In an earnings call on April 30th, American Airlines laid out its full financial situation. The airline has lost just over $2 billion in the first quarter, with over $6 billion in liquidity. One of the interesting statistics to come out of the earnings call, however, was the amount in refunds the airline has processed. In April, American Airlines processed around $600 million in refunds. However, by the end of June, the airline expects its refund bills to be around or over $2 billion.
American pays out billions in refunds
American Airlines was forced to give out refunds to passengers due to canceled flights related to the coronavirus pandemic. As a result of slashing flights, the company was required by law to pay out refunds to passengers who did not accept alternate flight options.
$600 million is a massive amount, and it puts a significant financial strain on the airline. Another $400 million in refunds will come about in May with another $200 million coming in June. The lower refund amounts in later months come as American’s operations stabilize, and there are fewer cancellations on the part of the airline. In total, that is around $1.2 billion in refunds over these three months.
This is added to about $900 million in reimbursements for canceled flights that come from the first quarter of 2020. Meaning, if the projections are accurate, American’s refunds will total just about the same value as its losses by the end of June– a staggering $2 billion or more. These are projections from the airline, however, meaning that it could be a lower or higher amount.
Refund versus a credit
Refunds are not the same as vouchers. The airline vouchers are of a fixed value. American retains the money while the passenger’s travel changes. For many people, the credit versus a refund issue is complicated and mostly boils down to the kind of ticket you purchased.
Passengers receive a voucher or airline credit if they cancel a flight. Most airline tickets are nonrefundable, meaning that, if you decide not to fly, you will only receive credit for future travel. However, if American cancels your flight, then you are entitled to a refund if you choose. You can take an alternate flight choice if you have to travel and like the new itinerary. But, unless the new flight is also later canceled, you will not be able to get your money if you accept an alternate itinerary.
There has been pressure on airlines to provide full refunds for canceled flights. However, this push has not resulted in major policy changes. If an airline has to pay out refunds for passenger-canceled flights, then it could equal another massive payout on the part of the airline. This is why airlines are trying to make taking an alternate itinerary or else retain a credit more appealing to passengers.
Currently, American has cut capacity in June by about 80% internationally and 70% domestically. Through June, American is only flying 15 daily flights from the three main New York City-area airports and has suspended 85% of its flying from the Miami hub. So, looking forward, May could end up being a better month for refunds on AA’s part, but, if the summer schedule needs additional changes, then the airline could owe a number of additional refunds.
What do you make of these refund amounts? Were they higher or lower than you expected? Let us know in the comments!