DOT orders airlines to pay out refunds

DOT orders airlines to pay out refunds
Photo Credit: Oliver Le Moal/Shutterstock

The Transportation Department on Friday issued an enforcement notice, telling airlines that they remain obligated to pay out refunds for flights that they have cancelled.

The order was prompted by an increase in complaints from ticketed passengers who have been denied refunds, the DOT said. Airlines instead are often giving travel vouchers.

“The longstanding obligation of carriers to provide refunds for flights that carriers cancel or significantly delay does not cease when the flight disruptions are outside of the carrier’s control,” the DOT said in the order. “The focus is not on whether the flight disruptions are within or outside the carrier’s control, but rather on the fact that the cancellation is through no fault of the passenger.”

The unprecedented schedule cuts airlines have made in response to the Covid-19 crisis has left the airline industry with a $35 billion refund liability worldwide, according to a recent IATA estimate.

With airlines already struggling due to enormous losses in revenue, IATA has been lobbying governments to suspend refund requirements. Thus far Canada, Germany, the Netherlands and Colombia have issued favourable rulings for airlines.

Airlines have also acted individually to make refunds more challenging to obtain. Some have stopped processing them entirely while many others are making it difficult for customers to find information on applying for refunds. In the U.S., United recently altered its refund process so that international ticket holders will have to wait a year to get repaid for a flight cancelled by the airline.

In addition, 33 airlines (as of April 3) have unilaterally suspended refunds through the GDSs or ARC’s Interactive Agent Reporting system, forcing travel advisors to deal directly with the carrier.

Meanwhile, the sheer volume of refund transactions facing airlines that are still processing them in the GDS has compelled ARC to delay its weekly remittance schedule. ARC will now turn over refunds to agencies 10 days after the Sunday end of each business week, rather than five. That decision, said ARC’s managing director of airline services Chuck Fischer, was prompted by the fact that with current refund volumes, many airlines simply can’t go through their procedures fast enough to meet the five-day schedule.

Fischer said ARC doesn’t like that some airlines have cut off GDS refund processing, “but we can’t stop them from doing that.”

IATA, which oversees agent channel billing and settlement for most of the world other than the U.S., has no such reluctance. In an open letter to travel agents Thursday, IATA director general Alexandre de Juniac said that the best solution right now for airlines and agents alike is for governments to suspend refund requirements.

“This would remove the pressure that is currently on agents to issue cash refunds at a time when airlines are making decisions based on their own need to preserve cash,” he wrote.

The DOT’s enforcement notice pushes back against such airline efforts. The department stated that it considers any contract of carriage provision by an airline that denies refunds for cancellations or significant schedule changes to be a regulatory violation. (The DOT does not specifically define “significant schedule change.” A DOT spokesperson said it is determined on a case-by-case basis.) The notice applies to both U.S. and foreign carriers that operate in the U.S.

The department said that for now, it will hold off on enforcement action against airlines that have provided travel vouchers in lieu of refunds to travellers with cancelled flights, but only if they meet three conditions:

• Carriers must contact passengers to tell them they have an option for a refund.

• They must update contacts of carriage to make refund rights clear.

• They must brief all relevant personnel on the circumstances in which refunds should be made.

American-US Airways merger deal valued at $11 billion

American-US Airways merger deal valued at $11 billion

By Jerry Limone

American Airlines parent AMR Corp. and US Airways Group made their merger agreement official on Thursday, with the airlines valuing the deal at $11 billion based on the price of US Airways stock on Feb. 13.

The combined carrier will fly as American Airlines, with headquarters in Fort Worth, Texas.

US Airways stockholders will end up owning 28% of the combined airline. The remaining 72% will be owned by stakeholders of AMR and its debtor subsidiaries that filed for relief under Chapter 11, American’s labor unions and current AMR employees.

The merger is conditioned on approval by the bankruptcy court overseeing American Airlines’ Chapter 11 reorganization and US Airways’ shareholders. The Department of Justice’s Antitrust Division also needs to review the deal.

The airlines expect that the merger deal will be completed in the third quarter of 2013. During the period between the signing and closing of the transaction, a transition-planning team made up of leaders from both companies will develop an integration plan.

US Airways CEO Doug Parker will become CEO of the combined airline, which would be the world’s largest, edging out United.

American CEO Tom Horton will become nonexecutive chairman through the combined airline’s first annual meeting of shareholders. Parker will assume the additional position of chairman after Horton’s tenure concludes.

The board of directors will initially be made up of 12 members: three from American, including Horton; four from US Airways, including Parker; and five representatives of AMR creditors.

The new American Airlines will maintain all hubs currently served by both airlines, the carriers said. These include American hubs Chicago O’Hare, Dallas-Fort Worth, Los Angeles, Miami and New York Kennedy, and US Airways hubs Philadelphia, Washington Reagan National, Phoenix and Charlotte.

US Airways and American say that their combination is expected to generate more than $1 billion in annual net synergies in 2015. The airlines expect transition costs of approximately $1.2 billion, spread over the next three years.