The financial horizon looks uncertain for the airline industry, several are on the brink of running out of cash, loaded with debt due to recent massive aircraft acquisitions. Some warn about the possibility of bankruptcy. Consumers could face the loss of those canceled tickets. What happens to your voucher, travel miles, and airline credit card if they go belly up?
Air travel has all but come to a halt as the number of COVID-19 cases around the world has continued to grow. Passenger volume is down some 97%, according to industry trade group Airlines for America, reaching levels not seen since the 1950s. The average flight today is only transporting 10 passengers, down from around 100 before the coronavirus crisis.
Boeing Chief Executive David Calhoun suggested that a major airline in the U.S. will “most likely” go under as a result of the coronavirus pandemic during a recent appearance on NBC’s “Today” show. He added that it could take three to five years for the industry to recover to the passenger levels seen before the outbreak.
U.S. carriers’ stocks have tanked in response. Warren Buffett recently revealed that Berkshire had sold off all of its holdings in the airline sector, including stock in Delta, American Airlines, and Southwest.
‘If one of the nation’s biggest airlines went belly-up, it would create an absolute tidal wave of refund requests, and it is unrealistic to think that banks would grant them all.’ — Matt Schulz, a chief credit analyst at LendingTree
As the coronavirus crisis worsened, airlines quickly began adopting relaxed policies allowing passengers to receive travel vouchers and to rebook trips without incurring fees if they wanted to change their travel plans. But airlines have been stingier when it comes to providing full refunds.
A recent study estimated that airlines have distributed $10 billion in vouchers since coronavirus reached U.S. shores. While most airlines refused to confirm the value of the vouchers they had extended, the senators used data provided by JetBlue to reach that amount.
Most airlines will only give you a voucher if you cancel your trip. Of the airlines contacted by the lawmakers, only Allegiant and Spirit said they were providing refunds to passengers who voluntarily and proactively cancel their tickets during the coronavirus crisis.
Other airlines, including United, Delta, American, and Southwest told lawmakers they were only providing refunds to customers in cases where the airline itself chose to cancel a flight or significantly alter its itinerary. Therefore, passengers who want to proactively cancel their tickets with these airlines generally can only get money back in the form of a voucher. And in most cases, those vouchers have an expiration date.
Additionally, one airline, Hawaiian said it will provide refunds to customers if they originally received a voucher after they proactively canceled a flight that the airline then subsequently canceled. Alaska directed to the company’s policies regarding vouchers.
Frontier Airlines stated “Frontier will continue to evaluate our change and cancellation fee policies on an ongoing basis, and Frontier is committed to providing full refunds to customers who are eligible for a refund as determined by the fare rules and Contract of Carriage pertinent to their ticket,” Barry Biffle, CEO of Frontier Airlines, said in the letter.
Southwest said that customers on canceled flights can request a refund to the original form of payment. In cases where a customer cancels travel proactively, the airline is offering vouchers valid until September 7, 2022. That time frame was “extended from the usual time frame of one year from date of purchase, in light of the current circumstances,” a Southwest spokesman said.
But these policies aren’t consumer-friendly, advocates say. “There’s no benefit to taking the voucher,” said Chris Elliott, a travel consumer advocate. “All the benefit is to the airline.”
Depending on how the bankruptcy is handled, ticket-holders may or may not be in the clear. Often companies use bankruptcy as a legal tool to restructure its debts — in other words, an airline that goes bankrupt won’t necessarily be liquidated. In the last few weeks, Virgin Australia and Avianca took court protection.
“Alitalia, for example, has been in some stage of bankruptcy proceedings since 2017 yet has continued to fly,” said Ted Rossman, industry analyst at CreditCards.com on Tuesday. Colombia’s Avianca airline, one of Latin America’s largest airlines, filed for bankruptcy protection on Monday. But he added, “Avianca hopes to get back in the air once the coronavirus pandemic subsides.”
Here’s what consumers need to know:
There’s no guarantee that a liquidated airline will directly reimburse would-be passengers for the cost of their airfare.
Investors who own corporate debt and the stock would be paid back first, said Sara Rathner, travel and credit-card expert at NerdWallet. In other words. That, she added, “means you’re out of luck.”
Customers, meanwhile, are considered “unsecured creditors,” said Paul Hudson, president of consumer-advocacy group FlyersRights.org. The FAA requires airlines to have insurance for this, he said, but a payout could take a while if it comes at all.
Vouchers don’t have a cash value. In lieu of refunds, the vast majority of airlines have provided travelers who pro-actively cancel trips because of coronavirus with vouchers or credits. “They would lose their money,” Chris Elliot, a consumer advocate, said.
