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Flight Refunds: Friend or Foe?

The Biden administration on Monday May 8 revealed plans to propose new regulations, which would require airlines to provide refunds and cover expenses for cancellation-associated fees, including meals, transport and hotel rooms, for passengers stranded when companies are at fault for travel disruptions.

The administration said it was beginning to form an outline of new legislation it would propose. One clause of the proposal would be a requirement for airlines to offer compensation in cash, rather than only through refunds. According to the Department of Transportation (DoT), no major U.S. airline currently guarantees cash compensation for delays or cancellation.

Southwest Airlines’ disastrous holiday season meltdown, which led to 16,000 flight cancellations and stranded millions of customers, has sparked much of the current discussion about how legislation can better protect travelers. In his February State of the Union Address, President Biden took aim at airlines’ “junk fees”, saying the time had come to protect American families. The bill, however, will only apply to cancellations that are within an airline’s control; adverse weather, for example, will not trigger obligatory compensation. Ironically, then, the December disaster that drove the DoT to act would not even be covered by the bill.

Biden and Buttigieg's proposed bill wouldn't address the kind of travel meltdown suffered by Southwest last Christmas

The DoT also unveiled a new Airline Customer Service Dashboard that shows which airlines currently offer compensation – and whether that compensation is offered as cash, travel credits, voucher or flyer miles – and cover costs for hotels, meals and other necessities. The Dashboard will also rate airlines’ willingness to rebook and timeliness of customer service. The White House heavily implied the purpose of the website was to critique airlines’ current efforts when a spokesperson said that the dashboard would show “that virtually no airlines offer compensation on top of refunds or amenities”. The dashboard can be found at

Appearing alongside Secretary of Transport, Pete Buttigieg, to announce the news, President Biden said that passengers “deserve to be fully compensated. Your time matters. The impact on your life matters.” He sympathized with travelers who had experienced cancellations, saying “I know how frustrated many of you are with the service you get from your U.S. airlines”.

Airlines for America, an organization representing many of the U.S.’s largest airlines, said that the bill did not recognize the fact that airlines already had “no incentive to delay or cancel a flight and do everything in their control to ensure flights depart and arrive on time”. Their press statement also highlighted that more than half of last year’s cancellations were triggered by weather, and that airline schedule reductions that had caused cancellations covered by the bill were in response to the government-run Federal Aviation Administration’s staffing shortage.

Some have pointed out that a likely reason for the White House to announce its intentions to propose new regulations, instead of just presenting a bill, is that it is a strategy to pressure airlines into providing more compensation for passengers without the need to actually introduce contentious legislation. Mr. Buttigieg explicitly credited the dashboard with pushing airlines to update their policies, suggesting that the DoT has already formulated non-legislative tactics to force airlines to comply with White House policy.

One reason the DoT might be wary of proposing a bill to enforce refunds is that such legislation would almost certainly go against what they claimed it would achieve – “lower costs for American families”. If airlines are forced to offer greater compensation per passenger, ticket costs will increase to maintain what is already a thinning profit margin.

Interviewed by CBS Mornings yesterday on the state of travel and aviation, CEO of Delta Air Lines Ed Bastian was asked about the news of potential legislation. Bastian was quick to acknowledge that an upsurge in passenger numbers led to last summer being a ‘rough summer travel season’ for airlines in terms of delays and cancelations, but that, with the return of travel to strong and consistent numbers, the aviation industry was in “such better shape” to manage the months ahead.

Delta CEO Ed Bastian has warned the legislation will likely lead to an increase in ticket prices.

CBS Mornings asked Mr. Bastian what Delta was doing to prepare, and what the airline’s stance on compensation was in light of the Biden administration applying pressure. The CEO said that Delta had hired and trained over 25,000 people who were “in position”, and that the team was “ready internationally […] and in the U.S.”. Bastian said that Delta already had guidelines in place that meant there would be no need for policy change in light of the White House’s requests, saying Delta was “known for our service” and ensured it compensated customers “a meaningful amount of money, whether it’s hotels or meals or additional impact items for our travel”. Bastian said that recovering a customer’s journey was “second only to safety” in Delta’s pyramid of priorities.

Asked about the impact of the theoretical bill on price and if that would be “passed on to the customers”, Mr. Bastian said that there was “no question if there is another layer of government regulation and cost […] it will eventually find its way back into ticket prices”.

Bastian was asked if airlines were thinking about lobbying against the motion and replied that “we haven’t even seen” what the legislation would be, but that Delta already offered customers the level and diversity of compensation the government was planning to legally enforce. Delta, he said, had committed “hundreds of millions of dollars” to customer compensation in 2022; he said it was part of the airline’s “great service”.

While Delta’s proactive approach to compensation is reassuring for its customers and ensures client retention for a luxury airline, the legislation will be a source of concern for smaller airlines and those traveling on a tight budget. If Delta is committing hundreds of millions of dollars to compensation measures annually, other airlines who at present are less willing to refund customers will struggle in the face of legally obligatory measures, and ticket prices will increase by the largest percentage at the more affordable end of the cost spectrum.

The aviation industry finds itself in a difficult place, where recovery from pandemic-induced contraction has begun to take hold on reduced profit margins but government legislation risks destabilizing that fragile growth. Pete Buttigieg said that the summer travel season will “put enormous pressure on the system”, apparently without realizing that the DoT’s bill is several orders of magnitude more threatening to the aviation sector.

Ironically, a bill optimistically labelled as the way to “lower costs for American families” and aimed at “growing our economy from the bottom up” will almost certainly raise costs and penalize lower-income American families. If the bill is proposed, passed and signed into law, some airlines may not be able to provide cheap flights at all, pricing a whole portion of the American public out of flying affordably.

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