If you’re facing a flight cancellation due to the coronavirus pandemic, rest assured you are not alone. There are many thousands of flyers in the same boat. I personally had four sets of air tickets cancelled by the airlines for April 2020 itself.
When it comes to cancellation, the airlines have not been very forthcoming with the passengers. British Airways and many others are playing the ‘holding’ game. They already know that majority if not all of their flights in April and May, are and will be mercilessly gutted, but they deliberately hold out from actually cancelling the flights until the very last moment as possible.
If you give in and voluntarily cancel your flights, you will give up your rights to reimbursement, re-routing or return, as well as your right to assistance and a possible compensation. So, you really do not want to initiate the cancellation process; let the airlines do it first, if at all possible, and then all the burden will fall on them.
Assuming you’ve won and received the cancellation notice by email or text message, the next step is to call the airline to rearrange your trip or to get a full refund. Rearranging your trip during normal times is easy because there are many flights operating within hours or days of your original itinerary, either operated by your airline or its rivals. But in times of this coronavirus pandemic, it can be very challenging because many flights have been halted by the airlines due to economic reasons or they are hindered from operating because of mandatory governmental orders from both sides – inbound and outbound. Or you may not feel safe and secure enough to make plans so soon after the restrictions are lifted.
Airline Voucher or Cash Refund?
Let’s be very clear here when it comes to cancellation during this pandemic. The airlines will steer you to go for a refund – not in cash, but in voucher form.
Do not fall for this. Do not accept the airline’s voucher. Demand a full cash refund.
Firstly, you are legally entitled to get refunded in the original form of payment. If you paid by credit card, you are entitled to be refunded through your credit card. When the airline cancels your flight, it is rescinding its promise to provide you with a product or service that you paid for, and therefore, by doing so, it is breaking its contractual obligation to you. In general, in US/Canada and Europe, you have the absolute right to a full cash refund.
The airlines intently make it hard for you to get cash refund online. For example, in British Airways’ website, when you use “Manage My Booking”, a request for cancellation will divert you purposely to a page requesting for a voucher. When someone found a hack to bring you to the cash refund page, British Airways fixed the hack ensuring that you do get to the voucher page. You are forced to call the Customer Service in order to ask for a cash refund.
Apart from your legal rights under contract law, it is the inherent nature of the voucher itself that you must be wary. The voucher is akin to a promissory note issued by the airline, undertaking that you can use the voucher to redeem and pay for your flights at a future date. Put simply, it is like an “IOU” note. An “IOU” is as good as the issuer itself. If the issuer is in poor financial state, you have a great chance of losing the entire value of your voucher.
Take for example, between Virgin Atlantic and British Airways (IAG), you should feel less secure if you are holding a Virgin’s voucher than that of British Airways. The bottom line is that your voucher, of say €1000, could be worth nothing a few months down the road.
Be mindful of the airlines’ business model. Their cash flow revolves around using the cash paid by customers’ today to provide you with the service of tomorrow. In a report by Bank of America Global Research, it estimated that 75% of IAG’s cash in bank was from customers with unflown flights. (IAG owns British Airways, Aer Lingus, Iberia, amongst others). Lufthansa, EasyJet and Norwegian were 95%, 108% and 197% respectively in terms of cash to unflown flights ratio. It explains why the airlines do not want you to have your money back.
To highlight the financial risk, British Airways had its debt rating downgraded to junk status in April 2020 by Fitch Rating (from BBB- to BB+). Fitch does not expect British Airways to be cash flow positive until 2021-2023.
There is little by way of incentive to accept the voucher. Some airlines only offer the face value. If you paid €1000 cash, British Airways would give you €1000 in voucher in return. This is simply a poor financial risk return. If BA offers me a 20% uplift, I may just consider it, but then I might not, for reasons mentioned below.
You are forgiven into thinking that by accepting the €1000 voucher, you can redeem the voucher to get exactly the flights that you have just forfeited. Far from the truth. You are subject to the prevailing fare at time of booking (your future flights). If the fare is higher, you must pay the extra (difference).
I am, primarily, a bargain/deal seeker of premium class flights and hunt for extremely great business class fares. I see great value if I can get a return long haul business class flight, of say, 10 hours, for less than €1300 (which typically would be like €2500 to €3500). Yes, it is possible but they do not come everyday. And when they do, the fares vanish as fast as they appear. With this in consideration, it is very unlikely that I could get the same flights without paying the huge fare difference, thus limiting the usefulness of the voucher to me.
The voucher has a time limit, typically for a life of 6 months to 1 year. If you go for cash, you do not have to worry about its expiry.
With the voucher, you can only redeem with the issuer (airline). With cash, you open up your choices to other airlines, maybe taking advantage of special or flash promotions that may result when the airlines try to boost travel demands after the coronavirus crisis.
As the old adage goes, “Cash is king”. You can use it whenever and however you like, at a time and convenience of your choosing.
If the airline refuses to agree to a cash refund, you are still not out of luck. You can sue the airline for breach of contract. Or the easier way, if you had paid by credit card, is to request a chargeback through your credit card company. As a last resort, if you have travel interruption insurance, just file a claim with your insurer. It has never failed to amaze me at how quick for an airline to take money from the customers but would make them jump many hoops to get theirs back.
I might consider the voucher if I can get the following flexibilities:
1. No fare difference and no change fee
2. Same route, same class of service in the next 12 months
3. Can be used on other airlines in the same alliance (eg any carriers in Oneworld)
But that would be too much to ask.
For further reading on Air Passenger Rights in Europe:
U.S. Department of Transportation Issues Enforcement Notice
Fitch Downgrades British Airways to ‘BB+’; Maintains Negative Outlook