Last Updated on April 12, 2021 by tripcentral
If you were not booked to travel in mid-March or later, you may not realize how much the cancellation terms have changed. If you are sitting with future travel credits looking for the Government to force airlines to refund, you will have a different perspective. We address both here.
Old Days: Non-Refundable, No Changes for Lowest Fares
It used to be that once you purchased the lowest fare, you could not get your money back if you cancelled, and making changes was nearly impossible or required buying a new ticket (often at a higher fare). You could not change names. Date changes or entirely different routes were often like throwing out all or most of the value of the ticket and buying a new one at today’s market rates. The closer you were to travel dates, often the higher the price of the replacement ticket.
You could buy insurance or some waiver products, but generally, people overwhelmingly declined these options saying, “I’m going, no matter what.”
Post COVID-19 – Flexibility
After the grounding of aircraft, it became apparent that this policy would no longer fly with consumers, and the airlines adopted a more flexible “travel credit” policy. The unused tickets frustrated by the government travel advisory, the uncertainty around whether a flight would happen or not, or if cases spiked in a destination were all conditions to use the value of the old ticket towards a new booking in the future with no change penalty.
Facing historically low demand, the basic fare tickets were out the window, with most airlines offering one free voluntary change and use of the fare value towards the purchase of the new tickets. In other words, the change and cancellation rules that the airlines were selling at higher levels pre-COVID are now applicable on their lowest fares. Instead of losing everything, you get a credit towards another trip.
Refundable fares are still available at higher prices.
You can book travel on a refundable basis
It has always been an option, and most people don’t realize this. Airlines have always offered refundable fares. There were always higher fares that preserved the value of the ticket as a credit with a small change fee – those also sold at higher than lowest fares.
It is not a popular option because you pay much more for the ability to cancel and get your money back, or not pay at all (or a small deposit) and change your mind. It’s an expensive way to travel, and often how many business travellers make arrangements. That meeting might cancel or something else may change. That said, our vacation package suppliers have added more flexibility than ever before.
Why is refundable travel expensive?
Airlines and hotels hold open seats and rooms for those wanting refundable fares (often at the last minute), and if they are not purchased, they remain empty. They could be cancelled at the very last minute, and the airline and hotel would have no time to try and fill that seat and room.
Imagine not knowing how many people will show up for a given flight. People change flights at the last minute and expect an open seat to be theirs.
Non-Refundable Fares = Low Prices, Full Aircraft, Full Hotels
Most of our customers buy non-refundable fares at discount prices. Packaged deals are the most restrictive offering the very best value. When almost every seat on a flight is sold, and when almost every room in a hotel is sold, travel suppliers can offer the lowest price.
By every seat full we mean the flight down, the flight back, and the rooms turning over the same day. Hotels want the funds upfront as part of the non-refundable discount price, so most often the tour supplier will advance funds to the hotel. The hotel portion of a package is now offshore in the hotel bank account.
Customers expect their flight to operate on time, as booked
Imagine if everyone could cancel or change or refund whenever they wanted? “I’d like the option to cancel if I feel like it.” Makes sense. Trouble is, the airline faces last-minute cancellations for any number of reasons, and those seats are now empty. Too many empty seats and it is not viable to fly the aircraft and crew, so they cancel and try and combine with another flight or cancel it outright.
Booking, payment and cancellation policies need to satisfy many needs;
- Customer wants the lowest possible price.
- Customer would like to cancel or change at any time.
- Customer expects the flight to operate as booked.
- Airline provides this service to make a profit.
If the price is too high there will not be enough bookings, few direct flights, less choice. Entire routes become unsustainable as there is a small market for high fares. Business travellers get more frequency and choice when there are many low paying discount seats filling up many flights (frequency).
If everyone could change or cancel with no penalty, the number of people showing up for a flight would be unpredictable leaving many seats unsold at the last minute. The more seats unsold, the more likely airlines will cancel and combine them. Nothing angers people more than making a booking for a flight on a certain date and time, only to find that the airline has cancelled it, or changed the times or dates. People feel “ripped off” when this happens.
Scheduled airlines such as Air Canada need 80%+ of the seats sold to make money, and leisure airlines need 95%+ sold to make a profit at low prices.
By selling low fares on a non-refundable and non-changeable basis, flights were full, and ultimately this results in lower fares. Without non-refundable restrictions, fares would be much higher, and when fares are higher, less are sold which means less frequency and choice of destinations.
The Compromise in 2020 Post COVID-19
With most airlines offering one free voluntary change for any reason and use of the entire ticket value towards a new trip, there is little financial risk of booking travel so long as you “ever” plan to travel. For all the reasons mentioned above, airlines cannot offer the lowest fares AND refundability.
Packaged vacations are offering lower deposits, and longer to pay final payments. Most final payments are now due 25 days in advance.
