Passenger Rights Under EC Regulation 261/2004 in the Ever Evolving Global Covid-19 Pandemic

4th August 2020 by Sarah Bolt

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Sarah Bolt and Joanne Liadellis

The global reported death toll from COVID-19, at the time of writing, stands at over 504,000 with over ten million confirmed cases worldwide. For obvious reasons, the aviation industry has been hit particularly hard by this outbreak. As countries began to lockdown borders and introduce travel restrictions, demand fell rapidly, flights were cancelled, fleets were grounded, and the industry has been forced to furlough staff and consider redundancies, a situation that is ongoing. The potential loss in passenger revenue as a result of COVID-19 is estimated at USD
84.3billion and carriers now face the monumental task of restructuring their business operations in the ever evolving global pandemic. As we approach the summer holidays, families all over the
world are beginning to realise that their travel plans will likely have to change with flights and holidays being cancelled. This article will provide an overview of EC Regulation 261/2004 ( “the Regulation” ) in the context of COVID-19 and the European Commission’s guidance and recommendations for the use of vouchers as a form of reimbursement.

EC Regulation 261/2004

The Regulation applies to passengers departing from an EU member state or arriving into an EU member state, providing that in the latter case, the carrier is headquartered in the EU.

The Regulation provides compensation, in certain prescribed circumstances, to passengers in the event of a flight delay, flight cancellation or denied boarding, as well as obligating carriers to provide certain care and assistance to passengers.

For cancellations and delays of over three hours, a passenger could typically expect to recover compensation of: EUR250 (for short distance flights below 1,500km); EUR400 (for flights between 1500km and 3,500km); or EUR600 (for flights over 3,500km).

The above compensation entitlement will only be triggered if:
a) In the case of cancellation, the passenger was not informed of the cancellation more than 14 days before departure; and
b) There were no ‘extraordinary circumstances’ (Article 5.3 of the Regulation).

The above prescribed compensation is in addition to the right to a refund for any cancelled and therefore unused flight (as discussed further below).

Extraordinary circumstances

Under Article 5.3, an airline may be exempted from paying compensation if it proves that the cancellation was due to ‘extraordinary circumstances’ i.e. circumstances that could not have been avoided even if all reasonable measures had been taken.

These two words ‘extraordinary circumstances’ have attracted a huge amount of judicial attention in recent years with a number of notable decisions seeking to define what circumstances might be covered. It is generally accepted that the following circumstances will be regarded as ‘extraordinary’ under the Regulation: bird strikes; political or civil unrest; security risks; certain meteorological conditions or natural disaster making safe operation of the flight impossible; airport closure; medical grounds such as serious illness or death of a member of crew at short notice; and air traffic management decisions suspending or restricting operations.

The key question is: will the COVID-19 pandemic be regarded as ‘extraordinary circumstances’ under the Regulation?

The answer is more complex than a simple ‘yes’ or ‘no’. It will depend on the exact reason a flight is delayed or cancelled, for example, whether there are government measures in place preventing air travel or a more acute situation of a passenger exhibiting symptoms prior to a flight departing, leading to passengers being disembarked and the flight being cancelled.

The European Commission issued Guidelines on 18 March 2020 which, whilst not binding, indicates that ‘extraordinary circumstances’ could be established in the below three COVID-19 related scenarios:

An extraordinary circumstance may also be deemed to exist where no person would take a particular flight so that it would remain empty if it was not cancelled; the Commission has remarked that it would be appropriate for airlines to act in good time in these circumstances.

To be clear, if a flight is cancelled then passengers will still be due a refund and carriers will remain obligated to provide care and assistance, even in the event that those passengers are not entitled to compensation due to there being an ‘extraordinary circumstance’.

The interpretation of ‘extraordinary circumstances’ in the context of COVID-19 is likely to evolve as we move into a post-COVID-19 world with the resumption of air travel. Carriers are likely to be faced with many different scenarios where flights are delayed or cancelled due to issues related to COVID-19.

Each cancelled flight will need to be assessed on an individual basis as both the EU Commissioner for Transport and the CAA have emphasised that airlines cannot use COVID-19 as a blanket excuse. Carriers will need to consider whether a clear link can be established between the extraordinary circumstances relied upon and the cancellation, and whether it took all reasonable measures to avoid having to cancel that flight.

