Monday, 1 December 2014

Travellers and insolvency: Developments in the EU - part 1 IATA agreement

The International Air Transport Association (IATA) announced a new voluntary agreement among its members to help repatriate passengers flying to, from or within the EU, who had booked their ticket with an airline that in the meantime filed for bankruptcy and stopped its operations.

Under the new IATA agreement, in the event of an airline bankruptcy, IATA member airlines flying to and from the EU will make their best efforts to offer repatriation to passengers stranded away from their place of residence. Repatriation will be offered to anyone flying to and from or within the EU, who does not already possess insurance covering this eventuality. The offer will be at a discounted rate (rescue fares), subject to available capacity and up to a maximum of two weeks after the event.  The States responsible for the licensing of the insolvent airline should communicate to stranded passengers the possibility of this service. 

This agreement came as a response to a Communication from the EU Commission on passenger protection in the event of airline insolvency, dated 18.3.2013. The Commission estimated that 0,07% of airline passengers flying to or from the EU will be affected by airline insolvency and about 12% will be stranded abroad. To deal with the problem the Commission had recommended mainly proactive measures, including agreements among the members of the industry to offer rescue fares.

The issue is not new, however. The liberation of the EU aviation market, the introduction of low cost carriers and the related intense price competition among airlines caused concerns on the impact of the new situation to the financial strength of air carriers. Therefore, the European Commission had a report prepared on the “Impact assessment of passenger protection in the event of airline insolvency”. The Report was delivered in February 2011 and concluded that the creation of a reserve fund was the optimal solution in terms of passenger protection and economic feasibility, while self regulation of the airlines would be only partially effective. Shortly thereafter, BEUC, the European Consumer Organisation issued a position paper, which criticized the option of self-regulation and urged the European Commission to opt for special rules, i.e. to oblige air carriers to carry special insurance or provide a bank guarantee or establish a special fund. The airline industry reacted especially to the creation of such fund claiming that its overall cost would be prohibitive, there would be too high administration expenses and its usefulness would be practically limited in view of the small number of airline bankruptcies.

The debate gained momentum in the ongoing revision process of Regulation 261/2004 on passenger rights in the event of denied boarding, long delays and cancellation of flights. The European Parliament in February 2014 supported the view that special provisions on airline insolvency should be included in the revised regulation. Therefore, IATA decided to act, in order to self-regulate and prevent formal regulation at the EU level.

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