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27 May 2020
Significant schedule changes or cancellations
Passengers who choose not to travel due to health concerns
Online travel agency tickets
Retroactive application of refund policies
Credits and vouchers in lieu of refunds
Timing of refunds
As the airline industry grapples with the fallout from COVID-19, one issue is keeping airlines, regulators, legislators and courts busy: passenger refunds.
Passengers who no longer wish to travel due to COVID-19 concerns or who have had their flights cancelled are demanding refunds from airlines. Numerous US and non-US airlines have become the target of putative class action lawsuits in US courts. Airlines, on the other hand, are grappling with a difficult truth. As Nick Calio – CEO of leading airline trade association Airlines for America – bluntly stated during a recent hearing before the Senate Committee on Commerce, Science and Transportation:
if air carriers refund all tickets, including those purchased under the condition of being non-refundable or those cancelled by a passenger instead of the carrier, this will result in negative cash balances that will lead to bankruptcy.
According to the Department of Transportation (DOT), it received 25,000 complaints and enquiries from passengers in March 2020 and April 2020 alone (compared with 1,500 in a typical month). In response, on 12 May 2020 the DOT issued a FAQ document to "help consumers understand their rights and to ensure airlines and ticket agents are complying with aviation consumer protection requirements" overseen by the DOT. The document constitutes guidance and therefore does not have legal effect and is not binding on airlines. However, the guidance is essentially a statement of the DOT's enforcement policy and intent. Specifically, the FAQs state as follows.
An airline must refund a ticketed passenger when it cancels or significantly changes their flight and the passenger chooses not to accept an alternative offered by the airline. The DOT has never defined 'significant change' or 'cancellation' in a regulation or statute. As a result, airlines may "develop reasonable interpretations of those terms" and must honour those interpretations. However, the DOT would consider any airline's attempt to retroactively apply a new definition of cancellation or significant change that disadvantages passengers who purchased tickets under a more generous definition to be unfair and deceptive. Further, the DOT will pursue enforcement action:
where a carrier has disregarded the requirement to offer refunds, failed to honor its refund policies, or where it is determined that the carrier's refund policies or practices are otherwise 'unfair or deceptive' within the meaning of 49 U.S.C. § 41712.
Passengers who purchased a non-refundable ticket on a flight to, within or from the United States that is still being operated without a significant change are not entitled to a refund or travel voucher. However, the DOT has stated that it will review any passenger complaints to determine whether an airline misled a passenger to avoid the need to offer a refund.
Ticket agents must make proper refunds when service cannot be performed as contracted for on a flight to, within or from the United States. Specifically, the DOT requires prompt refunds when:
(i) an airline cancels or significantly changes a flight, (ii) an airline acknowledges that a consumer is entitled to a refund, and (iii) passenger funds are possessed by a ticket agent.
The DOT requires airlines and ticket agents to apply the refund policy that was in place when the passenger purchased their ticket. If airlines and ticket agents apply retroactive changes to their refund policies that affect consumers negatively, the DOT will consider this to be an unfair practice.
The DOT allows airlines and ticket agents to offer consumers alternatives to a refund, such as credits or vouchers, as long as:
If an airline, by representation or omission, engages in conduct that is likely to mislead consumers about their right to a refund, or the value of a voucher or credits being offered, the DOT will consider this to constitute a deceptive practice.
Airlines and ticket agents must promptly refund passengers. For airlines, 'prompt' is defined as being within:
For ticket agents, prompt is not defined. Recognising that processing refunds may take longer than normal due to COVID-19-related service disruptions, the DOT will consider the totality of the circumstances when assessing the timeliness of refunds. For ticket agents, the DOT may look to the volume of incoming refund requests and steps taken to address the increased volume. For airlines, it may assess whether airlines are making good-faith efforts to provide refunds in a timely manner.
The DOT has reiterated that given the "unprecedented impact of the COVID-19 public health emergency on the aviation industry", it will exercise discretion by providing ticket agents and airlines the opportunity to become compliant before it takes action. Nonetheless, the DOT will continue to monitor airline policies and practices and has vowed to take action as needed.
For further information on this topic please contact Rachel Welford at Cozen O'Connor by telephone (+1 202 912 4800) or email (firstname.lastname@example.org). The Cozen O'Connor website can be accessed at www.cozen.com.
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