IAG had a €3.5bn liability for unflown flights – as the EU rejects requests to issue vouchers instead of cash

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In a positive move for passengers, although a less positive one for airlines, the European Union has blocked plans to force customers to take a voucher instead of cash when a flight is cancelled.

The Dutch Government had proposed a plan to allow airlines to stop offering cash refunds.  The proposal would have allowed airlines to force passengers to accept a credit voucher, valid for 12 months.  The only upside was that the airline would have had to swap the voucher for cash after 12 months if it had not been redeemed.

In a statement, the European Commission for Transport, Adina Valean, said that:

“Airlines must refund canceled flight tickets. They can of course also offer a voucher but — and this is very important — only if the customer agrees to accept this. If the customer does not want a voucher or other proposed solution, the company must reimburse.”

This only applies to passengers whose flights are cancelled.  An airline can still impose a voucher – with no requirement to turn it into cash at any point – if it lets you voluntarily cancel a non-refundable flight which is still operating.

IAG had a €3.5bn liability for unflown flights

How much money could British Airways have to refund?

I dug out IAG’s 2019 accounts to see how big a problem this is for British Airways, Iberia, Aer Lingus, Vueling and LEVEL.

The document is here.  You need Note 21 on page 165.

The outstanding sum at the year end for flight tickets which had been sold in advance of travel was €3.57bn.

Total IAG passenger revenue for 2019 was €22.5bn.  This implies that the average passenger books 58 days before departure, although in reality it will be longer than that as short-notice tickets are disproportionately more expensive.

I would imagine the €3.57bn figure was higher when coronavirus hit Europe, because a lot of people will have booked for Summer 2020 during January and February.  I have also assumed that the €3.57bn includes the associated ‘pass through’ UK Air Passenger Duty.  If it doesn’t, the sum is higher.

For simplicity, if we assume that IAG had €4bn of pre-booked ticket sales at 1st March and that 66% by value were for travel in March, April and May, the group is looking at refunding €2.7bn of flights.  

At a stroke, this takes out 30% of IAG’s €9bn cash and cash equivalents, and this is before the huge weekly costs of running a grounded fleet with virtully no income.

If 50% of passengers over March, April and May could be pursuaded to take vouchers instead of cash, IAG could potentially keep €1.35bn in the bank.

These are serious sums of money, and you can see why IAG – and other airlines – are less than keen to issue cash refunds even when they are legally required to do so.

British Airways has removed the functionality to refund a cancelled flight for cash from its website (although you can get a British Airways cash refund online with our workaround – it is still working from some if not all) although it will pay up if you call.

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Here's a great (and disturbing) video of the British Airways aircraft stored at Bournemouth Airport
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Comments

  1. James says:

    Having come to the conclusion that Virgin would be allowed to fail (and rightly so, in my view), I transferred 400,000 Virgin Miles to Hilton. Reading this news and bearing in mind the potential c. £3bn liability BA has for civil claims from the data breach, I am minded to cash out my c. 650,000 avios. However I have noticed BA has stopped allowing Avios redemption on Experiences and Wine. Have Laithwaites pulled out?
    Sounds like WW needs to get his cap out and pay a visit to Rishi.

    • Unless you wanted all that wine or some experiences I’d relax. If you’re that bothered can you book for hotels a long time in the future? Still taking a big loss though. And no British govt is going to let BA fail.

    • Harry T says:

      BA will be bailed out as the nation’s flag carrier airline. And they probably won’t get to that stage.

      • Laithwaites has now restarted takings orders off its own website – see here https://www.laithwaites.co.uk/ – so it is possible Avios redemptions will restart. BA’s not going bust though. As soon as Virgin is bankrupt BA will have the begging bowl out.

        As I said the other day, it’s like a kid that murders its parents and then begs for clemency on the grounds that they are an orphan.

        • rams1981 says:

          If you think that any reason you’re not cashing out your virgin miles to anything else?

          • I have close-to-zero use for 3 million Hilton points, that’s why. I have quite a lot of use for 4 x Upper Class trips for four people. It’s not a huge gamble when you look at it that way.

          • Lady London says:

            And you didn’t consider using any in IHG perhaps alongside an Ambassador free night?

