Refunds or Credits? Travelers and Businesses Face Off
Refunds or Credits? Travelers and Businesses Face Off
Travel screeched to a halt because of the coronavirus pandemic, and millions of would-be travelers are demanding refunds for canceled trips and now-unreachable destinations. But even while pressured by that sentiment, some independent businesses, from tour operators to hotel owners, are offering credits. Credits, they feel, are a fair way to roll forward trip prepayments and deposits, which under normal circumstances might be nonrefundable. And rebooking guests for the future means cash flow now, the only way to survive the period of dormancy.
“We have agonized over this question,” said Leo Ghitis, the owner of Nayara Resorts in Costa Rica. Nayara’s three properties are temporarily closed, but all the employees are still working, with their salaries coming from the nonrefundable deposits that guests paid when they booked their rooms.
“We still understand that people would rather have the money in their pockets right now. Then I realized that here I was, responsible for the lives of 350 employees — 350 families,” said Mr. Ghitis, who is giving guests who prepaid for their rooms at a non-flexible rate a 120-percent credit toward a future reservation. “When you come to Nayara, you’ll have 350 people that will thank you for what you did for them.”
Research from the World Travel & Tourism Council paints a bleak picture of the pandemic’s economic toll, estimating that the global travel and tourism industry will suffer 100 million job losses. The trickle-down effects are enormous; in the United States alone, a $519 billion decline in travel spending this year will translate into a $1.2 trillion reduction in economic output, according to an Oxford Economics report last month. For some countries, including many in the Caribbean, tourism accounts for more than 10 percent of GDP.
This means that many travel companies are now in survival mode, and they don’t necessarily have extra capital to rely on — especially once the unavoidable bills, taxes, employee salaries, vendor payments and other operating expenses are paid.
Even in good times, large rainy-day funds are unusual. And according to Bjorn Hanson, a veteran lodging industry consultant, they are also bad for business.
“A hotel that has a lot of cash sitting around — most financial analysts would say that’s really dumb,” Mr. Hanson said. “Why just have money sitting in the bank, especially when that money could be returned to investors, distributed to pay off debt or put toward something else like property improvements?”
For Debra Asberry, the founder and president of Women Traveling Together, a women-only tour company geared toward solo travelers over 50, credits are the difference between staying afloat during this period and going out of business.
The company, established in 1997, had to rebook 44 of 106 scheduled departures this year; all clients received credits. Its terms and conditions, written before the pandemic, state that trips can be rescheduled by the company in the event of travel disruptions that could endanger participants’ health and safety.
Shutting down completely would affect the 1,600 annual tour goers, Ms. Asberry said, as well as 10 company staffers and dozens of tour guides. The downstream effect of ceasing operations would also be huge; each tour engages about a dozen local companies and vendors, from hotels to cooking instructors.
“Tour operators put out money to secure hotel rooms and other arrangements long before the trip begins, and much of the money is nonrefundable once paid out,” said Ms. Asberry. “We are trying to educate our clients as to why we can’t just refund them everything. Most of the money they gave us has long since been spent to procure the tour arrangements that have yet to be used — we don’t have it to give back.”
Hans Pfister, owner of Cayuga Collection, a group of seven luxury boutique hotels, lodges and resorts in Central America, has also been rolling forward canceled reservations in the form of credits.
Cayuga Collection laid off about half of its 450-person staff. The remaining employees, whose salaries were cut, fill their time — a period that Mr. Pfister calls “hibernation mode” — by tackling property-improvement projects and participating in skills training.
For certain clients — say, older travelers or those with health concerns — Mr. Pfister has issued refunds. But most get credits, a policy he was forthcoming about on the company blog.
“To keep somebody’s money when you haven’t delivered a service yet: I know it doesn’t really sound right. I realize that,” said Mr. Pfister in a phone interview. “But the money that I’d have to give you back right now is money that allows me to operate another week, another month — another whatever — until we come back from this.”
But for many travelers, credits have limited appeal during this uncertain time and raise questions about corporate greed. Steve Dumez, an architect in New Orleans, is hesitant to reschedule his 14-year-old daughter’s canceled middle school trip to Europe with EF Educational Tours. She will be starting high school in September, and her school’s spring break schedule will make it difficult for her to tee up with the teacher and friends she was originally supposed to travel with.
EF Educational Tours, which is based in Cambridge, Mass., is allowing customers to choose between full credits (valid through September 2022) or partial refunds — minus $1,000 for departures before May 15 (like that of Mr. Dumez’s daughter) and minus $500 for departures after May 15.
“I understand there are out-of-pocket costs, but it does seem like 25 percent on a $4,000 trip is a fairly large number to retain,” said Mr. Dumez, 61. “The intransigence gives me a little pause about the values of the company and what my daughter’s experience would be.”
Mr. Dumez isn’t alone in his frustration. Since March, the Massachusetts Attorney General’s office has received about 530 consumer complaints against EF about canceled trips; especially suspect are the instances where withheld funds amount to more than 75 percent of the trip’s value. Under Massachusetts law, tour companies and other travel sellers must make cash refunds — in the amount equal to undelivered services — an option.
In an emailed statement, an EF spokesman said the company is “returning every dollar that we have not already spent on planning their tours. As soon as a tour is booked, preparations begin, often as much as several years in advance of the planned departure date. Our staff invest thousands of hours every year planning and iterating the details of every tour to ensure they are the best, safest and most meaningful experiences for the students and educators who travel with us.”
Personal relationships seem to have weight when policies appear less than favorable. Women Traveling Together has an 82 percent return rate; the small group of travelers upset about the lack of refunds, according to Ms. Asberry, were mostly first-time clients whose trips were rescheduled for later this year, rather than in 2021. Some consider that time frame too soon, but Ms. Asberry said she has little flexibility because some on-the-ground vendors have insisted on a “use or lose” policy for 2020.
Many companies, however, benefit from no such trust and good will. Several major airlines have already been sued over the refunds issue; they also face numerous complaints about byzantine customer-service channels and impersonal coronavirus policies. And whereas today’s rebooked hotel stay might be tomorrow’s special treat — especially with proprietors looking for ways to go all out for guests to thank them for their loyalty — credits for a cruise, especially as the industry battles financial and public relations crises, may not be viewed as a pot of gold.
“Clients who were booked on cruises all want refunds,” said Sylvia Lebovitch, a senior travel advisor at Ovation Travel Group. “They don’t know if they’re ever going to feel comfortable going on a cruise in a year.”
For two-sided marketplaces like Airbnb, which raised $2 billion in funding in April and laid off 25 percent of its staff in May, the issue of cash refunds becomes even more complex. The company’s extenuating circumstances policy originally offered widespread cash refunds for canceled reservations, effectively superseding individual (and often much stricter) host cancellation policies. The policy, which has been updated to include check-in dates through June 15, now allows guests to choose between credits — which can be used site-wide and for any rental — or refunds.
Pam, a California Superhost who asked to be identified by her first name so as not to affect her standing on the platform, had about a dozen guests cancel their reservations. She has lost about $8,500 so far.
She wishes Airbnb had originally let her uphold the cancellation policies that the guests agreed to when they booked. Instead of forcing guests to pay what is ordinarily a 50 percent penalty when they canceled, she would have considered retaining those funds and using them as credits for future reservations.
“Everyone is disrupted, yet everyone would walk away with something,” she said. “When a host is forced to give a full refund, they are still responsible for the cost of running the business. During Covid-19, we are paying our cleaners to stay home. We are still spending money to maintain the properties, but there is no money coming in. A credit would allow the host to recoup that loss at a future date.”