Mia Wouters of LVP Law evalutes the consumer-oriented regulations that airlines are facing in Europe.
"Does commercial discipline motivate airlines to do the right thing or does the regulator need to step in? Europe seems to believe that imposing prescriptive solutions is the right way to go."
Staying in business invariably means creating revenue. A large portion of the airlines’ revenue is generated by selling tickets. But how free is an airline when it puts its products on offer and what are the regulatory constraints? The European Union, becoming very consumer-orientated over recent decades, is certainly asking the airlines for an extra effort. You may or may not applaud this, but you need to take into account that when an airline offers a service to the consumer, the consumer needs to pay for this. Governments can ask for enhanced services, but it always comes with a price tag and the passenger, one way or another, will need to foot that bill.
If you strip down the aviation experience to a sole transportation event, merely transporting the passenger from point A to point B, airlines will be able to offer the lowest fare. If, on the other hand, you put the airline under the burden of taking care of the passenger under all circumstances, this will be reflected in the fare. In the end the passenger himself will pay for any consumer-related burden.
Basically two dissimilar philosophies can be discerned when analysing how regulators treat or regulate the airline–consumer relationship, with some grey areas in between. The regulatory framework, in which the airlines need to thrive, plays a paramount role and will influence the strategic directions taken by management. On the one hand we have the highly pro-consumer-oriented governments, such as the European Union, the US or Canada. On the other hand there is the philosophy that relies on market forces and which believes that when a passenger does not like the service he or she receives, next time he or she will travel on another airline. Advocates of this theory rely on the benefits that the liberalisation of the air transport industry is expected to bring along.
This may be true for the class of passengers that flies with the primary purpose of being transported from A to B, and that wants to have a maximum level of service for a minimum amount of money, but may not hold true for the class of passengers that will only travel if and when the price is right. Airlines that target this last category of passengers will try to avoid the extra burden of taking care of the passenger, since this will increase the price of a ticket while its primary intention is to keep fares low. The expectation of such a passenger will probably be lower than the expectation of the passenger who is in need of transport and will seek a certain level of service for the best possible fare. This might also explain why, notwithstanding stringent regulations to the contrary, some airlines still get away with treating the passenger as a mere commodity.
This all sounds very sensible on paper, but in practice one can question if the division between the categories of passengers is so outspoken. Low cost is not always the lowest fare. Low-fare airlines serve point-to-point routes mostly to and from secondary airports, which is not always a disadvantage. It can take you non-stop to places you would only otherwise reach by going through lengthy connections. But, whichever regulatory environment makes up the political choice, in order to avoid too much dissatisfaction, passengers should be “educated” on their rights so that they have reasonable expectations.
To boost revenue, airlines started to unbundle their services. Today airlines no longer provide for “all-inclusive” tickets. Instead consumers pay for the bare transport and if they want to have ancillary services they pay the extra sum that goes with it. Overall this has led to lower fares by allowing passengers to pay only for what they need. As a result, when a passenger asks for a fare quote he or she no longer only wants to be provided with a price and a schedule: the passenger also wants to be informed of the ancillary services and the costs that go with it. Price transparency alone is no longer enough to make an informed choice – true transparency means disclosing the price along with the corresponding product information. Does commercial discipline motivate airlines to do the right thing or does the regulator need to step in? Europe seems to believe that imposing prescriptive solutions is the right way to go.
What consumer-oriented regulations are we facing in Europe?
Regulation 1008/2008 of 24 September 2008, on the common rules for the operation of air services in the Community, forces airlines operating from a community airport to indicate the final amount of the ticket at the outset. Thus the price first advertised on the website should be the final amount the consumer has to pay and it needs to include all applicable, unavoidable and foreseeable fees. In addition, the consumer should be given a breakdown of the price into the basic fare, the taxes and the airport charges that need to be paid on a per passenger basis and which are directly traceable to third parties, as well as any other charges that are levied by the airlines themselves, such as war premiums or environmental taxes. Any optional price supplements, such as luggage or cancellation insurance, must be communicated in a clear and transparent manner, at the start of the booking process with acceptance offered on an “opt-in” basis.
Further regulation is foreseen by Regulation 80/2009 of 14 January 2009 on a Code of Conduct for Computer Reservation Systems. This Regulation calls for a general obligation to provide a neutral and non-discriminatory display (screen). Ranking is free, and it can be carried out on the basis of fare or departure time or elapsed journey; but whatever method is chosen, the outcome must be neutral. The Regulation also imposes an obligation to display “all-inclusive” prices. Flights involving en route stops must be clearly defined, as must the actual operator of the flight. Flights operated by carriers who are on the blacklist must specifically be identified.
