16th May 2021

'Passengers' became 'lenders' to airlines hit by pandemic

  • LOT, the state-owned Polish airline, says it now faces refund claims from 271,000 passengers after it cancelled 39,000 flights since March (Photo: Wikimedia)

When the pandemic forced countries into lockdown, Raul-Petru Hreniuc was on a trip in Mongolia and had to scramble to find a way home.

The 35-year-old English teacher from Romania quickly arranged a series of flights, first to Berlin and then to Bucharest.

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  • A class action lawsuit in the US and lawsuits filed by Flightright in Europe hope to get back passengers' money from several airlines, including Poland's LOT, Germany's Lufthansa and Ireland's Ryanair (Photo: rudlavibizon)

But a few hours before boarding the first plane in Mongolia, Hreniuc got a message from LOT Polish Airlines — the carrier for the second leg of the trip — saying that flight was cancelled.

He called the customer service line, and never got through. "I was scared of getting stuck in Germany, so I eventually booked a flight with another airline," he said.

When Hreniuc eventually got home, he asked LOT to issue a refund. But after many ignored emails and countless hours trying to get through to customer service, Hreniuc saw no other way and turned to a claim-management company.

Travel restrictions during the pandemic hit global airlines not only with estimated losses worth over $300bn [€265] according to the International Air Transport Association, but also left them indebted to passengers.

LOT, a state-owned Polish airline, says it now faces refund claims from 271,000 passengers after it cancelled 39,000 flights since March.

The Warsaw-based company typically flies one million passengers a year to 120 worldwide destinations. Like many other carriers, LOT had to suspend most of its flights between March and June 2020.

While governments try to prevent airlines from going bankrupt, passengers' rights are largely ignored.

A class action lawsuit in the US and lawsuits filed by Flightright in Europe hope to get back passengers' money from several airlines, including LOT, Lufthansa and Ryanair.

For now, the law imposed on airlines amid the Covid-19 pandemic is on Hreniuc's side: in March 2020, the European Commission decided that airlines have to offer full refunds for cancelled flights, if passengers don't want to rebook or get vouchers.

Whether airlines simply ignore refund claims, reject them or are only willing to offer vouchers or rebooking, they act against regulations of the commission.

"In each of these cases airlines use their customers as lenders," says Oskar de Felice, legal strategist with Flightright, a German claims-management company.

Airline passengers use claims-management companies like Flightright as a legal representation with their disputes with airlines.

For a fee equal to 20 percent to 30 percent of the reimbursement, Flightright helps them negotiate for refunds and compensation for late or cancelled flights.

For the company, coronavirus-related travel bans have so far led to more than 20,000 refund claims, worth over $22m, Flightright says.

Some of their clients have been waiting for refunds from LOT for months now.

In an email to this reporter, LOT acknowledged that refund requests can currently take up to three to four months. The Polish airline says they are processing requests continuously.

"We are making every effort to speed up the process," a company spokesperson said via email.

But the comments from hundreds of frustrated LOT passengers on the company's Facebook page show a different picture.

Lennart Tas from The Hague in the Netherlands is one of them. He's been waiting for a refund for over two months. He booked 19 flights for a group of friends from Amsterdam to Kiev and back, all of which were cancelled in April.

"They owe me €5,000," Tas says. But he booked through Budgetair, an intermediary website, which is now trying to get back the money from LOT.

Flightright says that in some cases LOT refused to assume responsibility for tickets bought through such intermediary vendors.

"From a legal point of view this is wrong," says de Felice from Flightright. The airline is the contractual partner of the passenger and as such, liable for refunds, he added.

Immense losses, huge backlogs

The immense losses in the global aviation industry are a great concern for governments, which have opted to bail out or nationalise many carriers rather than let them fail.

According to an analysis released by Fitch Ratings, European airlines received over €25bn in state aid since March alone.

