Airlines Are Withholding Billions in Refunds—That’s Billions With a B

United Airlines reversed a policy change that limited refunds after pressure from the U.S. Transportation Department. But travelers say they have still had problems getting refunds for flights that United canceled.

Photo: David Paul Morris/Bloomberg News

Refunds delayed and denied. Vouchers worth thousands of dollars that have already expired, or are so rule-bound they’re useless. Interminable telephone holds, unanswered emails and complaints ignored.

Consumers continue to battle airlines over canceled tickets. At stake are literally billions of dollars—and likely lasting animosity toward airlines over punitive policies.

U.S. travel agencies have already handled more than $1 billion in airline cash refunds, according to Airlines Reporting Corp., which processes tickets. That doesn’t count refunds issued directly by airlines, which likely more than doubles that total. Then there’s the far more common outcome of a voucher issued instead of a refund, allowing the airline to hang on to a customer’s cash.

The U.S. Transportation Department warned that any airline operating in the U.S., foreign or domestic, had to refund tickets for flights the airline canceled and couldn’t offer an alternative without a “substantial” schedule change. But many international carriers have offered only vouchers. Some forced consumers into accepting vouchers before the airline officially removed flights from its schedule. Some have delayed paying refunds while waiting for government bailouts or new investment.

Worse, some have tried duplicitous methods to pocket expensive tickets, offering nothing in return. Italian carrier Alitalia, for example, told Ellen Schiller that her family of five were considered no-shows for a March 8 Boston-to-Rome flight and therefore ineligible for both refund and voucher. They spent more than $3,000 on the tickets.

Ms. Schiller says she called Alitalia twice before the departure to cancel the trip, but the airline suggested not canceling in hopes the flight would be canceled—the only way they’d be eligible for a refund. She says she made it clear they were canceling because it was obvious Italy was closing down. The March 8 flight took off. On March 9 Italy imposed a national quarantine.

The Schillers appealed to their credit card company for a refund to no avail. They appealed to Alitalia, but a customer-service representative suggested they should have rebooked to a random date in late March hoping that flight would get canceled and they could get a refund.

“The runaround we got was insane,” Mrs. Schiller says. Alitalia was “intentionally evasive, difficult, and clearly trying to avoid providing a refund or a credit. I believe they were counting on my giving up hope.”

An Alitalia spokeswoman confirmed two late February calls from the Schillers but said they didn’t officially cancel. Still, the airline said even though it had previously declined to issue vouchers, it would now do so thanks to an “updated” policy.

Alitalia says it has had several policy changes on refunds and vouchers for customers who had trips canceled by the coronavirus pandemic. Like many international airlines, the company has been reluctant to pay refunds as it struggles financially.

Photo: alberto lingria/Reuters

The Alitalia example shows how airlines have essentially been making up their own rules to hold on to customer cash. Some carriers, including Colombia’s Avianca, Chile’s Latam and the United Kingdom’s Virgin Atlantic, have filed for bankruptcy reorganization in the U.S. Some, like Israel’s El Al, have suspended all operations and are looking for a rescue plan. El Al’s website states: “All flight tickets for canceled flights are currently frozen, and you will be able to use them in the future.”

The DOT has been in direct communication “with the largest U.S. and foreign airlines, and other airlines that received a large number of refund complaints, to ensure compliance with the law,” a spokeswoman says. The pressure has resulted in passengers receiving refunds after first being denied them.

DOT is “first providing airlines an opportunity to come into compliance and issue refunds. However, the department will take enforcement action against noncompliant airlines if necessary,” the spokeswoman says.

The feds did pressure United into rolling back its policy that denied refunds to likely millions of customers. Before the pandemic, United’s policy was to offer the option of a refund for canceled flights if the airline couldn’t offer alternative flights within two hours. It changed that to six hours. DOT has long held that airlines couldn’t change the terms on tickets after they sold them.

In June, United changed its policy back to two hours and said customers forced to take vouchers instead of refunds for flights the airline canceled could now get a refund. But they’d have to call—the airline wouldn’t reach out to them.

That was welcome news to Gerald Brown of Pebble Beach, Calif., who wanted a refund on two business-class tickets between San Francisco and London that cost him $5,354. But United denied his refund request.

On Saturday, a day after receiving questions about Mr. Brown’s case, United said it was issuing him a refund. His appeal in July had been denied “because it was interpreted as a voluntary change,” a spokesman says. “Our mistake.”

Says Mr. Brown: “Cows do fly.”

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Another frustration for consumers: The terms airlines have imposed on vouchers. Though many airlines have given customers a year or more to use vouchers, it still can be tough to redeem them.

Stuart Krawll of St. Louis spent more than $10,000 on American Airlines tickets for a family trip to St. Thomas for 14 people. He paid for all the tickets. Any refund would go back to his credit card. But with vouchers, each passenger gets the credit, regardless of who paid. Only the ticketed passenger can fly on that voucher.

Mr. Krawll’s seven grandchildren—the youngest between 3 and 7—each have a voucher. The family trip likely won’t be rescheduled anytime soon because of the complexity of getting schedules lined up. Instead, Mr. Krawll and his wife have several overseas trips planned for 2021 and 2022 for which they’d like to use the vouchers.

“Airlines should let the voucher credits flow back to whoever paid for the tickets,” Mr. Krawll says. Flexibility in this case, he notes, “costs them nothing.”

American says it will make an exception for Mr. Krawll and give him one credit to use. American is making exceptions to its policy, trying to take care of customers in the pandemic, but stressed this was a one-time exception for Mr. Krawll because so much was tied up in tickets for minors.

Frontier has a 90-day expiration on its vouchers—a significant gotcha, since so many are uncertain when they will start traveling again.

Cynthia Blouch learned just how costly that could be in July when she went to redeem her $4,593 Frontier credit left over from a canceled spring break family trip for five from Cleveland to Cancún. Frontier’s website said, “the credit you are trying to use has no value.”

Ms. Blouch had spent several weeks unsuccessfully trying to reach a customer service representative to book new flights before the expiration. Calls went unanswered or were disconnected. She couldn’t find an email address for Frontier customer service. “It has been very frustrating,” she says.

Frontier spokesman Zach Kramer says the airline decided to reinstate Ms. Blouch’s credit for 48 hours so she could rebook for a later date, which she did right away for next April.

Mr. Kramer noted that the airline’s schedule is open for booking through September 2021. Frontier is working with customers “to accommodate their travel wishes, within our policies,” he says.

Write to Scott McCartney at [email protected]

MORE FROM THE MIDDLE SEAT

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