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

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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.”

IAG had a €3.5bn liability for unflown flights

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.

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.

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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Category

British Airways and Avios, Iberia and Iberia Plus

Comments (149)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • AJ says:
    4 Apr4 April 09:31

    Can I ask a stupid question please?!

    I have a glut of domestic flights over the next few weeks. Some have been cancelled but in most cases, just one leg has been cancelled with the return currently operating.

    In terms of a refund, am I able to claim a refund for the total ticket price as a whole even if only one of the two flights has currently been cancelled? None of my bookings are one way.

    Ta

    • BG says:
      4 Apr4 April 09:35

      Yes, if any leg of the trip is cancelled you can claim a full refund.

      • AJ says:
        4 Apr4 April 09:42

        Lovely stuff – thanks for confirming.

      • sayling says:
        4 Apr4 April 10:26

        Do you need to claim, though? Or would normal, standard operating procedures be that a refund will be issued in due course because the flights were cancelled by the carrier?

        • Lady London says:
          4 Apr4 April 16:00

          Practically, you need to claim.
          You might even need to push and persist as well, practically

          • sayling says:
            5 Apr5 April 09:47

            You’ll be just another person clogging up the call centre queues then, though. Possibly then becoming another person saying they can’t get through on the phone and BA are denying your rights to a cash refund…

  • MarkH says:
    4 Apr4 April 09:35

    Has anyone managed to get a refund from Iberia?

    Spotted in MMB that my flight to Madrid in a couple of weeks has changed from 9:15am to 11:30am (although will be cancelled in due course I expect).

    As I understand it, I should be able to refuse this change and get a refund now, however the website only gives an option of accepting the change or getting a voucher. Tried calling and am only given the option to pay for a flight, which is weird as my reason for calling is to cancel a flight, or get a text with details of applying for a voucher. If I choose neither I get disconnected.

    How can I actually speak to someone?

    • Roger says:
      4 Apr4 April 10:44

      Use the Iberia CS and at say travelling tomorrow or something like that.
      You should be able to connect and speak to someone.
      I have done exactly this and managed a refund. Took about 7 days or so to receive in my card account but worked.

      • MarkH says:
        4 Apr4 April 11:08

        Thanks Roger – will give that a go

        • MarkH says:
          4 Apr4 April 11:29

          This time I got straight through to an agent who only initially gave me the option of a voucher even though I specifically said I wanted a refund. I had to insist that I wanted a cash refund, and that I was entitled to it.

          It’s very sneaky how the airlines are acting. There will be a lot of people who don’t know their rights and assume they are only entitled to a voucher as that’s the only option being given.

          Agree with other posters that the airlines should be offering a bonus if they want customers to actively choose a voucher rather than a refund.

          Although I suppose they must be doing a good enough job tricking people into selecting the vouchers that they don’t need to do this…

    • insider says:
      4 Apr4 April 13:25

      i called a couple of weeks ago after a redemption flight i was on was cancelled. Took a few goes to get through to Iberia Plus (normal Iberia call centre can’t process these bookings) but managed to cancel. The Avios haven’t reappeared in my account but the cash refund arrived after about 10 days

  • Meg says:
    4 Apr4 April 09:39

    Good news! Has anyone else been told my lufthansa phone agents on the phone that they can’t issue you a refund because they do not have enough staff available globally to profess the refunds? Sounded kind of legitimate to me, but when I asked to be put on a refund waitlist the agent said the wait lists were full and I’d need to call back in a few months (even though my travel is due this week although the flight has been cancelled…)

    • J says:
      4 Apr4 April 10:03

      Lufthansa make BA look wonderful. Section 75 is your best bet I think.

    • Lady London says:
      4 Apr4 April 16:05

      Forget that rubbish. Complete, complete rubbish and evidenc of a deliberate plan set up to deny you your rights.

      Call your card company.
      If credit card request s75 refund or chargeback
      If paid by charge card request chargeback as you did not receive what you paid for.
      Endof.

  • Nick Merry says:
    4 Apr4 April 09:44

    Does the Euro 3.7bn quoted include taxes etc which are netted off elsewhere in the balance sheet?

    • Rob says:
      4 Apr4 April 10:20

      Not clear to me, in all honesty. My guess was it included taxes because they are also a liability as BA must repay them too.

      • Genghis says:
        4 Apr4 April 10:41

        No. Accrued revenue is a “clean” figure. Cash received for taxes but not paid out would go to a different liability account
        Ie Dr cash 100, Cr accrued revenue 80, Cr tax liability / airport tax payable etc 20.
        On a refund, it’s then reversed out.

