“A Bit Messy”

After a two-year rulemaking process, President Joe Biden’s Department of Transportation announced a final rule this spring guaranteeing consumers cash refunds for flights that are canceled or delayed.

Crucially, the rule requires that airlines issue refunds automatically. Instead of forcing consumers to navigate a byzantine process to request a refund after a canceled flight — which consumer advocates say is often what passengers must do to get their money back — airlines will have to provide a full cash refund to passengers without their prompting, unless passengers accept a rebooking in lieu of money.

The new rule may cost the airline industry billions of dollars. The Lever found this spring that some of the country’s biggest airlines reported between $2 and $6 billion in unused flight vouchers. The money can ultimately go straight to the airlines’ pockets if the vouchers expire — meaning that a rule that requires them to give that money back to passengers could significantly hurt their bottom line, cutting into the tens of billions in profits the industry records annually.

For airline passengers — who collectively see tens of thousands of flights canceled a year — the rule marked a major change.

As the rule neared its final stages, airlines ramped up their fight to stop such an automatic refund policy. In earlier comments to the Department of Transportation, Airlines for America warned that the proposal would cause a “serious disruption” for airlines.

The group, which is the industry’s main lobbying arm, spent $1.4 million lobbying lawmakers in just the first quarter of 2024, federal disclosures show, including on the subject of refunds for canceled flights among other issues.

Within days of the Department of Transportation’s announcement of the rule, however, lawmakers began advancing a provision in a must-pass bill to fund the Federal Aviation Administration that some experts worried would undo the requirement. The provision in the Senate bill would have codified that airlines must provide refunds for canceled flights, but required consumers to ask for them.

After the Lever reported on the matter in May, lawmakers reversed course, changing the language in the bill to require airlines to issue refunds automatically to passengers if a flight is canceled or significantly delayed.

Ultimately, Biden codified the automatic refund rule when he signed this year’s Federal Aviation Administration Reauthorization Act into law, further empowering regulators to implement the policy.

And the Transportation Department has since been signaling it plans to enforce it. On Tuesday, in the wake of widespread flight cancellations caused by a major global data outage, Transportation Secretary Pete Buttigieg sent a letter to airline executives, warning them of the new refund requirements set forth in the new law.

“Now that this is law, our expectation is that airlines are doing everything in their power to comply,” he wrote, though he noted that airlines had until April 2025 to come into full compliance with the original Transportation Department rule. “We will be taking all appropriate steps to responsibly enforce these provisions using our investigative and enforcement powers.”

The airlines’ July 3 letter, which urges a narrow interpretation of the policy by the Transportation Department, kicks off a new phase in the industry’s ongoing battle against automatic refunds.

In the letter, Airlines for America argued that there are unintended consequences of the Transportation Department’s rule, focusing on a situation in which a traveler needs a rebooking but because they do not communicate with the airline, are instead automatically issued a refund due to federal regulations, leaving them stranded.

“We would agree that this part of the new law is a bit messy,” wrote Teresa Murray, the consumer watchdog director at the US Public Interest Research Group, a pro-consumer advocacy group, in an email to the Lever.

But while there were questions to be ironed out, she said, that didn’t mean regulators should sacrifice refunds for consumers. “How do airlines handle it now?” she said. “The answer is not well, or we wouldn’t have this law.”

John Breyault, the vice president of public policy at the National Consumers League, another consumer advocacy group, said that he thought such a scenario was unlikely. “How often does this scenario actually occur?” he said.

When the Lever brought this question to Airlines for America, their spokesperson Marlin Collier answered, “I don’t have data on this.”

The airlines’ solution — asking that the Transportation Department doesn’t require an automatic refund if a passenger does not respond to a rebooking offer — could undercut the automatic refunds rule. It could “shift the liability onto the back of consumers, who now pay for a flight that was canceled and that they never took,” Breyault said.

What comes next in the industry’s fight against automatic refunds is less clear. “I can go on the track record, and the track record is — these guys fight till their last dying breath,” McGee said.

Collier, the Airlines for America spokesperson, declined to answer questions from the Lever about the group’s future plans.

“I can’t speak to what the industry’s legal strategy is on this but I can tell you they haven’t been shy about taking DOT to court,” Breyault said.

In one such example, the airlines successfully persuaded a panel of Fifth Circuit judges this week to halt a Biden administration rule that would require airlines to transparently disclose unexpected fees, like surprise baggage or seat charges. The court ruled that the rule exceeded the Transportation Department’s authority, and put it on hold pending review.

Now that the US Supreme Court has overturned a landmark legal doctrine that once required deference to regulators’ expertise, the airline industry — like many other corporate interests — may feel even more empowered to challenge the Transportation Department in court, Breyault said. The business lobby has fought hard for the string of favorable Supreme Court rulings it saw this spring, part of a trend of increasingly corporate-leaning courts, packed with conservative federal judges.

“I think the industry recognizes that they’re in a better position if they do go to court,” he said.