WHAT TO KNOW
- Do the math on one transatlantic route and the airline's own policy leaves a downgraded passenger paying thousands more than the person sitting next to them.
- Two analysts say the true refund owed should be nearly double what American is currently paying out.
- American's own defense of its policy contains an admission that undercuts its case.
- Even as it defends the rule to federal regulators, the airline is quietly building a replacement for it.
Earlier this year, American Airlines quietly made a change to its compensation provisions for passengers slapped with an involuntary downgrade at the gate… rather than offering affected customers a refund of the fare difference between the premium cabin they had booked, and the coach seat they would not be forced to sit in, the carrier claimed that passengers were only entitled to a refund of 40% of the original ticket price they paid.
Of course, American Airlines didn’t shout about this pretty major change from the rooftops, but it did need to update its fare tariff and conditions of carriage – the change did not go unnoticed, and, before long, Benjamin Edelman and Mike Borsetti were crunching the numbers to work out the real-world impact of these rules.
Edelman and Borsetti first looked at the difference in flight prices on a typical American Airlines flight from New York JFK to London Heathrow. Three days out from the date of departure, coach tickets were being sold for $949, while the cheapest Business Class ticket cost $10,644.
If you applied American’s 40% refund policy for an involuntary downgrade on this flight, the passenger would, in effect, have paid $6,386 for a coach seat, while people sitting around them would only have paid $949.
The pair then looked at other industry data sources and happened upon analysis of transatlantic airfares compiled by Cirum. The data backed up their concerns – the average transatlantic one-way coach fare in 2023 was $435, while the Business Class fares cost $1,845 on average.
With premium seats selling for 4.2x the average economy class fare, Edelman and Borsetti argue that the appropriate downgrade compensation should be around 76%, not the flat 40% that American Airlines has implemented.
And it’s not just international flights; Edelman and Borsetti suggest the appropriate refund for transcontinental flights between New York JFK and Los Angeles should be 73% and between LaGuardia and Dallas-Fort Worth, 72%.
Involuntary downgrades can be caused by a variety of reasons, including broken seats or a last-minute aircraft swap due to maintenance issues. But sometimes, the downgrade could have been entirely within the control of the airline… especially when it’s been caused by the airline selling more tickets than there are seats on the plane.
Edelman and Borsetti submitted a complaint to the Department of Transportation (DOT), claiming that American Airlines was breaking federal rules under 14 CFR § 260.6, which states that when a passenger’s flight is significantly changed by “the carrier must provide a prompt refund—namely, the full value of the service paid for but not delivered.”
They view a downgrade as a “significant change.”
They also argued that American Airlines was violating 14 CFR 253.7, which states that airlines “may not impose any terms restricting refunds of the ticket price, imposing monetary penalties on passengers, or raising the ticket price.”
In its response to the DOT, American Airlines insisted that its flat-rate 40% refund rule was fully consistent with the letter and spirit of the rules. The basic argument from the airline is that fares are very dynamic, so it would be difficult to work out the fare difference for any given flight, and as such, it decided it didn’t want to go to this much effort.
American Airlines said in its response: “American accordingly chose to use a standardized proxy for valuing the difference in class of service, rather than reconstructing a lower cabin fare for the downgraded consumer.”
“A refund of 40% for the affected segment returns a substantial portion of the consumer’s paid fare while recognizing that the consumer still received the principal air transportation service on the consumer’s selected flight.”
So, American Airlines believes that its approach is the right one and is lawful, but then the carrier concedes that “the phrase ‘appropriate refund” may accommodate more than one calculation methodology.”
As such, American Airlines implemented new rules that will offer downgraded passengers a refund of the difference between the fare they paid and the average ticket price of passengers in the cabin they were downgraded to.
In their latest submission to the DOT, Edelman and Borsetti claim American Airlines “would not overhaul a methodology it believes is lawful and proper.”
“The appropriate response is not dismissal but an order to help passengers who were under-refunded, and to ensure that the replacement is adequate, filed, and enforceable,” the submission continues.
The DOT is yet to rule on whether it will take enforcement action against American.
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