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Read below to learn how airlines could be on the verge of losing billions of dollars in flight refunds that they’ve been secretly hoarding. Also: How often do you feel like somewhere, somehow, corporate despots are trying to screw you? We feel that way all the time — and it inspires every story we write. To help us make the world feel different, consider becoming a paid supporter today. Rock the boat.
The Airlines’ Secret Billion-Dollar Refund Racket Is Set To End
By Freddy Brewster & Katya Schwenk
 (AP Photo/Charlie Riedel) [View in browser] Airlines may be on the verge of losing their fight against the Biden administration’s new promise of automatic refunds for canceled or delayed flights. On Tuesday, lawmakers relented to pressure following The Lever’s reporting on the matter and purportedly included a provision guaranteeing the refunds in a must-pass Federal Aviation Administration funding bill, which faces a looming Friday deadline. How much might this new automatic refund guarantee cost the airlines? Potentially billions, but consumers can’t be sure. For more than a decade, airlines have refused to say just how much in unused tickets they’re sitting on, or how much they make when many of those credits expire. Earlier this year, one airline warned investors that new regulations guaranteeing automatic refunds to passengers whose flights get canceled or delayed was a “risk factor” for them. As the pending regulation jockeyed between the White House and airline-backed lawmakers, industry lobbying on passenger refunds skyrocketed. American Airlines, Delta Air Lines, United Airlines, Southwest Airlines, Alaska Airlines, and JetBlue — the country’s six largest airlines based on the number of flights — raked in billions of dollars in revenue last year. While none of these airlines revealed their profits from unused flight credits and refunds, Southwest Airlines and Delta Air Lines suggested in financial statements that they were holding up to an estimated $2 billion and $6 billion each in unused flight credits, respectively.
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Airlines hint at how much they make off the unused tickets by lumping together proceeds from ticket sales for future flights, travel reward credits, flight vouchers for canceled flights, and other funds. These figures are often represented in financial documents as “air traffic liabilities” that the airlines mark down as potential future debt owed. The top six airlines have combined air traffic liabilities of roughly $29 billion, disclosures show. United Airlines declined to comment about how much money it made from unused tickets. Southwest did not answer questions about its profits from unused tickets but noted that as of 2022, its flight credits no longer expire. The other four airlines did not respond to inquiries from The Lever about how much of their profits come from expired flight credits and tickets. Hawaiian Airlines, a smaller airline that mostly provides direct flights to Hawaii, made $311.7 million from 2020 to 2023 from passenger tickets that expired unused, according to a February filing with the Securities and Exchange Commission. Additionally, Frontier Airlines, a budget airline notorious for its uncomfortable seats and meager amenities, reported more than $2.3 billion in earnings in 2023 from “non-fare passenger revenues,” which includes baggage fees, seat selection, and service fees. Frontier notes that services fees include “among other things, convenience fees, charges for nonrefundable ticket expiration, cancellation charges and service charges assessed for itinerary changes made prior to the date of departure.” Last month, the Department of Transportation announced that, starting in the fall, it would require airlines to give consumers automatic cash refunds if their flights were canceled or delayed by longer than three hours for domestic flights, making it far more difficult for airlines to simply issue flight credits after a canceled flight and wait for them to expire. While the news was celebrated by consumers, airlines quickly began to fight back. “It’s clear that [airlines] know that the percentage of people collecting refunds is about to soar because of the [Transportation Department’s] action,” said William McGee, the senior fellow for aviation and travel at the American Economic Liberties Project, a consumer advocacy and research group. “And now they are fighting it tooth and nail.” As The Lever reported last week, airline-backed lawmakers included a provision in a must-pass bill to fund the Federal Aviation Administration that may have undermined the new automatic refund guarantee — and instead required consumers themselves to petition airlines to get refunds. After The Lever’s initial report, Sens. Elizabeth Warren (D-Mass.) and Josh Hawley (R-Mo.) introduced an amendment to change the bill’s language around refunds. And on Tuesday, a similar amendment reportedly made it into a final deal on the bill, setting it up for it soon to become law. “As this bill has been moving through Congress, I have fought at every stage to require automatic refunds for canceled or delayed flights,” Sen. Ed Markey (D-Mass.), who also introduced a consumer-friendly refund amendment, wrote in a statement to The Lever. “It is crucial that airlines are held responsible to ensure passengers receive the refunds they deserve.” After the new language was included in the bill Tuesday, Markey tweeted, “This bill is a victory for airline consumers everywhere.” If the consumer-friendly amendment becomes law, billions of dollars are on the line. American Airlines warned shareholders in its recent annual report that the rule was imminent and noted it as a “risk factor.” Airlines for America, an airline industry trade group, recently announced that airlines issued more than $43 billion in customer refunds from January 2020 to December 2023. In response to a request for comment on how much airlines were profiting from unused and expired flight credits, the group noted in a statement to The Lever that airlines “abide by — and frequently exceed — [Transportation Department] regulations regarding consumer protections.” Airlines for America has spent more than $18 million lobbying Congress, the Transportation Department and other regulators on refund policy and other issues, disclosures show. The International Air Transport Association, an industry group representing more than 300 airlines globally, came out against the Transportation Department’s new rule days after it was announced on April 24, claiming that the rule would result in airlines jacking up prices. “These one-size-fits-all passenger service mandates will raise airline costs which will ultimately be reflected in higher ticket prices,” the group said. 