This “blacklist” is laid down in Regulation 211/2005 of 14 December 2006 on Carriers with an Operating Ban and renders the regular publication of a list of carriers who are banned from operating in Europe, mandatory. Under this Regulation, the passengers must be informed of the identity of the operating carrier upon reservation, or if that is not possible or if the operator has changed in the meantime, at the latest at the time of check-in. If the operating carrier appears on the blacklist, the passenger has the right to be rebooked and, if only advised at the last minute, he or she has the right to be reimbursed for the full cost of the ticket, or to be rerouted to his or her final destination at the earliest opportunity.
In the EU further regulatory protection is given to passengers with reduced mobility (PRMs). Regulation 1107/2006 of 5 July 2006 intends to ensure that passengers with reduced mobility have the same opportunities as other citizens to travel by air. The regulation applies to all airlines operating in the European Union, thus EU and foreign airlines are treated on an equal footing. The Regulation lays down three principles, which need to be fulfilled at all times. First of all, there must be fair and non-discriminatory treatment of PRMs. Secondly, assistance to PRMs in all EU airports needs to be provided free of charge and quality standards shall be defined to this end. Thirdly, the Regulation calls for on-board assistance and foresees a right to reimbursement and rerouting in case of being denied boarding when the airline is, for acceptable reasons, not in a position to provide the necessary assistance to the PRM. It puts airlines and tour operators under a further obligation to publish their policy towards passengers with reduced mobility.
The unfair business-to-consumer Commercial Practices Directive (UCP) 2005/ 29 of 11 May 2005 also plays a role. It prohibits unfair commercial practices such as misleading actions or omissions, aggressive commercial practices, use of harassment and undue influence. The annexe to the Directive includes a list of commercial practices, which are deemed to be unfair in all circumstances. The UCP stipulates that invitations to purchase must, at the very least, include the main characteristics of the product, the identity of the trader, the price inclusive of taxes and the arrangements for payment.
Three articles of Directive 2011/83 on Consumer Rights are of relevance. This Directive is applicable to contracts closed by consumers over the internet concluded after 13 June 2014. It foresees that the airline must make the consumer aware of the characteristics of its service, of the total price, inclusive of taxes and charges and of the manner in which the price has been calculated. Under the Directive, airlines are no longer allowed to add extra charges for paying by credit card, only the effective cost incurred can be recuperated. It further obliges airlines to seek the consumer’s express consent when adding extra services, which can only be purchased on an opt-in basis.
Directive 90/314 of 13 June 1990 on Package Travel has served as the bedrock for the protection offered to EU holidaymakers. It guarantees protection to consumers who book pre-arranged package holidays involving combinations of flight, hotel, car rental, excursions, etc. The protection includes the right to receive all the necessary information before signing the contract, making sure that one single party is liable for the performance of all services foreseen in the package and the reassurance of repatriation in case the tour operator goes bankrupt. This Directive is under review and the Commission tabled a proposal for a new package Directive in July 2013. The reform responds to the fundamental transformation of the travel market. Consumers are increasingly taking a more active role in tailoring their holidays to their specific needs by using, for instance, the internet to combine certain travel arrangements rather than choosing a ready-made package out of a brochure.
And finally there is Regulation 261/2004. All passengers departing from a community airport or passengers arriving at an EU airport on an EU carrier can, in principle, call for the protection of Regulation 261, provided they have a confirmed reservation and they presented themselves for check-in at the indicated time or at least 45 minutes before departure. This Regulation deals with three possible disruptions of the journey: denied boarding, cancellation of the flight and delays. Depending on the kind of disruptions and the circumstances in which they occurred, the Regulation foresees three possible and cumulative remedies: the right to compensation; reimbursement or rerouting; and the care and assistance which needs to be given under any circumstance. In an attempt to clarify the text of the Regulation, the European Court of Justice delivered some remarkable judgments by way of preliminary rulings. For instance, in calling for equal treatment, the ECJ bestowed exactly the same consequences on a cancellation as on a delay of more than three hours. This notwithstanding the drafters of the Regulation, let it be understood that only commercial cancellations should fall within the ambit of the Regulation and that cancellations and delays should be remedied in different ways. The industry is especially unhappy with the very strict interpretation of the term “extraordinary circumstances” given by the ECJ, which can be used as a defence against the obligation to pay out (high) compensations.
This Regulation is currently under a rather tumultuous revision. In March 2013, the Commission tabled its proposal for a revised Regulation of passenger rights. The Commission’s proposal is earmarked by rather creative thinking to avoid a sterile application of the ECJ’s rulings. In light of the upcoming elections for the European Parliament in May 2014, it seems unlikely however, that we will see a new Regulation before the new Parliament has come into power.
In summary, the European Union takes a clear pro-consumer stance and it seems the EU is heading for even more regulation to protect the consumer. This begs the question: is this a necessity or overprotection?