Iata: ‘Widespread use’ of vouchers will accelerate cash burn

Iata: ‘Widespread use’ of vouchers will accelerate cash burn

The International Air Transport Association (Iata) has highlighted how the extensive use of refund vouchers will accelerate cash burn for airlines.

The association warned that the “widespread use” of vouchers in Europe is “one of the difficulties airlines will be facing as they are slowly moving towards restarting their operations”.

With the grounding of fleets in mid-March, as the pandemic crisis began to hit revenues, airlines opted to provide vouchers to passengers rather than immediate refunds.

“This proved useful in slowing down their cash burn and helped prevent bankruptcies,” reported Iata Economics in its latest Chart of the Week.

“However, airlines’ liability to transport these passengers was only deferred but did not disappear.

“A month after the easing of travel restrictions on intra-EU routes, we can already observe that passengers have used a large number of vouchers to pay for their travel.

“This means that airlines now incur the cost of transporting these passengers – against no or limited new revenues.

“Whilst the issuance of vouchers helped decelerate cash burn a few weeks ago, their use will now accelerate cash burn in the coming months.”

Iata also said the booking behaviour of passengers has changed “dramatically”, with 41% of global travellers booking up to three days before travel in June, compared to 18% last year.

“This makes it difficult for airlines to plan and optimise their schedules, crew and fleet,” said the association.

In April, Alexandre de Juniac, Iata’s director-general and chief executive, said airlines owed $35 billion for cancelled flights, so the use of refund vouchers would buy the industry “vital time to breathe”.

Last week, the Iata Economics chart showed how intra-Europe routes were leading the initial recovery in international flights after border restrictions were eased.

Most passengers were travelling to visit friends and family or going on holiday, rather than going on business trips.

It’s not a great time to woo first-time cruisers

Cruise ships in Costa Maya, Mexico.
Cruise ships in Costa Maya, Mexico. Photo Credit: Byvalet/Shutterstock

In January, Jessica Fricchione and 10 of her family members booked what would have been her first cruise, a Bermuda sailing out of Baltimore leaving on May 31.

Due to the coronavirus crisis, the group’s sailing was cancelled — and they have no interest in taking a future cruise credit.

“No one in the family wants to book a cruise again,” she said, adding that they were looking into a stay at an all-inclusive resort instead. “I don’t ever, ever want to be stuck on a cruise ship.”

Justified or not, the cruise industry’s reputation took a hit from the high-profile Covid-19 outbreaks on a handful of ships in March and April.

Industry stakeholders acknowledge that media coverage of those ships being turned away from ports and, in some cases, of passengers being quarantined in their cabins for weeks on end is most likely to have an impact on the potential-cruiser set.

In a media call last month, Carnival Corp. CEO Arnold Donald said there was “no question” that the media attention would have an impact on that market segment.

“There have been people who may have been considering [a cruise] who would be having second thoughts at this point in time,” he said.

The first-time cruiser has always been considered critical to the growth of cruising. Despite CLIA lines’ global passenger growth of about 60% since 2009, to 30 million in 2019, cruising is still vastly underpenetrated compared with other vacations: 11.9 million Americans cruised in 2019, only about 3% of the population.

Travel advisors expect that the crisis will cause a decline in the new-to-cruise market.

“When you’re dealing with first-time cruisers, you typically have to overcome some fear of the unknown with cruising, such as seasickness, boredom, claustrophobia,” said Anthony Hamawy, President of Cruise.com. “The current negative press around cruising will add to those fears.”

Signature Travel Network CEO Alex Sharpe said that those who’ve never been on a cruise can’t draw upon personal experience to put into perspective what they are seeing and hearing from the media.

“If you’ve been watching the news and you’re not a cruiser and you can’t put what [ships with Covid-19 outbreaks] have been through in any context with your own family’s great times on a ship, it’s hard to reconcile that and say, ‘That’s my next vacation,’” Sharpe said. “I think new-to-cruise will take a hit in the short term. That will take some time.”

Some cruise lines have found that booked passengers who were new to cruise have been more likely to cancel cruises they had booked during the current operations pause.

