DOT proposes major change to airline refund rules

The US Department of Transportation is proposing significant changes to how and when passengers are due refunds for canceled or changed travel plans. Under a Notice of Proposed Rule Making (NPRM) issued this week the Department would require full refunds when an airline cancels or significantly changes a flight, regardless of reason. It would also require non-expiring vouchers be issued if passengers are unable to travel owing to a “serious communicable disease.” And if the airlines receive government funding related to a health emergency those passengers would be due refunds, not vouchers.

This financial protection would further incentivize individuals to postpone travel when they are advised by a medical professional or determine consistent with public health guidance not to travel because they have or may have a serious communicable disease that would pose a threat to others.

– DOT Rulemaking filing

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Refunding for changed or canceled flights

Under the proposed rules any flight canceled for any reason would require the airlines to provide a full refund to the traveler. The DOT takes a broad view of what it means to be canceled. Any flight listed in the airline booking systems at the time of purchase which does not operate would qualify. “Regardless of the reason, consumers may reasonably prefer and are entitled to refunds. The availability of a voucher does not sufficiently mitigate the substantial harm of failing to provide a prompt refund.”

For “significant changes” to an itinerary the proposed rules offer bright line guidance for airlines and consumers to easily understand. For domestic trips a departure more than three hours prior to the original booking or an arrival more than three hours later would qualify. For international trips those timings would increase to six hours.

For all trips the DOT would judge a significant change if the itinerary:

• Changes the arrival or departure airport, even in the same metro area
• Adds a connection to the trip
• Downgrades the class of service for travel
• Changes to “a different type of aircraft with a significant downgrade of the available amenities and travel experiences”

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Most of these conditions are already covered by airlines today. And the DOT has been pretty strong with respect to enforcing them as “guidance” to carriers. Transitioning them to formal requirements, however, is a strong step towards consumer rights.

Airlines have previously objected to similar refund requirements as a justification for offering lower, nonrefundable fares. The DOT no longer is swayed by this argument:

The tangible and significant harm to consumers of not receiving a refund is not outweighed by countervailing benefits to consumers or competition. While the Department recognizes that a nonrefundable ticket allows consumers to pay a lower price for an airline ticket, the Department does not expect that this proposed requirement would result in airlines no longer offering a nonrefundable ticket category as the term nonrefundable has generally been understood not to apply in cases where the airline cancels the flight or makes a significant change in the service provided.

Health-related cancelations

Defining canceled or significantly changed flights is relatively easy. Defining scenarios where passengers cannot or should not travel due to health concerns is more difficult. But the DOT is trying.

The Department proposes that passengers who cancel trips due to closed borders, a stay at home order, or entry restrictions would be eligible to receive a non-expiring voucher, even if the flight operates as scheduled. This would also extend to passengers advised by a medical professional to not travel to “protect themselves from a serious communicable disease” during a declared public health emergency. The DOT would also see the voucher rule apply even without the declaration of emergency, if “they have or may have contracted a serious communicable disease and their condition would pose a threat to the health of others.”

Perhaps most notable, the DOT would extend the exceptions even without a doctor’s note, should the passenger “determine consistent with public health guidance issued by the Centers for Disease Control and Prevention (CDC), comparable agencies in other countries, or the World Health Organization (WHO)” that they are at risk and should not travel. This opens up potential for abuse, but the DOT believes passengers faced with losing their purchased tickets or traveling while ill will choose the latter, an action “not in the public interest.”

One small airline win

These rules are nearly all good news for passengers. But the airlines see at least one small win in the NPRM. The DOT will allow airlines to charge a fee for processing the refund or issuing the voucher, so long at the fee is disclosed at the time of ticketing.

Airlines are already happy to charge fees well in excess of the cost of delivering certain services. As written it does not appear any guardrails would be applied to this fee structure. Despite the DOT estimating that processing a refund or voucher request should cost about $2.50, the airlines will be free to charge whatever they want for that service. This could potentially include fees in excess of the ticket value, something airlines have done in the past for change fees.