American Airlines Is Rewriting Its 40% Downgrade Refund Rule After a Federal Complaint

American Airlines is replacing a refund rule that pays passengers just 40 percent of their fare when the airline moves them to a lower cabin against their will. The change, disclosed in a filing with the U.S. Department of Transportation, follows a formal complaint that the flat percentage breaks federal refund rules.

American still defends the 40 percent formula as lawful. But as of late August 2026 it has begun switching to a different calculation, even as the DOT complaint against the old rule sits unresolved.

How the 40 percent rule works

Early in 2026, American added language to its Conditions of Carriage stating that when a passenger is involuntarily downgraded, refunds are issued “at 40% of the ticketed fare on the affected segment.” A traveler who paid for a lie-flat business seat and ends up in economy gets 40 percent back and still flies.

The gap that creates can be large. On a sample one-way New York to London business fare of $10,644, booked three days out, the lowest economy fare on the same day was $949. The 40 percent rule returns about $4,258, leaving the passenger roughly $6,400 short for a seat selling in the open market for under $1,000.

What the complaint argues

Ben Edelman and Mike Borsetti, who brought the complaint, say federal rules require an airline to refund the actual difference between the fare paid and the fare for the cabin the passenger flew in. They call the flat rate an unfair and deceptive practice and estimate a fair transatlantic refund would be closer to 76 percent.

American’s answer to the DOT leans on wording. The regulation promises an “appropriate refund” without spelling out the math, the airline says, and rebuilding a lower-cabin fare for one passenger is impractical because prices move constantly and fares are split across connecting flights. It calls 40 percent a “standardized proxy.”

The replacement formula

The method American now describes refunds the passenger’s allocated premium fare for the affected segment, minus the average fare actually paid by travelers who bought and flew the lower cabin on that flight. That is closer to a true difference than a flat percentage.

Critics are not satisfied. The average fare paid in economy is usually far below what a last-minute buyer pays, so a downgraded premium passenger who booked close to departure can still recover much less than the cabin was worth when they bought it.

Downgrade refunds exist because the passenger bought a specific product, a cabin, and did not receive it. Consumer advocates argue the benchmark should be what that cabin sold for, not an airline-chosen percentage or a blended average. The premium a flyer pays for space and a flat bed is exactly the value a downgrade takes away.

The DOT has not said whether it will act on the complaint, and American’s new formula has not been tested against the rule either. Reporting by View from the Wing notes the airline could still revise the approach depending on how regulators respond.