The growth of regulation from the EU continues to affect the world of international air travel
THE VOLCANIC ASH CRISIS during April 2010, and the closure of Heathrow in December 2010, resulted in significant loss to carriers, not least because of their obligation to provide a 'right to care' to passengers whose journeys were disrupted under European Union (EU) Regulation 261/2004, by the financing of overnight hotel and meal allowances. Further volcanic activity since then has shown that these events are not as exceptional as was argued at the time.
The English court has referred a decision of the European Court of Justice (ECJ) back for reconsideration by the ECJ (Sturgeon v Air France) to review its finding that any delay exceeding three hours not caused by extraordinary circumstances should result in cancellation compensation being paid to passengers under EC Regulation 261/2004. Hundreds of cases English are stalled, pending the outcome of the Court's review, and in the meantime other member states are obliged to comply with the ramifications of the Sturgeon case, irrespective of the review being undertaken on the application of the English Court.
A further review of passenger rights under Regulation 261/2004 took place in late June 2011 in the case of Rodriguez v Air France, on a review for a reference for preliminary ruling from the ECJ arising from a submission from the Spanish courts. The point that was raised was whether a 'cancellation' of a flight - which would trigger the obligation for the airline to pay compensation to passengers - included a case where a flight had taken off but was forced to return to the departure airport for technical reasons. The decision of the ECJ in this case is that a cancelled flight includes not only the failure of a flight to depart as planned, but also includes cases where the flight returns to the airport of departure and proceeds no further. Once again this is a further pro-passenger decision, again narrowing the ability of carriers to defend themselves against many of these passenger claims.
LEGAL CHALLENGES
The EU Emissions Trading Scheme (ETS) is designed to encourage corporates to reduce their carbon emissions and, to date, carbon emitting industrial enterprises, such as power plants and factories, have been covered.
However, from January 2012, aviation is to be included in the scheme, which will cover emissions from all international flights arriving or departing from an EU member state. The scheme will limit the amount of carbon dioxide which airlines are permitted to emit and will introduce a new carbon trading scheme under which airlines are required to buy permits to cover carbon emissions in European airspace.
Financial services company UBS forecasts that the scheme is likely to add €300 million in costs to carriers in the first year, increasing to €600 million by 2014.
European airline passengers face increases of up to £35 per return fare under the scheme and, of course, these additional charges will inevitably force up ticket prices further once established.
It would be an understatement to say that these new regulations have not been popular. The scheme is likely to capture emissions that were not generated within the EU and which arise during international flights and in international airspace, following the aircraft's departure from outside of the EU. Four carriers from the US are currently bringing an action against the UK concerning the legal enforceability of the EU ETS, which was due to be heard in the ECJ in July 2011, although a final decision is unlikely to be given before January 2012, when the scheme commences.
The Chinese have threatened legal action and could refuse to pay for ETS permits, and Russia has reacted by suggesting it will consider increasing overflying charges for European carriers in retaliation. It is reported that China has threatened to reconsider Airbus orders and deliveries if the EU does not make concessions. The uncertainty concerning the operation of the ETS from next January has caused BA and Iberia to lobby for the EU to postpone its implementation to avoid passengers getting caught in a trade war between the EU on the one hand, and the US, Russia, China and others on the other. Some of these opponents to the scheme argue that they have their own domestically introduced restraints on emissions, and, therefore, should not be charged again. European airlines hope that the scope of the scheme will be reduced to cover just flights within the EU, rather than all flights through European airspace.
China argues that the EU ETS is biased against carriers from developing countries, which could cost Chinese airlines an additional USD$124 million in the first year. The US Air Transport Association has challenged the scheme, because it has not been agreed by countries outside the EU, but applies to third country carriers in third country airspace and violates the US-EU air services agreement and the Kyoto Protocol.
The extraordinary growth of regulation governing flights, passenger rights and aircraft emissions has had a severe economic impact upon carriers operating in the EU area and elsewhere. Given the delicate financial position of some, and their ability to simply pass on all of these costs to passengers, one wonders if load factors might drop or per-passenger numbers will fall as a result. Aircraft travelling with reduced capacity may well result in a reduction in carbon efficiency on a pollution-passenger basis.
One thing is for sure: EU regulation comes at a price - an expected rise in ticket prices to cover this additional airline expenditure.