Hugh Shim, an analyst at Fitch Ratings says most airlines have the liquidity to pay refunds, but they fear being tapped out by the unseen level of claims.

"While refund claims surely created a huge operational backlog, airlines do everything to preserve their liquidity," says Shim.

The refund backlash is not unique to Europe, of course. In the United States, senators estimated that airlines are sitting on €8.8bn, which should be refunded to customers.

While there are no such industry-wide estimates so far in the EU, Shim thinks European airlines might have similar liabilities towards their consumers.

But airlines feel confident after 12 EU countries' governments took their side and tried to suspend a key regulation binding airlines to cash refunds.

Surprisingly, even the minister for consumer protection in Germany, Christian Kastrop, spoke out against the regulation meant to protect passengers' rights.

In an interview with the German daily Handelsblatt, Kastrop said that state aid for airlines should not necessarily be linked to them paying cash refunds within seven days, in adherence with the regulation.

He warned of ripple effects of airlines going broke, including numerous job losses.

"It doesn't help anyone if affected passengers request their refunds and airlines go bankrupt as a consequence of it," Kastrop said, in comments translated from German.

The EU commission, however, does not want to abandon consumers' rights and launched infringement procedures against Italy and Greece.

Member states in breach of commission laws risk court procedures and financial penalties. Both of these countries allowed airlines to offer vouchers to make up for cancelled flights, instead of cash.

A commission spokesman said, they will not hesitate to take further steps if member states don't enforce passengers' rights.

LOT facing backlash

Hreniuc, who waited more than three months, was lucky enough to get his tickets refunded. Poland, however, was vocal in asking the European commission to suspend the right for refunds, after LOT cancelled 90 percent of its flights.

But the company is facing refund claims in the US, too, based on the enforcement notice of the US Department of Transportation.

Andriy Melnyk had booked a roundtrip from New York City, via Poland to Lviv, Ukraine with the Polish airline.

But on 11 March, president Donald Trump imposed a travel ban on most European countries, and four days later, LOT cancelled Melnyk's return flight.

His attempts to get a refund were in vain. Melnyk, who is represented by the law firm Bursor & Fisher, filed a class action lawsuit against LOT Polish Airlines with the New Jersey District Court, in which he claims there are hundreds of thousands passengers in a similar situation.

Complaints against LOT, and other European airlines, mount not only because passengers became involuntary lenders to them.

Tom Dworakowski, a software engineer from Round Rock, Texas, booked flights with LOT from Chicago to Krakow, Poland in June.

'Ghost' flights?

LOT cancelled his flights soon after his booking, but Dworakowski saw on their website that they were still selling tickets for the same flight.

"Several consumer protection groups reported this new practice called 'ghost flights'", says Andrew Canning, spokesman for the European Consumer Organisation (BEUC).

Since travel bans have been partially lifted, airlines are once again selling tickets which they cancel immediately after the booking, allowing them to build up some cash flow, Canning says.

When asked about these ghost flights, LOT told this reporter that transatlantic flights operate with certain restrictions.

Tas, who is worried about not getting his money back, spotted the news that PGL, the state-owned company in charge of LOT registered at the end of May a new subsidiary under the same name – a second LOT Polish Airlines.

The newly-founded LOT applied recently for a certificate allowing it to use aircraft with a commercial purpose. In an email to this reporter, LOT confirmed the existence of a new subsidiary requesting such permits.

Tas fears that the company may be considering a bankruptcy.

Legal expert de Felice at Flightright says this would trigger an endless procedure. "For LOT passengers, a bankruptcy would be a real worst-case scenario," he said, noting that in that case, customers might never see their money back again.

LOT firmly denied allegations that it would go into controlled bankruptcy.

"There are no grounds for bankruptcy of LOT Polish Airlines," the company said.

Author bio

Marta Orosz is a Berlin-based business reporter who has published award-winning investigations on trade deals and tax fraud for and covered billionaires for Forbes USA.

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