Déjà Vu All Over Again: What Is an Airline’s Obligation for Canceled Flights?

Yogi Berra’s famous malapropism well describes the situation that has unfolded in the nation’s air travel system over the past week.

To recap, during the pandemic, many thousands of flights were canceled by airlines. Several major carriers decided that they would not offer cash refunds to the displaced passengers but instead provided travel vouchers with various limitations and shortcomings. The national policy on the requirements for refunds in such cases is clear and unmistakable:

If your flight is canceled and you choose to cancel your trip as a result, you are entitled to a refund for the unused transportation – even for non-refundable tickets.  You are also entitled to a refund for any bag fee that you paid, and any extras you may have purchased, such as a seat assignment. 

The Department of Transportation informed the airlines that they were required to refund the cash unless the traveler were willing to take some alternative form of compensation. Most of the airlines involved refused to comply. DOT issued a second warning – to no significant effect. A rulemaking to formalize the existing requirements is underway and likely will take years to reach fruition.

For reasons that remain obscure, DOT has acted to compel only one airline (Air Canada) to perform its unquestioned duty to provide cash refunds. The others continue largely as before, despite widespread condemnation of their recalcitrance. Millions in refunds are still outstanding from multiple airlines.

Then, Southwest Airlines experienced a massive system failure resulting in the cancellation of more than 16,000 flights, the majority of its service during the holiday travel season. Southwest is apparently beginning to process cash refunds for tickets and some reimbursements for other costs incurred by affected travelers. Good.

Then, well, you know – the entire air traffic system went down yesterday, an “event” ascribed to issues with the Federal Aviation Administration’s computer systems. The toll of canceled and massively delayed flights may not be known for a few days, but there is no question that the numbers will be large. Every airline flying to, from, and within the United States was affected.

So, here we are again. This time it can be argued that no airline was responsible. In my view that doesn’t matter. It doesn’t take much imagination to think of numerous comparable circumstances in which no one would dispute the obligation to make full cash refunds. The purchase of products and services is a commercial exchange – money for a product or service. If the product or service paid for is not provided, there is no question that a cash refund is required.

The references in multiple media reports that cash refunds from the airlines when they cancel a flight are “not legally required” are, I believe, simply wrong. DOT has made clear – and it is correct – that there is nothing in the law that provides financial immunity for airlines that cancel flights. The reason for the cancellation is irrelevant. If you don’t receive what you paid for, you get your money back.

Take the case of a department store that sells and receives payment for a fine gown for a New Year’s Eve ball. On the day before the ball, the store is flooded due to what we would call an Act of God. But whatever the cause, the store’s inventory is destroyed, and it cannot deliver the gown. Is the customer just out of luck? No. The store must refund the price of the gown. It may offer a substitute, but the customer is not obligated to accept anything less than a full refund in the same form as the original payment.

Another case – you buy and pay for tickets to a Broadway show for the one night you’re going to be in New York City. The show is canceled – the reason doesn’t matter – you are entitled to a refund of the purchase price. An offer of a ticket to a future show might be made, but the purchaser is not under any obligation to accept anything other than the payment type for which the ticket was purchased.

In law, this is known as “failure of consideration,” “unjust enrichment” and other categories. The result is the same.

Because the massive scale of the FAA’s problems was short-lived, it may be that the scale of obligations by airlines will be reduced from the worst possible case, but there is no question that thousands of flights were canceled. The airlines do not just get to keep the money and say, “so sorry, but your gamble on the air traffic system didn’t work out. We win. You lose.”

No plausible justification exists for treating airlines any differently than the department store and Broadway theater in my hypotheticals. Airlines will do doubt be concerned about the financial consequences of this latest system failure but their remedy, if it exists, lies with the federal government, not with consumers.

Travel advisors may have to go to bat again for your customers. You should tell them to seek refunds immediately if they do not receive specific assurances from the airlines that refunds will be promptly forthcoming. Guide them in how to do this and/or do it on their behalf. Yogi Berra would be proud that his malapropism still has such life so many years later.