UK: Passenger refunds & the coronavirus pandemic - the UK Government responds to the issues raised by the Transport Committee around delays, vouchers and CAA powers

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The Transport Committee looked into the general impact of the pandemic on the aviation industry covering areas such as the Government’s quarantine policies and health standards, support and intervention in the UK compared to other countries, airline redundancies, changes to terms and conditions, and the problems arising with passenger refunds.

The Government's response addresses the recommendations made in the Report under each of these areas. We take a closer look at the recommendations and Government response in relation to passenger refunds.

Delays in issuing refunds

Unsurprisingly, the report cites research and written evidence suggesting that a large number of airlines and package holiday providers in the UK were not meeting their obligation to provide refunds to customers. These must be made within 7 days for flight-only bookings (under EC Regulation 261) and 14 days for package holidays (under the UK Package Travel Regulations). In April 2020, ABTA estimated that travel operators and airlines in the UK owed approximately £6-7 billion in unpaid refunds. Customers also reported procedural issues with requesting refunds as the ability to do so online was limited and call volumes made it challenging to get through to customer service teams in order to request the refunds.

In order to address this, the Transport Committee recommends that the Government should consult on whether protections for airline passengers in the event of a pandemic or other extraordinary circumstance should be introduced into the Airline Insolvency Bill before it is brought forward to Parliament.

The Government response welcomes this recommendation and confirms that the Government will consider what protections and workable solutions can be added, noting however that it will not be possible to address every eventuality that may affect a passenger. The Government commits to conducting a full consultation with key industry groups before any legislation is introduced.

Refund credit notes (RCNs) and vouchers

The Report notes the prevalence of the practice of issuing RCNs and vouchers in place of cash refunds by airlines, even where the passenger has a stated preference for a refund. RCNs differ from vouchers in that vouchers are not ATOL protected and may be issued for an amount different to what was originally paid. ABTA recommended that their members issue RCNs as where the original booking was protected under the ATOL scheme, the RCN would also receive the same protection. In addition, money paid to ABTA members by a passenger for a package booking may be held by other companies such as airlines, making it hard to achieve refunds within statutory timelines. 

The recommendation made in the Report is for the Government to set out clearly the circumstances under which a RCN or voucher is protected by the ATOL scheme, thereby receiving insolvency protection and providing reassurance to the passenger that they can receive a refund. In its response, the Government confirms that travel operators and airlines may offer incentives to a passenger to fly at a later date. However the consumer must always retain the right to a refund if they do not wish to accept a voucher, and once requested by the customer, the refund must be paid. The Government reiterated its recent announcement that it would stand financially behind the Air Travel Trust Fund and confirmed that it has put measures in place to ensure that sufficient funds are available in the event of a failure of a travel operator in the ATOL scheme, and that protections will be in place for RCNs offered in lieu of cancelled holidays that have a flight element in the package.

It is important to note that the Government's response does not address protections for flight-only vouchers.

Refund deadlines and CAA powers

EU regulation requires package travel operators to issue refunds within 14 days, and airlines to issue refunds for flight-only bookings within 7 days. The Report notes that as the pandemic evolved, over 10 EU countries adopted proposals to extend these deadlines in order to protect their travel industry operators, but the UK did not do so. The Report also notes CAA concerns around the effectiveness of its powers to compel timely refunds. The CAA itself is unable to impose financial penalties on operators who do not meet the legal requirements and the court process available to them is expensive and can take up to two years.

The Report requests an explanation from the Government as to why an extension to the legal deadlines was not implemented in the UK, and recommends that the CAA and Department of Transport rapidly conclude their review of the CAA’s powers to ensure it can enforce passenger rights effectively.

In its response the Government defends its retention of existing legal timelines for refunds. It will continue to champion consumer protection while taking a pragmatic approach to enforcement in order to allow the sector to recover from the impacts of the pandemic. The Response also confirms that the Government will look into the CAA’s enforcement powers ensuring it is able to protect consumers.

Conclusion

The Government does not commit to any specific action on the recommendations made in the Report in relation to refunds, RCNs and vouchers. Rather it makes a commitment to continue to consult and look into the issues raised by the Transport Committee along with relevant stakeholders.

It will be welcome news to passengers and airlines/tour operators that the Government has put measures in place to ensure sufficient funds are available in the event of other travel company failures but what is clear, and what will not help the industry at a time when it continues to struggle, is that the Government does not intend to extend the existing timeframes imposed on airlines and travel operators in respect of passenger refunds. The industry hopes, as we all do, that we will never see anything like this pandemic again but this particular refund obligation has brought into focus the cashflow risks associated with some business models.

When the review into the CAA's powers is concluded, the CAA may well be given tighter enforcement powers which will give some clarity to their remit. However this may also lead to confusion or the risk of a double hit to airlines and travel companies if their enforcement powers do not properly dovetail with those of the main consumer protection voice in the UK, the Competition and Markets Authority. 

Before the COVID-19 pandemic, the Government had already announced its airline insolvency review which anticipated changes to elements of consumer protection such as the ATOL scheme.  The Government's response to the Transport Committee's report notes that "some of the existing arrangements and business and operating models have not been sustainable during the crisis" – the point we note above.

We have commented in a pervious article on a number of possible consequences of the challenges airlines and travel companies have faced and continue to face as a result of the COVID-19 pandemic. Perhaps as an alternative to ATOL bonding, some tour operators will make more use of trust models, under which they will not pay service providers until the package is performed, thus ensuring funds are available for a refund in the event of cancellation. Some travel businesses are positioning these models as a competitive advantage: might they become compulsory? Future changes could also include revisiting the primary financial fitness requirements for airlines and travel companies, or considering and making much clearer the relationship with other means of protection such as credit card chargebacks or travel insurance. We will follow and report on this debate as it continues to evolve.