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.

Coronavirus: Slump in-demand set to cost airlines almost $30bn

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A slump in demand due to the coronavirus outbreak is set to cost the global airline industry $29.3 billion in lost revenue this year.

The bulk of the revenue loss – $27.8 billion – will hit carriers in the Asia-Pacific region, as Iata warned that 2020 would be a “very tough” year for the sector.

An estimated $12.8 billion will be lost in the Chinese domestic market alone with those outside the region expected to lose $1.5 billion in revenue, the airline trade body calculated.

The total forecast drop in demand of 4.7% would wipe out expected growth this year, resulting in a 0.6% contraction in passenger demand for the year.

This would represent the first overall fall in demand in more than a decade.

The estimated impact of coronavirus assumes that the centre of the public health emergency remains in China.

If it spreads more widely to Asia-Pacific markets then impacts on airlines from other regions would be larger, according to Iata.

The estimates are based on a scenario where coronavirus has a similar impact on demand as was experienced during the SARS outbreak in 2003.

“That was characterised by a six-month period with a sharp decline followed by an equally quick recovery,” Iata said.

“It is premature to estimate what this revenue loss will mean for global profitability. We don’t yet know exactly how the outbreak will develop and whether it will follow the same profile as SARS or not.

“Governments will use fiscal and monetary policy to try to offset the adverse economic impacts. Some relief may be seen in lower fuel prices for some airlines, depending on how fuel costs have been hedged.”

Iata director general and chief executive Alexandre de Juniac said: “These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority.

“Airlines are following the guidance of the World Health Organisation (WHO) and other public health authorities to keep passengers safe, the world connected, and the virus contained.

“The sharp downturn in demand as a result of COVID-19 (coronavirus) will have a financial impact on airlines – severe for those particularly exposed to the China market.

“We estimate that global traffic will be reduced by 4.7% by the virus, which could more than offset the growth we previously forecast and cause the first overall decline in demand since the global financial crisis of 2008-09. And that scenario would translate into lost passenger revenues of $29.3 billion.

“Airlines are making difficult decisions to cut capacity and in some cases routes. Lower fuel costs will help offset some of the lost revenue. This will be a very tough year for airlines.”

De Juniac called on governments to provide support. He said: “We have learned a lot from previous outbreaks, and that is reflected in the International Health Regulations (IHR). Governments need to follow these consistently.”

He added: “Airlines and governments are in this together. We have a public health emergency and we must try everything to keep it from becoming an economic crisis.”

Iata medical advisor Dr David Powell advised: “If you are sick, don’t travel.

“If you have flu-like symptoms, wear a mask and see a doctor. And when you travel wash your hands frequently and don’t touch your face.

“Observing these simple measures should keep flying safely for all.”

Thomas Cook ceases trading after failing to salvage rescue deal

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Travel giant Thomas Cook has collapsed after last-minute efforts to secure a rescue deal failed.

The 178-year-old business ceased trading with 600,000 overseas, including 150,000 from the UK.

The CAA is to begin the biggest-ever repatriation of UK travellers with more than 45 aircraft sourced from around the world.

German authorities face organising even bigger repatriation with up to 300,000 Germans abroad on Cook holidays.

The Thomas Cook board called in administrators after running out of options to keep the business afloat. A senior industry source said: “The board could not keep the wheels spinning. They had a legal duty.”

Thomas Cook’s failure leaves 20,000 staff, including 9,000 in the UK, out of work.

The insolvency was timed to kick in once the group’s entire fleet of aircraft was on the ground in the early hours of Monday.

The holidays of those due to fly out from today have been cancelled leaving hundreds of thousands to apply for refunds.

Chaos and confusion are expected at airports, as people turn up for cancelled services or to enquire about flights home, and at the more than 3,000 hotels used by Thomas Cook – most of which will be owed money by the group.

The group was set to be rescued in a deal worth £900 million which would have seen Fosun taking control of 75% of the company’s tour operating the business and up to 25% of its airline in exchange for a £450 million capital injection.

Debt holders and lending banks would put up the remaining £450 million in exchange for control of Thomas Cook’s airline and up to 25% of the tour operator.

The deal, which had been pushed back once, was due to be voted on by creditors and stakeholders on September 27.

But last week Thomas cook’s lending banks, led by Royal Bank of Scotland and Lloyds demanded it finds an additional £200 million in contingency funding.

This demand for “a seasonal standby facility” followed fresh advice from financial consultants working for the banks which suggested Cook risked running out of cash once more by late 2020.