Airline Refund Rules Have Changed, But Opportunities Still Exist

When should an airline ticket be refunded, and how? This simple-sounding question has been a source of debate for decades, but kicked into high gear after the pandemic hit. Airlines quickly cancelled many flights and started hemorrhaging cash. Many people thought, logically, that the ticket they held for a flight that no longer existed should be refunded in the form of payment made. Airlines initially could not do this, so relied on policies to offer credits for future flights instead.

A resulting change to many airline procedures happened as a result of the attention this refund issue caused. Yet despite these changes, there are some who think the airlines can do more than even their updated rules allow. Also, almost no changes were made to refund rules when the customer decides to make a change. This is still a hotly debated topic and issues of fairness, responsibility, accountability, and economics all clash in trying to solve it.

The Economic Challenge To Many Refunds

Airlines sell a spoilable product. Once the door closes before takeoff, any opportunity to sell a new seat on that flight is lost forever. Further, people tend to search and buy their flight over a 12-week period, and sometimes longer. The rate at which traffic builds over this time period is called the booking curve. While a seat is being held for a customer for a flight that is weeks away, that seat cannot be sold to someone else. If a passenger books a seat 10 weeks before the flight, and cancels their ticket four weeks before the flight, the airline still has four weeks to sell that seat but has lost, or spoiled, six weeks of selling opportunity. Thus, the probability of selling the seat decreases.

Compare this to a retailer. If I buy a product and later return it, the store can still resell that item or get some value for it. Also, if I don’t buy the product today, it is still available for sale tomorrow. Airlines can’t do this. This is the economic reality that makes refunds so expensive for airlines. When the airline cancels a flight, they recognize that you didn’t get what you bought and again are offering refunds. But if the customer changes their situation and asks to cancel, airlines are looking at a lot of costs that often the consumer doesn’t recognize.

How Airlines Have Moved Since The Pandemic

With a lot of pressure from consumer groups and action from Congress, airlines have improved their accountability with refunds for cancelled flights or significantly delayed flights. Airlines outline what they will do in the contract of carriage. This document, possibly the most widely-signed contract in the world that almost no one reads, is what consumers agree to when they buy an airline ticket. These contracts can be many pages long and outline in detail what the airline will do in all kinds of situations. When checking the “I agree with the terms and conditions” box as required when buying an airline ticket, a passenger is agreeing with this massive contract even though they probably don’t realize it.

The only way to know for sure if, and for what, your airline will offer a refund is to read their contract of carriage. What has changed in the last few years is that airlines have modified these contracts to state more specifically that refunds can be offered for cancelled flights and they outline the specific kinds of delays that earn a refund. Consumers are better off as a result of these recent changes for most airlines.

Options To Change Further When The Airlines Delay or Cancel

The changes made in the last few years are the result of wrangling among consumer groups, the airlines’ main lobby group Airlines for America (A4A), and legislators. Negotiations like this are compromises, and if done well no one feels they got everything they wanted. This is true for refunds caused by flight disruptions. Airlines can still avoid paying refunds for things they are not directly responsible for, like weather. This makes sense from the airlines’ perspective, but as a consumer a flight cancellation isn’t different because of weather. It still messes up your trip.

The other way this category of refunds could further be improved is to offer other incentives or forms of payment. This may be cash friendly to the airlines but better received by some consumers. A refund in the form paid (cash or credit card likely) is easiest, but if offered flight credit, loyalty points, or other benefits it’s possible the airline could offer more and the customer will feel better off.

When Customers Request A Change, Most Bets Are Off

When an airline can’t fulfill a promise due to flight change, they mostly own up to this and offer a refund or other options. But when the passenger calls and wants to cancel, airlines are not so accommodating. This is because of the economics outlined above. Airline see this change as having limited their revenue opportunity, and since you asked them to hold the seat, they can’t let you off the hook for free. There are three big categories of these kind of refund requests.

The first is illness. Airlines don’t want sick people on their planes, but have no ability for customers to change a flight for sickness without meaningful costs. If you walked to the ticket counter on the day you had planned to travel, and stated that you had a highly contagious disease and would like to fly a few days later, the agent would dutifully calculate the change in ticket price plus the change fee you will owe for making this change. If you don’t want to pay this, they’ll let you board with your illness. There are big issues with solving this problem. One is that people will likely abuse this policy if created, saying they are sick when they really want to just stay another day or two. The other is that a change at flight time is the most expensive to an airline, since they will have an empty seat that minutes before was paid. This problem likely will not be addressed anytime soon.

The second category of passenger cancellations is a wide range of “I screwed up” issues. My car broke down, I didn’t anticipate the long line at security, I was in the bar and didn’t hear the flight announcement, etc. Airlines have no tolerance for these kinds of issues and will hold the customer responsible. They likely will offer some form of flight credit, but certainly will not issue a cash refund when they met their end of the bargain but the customer didn’t. The third category is when a reputable public agency cautions against flying. If you’re booked to fly to Las Vegas on Friday, and on Wednesday the CDC states that people going to Las Vegas should consider changing due to an issue there, who is responsible for this refund request? If the airline is still flying the flight on Friday, they will treat this like the second category and offer nothing but flight credit. But the passenger doesn’t think they messed up either, and is just trying to be a compliant citizen. Unless something changes, airline contracts of carriage currently favor the airlines in these situations.

Change For Refunds Is Slow And Political

Rule changes for refunds happens slowly and is highly political. The recent changes were only after the massive flight cancellations caused by the pandemic and all of the consumer angst that happened as a result. Like most airline regulations, Congress usually needs a triggering event to which they can react. A plane sits eight hours on the ramp waiting to take off, passengers revolt, and later the tarmac delay rule is passed. A Colgan airplane crashes in Buffalo, NY, and later regulations related to pilot hiring requirements and rest are instituted.

A4A is an effective lobby group for the U.S. airlines and keeps the economics at the core of what they do. They quantify the costs of potential regulatory changes and argue efficiently for the airlines’ positions. Consumer advocacy groups, like Travelers United, take the consumer point of view but are smart enough to understand the airline issues and so try to push pragmatic solutions. But making change without a triggering event is hard, and so because of these counteracting forces changes in refund rules are slow to change and don’t change that much. That’s why reading your contract of carriage before you buy the ticket is the best way to manage this minefield.