**UPDATE: 09/04/2020 @ 09:07 UTC. Lufthansa has now responded with a comment on the implications of the voucher system. Read below for more information. **
In order to manage its liquidity, Lufthansa may issue its customers with vouchers for future travel instead of refunds. This week, the German government appealed to the European Commission to ask for special permission to avoid a hefty bailout. In response, the European Commission stated that normal protocol should still be followed.
The government wants alternatives to cash bailouts
Many airlines are now reaching out to their respective governments in order to secure funds that will provide them with some sense of financial security. Whilst some have been granted, a number of international airlines are still waiting for bailouts and terms to be agreed upon.
One such airline is Lufthansa. It is now working with the German government in order to secure additional options that would avoid a hefty state bailout.
In Germany, €1.2tn (US$1.3tn) has been set aside for economic recovery post-coronavirus. That sum is compromised of a German government designed package of €750bn (US$827bn) to support the economy and an additional €500bn added by the Kreditanstalt fuer Wiederaufbau development bank. However, with so many companies struggling at this time, the government is looking for other ways to mitigate the cost of airlines that need a cash injection.
Earlier this week, on Thursday 2nd April, the German government approached the European Commission in Brussels to ask for help for its airlines. Rather than Lufthansa giving its passengers full refunds, the government asked permission for the airline to issue vouchers in order to salvage some liquidity.
What would this mean for Lufthansa?
Under its normal policy, if a flight has been disrupted, Lufthansa passengers are entitled to a refund free of charge. With these extraordinary circumstances, however, the airline has changed tact. It’s asking customers to rebook their flights instead of canceling them.
On its website, the Lufthansa says:
“As of March 19, we have implemented our new rebooking options that offer even greater flexibility. Already booked tickets for still existing flights no longer expire and can be rebooked until August 31, 2020. In addition, Lufthansa is now offering an up to 50 euro discount for each rebooked ticket.”
However, this approach still allows customers to ask for a refund should they want it.
The problem for Lufthansa is that if it issued refunds to all of its customers, it would be left with just 25 days of liquidity to see it through. That’s why it’s seeking a government bailout. Yet the sum of the bailout is why the government is looking for other options.
We asked Lufthansa about how it received the voucher scheme and a representative told us:
“The applicable rules do not do justice right now, in the situation of a worldwide pandemic. The rules are intended for the cancellation of individual flights, not in the event in which almost all air traffic is suspended. That is why it is correct that the federal government is reacting to this exceptional situation. The voucher solution is useful and fair as it gives companies some breathing room during these difficult circumstances. At the same time, our customers’ demands are maintained as they can depart or receive a refund at later point in time.”
How has the appeal been received?
Despite what seems like a plausible plea from the German government, the European Commission is currently unmoved to change its stance. It believes that airlines should continue to adhere to the current state of play. Lufthansa should be issuing refunds to all customers who need it or ask for it under the EU261 directive.
Should Lufthansa follow this advice, its cash flow would be severely reduced hampering whatever remaining operations it carries out.
Will we see the European Commission reverse its statement in the coming weeks? Have your say in the comments section.