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Coronavirus: Which EU airlines have most to lose from refunding cancelled flights?

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Over the weekend I looked at the scale of IAG’s liability in terms of how much it may have to refund customers for pre-booked flights.  With €3.5bn of pre-paid but not flown flights at 31st December, it is a big number.

Bank of America published some research yesterday on a similar theme which I think is worth a look.  This is all taken from publicly available financial reports and only covers airlines quoted on the stock market, which is why Virgin Atlantic is excluded.

Here is the first chart.

This looks at the amount of money each airline has banked from unflown flights (much of which will need to be refunded) as a percentage of how much cash it has in the bank.

As you can, this is a disaster for Norwegian.  As of its last set of financial statements, it was on the hook for refunds worth DOUBLE the amount of cash it had in the bank.

Turkish and Wizz Air are in the strongest position – they had enough to cash to refund their sold tickets three times over.

IAG’s position is weaker than it looked in my analysis.  This is because IAG likes to talk about ‘cash and cash equivalents’, which also includes arranged loans where the money has not yet been drawn.  Bank of America is looking purely at cash.

easyJet is also looking weaker than its theoretically strong headline numbers suggest.  This explains why easyJet borrowed £600m from the Government yesterday and has been desperately trying to avoid paying cash refunds.

Here is the 2nd chart, which is not as relevant.  This looks at the value of unsold tickets in terms of how many months revenue it represents.  This table is more susceptible to timing influences based on the year end date of the airline, because airlines tend to generate the majority of bookings in the first few months of the year.

I’m not sure how Turkish can only be sitting on three weeks of advance bookings.  The figures for the other airlines are all roughly similar, and I think differences could be explained by whether they have a December or March year end.

Comments (47)

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  • Pedantic Pete says:

    Is your proof-reader on holiday? 🙂
    – unflowN
    – As you can SEE,
    – How many months*’* revenue (missing apostrophe)
    – First few montHs of the year

    • Rob says:

      Yes, apologies, this one did not get a final onceover last night.

    • Nick_C says:

      I appreciate how difficult is is to spot one’s own typos Rob, but if you wrote your articles in MS Word and then pasted them, Word’s spell check would highlight some of the typos for you!

  • Neil Spellings says:

    Called BlueAir to get a refund instead of a voucher yesterday. Was told that refunds are not being issued for 120 days. Lodged a Section 75 claim with the credit card as a result.

  • Jon says:

    Up until now I have not been too worried, but: what is the significance I have an Amex gold charge card (ie no S75 protection) rather than a credit card? Am I likely to be seriously disadvantaged through not being able to claim? Should I be changing to the gold credit card to get the better S75 protection (and resetting the free year, and getting a reset of my 2 Lounge passes…)

    • james says:

      This is a great question and would be useful as a feature, Platinum card obviously is expensive but as a charge card is it justified without s75 protection? Or are platinum benefits just as good ie insurance?

      • Polly says:

        Amex have a similar charge back policy to S75. They don’t argue the point. Usually very helpful. They won’t want masses of charge card cancellations

      • Rob says:

        The problem is that you can’t easily explain it. Amex will say that its voluntary scheme is equivalent. The magic word is ‘voluntary’. A credit card company may also try to wriggle out, but the latter can be sued.

        • James says:

          I used the ‘dispute activity’ feature on my Amex Plat online account, one for an Aegean Airlines Flight and the other for an Air Asia Flight – in both cases the airline were not refunding cancelled flights. There are a couple of multiple choice questions to answer, so requirement to upload anything, and both were ‘approved’ – one just an hour after I submitted in (at 7am on Sunday morning!). The disputes now show in the ‘closed’ tab stating “As a result of our investigation, we have credited your account. This adjustment can be found on your next statement” .Both credits are now on my account. I’m impressed with that result.

          • Lady London says:

            Amex has the track record over decades that they pay out on their own stated policy. Most insurance companies can’t even claim that.

            It’s a good reason to get an Amex card especially Gold or Plat (Plat you need to assess more carefully these days if it’s right for you as it has gotten very expensive). Rob has done articles on the card sorts and what they are used for.

          • Jon says:

            But I would get that if I changed to the gold credit card from Amex (rather than the gold charge card). And I would be able to resort to a S75 claim as well (enforcer byy the FOS if needed). Are there any benefits to having the charge card over the credit card? The only one I can think of is the ability to upgrade to plat to get 20k MR bonus.

    • jc says:

      The real test in my opinion is consequential losses. For example your £500 flight is cancelled / goes bust and rebooking costs £5,000. S75 is very clear that the card company pays the difference, not just a £500 refund. Will Amex do the same?

