Air Canada To US Government: Pound Sand, We Can Cancel Flights And Keep Customer Money

During the pandemic, Air Canada cancelled the flights and kept passenger money. They didn’t deliver the service that was promised, but wouldn’t issue refunds. That’s stealing.

United and JetBlue did the same thing, but they relented when the U.S. Department of Transportation issued threats. Air Canada didn’t budge, even telling the Department of Transportation that they had no jurisdiction over ticket sales in the United States to U.S. consumers for flights to or from the U.S. My advice at the time was to sue in small claims court.

Eventually the airline issued refunds – after the Canadian government gave them subsidies much larger than the amounts owed to customers.

The U.S. Department of Transportation moves slowly. It took 15 months, but DOT proposed a $25,550,000 fine against the Canadian carrier. After all, the U.S. government is clear that for flights to and from the U.S.,

A passenger is entitled to a refund if the airline cancelled a flight, regardless of the reason, and the passenger chooses not to travel.

The U.S. government sought a fine of $5000 for each of the 5110 complaints they found to be valid against the airline for refusing a refund after cancelling a flight. In practice, though, airlines often settle with the DOT for less than the proposed fine, and seek credit for other money they meant have spent compensating customers or providing other remediation.

Air Canada has filed its response and they’ve basically once again told the Department of Transportation to pound sand and seeks to have the complaint dismissed.

  • Air Canada says ‘non-refundable tickets’ means non-refundable, even if the airline doesn’t honor its obligation to actually operate flights. A customer is only entitled to a flight credit for future travel (even, presumably, if the airline stopped serving the route or country that the customer is in). They suggest that if a customer wants a refund when the airline cancels a flight, they should give Air Canada even more money for a refundable ticket.

  • They used to provide refunds before the pandemic, and they’ve provided refunds after receiving a government subsidy package, but their contract of carriage says they don’t have to and their actual practices – which were consistent with DOT rules – don’t create an obligation.

  • A requirement to issue a refund for a cancelled flight (i.e. not keeping money when you don’t deliver a promised service) isn’t clearly spelled out in law, and is mere DOT guidance about what the law says,

    [T]he Department improperly attempts to use Air Canada’s alleged
    failure to comply with non-legally binding guidance documents, an archaic and privately issued Industry Letter, and non-binding statements in the preamble of the 2011 Enhancing Airline Passenger Protections rulemaking, none of which have the force and effect of law, to establish proof of an unfair practice.

The arguments remind me a bit of tax protestor arguments over the 16th amendment – that the constitutional amendment allowing for an income tax was never properly ratified, that “wages” aren’t income and can’t be taxed, and that progressive income taxes violate the 14th amendment’s equal protection clause. Or that if there are fringes on the flag in a courtroom then it’s an Admiralty Court which has no jurisdiction over a sovereign citizen.

This is a very dangerous motion. If Air Canada were to win their position then any airline could sell tickets, cancel flights, and keep customers’ money.

I do not expect the DOT’s complaint to be dismissed, however. The facts alleged by DOT must be presumed true for the purpose of a dismissal motion, notwithstanding Air Canada’s claim that they failed to ‘verify the complaint under penalty of perjury’. (If Air Canada won this point, they’d get a dismissal with leave for DOT to re-file.)

As a general matter I do not think courts should afford deference to agencies on the meaning of a law, but Air Canada has a pretty high hurdle to clear to argue that DOT has basically made up an obligation to issue refunds when the services offered are not delivered.

(HT: @Travel33t)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. […] During the pandemic some airlines stopped giving refunds even when they cancelled your flight. This was clearly illegal, but carriers like United and JetBlue decided it was better for them to conserve cash on the backs of their customers and live to see a fine later. Eventually most customers got their money back from cancelled flights, but the DOT is still investigating several airlines over this. Air Canada still won’t acknowledge fault as a bad actor. […]

Comments

  1. The idea that the US DOT doesn’t have jurisdiction here is so laughable, but if I sympathetic court agrees with it, it could spell big trouble as you say.

