New Refund Rule Pressures Airline Stocks
A new Department of Transportation (DOT) rule is putting a strain on airline stocks as it requires airlines to provide full refunds for canceled, delayed, or significantly changed flights. This has resulted in a decline in stock prices across the sector, with United Airlines (NASDAQ: UAL), American Airlines (NASDAQ: AAL), Spirit Airlines (NYSE: SAVE), Delta (NYSE: DAL), and Southwest (NYSE: LUV) all experiencing losses.
Passenger Entitlements
Under the new rule, passengers are entitled to cash refunds if they decline alternative accommodations for flights that have been canceled or “significantly changed.” This includes flights where departure or arrival times differ by three or more hours for domestic flights and six hours for international flights. The rule also applies to situations where the airport is changed or connections are added.
Additionally, passengers are entitled to a refund of their checked bag fee if their baggage is delayed by more than 12 hours after a domestic flight or 15-30 hours for an international flight arriving at the gate. All refunds must be issued within seven business days.
Disclosure of “Junk Fees”
The new DOT rules also require airlines to clearly disclose “junk fees” associated with baggage, reservation changes, or discounts that only apply to partial flights. Before this rule, airlines set their own thresholds for what constituted a “changed or delayed flight,” leading to inconsistencies within the industry and making it challenging for travelers to receive refunds.
Industry Response
Transportation Secretary Pete Buttigieg emphasized the importance of passenger protection, stating that passengers “deserve to get their money back when an airline owes them – without headaches or haggling.” The DOT’s new rule sets a new standard by requiring airlines to promptly provide cash refunds to passengers.
The industry is reacting negatively to the new rule, with shares of major airlines declining in value. However, the DOT is continuing its efforts to enhance passenger rights, with plans to ban family seating junk fees and proposals to make passenger compensation and amenities mandatory for flight delays or cancellations.
