The Travel Industry Refunds Conundrum: Survival Versus Doing the Right Thing

Prior to the coronavirus pandemic, leading disruptive influences in travel included alternative accommodations and artificial intelligence, but during the current crisis refunds and cancellations have shattered finances, travel policies, business models, and partner and customer relationships.

The fallout has triggered flexible cancellation policies, booking incentives, and some attempts at fence-mending.

Consider Airbnb, which saw reservations drop some 85 percent in early April. Citing healthy and safety reasons, the company opted to provide full refunds in the form of cash or vouchers for future travel to guests, outraging hosts who were left to cope with a loss of income they had counted on in the face of mortgage payments that came due. Adding kindling wood from a host perspective, guests can use the vouchers for future travel at any Airbnb-listed property, and aren’t limited to the location they cancelled.

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Many hosts are so miffed that there is chatter about lawsuits and abandoning their Airbnb listings en masse.

But Airbnb is a two-sided marketplace, and the policy also drew fire from guests, who were forced to provide documentation that local governmental policies or personal health issues barred them from traveling in order to recoup cash or vouchers.

Airbnb established a $260 million fund to assist hosts, but they complained that the payments were tardy and the amounts paltry. Airbnb co-founder and CEO Brian Chesky has been on a quasi-apology tour ever since, making a weekly video presentation to hosts, taking their prepackaged questions, and vowing to repair the relationship.

The Complexities of Selling Travel

Bruce Poon Tip, the co-founder and owner of adventure tour operator G Adventures, headquartered in Toronto, can appreciate the complexities of the travel marketplace when it comes to cancellations, refunds, and an array of supply chain relationships.

His company takes tour bookings from travelers in some 160 countries, deals with what he says are tens of thousands of local operators, whether it is a boat tour company in the Maldives or horseback riding tour operator in Mongolio, and has to navigate an immense collection conflicting regulations around the globe related to coronavirus.

Referring to customers demanding refunds and suppliers reluctant to provide refunds to G Adventures for payments sometimes made a year in advance, Poon Tip said: “There are so many variables when you are dealing with international tours that compound the issues. We’ve been operating like this for decades as an industry and no one anticipated that the planet would shut down.”

Although about 15 percent of its customers, who skew younger than those of many tour operators, have demanded cash refunds for Covid-19-related issues, G Adventures is providing travel credits worth 110 percent of what customers paid, Poon Tip said.

Poon Tip said most other tour operators have similar policies. “We are getting hammered on social media for the first time in our 30-year history,” he said.

He said sometimes customers are demanding refunds, saying they aren’t responsible for the coronavirus pandemic, and Poon Tip pleads for kindness, telling them he didn’t start it either.

Poon Tip points out that a vast majority of customers book G Adventures tours through travel agencies, and the tour operator then begins to block out rooms or pay for local flights even though the big travel agency groups won’t pay G Adventures until the end of the month when the customer actually takes the tours.

He said G Adventure tries to negotiate refunds or credits from local operators, but it is mostly applied toward future tours. He’s dealing with tens of thousand of local operators, often family run, with varying degrees of technology prowess, and dealing with multiple currencies.

The cancellation and refund issues are a unique conundrum “because of the circular economy that exists in the travel industry,” Poon Tip said. “No one anticipated it would come to a full stop.”

Business Model Tweaks

The looming threat of cancellations, meanwhile, has prompted online players from Google to Trivago to tweak business models. Both are offering advertising customers the ability to pay commissions when a guest actually stays at a property as an alternative to the foundational cost-per click.

Many advertisers feel burned because they paid millions of dollars to Google and other online players but the guests ended up canceling the stay because of the coronavirus outbreak.

The following sums up how various travel sectors handled cancellations and refunds:

Airlines

In the United States, the Department of Transportation required airlines to refund customers when the airline cancelled the flight or the flight was substantially delayed. While cancellations are a clear-cut issue, various airlines have been hedging on what substantially delayed means. Some airlines considered a substantial delay two hours, and others argued it could be four hours or more.

U.S. airlines are permitted to try to convince customers to take vouchers for future travel instead of refunds, but they must issue refunds for cancelled flights and substantially delayed flights if that’s the customers’ preferred choice.

Delta has issued $1.5 billion in cash refunds to customers since January, including $182 million this month through May 19, CEO Ed Bastian said in an email to travel agencies.