    There’s even a case to be made that the refund for cancelled flights policy applies to U.S. citizens even if that flight being purchased doesn’t touch U.S. soil. That argument is on shakier ground.

    Is AC saying that if a flight from Toronto to NYC crashes in the United States, the FAA, DOT, NTSB, etc., wouldn’t have jurisdiction to investigate it?

  2. I read that in 2020 many people were filing chargebacks for cancelled flights in general, not just Air Canada. It was easier for them apparently than dealing with the airline. This resulted in huge chargeback processing fees, plus the merchant bank was forced increased the percentage of money they held back from the airline. Something like half of their money was held in limbo making them cash poor, on top of not selling new tickets. I suspect this contributed to the problem. I think you reported about TAP also not refunding customers.

  3. Air Canada should be banned from US airspace. Westjet can try to take over US routes.

  4. Agree, very simple – US Govt simply ban Air Canada from US airspace…then see how quickly the refunds will flow.

    Surely Air Canada knows this..? Their actions thus far have already led me to NEVER fly them in future…and I buy long haul J tix monthly. Who runs their PR Dept??? PR disaster IMO

  5. If I were westjet, I’d put this on a huge billboard outside YYZ airport. “Air Canada claims it can cancel your flight and keep your money” with a link to this pleading.

  6. This is called “shotgunning it.” Throwing out as many arguments as possible in the hope something sticks. It’s usually done when an entity knows it has no valid defense.

  7. I had flights booked with both Air Canada and WestJet that were cancelled. I was reimbursed for the cancelled Air Canada flights, albeit it took some time. WestJet has so far not issued any refunds for the two flights I had to cancel. I’m still waiting and they will not give me any indication of timeline when this may happen.

  8. Ban from US airspace would be pretty powerful as a lot of their domestic flights cross US airspace too.

    I say this as a Canadian, this has always been a garbage airline, and a national embarrassment. They rely heavily on selling cheap connecting tickets from the US to Europe/Asia to fill their planes while gouging Canadians with high prices for absolute garbage service on the ground and in the air.

    Hopefully Americans remember this and dont patronize this garbage airline in the future.

  9. DOT doesn’t need to ban them. Just threaten to take away gates and slots and watch them squirm.

  10. Air Canada has to be the worst airline I’ve ever flown, and I flew TWA back in the late 1980s when the pilots used to slam the planes into the ground on landing. (YYZ may be the worst airport I’ve ever transited. Their baggage carousels used to spit out luggage at high velocity into a thick metal plate, breaking anything inside.) I’ve studiously avoided them for 25 years, but had to use them for my daughter’s return flight from Europe late this summer, as everything else was ridiculously priced. We’ll see how it goes.

    In the mean time, perhaps the DOJ should indict AC under the RICO Act.

  11. Air Canada loses on the jurisdiction issue, clearly. Jurisdiction attaches to any contract that has “minimum contacts” with a US location and US person. That’s clearly satisfied here.

    Don’t assume Air Canada can win on the contract of carriage issue, either. Contracts are interpreted with reference to the “course of dealings” of the parties, and the “custom and usage of the industry.”

    Because Air Canada (and all other industry players) routinely issued refunds for canceled flight, as a matter of course, both before and after COVID, the word “non-refundable” in the contract of carriage must be interpreted in the context of the custom and usage of the industry, as well as the course of dealings of the parties, to mean that the ticket is “non-refundable” if the passenger is unable or unwilling to fly the segment through no fault or action of the airline.

    Since the refunds evidently did occur eventually, and since Air Canada’s reason for delaying the refunds appears to have been inability to pay, the fine should probably be reduced to no more than the amount of the delayed refund, which would be a 100% penalty.

