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A European Court decision on passenger compensation could further jeopardise airlines’ already-precarious fortunes
AT THE ACTE/Management Solutions (UK) forum in London on May 15, 2012, I joined Lufthansa UK general manager Christian Schindler and others in condemning the impact and consequences of taxation on the airline sector. Air passenger duty (APD) is a UK tax that distorts competition, particularly for carriers operating out of UK airports or with a UK hub, as the savings made by functioning through some foreign hubs and avoiding APD on the long-haul sector is economically attractive to travellers.
The European Union Emissions Trading System (EU ETS) equally impacts unfairly against foreign carriers, paying duty via Europe for the entirety of the journey, including the non-EU sectors.
Value-added tax (VAT) at differential rates further adds distortion in what should be a truly global business. China, the US and other countries are refusing to pay EU ETS and the dispute is escalating towards trade sanctions.
Not surprisingly, these and other factors have led Willie Walsh, the head of International Airlines Group, to accuse the UK government of “doing everything they can to suppress and damage” aviation. Further difficulties for airlines include the shortages of runway capacity in London and the south-east, and criticism over the possibility of ‘Boris Island’ as a new alternative London airport.
At the same time, the International Air Transport Association (IATA) is pessimistic about the future of the airline industry in Europe and predicts serious financial risk to some airlines. IATA has nearly doubled its projections for losses by European carriers this year, to $1.1 billion. While some of these are attributable to oil prices and a significant reduction in travellers within the EU, IATA further explains these losses as caused by punitive taxes, such as APD, along with rising airport and air navigation charges.
THE STURGEON CASE Elsewhere, there has been a significant development in the interpretation of European passenger rights when an aircraft is delayed at its point of departure. In the Sturgeon case, the European Court of Justice (ECJ) had to decide whether an extended delay to an aircraft’s departure could amount to a “cancelled flight”, entitling each passenger who had checked in to minimum levels of compensation, depending upon the length of their journey.
In what was seen as a remarkable judgment by the airline sector, the ECJ decided that passengers were entitled to compensation, as if the flight was cancelled, when the flight was delayed by at least three hours. Not surprisingly, the ECJ’s decision is subject of an appeal brought by Tui Travel, British Airways, Easyjet and IATA, in which the ECJ has been asked to reconsider the effects of this case.
Their view is that the level of compensation payment is disproportionate to a relatively short delay, that a delay is entirely different to cancellation and that these rights seem to go far beyond the established passenger rights set out in the Montreal Convention, which is binding on all concerned.
The ECJ will be considering the various submissions and arguments made by the parties later this year. However, the ECJ Advocate General offered his own opinion this May as to what outcome he considers the ECJ should deliver this autumn. In particular, he considered whether delays of three hours or more should entitle affected passengers to the minimum levels of compensation of €250 (flights 1,500km or less), €400 (flights of 1,500-3,500km) or €600 (flights above 3,500km).
His opinion, not legally binding but intended to guide the court in formulating its judgment, was that the compensation should be payable where a delay is three hours or more, as if the flight had been cancelled – in other words, if the ECJ follows his opinion then the effect of Sturgeon will be re-established with all future claims and also affect the many cases put on hold pending a final decision.
While there are exceptions to the passengers’ rights to payment of this compensation under EU Regulation 261/2004 (for example extraordinary circumstances such as the volcanic ash issue, strikes and severe weather conditions), in many instances where delays occur, airlines will have little defence and have to pay the compensation.
Given that the ECJ will normally follow the opinion of the Advocate General, the outcome of this decision is likely to have a significant commercial impact upon airline operations. Inevitably, this will lead to increased costs being passed on to the passenger.
We all need a strong airline sector to ensure proper and fair competition, and efficient and safe air transport to a maximum number of destinations. Regrettably, air travel has become a target for taxation and duties, and an easy target for claims for compensation when events occur causing delay, which often are outside of the control of the carrier.
One only has to consider the effects of mass passenger compensation on a large aircraft following a delay of three hours of, say, €600 per passenger to understand the full significance of this case.