Communication on ‘Passenger protection in the event of airline insolvency’

The Single Market for air transport has brought significant benefits to consumers. These include a wider variety of air services (such as the development of "low cost" carriers and the introduction of new routes) and a greater choice of fares due to increased competition. However, competition places increased pressure on inefficiently run airlines or those which inadequately respond to customer demand; stress points being highlighted when demand declines and costs rise.

Increased competition has paralleled a rise in the number of airline failures, with 105 European scheduled air carriers becoming insolvent between 2000 and the first six months of 2012. The scale of such insolvencies varied with small airlines, offering relatively few seats having little impact, to larger airlines, such as Spanair, Malév and Windjet, causing major disruption for individuals. Passengers who had departed, or were about to do so, when a carrier became insolvent ran the risk of being left without assistance. Such failures have a greater impact on passengers stranded away from home, particularly at points where there were either no or limited alternative services. This issue has therefore raised both public and political attention.

Unlike other services or transport modes, air tickets are often bought months before the flight departs. To ensure seats are filled as early as possible air carriers encourage passengers to purchase by offering lower fares the earlier a booking is made. Passengers can therefore be more vulnerable to air service provider insolvency.

The position of passengers when an air carrier is declared insolvent will vary depending upon how their ticket was purchased. The most significant difference being between standalone (flight-only) tickets and those purchased as part of a package. Passengers who purchase a package covered by the Package Travel Directive (PTD) are already protected. This Directive requires organisers to either refund the consumer or make alternative flight arrangements and provide interim assistance (e.g. hotels/refreshments) if a contracted air carrier becomes insolvent.

Regulation (EC) No 1008/2008, which governs the licensing of European air carriers, requires Member States to take action should they not be satisfied with the capital adequacy of an air carrier they licence. However, the current EU legal framework does not establish any direct insolvency protection requirement for flight-only ticket holders - such passengers usually having to ensure their own protection.

Regulation (EC) No 1346/2000, governing cross-border insolvency proceedings, entitles passengers resident in another Member State to the insolvent airline to lodge claims for refunds or damages in foreign insolvency proceedings. However, even if a passenger is successful in his/her claim, which is not certain, there would inevitably be a delay in receiving payment with the affected passenger having to meet their own costs in the interim.

There is evidence that the awareness of passengers of the protection they may have is generally poor, even for those covered by PTD. In a survey conducted for the Directorate General for Justice of the Commission to support potential revisions to that Directive, 66% of respondents did not know whether they were protected if the airline they were booked on became insolvent. There is therefore a situation of market failure, as passengers are inadequately informed about the risks they incur and may not take action to protect themselves against them.

In this context, especially for flight-only ticket holders, it is important that passenger protection be enhanced. Addressing this issue quickly could be achieved without new legislation by more effective use of existing law. With this aim, this document assesses the current state of play and considers what measures could effectively be implemented by the Commission, vis-à-vis the competent national authorities and stakeholders.

See also:
- Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EC) No 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights and Regulation (EC) No 2027/97 on air carrier liability in respect of the carriage of passengers and their baggage by air

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