- Airlines are taking their time when issuing refunds for canceled flights with some would-be flyers waiting months to get their money back.
- The coronavirus pandemic has impacted cash flow to the point where airlines are struggling to stay afloat and refunds have been put on the back-burner.
- Customers have to be proactive when getting a refund with airlines wanting to keep the funds for as long as possible in an effort to conserve funds.
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It’s not the best time to be an airline right now and it’s an even worse time to be owed money by an airline.
The three-month period from March to May saw record low commercial flights as countries closed their borders, states went under lockdown, and fears of the virus kept potential travelers at home. Airlines that were once making billions in profit each year suddenly started losing millions per day as they couldn’t pay people to get on an airplane, with some airlines forced to keep flying and lose even more.
Even without passengers to make the flights worthwhile, airlines couldn’t just shut their doors for three months and ride out the storm. Rules from both the European Union and the US Department of Transportation also kept airlines flying, even if planes were empty, in order to preserve valuable slots at major international airports or to maintain national connectivity.
Consumers were quick to cancel travel plans upon news of the virus’s global spread but some wouldn’t be made whole for months as airlines didn’t have the cash on hand to issue refunds.
Here's why.
No passengers, no cash flow
March saw not only one of the largest drop-offs in air travel passenger numbers since September 11 but also saw record cancellations and a lack of new bookings to cover the losses. It was a triple threat that airlines couldn't have expected.
The largest airlines were among the worst hit as their massive infrastructures are not often cheap to maintain. Lufthansa was reportedly losing $1 million per hour with many of its subsidiary airlines only just relaunching flights in mid-June and United Airlines reported losses of around $100 million per day in March, Forbes reported.
With no cash coming in and any remaining fund going towards keeping the airline afloat and employees paid, refunds weren't the highest priority for airlines and the US government had to step in to remind airlines that passengers must be refunded for flights canceled by the airline.
"The airlines are trying to preserve their cash flow," Henry Harteveldt, airline industry analyst and co-founder of Atmosphere Research Group, said in a previous interview with Business Insider in March when asked why airlines might not be quick to offer refunds.
Lufthansa only settled a government bailout deal in late-June that gave it $10 billion in funds in exchange for a 20% piece of the airline, Reuters reported. Just a few weeks later, customers who had been waiting months for their money back received it, including this reporter.
The difference between refund and credit
Airlines are boasting flexible booking policies that include free changes and cancellations but just because a flight can be canceled,that does not mean it can be refunded. Even under the most flexible booking schemes, canceled tickets will be converted into a travel credit or voucher that can be used for a later date on that airline.
As their name implies, only refundable tickets can be converted back to cash. If the cancellation is the result of an airline's doing, such as flight cancellation or schedule change, a non-refundable ticket can often be refunded but some airlines, like Air Canada, are not issuing refunds even if the flight is canceled due to the COVID-19 pandemic.
The airlines do this for multiple reasons including preventing unnecessary bookings and keeping funds for as long as possible before the bill comes due. When a passenger purchases a ticket, it's basically an investment or loan to the airline that's only paid back when the flight actually departs.
It doesn't cost the airline anything to hold those funds and all the passenger gets is a confirmed ticket to ride, nothing more.
When a passenger cancels a flight and takes a credit or voucher over a refund, the terms of that loan are extended to whenever the passenger decides to rebook, if they rebook at all. The zero-interest loan helps the airline keep the lights on in the meantime and trying to get that money back isn't always easy thanks to the rules airline lay out in their terms and conditions, also known as a contract of carriage.
Don't expect airlines to automatically issue a refund after a flight is canceled
If a flight is canceled by the airline and the customer is eligible for a refund, it's still up to the customer to seek out the refund rather than the airline automatically pushing it through. The reason for doing so isn't just so the airline can hold on to the funds longer, although that is a large part of it, but it's also because issuing a refund without a customer's say-so can do more harm than good.
Automatically issuing a refund when a flight is canceled assumes that a customer doesn't want to rebook, which is sometimes the case. But in the event that the customer wants to rebook on another flight, the refunded cash is trapped in limbo between the airline's bank account and the customer's bank account.
The funds will be redeposited but it will take a few business days at the very least and not every customer has the spare funds to rebook another ticket while they wait for the refund. Having the funds held by the airline allows for them to be transferred to a new ticket and help the rebooking process, making up for the hassle of waiting on hold to request a refund after a flight cancellation.
How to speed the process along
Refunds are controlled by the airline but there are some processes in place to help regain control of the situation and the greatest among them is the credit card dispute. After two months of waiting for a separate refund, I compiled the documentation from the airline that stated I had canceled my flight and called my bank to initiate the process.
After providing them with all of the documentation, I was issued a credit and the case was eventually resolved in my favor. Taking to social media and filing a complaint with government agencies tasked with overseeing the airlines or consumer relations is another alternative, though airlines are inundated with these types of complaints at the moment.
Sometimes, the process is just a waiting game, as I found out after just receiving a refund in July for a flight I canceled in March.