American Airlines changes downgrade refund
American Airlines is altering its policy for compensating passengers given involuntary downgrades, following a complaint that its flat 40% refund was
American Airlines is changing its rules for compensating passengers who face an involuntary downgrade from premium cabins to economy. The move follows a complaint to the U.S. Department of Transportation (DOT) from analysts Benjamin Edelman and Mike Borsetti, who argued the airline's existing flat 40% refund was inadequate.
Earlier this year, American quietly updated its conditions of carriage. The new rule stated passengers downgraded at the gate would receive a refund of 40% of their original ticket price, rather than the fare difference between cabins. Edelman and Borsetti, whose analysis was reported by Paddle Your Own Kanoo, calculated the real-world impact of this policy.
The Case for a Higher Refund
Edelman and Borsetti examined fares for a New York JFK to London Heathrow flight. Three days before departure, coach tickets were priced at $949, while the cheapest business class seat cost $10,644. Under the 40% rule, a downgraded business class passenger would effectively pay $6,386 for an economy seat. Others on the same flight would have paid just $949.
The analysts also cited industry data from Cirium on 2023 transatlantic fares. It showed an average one-way economy fare of $435 and an average business class fare of $1,845. With premium seats selling for 4.2 times the average economy fare, they argued the appropriate downgrade compensation should be around 76%, not 40%.
They suggested similar refund rates for domestic routes. For transcontinental flights between New York JFK and Los Angeles, they proposed 73%. For flights between LaGuardia and Dallas-Fort Worth, they proposed 72%.
| Route Analyzed | Proposed Refund | Analyst Note |
|---|---|---|
| Transatlantic (average) | 76% | Based on 2023 Cirium data showing business class fares 4.2x economy. |
| New York JFK to Los Angeles | 73% | For transcontinental flights. |
| LaGuardia to Dallas-Fort Worth | 72% | For domestic flights. |
The Regulatory Complaint
Edelman and Borsetti filed a complaint with the DOT. They claimed American's 40% rule violated federal regulations. They cited 14 CFR § 260.6, which requires a prompt refund for the full value of a service paid for but not delivered when a flight is significantly changed. They view a cabin downgrade as a significant change.
The analysts also argued the policy violated 14 CFR 253.7, which prohibits airlines from imposing terms that restrict refunds of the ticket price.
In its response to the DOT, American Airlines defended its original policy. The airline argued that dynamic pricing made calculating specific fare differences difficult. It said using a standardized proxy was simpler.
"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," the airline stated.
However, American conceded that "the phrase 'appropriate refund' may accommodate more than one calculation methodology."
A New Rule is Forged
As a result, American Airlines is implementing a new compensation method. It will offer downgraded passengers a refund based on the difference between the fare they paid and the average ticket price of passengers in the cabin to which they were downgraded.
In a latest submission to the DOT, Edelman and Borsetti responded to this change. They claimed American "would not overhaul a methodology it believes is lawful and proper." They urged the DOT not to dismiss the case but to issue an order to help passengers who were under-refunded and to ensure the replacement rule is adequate and enforceable.
The DOT has not yet ruled on whether it will take enforcement action against American Airlines.
Source: Paddle Your Own Kanoo