New Airline Requirements: Cash Refunds and Transparent Fees

The U.S. Department of Transportation (DOT) announced two new sets of rules for airlines on Wednesday in an effort to curb what it calls “unfair and deceptive” practices in the industry. These rules aim to ensure cash refunds for travelers when airlines cancel or delay their flights, and to provide better upfront information about the cost of baggage and cancellation fees.

“This is about airlines treating passengers better,” said Secretary of Transportation Pete Buttigieg in a video announcing the new rules, suggesting that the new rules could save passengers millions of dollars in fees.

Cash refunds instead of vouchers

The first set of rules entitles passengers to cash refunds when their flight is delayed or canceled or when an airline fails to adequately provide a paid service — such as baggage transportation or in-flight Wi-Fi. Many airlines currently offer these refunds as expirable vouchers that can only be used for future purchases. Passengers are often required to jump through hoops to request and receive a cash refund. The new DOT rules require airlines to issue prompt, automatic cash refunds to the original form of payment.

With the new rules, passengers have also been given clarity around what counts as “significant delays” — a definition that has been muddy until now. A delay will now be considered “significant” if it is more than three hours for a domestic flight and six hours for an international one.

Clear displays of add-on fees

The second set of rules addresses those “junk fees” that the Biden administration has been railing against for years. It requires airlines and travel agents (including online travel booking platforms) to disclose the cost of checked and carry-on baggage, as well as change and cancellation fees, along with the fare itself. That is, these fees won’t show up as surprises later in the checkout process.

Airlines are required to display the details of these fees “clearly, conspicuously, and accurately,” according to the DOT's announcement. Currently, customers must sometimes navigate complex tables and calculators to determine how much these add-ons will cost.

U.S. airlines vary significantly in how much they charge customers on top of the base fare for these fees. A NerdWallet analysis found that Frontier Airlines charges $157 each way for a checked bag, carry-on bag and seat selection, while Southwest Airlines charges nothing.

The new DOT rules do not require airlines to disclose the cost of seat selection fees, which have become an increasingly lucrative source of ancillary revenue for U.S. airlines, generating $4.2 billion in revenue in 2022, according to an estimate from IdeaWorksCompany, an airline industry reporting firm, and CarTrawler, a travel software provider. Yet the rules do require airlines to explain that passengers are guaranteed a seat even if they don’t pay for a specific one, which has been a source of confusion for many.

When will passengers see the changes?

The DOT requires airlines to update their refund policies for delays and cancellations within the next six months, but airlines have as long as 12 to 24 months to implement some of the other rule changes.

It’s not clear exactly how airlines and online travel agencies will implement the required changes, especially the disclosure of add-on fees. Given the DOT’s language, it seems that third-party booking platforms such as Google Flights and Kayak will need to display fare costs inclusive of baggage fees. This would represent a sea change in how customers shop for airfare — and would help alleviate the end-of-checkout sticker shock many travelers now experience.

Yet airlines have grown increasingly adept at lowering base fares while increasing add-on fees, and they may simply pivot toward other hidden fees instead of the ones DOT has determined are “critical.”