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Cash-strapped airlines resist mounting coronavirus refund claims

CoronavirusMar 27, 2020 02:05PM ET
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© Reuters. FILE PHOTO: An Air France Boeing 777 aircraft takes off at Paris Charles de Gaulle airport, following the coronavirus disease (COVID-19) outbreak, in Roissy-en-France

By Laurence Frost

PARIS (Reuters) - European airlines waiting in line for coronavirus bailouts want to tap another source of interest-free loans: their customers.

Cash-strapped carriers are seeking to suspend European Union rules requiring refunds for cancellations and instead issue vouchers to customers left out of pocket as hundreds of thousands of flights are grounded by the pandemic.

Refund claims, if honored, would be a major additional cash drain on many airlines already in need of government aid to survive a sustained travel slump.

Consumer organizations say some major airlines are already flouting the refund rules and condemn what they describe as an attempt to force consumers to lend them cash.

"We've been absolutely inundated with passengers complaining they can't get a refund from their airlines," Rory Boland of British consumer group Which? said on Friday.

The European Commission has rejected industry calls to relax the requirement in EU regulations to refund cancellations within a week, but airlines say they are unable to comply.

"Faced with a cashflow catastrophe, many airlines can only offer vouchers in lieu of immediate cash refunds for canceled flights," industry association Airlines for Europe (A4E) said.

A prolonged shutdown would make about 3.5 billion euros of Lufthansa (DE:LHAG) revenue eligible for refund in the second quarter, Citi estimates - ahead of the 3 billion euros at IAG (L:ICAG) or Air France-KLM, 770 million euros at easyJet (L:EZJ) and 760 million at Ryanair (I:RYA).

"Basically, we are trying to push as many vouchers as possible, and not allow for cancellations just to be refunded immediately," Lufthansa's finance chief Ulrik Svensson told investors last week.

A Lufthansa spokesman said on Friday that refunds remain "possible in principle", but not "within the usual time limits".

Air France-KLM (PA:AIRF), which like Lufthansa has grounded the vast majority of its flights, is telling clients it no longer offers the immediate refunds required under European law.

Instead it is issuing a customer credit valid for one year that can be refunded only at the end of that period.

"Air France recognises clients would normally receive immediate reimbursement," its website says, blaming exceptional circumstances and "a very high number of refund requests".

Airlines are now asking European authorities to waive refund requirements on condition that vouchers are reimbursable after a minimum of 12 months, an A4E spokeswoman said.

The EU has already relaxed airport slot rules and passenger compensation and will offer airlines more help, Transport Commissioner Adina Valean told Reuters. "But people have to receive their money back if that is what they want."

Consumer groups remain unmoved by the industry's pleas.

"It isn't fair to people who have been left out-of-pocket and may be in financial difficulties themselves," said Boland at Which? - who cited the example of a family denied a refund on their annual holiday booking to Florida.

"The airlines should not be asking to keep that family's 2,000 pounds ($2,480)," he said.

Citi analyst Mark Manduca said airlines must do everything they can to ensure that "fees and taxes and anything that involves complaint money can be held to an absolute minimum during this tough time."

"As a voucher holder, you end up effectively becoming an unsecured creditor of an airline," Manduca added.($1 = 0.8068 pounds)

Cash-strapped airlines resist mounting coronavirus refund claims
 

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