Mark Conroy, Silversea Cruises’ managing director of the Americas, said that new cruisers have been more likely than past passengers to cancel and take a refund versus a future cruise credit because they are “more nervous.”

Loyalty program members “will come back first,” he said. “They’re the people that know us and love us and travel with us every year or every other year. They’re the ones that are eager to go.”

Repeat cruisers will lead the way

Many think that those who were once potential cruisers and are now on the fence can be swayed back once cruise lines are up and running.

Charles Sylvia, CLIA’s vice president of membership and trade relations, said that there will be “more challenges ahead with regard to the first-time cruisers” but that people returning from cruises with positive stories will put them at ease.

“Once they see the resumption of operations and once they see friends and family members and co-workers going on cruises and coming home with that same level of enthusiasm and satisfaction, then they will be back — the first-time cruisers will come to us,” Sylvia said.

Donald also said that returning cruise passengers, as well as travel advisors, will be the most important messengers in overcoming the additional concerns non-cruisers have. He added that this is something the industry is accustomed to dealing with.

“We were busy knocking down myths before, and we’ll have to return to that,” he said, adding that the two “most powerful ways” to do that is through travel advisors, “with their knowledge and experience and personal relations with their clients,” and the passengers, who will “provide the kind of testimonials and credibility with their friends and colleagues and relatives.”

And as has always been true for travel coming out of every crisis, for some people, the right price is a big persuader.

“I think, with time, this will be overcome because the vacation value will ultimately win out,” Hamawy said.

Vouchers replace refunds across Europe

Gift Vouchers - Global Independent Travel Centre

Travel companies in Europe’s major outbound markets are being forced to flout Package Travel Directive (PTD) rules on consumer refunds or face financial ruin with all short-term bookings cancelled.

Tour operators and travel agents are looking to replace refunds with vouchers or refund credit notes, and the governments of Italy, France, Belgium and Denmark have already confirmed vouchers will suffice in place of cash refunds despite the PTD requiring consumers be refunded within 14 days.

Lawyers point out consumers are unlikely to be able to recover money through the courts as legal systems across Europe are barely functioning amid the coronavirus lockdown.

Leading UK industry lawyer Stephen Mason, senior counsel at Travlaw, said: “Refunds are due for cancelled holidays but nobody can afford to pay them and suppliers are not giving money back.”

He told an International Travel Law Network video conference this week: “The advice we’re having to give [industry] clients is not so much what the law says but solutions that might work in the real world regardless of whether it’s the strict letter of the PTD.”

Klaus Siebert, the partner at law firm Engels-Siebert in Dusseldorf, said: “In Germany, the PTD means the tour organiser would have to pay back within 14 days.

“But what happens now in Germany is that all tour operators and cruise companies simply offer credit refunds – future credits or vouchers – with different validities, from up to the end of the year to up to December 2021.

“Of course, consumer associations say this is not compliant and there needs to be paid in 14 days.

“The German travel association is discussing this with the government and the government has called on the EC to say ‘Bring out guidelines’.”

Siebert said: “We know certain countries – Italy, France, Belgium, Denmark and others – have put in place a voucher solution.

“In Germany, that is still not in place but all the actors in the market work with a sort of voucher solution. There is no one paying back [money].”

Micheal Wukoschitz, of CKW Lawyers in Vienna, said: “In Austria, it’s the same. All my clients try to offer vouchers to customers, sometimes with some add on.

“But no traveller can be forced to accept such a voucher because of the PTD.

“Austrian travel associations are trying to get some sort of solution like the Italian or Belgian system, but there is great opposition from consumer associations and I don’t think the industry will succeed in getting an exemption.”

However, Wukoschitz said: “At the moment the court system isn’t really working. All court hearings are cancelled or delayed. So if a traveller filed a lawsuit now it would take a lot of time for judgment.”

Mason agreed, saying: “That is similar to the UK. The court system is not really functioning so for consumers to enforce their rights is difficult, and by the time they can enforce their rights holidays may have started again.”