European Union rules give passengers the right to cash compensation, but a dozen countries and the airline trade group, IATA, want the European Union to force customers to accept vouchers instead.

In Australia, Qantas appears to be allowing cash refunds for direct bookings, but it is a prolonged process. The airline automatically offers vouchers, and there are elongated phone wait times to get an agent to issue a refund.

Hotels

For existing reservations, including prepaid bookings, made through Marriott International, Choice Hotels and Intercontinental Hotels Group, for example, the chains allow changes and cancellations without a fee up to 24 hours prior to arrival up to June 30.

With some exceptions, new reservations made through Marriott, Hilton, Hyatt, Wyndham up to June 30 for any future stay likewise are subject to free changes and cancellations up to 24 hours before the stay although the reservations are subject to rate differences and availability.

In keeping with the flexible reservations and incentives trend, IHG’s Book Now, Pay Later promotion allows payments to be made at the hotel and free cancellations up to 24 hours prior to scheduled arrival when booking are made direct. There is a 5 percent discount on Best Flexible Rate bookings made up to September 3, 2020 for stays made through the end of the year except for those in Greater China.

For hotel bookings made through online travel agency sites, the hotels refer guests to those businesses to seek compensation for cancelled stays.

Online Travel Agencies

There has been a ton of consumer frustration with the cancellation and refund policies of major online travel agencies, which are intermediaries or go-betweens connecting customers and partners.

If you tried to get a refund for a prepaid hotel booking made through an online travel agency, they would often tell customers the reservations were prepaid and there was nothing they can do, or they would refer the guests to the hotels.

In some cases the online travel agencies issued vouchers for future travel, or cash refunds in countries around the world that mandated cash refunds because of the pandemic.

Expedia offers an option to cancel a trip online or by submitting a form, but advises customers that receiving a refund is up to the discretion of the airline or hotel, for example.

“By submitting this form, you are giving us permission to cancel your upcoming reservation,” Expedia stated. “However, submitting this form does not guarantee compensation. Any cancellations, credits for future use, or fees are at our travel partners’ discretion. Unfortunately, we cannot waive their policies or fees.”

In some countries, such as Italy, which locked down all travel because of coronavirus, the government required hotels to pay refunds on prepaid bookings made through online travel agencies. These refunds were often processed through the online travel agencies, which waived commission payments from the hotels.

Booking Holdings, which began to feel the brunt of coronavirus cancellations in mid-March and received more cancellations than bookings that month, that its revenue took a $63 million hit in the first quarter for refunds provided on prepaid bookings.

Financial services firm Cowen stated in a research note that Expedia Group has substantially more prepaid reservations on its books because of its tilt toward the merchant model than does Booking Holdings. At the end of 2019, according to Cowen’s estimates, Expedia Group had around $5 billion in deferred bookings — prepaid bookings for future travel — compared with around $1.6 billion for Booking Holdings.

It was a much different dynamic in China, according to Alibaba in referring to its travel agency, Fliggy. Alibaba CEO Yong Zhang told financial analysts in February that “in accordance with government regulations, Fliggy provided unconditional and penalty-free cancellations to our customers.”

Latin America online travel agency Despegar allocated $12.5 million for bookings already cancelled, those expected in the second quarter, and even into the third quarter for bookings in Argentina, for example.

Short-Term Rentals

There was a wide disparity in the cancellation and refund policies of short-term rental providers.

Sonder, which leases apartments from developers and landlords, resisted providing refunds when coronavirus locked down much of the United States, and saved itself about $8 million in taking a tough stance, according to the Wall Street Journal. Sonder currently offers credits toward future reservations when bookings were made on Sonder.com. For third-party bookings, it refers guests to those intermediaries.

Airbnb’s extenuating circumstances policy covers bookings made up to March 14 for stays through June 30, and gives guests the option for full refunds or travel credits, but they will “be required to attest to the facts of and/or provide supporting documentation for your extenuating circumstance,” the company said.

Airbnb reservations made after March 14 are subject to the hosts’ cancellations policies except when the guest or host can prove they are ill from Covid-19.

Expedia’s Vrbo initially took a cancellation and refund approach that was less guest-friendly than Airbnb’s, or more even-handed toward the interests of guests and hosts, depending on your perspective. Vrbo urged hosts to issue 50 percent refunds and/or vouchers for future travel, but didn’t require it.

