Ashley Nunes is a senior research associate at Harvard Law School whose research explores how innovation affects markets.
Where’s my money? That’s the question air travellers want answered. As the COVID-19 pandemic ravages economies worldwide, thousands of Canadians are stuck with tickets in hand and no place to go, and they want their airfares refunded.
Predictably, airlines are having none of it. The likes of Air Canada and WestJet – which dominate the Canadian air travel market – are instead offering fliers credit that can be used toward future travel. According to WestJet, “… airline tariffs do not always provide for cash refunds especially in cases beyond our control. WestJet believes refunding with travel credits is an appropriate and responsible approach in extraordinary circumstances such as the COVID-19 crisis.” Put another way, good luck getting your cash back.
If there’s one thing airlines hate, it’s issuing refunds. The reason comes down to pure economics. Running an airline is pricey. Commercial jets cost tens of millions of dollars. Add to that maintenance, insurance and taxes – all of which must be paid regardless of whether or not an airplane flies – and you’re talking about serious money. In 2019, Air Canada spent more than $17-billion on operating expenses. Its operating profit during the same time period? A mere 8.6 per cent. Globally, airline profits on a per passenger basis add up to just more than $8. This explains why airlines aren’t keen on returning your cash outright. They need it to survive.
Consumers shouldn’t be enthused by this reality, and they’re certainly not. One flier lamented, “As far as I’m concerned, our contract was void, and we should be refunded for that.” Others have gone further, calling the decision to withhold refunds both illegal and immoral. But what sounds like the truth isn’t always the truth.
For one thing, the legality of withholding refunds is less than clear. The Canadian Transportation Agency (CTA) – a quasi-judicial tribunal and regulator – says that “for flights cancelled for reasons beyond airlines’ control, the Air Passenger Protection Regulations, which are based on legislative authorities, require that airlines ensure passengers can complete their itineraries but do not obligate airlines to include refund provisions in their tariffs.” Put simply, if something bad happens that an airline has no control over (say a hurricane or a pandemic), and the airline has to cancel your flight because of it, a refund isn’t compulsory. But the CTA has also implied that passengers are entitled to a refund regardless of why a flight is cancelled.
In terms of the moral case for refunding unused plane tickets because of COVID-19, it’s clear that airlines are in the right, particularly if passengers pro-actively cancelled their trips. Here’s why. Imagine you rent a car for a family outing. (Algonquin Provincial Park is nice this time of year.) You prepay the car-rental agency and start packing. Shortly thereafter, you discover that Algonquin has been unexpectedly closed because of flooding. Is it really immoral for the car-rental agency to hold onto your cash because you can no longer visit the park? Why is the park’s closing the concern of the auto agency? Since when did one enterprise become fiscally responsible for the actions of another?
Make no mistake, flight cancellations or not, the disruption to air travel has been caused largely by government-imposed travel bans. Canada prohibits Germans from coming here; Germany bars Canadians from going there. Travel between the two countries drops as demand falters, and airlines – despite being willing and able to fly those routes – are caught in the crosshairs. So why are they the villains?
Has the pandemic inconvenienced fliers? Yes. Should airlines do something to address consumer concerns? Absolutely. Should consumers be given carte blanche in dictating how those concerns are addressed? Certainly not. Airlines have already offered fliers generous alternatives such as ticket transfers, bonus miles and indefinite voucher extensions. What more do fliers want?
Oh right – cold hard cash. As it turns out, there is a way to get that. It’s called buying a refundable ticket. In what should surprise few fliers, airlines do offer fares that can be refunded for any reason. At a price, of course. Predictably, the outrage over airline refunds isn’t coming from people who opted for those – albeit more expensive – fares. No, its penny-pinching fliers who are crying foul over not getting their cash back; bargain hunters who, year after year, spend as little as possible on airfares but demand as much as possible from airlines.
For all the industry bashing we have seen in recent years, the reality is that passengers – ever keen to score a bargain – deserve their fair share of the blame. Maybe if we ponied up more cash to fly, air travel would be a more sanguine experience.
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