about the airlines., they are robbing the consumer.If they can’t deliver what we paid for they should be giving us a refund. It’s time for the consumer to email their respective congressmen or women and urge them to draft a bill to protect us and have the government regulate the airline industry and also the cruise lines too.Let’s start a national rally so Congress will pay attention to us.

    Reply

  4. jerry says

    Travel insurance…. My insurance tells me that, If I can not go because of travel restrictions, they will cover me. BUT, if the airline offers a credit voucher, they will not. They suggest either use the voucher or wait til it expires and then make the claim. This does not reassure me much. I do not trust the airline or the insurance.

    Reply

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