        • Genghis says:
          4 Apr4 April 11:16

          *unearned revenue. That’s what looking after a baby does to your brain!

        • Rob says:
          4 Apr4 April 11:34

          It’s far worse than €4bn then!

          • Mr(s) Entitled says:
            4 Apr4 April 11:52

            But you are still only selectively looking at one part of the balance sheet. None of this is happening in isolation.

  • Mark says:
    4 Apr4 April 09:53

    I cancelled a virgin flight for the end of the month, was told miles would be back in account in ten minutes but cash would take 90 days!! Totally unacceptable. The law states 28 days maximum for a refund

  • Sussex Bantam says:
    4 Apr4 April 10:24

    The problem with a voucher is that it doesn’t necessarily buy you the equivalent service you have been refused.

    If they offered a voucher guaranteeing me a CW seat on a flight to Miami in Easter 2021 then I might be tempted to take it. I have no intention of taking a voucher for a fixed amount of money when I have no idea how much the flight might cost when I come round to booking it…

    • Doug M says:
      4 Apr4 April 10:33

      But the circumstances are extraordinary, and I think asking the airline to bear the full cost of them is unfair. Refund yes, some guaranteed future booking at same cost, not fair.

      • Peter K says:
        4 Apr4 April 10:41

        But it’s also not fair to try to get someone to accept a voucher (non-interest earning, non-inflation protected etc) when it means that the equivalent product may not be affordable with it in the future.
        This is why adding, say, 8% to the value of a voucher for future use makes it an acceptable proposition, but giving no adjustment compared to cash is not.

        • Doug M says:
          4 Apr4 April 10:47

          The voucher is something else again, the law says you’re entitled to a refund, the voucher is a cash grab by desperate businesses. I certainly agree that if they want to play the voucher game then an incentive is reasonable.
          I’m not sure what would entice me to take a voucher over cash, but I know it would be more than 8%. 108% of potentially nothing is never going to outweigh 100% cash refund. Speaking personally nothing under 20% would even cause me to think about not wanting the cash back.

        • Lady London says:
          4 Apr4 April 16:14

          The 8% only compensates for statutory interest for 1 year so does not increase the value of the voucher.

          They need to increase value by 25% or so to even begin being a reasonablealternative to the cash refund you have a right to. BA’s already been earning either interest or business profit on your money while they’ve had it. After that an amount needs to be further added to the voucher in addition to cover bankruptcy/restructuring risk or “sneaky tricks” risk say 15% for BA, plus an amount for possibly fewer flights or less avios seats to choose from say 5%.

          And BA wants you to take a voucher for the same amount as the cash that owe you? They’re “having a laugh”. I can eat with cash from a refund, but not from BA’s promises

      • Sussex bantam says:
        4 Apr4 April 21:23

        They can give me my money back, or a voucher for the same flight in the future. Those put me back in the same place as I was before – a cash voucher does not.

        If they want me not to ask for cash then make a sensible alternative offer

    • Nick_C says:
      4 Apr4 April 10:54

      Excellent point

      And if BA goes bust, won’t people holding vouchers just be unsecured creditors, maybe getting back a percentage of what they are owed?

      I can’t see S75 still applying to anyone who accepts a voucher.

      Another problem with vouchers is that BA are not treating them as cash. My brother has received a voucher for cancelling a stand alone car hire booking. He is also due to make a final payment on a summer holiday booked with BA. BA are refusing to accept the voucher in part payment. They are insisting on cash.

      • Lady London says:
        4 Apr4 April 16:17

        People left with vouchers will get nothing in that situation.

        I would rate BA as pretty solid and also Ryanair and easyJet.
        Other airlines may only be solid with the support of their government.

  • James says:
    4 Apr4 April 10:49

    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.

    • J says:
      4 Apr4 April 10:55

      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:
      4 Apr4 April 15:10

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

      • Rob says:
        4 Apr4 April 15:34

        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:
          4 Apr4 April 17:11

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

          • Rob says:
            4 Apr4 April 18:16

            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:
            5 Apr5 April 00:58

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

  • Garry CAPE says:
    4 Apr4 April 10:50

    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.

    • Nick_C says:
      4 Apr4 April 10:59

      Surely EC261 is incidental to all this. The company is in breach of contract. They cannot provide the service you have paid them for, so make a S75 claim or chargeback or sue them.

      I don’t see that EC261 is adding anything useful to your protection under contract law?

    • Nick_C says:
      4 Apr4 April 13:13

      I can’t post the links, but if you Google “eu guidance ec261 covid 19” you will see the EU’s latest position (18 March). Trains, ferries, and buses are all covered by EC261

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