Consumers set to lose £4.7 million a year in Flight Compensation under Government’s proposed reforms
On 31st January 2022, the Government published a consultation paper called Reforming aviation consumer policy: protecting air passenger rights. This Government consultation should be a concern for anyone that travels by air. Lovetts Solicitors looks at how the proposed reforms could have a devastating impact on passengers and reduce consumer rights.
Background to Flight Compensation Regulations
The Flight Compensation Regulation EC 261/2004 was introduced to ensure there was a high level of protection for passengers and it enhanced consumer protection. Denied boarding, cancellation or long delays of flights causes serious trouble and inconvenience to passengers.
The number of passengers that had to suffer from delays or denied boarding against their will was too high, as were cancellations of flights at short notice. As a result, regulations were introduced that protected consumers and allowed them to claim between €250 – €600 for flights delayed by more than 3 hours and cancellations where notice of cancellation was served less than 2 weeks before the flight.
This was subsequently introduced into UK law under The Air Passenger Rights and Air Travel Organisers’ Licensing (Amendment) (EU Exit) Regulations 2019 which under Part 4, section 8 and allows passengers to claim compensation ranging from £220 – £520.
The introduction of the regulations resulted in a significant improvement in airlines getting passengers to their destinations on time and a reduction of airlines cancelling flights for commercial reasons.
As identified in the consultation and impact assessments, airlines do not have to pay compensation for every delayed or cancelled flight. Where there has been extraordinary circumstances and reasonable measures have been taken by the airline, compensation is not payable.
Comments on the Executive Summary
We were concerned to see reference to the pandemic and the impact on the aviation industry in this consultation. This should not be the basis of considering legislation change which could last for the next 20 – 30+ years and be applicable to airlines that aren’t even in existence yet. The main focus should be on consumer protection and enhancing consumer rights rather than diminishing them.
Paragraph 2 of the executive summary also says “We have seen industry step up to respond more flexibly, and to work collaboratively with the Civil Aviation Authority (CAA) to ensure they are protecting consumers.” It is not correct that the airlines are working with and protecting consumers for the reasons we will illustrate in the response. You only have to look at the recent case of CAA v RyanAir DAC (022) EWCA Civ 76 as an example of airlines failing to work collaboratively with the CAA. The CAA had to go all the way to the Court of Appeal because RyanAir did not agree with the CAA’s view that passengers should receive compensation for flights cancelled due to strike action in 2018.
Proposals would damage consumer protections
The proposal to reduce compensation for passengers to £16 – £65 in compensation compared to £220 – £520 they would receive under the current regulations should be a concern for anyone that travels by air. Airlines will benefit but passengers will not.
It doesn’t seem right that an airline could cancel your flight for commercial reasons (for example the aircraft is half empty) and place you on a flight the next day to fill the aircraft. Passengers will be booking flights uncertain whether an airline will cancel or delay their flight for commercial reasons. For example if a full to capacity aircraft would generate £100,000 of revenue for an airline but a flight was only half full, under the proposed reforms it increases the likelihood that an airline will delay the flight and put passengers on a later flight to ensure maximum capacity because they would only have to pay a maximum of 50% compensation (£25,000). Therefore, they operate the flight at £75,000 (£100,000 less £25,000 compensation) which is significantly better commercially than operating a half full aircraft at £50,000. Even if the flight was cancelled and 100% of a ticket price is still commercially beneficial to airlines because they will save costs by operating one flight instead of two. Profits will be maximised for the airline to the significant inconvenience and detriment to the passengers. The compensation amount would not sufficiently compensate them for the distress and lost memories of time spent on holiday with their family.
The executive summary also states that the consultation is to “…consider what reforms could be made to reinforce consumer confidence to fly and thereby help to strengthen our critical aviation industry.” The proposed reforms increases the likelihood of more delays and cancellations which will reduce consumer confidence and damage the UK’s reputation with passengers around the world.
