Department Of Transportation Proposes New Rules For When Airlines Must Provide Refunds To Passengers

The Department of Transportation has published a Notice of Proposed Rulemaking that would codify circumstances in which a passenger is entitled to a refund for their ticket, and rules for a future pandemic making passengers entitled to a voucher if it’s inadvisable for them to travel for public health reasons. DOT even wants to pre-write customer refunds into future pandemic bailouts of the airlines.

Mostly the rule would formalize current practice, after several airlines broke with convention during the pandemic and held their customers’ money hostage. There is much to like here, as a result of bad actors among the airlines and how tilted the law is in favor of air carriers. But there’s also some overreach as well.

Requiring A Refund When A Flight Is Cancelled

It is already a Department of Transportation rule that airlines must provide a refund when a flight is cancelled for any reason. It’s also a basic principle of contract law that if a merchant doesn’t deliver the service that’s been promised, they do not get to keep the money. Nonetheless,

Air Canada actually argued it was entitled to keep customer money even if not delivering promised transportation for tickets sold as non-refundable. They didn’t have to fulfill their end of the bargain, even though consumers with stuck with their end (paying).

During the pandemic United flouted DOT rules on refunds as well though eventually caved to DOT pressure. The United position seemed to be that ‘at this point in the pandemic we don’t know if there will be a United Airlines to issue fines to, we’re more concerned with ensuring we get to the point where we can talk about fines for stealing customer money’. JetBlue took a path similar to United. (In contrast, both American and Delta were generally better here, and this shouldn’t be forgotten.)

United came up with a truly creative definition of cancelled suggesting that if a flight no longer operated even on the same day the passenger had booked, but United still flies the route, then they haven’t actually cancelled the flight. The passenger has merely been rescheduled. If United used to fly a route 8 times a day, and cut that down to 3, they did not actually cancel 5 flights!

So the Department of Transportation would make clear that the current rule is really the rule, as well as what a significant change or cancellation actually is. Flight cancellations would be codified as entitling customers to refunds, through a formal rulemaking and not just advance warning that the Department appropriately considers taking money and then not delivering travel to be an unfair and deceptive practice.

Requiring Refunds For Significant Schedule Change

Consumers have long been entitled to refunds when an airline significantly changes its schedule but how much of a schedule change was enough to trigger this right hasn’t been clear. Some airlines treated an hour as enough, others said it was two hours, and then during the pandemic airlines played around with much longer periods of time.

The Department of Transportation would say that a change of 3 hours or more for a domestic fight or six hours or more for an international flight is significant. It seems to me that this is too long, that it may encourage airlines to be actually less generous, and that a three hour change is too long – a customer buying a 9 a.m. flight wouldn’t be able to take a refund and book new travel on another airline if their flight got changed to 11:59 a.m. even though it might mean missing their meeting.

The DOT also says that changes to the departure or arrival airport, or increasing the number of connections in the itinerary, constitutes a significant schedule change. This mirrors current practice, but codifies it in formal regulation rather than leaving open the question of whether DOT explanation of what it views as an unfair or deceptive practice carries sufficient weight on which to act.

Requiring Refunds For An Aircraft Change

Here’s what’s really new. Airlines don’t just sell a flight schedule, they sell an actual product. They promote their international widebody aircraft which usually still have seat back entertainment in coach, and often feature lie flat seats in business class. Customers go out of their way to buy tickets on flights sold as operated by these planes. But then airlines go and put a different plane on the route, giving passengers a completely different experience.

American Airlines flies their ‘Airbus A321T’ aircraft between New York JFK and Los Angeles and San Francisco, and on certain other routes like New York JFK to Orange County. It has lie flat business class seats and a separate even more premium first class. Yet they’ve been known to occasionally sub-in a ‘regular’ Airbus A321 with domestic first class, obviously disappointing customers who paid a substantial premium. Delta has done similar things in the past.

The Department of Transportation’s proposed rule would say that change to aircraft type – to the extent it causes a significant downgrade in the passenger experience or on board amenities – would qualify customers to choose to cancel in favor of a refund. This makes sense, and it’s basically a dishonest practice for airlines to fall back on the claim that they are only selling transportation between two points when they’re investing heavily in the marketing of the specific passenger experience and charging a premium for that experience.

