India court orders refunds for flights canceled due to lockdown

India’s Supreme Court ordered local airlines to refund tickets booked for travel during a nationwide lockdown earlier this year, dealing a blow to an industry already strapped for cash.

The court’s verdict also mandated airlines to issue credit vouchers even for tickets booked for travel outside the lockdown period, if the flights were later canceled due to virus-related restrictions.

Passengers must also be allowed to use those vouchers until March 31 on any route, and carriers must refund with a monthly interest if those remain unused by then. The verdict by a three-judge panel headed by Ashok Bhushan reinforces the view of Prime Minister Narendra Modi’s administration.

Many airlines around the world have issued so-called credit notes, instead of cash refunds, to passengers whose flights were canceled due to the coronavirus pandemic, providing carriers with a temporary revenue source to tide over the slump, even as disgruntled flyers demand their money back. India’s verdict—which was earlier estimated to cost local airlines more than $500 million—may a precedent for such disputes elsewhere, and make the road to recovery even steeper.

India has the world’s worst virus cases just behind the U.S., reporting almost 87,000 new infections on Thursday as the epidemic spreads in its vast hinterland. While the South Asian nation has indefinitely banned scheduled international flights, local airlines are allowed to operate domestically with a limited schedule. Still, most airlines struggled to fill even 70% of seats in August, and more than two thirds of passenger complaints were related to refunds, data from the aviation regulator showed.

The top court verdict, in response to a bunch of petitions filed by passengers, migrant welfare organizations, air travelers welfare bodies and travel agents association, also asked the Directorate General of Civil Aviation to ensure that airlines comply with the order. Indian carriers have already sought at least $1.5 billion as an interest-free credit line and deferred loan repayments from the government, and one or more are expected to fail in absence of any help from the government or airline owners.

The local aviation market in India, until recently the world’s fastest growing, is dominated by IndiGo, operated by InterGlobe Aviation Ltd. State-run Air India Ltd., SpiceJet Ltd., and the local affiliates of Singapore Airlines Ltd. and AirAsia Group Bhd. also compete in the market that flew 144 million passengers last year.