Reimbursement and rerouting

The Regulation requires carriers to provide the following options in the event of a cancellation: reimbursement (refund); rerouting at the earliest opportunity; or rerouting at a later date at the passenger’s convenience.

It may of course prove impossible to offer rerouting of passengers during the pandemic, particularly rerouting at the earliest opportunity i.e. within a reasonable time. It might even be impossible for air carriers to give an estimate as to when it can resume operations to certain countries.

Reimbursement or voucher?

Pursuant to the Regulation in its current form, a passenger is entitled to a full refund of the cost of the ticket, at the full price paid for the ticket, within seven days. This includes for parts of journeys which have already been made, if the outstanding part of the journey is cancelled. There is, however, the provision in Article 8 that confirms that payment of any reimbursement to the passenger shall be in accordance with Article 7(3) which allows for the airline to provide travel vouchers to passengers, where the passenger has provided their signed agreement to the same.

The European Commission’s guidance published in March 2020 emphasises that passengers will be entitled to a full cash refund, and not just a voucher, where their flight is cancelled.

The non-binding nature of the Commission’s guidance and the alleged lack of clarity of the recommendations has resulted in criticism from the industry represented by International Air Transport Association (IATA), Airlines International Representation in Europe (AIRE), Airlines for Europe (A4E) and European Regions Airlines Association (ERA) which all advocate for the Regulation to be temporarily amended to allow carriers to defer reimbursement by providing vouchers during these unprecedented times.

There is growing debate around this temporary voucher solution with Thomas Reynaert (managing director of A4E) stating that whilst passengers have a “clear right to reimbursement of their tickets, we believe refundable vouchers, or a delayed reimbursement, represents a fair and reasonable compromise given the unprecedented liquidity situation airlines are currently facing”.

Montserrat Barriga, Director General of ERA has gone as far as to say that “amending EU261 is key to survive this catastrophic situation that will otherwise ultimately damage the consumer and lead to higher prices and fewer routes”.

Despite the ongoing debate, the Commission published guidance on 13 May 2020 confirming that passengers have the choice between reimbursement and a voucher for those flights cancelled by carriers which fall under the Regulation. The Commission highlights within this guidance that there is a growing concern that vouchers may never be honoured in the event of a carrier becoming insolvent. The guidance suggests that the aviation industry 40 works towards making vouchers a more attractive option to passengers, alluding to the need for vouchers to be protected against any insolvency situation, potentially via insurance arrangements or even government backed arrangements.

The Commission has made some recommendations to assist airlines in making vouchers more attractive to passengers. These recommendations include: that vouchers have an extended validity period at a minimum of 12 months; where a voucher with an extended validity period has been issued, passengers should have the right to request reimbursement no later than 12 months following the issue date of the voucher; passengers should be able to use vouchers against a new booking made before the expiry of the voucher, even if travel takes place after the expiry of the voucher; passengers should be able to use the vouchers towards payment for any transport or package travel offered by the carrier; airlines should ensure that (irrespective of any fare/price differences) the passenger is able to travel on the same route under the same services conditions as their initial booking; and issuing vouchers with a higher value than the amount of any payments originally booked (this could be an additional lump sum or additional service elements).

The Commission has also recommended that consumer and passenger organisations at both union and national levels encourage passengers to accept vouchers that include the above characteristics. It remains to be seen whether the aviation industry will now begin to lobby the UK government to create a public backed temporary voucher scheme to ensure full protection for passengers in the event of airline insolvency and to ensure eventual reimbursement is provided in those circumstances. However, the Commission’s guidance is currently that passengers are entitled to a choice between reimbursement rather than a voucher if they so choose. Therefore, whilst making vouchers a more attractive option, ultimately the vast majority of passengers are likely to choose a cash reimbursement given the uncertain future of air travel.

Sarah Bolt is an Associate with Clyde & Co, London.
She can be contacted at sarah.bolt@clydeco.com
Joanne Liadellis is a Paralegal with Clyde & Co, Manchester
She can be contacted at joanne.liadellis@clydeco.com

About the Author

Sarah is an associate in the aviation practice group of Clyde & Co. Her practice consists of mainly contentious aviation matters including the defence of passenger claims on behalf of airlines and their insurers.

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