Airline Refunds/Credits
Covid19
Payment Options
May 2020
BCD Travel - Commercial Payment Solutions
payment@bcdtravel.com

Airline Refunds/Credits – COVID19 Options
Background
Since COVID19 was classified as a global pandemic, airlines have canceled thousands of flights due to government
travel bans, global and local health restrictions or low consumer demand.
Global airlines are liable for $35 billion in refunds for tickets sold but not flown according to IATA (1). This
unprecedent amount ultimately needs to be refunded either as cash or as vouchers by the airlines to consumers,
corporations and travel agencies. Not unexpected, most airlines simply don’t have the needed cash for refunds due
to virtually the halt of travel and nearly non-existence of business generating revenue. But they are not standing
still. Many are acting and applying for government support to survive the next months and manage their runningcosts for plane leasing, loan payments and human resources. Carsten Spohr, CEO of Lufthansa, stated the airline isburning €1M per hour. Other airline executives have made similar statements on the extent of their losses.
While it is understandable that airlines cannot easily afford to pay back the massive glut of unused tickets, it’s also
understandable that travelers, corporations and travel agencies need the refunds as they too are facing uncertain
financial futures.
More than ever, different angles need to be considered to find the solutions that work best for everyone involved.
The financial need, operational impact and the longstanding relationship with certain airlines must all be taken into
consideration.
The following document will highlight some options but should not be taken as the single source of truth. Everycase may be different and there is not one solution that solves all the intricate needs and challenges for everyone.
The intention is to highlight the different scenarios and the impact on airlines, corporations and agencies.
In the US, the legal recourse was clarified in a paper issued by the U.S. Department of Transportation stating that if
the airline (not the traveler) cancelled the flight, the airline must offer a refund. However, there is leeway to offer
vouchers and credits if the customer is willing to accept the terms.
If there were no changes to the flight and it operated as expected but the traveler cancelled, there is no obligationby the airline to refund. Click here for additional details on the US legal decision.
In Europe, the EU commission also stated that airlines need to refund flights cancelled at the discretion of theairline. Click here for details.

(1)

March 2020

Airline Refunds / Covid 19 | June 13, 2020 | Page 2

Refund options
Cash refund to original form of payment
Traditionally the refund process is initiated by a travel agent via the GDS/BSP. The credited amount will appear
within a few days on the card used as the original form of payment. This process has been adjusted by some airlines
and instead of the simplified automated process, agents are now required to complete forms manually and send
them to the airlines. This manual approach can extend the timelines for refunds to be processed. All US carriers arecontinuing to allow processing through the GDS while the European/foreign flag carriers are implementing themore manual processes.
Impact analysis for airlines/ corporate clients
Airlines’ impact

Corporates’ impact

For airlines, offering a cash refund to the original form ofpayment has a direct impact on cash-flow. There is also arisk that the refund is spent on another airline when travel
resumes.

For corporate clients, a full refund organized on the originalform of payment is an option to consider. Corporate clients
could get their money back quickly.

Pros• Strong travelers’satisfaction

ConsProsCons• Direct impact on cash flow • Positive impact on cash • Potential negative impact
flow
on your card rebate as yourtotal card transactions• Refunded cash could bevolume might be lower
spent on another airline• Accurate card
Management Information
System (MIS) data• Airfares potentially more
• Complex manual processexpensive when rebooked• The refunded cash can be closer to the departure dateused for other passengers
and other carriers/transports

Airline Refunds / Covid 19 | June 13, 2020 | Page 3

Voucher based refund
Instead of refunding cash, airlines can opt to refund unused tickets via a credit voucher. As an incentive to accept
a voucher instead of cash, carriers can offer a higher voucher value than the original ticket price. While that isappealing, it is important to take into consideration an airline’s solvency, administration of vouchers, travel
insurance applicability, tax processing and card reporting data accuracy. Another point to consider is that a voucher
may be issued to the traveler, not the corporation unless the airline is allowing for name changes.
Based on some merchant agreements, airlines must put a credit against the original form of payment.
Impact analysis for airlines/ corporate clients
Airlines’ impact

Corporates’ impact

For airlines, offering a voucher is another alternative thatties travelers to the airline and the voucher can only beused during a specific timeframe.

