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Qantas to pay $120m for allegedly selling tickets to flights that had already been cancelled

Qantas will fork out $100m as a civil penalty and pay $20m to customers in compensation, after striking a deal with the consumer watchdog over landmark legal action for allegedly selling tens of thousands of tickets to flights that had already been cancelled in its system.

On Monday, Qantas announced it had come to an agreement with the Australian Competition and Consumer Commission (ACCC) to resolve the court proceedings lodged in August last year, alleging it had advertised and sold tickets for more than 8,000 flights that it had already cancelled in its internal system, revelations which precipitated the early retirement of the former CEO Alan Joyce.

In a statement, Qantas said it would “commence a projected $20 million remediation program for impacted passengers, with payments to customers ranging from $225 to $450, and subject to the approval of the Federal Court of Australia, will pay a $100 million civil penalty”.

It is the largest settlement for a corporate penalty the ACCC has ever agreed to. However, the record penalty for a breach of Australia’s consumer law was $125m – issued to Volkswagen in 2019 for deceiving customers over diesel emissions.

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Related: Qantas cancellations: ACCC taking airline to court alleging it sold tickets for planes that would never fly

The proposed penalty will need to be approved by the federal court, though Qantas will start the “remediation program in advance of the Court approval process”.

The chair of the ACCC, Gina Cass-Gottlieb, said as part of the settlement Qantas had admitted that it misled consumers. “Qantas’s conduct was egregious and unacceptable. Many consumers will have made holiday, business and travel plans after booking on a phantom flight that had been cancelled,” Cass-Gottlieb said.

She said Qantas had also undertaken to “not engage in this type of conduct in the future”.

The Qantas CEO, Vanessa Hudson, said “today represents another important step forward as we work towards restoring confidence in the national carrier … we have since updated our processes and are investing in new technology across the Qantas Group to ensure this doesn’t happen again”.

While the flight data during a May-July 2022 monitoring period formed the basis of the initial legal allegations – a window when 15,000 out of 66,000 Qantas services were cancelled – the airline said that through working with the ACCC on a settlement, it had unearthed thousands more instances of customers who were sold tickets to flights that had already been cancelled.

As such, Qantas has agreed to make compensation payments to 86,597 consumers who, between 21 May 2021 and 26 August 2023, booked or were re‑accommodated on a domestic or international flight scheduled to depart between 1 May 2022 until 10 May 2024 after Qantas had already decided to cancel it.

Only those who booked on a flight two or more days after the cancellation decision had been made will be compensated, with Qantas to contact eligible customers next month.

The 26 August 2023 cut off is the date by which Qantas is confident internal issues were rectified so that its system would no longer sell tickets to flights that had already been cancelled.

As part of the deal, Qantas has also agreed to notify customers of cancelled flights as soon as practicable, stipulated as no more than 48 hours from deciding to cancel the flight. It has also undertaken to stop selling cancelled flights as soon as practicable, and in any event within 24 hours of its decision to cancel. The undertaking also applies to its low-cost subsidiary, Jetstar.

Of customers affected, 94% were flying on domestic or trans-Tasman routes, with the remainder flying on the international network. The financial hit of the penalty and remediation program would be recognised as an expense in the group’s statutory income statement for the current financial year.

Related: Qantas claims it doesn’t sell tickets to flights but ‘bundle of rights’ in defence against ACCC case

In August, the ACCC lodged proceedings in the federal court alleging Qantas was continuing to advertise and sell tickets for more than 8,000 flights on its website for an average of two weeks, and in some cases up to 47 days, after cancelling the flights.

The watchdog also alleged that for more than 10,000 flights scheduled over the same period in 2022, Qantas did not notify existing ticketholders that their flights had been cancelled for an average of about 18 days, and in some cases for up to 48 days.

Qantas, in its defence to the legal action, claimed it doesn’t sell customers tickets to any particular flight, but rather a “bundle of rights” that includes alternative options in the event of cancellations, as it responded to allegations it sold tickets to thousands of already cancelled flights.

The airline also claimed the sales occurred due to its online booking system, and that informing customers that it had already cancelled flights they were booked on would have created “uncertainty and frustration” and overwhelmed its phone lines when they were all automatically notified of the cancellation without being allocated a replacement flight.

Prior to the settlement, Cass-Gottlieb had said she wanted to see Qantas hit with penalties of at least $250m, twice the current record penalty.

However, on Monday she said she was satisfied with the lesser penalty because it secured an early settlement, admissions of the misconduct by Qantas, and a commitment to improve in the future, including in its budget carrier Jetstar’s operations.

“If we had gone through and Qantas had continued to contest and defend, in that case we would have sought multiple of hundreds of millions of dollars,” she said.

In what was a compromise deal, the ACCC agreed to drop its allegation that Qantas had charged fees for no service, while the airline dropped its defence that it only sells a bundle of rights rather than a ticket to a specific flight.

Hudson said this concession would not have implications for how it sells flights going forward, where sales terms and conditions stipulate that date and time of departure do not form part of a customers contract with the airline.

“Even on the ACCC’s website, it notes that airlines cannot guarantee specific flight times on specific dates…There are always going to be instances where changes to flight times or cancellations need to occur,” Hudson said.

In February, Hudson handed down a $1.25bn half-year pre-tax profit in her first financial results leading the airline, and rewarded shareholders with a $400m buyback after a tumultuous period that unseated her predecessor. The profit result was tracking 13% down from the record $2.47bn full-year profit posted in 2022-23.