Airlines have been warned they could face enforce enforcement action if they do not offer passengers the right to a cash refund.
The CAA says it is reviewing how airlines are handling refunds during the coronavirus pandemic, "and will consider if any action should be taken to ensure consumer rights are protected".
However, it has also backed airlines issuing "vouchers and rebooking alternatives", so long as consumers also have a clear route to request a cash refund "without unnecessary barriers".
EU Regulation 261 states airlines must refund or compensate passengers within seven days if their flight is subject to certain delays, or cancelled.
However, many airlines have sought to work round the regulation by offering vouchers and other rebooking solutions.
This withholding of cash has had a knock on effect for other parts of the travel sector, particularly operators and agents, who have been unable to provide refunds do to a lack of cash flow.
“Under the law, consumers are entitled to receive a refund for their cancelled flights, despite the challenges the industry is currently facing," said CAA communications director Richard Stephenson at the weekend.
“We support airlines offering consumers vouchers and rebooking alternatives where it makes sense for the consumer. But it is important consumers are given a clear option to request a cash refund without unnecessary barriers.
“We expect airlines to provide refunds for cancelled flights as soon as practically possible, while appreciating there are operational challenges for airlines in the current circumstances.”
Consumer watchdog Which? has said it believes airlines could be holding on to as much as £7 billion consumer cash owed in refunds.
Find contacts for 260+ travel suppliers. Type name, company or destination.