Airfare Refunds Hinge on Whether Carrier or Flyer Cancels First

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(Bloomberg) -- As Covid-19 cases began exploding last month, Quinton Martins thought he was doing the prudent thing by canceling a flight to Mexico for a planned vacation with his wife and daughter.

But the Northern California man didn’t realize that by doing so he gave up the right to a refund from Alaska Air Group Inc. -- even though taking the trip next week would require his family to violate their state’s stay-at-home order and a federal recommendation to avoid foreign travel.

While the U.S. Department of Transportation sternly admonished airlines to refund fares for canceled flights, people such as the Martins, whose April 15 flight hasn’t been scrapped, aren’t covered. Even the state order that came a few days later doesn’t matter. Most who cancel trips must accept vouchers for future travel.

“They’re happy to take your money, but they’re not happy to help out when things don’t go as they should,” said Martins, who lives in Sonoma County north of San Francisco. “It’s pretty frustrating.”

Complaints by disgruntled passengers are one more thing airlines must contend with as losses mount, their stock values plunge and the government finalizes an aid package of loans and payroll guarantees worth $50 billion.

Alaska Air is following all U.S. regulations and honoring its contracts with passengers, said spokesman Ray Lane. The airline has taken actions to lessen the impact on customers, such as suspending fees for changes and cancellations, he added.

A trade association of global carriers, the International Air Transport Association, says the embattled airlines might not be able to afford the refunds they’re obligated to pay — which could total $35 billion — let alone what they’d have to pay if people like Martins also got reimbursed. Nevertheless, nine Democratic senators are urging them to provide them to passengers who had to forgo trips as a result of the virus.

“Unfortunately, these travel vouchers do the public little good in this time of emergency, when Americans need money now to pay for basic necessities,” the senators, led by Ed Markey and Elizabeth Warren of Massachusetts and Richard Blumenthal of Connecticut, said in a press release.

Under laws governing passengers and their rights as consumers, who cancels first can have huge repercussions.

If an airline cancels or significantly delays a flight through its own actions -- for example, if it doesn’t make sense to operate the route any more while travel plummets during the pandemic -- then U.S. law requires the carrier to refund the cost of the ticket and any fees, according to the Transportation Department.

Yet when a passenger opts not to take a flight that is still scheduled, then separate rules apply and airlines don’t have any refund obligation. Orders to shelter in place don’t apply.

In many cases, airlines have waived some of their normal fees, such as charging for cancellations or changes to a ticket. But they have been unwilling to refund people’s money as their cash flow slows to a trickle, according to customers and advocates.

Most, if not all, carriers don’t spend time explaining the nuances to customers either, and few passengers know to ask. As a result, a knowledgeable flyer might hold off canceling a ticket to see if the airline cuts the flight first, which would require a full refund, said Charles Leocha, president of the advocacy group Travelers United.

“Unfortunately, people who don’t know what they’re doing get screwed,” Leocha said. “They lose a lot of money.”

Even if an airline later cancels the flight, a passenger who acted first isn’t entitled to a refund.

Airlines for America, a trade group representing large carriers, said members are working closely with the government to contain the virus and maintain safety during a time in which more than 90% of people are subject to some kind of stay-at-home order.

“Since the early stages of the crisis, carriers have worked to increase communications with customers, as well as introducing travel policies to accommodate passengers during this health crisis,” the group said in a statement.

Dire Shape

Airlines around the world are in such dire financial shape that they can’t afford to pay refunds they must legally make, which will total $35 billion through June, according to Alexandre de Juniac, director general of the International Air Transport Association.

“If airlines refund the $35 billion immediately, that will be the end of many airlines,” de Juniac said in a blog on Friday. “And with that an enormous number of jobs will also disappear.”

Airline policies on passengers who cancel travel are affecting millions of people, government data suggests.

Since March 16, there have been more than 43 million fewer passenger trips compared to the same period in 2019, according to the Transportation Security Administration’s count of people passing through security.

The number of passengers has declined about 95% compared to TSA’s figures from a year ago. But the airlines are canceling a far lower percentage of flights.

Charlotte Trip

Leocha’s group has gotten more complaints from people who canceled their trips and were given credits or vouchers, compared to those whose flights were cut short by the airlines, he said.

Al Tretola of Ridgewood, New Jersey, got a refund for one leg of a planned trip to Charlotte, North Carolina, with his wife for a concert in May. But that was only because he had a gut feeling he should wait before canceling.

Last week, Tretola said he contacted Spirit Airlines Inc. and asked about shelving the trip. He was told that he would get a credit for future use on the airline good for six months, he said in an interview. He was hesitant to accept because he was unlikely to fly again in that time.

When he checked back on Monday, Spirit had canceled the flight and he was told he was eligible for a refund for the tickets, he said.

Tretola is still waiting to see what United Airlines Holdings Inc. will do for the separate ticket he booked with them for the return. A friend of Tretola’s who was also planning to attend the concert canceled his flights last week and only got the credit.

Government Bailouts

Mark Turley of Millsboro, Delaware, canceled two trips with American Airlines Group Inc. last month, a flight his wife hoped to take to Phoenix to visit family and a jaunt to Florida for both of them.

Turley is 65 and his wife is a year younger, putting them at a higher risk if they caught the coronavirus, he said. They have about $1,200 tied up in the flights.

After reading about the Transportation Department’s warning last week on refunds, he called American again on Monday. He was told he could apply for a refund on the company’s website, but that he shouldn’t expect one.

“These airline companies are going to get huge bailouts and we’re not getting our money back,” Turley said. “It’s not fair to the taxpayer.”

Spirit and American didn’t immediately respond to a request for comment. United said in a statement it has taken steps to protect passengers who cancel, such as allowing them to use vouchers for up to two years.

Tommy Arnett, 69, of Woodruff, South Carolina, fears he may lose the $1,600 he paid for a trip to Colorado and Arkansas in April that he canceled last month. He has a voucher that expires in December, but isn’t sure it will be safe to fly before then.

Airlines, which have suffered a battered public image in recent years over shrinking seat sizes and forced removals from planes, are missing an opportunity, Arnett said.

“I do think it’s a gesture of poor judgment,” he said. “Airlines have the chance in a terrible situation to come out shining like heroes.”

©2020 Bloomberg L.P.

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