MICHAEL O’LEARY, the controversial boss of the Irish low cost carrier (LCC), Ryanair, has the following to say to customers requesting air ticket refunds when their granny has fallen ill: “What part of No Refund don’t you understand? You are not getting a refund – so #%$@ off.” In this crude and unsympathetic way, O’Leary highlights to his customers one of the fundamental restrictions that pertain to cheap air tickets on both LCCs and full service airlines.
Throughout the world, if a customer wants the right to be able to cancel a flight booking, they have to pay extra for this flexibility. The link between low price and non-refundability is fundamental to the business model of airlines all over the world. However, the Consumer Protection Act (CPA) which came into operation in South Africa on April 1, 2011, although a boon for consumers, is creating some serious problems for the South African airline industry in the area of passenger refunds.
Since April, both the full service airlines and the LCCs are being inundated by “demands” from consumers that they be allowed to cancel their cheap ticket bookings in terms of Section 17 of the CPA. Despite the airlines advising that cheap tickets are nonrefundable in terms of their conditions of carriage as well as global airline practice and offering instead to re-book the tickets, consumers continue to demand refunds. When the airlines refuse the refund, the consumer refers the matter to the National Consumer Commission (NCC) which then initiates a highly bureaucratic consumer complaint process which wastes considerable time and money.
The LCC carrier model utilised in South Africa is closest to the business practices developed by the two largest low cost carriers in Europe, EasyJet and Ryanair. This model makes no distinction between travel and fare classes as is the practice on full service airlines. Fares are based on variable pricing depending on how far in advance of the departure date they were purchased and are absolutely “non-refundable”. EasyJet and Ryanair do, however, allow their customers to change their reservations up to two hours before departure subject to payment of a re-booking fee.
On the other hand, the global model for full service airlines provides for travel classes such as First Class, Business Class and Economy Class, as well as fare classes, depending on the ticket or reservation restrictions used. Passengers within the same travel class receive the same quality of accommodation and may indeed sit next to each other. However, the price or restrictions they face for that accommodation will depend on the fare class.
Fare classes may also vary by how far ahead the ticket must be purchased, or how long the length of stay is. For example, full fare economy class passengers are usually able to make changes to their reservations, while discount economy class passengers in the lowest booking code usually have tickets that are non-refundable, nonupgradeable, non-transferable, or non-changeable without a fee.
In South Africa, the LLCs and full service airlines follow the same practices as their counterparts in other parts of the world. It is interesting to note that in most jurisdictions, including the European Union which has well developed air travel consumer protection measures, the non-refundability of cheap tickets is deemed an acceptable practice. These countries accept that in most cases the cost of processing a refund together with the complexity of remarketing the returned ticket exceeds the price of a cheap ticket and, for this reason, it makes no sense to compel airlines to provide these refunds.
This conclusion is borne out by the findings of one South African LCC which has modelled the cost of providing a refund to the consumer vis a vis the average cost of a low cost ticket. This study indicates that if a refund is provided 20 to 30 days prior to the flight, the cost of providing a refund will exceed the price paid for the ticket by an amount of R10. The cost of providing the refund increases to an amount of R80 in excess of the price paid for the ticket, if a refund is requested during the period 0 to 20 days prior to the flight. Based on this information, if the airlines are compelled to refund cheap fares, the airlines will have no choice but to substantially increase the cost of air tickets – to the detriment of consumers. Unfortunately, despite repeated warnings from the Airline Association of SA about the problems that Section 17 (as well as other sections) of the CPA would cause to the airlines, the Department of Trade and Industry went ahead and implemented the Act.
So what does the CPA say with respect to respect to the consumer’s right to cancel an advanced booking or reservation? Well, the CPA provides that every consumer has the right to cancel any advanced booking for any services to be supplied. The supplier is, however, entitled to impose a reasonable charge for cancellation of the reservation.
The law also states that the charge would be deemed to be unreasonable if it exceeds a “fair” amount in the circumstances, having regard to (i) the nature of the services that were booked, (ii) the length of notice of cancellation provided by the consumer, (iii) the reasonable potential for the service provider to find an alternative consumer to buy the service and (iv) the general practice of the relevant industry.
Two schools of thought have arisen on how the airlines should handle requests for cancellations. Some argue that the general practice of the relevant industry criteria permits the airlines to charge a 100% cancellation fee on all cheap ticket cancellations. Others believe that as the term “refund” does not appear in Section 17, the airlines are permitted to provide a “credit” or “rebooking” option to the consumer instead of refunding the cheap ticket purchase price. Unfortunately the consumers do not agree with either school and continue with their complaint referrals to the NCC. In order to clarify the position, the airlines have tried to obtain an advisory opinion from the NCC on the matter, only to be told that this resource is not yet up and running.
So, in all likelihood, the current uncertainty and confusion on the issue of refunds will continue until some judicial precedent comes into being – or unless the Department of Trade and Industry intervenes to sort out the mess it has created.