Cost to consumers
The impact assessment (IA No:DfT00435) figures at Table 2 are wrong. As seen below, it adds up all the figures to create a total benefit.
| Benefits||Year 1||Year 2||Year 3|
|Additional compensation payments for delays of 1-2 hours|| £1.8m || £2.6m || £3.5m |
|Additional compensation payments for delays of 2-3 hours||£1.2m||£1.8m|| £2.4m |
|Reduced compensation payments for delays of 3+ hours||£7.7m||£7.8m|| £7.9m |
|Total benefits||£10.7m||£12.3m|| £13.9m |
However, the reduction of compensation should be a minus figure and displayed as follows:
|Benefits||Year 1||Year 2||Year 3|
|Additional compensation payments for delays of 1-2 hours||£1.8m||£2.6m||£3.5m|
|Additional compensation payments for delays of 2-3 hours||£1.2m||£1.8m||£2.4m|
|Reduced compensation payments for delays of 3+ hours||– £7.7m||– £7.8m||– £7.9m|
|Total benefits||– £4.7m||– £3.4m||– £2.0m|
Therefore, Table 2 is misleading as there is no financial benefit to passengers. There are multiple statements made in the impact assessment that somehow this will be fairer to the passenger. However, as seen from the impact assessment, passengers will lose between £2 – £4.7 million a year if not more. That is not fair on passengers and reduces the rights they currently enjoy.
Average time of flight delays
Delays that the passengers suffer can be significant. One of the largest low cost airlines has an average delay time of 16 hours 54 minutes (based on 14,000 flights we have handled) and another large low cost airline has an average delay time of 9 hours 35 minutes (based on 1,200 flights). The impact assessment states that the average ticket price is £65, leading to compensation values of £16.25, £32.50, and £65 for delays of 1-2 hours, 2-3 hour and 3 hours. The current level of compensation starting from £220 adequately compensates consumers that have to suffer the inconvenience and in some instances the distress of being in an airport for 16 hours and missing a day of a family holiday whereas £65 would not be sufficient.
Current Regulations have a minimal impact on Airlines
The Impact Assessment states that the EC261/2004 Regulations “have not kept up with the growth in low-cost airlines and the rates are not representative of the costs of travel.” However, that is not correct. Low cost airlines were already prevalent and were considered prior to the introduction of the regulations. For example RyanAir and easyJet were formed in 1984 and 1995 respectively. These are decades before the EC261 regulations were introduced.
The concept of changing the compensation is explained in the Impact Assessment which states “The policy objective is to ensure that paid compensation for delayed flights is more representative of the costs of travel and to reflect the newer ways consumers are choosing to travel by air (e.g. flying with low cost airlines). Linking compensation to the price of travel, and providing partial compensation for shorter duration delays, would increase fairness for both businesses and consumers. More closely aligning domestic aviation compensation with other domestic modes of travel (e.g. rail and maritime) is intended to increase clarity for consumers.” Catching a train is incomparable with a flight. There are often a number of trains that can be caught in the same hour. There will also be alternative options to get to your destination such as bus replacement services or catching a taxi. These are not viable options for a passenger travelling by air. They are beholden to the airline as to the flight they catch and they cannot travel to their holiday destination overseas by bus or taxi.
The impact assessment does not appear to have consulted consumer rights protection groups. Instead it is heavily focused on the impact on airlines. Airlines will of course be motivated to pay less compensation to passengers. There has been no evidence to the airline’s assertion that compensation paid to passenger equates to 3% of an airline’s turnover and that is because it is unlikely to be true. The impact assessment calculates total compensation amounting to £10.6 million of compensation paid out of a possible £16.3 million each year. An example would be to compare this to the turnover of easyJet up to 30th September 2019 which was £6.3 billion. Even if easyJet were liable for all compensation, which it wouldn’t and paid 100% of £16.3 million to passengers, it would only amount to less than 0.3% of turnover.
Equally if we look at the impact assessment calculations of there being 230,000 flights with an average of 83 passengers per flight. This is a total of 19 million passengers (19,090,000). Even if 100% of 16.3 million was paid out it is the equivalent of 85p on every flight ticket. It is therefore not a significant impact on airlines and probably something they factor into the price of the ticket.
Alternative Dispute Resolution
Airlines have already incorporated into their terms a requirement for passengers to submit their claims through their own online portals. In most cases, it gives the airlines at least 1 month to respond or resolve the claims. Airlines are actually taking longer to respond to passenger’s claims and pay outs are low. For example, of the claims submitted directly through online portals of the two largest low cost airlines, on average only 15% of cases were paid directly to passengers.
When Lovetts first started assisting passengers with flight compensation claims in 2015, one low cost airline would only resolve 1% of cases at pre-action cases. We were able to support passengers and issue Court proceedings on these claims. However, it is apparent that some airlines spuriously dispute claims in the hope passengers will not pursue their claims any further.
If the reforms are introduced, the average of 15% of payments direct to passengers referred to above is likely to decrease even further because airlines will anticipate that passengers appetite to pursue a compensation for £16 will be low and they will reject most claims again like they did in 2015.
