Stricken airlines risk clash with EU in bid to avoid refunds

Airlines grappling with their biggest peacetime crisis face a European Union legal headache after offering customers vouchers instead of immediate refunds for flights canceled amid the Covid-19 pandemic.

Consumer groups say the offers—intended to preserve dwindling cash balances—flout the bloc’s rules, which insist passengers should get to choose a voucher or a full repayment. It isn’t clear if airlines breach those rules by offering a voucher today with a promise of a refund in a year’s time if unused.

“Airlines must refund canceled flight tickets,” EU Transport Commissioner Adina Valean said in an emailed statement on Wednesday in Brussels. “They can of course also offer a voucher but—and this is very important—only if the customer agrees to accept this. If the customer does not want a voucher or other proposed solution, the company must reimburse.” She didn’t address the issue of delayed refunds.

EU law requires reimbursements to be made within seven days. The legislation, which dates to 2004, sets no time limit for the validity of travel vouchers.

The Dutch arm of Air France-KLM is among several carriers handing out credits for flights it canceled, in line with Dutch rules that insist passengers can get their money back if the vouchers aren’t used within 12 months, said KLM spokeswoman Marjan Rozemeijer. The company wouldn’t give the value of vouchers it’s issued.

Under the EU legislation, a money-back option arises only when a flight is grounded by an airline. Passengers who cancel their own flights might be offered vouchers by the carriers but aren’t legally entitled to a refund even if the vouchers go unused.

Thousands of flights have been canceled in Europe since governments imposed travel bans to halt the spread of the virus, hitting business travel, spring ski trips and Easter school holidays. While many airlines are paying customers back, some aren’t, bolstered by consumer rules in the Netherlands and Belgium that allow them to hand over a voucher for a future flight. Airlines will burn through as much as $61 billion worldwide in the second quarter, the International Air Transport Association says, with revenue set to plummet by 68%.

European air passengers already benefit from some of the world’s toughest compensation rights, receiving meal vouchers for short flight delays and able to claim compensation even for onboard coffee spills. Airlines have fought dozens of legal battles at the EU’s top court to clarify when exactly they need to pay out for flight delays, cancellations or boarding issues.

Air France-KLM and its Transavia arm along with others including Portugal’s TAP “aren’t giving their customers a choice” and “the passenger risks accepting a voucher from a company that could go bankrupt,” Belgian consumer association Test-Achats said in a statement on Wednesday. It said it’s sent these companies a warning to make changes within eight days.

Special Guarantee

EasyJet Plc, Deutsche Lufthansa AG and its Brussels Airlines unit don’t mention the possibility of a refund on their website, Test-Achats said, asking them to clarify their position. It’s also asking the Belgian government to create a special guarantee for vouchers that would encourage passengers to accept them.

EU Justice and Consumer Affairs Commissioner Didier Reynders last week said regulators are working with EU nations “for guarantees to encourage consumers to accept the vouchers.” Passengers should have the right to “choose between a full refund or a voucher to reschedule” their trip if they have a package holiday canceled, he said in a March 24 tweet.

Even March 18 EU guidelines on passenger rights don’t make clear whether a delayed refund would flout the European rules. The EU cited vouchers as an option when urging travelers to “consider accepting that their package tour is postponed to a later point in time.”

Complaint forms are hidden on airline websites, phone numbers are unavailable or very difficult to reach, said European consumer organization BEUC in a letter to the EU’s Valean.

Passengers are also complaining that airlines are offering new re-bookings with “unrealistic” deadlines that would push them to travel this summer, which may not be wise if the virus hasn’t abated by then, BEUC said.

The EU should ensure vouchers are valid for at least two years, it said. People are also being told to pay the difference for new flights or not given a refund for flights at a later date that cost less.

$4.4 billion

Lufthansa is allowing passengers to rebook and issuing vouchers that can be used once air transport is moving again. The company wouldn’t disclose its current potential liability from tickets, but the firm’s annual report put the number at more than 4 billion euros ($4.4 billion) at the end of last year.

“Basically, we are trying to push as many vouchers as possible and not allow for cancellations just to be refunded immediately,” Lufthansa Chief Financial Officer Ulrik Svensson said on the company’s earnings call on March 19.

A spokesman for TAP said the Portuguese airline is reimbursing the cost of the canceled flights through vouchers. It also offers the possibility of rescheduling the flight. Passengers with a voucher have one year to make the reservation, and then another year to use the trip.

EasyJet said customers can claim a refund through its call center, acknowledging that there are currently “higher than average wait times.”

The company said “these entitlements will be available long after their canceled flight has flown.” Customers can change flights to a later date—even if the flight wasn’t canceled—and the airline is taking bookings until Feb. 28 next year.

Transavia said it was issuing vouchers to passengers. A direct refund “isn’t possible” because it’s an extraordinary situation that has hugely affected the travel industry, spokeswoman Claudia Metz said.

The Dutch government supports the use of vouchers “because the passenger retains the right to a refund of the ticket, and it avoids airlines come into even greater financial distress,” Dutch Infrastructure Minister Cora van Nieuwenhuizen said in a note on Monday.

IATA Director General Alexandre de Juniac praised nations, also including Canada and Colombia, that backed vouchers, saying this would bolster airlines with “a vital time buffer so that the sector can continue to function” and maintain cargo shipments during the crisis and the longer-term flights “that travelers and economies will depend on in the recovery phase.”

The EU’s Valean said the European Commission, which has loosened state-aid rules for companies amid the virus crisis, is now “assessing the liquidity needs” of airlines to see if it’s necessary to take other action to help them.