Credit shells from airlines may earn you interest

The first two nationwide lockdowns in the wake of the covid-19 pandemic resulted in the suspension of air travel from 25 March to 3 May. Passengers who booked tickets for travel during this period were left in a lurch with little clarity on cancellation and refunds. While some airlines initiated a refund within a few days, others are yet to take a call on the same.

“Some airlines such as IndiGo and AirAsia refunded the full amount to the travel agents’ wallet and it was left to the agents as to how they want to refund the money to their customers. However, in some cases airlines offered credit shells to passengers instead of a refund,” said Nishant Pitti, CEO and co-founder, EaseMyTrip, an online travel agent.

Credit shells are open tickets issued by an airline when it wants to hold the booking amount as credit.

Keeping in view the interest of both airlines and affected passengers, the Directorate General of Civil Aviation (DGCA) in an affidavit has proposed a few workable solutions.

In the case of domestic travel, where tickets were booked directly with the airline (without the involvement of an online travel agent) during the first lockdown between 25 March and 14 April for journeys during both first and second lockdown periods that is between 25 March and 3 May, a full refund shall be given by airlines immediately. In all other cases, airlines shall try and refund the collected amount within 15 days.

The aviation industry is reeling under stress due to the extended lockdown and fewer people travelling due to the fear of contracting the virus and limited capacity.

Therefore, airlines that are in financial distress and cannot initiate the refund shall provide a credit shell equal to the amount of the fare collected. The credit shell will be issued in the name of the passenger who has booked the ticket. The passenger will be able to consume the credit shell up to 31 March 2021 on any route of her or his choice.

The DGCA has further proposed an intensive mechanism to compensate the passengers if there is a delay in consuming the credit shell. “From the date of cancellation up to 30 June 2020 the value of credit shell shall be enhanced by 0.5% of the face value (the amount of fare collected) for every month or part thereof between the date of cancellation and 30th June 2020. Thereafter, the value of credit shell shall be enhanced by 0.75% of the face value per month, up to March 2021,” said the DGCA in the affidavit. A 0.75% monthly interest amounts to an annual interest of 9%.

To offer flexibility, DGCA has said that the credit shell shall be transferable to any person by the passenger and the airlines shall honour such transfers. After March 2021, if the passenger does not use the credit shell then the airline shall refund the cash.

In the case of domestic travel where tickets were booked during the lockdown through a travel agent for travel during the lockdown period, a full refund shall be given immediately by the airlines and the amount shall be passed on by the agent to the passengers. In case of credit shells, the same rules as in case of direct ticket booking with the airline shall apply.

How passengers will benefit?

Akanksha Anshu, co-founder and managing director, Refundme.in, a company that helps air passengers to claim compensation, said the affidavit filed by the DGCA for a full refund of air ticket is an encouraging step.

“Though it gives an opportunity to airlines to hold money till March 2021, the way it has been secured with the incentive and assurance of cash if not used by 31 March 2021 will certainly reduce the worries and complain of air travelers,” she said.

Akanksha added that in the past when such solutions were prescribed in case of refunds, it wasn’t practiced with utmost transparency, so it is still a wait-and-watch situation.

Experts that Mint spoke to said the affidavit hasn’t been approved yet and the matter will be heard next on 23 September. The centre is likely to file an additional affidavit to clarify certain aspects.