The Transportation Department's Office of Consumer Aviation Protection is seeking a fine of $25.6 million against Air Canada for failing to provide refunds to customers in a timely matter for flights it canceled as a result of the Covid-19 pandemic.
"The civil penalty amount is based on a variety of factors, such as the consumer harm caused by the violations. The penalty is also intended to deter Air Canada and other carriers from committing similar violations in the future," the DOT said.
The case will be heard by a federal administrative law judge.
Air Canada said Tuesday that it believes the DOT's case has no merit and that it "will vigorously challenge the proceedings."
Until reversing its policy as part of an April bailout agreement with the Canadian government, Air Canada had defined all Covid-19-related flight cancellations as outside its control and therefore not subject to refunds for those who didn't hold a refundable ticket. The policy was in conflict with DOT requirements that airlines provide refunds for cancellations of flights scheduled to fly to or from the U.S.
The carrier argued that a guidance document about airlines' refund obligations that the DOT posted online last May does not have force of law.
"As mere guidance, they cannot overrule or supersede the department's well-established regulatory framework, as instituting a new regulation requires public notice and comment," Air Canada said.
The enforcement proceeding, however, relies on specific federal statutes, rather than that guidance document, for its case.
Since March 2020, the DOT has received more than 6,000 complaints against Air Canada from consumers who said they were denied refunds, the department said. The airline, the DOT alleges, has committed a minimum of 5,110 violations, with passengers waiting between five and 13 months to receive refunds.
Air Canada's long-lasting refusal to pay refunds for Covid-related cancellations drew the ire of the travel agency community, including a public call from ASTA last July for Air Canada to reverse course. The carrier only did so in April as part of a deal in which it received a $4.7 billion liquidity package from the Canadian federal government. Under the deal, Air Canada also agreed to not retract travel agency commissions on those refunded fares.
"Air Canada's new refund policy does not change the fact that Air Canada committed thousands of violations of U.S. law prior to that time," the DOT stated in the Notice of Enforcement it issued against the airline on Tuesday. "Moreover, in the absence of an order directing Air Canada to cease and desist from future similar violations, there remains the possibility that Air Canada could revive its no-refund policy in the future."
This report was updated on Tuesday afternoon with reaction from Air Canada.