ACCC pressures Flight Centre to waive cancellation fees on some fare refunds

It took more than 6,000 consumer complaints to the ACCC, comments on Facebook pages such as ‘Flight Centre Give Us our Refunds’ and refund requests by its customers, before Flight Centre agreed to waive its cancellation fees for fare refunds in situations where the travel provider has cancelled its service - and the customer is unable to travel as a result.

Flight Centre’s Cancellation Fees

Flight Centre’s Terms and Conditions provide:

• Cancellations to Domestic/Trans-Tasman bookings will incur a fee of $50 per passenger per booking in addition to supplier fees.
• Cancellations to International bookings (excluding Trans-Tasman bookings) will incur a fee of $300 per passenger per booking in addition to supplier fees.

From mid-March 2020, the COVID-19 pandemic took hold, borders were closed and travel bans were put into place. Airlines, cruise lines, tour operators and other travel providers cancelled flights, cruises and tours. Airlines and cruise lines offered refunds, ‘flight credits’ and ‘cruise credits’.

Customers who chose refunds were unhappy to be told by their travel agent, Flight Centre, that these refunds would be subject to Flight Centre’s cancellation fees, despite the fact that the cancellation was as a result of an unforeseen event outside of the control of the travel agent or travel provider.

Customer anger was rising. The ACCC (the Australian Competition and Consumer Commission) applied pressure on Flight Centre to waive its cancellation fee for flights, cruises and tours cancelled due to COVID-19 travel restrictions.

The following is Flight Centre’s announcement, the ACCC’s Media Release, my analysis and tips for valid cancellation fee terms.

On 2 May 2020, Flight Centre issued this Coronavirus Travel & Business Update

An Update To Our Change & Cancellation Policy

“On 2 May 2020 we announced an amendment to our Change and Cancellation Policy for our customers.

To support Australians during this very difficult time, Flight Centre and our parent company FCTG has made the decision to completely waive our usual Cancellation Fees for bookings where the travel provider (usually an airline, cruise line or tour operator) has cancelled its service - and you are unable to travel as a result.

The waiver, which is in addition to the other waivers and amendments that we have announced previously, follows ongoing discussions with customers and regulators, including the ACCC, and will apply retrospectively to bookings cancelled as a result of COVID-19 on or after 13 March 2020 for which a Flight Centre Cancellation Fee was charged. Please note this waiver applies to our fees – we cannot waive fees or conditions that airlines and other third party suppliers impose.

We also announced our offer of an additional Flight Centre credit voucher of up to $200 per person to customers who choose to keep their money on file with us.”

Comment: This waiver is limited to refunds to customers resulting from travel providers cancelling travel as a result of COVID-19 travel cancellations. Cancellation Fees remain payable by customers who cancel travel arrangements in all other situations.

On 3 May 2020 the ACCC issued this Media Release

Flight Centre to refund cancellation fees

“The ACCC has welcomed the announcement that Flight Centre will stop charging customers hundreds of dollars in cancellation fees in order to get a refund for travel cancelled due to the COVID-19 pandemic.

Flight Centre will refund thousands of customers who, from 13 March, were charged $300 per person to get a refund for a cancelled international flight or $50 for a domestic flight.

Flight Centre’s decision follows weeks of pressure from the ACCC for Flight Centre to improve its treatment of customers during COVID-19 travel restrictions.

The ACCC said its next step would have been court action if Flight Centre did not change its position.

“We are continuing to discuss issues in relation to refunds and cancellations with the travel sector, and encourage travel providers to treat consumers fairly in these exceptional circumstances.” ACCC Chair Rod Sims said.

… a consumer’s right to a refund during this period will depend on the terms and conditions of the contract entered into with travel provider …”

Comment: The ACCC has dealt with the deluge of complaints specifically travel agents cancellation fees where the travel provider cancels due to a COVID-19 situation, but not with travel agents cancellation fees more generally.

Analysis – Can travel agents charge cancellation fees?

The short answer is yes, provided that the term which authorises the cancellation fee to be charged is not an unfair contract term.

The ACCC did not share the legal basis for the pressure it applied to Flight Centre, but the reference to ‘terms and conditions’ in the Media Release makes it safe to assume that the ACCC pointed out to Flight Centre that its cancellation fee term was an unfair contract term if it was applied in the situation where the travel provider cancelled the travel booking.

This is an analysis.

Under Part 2.3 of the Australian Consumer Law, a contract term is considered to be unfair if it is in a standard form contract and:

1. it causes a significant imbalance in the rights and obligations arising under the contract; and
2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
3. it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

The Flight Centre cancellation fee term appears to be unfair under these criteria because:

1. There is a significant imbalance in rights, in that the customer bears all the financial risk where the travel provider cancels the travel, and Flight Centre none of the risk.
2. It is not reasonably necessary to protect its interests for Flight Centre to charge a flat fee which is potentially much greater than its loss on cancellation which is a commission of 5% to 10% of the fare and the administrative cost of processing the refund. To give an actual example, on a return fare of $758 to Japan, the fee of $300 represented 40% of the fare.
3. It causes financial detriment to the customer because it is can be a high percentage of the fare.

Tips for valid cancellation fee terms

The Flight Centre waiver is limited to COVID-19 related cancellations. But there is a respectable argument that the cancellation fee term as drafted in an unfair contract term more generally.

It is therefore worth considering what a fair cancellation fee term might look like.

I state these three rules for a fair cancellation fee term:

1. A travel agent’s cancellation fee needs to reflect the loss the travel agent suffers if the travel booking is cancelled.
2. The amount of the cancellation fee should be proportionate to the travel agent’s loss, which is the amount of commission lost and the administration cost of processing the cancellation.
3. It is best if the travel agent includes a term setting out the cancellation fee on the tax invoice it issues for payment (before payment is processed). For bookings made online, the term appears in the terms and conditions that must be accepted before payment.

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