80% refund of air tickets despite last-minute cancellation? Govt may have a plan in works

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India is considering a system that would let flyers recover a significant portion of their ticket cost even if they cancel a few hours before departure, a move officials say could be introduced within the next two to three months, according to a report by The Times of India.

At present, anyone scrapping a booking inside the last three hours is marked as a no-show and forfeits the entire fare. Airlines may offer a full refund in case of a verified medical crisis, but as industry executives themselves admit, this practice is entirely discretionary.

The report, citing people familiar with the ongoing discussions, said the aviation secretary has been holding talks with domestic airlines to design an arrangement in which a small, built-in insurance component is automatically folded into every air ticket.

The idea is that passengers would not pay anything extra. Instead, carriers would work out deals with insurers so that the premium is absorbed at the airline’s end. One major airline has already reached out to insurers to shape such a mechanism, with a senior official confirming, “We are exploring whether an insurance element can be added in the lowest fare (category) so that passengers get some refund. The details are being worked out," the report said.

Officials tracking the negotiations say the plan attempts to address a long-standing concern: people are frequently hesitant to book flights because of uncertainty about last-minute contingencies and the fear of losing money.

According to the report, industry sources said, “We keep getting complaints about someone not being able to travel due to a tragedy in immediate family and then not getting a refund… This uncertainty of getting money back has to go and refunds have to become seamless.”

Their internal estimates suggest that if roughly Rs 50 is factored into each ticket as the premium, travellers could receive refunds of up to 80% when cancelling as late as four hours before departure.

Airlines note that online travel portals already prod customers to buy optional insurance while booking. One carrier representative explained that the industry is “working out the math with insurance companies,” adding that insurers will eventually have to determine the “risk-reward ratio.”

The same official remarked that if only two or three out of a full flight of 200–300 passengers end up making legitimate last-minute claims, the model becomes sustainable. Companies providing cancellation insurance to OTAs reportedly analyse historical cancellation patterns, especially how many passengers typically cancel very close to departure and why.

If these cancellation ratios remain low, insurers can profit; if they rise, premiums increase accordingly. In line with this, a range of customised insurance options already exists in the market.

Regulators are aware that refund-related disputes have become one of the most common sources of passenger frustration. Beyond the proposed insurance initiative, the Directorate General of Civil Aviation is revising its rules on how airlines must process refunds, as per the report.

In its draft, the DGCA acknowledged, “Issue of refund of tickets by airlines has become a major source of grievance,” citing delays, partial amounts returned, and policies that convert refunds into time-bound credit for future travel. While insisting the government does not intend to interfere with airline business decisions, the regulator said the volume of complaints requires “some affirmative action” so that minimum benchmarks are set to protect passengers. Final rules will be issued after feedback from stakeholders is reviewed, as per the report.