Hohhot Baita Int’l Airport, 2019.8

In Mar.28th, IATA published “Customer vouchers Information for airlines”. In this document, IATA highlights the viability of Electronic Miscellaneous Document (EMD) for being a middleman for ticket refund. As IATA claims, EMD will “bring benefit to customers, travel agents and airlines.” After a careful reading and attended the EMD info session in Apr.2nd, Martinview would conclude that as a rational man in economics theory, there’s little ground to accept this. But as a global citizen, we should take the EMD.

EMD: What? Why? Why should rational man reject?

Source:IATA

In a word, EMD is a type of “Voucher”, or “Gift Card” one can use in shopping mall. According to IATA’s document, EMD is “a value document for future travel plans.” The document will subject to date and regulations issue. As a currency, EMD provides less liquidity, identical to cash in specific conditions.

Why airlines use EMD, instead of cash? A one sentence answer: They can’t bring you cash. According to Martinview’s analysis, due to travel restrictions, a high cancellation rate generates massive cash need. According to Mar.24th analysis article, most airlines can only maintain for two months on their own cash flow. The refund cost makes the situation worse. In order to give customers guarantee, airlines are advancing their future revenue by issuing EMD for a buffer. Thanks to IATA’s work, “currently, Brazil, Canada and many other countries approve the EMD refund plan (IATA, Mar.27th).

Clearly, in economics theory, airline’s refunding by EMD instead of cash will bring loss to customers. With the same amount, more restrictions cause a lower liquidity. In market, EMD with most liquidity only allows using “Between alliance member and some travel agents”— For sure, you can’t use it to buy Starbucks! Speaking of opportunity cost, our choice is narrowed due to EMD, which makes some choices with higher utility unavailable.

Take an example, if I can get 6000RMB refund due to the flight, cash can let me buy 20 nice plane models, but EMD could only pay for some unrealistic future flight. Moreover, consider the “immediate hedonistic bias” in behavioral economics, the things are getting worse. Just like medias have said, consent the EMD policy will cause us economics loss. As a traveller, on the economics level, we can even sue airlines for the loss of our rights.

But not everything is about ice-cold data and formula. It is correct that some economics theory shows how EMD tramples passengers’ rights, but this time, we should stand on airlines’ side and give them help as much as possible.

But there’s another theory: bank squeeze. Remember during the Great Depression, when everyone rushes to bank withdraw their money back? The result is the bankruptcy of banks. The reserve in the banks are not able to repay, so all the banks’ cash is burned. Without cash, the bank has no way to generate money. Thus, the clients haven’t got their money will have nothing. Same thing happens here, when airlines have to pay by liquidity. Different to profitability, liquidity is hard to recover, and once the airlines can’t go through it, no one after will be repaid. EMD serves as a buffer zone to guarantee the payment back.

On a higher level, I believe to demand cash refund and not regard the airlines and other passenger is immoral. Some might say that EMD refunding shows airlines’ lack of responsibility, but I view it completely differently. Remember EMD should be use in the FUTURE for tickets and other. Airlines are betting on their future for possible repay. Data has shown that they can’t pay it now unless go bankruptcy and no one gets the full repay. The root cause is the Pandemic, neither passenger nor airlines.

As the Pandemic is not airline’s fault, when airlines are operating with no consideration of costs and bet its future, why should we keep demanding for our “rights” in a way that will get the airline killed? For most of us, we won’t travel by air only once in our lifetime. Thus, EMD at least can give us some compensation during our next flight. Why shouldn’t we accept that, to give airlines a buffer to walk it through?

Admittedly, no one should blame the customers demanding for cash, as the contract clearly gives them the right to do so, and airlines are obliged. But when you are raging to the employee, please consider the ultimate reasons for this refund. Airlines have done a great deal of stuff to get rid of that, no one should take that for granted. Take that into you consideration, not only how much you will “Loss” due to this EMD refund.


Reference:

1. Pearce, Brain. (2020.Mar.17th). Airlines’ Liquidity Crisis. IATA Economics.
https://www.iata.org/en/iata-repository/publications/economic-reports/covid-19-airlines-liquidity-crisis/
2. IATA Economics Team. (2020. Mar.27th). COVID-19 delivers unprecedented shock. IATA Economics.
https://www.iata.org/en/iata-repository/publications/economic-reports/covid-19-delivers-unprecedented-shock/

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