American Airlines (AA) has defended its policy for compensating passengers who are involuntarily moved from premium cabins to lower classes, arguing before the U.S. Department of Transportation (DOT) that current federal rules do not require a specific refund formula.
The airline made the case in a formal response to a consumer complaint, while simultaneously confirming it will replace the controversial policy that refunded only 40% of the premium fare after a downgrade.
Consumer advocates, however, are urging regulators to continue the investigation, arguing that changing the policy does not address passengers who were already affected.
Dispute Centers on Downgrade Compensation
An involuntary downgrade occurs when a traveler purchases a seat in a premium cabin—such as First or Business Class—but is reassigned to a lower class because of factors including aircraft substitutions, oversold cabins, or equipment issues.
The amount refunded in these situations has become the focus of the dispute.
Earlier this year, it emerged that American Airlines had adopted a policy providing passengers with a refund equal to 40% of the premium fare for the affected flight segment, even if the price difference between cabins was substantially larger.
The DOT has long maintained that passengers should receive the difference between the fare they paid and the fare for the cabin in which they ultimately traveled.
Consumer advocates argue that under this interpretation, a passenger paying $10,000 for Business Class on a flight where an Economy ticket cost $1,000 should receive approximately $9,000 if downgraded. Under American’s former policy, the refund would instead total about $4,000.
Critics contend that such a policy allows airlines to retain significant revenue after failing to provide the premium service customers purchased.
Ben Edelman and Mike Borsetti subsequently filed a formal complaint with the DOT, alleging that the airline’s refund policy constitutes an unfair and deceptive business practice.
Airline Says Existing Rules Leave Room for Interpretation
In its response, American Airlines argues that passengers who are dissatisfied with a downgrade have the option to decline travel altogether and receive a full refund.
For those who continue their journey, the airline says federal regulations require only an “appropriate refund” without prescribing a precise calculation method.
According to the carrier, determining the exact fare difference can be difficult because ticket prices fluctuate continuously, itineraries may include multiple flight segments, and fares often carry different restrictions.
American therefore described its previous 40% refund policy as a standardized method designed to simplify the process.
The airline also argues that because downgrade compensation is already addressed elsewhere in federal regulations, the DOT cannot rely on broader consumer protection authority to impose a different refund calculation.
In addition, American maintains that the policy was disclosed in its Contract of Carriage, making it neither deceptive nor unfair. The carrier also characterizes previous DOT guidance recommending fare-difference refunds as advisory rather than legally binding.
American Plans to Replace the 40% Formula
Although the airline defended the legality of its former policy, it has confirmed that a revised refund method will be implemented before the end of the month.
Under the updated approach, American will calculate compensation by subtracting the average fare paid by passengers traveling in the lower cabin from the allocated premium fare for the downgraded flight segment.
The airline has not acknowledged that the previous policy violated regulations and does not intend to recalculate or supplement refunds already issued under the 40% formula.
According to View from the Wing. American has also asked the DOT to dismiss the complaint.
New Refund Method Raises Additional Questions
While consumer advocates welcomed the decision to abandon the flat-percentage approach, they argue that the replacement formula still lacks transparency.
Questions remain over how the airline will calculate the average fare, including whether Basic Economy, fully refundable tickets, corporate fares, and connecting itineraries will all be included in the calculation.
Observers also note that passengers may have no practical way to verify the figures used to determine their refund.
Critics argue the new method still differs from refunding the actual price difference available when the customer originally purchased the ticket.
Consumer Advocates Challenge American’s Legal Position
Supporters of the complaint argue that American’s legal arguments are inconsistent with both the intent and history of DOT regulations.
They point to the department’s rulemaking process, during which regulators considered—but ultimately rejected—a percentage-based refund system similar to those used in parts of Europe.
Instead, the DOT indicated that compensation should reflect the actual fare difference between the cabin purchased and the cabin provided.
Critics also dispute the airline’s reliance on certain federal regulations governing oversales, arguing those provisions do not necessarily apply when a downgrade results from an aircraft substitution or an inoperative premium seat.
They further contend that including a refund limitation in the Contract of Carriage does not automatically shield an airline from claims that the policy is unfair or deceptive.
Consumer Groups Urge DOT to Continue Investigation
Although American has agreed to revise its refund policy, consumer advocates say the issue should not end there.
They argue that passengers who received reduced compensation under the previous policy have not been made whole, and that modifying the policy prospectively does not remedy past cases.
For that reason, they are urging the Department of Transportation to continue reviewing the complaint instead of closing the matter, saying regulators should determine whether American’s former refund policy violated federal consumer protection rules.