The Impact Assessment states that the Court process can be an expensive and lengthy process. However, Claims Companies have mitigated this by ensuring that the stress and expense of claiming from airlines is no longer a problem for consumers. The Claims Company will fund the claim and manage the litigation process for them. A fee is only payable if the claim is successful. Often the fee will be as little as £55 which is extremely reasonable considering that the consumer receives a stress free experience and does not have to fund the claim but receives compensation of £220 – £520 (less the fee) at the end of a successful claim.
Although we are advocates of ADR in settling most disputed litigation matters, we do not believe it will have a significant impact on flight compensation claims. For example, mediation is a positive way of resolving disputes in most cases. However, it requires both parties to have some form of leverage to secure a negotiated settlement. Passengers do not have any leverage over their airline and because the compensation sum due is fixed, it would not be right or fair for the passenger to accept a reduced sum in full and final settlement. The compensation amount is either due or it isn’t.
Expert determination was referenced as being binding on the airlines. However, airlines will not necessarily pay out as a result of that decision. As referenced earlier on, the CAA had to go all the way to the Court of Appeal in CAA v RyanAir DAC (022) EWCA Civ 76 because RyanAir did not agree with the CAA’s view that passengers should receive compensation for flights cancelled due to strike action in 2018. Therefore, expert determination decisions will often still require passengers to enforce these through issuing Court proceedings.
Although we do not have an objection to requiring airlines to join ADR schemes, it should not be mandatory for passengers to use the ADR scheme. It simply adds another layer of red tape and delay in securing payment of compensation.
Passengers certainly should not be required to pay for access to an ADR scheme should they opt to use one. It would certainly put passengers off making a claim especially if the compensation they are seeking would have been reduced to £16 – £65 under this current proposal.
Costs to the Government not considered
The impact assessment did not consider the loss to the tax payer and Government in a reduction of Court claims. On average a flight compensation claim will generate £50 in Court fees for HMCTS. A freedom of information request was made prior to the response to this consultation asking how many flight compensation claims HMCTS receive each year but a reply was not received.
On average 14% cases will result in Court proceedings being issued. The impact assessment states that it assumes 87,150 passengers potentially can make a claim for flight compensation each year. On that basis, 14% of these cases (12,201 claims) would theoretically go through the Courts generating a total of £610,050 of revenue each year for HMCTS.
The majority of this revenue will be lost under the current proposals because it is unlikely to be cost effective for passengers to issue claims for such low amounts especially as the Court fees will be double the amount they can claim in most cases. This essentially denies passenger’s access to justice. It is also assumed that the tax payer would be required to plug this £600k shortfall.
In cases where a passenger can claim under either EC261 regulations or under UK law, the passengers will simply opt for the larger sums under EC261 legislation and pass claims through the Courts of Europe rather than through UK Courts with the assistance of Companies such as Flightright.
In summary, although reducing the delay threshold to 1 hour would enhance passenger rights, the reduction in the proposed compensation to on average £16 – £65 would have devastating impact on consumer rights. Currently passengers have the right to claim between £220 – £520 which means if the proposed reduction in compensation was enforced, passengers would lose out on £4.7 million a year.
Cancellations and significant flight delays, for some airlines averaging over 16 hours, cause considerable distress to passengers and results in them often losing time on holiday and creating memories with their families. £16 would not sufficiently compensate them for that distress.
Low budget airlines were already in operation and thriving at the time EC261 regulations came into force. Legislators were fully aware that the compensation values may exceed ticket prices however, airlines needed that threat of a penalty to ensure they focused getting passengers to their destination on time because at the time the regulations were introduced flight delays and cancellations were too high.
If compensation is reduced, airlines will be able return to the days of making commercial decisions to delay and cancel flights that aren’t full to capacity to maximise sales and profits to the detriment of consumers. This would damage the UK’s reputation with passengers across the world.
Airlines are not significantly impacted by the current flight compensation regulations. If all claims were paid out, which they are not, it would only equate to the equivalent of 85p per flight ticket.
Compensation for such low amounts will also put passengers off claiming and deny them access to justice. The impact assessment does not consider the potential loss of £600k revenue to HMCTS and the Government through the drop in claims.
Overall, we believe that the current proposals are extremely harmful to consumer rights and that no change should be made to current compensation levels that passengers can claim.
Notes to Editors
Lovetts Solicitors are a specialist debt recovery law firm based in Guildford, Surrey that has been operating since 1994. It is one of the leading law firms in the field of flight compensation claims. If further comment is required, please contact Michael Higgins, Managing Director of Lovetts Solicitors by calling 01483 457500 or emailing [email protected]