    I bet this gets settled

  12. Air Canada is testing the Biden Administration. The answer is simple. Either Air Canada complies with the law and drops the legal nonsense or it will be banned from all US Airports AND US airspace. The warning should be sent via the State Dept. to Mr. Trudeau directly. That should straighten out the Air Canada management idiots.

  13. This motion is NOT a court filing. No case has been brought in court. These are still administrative agency proceedings before the DOT. When the staff of an administrative agency bring an enforcement action through their internal hearings process, you can argue to the hearings officer that the agency does not have jurisdiction. So the DOT hearings officer would need to agree with the argument.

    Air Canada has the right to go to court only if they lose before the agency. Then the court reviews the agency decision under a deferential standard — essentially whether there were any legal or procedural violations and whether the agency decision overall is “arbitrary and capacricious.” If it’s basically a reasonable decision (and there’s no violation of law), the court will not second-guess it. But they’re not at the court stage yet.

  14. I posted this on the article over at pax.aero, but it bears repeating here:

    Air Canada continues to blatantly lie that they followed their Contract of Carriage and Tariff when, in fact, their International Tariff (which applies to my DTW-YYZ-YVR booking) was updated on January 6, 2020, to only provide credits in lieu of cash refunds for cancellations outside the airline’s control. Prior to that, the Tariff stated that refunds would be provided on request for any flight canceled by the airline where the passenger could not be reasonably reaccommodated. The airline still refused to refund me until the bailout, citing the updated tariff rather than the one that applied at the time of purchase. To materially change the terms and conditions after the service is paid for but before it is provided is absolutely an unfair and deceptive practice. (Indeed, the Tariff itself says that the rules at the time of purchase apply.)

    Furthermore, in my case, AC hasn’t even proven that the cancellations were outside their control. The border was never fully closed, and even as they suspended service to my home airport of DTW, competitors (Delta) continued to operate DTW-YYZ nonstop, which suggests that doing so wasn’t illegal as Air Canada claims. If, in fact, the flights were canceled due to reduced demand (understandably so), then that’s a business decision that’s very much within their control.

  15. Either ban them from U.S. airspace or provide no parking at gates or increase their gate fees to collect the fines. If they do land and won’t pay the gate fees seize and auction the aircraft.

  16. In April 2020, I had the misfortune to have 7 airlines cancel flights due to COVID. While Aeroflot, Qatar, Delta, United, Norwegian (can you believe it!) and Swiss refunded my tickets without question even though a couple of refunds took a few months, Air Canada laughed at me whenever I called and requested a refund. They said 1. DOT rules didn’t apply to them as they are a Canadian airline (only US airlines are required to follow DOT rules) and 2. Even if DOT rules did apply, COVID was not their fault (mind you, the US had not banned flights between Canada and the US – it was a commercial decision by Air Canada). 3. They could keep my money without providing a service as that was allowed by the Canadian government. 4. I could take a voucher without a guarantee that they would be able to offer the same class of service as it may not be the same or lower priced in the future. And too bad if it was lower priced as I would not get the difference as a refund but I would definitely have to pay the difference if the price increased. How convenient! 4. The agents also told me I could sue AC but it wouldn’t make a difference as it was a Canadian company.

    My DOT complaint didn’t get a response beyond the initial form acknowledgement. So, after this drip drip of torture, I was elated when I saw that the DOT had finally decided to take action against Air Canada. Hope they don’t escape punishment and they make an example of Air Canada. Otherwise, airlines will have carte blanche to take customers’ money without providing flights in return. Baltia may just have a new business model. 🙂

  17. In your dissertation you do mention a very pertinent FACT that is often overlooked. That is the Canadian government’s role in all of this when it comes to the position taken by Canadian airlines. They advised/fostered and promoted that the airlines behaved the way they did. They in my opinion bear the greatest blame and responsibility. The agency exists to protect the Canadian (and other ) consumers =the CTA (created by the government) the rules (created by the government) the absence of enforcement of those rules by the CTA. Perhaps under the advice of the government but certainly with their knowledge and approval. That is an undeniable fact.

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