EU Boarding Compensation Rules Unworkable, Say Airlines

by Ulrika Lomas, for LawAndTax-News.com, Brussels

26 August 2005

The EU launched its 'denied boarding' compensation rules last year with much fanfare, but they have turned out to be a nightmare for the airlines, with travellers taking advantage of unclear rules and lawyers cleaning up as a result.

Air passengers who are unable to board their flights because of overbooking, cancellations or flight delays can now demand compensation at between 250 and 600 euros, depending on the length of the flight. The new rules apply to all scheduled and charter flights, including budget airlines. Previously, passengers could claim 150-300 euros if they had been stopped from boarding, but only scheduled flight operators were obliged to offer compensation in cases of overbooking and they did not have to offer compensation for flight cancellations. However, under the new rules airlines do not have to offer compensation if flights are cancelled or delayed due to "extraordinary circumstances".

The phrase "extraordinary circumstances", which was not defined by the EU, has led to much uncertainty. Airlines fear that it may not cover bad weather, security alerts or strikes - events which are outside of their control.

Airlines attacked the legislation saying they could be forced to push prices higher to cover the extra cost, and the European Commission is facing two legal challenges - one from the European Low-fare Airlines Association (ELFAA) and the other from the International Air Transport Association (IATA), which has attacked the package as a "bad piece of legislation". The European Regions Airline Association (ERAA) claims that neither airlines nor consumers were consulted over the changes, and that the European Commission advice misleads customers as it leads them to believe that airlines could be liable for payouts if flights are delayed because of bad weather.

The airlines financed a reference to the ECJ, arguing that the regulation denies air carriers any defence against claims for delays caused by extraordinary circumstances such as bad weather, or acts of third parties such as an Air Traffic Control strike. Early next month, the advocate general of the European Court of Justice, the EU's highest court, is expected to give an opinion on the rules.

Low-cost airlines have criticised the new compensation levels, arguing that the pay-out could be worth more than the ticket. Ryanair, Europe's largest low-cost airline, is among airlines that have so far resisted paying the new compensation claims. Jim Callaghan, its head of regulatory affairs, says the new rules are "a complete mess". He cites a family of five that paid a total of €168 ($204) for their flight but asked for compensation of €1,980 following a cancellation due to weather. In another case a woman who paid €46 for her flight was asking for €400. "This is how insane the situation is," he says.

In an FT report this week, Simon Evans, chief executive of the Air Transport Users Council notes that the number of complaints and queries received on passenger compensation has increased fourfold. "These rules have certainly raised expectations among passengers about what they can get if they have had a bad travel experience," he says. But, he adds, the EU legislation has also created an unprecedented legal quagmire.

Iata estimates applying the rules will cost EU airlines €560m a year, over and above existing compensation. For a medium-sized European carrier that amounts to about €40m a year - about a fifth of its operating profit - according to Iata's calculations. Mark Franklin, head of the aviation group at DLA Piper Rudnick Gray Cary, an Anglo-American law firm, says: "Airline legislation is supposed to be part of a uniform worldwide system and the EU has certainly changed a major part of it."

In the short term, says the FT, lawyers stand to benefit. In the UK, the first court hearings on passenger claims relying on the new rules are expected by the end of the year. Several law firms, meanwhile, have been busy advising airlines on how to fend off hefty claims and turn the "extraordinary circumstances" exemption clause in the new rules to their advantage.

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