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A Shattering Conclusion

A proposed revision to the European passenger rights regulation could spell trouble for air travelers, regional airlines and network carriers

There are some positives in the proposed revision of EU 261, the law that specifies aviation passenger rights in Europe. Trigger times for financial compensation in case of a delay take into account the duration of the flight. And there is a limit to the assistance airlines are obliged to provide in extraordinary circumstances, such as a volcanic eruption. But there are also some major flaws. Diversions now count as cancellations, for example. Since nearly all diversions are made for safety reasons, this runs counter to the industry’s safety culture. And if an airline does cancel a flight and is unable to rebook the passenger on its own services within 12 hours, the airline must provide an alternative means of travel without any consideration of the class of travel originally booked. “Every airline wants to get all of its passengers to their destinations as safely and expeditiously as possible,” says Tony Tyler, IATA’s Director General and CEO. “But if your Bic pen doesn’t work, you don’t expect to get a Mont Blanc as compensation. The same logic should apply to air travel.”

It can be argued that EU 261 isn’t necessary at all, revised or otherwise. “Airlines have every incentive to operate on schedule and deliver value for money to their passengers,” says Tyler. “It’s the commercial reality of operating in a competitive service industry with very thin margins. The cost of delays and dissatisfied customers is something that every airline wants to avoid.”

But given that EU 261 will continue to exist, one particularly crucial drawback in the proposed revision stands out. It is suggested that delays should be defined by the time of arrival at the final destination of a journey. By doing this, a disproportionate burden is placed on the operator of the first flight in an interline journey. So a missed connection because of a short delay at a point of transit could result in the operator of the first flight paying compensation for the entire journey. In other words, a short haul flight by a small carrier turns in to a long haul risk. And that risk isn’t quantified until a passenger reaches his/her destination.

To begin with, there are legal problems with the idea. As the Montreal Convention 1999 (MC99) already sets out specific rules on the allocation of liability between carriers, in certain circumstances what the European Commission proposes would actually amount to a breach of the Convention. Standard interline agreements under which airlines enter into commercial cooperation, already include robust operational practices, consistent with MC99, for missed connections. And the provision will be impossible to enforce for some journeys with connecting points outside EU territory as it contravenes the territorial sovereignty of those third countries, potentially even interfering with their own consumer protection regimes.

It is also a concern that the regulation will spawn copycat versions in other countries that view the EU as a key trading partner and look to harmonize their regulations with the EU as much as possible.

Bad for business

It is not just a legal argument, however. There could be more serious unintended consequences resulting from the revision of EU 261. Regional carriers, often the first carrier on an interline journey, may be reluctant to offer interline flights to hubs and onward connections, because if only a handful of passengers miss a connection, the financial viability of the initial flight could be wiped out. Understandably, regional airlines may lean toward stopping the interline connection rather than continuing with a commercially risky service into a hub. This would affect their business, the business of network carriers, and the choice and service available to passengers.

For a passenger, this will mean picking up any baggage at the connecting point of their journey and then having to check-in again for the onward flight. That is, if the passenger can get a flight from the regional airport to the hub in the first place. It means buying two tickets so there is no overall liability regime in place and it will probably be more expensive for the passenger as well, on top of being extremely burdensome and creating havoc in hub airports.

“The proposal is best explained with an example of a flight from a regional point in Europe to Tokyo via Copenhagen,” says Simon McNamara, Director General of the European Regions Airline Association (ERA). “The first leg, operated by a regional carrier, arrives 45 minutes late in Copenhagen and the passenger misses his or her connection. With only a daily flight from Copenhagen to Tokyo the passenger faces at least a 24 hour delay (unless he or she is re-routed via another European hub). In this case, compensation would be due to all the connecting passengers at a rate of $766 (€600) per passenger, paid for by the regional carrier for what was, in effect, a 45-minute delay. This is a disproportionate cost to the regional carrier and poses a real threat to interlining. Why would the regional carrier want to bear this type of risk? It will place a disproportionate burden on European regional feeder operators that play a crucial economic and social role in linking Europe’s remote regions.”

Martin Isler, Vice President at Luxair, agrees. “The proposed revision of EU 261 in its current version would be disastrous for small regional carriers,” he insists. “The proposed connecting rule would make it highly questionable for small carriers to continue to offer feeder services. More than 30% of Luxair passengers connect to one of the big European hubs, which Luxair serves to assure Luxembourg’s connectivity to the world. Depending on the number of disruptions, Luxair could face an additional cost of between $1.9 million (€1.5 million) and $3.8 million (€3 million) for compensation payments alone, not even considering the cost for passenger care. This amounts to a negative EBIT margin of between 1.5% and 3%.” Isler also estimates that more than 100 jobs could be lost if the carrier was forced to shrink its network as a result of the regulation. “We certainly would have to have a hard look at our typical feeder routes,” he admits. “Potentially, such routes will become not only highly unprofitable but also outright dangerous for the viability of our network.”

A disconnected network

Without feeder services from regional airlines, network carriers would need to re-examine the financial viability of certain long-haul services.

Many will doubtless try to continue to serve the bigger and more profitable regional markets with their own services and absorb the cost of unprofitable operations with bigger aircraft. But in many cases they will simply have to abandon routes and services, because the additional cost and capacity utilization for secondary markets will not justify the operation.

“The proposed revision will only confuse matters for international travelers who take a connecting flight to the point of their long-haul departure,” says Monique de Smet, IATA’s Director, Member and External Relations for Europe. “And it potentially harms regional and domestic travelers too by forcing smaller carriers to opt out of services into major hubs.”At their recent Annual General Meeting, IATA members endorsed a set of core principles for passenger rights intended to help regulators understand the air travel experience and to promote ways to improve that experience.

Far from giving a passenger more “rights,” EU 261 will actually take away a fundamental freedom of choice. It will isolate regional communities, materially affect the business of airlines large and small, cost jobs and money, and leave the passenger with a poorer service. And arguably, in a fiercely competitive market, the rule isn’t needed at all. It is taking a sledgehammer to crack a nut.

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