Airlines already battered by the coronavirus (COVID-19) disruption are to be investigated about the practice of offering travel vouchers instead of cash refunds.
The Competition and Markets Authority (CMA) said it will look at cases where airlines continued to operate flights despite people being unable lawfully to travel for non-essential purposes due to lockdown restrictions.
This was the situation during the second lockdown in England, said the CMA, and many customers were offered the option to rebook or to receive a voucher instead of cash refunds.
The watchdog added that it is concerned that certain airlines may have breached consumers’ legal rights by failing to offer cash refunds, leaving people unfairly out of pocket.
In a statement, Andrea Coscelli, the CMA’s chief executive, said: “We will be carefully analysing all the evidence to see whether any airlines breached consumers’ legal rights by refusing people cash refunds for flights they could not lawfully take.
"We recognise the continued pressure that businesses are currently facing, but they have a responsibility to treat consumers fairly and abide by their legal obligations.”
The competition watchdog said it will work with the Civil Aviation Authority on the probe and they will now write to a number of airlines requiring information on how they handle refunds for consumers prevented from flying due to lockdown.
The CMA said it would then will decide whether to launch enforcement action against individual airlines.
The regulator has already taken action against online travel agents that have been slow to reimburse cancelled holidays with LoveHolidays, lastminute.com and Tui AG (LON:TUI) all making commitments on refunds.
Broker Peel Hunt said it believes that as the investigation is focused on the second lockdown it will have only a small financial impact as so little capacity was on sale for November.
The airlines are likely to argue that they would have had to offer the flights for essential travel, and are not ideally positioned to identify what is essential and non-essential.
“This will not help sentiment, but we believe it would be more damaging if the airlines were forced to offer refunds for flights cancelled during the first phase of lockdowns (across UK & EU) and where they were forced to reoffer refunds after the customer “chose” to rebook or take a voucher.”
In this scenario, British Airways owner IAG (LON:IAG) is potentially the most at risk, with around €4.3bn of deferred revenue, cash for tickets paid in advance, some of which could have to be refunded if the CMA made an adverse ruling, said the broker.
IAG shares rose 4.3% to 164p buoyed by vaccine and Brexit hopes.