Airlines face rising pressure to refund fares for cancelled flights

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Airlines are facing new calls to refund airfares for flights cancelled in the COVID-19 pandemic, as passengers say they have no immediate plans to travel and want their money back now.

Luc Thériault, a member of Parliament who represents Montcalm, Que., demanded answers from Transport Canada officials appearing before a parliamentary committee on Monday, asking why Canada has not followed the lead of the European Union and United States and ordered airlines to refund customers’ money.

He said Air Canada and Transat AT Inc. have plenty of cash, and should be made to provide refunds – not credits – for cancelled flights as conditions for tapping federal government assistance.

“This money is not Air Canada’s,” said Mr. Thériault, a Bloc Québécois MP. “It belongs to the consumers who did not get the services they paid for.”

Matt Jeneroux, a Conservative MP for Edmonton Riverbend, said it is “unfathomable to me that if someone paid for a service but didn’t use that service, that they would still be charged for that service.”

Representatives of Air Canada, WestJet Airlines Ltd. and Air Transat responded by saying their refusals to give cash refunds were in line with federal regulations and the guidance of the regulator, the Canadian Transportation Agency (CTA).

The airlines are facing a handful of proposed class-action lawsuits and court actions as angry customers try to extract refunds at a time of unprecedented economic hardship for consumers and businesses. Globally, airlines are sitting on US$35-billion in customers’ money, but many carriers will fail if they are forced to immediately give back the money, says the International Air Transport Association, an industry group.

Gabriel Cohen, a Denver resident, said in an interview Air Canada refused to refund about US$3,000 for flights to and from Sao Paolo, Brazil, where his brother was to be married. Mr. Cohen, who lived in Toronto for four years, called the carrier’s response “abhorrent and “unCanadian.”

Appearing before the parliamentary committee remotely on Monday, Lawrence Hanson, Transport Canada’s assistant deputy minister, said the government does not have the legal powers to demand airlines provide refunds. Nor are requirements to do so among the conditions of government loans available to large employers, Mr. Hanson said.

Echoing comments made by Transport Minister Marc Garneau a couple of weeks ago, Mr. Hanson said carriers forced to give back airfares could face financial ruin, given most of their schedules have been cancelled and future demand for air travel is uncertain. “It could be significantly problematic for them to provide refunds at this time,” Mr. Hanson said. Governments in Europe and the United States are not fully enforcing refund orders, he said.

Air Canada vice-president Ferio Pugliese told the committee the airline has refunded $1-billion in fares, but is issuing vouchers for the rest.

Transat’s government affairs director Howard Liebman said the airline, which recently announced a restart of some routes, is in “grave” financial shape and cannot afford to pay back customers. He noted carriers in Europe and the U.S. benefited from multibillion-dollar government aid packages, unlike Canadian airlines. “We do need help,” Mr. Liebman said. “We are not operating. There is no business or industry that can go for three months with no revenue or operations and meet all of our obligations.”

In light of the pandemic, the CTA issued a temporary order that the airlines be exempt, in some instances, from laws that require them to pay compensation to some passengers whose flights were cancelled. The regulator also said vouchers for future flights – not refunds – are an “appropriate” response for airlines to an unprecedented drop in passenger volumes. Airlines “should not be expected to take steps that could threaten their economic viability,” the CTA said.

The regulator later tried to soften its position, saying its statement on vouchers was “not a binding decision” and that aggrieved customers could file an appeal with the CTA. However, the CTA has not clarified how that squares with its earlier statements, even as it says it will judge every dispute “on its merits.” (The CTA has halted airline dispute resolutions until June 30, blaming the pandemic.)

The CTA has said its chief executive officer, Scott Streiner, has not been available for an interview over the past 12 days.

Air Canada had $2.6-billion in advance ticket sales at the end of March, and has since boosted its cash balance to about $10-billion, through borrowing, and stock and bond issues. Transat held $605-million in customer deposits and deferred revenue at the end of March. WestJet is privately held by Onex Corp. and does not disclose its financial position.

Brahm Steinberg of Montreal was unable to convince Air Canada to give him back $932 for flights home from Phoenix. “They said no – no refunds,” Mr. Steinberg said in an interview. Instead, he had to pay “thousands” for two last-minute seats home in late March. Mr. Steinberg said he was unmoved by predictions that refunds would bankrupt some airlines. “Let some of these executives give back some of the money they made all those years,” Mr. Steinberg said.

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