As COVID-19 spread across the globe, the virus grounded flights worldwide. As a result the tourism industry was initially hit the hardest, with airlines and travel companies falling into administration and bankruptcy.
Now, CAPA, an aviation consultancy has warned that almost all the world’s airlines could suffer bankruptcy by the end of May. Consequently, due to the financial turmoil that many airlines and travel firms have found themselves in, they are refusing to pay customer refunds.
As these companies breach their legal obligations, many customers have been left wondering what their passenger rights are. Many also fear they will never see the return of their money. Meanwhile the same travel companies and airlines ponder their future and the industry’s fragility.
Many airlines are now absolving themselves of responsibility and refusing to issue refunds to customers whose flights have been cancelled due to COVID-19.
Ryanair has claimed it is unable to issue refunds until the Coronavirus crisis “is over”. It blamed social distancing measures for causing a backlog of customer refunds. Meanwhile, EasyJet has removed its refund option from its website entirely. This means that customers are now forced to call the helpline and queue indefinitely.
Other airlines such as British Airways have released statements offering only half-measures and misinformation. It’s website offers only two options, either a flight rebooking or a voucher, making no allusion to a refund of any kind.
On top of this, Lastminute.com, LoveHolidays and TUI are reportedly requesting that their customers continue paying for holidays that are due to depart in the coming months, or lose their deposits. This is despite the fact that lockdowns are likely to still be firmly in place.
Research recently published by Which? found that customers are owed around £7bn in refunds. Understandably the airlines have faced severe criticism over their handling of the crisis. Some customers have taken to Twitter to vent their frustrations. One particular customer called their airline’s refusal to release funds “shameless,” considering that the crisis has already resulted in millions of people losing their jobs and suffering financial hardship.
Under EU law (EC261), passengers are not entitled to flight cancellation compensation in relation to COVID-19. This is because it is classified as an “extraordinary circumstance” outside of an airline’s control. However, when it comes to passenger rights, right to compensation and right to refund are entirely different. EC261 states that if a flight is cancelled, the airline must offer either a rerouting or a full refund, to be issued within 7 days. However, this refund obligation is not insolvency-protected.
Meanwhile, a separate piece of legislation, which relates to package holidays called The Package Travel Directive (PTD2) is insolvency-protected. It also entitles customers to a full refund of their package if it is cancelled. This should be delivered within 14 days of the cancellation.
As a result, the European Commission has stated that a refusal to issue refunds violates EU law, which the UK is still covered by until 31 December 2020 under the Withdrawal Agreement Bill.
The UK Civil Aviation Authority has also released guidance relating to refunds: “If your flight is cancelled, you will always be due a refund and to be provided with assistance, even if you are not due further compensation”. This relates to the companies which have tried to offer vouchers to customers instead of full monetary refunds.
Which?, warning that trust in the travel sector could be damaged irreparably, has launched a 10-point plan to ensure consumer confidence is maintained. This plan includes extending the statutory 14-day refund period for package holidays to a month. It also includes a call for a temporary Government Travel Guarantee Fund, to support travel companies who are unable to fulfil their responsibilities due to COVID-19.
While frustrating for thousands of customers, it is clear why many of these companies are withholding refunds. In financial dire straits, they are ultimately being forced to make the incredibly hard decision of whether to lay off staff, withhold refund money that is currently keeping them afloat, or fall into administration.
However, while the government initially stated that it would not provide an industry-wide bailout, EasyJet has since secured a £600m loan from the Treasury and Bank of England’s emergency coronavirus fund. And, there are some airlines that will potentially emerge financially unscathed by the virus. The Guardian reported Ryanair’s “financial virility,” revealing its cash equivalents of $4bnn. IAG is also reported to have $7bn in cash.
Despite this, more widely, trade group World Travel and Tourism Council has forecast that up to 50 million travel jobs will be lost as a result of the virus. This will diminish the industry by 25%. Considering that the tourism industry makes up 10% of global GDP, the consequences of this may be grave.
Meanwhile, in the UK alone, the tourism industry generates £106bn each year and employs over 2 million people. Consequently, UK cities where the local economy depends on aviation, have been hit hard. This includes Crawley, Derby and Luton. Pointing to the economic devastation caused by COVID-19, Centre for Cities recently reported that 1 out 5 jobs in these cities will be detrimentally impacted by the virus.
It is more than likely that even when lockdown measures are lifted along with travel restrictions and bans, COVID-19 will significantly transform the way that people travel. Subsequently, the future of the tourism industry appears to be more uncertain than ever. However, this should not prevent companies from returning money to customers that they are rightfully owed.