APPENDIX 4
Memorandum submitted by Flybe
INTRODUCTION
Flybe welcomes the opportunity to provide a
submission to the Transport Select Committee's inquiry into the
implications of the EUjet collapse in relation to support for
stranded passengers, following the decision of the airline's owner
Planestation to go into voluntary administration on 26 July 2005.
Flybe is one of Europe's largest low cost airlines,
and will carry 5.5 million passengers network wide in 2005-06.
Unlike other low cost competitors such as easyJet and Ryanair,
we are a national regional carrier providing non-London centric
routes for leisure and business travellers, connecting the UK's
regions with domestic and continental destinations.
We would like to take this opportunity to brief
the Committee on the response of the aviation community, including
Flybe, to the collapse of this airline, and the actions, which
the industry took to repatriate EUjet passengers in foreign destinations
back to the UK.
FLYBE'S
POSITION
Flybe strongly believes that the failure of
EUjet should not be used to argue, as the Civil Aviation Authority
does, that there should be an extension of ATOL bonding with a
mandatory levy imposed on all passengers to provide financial
protection in these exceptional circumstances.
Flybe takes the opposite view. We believe that
the experience of the EUjet clearly demonstrates the ability and
willingness of the airline industry to respond in an effective
and timely fashion to such incidents, and proves that a compulsory
levy on all flights would be a wholly disproportionate response
to this type of relatively infrequent business failure. This heavy-handed
solution imposes a further regulation on this highly competitive
and successful industry. While Flybe accepts that the collapse
of EUjet was very disruptive for the affected passengers, we do
not accept that placing an additional compulsory price increase
on every ticket in the airline industry is an appropriate or necessary
response.
This submission will firstly provide the Committee
with a comprehensive account of Flybe's response to the collapse
of EUjet, including the testimonies of passengers who took advantage
of our special repatriation fare available in these exceptional
circumstances, and how the industry is prepared to react if similar
situations should arise in the future.
Secondly we will outline in detail the extremely
harmful impact of imposing compulsory additional surcharge on
every airline ticket purchased in the UK, on the future of an
industry and on the 180,000 jobs, which depend on aviation directly,
and 540,000 indirectly (Oxford Economic Forecasting, 1999) in
the UK economy. In particular we are keen to highlight the threat
to the low cost airline sector, which operates on exceptionally
tight profit margins and flies to destinations, which do not leave
passengers stranded in the event of an airline failure, particularly
in the case of Flybe where 86% of flights are to domestic airports.
There is also a danger that the British airlines will be placed
at a competitive disadvantage compared to rival European operators
based in non-UK headquarters, and that new airlines will be reluctant
to locate in British airports if they have the option of avoiding
this levy by opting to be based abroad.
Thirdly, and finally, Flybe will explain to
the Committee how the existing protection mechanisms currently
available for airline passengers make the proposed extension of
ATOL bonding an unnecessary step.
The future of cheap air travel enjoyed by millions
of British people, and the future of success of British aviation,
should not be put at risk by a disproportionate reaction to the
failure of one airline operating a limited service from one airport.
This unnecessary step will impose an unnecessary compulsory price
increase for ordinary families who now enjoy the freedom and flexibility
of affordable flights, and create an unnecessary threat to the
future of a British success story, a thriving industry employing
many thousands of people in this country.
1. Response of airlines to EUjet collapse
Flybe is extremely proud of the response of
the airline industry to the decision of EUjet's parent company
to seek voluntary administration. We believe that the immediacy
of the reaction by other airlines, including Flybe, to these events
and the generous repatriation package offered to EUjet passengers,
demonstrates the ability of the industry to swiftly come to the
aid of any customers who are unable to return from an overseas
destination. In our view this represents a further illustration
of the industry's commitment to helping passengers in such unforeseen
and unusual circumstances, and shows that a blanket compulsory
charge levied on air tickets is not required.
As a result of EUjet suspending all flying on
26 July 2005, Flybe offered stranded EUjet passengers the opportunity
to fly back to UK until Tuesday 2 August at a special repatriation
fee of £25.00 including all taxes and charges. A similar
offer was replicated by a number of low cost airlines including
Monarch and easyJet. Flybe received a number of positive passenger
testimonies from those affected that took up the offer of our
special repatriation fare, which we would like to share with the
Committee. This response was sent to us by Evelyn Williams, an
EUjet passenger who took up Flybe's offer.
