People purchasing airline tickets, and theater, ballgame, and concert ducats, and pre-booked, prepaid entrance to attractions such as museums and group tours are used to seeing, “NO REFUNDS, NO EXCHANGES” stamped across their receipts. When, later this year (one hopes) travel, entertainment, and tourism begin to re-open after months of shutdown, the sellers of these attractions will have to rethink this policy, or risk sacrificing business from skittish potential customers.
In normal times, airlines and venue operators have a solid economic reason for refusing refunds and exchanges. With high fixed costs, they can’t afford to leave seats unsold. Pilots, security guards, athletes, and actors get paid whether a plane, theater, or stadium is half full or packed to capacity. Allowing a patron to cancel at the last minute simply because he doesn’t feel like going out creates a moral hazard because people would grow accustomed to treating reservations as optional.
Over the last decade, this system has been breaking down. Third parties such as Priceline began selling cut-rate, last-minute airplane tickets, and tourists with flexibility over where and when to travel quickly learned that, rather than benefiting by paying months in advance, they could benefit from waiting. Similarly, discount theater and concert sites such as Theatermania and TodayTix began selling unsold tickets at a steep discount to customers who could see plays or concerts on a whim and didn’t mind sitting in middle seats. StubHub and other resale sites have made it easy to purchase cheaper tickets the day before a game.
Now, even as the virus-decimated travel, sports, and entertainment industries have fewer financial resources, they must learn to become nimbler. American-based airlines have performed admirably, so far, on this front. Early in the first quarter of this year, airlines such as JetBlue and Delta started offering would-be purchasers flexible refund policies for new bookings, letting them change those bookings for no penalty. As it became clear that Covid-19 would curtail travel, airlines changed this policy, retroactively, to include bookings already made. And as stay-at-home orders resulted in wholesale cancellations of flight schedules, airlines readily offered cash refunds. (This particular provision is mandated by law, but airlines have, for the most part, made the process quick and easy).
Tens of thousands of potential flyers who accepted airline vouchers for future travel in return for flights they voluntarily cancelled earlier this spring now want these vouchers transformed into cash refunds, too. Airlines would do well to make this change voluntarily, before Congress does it for them. Those who voluntarily cancelled their travel plans before stay-at-home orders forced them to do so acted responsibly, ahead of government edicts. They should be rewarded, not punished, for keeping themselves and others from potentially spreading Covid-19.
New York’s theater and classical music industry has performed well in this crisis, offering automatic refunds to customers who paid for cancelled shows by credit card. Performance houses such as Carnegie Hall and the New York Philharmonic have asked customers to consider exchanging this year’s tickets for performances slated for next year, so that the houses can bring in some cash; customers who cannot afford to do so, however, get a prompt refund.
Ticketmaster, the clearinghouse for much of the rock-concert industry, was slow to understand the depth of this crisis, at first not pushing back hard enough against concert producers who preferred to postpone shows indefinitely and thus avoid the requirement, in most cases, to refund money for cancelled events. As customers angrily pointed out that an event “postponed” into next year, or beyond, is not really postponed but cancelled, Ticketmaster and its biggest clients, such as concert producer Live Nation, started processing credit-card refunds.
Ironically, it is now StubHub—once a flexibility leader—that has been slow and inconsistent on credit-card refunds. As a middleman between ticket-buyers and sellers, the company is in a tricky position. “We are facing significant timing delays in recouping funds from the thousands of sellers on our platform,” a spokesperson told Billboard. The person who, three months ago, sold a ticket via StubHub may not have the cash right now to repurchase that ticket from the buyer—and then have to hunt for another refund from the party that sold the ticket to him.
As Covid-19 eventually recedes and the economy begins to recover, travel and entertainment are already last on most reopening schedules. Broadway is shuttered until September, at the earliest. No one has yet figured out how to pack people safely and profitably into sports stadiums, theaters, or airplanes. Even after global airlines and arenas are once again legally open for business, they’ll face the additional hurdles of luring customers back and keeping them safe.
Tourism and entertainment will have to experiment with new refund options. For their first months of reopening, they’ll likely have to offer 100 percent refunds for new bookings, no questions asked. Practically speaking, such a move probably won’t cost them much revenue in the short term. With global borders likely to remain partially shut or inconsistently open, and with white-collar workers still staying home, sports arenas and theaters are unlikely to operate at capacity for a long time.
Owners and operators will have to experiment. Does offering a ticket purchaser the option of a 15 percent penalty for cancellation deter people from purchasing? As the months pass, will people feel comfortable purchasing tickets with terms allowing them a voucher for a future flight or performance if they must cancel? Telling would-be customers to purchase travel or event insurance is unlikely to solve this problem; such insurance policies generally cover only unforeseen events, and this particular risk is now well-known.
Optimally, these industries can figure out what works and what doesn’t without government regulation. As in so many other areas of the economy, a little enlightened and early self-interest on the part of business will avert the need for heavy-handed government rules.
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