Plight of air passengers in obtaining refund for tickets cancelled due to COVID-19: Obligations of Airlines

The COVID-19 pandemic has opened doors to numerous contractual controversies. With the announcement of the nationwide lockdown and suspension of domestic and international air travel, all domestic and international flights stood cancelled.

Passengers with cancelled flight tickets were quick to seek refunds from the airlines. The airlines devised a way of compensating the passengers for cancelled flights through the following ways:

• the full airfare for cancelled flights will be maintained with the airlines in a ‘credit shell’;

• the passengers booked on cancelled flights can redeem the credit shell within a period of one year from the date of cancellation;

• the credit shell must be redeemed for the same passengers, for any sector;

• the passengers will have to bear the fare difference while redeeming the credit shell.

Passengers raised valid grievances against the airlines’ arbitrary policy of creating a credit shell instead of issuing a cash refund. India, fortunately, has clear and coded rules formed in the years 2008 and 2010 to deal with such situations.

The Directorate General of Civil Aviation (DGCA), is the governing body of all airlines operating in India. The DGCA is bestowed with authority and powers to make rules for safe conduct of carriers and airlines from time to time. In exercise of its powers conferred under the Aircraft Act, 1934, the DGCA published Civil Aviation Requirements (CAR) Section 3 – Air Transport Series ‘M’ Part IV Issue I dated August 6,2010 to enlist the facilities to be provided to passengers by airlines due to denial of boarding, cancellation and delays in flights.

The CAR of 2010 provides that if a flight is cancelled by an airline, it is obligated to provide an alternative flight or refund the airfare to the passenger. It further imposes an obligation on airlines to display their policies in regard to compensation, delayed flights, cancellation and refund as part of the Charter of Rights. The airlines are required to appoint a nodal officer and appellate authority to resolve customer grievances in a transparent manner. If a passenger is aggrieved by the airline on account of denied boarding, delay or cancelled flight, the passenger is expected to approach the airline or lodge a complaint through the AirSewa App or to the DGCA. If the passenger is not satisfied by this resolution he/she is at liberty to approach a statutory body/court under the relevant laws.

Prior to the CAR of 2010, the DGCA had published CAR Section 3 Air Transport Series ‘M’ Part II Issue I, dated May 22, 2008. The DGCA in the CAR of 2008 dealt with refund of airline tickets to passengers of public transport undertakings. The CAR of 2008 were necessitated by a large number of grievances of airline passengers in connection with delay in refund of unused tickets, the amount of refund by airlines against cancelled flights, and the policy of airlines to not to refund the ticket amount but to adjust against tickets to be purchased by the passenger for future travel in the same airline, that too valid for a limited period of time.

Under the CAR of 2008, the airlines are required to clearly display the amount of refund of cancelled tickets and ensure that the refund of the cancelled tickets is processed within 30 days, if the ticket is booked through a travel agent and within 7 days if the ticket is booked through credit card. Most importantly, it clarifies that the option of holding the refund amount in a credit shell by the airlines shall be the prerogative of the passenger, and not a default practice of the airline.

The Passenger’s Charter of Rights displayed by the airlines on their official websites also reflect the provisions of the CAR that an airline must notify the passenger of cancellation of a flight and refund full airfare to the passenger. Neither the Charter of Rights nor the terms and conditions printed on a ticket issued to a passenger highlight the possibility of credit shell being an option available to the airline for refund of cancelled flight.

Interestingly, despite the DGCA notifying the CAR of 2008 and 2010, airlines have chosen to completely defy the rules made by a statutory authority by imposing the credit shells with arbitrary conditions on the passengers. Airlines appear to have suppressed the fact that it is the passenger’s prerogative to accept or refuse the credit shell offered by the airline.

In today’s unprecedented circumstances brought about by COVID-19, with a view to protect the passengers’ interests, the DGCA announced a new Office Memorandum (OM) dated April 16. Airlines were directed to refund airfare to passengers who booked their tickets after March 25 to travel during the lockdown period till May 3.

Unfortunately, the OM of April 16 is being interpreted by airlines to refuse a refund of all the passengers who booked their flights before March 25. Although there is no co-relation between the lockdown, the April 16 OM, and CAR of 2008 and 2010, airlines are taking undue advantage of the OM so as to qualify only ticket bookings made between March 25 to May 3 for a full refund.

In view of the arbitrary imposition of credit shell against cancellation of flights prior to March 25, a Public Interest Litigation (PIL) was filed before the Supreme Court of India, challenging the DGCA’s OM on the grounds that it only covers refunds for tickets booked after March 25.

The Supreme Court has admitted the PIL and issued notices to the Civil Aviation Ministry and DGCA, calling for their responses to the challenge. As per reports, the Bench observed that it may seem arbitrary if refunds were issued only for air tickets booked after the enforcement of the lockdown. All tickets booked for journeys cancelled because of the lockdown should be reimbursed, irrespective of when the booking was done.

In the wake of the COVID-19 pandemic, the United States of America's Department of Transportation issued an Enforcement Notice dated April 3, stating that if any airline denies refunds to passengers for the tickets cancelled by the airline, enforcement action will be initiated against those airlines.

The Notice further stated that airlines are under a longstanding obligation to provide a prompt refund of the airfare of cancelled flights to passengers. Moreover, the focus is not on whether the flight disruptions are within or outside the carrier’s control, but rather on the fact that the cancellation is through no fault of the passenger. Therefore, the US Department of Transportation clarified that denial of refund of airfare to a passenger is a violation of carrier’s obligation.

The principle of long-standing obligation of an airline to refund airfare due to cancellation applies to all airlines and the test to identify such obligation should be whether the disruption is beyond the control of the passenger. Flight cancellations on account of measures taken by the government to curb the outbreak of COVID-19 is certainly beyond the control of the passengers.

The airlines, whilst showing disregard to the CAR of 2008 and 2010 and misinterpreting DGCA’s April 16 OM, are attempting to dictate arbitrary terms. Every airline is under a continuous obligation to adhere to the CAR and act in best interests of the passengers. The denial of refunds to passengers by airlines should be discouraged by the DGCA’s intervention through the OM.

If the DGCA fails in its duty to safeguard the interest of air passengers and ensure compliance of CAR by the airlines, passengers and airlines will lock themselves in long legal battles before Consumer Disputes Redressal Forums. It will be a Herculean task for the airlines to satisfy the forums that their refusal to refund was not in violation of DGCA’s CAR and in accordance with the terms of the tickets issued to the passengers. The airlines will also face a challenge to satisfy the forums that the conditions imposed under the credit shell are not arbitrary and unreasonable. The airline will be burdened with the onus of proving that the issuance of credit shell to passengers on account of flight cancellation is part of the agreement between the airline and the passenger.

In the present scenario, the DGCA is expected to place the correct position of law on refunds of airfare in case of cancellation of flights before the Supreme Court. The DGCA must clarify that the April 16 OM does not in any way affect the applicability of CAR of 2008 and 2010 to the airlines in connection with refund of airfare due to cancellation of flights booked prior to March 25.

The airlines should adopt a pragmatic way to deal with the large number of refund requests from passengers and withdraw the arbitrary and compulsive credit shell arrangement. The airlines could consider refunding the airfares to the passengers in instalments and in a phased manner to sustain itself, or withdraw the stringent conditions imposed on redemption of the credit shell by the passengers.

Rohan Sonawane is a practicing Advocate at the Bombay High Court. Akash Agarwal is an Associate at ABH Law LLP, Mumbai.