Explained: Why airlines in India are not issuing refunds


India has been under lockdown since March 23 due to the Coronavirus pandemic, and it’ll go on at least till April 14. Amid the lockdown, the government has grounded all domestic flights, sealed off borders for all international flights, inter-state transport is restricted, and everyone is being asked to stay indoors.

It’s no surprise that small and medium-sized businesses have taken the biggest hit. No operations mean no revenue, in turn, zero profit and rising liabilities. It’s basic economics. Larger companies have shifted their personnel to the “work from home” model and are trying to get by with minimal availability of resources.

However, the lockdown sealed the fate of one industry entirely — aviation. With more than 650 planes sitting on the ground, not a single commercial passenger flight has taken off since the end of March 24. In the interim period, the government has allowed airlines to ferry cargo using the same aircraft, but that’s negligible operations for an airline like IndiGo that has more than 250 planes doing nothing.

On the contrary, responding to a flood of consumer complaints, the U.S Regulator has asked both, domestic and foreign carriers to provide prompt refunds to passengers for cancelled flights, or those with significant schedule changes. Why isn’t India’s Ministry of Civil Aviation enforcing this?

Picture by Utkarsh Thakkar (@vimanspotter)

If the planes don’t fly, even the passengers are stranded. And, airlines have denied a refund to anyone scheduled to fly during the lockdown period. Consumers are furious since the economy is headed downhill, and their money is stuck with the airlines. Instead, the airlines are offering a free date change.

  1. IndiGo: The company has announced it will offer a full refund via a credit voucher that can be used within a year to book another flight. You also have the option to opt for rescheduling (date and time change), without additional charge, but fare difference shall apply.
  2. Spicejet: It has waived off rescheduling charges but is handling it differently. They’ve cancelled all bookings listed during the lockdown period and is offering a “Credit Shell” for the amount you paid. It’s basically a voucher that can be redeemed before February 28, 2021. If you want entirely to ditch your trip, regular cancellation charges shall apply.
  3. Air India: It’s offering “free of charge” rescheduling for all bookings planned up till April 30. The new flight should be before September 30, 2020. They haven’t mentioned cancellation policy, implying that the usual penalty shall apply.
  4. Vistara: Similar to Air India’s policy, a date change is allowed, and the new trip should be before December 31, 2020. It has also clarified that its frequent flyers’ status evaluation is kept on hold until April 30.
  5. GoAir: In line with all other airlines, it’ll allow rescheduling free of cost and the new journey should be within one year from the initial date of travel. 
  6. AirAsia: It has been slightly more generous considering the fear around flying during a pandemic and will let customers reserved before May 31 to reschedule. If you’re a BIG frequent flyer, you can further convert your trip into “AVA Credits”, and use it as a voucher to redeem a flight in the future.

While all the airlines have slightly different terms, there are a few things in common:

  • All of them want you to reschedule and not cancel. Hence, they haven’t waived off cancellation charges. If you carefully look at your ticket, based on the “tier” you’ve booked, a fee is applicable. And it’ll be a considerable amount. In this case, a Mumbai – Coimbatore flight was booked for Rs 4,000, if it’s cancelled, the airline will directly deduct 3,000 and refund the remaining amount (which is just one-fourth of the paid amount). Additionally, if you’ve booked via third-party agent like MakeMyTrip, they’ll also deduct a fee. 
  • Secondly, all of them have mentioned that “fare difference applies”. It means that if you booked a Mumbai – Delhi flight for Rs 4,000, and want to reschedule it later to July. But if the trip you want is in high demand, and a seat on it costs Rs 5,000. You’ll be liable to pay an additional Rs 1,000 as “fare difference”. On the flip side, if the seat is available for Rs 3,000, the airline won’t give you back the same difference.
  • Even the option to reschedule is loss-making for the airline because they are now selling two seats, for the price of one ticket. Even though the first seat couldn’t fly, it’s still incurring cost to the company due to aircraft leases. In the future, the same seat will be occupied and a new booking that could’ve been made in return of revenues is blocked out.

Yes, all these terms and conditions are in favour of the airline and don’t benefit the end consumer one bit. Airlines have clearly said it that they’re in no mood of returning anything during the lockdown. If you want to cancel, go ahead. But they’ll still skim some part off it.

Other industries are going out of their way to help and empathize with everyone. India’s aviation has no altruistic intention to help out people by releasing their money and providing the little cash flow they can get during a shutdown.

In fact, the previous line is also the reason why airlines can’t release money seamlessly. They don’t have cash flow and are desperate to hang on a thin thread even if it means dealing with the public backlash and taking a hit on their brand image. I’ve already explained how the lockdown will probably kill at least one airline, if not more.

Picture by Utkarsh Thakkar (@vimanspotter)

The airlines are bleeding to death 

In a nutshell, this is why airlines are reluctant to endorse cancellations.

