Air Canada squeaks away with $2 million fine for not refunding passengers

The Air Canada refund saga is about to be over.

The U.S. Department of Transportation (DOT) on Monday announced that it had reached an agreement with Air Canada to settle an enforcement action resulting from the carrier's "extreme delays" in refunding passengers who had tickets for flights to or from the U.S. at the beginning of the COVID-19 pandemic that were either canceled or significantly changed.

While the DOT announced the agreement as having a $4.5 million price tag for Air Canada, the actual fine assessed that's payable to the U.S. Treasury Department is $2 million, because $2.5 million is being credited to the carrier for some of the refunds that had been provided to customers with non-refundable tickets. As of Oct. 22, Air Canada had actually paid more than CAD $730 million ($575 million) in refunds to those eligible, and an additional CAD $10 million ($7.9 million) in voluntary refunds to those who were not eligible for a refund, DOT stated in the proposed settlement agreement.

The settlement is a small fraction of the initial $25.55 million fine that the DOT had proposed for Air Canada back in June. Still, the full $4.5 million agreement is the largest sum of money that the DOT's Office of Aviation Consumer Protection (OACP) has ever assessed against an airline.

"Today, the US Department of Transportation's OACP is holding airlines accountable by ensuring that they treat passengers fairly when flights are significantly changed or canceled," said Deputy Secretary of Transportation Polly Trottenberg in a statement. "The Department is committed to protecting airline consumers and ensuring that all passengers receive the timely refunds to which they are entitled."

In a statement, Air Canada highlighted the fact that they are only being fined $2 million, even though DOT initially proposed a fine of over $25 million.

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"Air Canada and the DOT have agreed to settle this matter without prejudice or any finding of wrongdoing," the carrier said in a statement. "This agreement was entered into to avoid protracted litigation as Air Canada focuses, together with all stakeholders, on rebuilding following the pandemic."

"The DOT initially sought a US$25.5 million penalty and settled for US$4.5 million, minus US$2.5 million for refunds already paid to customers who would not have otherwise been entitled to such refunds," the statement continued. "The DOT has now begun a review of its regulations to bring the law relating to refunds in line with its interpretation. In the meantime, the DOT is asking carriers to voluntarily refund, something Air Canada began doing prior to the start of this action in June."

More: Act quickly: Air Canada relents, will finally refund canceled flights

Air Canada found itself in hot water when it stopped offering cash refunds for canceled flights after March 19, 2020, as the world was shutting down at the onset of the COVID-19 pandemic and travel plans were changing rapidly. The carrier instead offered passengers vouchers with strict rules. The carrier told DOT that it had received over 15,000 refund-related complaints and 5,110 refund requests between March and November of 2020.

Air Canada relented in April of 2021 after it received an aid package from the Government of Canada, offering refunds for nonrefundable tickets purchased before April 13, 2021, for travel on or after Feb. 1, 2020.

The proposed settlement must be approved by an Administrative Law Judge before it's finalized.