Aviation Sector’s Dilemma of Refund Amid Quest for Survival

  • May 25, 2020 BST
  • Team Kalkine
Aviation Sector’s Dilemma of Refund Amid Quest for Survival
  • British Airways is said to have deliberately hidden the refund option
  • The industry watchdog is closely monitoring the airline carriers
  • Gradual restart and the change in perception of the players regarding air travel

The airline industry has been under the drain as the pandemic took over the world by surprise. It is among one of the most affected sectors so far, and the airline carriers have reduced flight hours, grounded their fleet, laid-off people as the travel restrictions were imposed by the governments.

The airlines provided different options to their customers who booked the tickets in advance. Most of the airlines provided rescheduling options to customers free of charge or cash vouchers. However, claiming a refund has been a bit cumbersome process on the consumers front.

However, in the airline industry, there have been instances where customers were denied their refund rights. British Airways allegedly hid its refund option on its website and redirected the traffic to a page where the customers could opt for a cash voucher which they can utilise in the future.

No doubt, the airline industry is in deep trouble, and we all want it to sustain through these unprecedented times. But during these difficult times, when the world has seen complete catastrophe, its not only the businesses but the common life too have been devastated, people have lost their jobs and that time airlines have been allegedly discouraging cash refunds.

From an ethical perspective, if the consumer has not utilised a product or service, the business cannot consider the money from it as revenue. However, it can be considered as a provision, and a refund must be exercised if the ownership of the product or service is not transferred.

There are two possibilities, one possibility is that the consumer does not want the product or service offered by the company, while the second possibility is that the company is not able to provide the product or service to the consumer due to any reason.

In the context of the airline industry, if the customer cancels his trip, the airline company can charge him cancellation fees and return partial amount or issue him an equivalent cash voucher, which can be utilised in future trips. The customer may also reschedule his trip. However, if the airline company cancels the flight, the customer is entitled to a full refund.

According to some reports, British Airways tried to deceive its customers by trying to trick its consumers in accepting vouchers for future travel. The company allegedly redesigned its refund and cancellation page to hide the refund option deliberately.

The customers who were eligible for full refund ended up accepting cash vouchers, considering that it is the only option. Though some reports suggested that customers who contacted the company through the phone were more likely of securing full refunds. The company stated that this happened due to a technical bug, and the refund feature on its website would be restored shortly. However, with people panicking, they might end up accepting the vouchers.

As the novel coronavirus continues to mount pressure on the world economy, the businesses are trying hard to reduce costs, preserve cash and ensure liquidity in the quest to survival. Issuing cash vouchers would help the airlines to enjoy the float from the customers and help them in the sustainability of their operations.

UK Civil Aviation Authority on the prowl

The UK Civil Aviation Authority, the industry watchdog, has always intervened to protect the right of the consumers. The authority is closely monitoring the handling of refund applications by the companies amid the unprecedented crisis. The authority is not only looking to protect consumer rights but is also trying to boost consumer confidence for the sector. The authority does not expect airlines to systematically deny consumers their right to a refund and has provided the airline carriers with guidance regarding that.

As per the law, in case a flight gets cancelled, the customer is eligible for a hundred per cent refund. The authority expects the airline carriers to provide their customers with an option to request a cash refund with minimum complexities and turnaround time. However, its upon the customer to consider the challenges positively, faced by the airline sector in the current circumstances and go by itself to support them by opting for vouchers and rebooking alternatives when it is feasible for them.

Gradual restart and change in players perception

The airline industry is preparing for a gradual restart, mostly within domestic markets and to low-risk neighbouring countries initially, following almost three months of lockdown. However, there are a plethora of uncertainties regarding consumer behaviour in terms of confidence level, the extent of travel demand and the way in which the industry operates in the restart phase.

As per IATA, more passengers are booking their travel within three days of the travel date; as they could be worried about their flight cancellations and at the same time they are less concerned than usual about the availability of seats due to decreased throughput.

The coronavirus outbreak yielded a negative impact on air travel which led to an industry-wide deterioration in the profitability and can be confirmed with the initial Q1 2020 financial results. The European region and the North American region, both saw deterioration in their EBIT margins.

As per IATA, the Global passenger yields fell sharply by 11 per cent year-on-year due to decline in both the premium and economy cabins in March. As the virus engulfed most of the countries, its impact on the aviation sector worsened significantly. Moreover, 60 to 70 per cent of the global passenger fleet was grounded due to closing of skies. However, to keep the supply of the essentials intact, the cargo carriers were operational, and their load factor was up by 4.8ppts year-on-year in March.

Some of the airlines were contemplating introducing social distancing in the flights in terms of seating arrangement, if forced by the government, which would burn a hole in company’s pockets as it would lead to plunge in revenue per seat. In addition, the airport authorities might see huge surge in capital expenditure as airport staff might need to get equipped with protective gear, thermal screeners, and increased sanitisation. This would all lead to incremental costs which would make flying a luxury.

Its highly likely that the present circumstances would lead to the sector to see some collapses as well as consolidations of business groups. However, the sector is likely to see several changes in procedures after the Covid-19 pandemic. As the airline industry gathered support from the government and announced about restarting their operations, global airlines share prices surged in April. On the same time the demand for fuel also increased amidst lockdown easing.


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