  2. Garry CAPE says:

    Does anyone know if the same EC refund law applies to other modes of transport ? in my case Brittany Ferries.
    Scheduled sailings cancelled; voucher offered, no mention of refund.
    I don’t want to sail to Spain at dates other than my booked trips.

  3. Personally I think vouchers should be the way forward for airlines as, otherwise they may well go bust, which is to nobody’s advantage.
    Airlines do not have unlimited cash and it is not the airlines fault they cannot fly.
    The days of cheap fares are coming to an end which is not a problem to the rich, wealthy and business types on here but is to people like me who are retired but love travel, taking 40 flights a year.
    Come on guys and girls understand the economics of the airlines and don’t forget those of us who are shareholders could loose our investments and certainly will not see any dividends for a good few years even if they survive.
    HFP people used to be polite and informative but many have become just as bolshy and aggressive as in so many social media sites.

    • Fenny says:

      Your shareholding is more important than others’ cash?

    • TGLoyalty says:

      If airlines want to protect their cash flow they need to offer the consumer an incentive.

      Why should I forgo my legal right for a cash refund, that I can use anywhere, if they can’t deliver what I bought (flight cancellation)? If they want to offer me a 15%-25% bonus for allowing them to keep my money then I’ll consider it, because it comes with risk that they won’t survive or that I won’t be able to use it effectively.

      • +1. I would accept a voucher if it gave me what I’ve lost, i.e an F flight to a Zone 5 destination on a date of my choosing but this appears to be very far from guaranteed, in which case I want my money back.

        • Lady London says:

          +1. I would help them out if what they are offering is a fair option as compared to cash.

          But many, many people who thought they were travelling have now lost their job. Or they have people to support who have also lost their jobs and need their money back to live now.

          And BA, with access to usd9 billion cash, plus I assume, about 3 or 4 billion of money belonging to their customers, has deliberately tweaked their website so customers who have become vulnerable can’t request the refund they’re entitled to. And when that didn’t work properly the first time for some of their more resourceful customers who found a way to circumvent BA’s deliberate blockage of refunds on their website, BA did it again and made sure.

          Now people who paid BA for a service BA has not provided, but has kept their money for, are having to spend money and hours of time trying to reach BA by phone. BA knows it does not have the capacity to answer all calls and yet BA cynically is forcing people entitled to refunds to call them as the only method of teaching them.

          Many people who do finally get through are still reporting here that BA still tried to deny them a refund for the flight they had paid for but BA cancelled. As BA today told someone whose flight was weeks ago and cancelled, today BA told them it would take BA another 4 weeks to decide whether to refund their money for this flight, or not, and even if BA after 4 weeks did kindly decide to give the customer their money back for the flight BA did not run, this would take a further two weeks.

          Guys, if you get this rubbish from BA go straight to your cardco for s75 or chargeback.

      • The incentive route should be looked at.
        I’ve cashed out £3k worth of refunds so far, will likely be £4k by next month.
        If I was offered Voucher+Avios or Voucher+% then BA would still have my money.

        • Yep, and what’s interesting is that IAG sister company Aer Lingus has gone down that route, offering 10% bonus for those willing to take a voucher rather than insist on cash.

          Presumably the calculation at BA is they’re better off short/medium term not doing this, but I think it’s a mistake.

      • Yes, yes and yes and those other comment above mine as well.

      • Callum says:

        The answer to that is very obvious – because they’re the victim of an enormous global pandemic and government travel bans.

        Now, I’d agree that that’s not good enough and I’d want my cash back too, but don’t keep pretending that everything’s fine and they just love screwing people over – it’s a literal fight for survival…

    • Come on – if you’re buying shares you know full well their value may increase or decrease and there’s a risk you might lose everything. If you didn’t want to take risks you should have stuck it in NS&I. As a consumer if I am entitled to a full cash refund why on earth would I accept a voucher? It’s not as if BA are consistently treating customers with kindness, going above and beyond etc. No chance anyway of BA failing.

    • Thomas Howard says:

      As long as the aircraft and airports continue to exist it’s likely there will be air travel in the future. Why would non-shareholders (inc pension holders) worry about the value of your investments? This is the risk you were being rewarded for.

    • I think your words “people like me who are retired” are key here. A lot of other people are not in your situation and have suddenly lost their income, or fear losing it. They need their refunds from BA, and sooner rather than later.