Refunds When Customers Don’t Fly Due To The Pandemic

The Department of Transportation is proposing increased flexibility for passengers when travel is impossible or even merely inadvisable due to a pandemic.

  • If a passenger can’t travel due to a travel ban, a border closure, or government advice not to travel to protect their health or the health of those around them, they’d be entitled to non-expiring flight credits or vouchers.

  • And if the airline receives a pandemic bailout (you know they’ll be asking for government funds again) then the airline would have to provide refunds instead of credits.

Fares that have no change fees already allow for full credit, but those credits would no longer be able to expire (a move that Southwest just made anyway). Not all tickets are changeable in this way, however. And the risk and cost falls on the airline completely, under this rule, rather than the passenger.

At the start of Covid plenty of flights were being cancelled, and if a customer’s flight was cancelled they were entitled to a refund. But if the flight operated, odds on passengers wouldn’t have flown anyway, and they’d have only gotten a voucher – which at most airlines would ultimately expire.

I’m not sure shifting the risk of a pandemic fully onto the airline makes sense here, though to the extent airline bailouts have become inevitable (Delta’s CEO says moral hazard has been created: government will be there for airlines when needed) what DOT is really doing here is pre-attaching a condition to any future bailout that includes refunds Congress has been unwilling to write into law.

It is unclear how saying a bailed out airline has different customer obligations to customers in a pandemic, based on the agency’s statutory authority, that one that hasn’t been bailed out – when Congress doesn’t add that obligation as part of legislation providing for the bailout. That seems like quite a stretch.

Oddly under this part of the rule, airlines and ticket agents could impose a processing fee on the issuance of a refund or credit and the amount of that fee isn’t specified (as long as the fee is specified in advance0 so it may not wind up costing the airlines much of anything at all in the end.

Why Can’t Customers Just Sue

The airline industry got its own regulator in the Department of Transportation with deregulation. They aren’t merely subject to Federal Trade Commission rules. At the same time airlines are largely exempted from state regulation in how they run their business, so that there’s one unified set of rules for interstate air travel in the United States. The Supreme Court has found that state common law contract claims against airlines amount to state regulation and are thus pre-empted. So we are mostly left with an airline’s contract of carriage defining its relationship to the consumer, and violations of that contract as a cause of action – plus whatever rules the Department of Transportation puts in place.

In many ways this is problematic. The DOT ignores certain areas of abuse, and consumers have a hard time availing themselves of the courts. But DOT often gets things wrong, too, and can overregulate in some areas.

So we’re left with a vacuum to fill, and a DOT that both wants to fulfill its obligation to provide for safe and efficient air transportation, as well as to have lasting impact on the industry beyond its statutory authority. Both things seem at play here to a certain extent.

Will These Be The New Rules?

What’s in the Notice of Proposed Rulemaking is not what the Department of Transportation will do. It’s a proposal, and they’ll have to listen to and respond to public comments filed on the issues raised. Moreover not every proposed rulemaking is enacted. Some are closed without action. We’ll see where this goes.

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, 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. Sounds pretty good overall, however I’d be worried United, which allows refunds with a two hour schedule change, will bump that to three hours.

  2. If these are implemented airlines will just increase prices to cover any potential refunds. Net is higher fares. Personally I’m fine with the way it is today and know enough to work the system if I encounter changes or cancellations. You can’t fix stupid and it is up to the consumer IMHO to understand their options and act accordingly.

  3. @AC – that’s not what has happened in Europe who have more financially significant regulation than DOT is proposing. You can still get $50 flights in Europe (obviously not last minute ones!)

  4. All of this will get weirder still…

    Since the state of Georgia has just stated that a family, who is 6 weeks pregnant, can now claim the embryo as a tax deduction…

    How long until a new revenue stream for airlines?

    And what of liability? Could extremely rough weather terminate a pregnancy? What of car crashes?

    Yep. Call me crazy, but it is a litigious society in which we live.

  5. @khatl – actually I do say! as an example specifying that airlines receiving future pandemic bailouts would have to provide refunds instead of vouchers to customers who do not travel for health reasons

  6. I saw coverage from another BoardingArea blog that said that airlines would be allowed to charge a fee for processing a refund in this instance. Further, while mentioning an example of what a de minimus processing fee would be ($2.50) the DOT doesn’t actually restrict what can be charged. Is there anything to the idea that these fees could vary by fare and/or be high enough to cancel out any effective refund?

