The consumer watchdog, Consumer New Zealand, says it is not reasonable for Air New Zealand to deny customers refunds and offer them credits instead.
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Consumer New Zealand chief executive Jon Duffy said some Air New Zealand customers affected by the coronavirus pandemic have been refunded due to international regulations, for example some people with flights into the EU have or should be refunded.
"It's been a comms debacle" - Consumer New Zealand chief executive Jon Duffy
But Duffy said New Zealand regulations on refunds were out of step with the European Union and the United States.
Consumer Affairs Minister Kris Faafoi has indicated the government would look at changing the law in future so customers were not left carrying the cost, Duffy said.
Yesterday, Air New Zealand apologised to customers who have been unable to use their airfare credits, but said it cannot afford to offer refunds to everyone who has had flights cancelled.
Its chief financial officer, Cam Wallace, told RNZ the airline would have to dip into its $900 million government loan to refund everyone.
"If we use it, it would accelerate our financial position in having to use it earlier and it would mean we make different decisions in terms of reducing our cost base, so these are the decisions we have to make," Wallace said.
Duffy said it was definitely an option and the loan was there to ensure that Air New Zealand was able to continue trading through this period.
"I guess the bigger question is, is it reasonable for customers who have had flights pulled out from under them to expect Air New Zealand to take their circumstances into consideration and offer a refund if it's warranted?"
Duffy said Air New Zealand's reaction to the situation had been a "comms debacle".
"It was only yesterday that Air New Zealand actually responded to a letter that we wrote to them two weeks ago and it was only yesterday that they came out for the first time with any stance on this issue, other than a couple of media statements that said the law's on their side so they'll do what they want.
"In terms of managing this and meeting the expectations of their customers, they've really failed and they apologised for that yesterday to their credit."
Duffy said Air New Zealand customers who have tickets in this category should be given the choice of either a refund or a credit.
A useable credit would be an acceptable option for some people, he said.
"But there would be some people who because of their circumstances, who are changing economic situation who will be really doing it tough and really need to get their cash out to help them pay the power or pay rent or put food on the table.
"It's those people who I think Air New Zealand's customers would expect Air New Zealand to at least make some sort of consideration over whether they pay a refund."
Air NZ credit system too complex - customer
Philip Wilson booked two trips with Air New Zealand, one to Brisbane with his wife in May and another for a trip to Fiji in September for seven family members, but now he wants his money back.
Wilson said Air New Zealand had made the use of credits for flights very onerous.
He said the only way to get the credits currently was by calling the airline.
"They're going to tell you that they're getting a new digital platform which they hope to have online soon to make the credit use more easy, well let's hope for that, that's something for the future, but at the moment you might be listening to Greensleeves for two-and-a-half hours."
"They've made the use of credits very very onerous" - Philip Wilson
Wilson said things get complicated with the trip to Fiji which was booked for seven people.
Air New Zealand has said that each individual a ticket was booked for gets the credit, he said.
"I'm a pensioner who was going on a once in a lifetime trip for a family and I had paid for some grandchildren to go as well and some of those tickets were bought for five and three-year-old children and those credits are just as much as adult credits, because they were discounted fares, admittedly, so we're all getting about a $400-odd credit plus taxes."
Wilson said he had to book for each of those names, which made it extremely complex.
"I'm one airplane member, it was one bill on one credit card, give me a credit back and I'll use it as I can, I don't believe we'll ever be in a position to have exactly all those names together in exactly the same way."
Wilson asked why a limited number of people should have liability in propping up an airline.