    • JohnG says:

      I’m sorry Tony but I have no sympathy for BA in this case; nor do I accept the economics of your argument.
      I lack sympathy because has again demonstrated that it sees customers as a problem rather than people who paid for a service and who have their own needs; their immediate response was to intentionally be less helpful and make things harder for their customers. At the extreme end their will be people who have lost jobs etc who desperately need the money they are entitled to from BA which BA is going out of its way to deprive them of. Other firms in similar positions haven’t built a strategy on inconveniencing customers and have offered incentives to take vouchers because they understand that vouchers aren’t attractive to customers.

      BA isn’t going to go bust. If by some miracle it does then it won’t be because of the short term cash flow implications of giving people who are entitled to them refunds.

    • Charlieface says:

      Being brutally honest, I would like to feel really bad for airlines and their shareholders given the circumstances, but after years of airlines treating customers as cash cows I’m afraid I can’t. I’m remembering the times they put arcane rules in the tickets, they try to get out of paying compo claims using any trick in the book, they will happily put huge YQ fees on supposedly ‘free’ miles tickets. After all that I have half a hope they go bust and a better system rises up out of the ashes.

      • Callum says:

        I think the odds of vastly reduced competition resulting in consumer friendly practices thriving are pretty slim…

        • James says:

          Airlines need to adopt a more honest approach with customers – more sustainable pricing that doesn’t have a business model predicated on abusing a dominant position to borrow from everyone (tax authorities, future travellers, credit card companies who have advance-purchases points etc). HMG might not have a good track record in running a national airline but this reliance on unstructured funding and the constant pursuit of dividends and share buybacks adopted by public airlines doesn’t seem to fit well with the argument that the airlines are strategic national infrastructure. Any government bailout would be unconscionable without a significant haircut for equity holders, a change in management and a commitment to putting payment of taxes and investment ahead of shareholder returns. Aer Lingus, Level and Iberia should be left for others to deal with.

  4. Clive says:

    Rob do you please have a link to the EU ruling?

    • No, because it’s not a ruling. To save the trouble of making a ruling, the Commissioner sent an email to some media outlets saying that the Commission wouldn’t budge on this. Makes the position clear without all the trouble of doing a legal ruling. The idea is that the Dutch now go away and leave her alone.

  5. Shelly says:

    Easyjet have removed the refund button online – requiring a telephone call but it’s impossible to call as the recorded message just tells you to call back and hangs the call.

    • Peter K says:

      Sometimes you need to be persistent. More than once recently I’ve had to keep dialing a call centre (not easyJet) repeatedly until I was put on hold rather than just cut off. Once I had to try for an hour to even be put on hold, then had to wait nearly 3hrs for the call to be answered. It was important so I took the hit on my time. We all have choices like this we need to make.

  6. Malaysian Airlines and Qatar Airways have come to the rescue of stranded passengers in Auckland, then why couldn’t Emirates continue to fly, instead of cancelling people’s return flights with 48hours notice and reneging on their contract to fly people home? Not all flight cancellations can be blamed on Locked down countries!

  7. curious says:

    Rob, do you have a similar evaluation of Virgin? I’m sure a number of people here have bookings with them, so would be interested to see your take on how much cash / days they have left before becoming insolvent? Would you recommend we try to get our money and miles out of them ASAP?

  8. Martin says:

    James, you commented moving your Virgin miles to Hilton, can it be done online or only by calling or texting Virgin flying club? I couldn’t find on online method to do it myself, any advice appreciated, thank you.

  9. Moved Virgin Atlantic miles to Hilton a week ago – not in Hilton account. Does this means I missed the end of month transfer?

    • Nick_C says:

      You are not alone Jo. Many others have made the same comment in the daily “chat” threads [set up for off topic issues such as this one 😉 ]

  10. Kelly T says:

    I’ve been waiting since 12th of March to refund the taxes on a Amex voucher booking, they have refunded both Avios and voucher. I have tried calling them and spent over 6 hours on hold with them, I’ve logged two complaints and keep sending tweets via Twitter, they’ve won’t respond!
    Any ideas how to get my money back?

  11. Beeker says:

    Would be interesred to know whether Emirates would be able to take such a hit on refunds as they have cancelled the majority of their flights.

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