Regulation (EC) No.261/2004 (EU261), which sets out rules for compensation and assistance to passengers affected by cancellations and delays for more than three hours, has been extremely controversial and represents a considerable burden for carriers.
- ERA (European Regions Airline Association) has published a study highlighting the particular impact on its airline members and the negative impact on aviation safety.
- The ERA study has been published to complement the current review being conducted by the Steer Group on behalf of the EU, as this does not recognise regional carriers and therefore will not provide a proper, full evaluation.
ERA represents 51 European airlines, many of which operate regional and intra-European flights. They are predominately small and medium-sized enterprises (SMEs) providing essential connectivity and logistical support to Europe’s regions. The association has long recognised that regulation EU261 bears significantly more heavily on its members than on larger airlines.
EU261 has given rise to 29 cases before the Court of Justice of the European Union (CJEU) to date – more than any other piece of EU legislation. The original purpose of the regulation was twofold: to deter carriers from denying boarding, cancelling flights and causing long delays, and to give passengers protection when it does happen. Nevertheless, as part of the study legal firm Clyde & Co reviewed the difference in the regulation’s purpose and its current interpreted use by the CJEU. It was found that a number of aspects had been modified, including boarding denied on grounds such as operational reasons; extending Article 7 Compensations to situations of delay in arrival; and severely limiting the circumstances in which an air carrier is able to invoke an Extraordinary Circumstances Defence. This suggests there is influence from those with interests in maximising short-term compensation rather than long-term European cohesion and regional connectivity.
Risk management firm Gallagher’s specialist global aerospace division analysed data direct from airlines – in the region of 170,000 rows of flight data, including 135,000 flights, 30,000 rows of customer data and more than 1,500 delays or cancellations – to get detailed insight on how the regulation is affecting carriers financially. Their findings show that in recent times, carriers have seen expenditure on EU261 doubling year on year, and for the airlines studied, the amount spent on passenger claims has more than tripled since 2016. In addition, compensation payments are on average 296 per cent more than the ticket price paid by passengers. These costs clearly have a serious impact on revenue, especially for regional airlines which have much smaller budgets than their low-cost carrier or legacy competitors.
Airline staff cannot fail to be aware of the financial implications of delays, therefore the study continued to analyse the impact on safety behaviour. Aviation safety specialist Baines Simmons ran a confidential online survey of more than 300 front-line members of staff at a number of European operators and aviation-related companies, asking a series of questions about perceptions, behaviours and decision making. The results were:
- 67 per cent of respondents, professionals in their field, felt that the regulation had had a negative impact on aviation safety.
- 10 per cent of respondents stated that they had reported safety concerns relating to the regulation.
- 20 per cent stated that their employers had taken action to counter the safety threat from the regulation.
- 75 per cent of respondents feel that compensation is not justified when the reason for the delay is an unforeseen aircraft technical failure or event impacting aircraft safety.
- 49 per cent of respondents believe that EU261/2004 has had a negative impact on their organisation’s safety culture.
As the study shows, the effects of EU261 are both anti-competitive and unfair, and has clear risks, including: risk of losing connectivity and interlining; risk of regional and small airlines disappearing; risk of services to remote regions; damage to the national economies of certain countries; and concerns about safety.
Consequently, the recommendations from the ERA study are as follows:
- Operators with an annual passenger load of 2.5 million or less in the preceding year should be subject to reduced compensation of 50 per cent.
- There should be a complete exoneration from compensation on Public Service Obligation (PSO) routes.
- There should be a cap on the liability towards passengers limited to the proportion of the airfare that the operator bears (that is, compensation per flight and not per journey).
- Extraordinary circumstances should account not just for the one flight directly affected but for the whole flight programme for the day to acknowledge the knock-on effect on subsequent flights.
- There should be a complete exoneration if delays or cancellations arise for any safety-related reason (in line with the recently-approved Canadian regulation).
- To allow the airline enough time to perform all the necessary operational checks, the time threshold should be extended from three to five hours.
- The regulation should provide that an airline incurring costs and expenses as a result of the application of the regulation may not be prevented from recovering such costs and expenses by any contractual provision excluding or limited liability.
ERA Director General, Montserrat Barriga, says: “EU261 is putting an unbearable financial burden on small to medium-sized airlines that operate on very low margins, have lower average ticket prices, tighter schedules and smaller teams to deal with claims and legal and administrative procedures and costs; they are therefore disproportionately affected by the regulation. Recent airline failures are sadly reducing competition and choice in Europe. Some ERA members are already abandoning routes that are not profitable, including PSO-subsidised routes. Additionally, an airline should never be financially penalised for taking all the necessary time to carry out safety-related procedures.”
Clyde & Co Partner, Robert Lawson, says: “EU261 has been metamorphosed by the European Court of Justice such that it places an unfair economic burden upon carriers. Most worryingly, EU261, as augmented by its decisions, has the effect of penalising carriers faced with potential safety shortcomings beyond their actual control and threatens the viability of many smaller carriers. It is not difficult to conclude that a better balance needs to be struck in the long term interests of the travelling public.”
Peter Elson, CEO of Gallagher’s specialist global aerospace division, says: “As a global specialist in aviation risk management and insurance and through our work with our clients, Gallagher recognises the negative impact EU261/2004 is having on the European airline industry. Our analysis of more than 135,000 flights occurring in 2018 has enabled ERA to determine airlines’ total EU261 exposure. The findings demonstrate that, in its current format, EU261 presents an unsustainable financial burden for regional airlines and potentially poses a threat to regional connectivity. No other transport industry is penalised so aggressively under EU regulation. This is not good for the consumer or the industry and needs to be addressed before irreparable damage is done.”
Bob Simmons, Director at Baines Simmons, comments: “My team and I have uncovered worrying levels of risk-taking as a result of the perceived pressure that EU261 causes to avoid costly delays. This ERA paper on EU261 outlines a compelling case for the amendment of the regulation for a number of different reasons and we are delighted to have had the chance to help both EASA and the EU recognise the safety risk perspective.”
9 October 2019