"I booked the repatriation fare for my
friends who were stranded in Menorca with 3 small children. I
saw on the EUjet website that that EUjet and EuroManx were offering
repatriation fare but neither of these airlines flew from Palma.
"Therefore I just thought about Flybe
and I rang your customer service centre and was informed that
you were offering the same repatriation fare so I went ahead and
booked same. It was fantastic for the family to know that it wasn't
costing them a major amount of money in order to get home as they
would have been very disappointing and would probably have upset
their holiday.
Many thanks to your Customer Service team
who were very helpful and you Flybe for looking after EUjet customers
so well"
Flybe, like other reputable airlines, takes
its duty to come to the aid of stranded passengers where this
is practically feasible very seriously, and offers those affected
the lowest possible fare to return them to the UK.
The European Low Fares Airline Association (ELFAA)
has now agreed that this responsible behaviour will now become
obligatory for all member airlines. The major low cost carriers,
including Ryanair, easyJet, and Flybe, have pledged to provide
a repatriation fare at a flat-rate of £25.00 for all passengers
affected by the collapse of any airline operating on the continent
of Europe.
We believe this demonstrates the commitment
of Europe's airlines to dealing with the consequences of business
failure in the industry. If passengers are stranded in the future
the maximum cost they will face will now be £25.00 in almost
every circumstance, which must be preferable to a £2.00 levy
on every ticket purchased by every passenger in this country.
We would be extremely disappointed if this example of good practice
and self-regulation in the industry was ignored, in favour of
an indiscriminate levy, which punishes successful operators for
the infrequent failure of new start-ups.
2. Economic impact of compulsory insurance
levy
In Flybe's submission to the Committee's inquiry
into Financial Protection for Air Travellers and Package Holidaymakers
in the Future we outlined the severe impact on the aviation industry,
and particularly the low cost market, of the CAA's proposals to
extend ATOL bonding to all flights leaving UK airports. We would
like to take this opportunity to re-emphasise these concerns,
and to make clear that such a move would be an entirely disproportionate
reaction to the failure of EUjet, which has been used by some
groups, the CAA included, to claim that the Government must act
to implement this proposal.
As outlined in section (3) of this submission,
Flybe believes that the existing financial protection for air
passengers provides customers with a wide array of insurance options
and, as pointed out in section (1) there are sufficient safeguards
to provide assistance to uninsured passengers in the event of
an airline collapse. This makes the extension of regulation in
this area unnecessary. Flybe believes that it is not only unnecessary
but potentially extremely damaging for the aviation sector, and
in particular the low cost market where Flybe is a leading player.
The low cost market is dependent for its success
on the ability to deliver cheap fares for customers, and by operating
at the margins of technical efficiency. This is a highly competitive
market with an increasing number of rivals operating within the
industry appealing to price-conscious consumers. There are often
a number of substitutes for customers, including road, rail (including
the Channel Tunnel) or ferries, which would under the current
proposals not be subject to any such levy.
The introduction of a levy of £2.00 as
suggested in the Committee's report on this subject published
in July 2004 disproportionate impact on the low cost aviation
sector. With an average fare of
70 for Flybe flights, the percentage increase on
the ticket price resulting from such a levy would be significant.
The impact of this levy, even if it was set
at the lowest proposed level of £2.00, on the commercial
viability of low fares airlines could be extremely damaging for
the industry, and the livelihoods of many of the employees working
in aviation services. The ever more price sensitive and knowledgeable
consumers using low fares airlines such as Flybe are likely to
be willing to switch to alternative transport options. With 86%
of Flybe's flights UK domestic, the customers who are discouraged
from using regional airports are likely to opt for car travel,
which could place a further burden on the congested road network.
