Recent instruction by the Department of Transportation will put airlines into further financial difficulty than they already are, says GlobalData, a leading data and analytics company.
Rheanna Norris, Associate Analyst at GlobalData, comments: “Airlines rely upon cancellation and change fees as a reliable stream of revenue. The coping mechanism for many US-based airlines has been seen in the form of drastic capacity cuts and furloughing many members of staff. Having the opportunity to not lose revenue by offering travel at a later date is providing a lifeline to airlines.”
By offering
mandatory refunds on cancelled flights, this accelerates airlines’ cash burn, eating
into their cash reserves and leaving less financial stability for when travel
restrictions are lifted. This will be especially challenging for smaller
airlines, who are less equipped for an external impact of this scale.
Norris concludes: “Airlines need to be cautious
around their brand image and make the refund process as easy for the customer
as possible. Negative media attention around this issue will tarnish an
airlines’ reputation and could discourage an uncertain post-COVID-19 traveler
from booking with the company in question in the future”.