Cancellation waivers are offered by package operators giving more flexibility to cancel closer to departure and keep the value of the package as a future travel credit. For instance, for a small premium, some offer the ability to cancel 7 days or even 48 hours in advance and retain the full value of the package for a new trip.
The Government offering Refunds as part of the airline bailout packages
Media stories are swirling after the Minister of Transport, Marc Garneau tied any federal bailout money to airlines such that those affected by the grounding would get cash refunds instead of credits.
There are a few things to consider;
- The federal government does not regulate travel packages including hotel components and funds passed to hotels in advance of travel. It is not at all clear that they will force airlines to refund these packages in full or part. In fact, in the area of airline advertising, travel packages are strictly excluded.
- Your airline may not take the bailout package. While the Government is tying assistance to refunds, there is nothing obligating the airline to agree to the conditions of the bailout package or accepting federal bailout money.
- It is unlikely to cover voluntary cancellations prior to the travel advisory. Some customers cancelled prior to the advisory. It is uncertain if this will apply only for cancellations and grounding made on or after March 13, 2020, or if the Government will set a date prior.
- Voluntary cancellations for flights resuming after the groundings and during the travel advisory are also unknown. During this time, consumers knowingly booked travel while there was a travel advisory in effect. We have no idea if the requirement to refund (if at all) would extend to people who booked after the advisory was in place.
- New bookings are highly unlikely to be covered by the policy.
How would refunds be processed if airlines are ordered to do so?
There are literally millions of tickets affected. Air Canada alone flew 51 million passengers in 2019. The period in question likely represents about 1/6 of a year’s traffic, and 60% of it sold in Canada. That would be around 5 million tickets for Canada’s largest airline.
The accounting and processing will take months, in addition to all the above uncertainties of eligibility. Airline reservation systems were designed to take reservations and process them, refunding maybe 5% of tickets at most. These systems will behave like a cat being pet backwards against the mat of its fur.
In short, if the Government takes this action, and if the airlines agree to the bailouts, and if the tickets are eligible, each airline will need to develop a process to facilitate these refunds. When we are apprised of this process, we will inform our customers.
It’s important to remember that tripcentral.ca or any other travel agency does not have your money. When the travel service is charged to your credit card, the funds go into the airline or travel supplier’s bank account, and we then earn a small commission settled separately.
Who is the Villain in this story?
It’s easy to dump on the airlines – they took the money in advance and never provided the service. It would be one thing if there was a rogue airline doing this, but frankly, this is how the entire international airline regime works worldwide. It’s not like our Canadian based airlines are worse than others. Our airlines compete every day with foreign airlines and this is a good thing for consumers. All of them have evolved to take the money in advance and compete heavily on price. No jurisdiction in the world is regulating airline financial statements (maybe they should).
Our airlines have not been given specific bailout money like other countries – namely the US, Europe and elsewhere. Our airlines bled financially as the lockdowns began, flying empty planes out, returning Canadians home.
It’s even easier to dump on us. We sold you the tickets and we answer our phones and emails quickly compared to the airlines and suppliers. Unfortunately, we’ve grown a layer of Teflon – and there’s really nothing we can control in the situation.
The federal government is an easy target. They should have been regulating airline financial statements for years in preparation for this kind of event. However, no other jurisdiction was doing so either, putting our Canadian based airlines at risk if they were subject to one set of rules, and foreign carriers another. It’s been looked at before, and governments around the world decided “hands-off” this kind of regulation in order to keep fares competitive. Maybe this will change in the future, or maybe there will be a passenger protection fund to cover these kinds of risks that private insurance doesn’t cover.
Blame the virus? I guess, but it doesn’t care, and it won’t refund either.
If you are waiting with travel credits: No one thought this was going to last this long or be this big. And as a result, the Government is working through this with the airlines. We ask you to be patient and we will communicate as soon as we have something tangible.
Meanwhile, travel has never been so flexible to book, change, cancel
At this time, Canadians are required to self-isolate for 14 days on return from another country. Calgary has a pilot project in effect offering the choice of a two-day waiting period for a negative test and a follow-up test four days later. Premier Ford of Ontario is looking for something similar. This will evolve as our testing and contact tracing capabilities expand.
Vaccines are coming – hopefully in Q1 for health care workers and vulnerable groups, and Q2 for those of us who want it or need it to travel. This is uncertain.
It doesn’t mean you can’t book travel – you just need to be aware of the deposit, final payment dates, non-refundable dates, cancellation waivers and insurance options. Things are far more complicated than they used to be. It takes us twice as long to book someone as a result.
Savvy folks are even booking cruises now for Q3 and Q4 2021, and 2022 knowing that the CDC Guidelines have been published and will be in effect. Prices will be great, and there’s nothing to lose if you book a refundable deposit fare.
And there’s always the ability for us to book your airfare and hotel separately (not as a package) at the last minute to reduce the risk of cancellation. No matter what, we will be here for you when you’re ready.