Air NZ defends giving credits instead of cash refunds

Wednesday, 3 June 2020

Air New Zealand and customer cash, should they refund passengers?

Air New Zealand would have to dip into the $900 million Government support loan earlier, if it offered cash refunds to all its customers.

The national airline has been under fierce criticism from Consumer NZ, which says it should offer cash refunds to thousands of travellers whose flights were cancelled in the Covid-19 pandemic instead of giving them 'credits' they could use to buy flights within the next two years.

But the airline's chief revenue officer Cam Wallace said paying so much cash out of the business would mean having to access the government money sooner, and could also mean more redundancies at the airline.

'It's a material and significant amount of money, and we would have to look at the impact of that on our balance sheet,' Wallace said.

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'That would probably accelerate some of the cost-saving avenues we have been going down,' he said.

'It's been pretty distressing having to have 4000 people leave the business. That's been eye-wateringly sad for everyone. There's been some pretty great people who have left Air NZ because of the current circumstances.'

'Our cash flow would be reduced significantly,' he said, if cash refunds were paid.

'That would accelerate us having to use that ($900m) facility,' he said.

Wallace said the exact amount of credits was 'commercially sensitive', and he hoped customers understood the airline's decision not to offer cash refunds.

'We hope people look at our decisions with a degree of context,' he said.

'Our business has been hammered so significantly, and so materially, that we have had to make some calls that ordinarily we might take a different approach.'

In April 2019, Air NZ carried 1.4 million passengers. In April 2020, it carried just 15,000.

'We are 99 per cent down,' Wallace said.

There were hundreds of thousands of credits in the system, he said.

'If this was a smaller number we would potentially take a different approach,' he said.

Even if offered cash refunds, many customers wouldn't take it, Wallace believed, as they still intended to travel, when it became possible.

'But undoubtedly there's a segment of the customers who would like to have the cash,' he said.

The airline did not have data on what customers wanted.

You must wear a mask on domestic flights, and some airlines will require you to wear one on international services.

'Most of our customers have received the credit, and are yet to call us,' he said.

There were three groups who had been offered cash refunds.

There were those with flights to, or through the United States, who were offered refunds after Consumer NZ made a complaint to the Commerce Commission.

There were people who had paid more to buy refundable tickets.

Cam Wallace left Air New Zealand at the end of September following a 20-year stint at the airline.

And there were a few hundred who had convinced the airline they were in financial hardship as a result of income, or job loss, as a result of the Covid-19 pandemic.

'It's not true to say this is a blanket policy right across the business. We have made exceptions where people have come to us with a valid case of extreme hardship,' Wallace said.

Credits were already being redeemed for flights since the country moved onto alert level 2, Wallace said.

'We've got more flights in the air than anticipated, and there's more people who want to use the credits, so our call lines have been jammed up, and we are urgently trying to get more people to fulfil those credits quicker and easier.'

'In about six weeks we are looking to deploy a digital solution so people can go online, check their balance, make a booking, and do it themselves in a more self-service way,' he said.

People with flight credits for international flights faced the worry that the price of travel would rise, and they would have to pay more money to convert their credits into tickets to get where they wanted to go.

Wallace was optimistic that wouldn't happen.

'Our expectation is, if you look at the supply and the number of planes in the market, versus the number of customers, we think coming out of Covid that there will be some pretty aggressive pricing,' he said.

'After 9/11 or after Sars in Asia, or after other global aviation events- none of them anywhere close to Covid- generally-speaking there's been a lot of price stimulation.

'I would be pretty confident on that in terms of the fares available in the market,' he said.

In late May Consumer NZ chief executive Jon Duffy called on the airline to make refunds to any customers who wanted, or needed, the money.

'We’ve heard from a lot of people who really need their money because they’ve lost jobs or income as a result of the fallout from Covid-19.

'While it’s a tough time to be an airline, it’s also a pretty tough time for many consumers.'