Virgin Australia’s Administrators Look To Credit Instead Of Refunds

A short term “pause” on issuing refunds and credits for canceled Virgin Australia flights has been extended indefinitely. In an application going before Australia’s Federal Court today, the airline’s administrators, Deloitte, are asking permission to issue conditional credits in lieu of refunds and credits, arguing they need to conserve cash.

Virgin Australia passengers out of pocket may be offered conditional credit vouchers rather than cash refunds. Photo: Virgin Australia

Passengers confused about refunds and travel credits

Virgin Australia had originally stopped issuing refunds and credits when it entered into voluntary administration on April 21. At the time, both Virgin Australia and Deloitte were upbeat about the airline’s future. The freeze on refunds and credits was just a “temporary pause.”

Last week, passengers owed refunds or credits received an email from Virgin Australia saying:

“As you may be aware, Virgin Australia has entered into voluntary administration. Our business operations are continuing, including our limited domestic schedule, cargo, and charter services.

“We have temporarily paused issuing new travel credits and refunds while we wait for direction from the administrator.

“We have received your request and will be in touch with further information.”

Passengers have been encouraged by Virgin Australia to apply for refunds and travel credits. Photo: Virgin Australia via Flickr.

But, confusingly, until recently Virgin Australia’s website continued to publish information inviting passengers to submit their refund and credit applications online. Some 340,000 refund and credit requests have been submitted since April 21. Many of those requests concerned the 6,300 flights canceled between March 1 and April 19.

That Virgin Australia continued to solicit refund and credit applications until recent days is particularly irritating some customers, with some going so far as to call it misleading and deceptive conduct.

The Administrator now says no refunds will be provided

In an affidavit provided to Australia’s Federal Court yesterday, Deloitte acknowledged most of these customers have a contractual right to a refund under Australian consumer law.

But the administrator is now saying no refunds or travel credits will be issued going forward. Instead, they want to provide jilted passengers with conditional credit vouchers. However, there is no guarantee any future owner of Virgin Australia will honor the vouchers.

Virgin Australia’s Deloitte is doing its best to put a positive spin on their conditional credits scheme. Photo: Virgin Australia via Flickr.

Still, Deloitte is putting a positive spin on it. In their affidavit they said;

“The Administrators believe that customers will not be disadvantaged by the issue of conditional credits. Most, if not all, of the customers entitled to a refund are currently unsecured creditors who are unlikely to receive a 100% refund on any restructuring or upon liquidation.

“The conditional credit scheme offers those customers the possibility of realizing 100% of there value of their refund by using the credit on a future flight or holiday package.”

The administrator, Deloitte, is pressing hard to conserve as much cash as they can and declining to process refunds and provide credits assists with this. The administrators also want to be relieved of personal liability for any conditional credits issued.

Passengers resort to chargebacks and some face blowback for doing so

As Deloitte admitted, their “pause” on refunds and credits has seen a lot of passengers resort to the tried and true method of credit card chargebacks.

But there have been reports of Virgin Australia threatening ticket holders with legal action if they persist with a chargeback. However, credit card holders are entirely within their rights to initiate a chargeback if the merchant fails to provide the paid-for service.

Whether the conditional travel vouchers fly will be up to the courts. Deloitte is appearing in Australia’s Federal Court today, where the application will be considered.

The party is well and truly over at Virgin Australia as passengers resort to chargebacks to get refunds. Photo: Virgin Australia

Busy week for Virgin Australia administrators

Initial nonbinding bids for Virgin Australia are due this Friday. There are just under 20 interested parties, many coalescing into consortiums lead by Brookfield, BGH Capital, and Bain Capital, respectively.

But the dynamic is pretty fluid. Deloitte has reportedly said the bid must address 20 separate components, a requirement that has been criticized. On the sidelines, there are plays like REX’s thought bubble regarding running jets to Melbourne and IndiGo’s sudden interest.

Frankly, it’s all a bit of a mess. Today’s Federal Court hearing should provide some short term clarity. Given the future uncertainty, conditional credit vouchers aren’t exciting too many Virgin Australia passengers. Most just want a refund. But unless you can get a chargeback, that’s unlikely to happen. In the meantime, the drawn-out process is squandering one invaluable Virgin Australia asset – passenger goodwill.