LATAM Airlines Group has agreed to a $1 million settlement with U.S. aviation authorities over passenger refund practices it instituted during the height of the pandemic.

In agreeing to the settlement, the Latin American carrier told the U.S. Transportation Department (DOT) it has issued more than $60 million in refunds for canceled flights to and from the U.S. since the start of the coronavirus pandemic and is continuing to invest in online platforms for those transactions.

The civil penalty follows an investigation by the DOT’s Office of Aviation Consumer Protection (OACP), prompted by consumer complaints on the timeliness of refunds for LATAM-canceled flights to and from the U.S. 

According to the investigation, consumers seeking the refunds—between March 2020 through at least November 2021—were required by LATAM to first obtain a carrier-issued travel voucher, with which they could either purchase LATAM services or exchange it for cash through a bank transfer. 

The procedure, DOT noted, resulted in “thousands” of refund requests taking over 100 days to process. 

In response, LATAM said its number of refund requests had quadrupled at the time, due to government restrictions on travel and entry requirements that led to the cancellation of more than 1,100 flights daily, noted OACP. The two-step voucher process, the carrier explained to the regulatory body, was instituted to both track the “unprecedented” volume of refund requests, and to avoid a duplicate refund to passengers seeking chargebacks from credit card companies in addition to a refund from LATAM.

During the period in question, the Santiago, Chile-based carrier entered Chapter 11 reorganization, officially emerging from bankruptcy protection in November 2022.

The U.S. penalty was announced in a DOT-issued filing on May 22. The order also directs LATAM to cease and desist from future similar violations. 

“According to LATAM, despite the extreme circumstances threatening LATAM’s very survival and despite the significantly reduced and demoralized workforce, it always honored its obligation to provide refunds to passengers on canceled flights to and from the U.S., although refunds were delayed,” the DOT filing says. “Indeed, LATAM states that it has issued more than $62,000,000 in refunds since the beginning of the pandemic for canceled flights to and from the U.S. LATAM states that it has done so without receiving any government financial assistance, unlike U.S. carriers serving the United States-Latin America market.”

The carrier noted to OACP it has since invested approximately $2 million to implement a more efficient digital refund process now available through its website, with plans to invest a “similar amount” in 2023 to further improve the passenger refund experience. 

“LATAM states that it always acted in good faith, and that it believes a large penalty is inappropriate given the dire circumstances facing LATAM during the pandemic,” the filing notes. “Lastly, LATAM states that it fully cooperated with OACP throughout this process and has agreed to settlement solely in the interest of avoiding litigation.”

In issuing the penalty, the DOT cites violations of Section 41712—concerning unfair or deceptive practices in the sale of air transportation—and violations of 14 CFR Part 259—requiring prompt ticket refunds, where due.  

“The compromise assessment is appropriate considering the nature and extent of the violations described herein and serves the public interest,” DOT writes in the filing. “It establishes a strong deterrent to future similar unlawful practices by LATAM and other carriers.”

Under terms of the order, the carrier is instructed to make payments in three parts, due in the next 30, 90, and 150 days.