Thirty-ninth Report of Session 2012-13 - European Scrutiny Committee Contents


5   Civil aviation: passenger protection

(a)

(34777)

7615/13

+ ADDs 1-2

COM(13) 130


(b)

(34782)

7656/13

COM(13) 129


Draft Regulation amending Regulation (EC) No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights and Regulation (EC) No 2027/97 on air carrier liability in respect of the carriage of passengers and their baggage by air

Commission Communication: Passenger protection in the event of airline insolvency

Legal base(a) Article 100(2) TFEU; co-decision; QMV

(b) -

Documents originated(a) 13 March 2013

(b) 18 March 2013

Deposited in Parliament(a) 19 March 2013

(b) 22 March 2013

DepartmentTransport
Basis of consideration(a) EM of 2 April 2013

(b) EM of 9 April 2013

Previous Committee ReportNone
Discussion in Council(a) 7 June 2013

(b) Not known

Committee's assessmentPolitically important
Committee's decision(a) Not cleared, further information requested

(b) Cleared

Background

5.1  Regulation (EC) No. 261/2004 lays down common rules on compensation and assistance to air passengers in the event of denied boarding and of cancellation or delay of flights. It is enforced in the UK by the Civil Aviation Authority (CAA) as the competent National Enforcement Body (NEB).

5.2  Regulation (EC) No. 2027/97 deals with air carrier liability in the event of claims for compensation in the event of death or injury to passengers and the liability limits for delay and mishandled baggage. The Regulation translates parts of the Montreal Convention into EU law.

5.3  At present passengers who have bought an airline ticket as part of a package have, under the Package Travel Directive, Council Directive 90/314/EEC, compensation rights in the event of the airline's in solvency. Holders of flight only tickets have no such rights.

The documents

5.4  With this draft Regulation, document (a), to amend Regulation (EC) No. 261/2004 and Regulation (EC) No. 2027/97 the Commission proposes a range of changes to reinforce enforcement policies and procedures, improve passenger rights and re-address the financial obligations, in some circumstances, imposed on airlines.

5.5   The draft Regulation would clarify what constitutes an "extraordinary circumstance", in line with a decision of the Court of Justice.[14] An airline may on occasion have to cancel or delay a flight due to extraordinary circumstances not inherent in the normal exercise of the carrier's activities and beyond its control (for example due to weather, security risks, strikes and unexpected flight safety shortcomings). Under these circumstances, passengers are entitled to assistance from the airline (for example, provision of meals and refreshments, where there is a delay of at least two hours, or accommodation in stated circumstances), but not to any additional financial compensation. The proposal provides a non-exhaustive list of what would constitute "extraordinary circumstances". It also proposes a limitation on the use of the provision in so far as it affects the flight concerned or the previous flight by the same aircraft.

5.6  The draft Regulation would also:

  • amend the existing provision allowing claims for compensation for delayed flights after three hours to three separate trigger points — five hours for journeys of 3,500 km or less (and for all intra-EU flights), nine hours for journeys between 3,500 and 6,000 km and 12 hours for journeys of 6,000 km or more;
  • provide that if a carrier cannot reroute passengers on its own aircraft as a result of a cancelled flight so as to arrive at the final destination within 12 hours of the scheduled arrival time, then passengers have the right to rerouting via another carrier or another mode of transport;
  • reduce the time threshold for providing care to passengers (for example refreshments or meals) to two hours for all flights, replacing the current two, three or four hour thresholds (depending on the flight distance);
  • confirm that passengers that miss a flight connection because their previous flight was delayed have a right to care and, under certain circumstances, defined compensation (this would only apply when the connecting flights are part of a single through ticket);
  • provide that passengers for flights which are re-scheduled two weeks or less in advance of the original flight, will have similar rights to delayed passengers;
  • set out rights for passengers when their flight is delayed on the tarmac, including the right to toilet facilities and drinking water after one hour and the right to disembark after five hours (subject to safety or security related issues);
  • provide that it is not possible for passengers to be denied boarding on a return ticket simply on the grounds that they did not take the outward flight;
  • make clear that passengers should have the right to information about any flight disruption as soon as the information is available;
  • provide, in relation to complaint handling and general enforcement, that the NEBs should be more proactive in their monitoring of airline compliance to Regulation (EC) No. 261/2004, including coordination and exchange of information between Member States (as well as to the Commission);
  • create complaint handling bodies for passenger complaints (which could be alternative dispute resolution (ADR) bodies under the new ADR Directive);[15]
  • extend NEB enforcement activity to the monitoring of compliance with Regulation (EC) No. 2027/97 (and of aspects of the Montreal Convention) — the intention is to limit this to the provisions that relate to the rights of passengers with regard to delayed, lost or damaged baggage;
  • provide, in the case of delays and cancellations due to extraordinary circumstances, airlines with the right to limit the provision of accommodation to three nights with a maximum sum of €100 (£86.30) per night (although this limitation will not apply to certain classes of persons such as passengers with reduced mobility, provided the airline has received prior notification of their needs);
  • exclude 'regional' services (that is routes of less than 250km on aircraft with less than 80 seats) from the scope of the obligation to provide accommodation;
  • enable spelling mistakes on tickets to be amended free of charge up to 48 hours prior to departure; and
  • include, in relation to Regulation (EC) No. 2027/97, an increase in the liability of air carriers with regard to mobility equipment (up to the value of the equipment) and measures related to the carriage of musical instruments.