Vrbo’s Covid-19 emergency policy urges hosts to offer full credits for the amount the guest already paid if the cancellation falls outside hosts’ usual cancellation window; encourages a partial refund, and Vrbo is refunding its traveler service fee on reservations that qualify.

Corporate Travel

Stewart Harvey, who heads BCD Travel in Europe, the Middle East and Africa, said the issue of coronavirus-driven flight cancellations is confusing for corporate clients because rules vary country to country. Clients want their cash back and don’t view vouchers as practical or fair, he said.

“As a follow-up, clients have asked for reports of how much money is due. Some of these clients want to put a financial value on the loss of that cashflow with those airlines,” Harvey said. “It’s a heated discussion. We’ve been asked to quantify all refunds by specific airlines now.”

The major global distribution systems — Amadeus, Sabre and Travelport — agreed to implement an automated solution from the Airline Tariff Publishing Co. to override fare rules and waive change fees because of the pandemic, according to American Airlines.

In an email to travel agencies, Delta CEO Ed Bastian said: “If you have travel booked through Sept. 30, 2020, or existing eCredits from flights March 1st through Sept. 30, 2020, there are no change fees to reschedule your trip through Sept. 30, 2022. In addition, tickets purchased between March 1 and May 31, 2020, can be changed without a change fee for a year from your date of purchase.”

Travel Agencies

The American Society of Travel Advisors pointed to modest progress last month in terms of U.S. government policy on airline refunds and cancellations.

“We are pleased to report that progress is being made on that front, albeit slowly,” the trade group said in a statement. “One sign of this progress was the notice issued earlier this month by the U.S. Department of Transportation clarifying that airlines remain obligated to refund passengers whose flights are cancelled by the airline, even when the flight disruption is outside of the carrier’s control. Many carriers are now easing other policies where ASTA has pushed for change, gradually making the air sector both more workable for travel agencies and more conducive to the traveling public.”

But the trade group lamented tour operators and cruise lines sticking with rigid refund policies that hurt both travel agencies and their clients.

“While this is painful enough, what is far more egregious from ASTA’s perspective is the growing number of suppliers that have elected to change their refund, cancellation and commission policies retroactively, overwhelmingly to the detriment of advisors and consumers alike,” the group said. “This is simply wrong in every possible way. Withholding or denying refunds in breach of the terms and conditions that were in effect at the time of booking breaks the supplier’s contract with the consumer.”

The travel agent group has an issue with the timing of credits for future travel. In an email, said it “once again calls on travel suppliers to do the right thing and compensate their trusted travel advisors for their part in making the sale — including vouchers or … [credits]  for future travel — in a timely manner, meaning when issued, and not after the client’s travel is complete.”

Global distribution system Amdeus said May 11 that it is processing 2.5 million reaccommodation transactions from agents and corporations daily, and that’s about 17 times the daily average pre-pandemic.

Cruises

Royal Carribbean is offering guests future cruise credits of 125 percent of the initial fare  in lieu of cash refunds because of coronavirus-driven cancelled sailings, although through the end of April about 45 percent of guests have demanded refunds.

For cruises that haven’t been cancelled, Royal Caribbean introduced a Cruise With Confidence plan. Bookings made by August 1 for sailings for sailings taking place by April 30, 2022, can be cancelled up to 48 hours prior to the sailing for future cruise credits, for example.

Carnival Corp. stated on May 14 that about 38 percent of its guests have demanded refunds.

“Carnival guests booked on sailings with a departure date between May and September 2020 may cancel up to 30 days prior to their sailing and receive a future cruise certificate that can be used to rebook a cruise within one year of the original sail date,” according to CruiseCritic.

Norwegian Cruise Line brands are generally issuing credits of 125 percent of the initial cruise fare for future sailings taking place by December 31, 2022.

Tours Operators

For tours scheduled through June 30, G Adventures is issuing credits toward future trips worth 110 percent of the tour payment, including ancillary services such as hotels and prepaid activities, but excluding flights and travel insurance.

For tours booked up to June 30, 2021 and for travel through October 31, 2021, TUI is providing options for free cancellations and rebooking if done at least 14 days before departure.

Skift edit and research staffers Cameron Sperance, Madhu Unnikrishnan, Brian Sumers, Matt Parsons, Sean O’Neill, Rosie Spinks, and Seth Borko contributed to this report.