Anybody who follows Twitter handles of airlines would have been seen repeated queries about refunds. When an airline tweeted about its parked planes a few days ago, the replies were a flood of complaints about a lack of response on refunds, shifting the focus completely away from the parked planes.
At the centre of the heated discussion and debate is one question: can airlines keep the money for flights that were cancelled? This stems from the fact that airlines refused to offer a refund to customers and instead stored the money in a credit shell that would be active for a year. GoAir started the practice in mid-March and as the country marched towards a lockdown, others joined in.
While the passenger charter released by the Ministry of Civil Aviation talks about refunds in case of cancellations, it never envisioned a suspension of services by government order. Indeed, the pandemic has led to unprecedented times, which weren’t thought out by the airlines or the government in the past.
Two sides of the story
The hue and cry from the passengers is because of the amount of money that is stuck with the airlines. Passengers have been told that the money they paid for flights, which cannot take off now, will be kept in a credit shell and can be utilised within a year from a certain cut-off date, which varies from airline to airline. Passengers are in no mood to have their money “safe” with the airlines and want it refunded, more so after a recent experience with Jet Airways when flyers lost money.
The primary source of revenue for airlines is ticket bookings. The other sources include advertisement, mark-up costs in merchandise and food. The revenue from ticket sales is a cycle–the airlines get the revenue as an advance for travel, by the time the passenger travels and airline pay for the fuel, salaries and other expenditure, the next set of revenue continues as forward bookings continue.
In March, people became wary of travelling and there were large scale cancellations. At some point in time, the cancellations were far higher than bookings, leading to negative cash flow. That’s when all airlines joined in, first offering free limited rescheduling and then having a credit shell.
When airlines stopped flying from March 25, the problem gained more attention since airlines were not refunding money for those flights as well. The story continued into the second phase of the lockdown, which was announced later and meant that airlines had their booking open. The delayed information was neither helping the passengers nor the airlines.
What options do we have?
Both passengers and airlines need money. With limited cash balance, airlines have come up with plans to conserve cash and that includes leave-without- pay for certain employees, salary cuts and more. This can lead to one of the following:
A government bailout: There is a lot of talk about a government bailout but at what cost? The scale of the crisis is such that the government may not have the aviation sector on the priority list, with the focus on migrant labour, industries and those at the bottom of the pyramid. Airlines are still considered elite, no matter how much the government focus has been on the Regional Connectivity Scheme UDAN.
If the bailout comes in form of cash, in return for equity, we could look at a scenario where an airline trying to get out of the aviation sector pre-COVID-19 ends up having a stake in all airlines in the country post-COVID-19.
The other option is to offer concessions and make structural changes like including ATF in the GST regime to control costs.
Airlines closing down: Airlines that are low on cash will shut down. Globally, a lot of airlines have gone into administration either willingly or unwillingly. Virgin Australia, Air Mauritius, Norwegian and South African Airways are some of the names that are on the brink or already in administration. While directly and indirectly people are dependent on airlines and contribute to the GDP of the country, without cash airlines will not have any choice but to shut shop.
Combination of concessions: A plethora of concessions from the government, airport operators, lessors and cheaper loans could help with recovery, provided travel is back as soon as possible.
Neither of these helps the passengers get back their money.
The regulator Directorate General of Civil Aviation has come up with a directive asking airlines to refrain from the sale of tickets. The same circular also talks about adequate notice and time for restarting operations.
Before this, the government came out with guidelines to refund money for tickets that were booked within the lockdown period for flying within the lockdown. However, there remains a silence about tickets booked earlier and cancelled and that’s where the large-scale resentment is.
What is the middle path?
The passengers are right in their way. Their hard-earned money is stuck with someone when they themselves are going through difficult times and would like to bail themselves out first then the airlines.
Passengers are also jittery over the finances of airlines and while the credit shell may remain valid for a year, the airline or a route may not be!
It's been nearly two months and a middle path is necessary.
Discount codes: Can airlines offer discount codes for passengers willing to keep their money with the airline for up to one year?
Other commercial arrangements: Airlines can offer deals with e-commerce majors for partial consumption, which will help the consumer and the rest remains in credit shell.
Partial refunds: The airline can be asked to set a date for a refund, which is after the resumption of services when the cash flow improves.
There is no denying the fact that airlines have to refund the money, but remember this is a time when there is no money with most of them. Indeed consumer is king but what is the worth of a customer if what they consume doesn’t exist? Everyone has said it several times that the crisis is unprecedented but we need to find a path that helps the airlines as well as passengers which will be the same in the future.
[Ameya Joshi runs the aviation analysis website Network Thoughts.]
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