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SimpliFlying advocates airlines issue full refunds
Contrary to the stand taken by the industry lobby IATA that airlines are not in a position to issue refunds due to cancellations, SimpliFlying believes it is unethical for airlines to hoard cash for services they cannot deliver. Hence, we advocate that airlines issue full refunds to customers impacted by cancellations due to COVID-19. Below, we explain why.
A real customer’s story seeking airline refunds
My Canadian friend Peter and his family are scheduled to fly from Colombo, Sri Lanka to Tbilisi, Georgia on a low-cost airline. They have a layover in the UAE. Due to the COVID-19 capacity cuts, the airline cancelled their flights and issued vouchers to be used within a year anywhere on their network. However, in a year, Peter’s family is likely to be back home in Canada. They will find it almost impossible to get to a city the Middle Eastern airline flies to use their vouchers. Peter and his family are not alone, as a passionate discussion on LinkedIn on the topic showed.
Peter’s vouchers are worthless. As they are to most people currently receiving them.
Why are airlines not issuing cash refunds?
We must first understand why airlines are not issuing refunds. That is because a most airlines will be cash-strapped if they returned cash from forward-bookings like the chart below shows. While there are exceptions like Indigo (Interglobe) in India and some of the Chinese airlines, most airlines face bankruptcy within a couple of months if they issued cash refunds. Southwest Airlines would run out of cash in about 50 days. Lufthansa in a month. And Qantas will need to raise cash immediately if they returned all of their customers’ money. Here’s the actual discussion that took place on LinkedIn.
There were some poignant arguments brought up by those chiming in.
- Do airlines have a right to keep their customers’ money?
- Where did the record profits from the last decade go?
- Were executives right in taking huge bonuses in the past years?
- In many countries, airlines must refund a customer’s money if the airline fails do deliver the service.
- Are customers just a statistic for airlines?
The true cost of airlines not issuing refunds
As we published in the guide for airline CCOs, the biggest challenge facing airline commercial teams is that the number of cancellations is more than new bookings. While many airlines are hoarding cash for the sake of survival, customers are not sitting quiet. United Airlines is getting sued by a customer seeking a cash refund instead of vouchers being offered to him. A class-action lawsuit has been filed in Canada as well by customers who were given vouchers. Ultimately, airlines may end up paying much more in legal and settlement fees than what they can keep in cash right now. But the damage is beyond monetary.
The brand impact
According to an Edelman survey of 20,000 people in March 2020 on the impact of COVID-19 on business revealed:
71% of respondents agree that if they perceive that a brand is putting profit over people, they will lose trust in that brand forever.
The fact that airlines are making it very difficult to get cash refunds will erode brand trust in the long term. Airlines keeping cash despite not delivering promised services clearly sends a message of putting “profit over people”. Once customers lose faith in an airline they have been loyal to, it will be very difficult to build it back. As it is, it will be difficult to fill up aircraft post-corona. Loss of trust will only compound the problem for airlines.
The benefit of airlines issuing refunds
Let’s face it, there will be just a handful of airlines that will ultimately issue full refunds to customers.
Airlines that refund customers will stand out from the competition and be etched in the collective memory for a long time for taking the moral high ground.
Looking at the chart shared earlier if Indigo issues refunds their customers, they will barely dent their cash position. And yet likely be the only airline in India issuing refunds. Airlines like JetBlue and British Airways (IAG) may find themselves having cash for only half the length of time if they issue refunds, but imagine the uplift in long term goodwill (and hence loyalty) they can earn? Especially if they are the only airline amongst all competition doing so. Short term pain for long term gain. Even those in a tougher cash situation may benefit.
Most airlines are seeking government bailouts. If they can show to taxpayers that at least they have taken care of customers, they may have an easier time convincing the government to get a loan. A loan that would help them tide over these tough times with a dollop of trust in the brand to leverage on when better times return. Refunding customers is how airlines can build some brand trust lost with the degradation of passenger experience over the years.
SimpliFlying’s stand on airline refunds
Imagine buying a set of movie tickets. If the theatre tells you that they will not be running the show, will it be right for them to charge you and give you vouchers to watch a movie anytime in the future? You’d probably want your money back. You’d wanted to watch a specific movie this weekend. Not another sometime next year!
We would like to re-iterate our stand. We believe airlines will benefit in the long run financially as well as by standing out from the competition if they issue refunds. It is short-sighted to hoard cash for services they are not able to deliver.
Airlines have IATA lobbying for them. Airports have ACI as with their interests at heart. However, the customers have nobody to represent their interests. Airlines that are trusted by customers and other stakeholders will emerge stronger from this crisis.