💡 Follow us on Apple News and Google News to make sure you see our stories first, and to help make sure others see our breaking news as well. McGee, with the American Economic Liberties Project, said the group’s statement was extraordinary because it had “basically acknowledged publicly that airlines are dependent on illegally and unethically holding onto money that belongs to customers.” “[The International Air Transport Association] is saying publicly that [airlines] are dependent on keeping other people’s money and if they are forced to rightfully give money back to customers then they are going to harm all customers and raise fares,” McGee told The Lever. The International Air Transport Association declined to comment on questions about airlines profiting from unused passenger refunds and flight credits. Potentially Billions In “Ticket Breakage”Airlines have been resisting attempts to get them to reveal how much they profit from unclaimed flight refunds for more than a decade. In December 2011, Ralph Nader, a prolific consumer advocate, tried to find out how much airlines were profiting from unused flight credits and refunds. He wrote to the CEOs of major airlines saying that the amount of money the airlines had made off expired tickets and flight credits “must amount over time to billions of dollars.” “Would you reveal how much you have kept or retained from these unused, nonrefundable tickets?” he asked. In response, Airlines for America, the trade group representing major airlines in the U.S., declined Nader’s request, claiming that the information he was seeking was proprietary and refused to disclose it. Little has changed since Nader’s crusade. During the height of the COVID-19 pandemic, travel agencies processed more than $1 billion in refunds for canceled flights, according to the Airlines Reporting Corp., a transaction settlement company that works with travel agencies and airlines. That $1 billion however does not include refunds issued to passengers directly from the airlines, which could have been more than double that figure, the Wall Street Journal reported in 2020. Airlines’ financial statements detail how they have come to rely on customers not claiming their refunds or flight credits. Most of the airlines reported that a majority of their tickets sold are nonrefundable, meaning passengers are subjected to an arcane and difficult process to get their money back. Most airlines only allow passengers to use credits for a canceled or delayed flight within a year. After that, the credits expire — a process many airlines call “ticket breakage” — and airlines reap the benefits. “Tickets which do not have continued validity past the departure date are recognized as revenue after the scheduled departure date has lapsed,” JetBlue wrote in its recent 10-K filing. Alaska Airlines reports a similar policy. “Revenue is also recognized for tickets that are expected to expire unused, a concept referred to as ‘passenger ticket breakage,’” the airline wrote in its 10-K filing. “Passenger ticket breakage is recorded at the intended travel date using estimates made at the time of sale based on the Company’s historical experience of expired tickets, and other facts such as program changes and modifications.” It’s difficult to identify just how much money, exactly, airlines make from these non-refunded tickets or flight credits that expire unused one year after the initial purchase. In airlines’ disclosures to the SEC, most simply lump in the revenue from unused flight credits — ticket “breakage” revenue — with overall ticket revenue. The revenue is significant enough for the airlines to keep shareholders informed of any changes. Delta, the country’s second-largest airline, notified shareholders that a “hypothetical 10 percent change in the amount of tickets estimated to expire unused would result in an impact of less than 1 percent of total operating revenue for the year ended December 31, 2023.” Delta reported more than $58 billion in operating revenue for 2023, according to its recent 10-K filing. That suggests the company could lose up to $580 million if 10 percent fewer tickets are used before expiring — and suggests it could lose up to $5.8 billion if all these tickets are automatically refunded. In a February SEC filing, Southwest, the country’s fourth-largest airline, noted that if the amount of money it was receiving from unused flight credits decreased by just 1 percent, it “would have resulted in a change of passenger revenues of approximately $26 million.” The statement suggests the airline is holding up to $2.6 billion in unused flight credits. Southwest Airlines disclosed that in July 2022, the company had $1.9 billion in customer flight credits from canceled tickets due to the COVID-19 pandemic.
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Sky-high Complaints And FinesIn the early days of the pandemic, a swell of passengers requesting reimbursements for canceled flights brought the issue of ticket refunds to the forefront. Airlines, faced with spiking requests for cash refunds and an international travel ban, were dragging their feet to protect their bottom lines. According to a 2023 Government Accountability Office report, the Transportation Department in 2019 received 1,574 complaints about refunds — about 10 percent of total complaints. The next year, the Transportation Department recorded 89,511 complaints about refunds, which amounted to almost 90 percent of all complaints. Although the number of refund complaints has fallen, they remain far higher than before the pandemic: 19,983 refund complaints were recorded in 2022, and 7,650 were recorded for the first five months of 2023, according to the most recent data compiled by the Transportation Department. In May 2021, Sens. Markey and Richard Blumenthal (D-Conn.) demanded answers from the airlines, urging them to offer cash refunds and non-expiring flight credits. They sent a list of questions to 10 major airlines, asking for, among other things, the total value of flight credits issued by the airlines in lieu of refunds. The airlines responded through Airlines for America, which sent a letter to Markey and Blumenthal evading most of the questions about refunds. “Your letters also inquire about specific proprietary business decisions and imply the industry should adopt uniform customer service policies,” the group wrote. “If air carriers had refunded all tickets in the form of cash, many would have been forced to declare bankruptcy,” the group said, noting that the airlines had issued nearly $13 billion in total cash refunds in 2020. In 2022, the Transportation Department levied $7.25 million in fines against airlines that were slow to return more than $600 million in passenger refunds. Frontier was forced to pay the highest amount — $2.2 million — and refund customers $222 million after the Transportation Department found that Frontier secretly changed how it defined delayed flights. “Frontier applied this policy retroactively and provided credits instead of refunds to tens of thousands of customers who purchased tickets under the earlier more generous policy,” the GAO report states. “The airline also instructed passengers to redeem travel credits through an online system that did not function for 15 days.”
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