  7. The DOT reports the reasons for consumer complaints in its Air Transportation Consumer Report which is issued monthly.
    By far, foreign airlines as a group get more complaints for refund issues than domestic airlines do. 18% of complaints against domestic airlines were for refunds. Frontier was the furthest ABOVE that rate for May while Delta was the furthest BELOW that rate.
    Internationally, the worst offenders were Air India, Iberia, TAP, Copa, and Avianca. These are complaints so it doesn’t necessarily mean there are legitimate justifications for a refund but the chances are fairly high that consumers aren’t asking for what they should not be getting.

    As for schedule changes, the impact will impact low cost carriers which have lower frequencies than it will network carriers.

    The equipment change proposal probably has more to do with using single class RJs on flights that were sold as mainline service or switching premium configured aircraft for standard mainline configuration. Of course, if you really need to get there, getting a refund doesn’t really help. There is a big difference between how to compensate for an equipment change with a downgrade while you want to stay on that flight and choosing to stay with the original flight for many reasons and not accepting it and getting a refund.
    The DOT cannot tell airlines how to price their product; if you choose to remain on the flight you purchased, they are free to compensate you as they see fit.

  8. I have always been offered a refund if a flight schedule changed more than 2 hours on the airlines I fly. Granted there are many I don’t fly and some have never changed times substantially on me, but I am concerned that carriers that now refund over schedule changes of 2 hours will undoubtedly raise that time limit to 6 hours. (I fly almost exclusively international) 6 hours is way too much of a change in my opinion and can really have a serious ripple effect from increasing what is already a long travel time to necessitating even longer buffer times to avoid missed connections when changing carriers or modes of transportation. I think the 3 hours cancellation time is plenty and should apply to all flights. Why should an international flight be any different from a consumer’s point of view?

  9. What is important to note is that the flying public should take the time to read the (Notice of Proposed Rulemaking) NPRM on the DOT website and make comments within the time period. By law each comment must be reviewed and answered. The only way the US will ever get anything close to rules like EU261 is to make like the squeaky wheel. Be clear, concise and consistent and have a basis for your argument when making your public comment. Do not whine or complain. I have made many comments to FAA NPRM’s, and some have been outright rejected, partially accepted and accepted and the proposed rule was changed to reflect that.

  10. I wonder if a problem I once had could be avoided. I booked a flight way in advance and a couple of months afterwards it got rescheduled (within the time window the airline set) and I got an email asking if I accept the new flight time. I accepted since I could still meet me schedule, but then it happened two more times in the same direction almost making the flight unusable. If the schedule ended up unworkable, I wonder if the airline would have pointed to my last acceptance of the flight being within the allowable time frame and therefore not allow me to cancel.

  11. Please vote Republican so airlines can continue to steal money from consumers!

    It’s Trump who gave them money during COVID and yet allowed them to fire everyone so now there’s travel chaos and high fares (they did keep the Trump giveaways).

    And if the Republicans gain power again, you can be sure that this regulation to protect citizens from airlines stealing will be killed.

  12. Schedule Change—
    What if the airline’s change makes you miss your cruise departure?
    What if the airline’s change makes you miss your connection onto another airline?

    Aircraft type—changing your row 15 seat to row 36 non recline at the last minute on a 8 hr flight

    Refunds When Customers Don’t Fly Due To The Pandemic
    What happens if you get a voucher and die? Is it transferable? Who to? What if spouse does not want to fly ever again when other one just died? Or spouse can not fly with out assistance?

    I received from BA refund for our trip to the UK but the place we were to stay at is still closed today, thus we do not want to go back there at this time. Thus a voucher is USELESS to us . BA does not fly domestically in the USA.

    “I’m not sure shifting the risk of a pandemic fully onto the airline makes sense here” but if you buy a shirt a Macy’s you will return it for a refund even if they are financial problems during the pandemic? What’s the difference?

    could impose a processing fee This is the best way to tell the customer “We are stealing your money” if Macy’s did this on your shirt refund the Attorney General in all 50 states would be ALL OVER THIS.

  13. We need EC261 in the USA along with Rule 240 codified into law and a clause prohibiting the airlines from attempting to recoup any increased costs by raising fares and/or fees.

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