Flybe is also deeply concerned that the British
aviation industry will suffer from this proposed levy, putting
jobs and investment in this country at risk. It is easy to underestimate
the effects of a £2.00 charge, but this will have a serious
impact on the bottom line of UK airlines, and low cost carriers
in particular. If the UK Government decides to act unilaterally
on this issue by imposing a levy on all flights purchased in this
country, there will be an incentive created for airlines to move
operations and registered offices to other countries, which do
not have compulsory insurance. In an industry where the majority
of bookings are made using the Internet, many administrative operations
are footloose to a significant extent. There is a genuine danger,
even if this was an unintended consequence, of a passenger levy
forcing airlines, and the jobs and investment that flows with
them, to decide to base their headquarters in alternative non-UK
locations.
3. Existing protection available for airline
passengers
The Transport Select Committee claimed in the
report published last year that travellers with low cost airlines
have little or no protection under the current compensation rules.
Flybe believes that the existing insurance protection available
for customers provides for protection against airline failure
and compensation in the unlikely event of passengers being stranded
in a foreign destination with no alternative travel options available
to return to the UK.
There are three mechanisms, which already exist
to protect consumers from the consequences of an airline collapse.
These are as follows:
— Credit card protection for ticket
purchases. As the CAA acknowledge, credit card issuers possess
a liability under the Consumer Credit Act 1974 to reimburse customers
in the event of an operator's insolvency. As with many other airlines,
Flybe posts a credit card bond with the credit card companies.
Flybe should not be in a position where it is forced to pay twice
for consumer protection for tickets exceeding £100.00.
— CAA currently monitors the financial
fitness of airlines. The CAA undertakes rigorous financial
monitoring of airlines on a regular basis, with at least one major
audit per airline each year.
— An increase in take-up of travel
insurance. Many Flybe passengers already take out travel insurance
policies that would cover them in the event of an airline collapse
or other problems with their travel arrangements. Flybe supports
the Foreign and Commonwealth Office's recommendation to travellers
to take out effective travel insurance, and we would welcome proposals
from the CAA and the Government on how travel insurance could
be promoted more widely.
It should be the decision of the consumer whether
to bear the additional cost of insurance for this eventuality,
or whether to travel without this protection and face the inconvenience
of finding alternative arrangements if the airline should go into
administration. The principle of caveat emptor—"buyer
beware"—should apply for airline tickets just as it
does for other sectors of the economy.
The ultra competitive low cost flight market,
and the unprecedented prices available for leisure and business
travellers, has been driven by mature consumers who prefer to
build their own holidays and travel plans, and are no longer dependent
on packages created by tour operators. Flybe is confident that
our customers have the ability to decide for themselves whether
to take out insurance to cover for airline failure. It is patronising
to these consumers to compel them to pay a state imposed levy
when they have the opportunity to buy this product in the free
market.
We believe that the core of Flybe's business,
with 86% of flights travelling to domestic airports, makes compulsory
insurance of this kind particularly inappropriate and particularly
unnecessary. If domestic passengers travelling to UK airports
are faced with the failure of an airline then they will not be
"stranded" but will have a number of alternative travel
options available, whether this is car, train or a substitute
airline. We believe such passengers will resent being forced to
pay a levy, which is simply not relevant for this type of travel
to domestic cities and regional hubs.
The concept of ATOL bonding is not only irrelevant
for domestic journeys; it is also increasingly outdated in the
popular foreign destinations served by low cost airlines. When
this system was first created travellers were dependent on charter
airlines flying to holiday destinations served by one, maybe two,
operators with infrequent services once, maybe twice, a week.
This is no longer the case. These airports are now served by several
airlines offering flights several times every day. With numerous
alternative flights available, and particularly following the
ELFAA commitment guaranteeing flat-rate repatriation fares, in
reality passengers are rarely truly stranded in foreign destinations.
This is not to underestimate the disruption suffered by EUjet
passengers, but it is important to gain an up-to-date perspective
on the alternative travel options available for airline customers
affected by the collapse of a carrier.
Flybe is willing to take pro-active steps to
enhance the level of consumer knowledge of the insurance protection
available to cover passengers in the unlikely event. This could
include:
— Flybe agreeing to compulsory notification
to customers that unless they take out extra voluntary insurance
cover they will not receive compensation in the event of the unexpected
failure of the airline—unless the booking is made using
a credit card and the cost exceeds £100.00.
— Explaining the limitations of credit
card protection to customers ie. that compensation is only available
for transactions exceeding £100.00 and encouraging customers
to book using a credit card rather than other payment options
if they do not wish to purchase additional insurance cover.
