Class action alleges Qantas enjoyed $1b interest-free loan from customers during pandemic

Update (31 August 2023): Qantas Airways (ASX: QAN) says it will remove the expiry date on COVID travel credits that were due to run out at the end of this year. Following the decision, Qantas says customers with COVID credits can request a cash refund, and Jetstar customers can use their COVID vouchers for flights, indefinitely.

Qantas Airways (ASX: QAN) has been accused of benefitting from $1 billion in interest-free loans from customers after refusing to issue refunds for flight cancellations during the COVID-19 pandemic.

The claim is at the centre of a class action brought by Echo Law against Australia’s flagship carrier which is on track to post an underlying profit of more than $2.4 billion in FY23.

Echo Law says it has filed proceedings against Qantas in the Federal Court on behalf of ‘hundreds of thousands of Qantas customers’ whose flights were cancelled by lockdowns and who were affected by service disruptions during the pandemic.

However, Qantas, which says it had yet to be served with this claim by midday today, has denied the allegations, noting that customers of cancelled flights have always been entitled to a refund.

At the core of the claim is Qantas refusing to refund fares paid by customers when flights were cancelled, which Echo Law alleges is one of a number of 'unlawful actions’ that Qantas committed.

Among the allegations are that Qantas engaged in misleading or deceptive conduct in contravention of Australian Consumer Law, namely the manner in which the company communicated with its customers in early 2020 about their options after flight cancellations.

The airline is also alleged to have engaged in ‘a system or pattern of unconscionable conduct, in contravention of Section 21 of the Australian Consumer Law’.

“Qantas is currently one of the world’s most profitable airlines and that profit has been built, in part, on funds it unlawfully retained from its customers,” says Andrew Paull, partner at Echo Law.

“While COVID posed major disruption to air travel and resulted in cancellations that no airline wished to make, that is no excuse for Qantas to take advantage of its own customers and effectively treat them as providers of over $1 billion in interest-free loans.

“We allege Qantas breached the law by failing to be transparent and immediately issue refunds to customers when flights were cancelled.

“Instead, Qantas held onto its customers’ money and pushed out travel credits with strict conditions, which we allege it was not entitled to do.”

Paull says that Qantas ‘needs to be held accountable’ and must refund any of these credits it still holds, plus interest.

“As customers sat at home and did it tough through the COVID pandemic, Qantas enjoyed the significant financial benefits of holding billions of dollars in customer payments including interest and reduced borrowing costs,” he says.

“It is unfair, and we allege unlawful, that Qantas profited from holding onto its customers money for flights that couldn’t proceed.”

The Echo Law claim also alleges that since the pandemic, which has seen a surge in airfares globally, customers have been forced to fork out more to access their credits.

“Qantas customers have often been required to pay the airline more than their original booking to use their credits on new fares and have been pressured by the airline to do that or lose the value of their flight credits,” Paull says.

“In addition, there are many customers who for various reasons will not use their flight credits before they expire at the conclusion of calendar 2023, at which point the credits will expire and their value will reduce to $0.”

Qantas revealed in June this year that it held about $400 million in credits for its customers in Australia mostly ranging from $100 to $500, although most of them are now eligible for a refund. Paull describes this as ‘both too little and too late'.

“That money ought to have been automatically returned to customers, in most cases more than three years ago, and we are seeking both refunds of all remaining credits as well as compensation for the time customers have been out of pocket,” he says.

Qantas this afternoon issued a strongly worded claim says that it 'completely' rejects the claims made by Echo Law.

“We have already processed well in excess of $1 billion in refunds from COVID credits for customers who were impacted by lockdowns and border closures," the company says.

“The majority of customers with COVID credits can get a refund and we’ve been running full-page ads and sending emails to encourage customers who want a refund to contact us directly.

"A large number of bookings were made through travel agents. If a booking was made through a travel agent, customers should contact the agent directly to arrange a refund.

“Qantas has one of the most flexible COVID credit policies of any airline, including among our global peers, and we’ve extended the expiry dates three times.

“We’ve made a number of improvements to our systems along the way, including simplifying the process for a refund and making the credits easier to use, and that’s clear from the amount of credit that has already been claimed.”

Among the points made by Paull and Echo Law, Qantas rejects the assertion that it had 'enjoyed significant financial benefit' from the pandemic.

"Qantas lost more than $25 billion in revenue and posted statutory losses of $7 billion during the pandemic," the airline says.

Qantas also took issue with Paull's statement that offering customers refunds was 'too little too late'.

"We’ve always been very clear to customers that if Qantas cancelled the flight, they are entitled to a refund and the process for obtaining that refund," it says. "Thousands of customers have already done just that. We invite any remaining customers holding a COVID credit to contact us."

The Echo Law litigation is being supported by Australian litigation funder CASL.