Air Canada Sends Brazen Reply To U.S. Department Of Transportation Regarding $25.5M Fine Due To Delayed Refunds

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Air Canada has send an extremely brazen response to the U.S. Department of Transportation in reply to the proposed $25.5 Million fine after the carrier ignored repeated instructions of the agency to refund passengers for cancelled flights.

The fine came about after Air Canada up until April has not refunded passengers for flights cancelled during the pandemic and instead only issued vouchers in contradictions to U.S. regulations.

Then last month the U.S. Department of Transportation said that it was seeking a fine of $25.5M from Air Canada after they delayed or refused refunds from more than 6,000 passengers who had already filed consumer complaints with the DOT.

John wrote about it in mid June (access here).

Here is the original docket with the proposed fine that was served to Air Canada:

Download (PDF, 301KB)

Air Canada has now filed their reply with a motion to dismiss the matter, citing certain legal precedents while at the same time being quite brazen with their claims and language:

Download (PDF, 399KB)

Air Canada, respectively their counsel are really desperate here as far as their legal strategy is concerned. Figuratively speaking they took the entire bowl of Spaghetti and threw it against the wall to see what sticks. Such a strategy can backfire however and I feel the approach / language used here isn’t doing much to please those adjudicating the matter either.

Here are some arguments Air Canada’s counsel makes:

  • The practice to issue vouchers for nonrefundable tickets (even when then the flight got cancelled) is compliant with DOT Rules – It’s not!
  • The Conditions of Carriage are the only basis that regulates the business between airline and passengers and that their practices of voucher refunds and refusal to pay for cancelled flights is legal – Wrong!
  • Any refunds given for cancelled flights at any time are entirely goodwill and not mandated or published anywhere, Air Canada isn’t required to refund for cancelled flights. – WRONG!
  • Air Canada puts the blame on the passengers as they could just as well purchase a fully refundable ticket – Absolutely laughable position and there is legislation all over the world that requires them to refund, for example EC261/2004.
  • The Department improperly attempts to use Air Canada’s alleged
    failure to comply with non-legally binding guidance documents, an archaic and privately issued
    Industry Letter, and non-binding statements in the preamble of the 2011 Enhancing Airline
    Passenger Protections rulemaking, none of which have the force and effect of law, to establish
    proof of an unfair practice.” – I’m sure the DOT has something to say about how non-binding their regulations really are.
  • The DOT has intiated enforcement action “without even purporting to engage in the required thorough, well-reasoned analysis or, frankly, any analysis …” – A rather cocky allegation I wouldn’t be prepared to make if I was facing a $25 Million fine.

The DOT doesn’t just initiate enforcement action and levy multi million dollar fines on carriers without properly researching and analyzing all the complaints and the law. More than 6000 consumers have files DOT complaints against Air Canada and eventually that pushed them to say enough is enough.

Quite frankly Air Canada’s strategy (if you want to call it one) to present the DOT as reckless and unprofessional isn’t going to be well received. The DOT has significant enforcement power and can make the life of a foreign carrier extremely difficult.

Back in the day about 10 years ago the DOT forced Korean Air to reinstate all tickets sold under the Myanmar Kyat currency float where the base fare was reduced to essentially ~ $1 + surcharges and tax or they would face significant fines per each ticket they cancelled. Korean Air followed the instruction and passengers including myself were able to fly all tickets as booked.

Each year the DOT analyzes violations of carriers, both foreign and domestic and then decides about imposing fines where appropriate. It’s often common for airlines to negotiate these fines down but the question is how willing the government is when Air Canada comes out of the gates storming in this fashion.

While we’re on the topic of unprofessional and inappropriate I’d like to remind about the revelations coming out of Canada where it looks more and more like Canadian airlines have deployed a private sector lobbyist to pressure the CTA to sanction the voucher refund scheme and allow airlines to deny cash refunds.

A member of Ottawa’s transportation committee has filed a complaint with the lobbying commissioner over a meeting held between federal transportation agencies and an unnamed individual in March 2020, just days before Ottawa told airlines they would not have to refund passengers for cancelled flights.

Xavier Barsalou-Duval, a Bloc-Quebecois MP, says he recently obtained emails showing that high-ranking members of the Canadian Transportation Agency and Transport Canada met days before issuing a public statement on March 30, 2020, saying that airlines should provide affected passengers with vouchers or credits rather than refunds. …

It is now widely rumored (not confirmed) that this individual was actually close to Air Canada.

Maybe a bit of humility would be appropriate for Air Canada and their counsel. They might underestimate the power and motivation of the DOT officials.

U.S. Congress has given the DOT far reaching authority. The agency can prohibit any unfair practice by an airline interpreted based on the regulations and impose substantial fines of up to US$5000 for EACH occurrence (see my example with the Korean Air ticket).

There are some basic, undeniable facts that do substantiate such fines including the avalanche of documented complaints, the agency giving notice to Air Canada that these passengers are to be refunded and the fact that these notices and deadlines have been ignored by the carrier. That alone is more than sufficient to uphold the penalties under the interpretation and definition of unfair practice. If the DOT wanted to play hardball they could have already set the fine to $30M+ based on the 6000+ complainants.

Conclusion

Air Canada has reacted to the proposed DOT fine of $25.5M by filing a motion that borders on the fantastic, if not frivolous.

The U.S. Department of Transportation is a “real” regulator in the strict sense of the word and not just a lapdog of the industry it is mandated to regulate. There is no way for Air Canada to get out of this fine, if they’re lucky they will be able to negotiate it down but they should really take it easy in their briefs.

The DOT is very useful for consumers to file a direct complaint and even though they don’t have direct enforcement powers in individual cases, all of these complaints are compiled into a monthly report. If complaints about a certain carrier mount then the agency takes enforcement action and levies fines on the carrier just like in this case. It will be interesting how much Air Canada (the Canadian taxpayer) will eventually have to pay.

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