Credit card and airline companies are reeling from an unprecedented $35bn in refunds for covid-19 tickets cancellations, causing bewilderment among frustrated customers.
Many airlines are pushing back on customers’ demand for refund, claiming they have yet to receive the required cash from the credit card companies that process airline payments.
Governments in the US and EU have reaffirmed travellers’ right to get their money back. At the same time, the beleaguered airline industry is appealing to governments to approve airlines issuing credit vouchers for future flights in place of cash refunds.
Meanwhile, an open-ended warning against travel has holidaymakers unsure what to do about existing bookings, while evolving airline refund policies have left many travel advisors all at sea.
“The airlines want to make sure they do the right things for their customers, but they also want to make sure they have the cash to survive,” said Peter Vlitas, senior vice president of airlines for Travel Leaders Group.
The airline industry has never had it so bad. Not even after the 9/11 terrorist attacks.
The $35b liability for tickets sold but not flown, combined with airlines’ fixed costs, is expected to result in a $61 billion cash outflow for the world’s airlines in the second quarter of this year.
The delay in credit card settlements “is severely constricting their cash flow to the point of threatening the continuation of their operations, as evidenced in past airline bankruptcies,” said Chris Goater, assistant director, Corporate Communications at the International Air Transport Association (IATA).
Goater added that a number of airlines have already suffered financial distress and even gone bankrupt due to the extended cash holds that credit card banks place on their sales.
The settlement terms depend on the level of confidence that credit card companies have in the long-term survival of an airline, but they can be a self-fulfilling prophecy.
If an airline gets into trouble, and has no access to the bulk of capital generated by its sales, then it will fail.
Customers caught in the middle
Even when holidays are cancelled, many travel companies are refusing to issue refunds, insisting customers rebook their trip or accept vouchers instead.
Some other operators are not cancelling trips until two weeks before the departure date.
Companies including TUI, Love Holidays and Virgin Holidays are issuing credit notes for cancelled bookings in the first instance, even when customers have asked for a cash refund. Ryanair is doing the same.
However, these vouchers may not be financially protected by Atol. That means holidaymakers risk losing their money if their firm goes bust before they are able to take their holiday.
Some customers have resorted to asking their card provider to help get their money back, while those still paying deposit installments on holidays for this summer are wondering what to do.
Many passengers have been left holding expensive onwards flights, hotel, and other holiday bookings that they will not be able to cancel. In many cases, they can consider that money lost.