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Federal regulators announce $2.5 million in fines for three airlines

The three international carriers were cited for significant delays in providing refunds for Covid-19-related cancellations.

WASHINGTON (CN) — Federal regulators announced Monday that three international airlines will pay $2.5 million in fines for significant delays in providing refunds to passengers whose flights were canceled because of Covid-19.

The U.S. Department of Transportation released consent orders against airlines Lufthansa, South African Airways and KLM Royal Dutch Airways.

The department details in the orders the delays in paying more than $900 million in required refunds for passengers.

“When a flight is cancelled or significantly changed, you shouldn’t have to fight with the airline to get their money back — and we’re holding airlines accountable when they fail to give passengers the refunds that they’re owed,” Transportation Secretary Pete Buttigieg said in a press release. “Today’s actions further demonstrate that passenger rights remain a top priority for the Biden-Harris Administration — and we are using all of our tools to improve air travel for everyone.” 

Germany-based Lufthansa was assessed a $1.1 million penalty related to $775 million in required refunds. KLM also faces a $1.1 million penalty for $113.3 million in delayed refunds, while South African Airways must pay $300,000 related to $15.2 million in refunds.

The department says it has received more than 2,500 complaints about refund requests for Lufthansa, 948 for KLM and more than 400 for South African Airways since March 2020.

The enforcement actions come because many of the complaints showed refunds took more than 100 days to process in violation of federal regulations and creating burdens for customers.

Each airline had its own special circumstances leading to the delay in refund requests, primarily because of the different approaches to the pandemic taken by their home countries starting in March 2020.

Lufthansa canceled 35,512 flights scheduled between March 2020 and September 2022. The company told American regulators that it was at risk of insolvency within weeks and had to use a state-backed loan from the German government to avoid going under. Officials said the company received the equivalent workload of more than two months related to refunds coming in every day.

Lufthansa provided a total of $5.3 billion in refunds between March 2020 and September 2022, of which $802 million was paid out to U.S. customers. The company said it cleared most of its U.S. backlog by November 2020 and has since processed requests within federal guidelines.

Meanwhile, KLM canceled 7,950 flights between the U.S. and Europe because of Dutch government-imposed travel restrictions. Because nearly all flights were canceled, the company suspended its normal refund policy because it wasn’t certain there was sufficient cash flow to cover the deluge in refunds for canceled tickets. 

KLM says its refund policy suspension was supported by the Dutch government. However, in response to a notice from the USDOT, it reinstated it for U.S. passengers starting April 7, 2020.

South African Airways was already facing financial difficulties before the pandemic and had been placed under the control of two court-appointed “business rescue practitioners” under South African law by December 2019.

The court appointees put a temporary moratorium on the rights of claimants against the company while they sought to restructure its business affairs to avoid insolvency. When the pandemic hit, the lockdown policy of the South African government prohibited its employees from working in all global offices, including the U.S.-based one that handled refunds.

The company wasn’t able to start processing its backlog of refund requests for pandemic-related cancellations until May 2021.

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Categories / Business, Consumers, Government, Travel

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