IATA’s Argument Against Flight Refunds

Recently we’ve seen both the US Department of Transportation and European Commission clarify that cash refunds need to be provided to passengers in the event that flights are cancelled or schedules are changed significantly.

This has been a tough point for airlines, as many airlines have essentially claimed that they’d completely be out of cash if they had to provide cash refunds rather than vouchers for cancelled flights.

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IATA’s argument against immediate flight refunds

The International Air Transportation Association (IATA) is the trade association representing about 290 airlines, or 82% of total air traffic. It’s an organization that essentially speaks on behalf of the industry.

IATA Tweeted to express disappointment at the US DOT’s ruling on flight refunds, arguing that it risks 750K jobs, each of which supports 13 additional jobs in the wider US economy:

We’re deeply disappointed by @USDOT ruling on issuance of vouchers for flight cancellations due to gov’t travel restrictions. This decision risks 750,000 #airline jobs, each of which supports 13 additional jobs in the wider US economy.

➡️ https://t.co/QmEoDtO8Ke pic.twitter.com/T97EkhcFlN

— IATA (@IATA) April 4, 2020

The Tweet links to a note by Alexandre de Juniac, President of IATA, and I’ll share the highlights here:

But there is a very harsh economic reality setting in. Airlines cannot cut costs fast enough. And with the $35 billion owed to travelers for flights that could not or cannot take place, airlines face an imminent depletion of the cash they need, not just to maintain employment, but ensure that they will be around to support the economic revival when the COVID-19 crisis is over.

Passengers have the right to get their money. They paid for a service that cannot be delivered. And in normal circumstances, repayment would not be an issue. But these are not normal circumstances. If airlines refund the $35 billion immediately, that will be the end of many airlines. And with that an enormous number of jobs will also disappear.

So what’s to be done?

The simple answer is that airlines need time. And that is why I am supporting airlines (and our partners in the travel and tourism sector) in their request for governments to delay the requirement for immediate refunds. We propose vouchers that could be used for future travel or refunded once we are out of this crisis period. This would buy the industry vital time to breathe—surviving the crisis so that they are ready to fly when better days arrive.

That’s our proposal to travelers. But it is not just their understanding that we need. Our travel agent partners are caught between the airlines and consumers. We are reaching out to them to create a structure for managing a voucher system that will be good for consumers, agents and the airlines.

I know that this is far from ideal. But the alternative is even worse. Without this flexibility, airlines will collapse, and jobs will disappear. Accepting a voucher or delayed refund today will mean that the airlines will be around for when we have our freedom to travel restored.

As you can see, his argument essentially boils down to:

• Travelers are owed $35 billion in refunds, but if airlines processed those refunds, many airlines would be out of business
• Passengers have the right to a refund, as they didn’t get the service they paid for
• Airlines need time, which either needs to come in the form of vouchers rather than refunds, or at least a delay in issuing refunds
• It’s acknowledged that this is far from ideal, but the alternative is even worse, and jobs will disappear if airlines collapse
• “Accepting a voucher or delayed refund today will mean that the airlines will be around for when we have our freedom to travel restored”

My take on IATA’s stance

I’ve said it before, and I’ll say it again — it’s wrong when airlines aren’t providing cash refunds when they cancel flights. It seems to me like theft to sell a product and then not even give people their money back when you don’t deliver. Never mind the fact that in many countries this violates the government regulations.

But I also think it’s important to acknowledge the reality of the situation, which is that many airlines either literally couldn’t afford to refund everyone in cash, and/or would be out of business within days if they did.

So where does that leave us?

• Some will say “too bad, that’s their problem,” and while I generally agree, the reality is that it’s also going to be our problem (globally), when governments around the world have to bail out airlines
• For those who don’t support any sort of bailouts, do we really want to potentially be in a situation where virtually no airlines globally are left? If this goes on much longer, that’s a very real possibility

But at the same time, why should airlines have the sympathy of passengers?

• US airlines are already getting government bailouts to the tune of tens of billions of dollars
• Why should individual consumers essentially be providing airlines with the liquidity needed to survive? It’s not consumers’ faults that airlines have already spent the money they took in from future tickets
• For airlines that do run out of cash, there’s a process for that — Chapter 11 — and isn’t that more appropriate than essentially stealing from customers?
• Customers will be quick to point out that airlines have almost zero mercy when it comes to flight refunds under normal circumstances, even if consumers can’t “afford” the change fees
• Why isn’t IATA at least openly advocating for airlines to greatly increase the validity of vouchers?

Ugh…