Increasing oil prices, the global financial crisis hitting leisure and corporate travel — and now, caught up by their own legal trickery. Australian airline Virgin Blue (and rival airlines such as Qantas/Jetstar and Tiger) has had a torrid time in recent years. Last week, the publicly owned Australian satellite of Richard Branson’s airline empire was unsuccessful in defending a legal claim brought in the Small Claims division of the Victorian Civil and Administrative Tribunal by this writer. The tribunal awarded damages of $122 (being the amount of an alternative air fare), after Virgin Blue cancelled a booked flight and offered passengers an earlier flight that day or a voucher (rather than a cash refund).

The matter related to flight booked in January 2009, which was scheduled to depart from Hobart to Melbourne at 5.15pm on March 29. In February (approximately one month after the booking was made and a month before to the scheduled flight) Virgin contacted a large number of passengers informing them that the flight was no longer departing at the specified time (no specific reason was provided).

Virgin offered passengers an alternative flight time (at 10.15 that morning), which was not convenient to the writer (and presumably many other passengers) given that the reason for the interstate flight was to be in Hobart during  March 29. A cash refund was sought to purchase a ticket with an alternative carrier. However, despite the cancellation of the flight being entirely due to Virgin Blue, it refused to provide a cash refund, offering only a credit to be used on Virgin Flights.

Such an offer was unacceptable — not only is a voucher worth substantially less than cash, but it is unlikely that a Virgin Blue voucher would be welcomed on a Jetstar or Tiger flight. (In Virgin’s defence, it is not the only airline to treat customers with disdain, in fact, it is probably one of the more customer-friendly operations in Australia. Last year, it was reported that after accepting bookings, Jetstar cancelled flights to Malaysia and held onto customers monies (which in some cases was thousands of dollars) for several months, while Tiger pockets taxes and charges after a customer cancels their booking).

However, in this instance, repeated requests to Virgin management for a cash refund proved futile, with the writer forced to lodge an application with VCAT, alleging that by failing to provide the promised flight, Virgin unilaterally breached an essential term of the contract. It was contended that Virgin’s breach should give rise to compensatory damages. The writer sought a declaration to that effect, as well as incidental costs.

Virgin strenuously defended the action, sending legal counsel from Queensland to Melbourne to defend the matter before VCAT senior member John Galvin. Virgin argued that a clause in its contract of carriage allowed the airline to unilaterally cancel the flight, specifically, “the guest acknowledges that the carrier may need to cancel or delay and reschedule flights or services due to industrial action, landing restrictions, airport loading restrictions, unsuitable weather conditions, technical problems, operations reasons, or any other event beyond the carrier’s reasonable control, and scheduled flight times are not guaranteed.”

Virgin submitted that the cancellation was an operational one, being due to its “summer schedule” ending and its “winter schedule” starting, necessitating a downgrade of aircraft to a smaller plane. The person making this claim was Virgin’s “Schedule Optimisation Analyst”, who did not bother travelling to Melbourne and therefore, was not able to be cross-examined on her somewhat dubious claim. In any event, even if the cancellation was due to the changing of seasons, this appeared to be a cock-up, which was belatedly discovered by Virgin months after advertising the flight for sale on its website.

Nevertheless, Virgin argued that its error fell within the definition of an “operational reason” and therefore, it had discretion to cancel any passenger’s flight (and offer them a voucher, rather than cash refund). Aside from the equitable notion that Virgin should not be able to profit from its own incompetence, in a legal sense, adopting such a wide definition of an “operational reason” (to include stupidity on the part of the carrier) appeared to be contradictory to the wording of the clause, which makes reference to “events beyond the carrier’s reasonable control.”

Senior member Galvin agreed, finding that “there was a breach of contract by [Virgin]” and “in the circumstances, it is not apparent on the balance of probability, that the cancellation was a necessary consequence of operational reasons.” Virgin did have a small, albeit pyrrhic victory, with the senior member declining to providing a declaration to that Virgin’s actions amounted to a repudiation of the contract between parties. Although one suspects the senior member may have been concerned in that regard about a lengthy Supreme Court appeal process given he crucially awarded $122 in damages — the full cost of the fare, to the applicant.

There is little doubt the airline industry is an extremely difficult one and airlines must be afforded the ability to suspend or move flights due to events legitimately outside their control, such as unsafe weather or mechanical defects. However, airlines must still remain liable under the basic tenets of contract law and cannot unilaterally breach contracts (due to their own incompetence) and then fail provide any adequate compensation to their customers.

Should Virgin (or other airlines) attempt to tighten their contract of carriage as a result of this case to allow them complete discretion to cancel flights under any circumstances, such actions may fall foul of the impending consumer protection laws that are currently before Federal Parliament.

The lesson for fliers — if you have your flight cancelled by an airline due to its own incompetence and not an event outside the airline’s control, demand your money back. Or take action in your applicable Small Claims Tribunal.