Travel vouchers don’t actually have a cash value. As a result, if a traveler is worried about their airline going under before all is said and done, they may be better off booking a trip using their voucher and then taking out a travel insurance policy on that trip that covers bankruptcies, Rathner said.
Your credit card company could bail you out. You can request a refund or charge-back from your credit card company if the airline goes belly up, experts said. (Debit cards may also provide some protection in these cases, but the claims process with credit cards is generally smoother, Rossman said.)
These requests can be made online or by phone. Making a request is no guarantee of receiving a refund, warned Matt Schulz, chief credit analyst at LendingTree.
“It certainly doesn’t hurt to ask, but you shouldn’t consider it a slam dunk that you’ll get your way,” he said. “If one of the nation’s biggest airlines went belly-up, it would create an absolute tidal wave of refund requests, and it is unrealistic to think that banks would grant them all.”
Timing is another critical issue. Under the Fair Credit Billing Act, consumers only have 90 days after your purchase to file a claim, Elliott said. “Banks sometimes will give you more time, but technically you only have three months,” Elliott said.
Your travel insurance policy may not protect you. If an airline liquidation hampers your travel plans, your travel insurance policy may cover some of the costs. The key lies in the fine print.
“Look at the policy’s terms and conditions to ensure it covers financial default, and make sure the airline you’re flying is a covered supplier,” Rathner said.
Frequent-flyer miles may be useless. “If an airline goes out of business, it would be bad for its elite-status members and frequent flyer-mile holders, but they still might be able to get some value,” Rossman said.
If the airline ends up merging with a surviving carrier through the bankruptcy process, those miles would likely be converted into the new airline’s program. This happened several times during the last decade when Continental and United merged or when American Airlines went bankrupt.
Some airlines have split their loyalty program into separate companies, Rossman said, which could survive the bankruptcy. Many carriers also have “status match” programs to attract frequent-flyer members from other airlines. These programs will give you the equivalent status, and surviving airlines could use these programs to attract elite members from the defunct carrier.
But retaining frequent-flyer miles or status is far from guaranteed. “Rewards are not considered property, and can be eliminated by the airline program at their discretion,” said Brett Holzhauer, travel and credit-card expert at LendingTree.
“If an airline looks like it will go out of business, people who have frequent-flyer miles should consider using them for flights or converting them into other purchases such as merchandise or gift cards,” Holzhauer said.
You must pay off your airline credit card. Many people sign up for co-branded credit cards from airlines to get attractive perks, including travel credit rewards, but just because an airline goes out of business doesn’t mean you can avoid paying off your credit card bill.
“Unfortunately for those with credit-card debt, you do still owe the card company if the airline/store closes, and there can be major consequences for your credit score if you don’t pay, ” Rossman said.
How to get a refund from an airline
Certain steps a consumer takes will improve the likelihood of receiving a refund in a timely fashion, according to consumer advocates:
- Contact the airline in writing. Phone lines at most airlines right now are flooded with people canceling or changing travel plans. “Don’t try to call,” Elliott said. “They will put you on ‘hold’ for half an eternity.” Instead, he recommends putting requests in writing.
- Take your request to social media. If you’ve been denied a refund, you might have luck if you complain on Facebook or Twitter. “If enough people take this action by posting and tagging the airline or hotel chain, it may cause them to reconsider their policy during this time,” the U.S. PIRG, a consumer advocacy group, recommends on its website.
- See if your credit card company can help. Many credit card issuers are relaxing their own refund rules for travel-related purchases right now, U.S. PIRG said.
- Wait until closer to your travel date. Airlines are bogged down with cancellation and refund requests right now. Waiting will avoid being on hold for an extended period of time. Also, airlines could cancel your flight in the interim, which would make getting a refund easier.
Early in April, the Department of Transportation issued an enforcement notice to remind domestic and international air carriers operating in the U.S. that “passengers should be refunded promptly when their scheduled flights are canceled or significantly delayed.”
By law, passengers traveling by air in the U.S. can get a refund if their flight is canceled and they choose not to re-book. Passengers are also entitled to a refund in the event of a significant delay or schedule change, though the Department of Transportation has not defined these terms. The department says it determines whether passengers are entitled to a refund for a significant delay on a case-by-case basis.
That has created a gray area for airlines though, Elliott said, which could make it harder for consumers to get a refund.
And while airlines are set to receive billions of dollars in bailout funds from the federal government, that money is meant to help the companies’ employees and not consumers.
