It started with a schedule change policy. United — looking ahead and realizing that it was about to be bleeding cash when it canceled more than half of its flights due to this coronavirus — decided to suddenly scrap its rule allowing refunds when flights changed more than two hours. This trend has now blown up into something much bigger with airlines around the globe outright refusing to give refunds in a variety of creative, though potentially illegal, ways. This may save cash from going out the door now, but it’s going to hurt the airlines in the medium term.
United has switched its schedule change policy in the last couple weeks more often than Alitalia has lost money. In the end, it settled on allowing refunds on any international schedule change over six hours… but only upon the expiration of ticket validity one year after the date of purchase. The only way to access that money earlier is to use the existing credit for future travel.
Other airlines jumped on the bandwagon quickly, including JetBlue. Emirates denied refunds outright, but it did extend ticket validity by more than a year. Air Canada has refused refunds as well, as has Air New Zealand and LATAM. There are plenty more. As schedule changes rained down, travelers were all stuck holding on to reservations for flights that would not operate. And they couldn’t get their money back.
Some airlines decided to get very sneaky. Lufthansa Group didn’t change its refund policy, but instead it just inhibited system functionality that actually allowed refunds to be processed until some unspecified future date. Air France/KLM still allows refunds, but it won’t allow third parties to process them anymore. This requires submitting directly to the airline for a refund, and presumably that won’t be processed quickly.
United took things a step further last week when it went beyond schedule changes. In a note from the sales team that was broadcast widely, United said this.
In the event one of your customers experiences a flight delay or cancelation on the day of travel and rebooking is needed, please contact United.
If your customer would prefer not to travel at this time, their ticket value may be applied to a new ticket, without fee, for up to 12 months from the date of purchase.
In other words, if your flight is canceled for any old reason like a mechanical or crew delay… it looks like you can’t get a refund at all.
I understand what United is trying to do. It’s really just making an effort to flatten the curve. No, not that curve. The cash curve.
This is not in any way grounded in actual numbers. It’s just a crudely-drawn concept. (I think you can appreciate in times like these, we all need to tighten our belts and use MS Paint.) The point being made is that United and others are now preventing cash from flying out the door and preventing that deep dip on the left side. But incoming cash will stay low when the recovery happens. People will wait longer before buying tickets, and when they do, they’ll have to navigate their way around all those people trying to burn their old credits.
Some will argue that it’s better to do this than to go out of business, but I have a hard time imagining United being allowed to fail. It already has billions of dollars coming in through the bailout. Instead, United should be worrying about its future.
There are really two things at risk. The first is most obvious. The Department of Transportation says if your flight is canceled, you can get a refund. United says… nah. I expect that United is going to find itself in trouble here. This isn’t a time to be angering governmental agencies, since it’s the government that is likely the only hope United has of getting through this crisis intact.
The other issue, however, is more about the future, as I briefly mentioned above. The problem is much more than just limited cash flow once bookings pick back up. We’ve increasingly heard from people who are wondering when to start booking flights again. Nobody knows what’s happening, but people are feeling slightly more confident about fall travel. (Keep in mind, this is from a baseline of zero confidence in booking any travel, so it could only go up.)
The issue is that people who are willing to buy tickets want to know that if they guess wrong and things are still bad, they can get their money back. Some airlines will allow this, but it’s the increasing number like United that don’t that ruin it for everyone through all the negative media coverage. That message only makes people more gunshy about purchasing new travel, and that’s going to slow the recovery once we’re on the other side of this.
I can tell you that I wouldn’t personally book an international United flight right now. I’m not willing to take a gamble that I won’t get my money back for a year, if ever, if the flight doesn’t operate. I would buy a ticket on American and Delta, and I would hope others would support them. American has actually gone above and beyond here by giving travelers the option of a refund or a credit with a 20 percent bonus above the original amount. It’s a great way to try to keep cash while also giving customers a choice. United should take lessons.
The problem is… it only takes one bad actor to hurt the entire airline industry. People are already nervous. The idea that your money may not come back to you even if a flight cancels just creates another unecessary roadblock preventing people from buying tickets. I know right now it’s hard to see beyond the present, but once that other curve starts trending down, air travel is going to be slower to pick up because of actions like these.