  • Air Deccan has officially suspended all operations and kept its staff on a sabbatical. The tiny airline barely had any services and was limited to regional routes of Gujarat. It’s the first victim of Coronavirus in the Indian aviation sector. 
  • According to Spicejet’s last stock exchange filing, it has just Rs 93 crore in cash. Recent sources claim the amount has dropped below Rs 20 crore already. 
  • Moreover, FlightGlobal says the airline is losing $20 million each month just for aircraft rentals. That’s equivalent to Rs 150 crore. And with a depreciating rupee, the number will continue to rise. Its fleet of 100 Boeing 737 has been grounded, and it also has more substantial liabilities like the Boeing 737 MAX 8.
  • Spicejet has run out of all options and could be the first major airline to belly up during the pandemic. It cannot pledge assets because it has none, banks won’t extend a loan during times like these, the promoter doesn’t have enough cash, and lastly, they’ve already exhausted stake sale options.
  • IndiGo has Rs 18,000 crore in cash, but that’s because of its extremely efficient business model and careful planning. The airline has massive global expansion plans but has kept its staff on priority at the moment.
  • Backed by the Government of India, Air India has already piled up a debt of more than Rs 60,000 crore. It needed an urgent transfer of Rs 700 crore to prevent the default of a non-convertible debenture at the end of March. There’s no way this airline can sustain the burden anymore. 
  • GoAir is a private airline backed by the Wadia Group. It’s an underdog in the industry because it has been profitable. Still, its expansion has been limited and not as aggressive as its peers. If the losses are too significant to cover, they might as well pack up bags.
  • Vistara is supported by a joint venture of the Tata Group and SIA (Singapore International Airlines) and India’s only private full-service carrier. The airline has been loss-making since inception and reported a loss of more than Rs 800 crores in FY19. However, it’s able to survive due to strong promoters who have deep pockets. 
  • Lastly, AirAsia India is run by the Tata Group and AirAsia Berhad. The company has reliable promoters and can get through the storm. Still, it’ll also want to minimize damage as much as possible.

Read Also: Coronavirus: Here’s how airlines may go bankrupt by end of May 2020

We still forget the most critical factor.

Human resources. Like any industry, people run the enterprise. Pilots, cabin crew, ground handlers, air traffic controllers, airport staff, security personnel, and many more. They all depend on operational flights for their income. If the planes don’t fly, the salary isn’t credited. And how will it be credited when the companies don’t have cash?

  • SpiceJet and GoAir have said that all its employees will have to take a pay cut in March. While SpiceJet implemented a 10 to 30% pay cut for last month, GoAir deferred a part of March salaries for its staff in addition to salary cuts implemented earlier. Spicejet has however ensured that its agents in the lowest pay grades will remain unmoved by the decision.
  • IndiGo has decided to slash salaries of all employees to counter a drop in revenues. All the employees, including the CEO, senior vice presidents and cockpit crew, shall see a payroll cut in the range of 5 to 25%. Bands A and B, the entry-level ones in the hierarchy, shall remain untouched.
  • Air India could follow the same route according to sources, but it’ll barely be about 5%. The employee Unions have opposed a 10% drop.
  • Vistara said senior employees would be going on compulsory leave without pay of up to three days. The mandatory no pay leave will affect around 1,200 employees in high grades. The remaining 2,800 employees of the airline, such as members of cabin crews and ground handling services, will be unaffected.
Picture by Utkarsh Thakkar (@vimanspotter)

Unprecedented times call for extraordinary measures:

  • Every aviation expert will tell you two words — Government Bailout. The industry is susceptible to even a day’s grounding. With a tiny global profit margin of just 5%, it should be kept on priority.
  • There were reports that the Finance Ministry is working on a $1.6 billion package for the industry. Still, we haven’t seen anything materialize so far. Airlines are allowed to take bookings after the lockdown ends on April 14. Supplying them with some interim cash.
  • For airlines like Spicejet, the situation worsens because it could default on loan or paper repayments, affecting its credit rating. They are further making it difficult to raise money shortly.
  • The industry is also very highly taxed and leveraged by the government as a piggy bank. Indirectly, airlines aren’t able to offer competitive fares because the government takes away a significant chunk of the amount. Here’s one example of a Mumbai – Hyderabad return flight where the taxes and add-on fees like airport development fee are higher than the trip itself. 
  • If an immediate bailout or relief package is announced, the airlines can immediately start refunding tickets. Supplying back much-needed capital in the hands of people directly who are in dire need during an economic as well as civil lockdown.
Picture by Utkarsh Thakkar (@vimanspotter)

Airlines have urged the government to take proactive action, but there has been no response yet. The current scenario isn’t helping either of the parties. The airlines are forced to be greedy, and the consumer is limited to be complaining while nobody’s hearing. The industry has already seen how air-worthy assets like Jet Airways’ Boeing 777 aircraft’s are rusting away at parking bays due to bureaucracy. Do they want to repeat that with a much bigger graveyard?

Cover image by Utkarsh Thakkar (@vimanspotter)