5.7  In its Communication, document (b), the Commission:

  • assesses the current level of passenger protection in the event of airline insolvency and how to improve the existing framework; and
  • says that the current legal framework is sufficient but sets out actions it intends to take to encourage national authorities to monitor airlines' financial situations and adopt a more coordinated approach between national authorities and with industry.

5.8  The Commission says that:

  • between 2000 and 2010, 96 airlines became insolvent in the EU, affecting an estimated 1.4 to 2.2 million passengers — of these, around 12% were stranded abroad;
  • the largest number of insolvencies was registered in the UK, which has the largest market in the EU by passenger numbers;
  • only 0.07% of flight-only passengers will be affected by airline insolvency between 2011 and 2020;
  • while this is a very low proportion, the impact can be significant, especially if repatriation is required;
  • its concern is that it can be difficult to sufficiently ensure in advance arrangements to assist passengers — failing carriers can find it difficult to fulfil passengers' rights and after they have failed there is no further protection;
  • Regulation (EC) No 261/2004 already provides an appropriate legal framework for passenger assistance in case of insolvency; and
  • in some Member States, the low frequency of financial evaluations means that regulators do not have forewarning.

5.9  The Commission says that it will:

  • seek to strengthen the licensing oversight of EU air carriers under Regulation (EC) No 1008/2008, which can require a carrier to plan ahead and put in measures to protect passengers;
  • encourage better financial monitoring and cooperation;
  • formalise existing voluntary arrangements around rescue fares (other airlines repatriating at nominal cost) through working with EU air transport associations;
  • engage with the International Air Transport Association (IATA) on the adoption of a service level agreement to protect passengers' money when booking through IATA agents;
  • encourage the wider availability of Scheduled Airline Failure Insurance (SAFI), a private insurance scheme; and
  • encourage greater availability of information about credit card refunds and such schemes in Member States.

5.10  The Commission concludes that it will monitor the application of these measures and consider after two years, on the basis of their effectiveness, whether to proposed legislation to guarantee protection of passengers in the case of airline insolvency.

The Government's view

5.11  In his Explanatory Memorandum on the draft Regulation, document (a), the Minister of State, Department for Transport (Mr Simon Burns), first notes that:

  • the present legislation was adopted prior to the 2006 Cordoba Agreement and contains a clause suspending Gibraltar's Airport, as was normal practice at that time;
  • the draft Regulation does not contain an amendment to remove the Gibraltar Airport suspension clause;
  • the Commission is aware of the Government's concerns about the proposal's treatment of Gibraltar; and
  • the Government intends to press for Gibraltar's inclusion.

5.12  On other aspects of the proposal the Minister says that:

  • the Government considers that the introduction of Regulation (EC) No. 261/2004 has proved to be an important step forward for air passengers and has raised airlines' standards of service;
  • case law (primarily the Sturgeon case,[16] which indicated that a long delay of at least three hours at arrival entitled passengers to the same compensation as in the case of a flight cancellation) has, however, had a decisive impact on the interpretation of the Regulation and associated costs of compliance;
  • the Government therefore welcomes the proposed measures which aim to reduce the more costly aspects of Regulation (EC) No. 261/2004, particularly the proposal to increase the starting point (from three to five hours) at which compensation can be claimed as a result of long delays;
  • it also welcomes moves to simplify and improve the interpretation of the Regulation, in particular the single two-hour threshold in providing the right to care to passengers; and
  • it is carefully considering the range of the other passenger focussed proposals, recognising that these may provide benefits and protection to the consumer but may also lead to increased costs for UK airlines.

5.13  In relation to consultations the Minister tells us that:

  • the Government held an Industry Stakeholder Group meeting in January in anticipation of the release of the draft Regulation, after which airlines and airline associations submitted their views and assessment of the proposal;
  • the industry is largely supportive of a revision of the current Regulation, mainly in order to amend the thresholds at which compensation is due during long delays;
  • it is, however, less supportive of some of the other changes that may lead to increased costs;
  • during the Commission's consultation, consumer and passenger representatives mainly focussed on poor compliance and inadequate enforcement, especially in the case of the rights to financial compensation in case of delay; and
  • further informal consultation is continuing with each of the major UK airlines, as well as with the CAA and passenger interest groups.

