On October 28, 2024, the DOT's automatic refund rule took effect. Airlines now have 7 business days to refund credit card purchases for cancelled flights. But a tour operator in Colorado who packaged flights with hotel and ground transport discovered that receiving the airline refund and processing the customer refund are two entirely different timelines, with two different sets of legal obligations.
The problem
The Department of Transportation published its final rule on automatic airline ticket refunds on April 26, 2024 (14 CFR Parts 259 and 260, Federal Register Vol. 89, No. 90). The rule requires airlines to automatically initiate refunds when a flight is cancelled or significantly changed, without the passenger requesting one. "Significantly changed" is now defined: domestic departure or arrival time shifts of 3 or more hours, international shifts of 6 or more hours, added connections, downgrade in cabin class, or changes to a less accessible aircraft for passengers with disabilities.
For tour operators, the issue is structural. When an operator purchases airfare as part of a package, the airline's refund goes to the operator, not the end consumer. The operator must then process the customer refund according to their own terms and any applicable state seller-of-travel laws. The DOT rule does not address this intermediary step. It governs the airline-to-purchaser relationship only.
The result is a gap. The airline refunds within 7 business days. The operator may take 30 to 60 days under their own cancellation policy. Meanwhile, the customer sees news coverage about "automatic refunds" and expects the money back immediately.
What the rule actually requires
The rule applies to all airlines operating flights to, from, or within the United States. Refunds must be automatic, meaning the airline must initiate the refund without waiting for the passenger to request it. For credit card purchases, the refund must be processed within 7 business days. For cash, check, or debit purchases, the deadline is 20 calendar days. The refund must be in the original form of payment unless the passenger agrees to an alternative. Airlines can no longer substitute vouchers or credits for cancelled flights unless the passenger affirmatively opts in. The rule also covers refunds for baggage fees when bags are significantly delayed (12 hours domestic, 15 to 30 hours international) and prepaid ancillary services not provided.
The operator liability gap
When a tour operator buys airfare from an airline and resells it as part of a package, the operator is the airline's customer of record. The airline refunds the operator. But the end consumer's contract is with the operator, not the airline. This means the operator's refund obligation is governed by the operator's terms of service and applicable state law, not the DOT rule. In states with seller-of-travel statutes (California, Florida, Washington, Hawaii, Iowa), operators may face shorter refund windows or specific escrow requirements that conflict with their cash flow cycles.
Customer expectation versus operational reality
The DOT's public messaging around this rule was consumer-facing. Press coverage emphasized "automatic" and "no need to ask." Consumers now expect instant refunds for any travel cancellation involving flights. Operators report increased complaint volumes when package refunds take longer than airline-only refunds. Managing this expectation gap requires clear pre-booking disclosure of refund timelines and explicit contract language distinguishing the airline component from the rest of the package.
What to do now
Review your terms of service to ensure refund timelines for the airfare component of packages are disclosed separately from other package elements. Update your cancellation policies to reflect the airline's 7-business-day refund timeline and your own processing timeline. Train customer-facing staff to explain the distinction between the DOT rule (which governs airlines) and your package refund terms (which are governed by your contract and state law). Document every airline refund received and the corresponding customer refund issued, with dates, to demonstrate compliance if a state regulator or the DOT asks.