For corporate clients, a voucher is an interesting option
especially when more value is offered.

ProsConsProsCons• Strong travelers’satisfaction• No new revenue generation • The value of the voucher is • The management of vouchers
likely to be higher than the could be expensive
when travel comes backoriginal booking• Limited impact on cash
• The voucher can only be usedflowwith the airline booked initially• The voucher can only beused with the airline
booked initially• The airline can define
validity rules• Some vouchers could beissued with the travelers’
nameinsteadofthecorporate’s name• Some vouchers could be at risk
due to the airline’s financial
situation or due to thepotential length of thesanitary crisis (travel freeze)• Inaccurate card Management
Information System (MIS) datathat only shows the original
booked data
• The credit card travel
insurance may not apply tothe future issued ticket

Airline Refunds / Covid 19 | June 13, 2020 | Page 4

UATP card refund
Some US airlines offer a refund on their self-issued UATP cards (United, SouthWest, American and Delta). Insteadof crediting the original form of payment (AMEX, VISA etc.) they issue a UATP card in the name of the corporateclient and put all the open tickets onto this card. So far, we’ve seen this option used by the 4 airlines mentioned
but the product is available for every airline globally. But only for payments of the issuing airline.
As noted with the voucher option, based some merchant agreements, airlines are only allowed to put a credit onto
the original form of payment so the legal basis for having a ticket originally paid with an AMEX and now credited toa UATP card is questionable.
Impact analysis for airlines/ corporate clients
Airlines’ impact

Corporates’ impact

UATP cards help airlines manage their cash flow while
keeping future commitment of travel dollars. And again,
it is important to take into consideration an airline’s
solvency, administration of card funds and insurance
applicability.

For corporate clients, UATP cards could be a good option if
future travel is planned. Some limitations should beconsidered (check below details).

ProsConsPros

Cons• Positive impact on cash • The airline may need to • No impact on your card • UATP are restricted to theflow
set-up the UATP card rebate because there is no issuing airline (Is the airline
functioncredit on the original card
still flying to the destination?
Or at higher costs?). What
• The funds can be used only
happens if the airline goeswith the initially booked • The airline may need tounder?
airlinebuild a reserve in theiraccounting books forthese funds• Inaccurate card Management
Information System (MIS)
because only the original
booking data is shown• The funds need to be
managed by the corporateclients. There could bechallenges assigning thecorrect amounts to the rightcost centers or legal entities
as the data on the UATP
statement is limited in termsof customer reference fields.
• The credit card travel
insurance may not apply tothe future issued ticket

Airline Refunds / Covid 19 | June 13, 2020 | Page 5

Credit card chargeback
ARC is not processing charge backs in the US during the COVID-19 pandemic
If a ticket was paid by credit card, the cardholder can raise a chargeback request usually within 3 months due to “goods orservices not delivered”. The card issuer must contact the merchant and ask for a proof of delivery. If the merchant cannot
provide the appropriate proof, the card issuer appropriates the funds from the merchant and credits the card. Note, thismay result in an agency debit memo (ADM) which usually has a surcharge attached.

Impact analysis for airlines/ corporate clients
Airlines’ impact

Corporates’ impact

For airlines, this option can potentially create areconciliation challenge. There is a need for a control
mechanism checking that chargeback tickets don’t get
refunded at a future date.

For corporate clients, a charge-back is an easy option to getsome cash back. Note, some documentation might berequired by the issuer to prove the flight was cancelled bythe airline.

Pros

Cons
• Impact on cash flow
• Reconciliation challenges toavoid a double refund (viachargebackandvoucher/refund)

Pros

Cons

• Positive impact on cash • Administrativeflow
requiredeffortAirline Refunds / Covid 19 | June 13, 2020 | Page 6

This paper was prepared by the BCD Travel Commercial Payment Solutions team to show options. It is not intended
to cover all aspects of the topic. It is based on our current understanding, but as we know, the situation is very fluidand can change daily, and the opinions might change over time.

Airline Refunds / Covid 19 | June 13, 2020 | Page 7