      (I don’t know. I’d appreciate hearing anything anecdotal. If you do want the security of the best of both worlds and you have a Platinum, do your spending on an Amex credit card like the free Rewards CC)

  • Mr(s) Entitled says:

    Take with a massive pinch of salt. This is too simplistic to be analysis.

    • AJA says:

      I agree it is a superficial look at the issues and perhaps too simple to be described as analysis but it does illustrate the problems facing airlines and go some way to explaining why airlines are much keener for us to take a voucher rather than pay our cash back.

      But lack of cash flow can kill even the most profitable enterprise. I think there will be some casualties in amongst that group.

      I also think a lot of people who have taken vouchers are in for some disappointment when they come to redeem those vouchers.

  • mr_jetlag says:

    would cash and cash equivalents include Avios? IAG and dodgy accounting at work…

    • Jake M says:

      No. Cash equivalents are usually financial instruments or provisions that can be converted to cash easily. In personal finance one such example is an unused but previously arranged overdraft.

      Not an accountant myself but I’m sure your right in the sense that what determines a ‘cash equivalent’ can be stretched in certain circumstances however it won’t include Avios as Avios cannot be converted into cash.

      In fact Avios are a liability – quite the opposite of what BA need right now!

      • pauldb says:

        Cash and equivalents includes short-term deposits and money market funds. As you say avios are a liability just like future ttavel sales (deferred revenue).

        IAG will count undrawn credit facilities within total “liquidity”, but there’s no way they will be counting undrawn credit as cash equivalent.

    • Chrisasaurus says:

      Avios might be an asset to you but they are a liability to IAG.

  • Beeker says:

    Can someone please clarify: does this EU law apply to Emirates or only airlines whose flying hub is in the EU?

    • Andrew says:

      It applies to all flights from the EU but only flights on EU registered airlines when flying back to the EU so Emirates are covered if your flight begins in the EU.

      • Beeker says:

        Thank you Andrew 👍

      • Lady London says:

        Think your return is covered provided it’s on same booking that is departing from EU?

        • ChrisC says:

          depends what you mean by ‘covered’ and which elements of the flight.

          An Emirates flight to the EU does not get delay / cancellation compensation just because you have a flight leaving the EU on the booking

    • Lady London says:

      Ta @Harry T.

  • Zark says:

    Seems like Wizzair are also trying to force the voucher option (all be it +20%) rather than refund cash. An email from them says:
    “You will be able to request the 100% refund online in your account either via bank transfer, or to the bank card the payment was made with (depending on your original payment method) instead of WIZZ credit, in this case please note that the aforementioned extra 20% will not be applied”

    However when go to the booking and press ‘REFUND’ only offers the account credit option.
    Anybody know of a work around?

    • Phil says:

      Total scam, only way to get a cash refund is via the call centre.

      0905 707 0000 – Rate per minute 1.45 GBP

      60-90 minute call…. you do the maths.

      • Mr(s) Entitled says:

        I have not tried it but Google brings up an alternative:

        “0330 977 0444 (local rates) This number is reserved for existing bookings only.”

      • Chrisasaurus says:

        Is that really still legal?

        That used to be the area code for Worcester, how things change…

        • Polly says:

          Agree. That’s one earning rate on that phone number…
          Try using Skype either on that one.

          • Lady London says:

            Hey @Polly how’s the volunteering for the NHS going? Is it really stressful?

      • Lady London says:

        That 0905 number is not the same price to UK customers as a local call within the UK which is illegal since 1st October 2016 if it’s the only number supplied to customers who bought in the UK.

        Surcharged numbers are not allowed to be the only number given to existing customers to reach a selling entity since that time. Many businesses now provide an 0800 number or an 0345 number. 0800 is free now even on uk mobiles, 0345 or any number beginning 01 02 or 03 has to be provided as those are charged as a local call.

        A complaint to Telecoms Ombudsman would get Wizz “told” and especially if any claim for flight delay or non-refund goes to court I would expect your call costs to be easily claimable within your claim too (none of us had the time for a separate legal challenge but I’m sure would win).

    • Nick says:

      Just out of interest… What rebooking options are Wizzair offering?
      Before the current situation I seem to remember they allowed you rebook the cancelled flight online (same or similar route) within a 14 day window of the original flight (or a similar short term time period).
      Has that period been exceeded now? E.g. can you rebook the cancelled flight for anytime in the schedule?

      • Chrisasaurus says:

        Well rebooking within 14 days would be about as much use as a chocolate ventilator….

    • Alexey says:

      The offer this voucher , but then when voucher credited to account , you have an option to transfer it to cash ( -20%) , have done that for one flight but they said it would take 30 days to process refund

      • Zark says:

        Thank you for this information on Wizzair refunds.

  • Peter says:

    Anybody had any experience of getting a refund from Iberia on a British Airways metal code share flight? They seem to have been cancelled by Iberia but I have heard nothing from Iberia.

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