U.S. Airlines Most Impacted by the New DOT Refund Rule [2024 Data Study]

Air travel is a crucial component of modern life for millions of Americans each year who rely on it for business, leisure, and other commitments. Unfortunately, the experience can often be stressful, involving coordination of transportation to and from the airport, maneuvering through TSA checkpoints, and dealing with increasingly crowded airplanes. But the frustration is compounded when flights are delayed or canceled, forcing passengers to navigate an often complex and prolonged refund process.

In response to traveler frustrations, the U.S. Department of Transportation (DOT) implemented a new rule¹ for automatic refunds. This change aims to simplify the process and empower passengers by guaranteeing swift cost recovery without navigating complex airline policies or lengthy disputes. The rule mandates airlines to issue refunds in the original payment method for canceled or significantly changed flights (diverted or delayed for more than 3 hours), delayed baggage delivery, and undelivered services. Unless passengers explicitly opt for alternative compensation, airlines will no longer be allowed to issue refunds in the form of travel vouchers or credits — both of which often have expiration dates. Airlines have until October 28, 2024, to implement these changes.

While the new regulation provides some peace of mind for air travelers, its overall financial impact on airlines and customers is unclear. For example, Airlines for America — a trade association and lobbying group that advocates for several commercial airlines — says that the new regulations could reduce competition and ultimately drive up prices² for consumers.

Trends in Domestic Flight Cancellations, Delays, and Diversions

Significant flight changes and cancellations declined in 2023. Image Credit: Upgraded Points

Despite representing a considerable shift in the way many airlines conduct their businesses, these changes come at a time when significantly changed or canceled flights have declined below pre-pandemic levels. 

In 2019, over 287,000 domestic flights would have been affected by the new DOT rule. However, after a turbulent year in 2020 that saw over 300,000 flights canceled — primarily due to travel limitations related to COVID-19 — the total number of affected flights has subsided. In 2023, just over 216,000 flights were significantly changed or canceled — a 28% decrease from 2022. The recent improvement in flight reliability may help airlines adapt to the new DOT rule with less economic disruption.

The Financial Impact of the New Department of Transportation Rule

Data from the U.S. Bureau of Transportation Statistics in 2023 indicates that around $5 billion in domestic airfares could have qualified for automatic refunds last year. Major carriers like United ($1.33B), American ($1.27B), and Delta ($1.09B) could face billions of dollars in refunds due to domestic flight cancellations and delays. These 3 carriers alone accounted for nearly 66% of canceled or significantly changed flights in 2023. Even low-cost carriers such as Spirit ($160M), Frontier ($114M), and Allegiant Air ($50M), despite having lower estimated refund amounts, would still experience a substantial financial burden.

On a percentage basis, JetBlue stands to be the most impacted of all major carriers. In 2023, an estimated 5.9% of its flights would have been eligible for automatic refunds under the new regulations — nearly double the national average of 3.0%. Conversely, Alaska Airlines boasted the lowest disruption rate. Only 1.6% of its flights in 2023 were canceled, diverted, or delayed more than 3 hours.

While this data serves as a preliminary indicator of how the DOT rule might affect different airline business models, it remains to be seen how these costs will be managed. Airlines might respond by adjusting their operations, pricing strategies, or a combination of both.

At the airport level, passengers taking off from Dallas Fort Worth International Airport (DFW) would have been entitled to an estimated $267M in refunds had the new rule been in effect last year, the most for any U.S. airport. Passengers departing from Newark Liberty International Airport (EWR) would have seen the second most refunds at $201M, followed by those traveling from Denver International Airport (DEN) at $199M.

Below is a breakdown of refund estimates under the new DOT rule for each major U.S. airline and over 350 U.S. airports. The analysis was performed by Upgraded Points using data from the U.S. Bureau of Transportation Statistics. For more information on the data and analysis, see the methodology section.

Methodology

Researchers at Upgraded Points analyzed the latest data from the U.S. Bureau of Transportation Statistics’ 2023 Airline On-Time Performance Data and 2023 Airline Origin and Destination Survey databases. The nuances of how the DOT rules will be applied to specific itineraries and flights are both complex and yet to be determined. To simplify the analysis and to make the estimates best comparable across airlines, researchers took the following approach:

To determine the airlines most impacted by the new Department of Transportation (DOT) rule requiring prompt and automatic flight refunds for canceled or significantly changed flights, the researchers combined average airfare data, average passengers per flight, and the number of flights that were delayed more than 3 hours, diverted, or canceled. Affected flights were assumed to have the average passengers per flight with the average airfare for each airline or airport, respectively. Data for subsidiary airlines and airlines with exclusive codeshares were merged with their corresponding mainline marketing airlines. Refunds for origin airports were also estimated using a similar methodology. Due to data limitations, only domestic flights and U.S.-based airlines and airports were considered in the analysis.

Final Thoughts

Air travel, while crucial for many, can be stressful due to delays, cancellations, and complex refund processes. The new DOT rule aims to simplify refunds for passengers by requiring airlines to automatically issue them for significantly delayed or canceled flights, baggage issues, and undelivered services. This may empower travelers but could also have a significant financial impact on airlines.

Airlines may need to adjust operations and raise ticket prices to manage the increased cost of automatic refunds. However, these changes come at a time when significantly changed or canceled flights have declined below pre-pandemic levels, which may help airlines adapt to the new DOT rules with less economic disruption. Even so, data suggests major carriers could face billions in refunds, with even budget airlines feeling the burden.

References

1. U.S. Department of Transportation. (2024, April 24). Biden-Harris Administration Announces Final Rule Requiring Automatic Refunds of Airline Tickets and Ancillary Service Fees. Retrieved on June 11, 2024 from https://www.transportation.gov/briefing-room/biden-harris-administration-announces-final-rule-requiring-automatic-refunds-airline.
2. Airlines for America. (2024, April 24). Statement from Airlines for America. Retrieved on June 11, 2024, from https://www.airlines.org/statement-from-airlines-for-america-2/.