5.14  On the financial implications of the draft Regulation the Minister says that:

  • quantification, in the Government's preliminary assessment of the impacts of the proposal (which the Minister attaches to his Explanatory Memorandum),[17] has not been possible for many of the changes, but has been possible for the lifting of the compensation threshold from three hours to a starting point of five hours and for the move to two hours for when refreshments and meals should be provided;
  • the change in compensation thresholds shows a significant saving for the industry — a reduction of around two-thirds or €30 million (£25.8 million) per year for a 10% claim rate);
  • the move to a two-hour threshold for the provision of care shows an increase in cost of €4 million (£3.45 million); and
  • the Commission's impact assessment indicates that the current cost of the Regulation amounts to around €0.9 billion (£0.77 billion) (around 0.6% of airline revenues) and that the proposal will result in a 10% reduction in these costs for the industry.

5.15  Finally the Minister tells us that the Irish Presidency hopes that it will be possible to reach a General Approach on the draft Regulation at the 10 June Transport Council.

5.16  In his Explanatory Memorandum on the Commission Communication, document (b), the Parliamentary Under-Secretary of State, Department for Transport (Norman Baker), saying that the Government welcomes the Communication, comments that the non-regulatory nature of the Commission's approach is in line with the Government's agenda of pursuing alternatives to new legislation.

5.17  The Minister continues that:

  • in the UK the CAA already performs many of the suggested functions to mitigate the impact of airline failures, as well as performing similar oversight of tour operators through the Air Travel Organisers' Licensing (ATOL) scheme;
  • without forewarning, it is difficult to put mechanisms in place to fulfil passengers' rights;
  • there are some partial measures — the UK insurance industry offers SAFI as an element of some travel insurance policies and consumers booking with a credit card also have some protection. These, however, do not provide full protection;
  • the CAA performs oversight of travel companies operating in the UK as part of the ATOL scheme and of the larger UK registered passenger airlines;
  • the level of financial monitoring depends on the size and financial risk of the company;
  • this has proven effective in the past by giving forewarning that operators may be about to go bust and allowing mitigation measures to be put in place;
  • for ATOL failures, these may reduce calls on the protection arrangements, for airline failures, however, there is no dedicated protection scheme but the CAA uses what powers and influence it has to mitigate the effects;
  • typically after a failure the CAA will make available information to affected passengers and influence surviving carriers to offer cheap rescue fares rather than raising prices;
  • where UK carriers are identified as at risk, through the CAA's use of its powers under Regulation (EC) No 1008/2008, it uses its role as licensing authority as a lever to obtain what concessions it can — in a recent case this resulted in substantial customer money being put into escrow for passenger liabilities, as well as obtaining voluntary agreement by other carriers to offer repatriation; and
  • a key consideration arising from tour operator insolvency is the need to provide repatriation and this risk of people being stranded abroad is equally applicable to airlines — the same purchase model of selling far in advance is also used, creating financial risk for consumers if the airline goes insolvent before the flight.

5.18  The Minister, noting that the Commission intends to implement a non-regulatory solution that is similar to procedures already in place in the UK and will only consider a legislative initiative if its non-regulatory approach is not effective, concludes that, given the effectiveness of financial monitoring in the holiday industry and the similar risks to consumers in the airline industry, the Government is supportive of this Communication. He adds that in the next few months the Commission is expected to publish proposals for reform of the Package Travel Directive, which requires protection for package holidays and underpins the UK's ATOL scheme, and the Government's view is that these should be considered together, as there is some clear overlap between protection of package holidays and flights.

Conclusion

5.19  Whilst we note the potential benefit for airlines arising from the draft Regulation, document (a), we wish to hear from the Government, before considering the matter again, about the outcome of its efforts to resolve the Gibraltar issue and of its consideration of the full ramifications of the proposal, particularly as regards the balance between airline costs and passenger rights. Meanwhile the document remains under scrutiny.

5.20  As for the Commission Communication, document (b), whilst clearing the document we draw it to the attention of the House for its welcome non-legislative approach to attempting to resolve the problem of passenger protection in the event of airline insolvency.



14   C-549/07 (Wallentin-Herman). Back

15   (34689) -: see HC 86-xxxv (2012-13), chapter 1 (13 March 1013). Back

16   C-402/07 Sturgeon. Back

17   See http://europeanmemorandum.cabinetoffice.gov.uk/. Back


 
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