PYMNTS MonitorEdge May 2024

New Airline Refund Requirements Put Spotlight on Instant Digital Disbursements

Air travel is a complicated business — and those complications can get passed down to travelers.

From extended delays when waiting for refunds after abrupt flight cancellations, to spending hours and even days haggling with airline customer service staff, U.S. consumer frustrations with the airline industry’s take-it-or-leave-it way of doing business have recently started to boil over.

Wednesday (April 24) the Biden-Harris administration announced a new U.S. Department of Transportation (DOT) final rule requiring airlines to promptly provide passengers with automatic cash refunds when owed.

Per a statement, the new rule makes it easy for passengers to obtain refunds when airlines cancel or significantly change their flights, significantly delay their checked bags, or fail to provide the extra services they purchased.

“Passengers deserve to know upfront what costs they are facing and should get their money back when an airline owes them — without having to ask,” said Transportation Secretary Pete Buttigieg. “Today’s announcements will require airlines to both provide passengers better information about costs before ticket purchase, and promptly provide cash refunds to passengers when they are owed — not only saving passengers time and money, but also preventing headaches.”

The new mandate is set to transform the landscape of air travel, ensuring that passengers are no longer left in limbo when their travel plans are abruptly altered. After all, flight cancellations are enough of an inconvenience that customers shouldn’t also have to jump through hoops to be appropriately compensated for their troubles.

But, importantly, at the center of the DOT’s new rule is payments — namely, disbursements. And the rule’s requirements come into effect at a time when the business-to-consumer (B2C) payments landscape is being automated and digitized.

Read moreAirlines’ Descent Into Logistical Chaos Puts Focus on Refund Solutions

Seamless Refunds Start With Seamless Payments

Since 2021 alone, airlines have returned more than $3 billion in refunds and reimbursements owed to airline passengers, per the DOT.

Wednesday’s final rule creates more certainty for consumers around the specific circumstances in which airlines must provide them with refunds. Prior to the rule, airlines were able to set their own refund standards which resulted in a highly fragmented landscape where refund policies differed from airline to airline and left passengers facing an opaque and varied process when seeking compensation for travel disruptions and cancellations. 

The rule applies not only to cash refunds but also to other forms of compensation, such as travel vouchers and frequent flyer miles, to ensure that passengers have a choice in how they are compensated.

“Not only do you have a whole range of fare rules and ticket types, but you have various refund policies, including nonrefundable or partial refund policies that you have to manage, you have a lot of government legislation, and on top of it all, you have a very complex payment ecosystem, meaning a lot of forms of payment, not just cards, but also things like Apple Pay and so on,” explained Kristian Gjerding, CEO of payment orchestration platform Cellpoint Digital, to PYMNTS.

“From the consumer perspective, they would probably like to see a refund of cash fast into the form of payment that they used,” he added.

Read moreAirports Accelerate Digital Transformation to Enhance Passenger Experiences

Automatic Refunds for Canceled Flights

And PYMNTS Intelligence has found consumers want their money quickly when it comes to refunds or other disbursements. Data in the report “Merchant Refund Policies: Keeping Travel and Entertainment on Track” showed that seamless, easy-to-use cancellation and refund policies are key to delivering a positive customer experience.

The final DOT rule requires airline refunds to be automatic (passengers shouldn’t have to request them), prompt (issued within seven business days of refunds becoming due for credit card purchases and 20 calendar days for other payment methods), issued in either cash or the original payment method, and in the full amount (refunds must include all government-imposed taxes and fees and airline-imposed fees).

The rule bars airlines from substituting vouchers, travel credits, or other forms of compensation unless the passenger affirmatively chooses to accept alternative compensation. 

The “significant changes” requiring airlines to issue refunds under the rule include: departure or arrival times that are more than three hours domestically and six hours internationally; departures or arrivals from a different airport; increases in the number of connections; instances where passengers are downgraded to a lower class of service; or connections at different airports or flights on different planes that are less accessible or accommodating to a person with a disability.

In addition to finalizing the rules to require automatic refunds and protect against surprise fees, DOT is also pursuing rulemakings that would make passenger compensation and amenities mandatory so that travelers are taken care of when airlines cause flight delays or cancellations, as well as a family seating junk fee ban proposal.

As for how airlines will manage the technical and payments infrastructure lifts necessary to comply with the new rule and any ones upcoming, that remains to be seen — and is sure to be something the payments landscape will keep its eyes on.