The U.S. Department of Transportation (DOT) has finalized its rule requiring U.S. and foreign air carriers to refund costs associated with tickets and ancillary service fees under certain circumstances related to airline delays and cancellations. This rule stems from and responds to President Biden’s Executive Order on Promoting Competition in the American Economy, issued on July 9, 2021. This E.O. launched a whole-of-government approach purporting to strengthen competition and requires the DOT to consider various actions to promote the interests of American consumers, workers, and businesses.
Airlines and airline associations have expressed concern over mandates relating to refunds, which they argue may be unnecessary and redundant of existing practice. Airlines for America (A4A) noted that airlines abide by—and frequently exceed—DOT regulations. For example, according to A4A, airlines issued over $32 billion in customer refunds between 2020 and 2022. Moreover, as it relates to ticket price transparency, airlines note that pricing rules have the potential to confuse consumers. Since airline ticket prices are based on several factors, advertising all-encompassing fees may not provide airlines with the flexibility to offer consumer choices that affect pricing, such as the option to check a bag or select seating upgrades. Airlines also express concerns in having the extraordinary burden of refunding passengers for events that are oftentimes outside of their control – for instance, delays caused by weather or ATC staffing shortages in various markets.
Despite these concerns, the DOT has advanced the largest expansion of airline passenger rights under the current Administration, including through the new rulemaking relating to refunds and ancillary fees. In the discussion below, we highlight the critical pieces of this new rulemaking.
Link to The Details of the Rule The Details of the Rule
The DOT has the authority to protect airline consumers from unfair or deceptive trade practices through regulations. The DOT uses this authority to issue rulemakings relating to consumer protection, and to issue civil penalties against airlines for violations of consumer measures. The new rule relating to refunds and ancillary service fees is an extension of these consumer-related measures.
Link to Ticket refunds Ticket refunds
Under the new rule, if an airline cancels or a makes a “significant change” to a scheduled flight to, from, or within the United States, the airline must automatically refund the full cost of the ticket. The refund must generally be made within 7-20 days after the significant change, depending on the form of payment.
A passenger’s entitlement to a refund under the rule may be triggered by an airline cancellation or a “significant change.” A “significant change” occurs when:
- The passenger is scheduled to depart from the origination airport three hours or more (for domestic itineraries) or six hours or more (for international itineraries) earlier than the original scheduled departure time;
- The passenger is scheduled to arrive at the destination airport three hours or more (for domestic itineraries) or six hours or more (for international itineraries) later than the original scheduled arrival time;
- The passenger is scheduled to depart from a different origination airport or arrive at a different destination airport;
- The passenger is scheduled to travel on an itinerary with more connection points than that of the original itinerary;
- The passenger is downgraded to a lower class of service;
- The passenger with a disability is scheduled to travel through one or more connecting airports that differ from the original itinerary; or
- The passenger with a disability is scheduled to travel on a substitute aircraft that results in one or more accessibility features needed by the passenger being unavailable.
Link to Ancillary fee and baggage refunds Ancillary fee and baggage refunds
The DOT is also requiring refunds to consumers for fees for ancillary services that passengers paid for but did not receive, as well as for checked baggage fees if the bag is “significantly delayed.” As to baggage, refunds are required to be made automatically by the airline that operated the last flight segment under certain circumstances, generally 12-30 hours after a flights’ arrival depending on whether the flight is domestic or international. The rule also provides that passengers will be entitled to a refund for fees they paid an extra service for – Wi-Fi, seat selection, inflight entertainment, etc. – if the airline fails to provide this service.
Link to Up Next Up Next
The DOT’s publication announcing this rule notes additional rules on the horizon, including banning family seating fees and guaranteeing that parents can sit with their children at no extra cost, mandating passenger compensation and amenities for passengers in the event of delays or cancellations, and expansion of rights for passengers who use wheelchairs to ensure they can travel safely and with dignity.
Questions remain as to how effective and helpful the new rule will actually prove to be in practice. After all, airline ticket prices are at historic lows. As noted by A4A, average domestic fares, including ancillary fees, were 14 percent lower in 2023 than in 2010. More Americans are traveling than ever due in part to the affordability and accessibility of air travel. Whether or not the rule will benefit consumers remains to be seen, but it certainly creates significant burdens on many airlines.