Proposed law would guarantee refunds for flights canceled during pandemic

Don’t feel comfortable getting on a plane given Covid-19?

If you’re thinking of canceling an upcoming flight you paid for, you might have resigned yourself to losing your money or perhaps, best-case scenario, getting an airline credit for some or all of the fare.

That’s because air carriers in the U.S. are required by law to refund airfares when they cancel flights and can’t offer a reasonable alternative itinerary — but don’t have to hand you back your money if you cancel your reservation yourself. If your flight’s still taking off and you’re not on it, you’re out of luck.

Given the current public-health crisis and surge in joblessness, however, a group of U.S. senators want that to change that. Last month, they introduced the Cash Refunds for Coronavirus Cancellations Act of 2020.

The proposed law, backed by five Democrats —  Edward J. Markey and Elizabeth Warren of Massachusetts, Richard Blumenthal and Chris Murphy of Connecticut and Kamala Harris of California — would require both major carriers and third-party ticket sellers to offer full refunds, in cash, for any tickets canceled during the pandemic, whether it was the airline canceling the flight or an individual passenger deciding not to travel.

“Americans need cash in their pockets to pay for food, housing, and prescriptions, not temporary credits toward future travel,” said Sen. Markey, in a press release announcing the legislation. The senator said anything less would be “unconscionable,” in light of the taxpayer-funded federal aid major carriers are getting during the pandemic.

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Sen. Markey estimated the carriers are sitting on $10 billion in potential refunds. “Airlines already have a moral responsibility to give cash refunds for all canceled tickets during the coronavirus pandemic,” he said.

The $2 trillion CARES Act signed into law by President Donald Trump in March provided for $25 billion in federal grants to passengers airlines and made an additional $25 billion in loans available, as well. The Treasury Department began sending payments to carriers in late April.

Consumer advocates hailed the senators’ proposal, which is still in committee.

“People who bought flight tickets and don’t get their refund may be in a situation where they suffer financially,” said Christian Nielsen, chief legal officer at AirHelp. The Berlin-based firm, founded in 2013, has helped 16 million air travelers in 35 countries file compensation claims against global carriers under international regulations.

“This bill would try to solve that problem,” he added. “I applaud it, and it’s a step in the direction of trying to improve consumer confidence.”

In May, Consumer Reports, non-profit federation U.S. PIRG and Denver resident and airline customer Jen Stansfield delivered to major airlines a petition signed by nearly 250,000 demanding cash refunds for canceled trips.

But given industry pushback and lobbying, and the truly dire financial straits U.S. air carriers find themselves in, travelers who’ve clipped their own wings shouldn’t hold out too much hope for passage.

“Based on my experience with how U.S. air passenger rights tend to [fare] in the Senate, it has very little chance of becoming law,” said AirHelp’s Nielsen.

Robert Mann, a former airline executive who runs aviation consulting firm R.W. Mann & Co., thinks federal regulators won’t be too keen on any change, either.

“My sense is that the Department of Transportation is fairly allied with airlines, as opposed to consumers, which is to say they rarely — except in truly unique circumstances — react in favor of customers,” he said.

In fact, the National Consumer League, which has welcomed the proposed refund legislation, objected in a May 28 statement proposed rules from the DOT that it said “require the agency to overcome burdensome hurdles before any new enforcement actions or consumer protection rule makings are initiated.”

To be sure, keeping as many air carriers aloft as possible is also in consumers’ own long-term interest. “The more choices the consumer has, the better it will be for them,” Nielsen observed. “In a perfect world, that would lead to lower prices and better service.”

While the law is proposed as a consumer-protection measure, “it will end up making carriers less liquid and drive them closer to a solvency event,” according to Mann. “I’ve been involved in the industry for more than 40 years and have never seen anything like this in the sense of draw on cash.”

An airline is a “negative-working-capital business” that finances operations on proceeds from future sales, Mann explained. If carriers are forced to refund in cash those future sales, even fares understood to be nonrefundable when purchased, “there is effectively no limit on the amount of cash draw on an airline’s balance sheet,” he said.

Nick Calio, CEO of airline industry group Airlines for America, which represents 12 major U.S. passenger and cargo carriers, told a May 6 Senate Committee on Commerce, Science, and Transportation hearing on the Covid-19 impact that “there are basically two bad choices.”

“It’s been said that we should ignore or change the current law and regulations so that any canceled any passenger cancels is entitled to a refund,” he testified. “I’ll just lay it out there for you right now: Revenue, negative revenue, exceeds bookings.”

Forcing cash refunds in all instances would lead to airline bankruptcies “very quickly,” Calio said. According to Airlines for America, as of May 19, U.S. airlines were “collectively burning” as much as $7.5 billion per month, with net passenger bookings down 92% and booked revenue down 100% year over year.

Unlimited passenger refunds would also mean much of the federal aid in grants and loans to airlines might ironically “end up going right back to consumers in the form of refunds,” Mann said.

Airlines normally don’t like to make refunds of any kind, mandatory or not. In March and April, the Transportation Department received more than 25,000 complaints from consumers who said they had been denied refunds by carriers, according to The Washington Post.

Even in overseas markets like the European Union that have stronger air passenger protections in place, airlines are resisting pandemic-related refunds, said Nielsen at AirHelp. “What we’re seeing here in Europe is that airlines aren’t paying because they’re struggling financially and it just doesn’t make any sense for them to pay,” he said. “They would rather face a lot of negative media, political pressure and all kinds of other pressure than pay out.”

Airlines for America spokesperson Katherine Estep told CNBC that member carriers “have worked since the early stages of this pandemic to respond to customers and update travel policies to offer increased flexibility.”

“We follow and comply with federal law and regulations on this matter,” she said. “U.S. airlines remain committed to making accommodations that are responsive to travelers’ needs during this unprecedented time.”

If passed, the Cash Refunds for Coronavirus Cancellations Act would:

• Require major airlines and third-party ticket sellers  to offer full cash refunds for all canceled tickets during the pandemic, whether carriers canceled flights or passengers canceled their tickets.
• Allow airlines and ticket sellers to offer travel vouchers as an alternative to cash refunds as long as the vouchers are valid indefinitely and the right to a cash refund instead is explained clearly and prominently.
• Permit airlines to pay cash refunds with any emergency funds from the government, except for CARES Act grants targeted at workers payroll and benefits.
• Make the new rights retroactive to March 1, so passengers who got a travel voucher but did not use it can ask for a cash refund instead.
• Mandate cash refunds be available until 180 days after Covid-19 emergency declarations are lifted nationwide.

Mann observed that airlines, an industry “consumers love to hate,” have set themselves up for this type of situation with poor customer service in the past. “The airline industry does this to itself,” he said. “Why do we have the long tarmac-delay rule? Well, because airlines kept people stuck for eight or nine hours in the middle of snowstorms.

“Why do we have the sort of legislation that is now being proposed?” Mann added. “It’s because airlines either couldn’t give people an acceptable alternative or couldn’t give them the sense of security and confidence that their bookings would be maintained.”