— Agreeing to more frequent and extensive
monitoring by the CAA to allow the regulator to be kept informed
if airlines are at risk of going into administration.
Above all, Flybe is convinced that the existing
protection provided by credit card cover, increasing take-up of
voluntary insurance, and rigorous CAA scrutiny of the financial
position of airlines operating in the UK, makes a compulsory charge
imposed by the regulator an unnecessary burden on ticket prices
and the success of the industry.
When the ability of other airlines to intervene
and provide repatriation packages to affected passengers, as outlined
in section (1), as demonstrated repeatedly by the industry when
such events have occurred, is taken into account the imposition
of a compulsory levy increasingly appears to be a case of excessive
regulation by the CAA, and runs contrary to the Government's aim
of reducing the burden of regulatory intervention where possible.
The Government's Better Regulation Task Force
principles of "good regulation" are as follows:
— transparent—open, simple and
user friendly;
— accountable—to Ministers and
Parliament, to users and the public;
— proportionate—to the risk;
— consistent—predictable, so
that people know where they stand; and
— targeted—focused on the problem,
with minimal side effects.
In our view, the proposal to impose a compulsory
insurance levy on passengers and airlines, is not only potentially
damaging but is wrong in principle. It is fundamentally inconsistent
with the regulatory values of the Government. Flybe believes the
levy fails the test on at least two counts—it is not proportionate
and is not targeted. It is a disproportionate to the size of the
problem of stranded passengers given the numerous alternative
insurance options provided by the free market, and is not targeted
as low cost operators such as Flybe will be impacted despite customers
not suffering undue consequences if they are "stranded"
in a domestic airport.
CONCLUSION
Flybe deeply regrets the inconvenience and disruption
suffered by passengers affected by the collapse of EUjet this
summer. However we believe that the imposition of a compulsory
levy, as proposed by the CAA, would be a wholly disproportionate
and excessive response to the infrequent collapse of airlines
carrying passengers from airports in the UK. Flybe is confident
that the experience of the response of the industry to the failure
of EUjet, together with the availability of alternative insurance
arrangements provided by the market, offers further reassurance
that passengers will not be stranded in foreign destinations in
such circumstances and have the opportunity to take out cover
to compensate for the costs of returning home through voluntary
insurance schemes.
Flybe is willing to respond positively to the
concerns of consumer groups and the CAA, who believe that the
current level of protection is inadequate. We are committed to
improving awareness of the insurance cover available and the risks
associated with unprotected travel.
As a responsible airline we are also, as we
demonstrated in the case of EUjet, aware of our duty to assist
passengers who cannot return to the UK with their airline due
to financial failure, by offering special fares and services to
those affected. The new agreement by ELFAA member airlines provides
a guarantee for Europe's passengers that in the unlikely event
of an airline unexpectedly going into administration, they can
take advantage of a £25.00 repatriation fee to return to
their home country.
Flybe believes that this latest industry initiative,
together with the existing protection offered to passengers by
credit card companies, voluntary insurance cover, and CAA scrutiny
of airlines, makes the imposition of a compulsory levy a case
of unnecessary state intervention. This represents excessive regulatory
interference in a thriving market driven by sophisticated consumers
who have chosen to make their own travel plans instead of relying
on tour operators offering industry-led "top-down" packages.
It is unacceptable to force these consumers to pay an additional
fixed fee determined by the regulator, when they may prefer to
travel without this type of cover. Consumers must be allowed to
make this decision, and preventing them from doing so is a worrying
step towards a "nanny state".
This proposal is not only an unnecessary regulatory
burden. The impact of a compulsory levy, even if this is set at
a flat rate of £2.00, should not be underestimated. It could
undermine the future of cheap flights which have fuelled the growth
of a British business success story, and has "democratised
the skies" by making air travel an affordable option for
ordinary working people in this country. The industry has worked
together to find solutions to deal effectively with incidences
of airline failure. We urge the Committee to recognise these efforts,
most notably the guaranteed £25.00 repatriation fee, and
reject the idea of introducing an indiscriminate levy that will
punish all airlines and passengers with a £2.00 surcharge
every time they fly to cover for unforeseen circumstances, which
customers already have the option to protect against.
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