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Last Updated: Wednesday, 16 February, 2005, 23:46 GMT
Airlines braced for passenger rights
Bill Wilson
BBC News business reporter

Air passengers at Luton Airport
The industry has begun two legal actions against new passenger rules
Airlines across Europe have accepted through gritted teeth a package of passenger compensation rules which come into effect on Thursday.

New EU legislation means passengers on all flights departing from an EU airport or flying into the EU on an EU airline, will be entitled to greater compensation for cancellations, delays and overbooking.

The new regulations apply to both no-frills and larger airlines, and to scheduled and chartered flights, including those which are part of package holidays.

Passengers denied boarding because of overbooking, or delays caused by other airline hiccups, will receive compensation of 250 euros ($296; 167) for short-haul flights, rising to 600 euros for long-haul flights.

We are not happy about these new rules, but we will comply with them
Peter Sherrard, Ryanair

If a flight is cancelled, airlines will have to give passengers meals, refreshments and overnight accommodation (including a transfer to the hotel) free of charge or find them alternative transport to their final destination.

Passengers will also be entitled to complimentary refreshments if they are delayed beyond a specified number of hours, which depends on the distance they are due to fly.

Those who will be most affected are the budget airlines, as the compensation sums are a huge increase on their average fares.

Small outfits hit

"It clearly does impact on low-cost airlines more, as they are operating on lower prices," says Tim Coombs, managing director of London-based analysts Aviation Economics.

"From an industry perspective it does create a level playing-field, as up until now some airlines have been more forthcoming with voluntary compensation than others."

But he warns that, while airlines such as BA, Ryanair, and Easyjet "have some spare aircraft in case of problems", smaller airlines may suffer.

Ryanair aircraft on the tarmac
Ryanair is spearheading the budget airlines in their response

"Some small airlines may only have a couple of aircraft, and would be really hit by compensation claims if one of the craft has problems and it can't get passengers to their destination."

Budget airline Easyjet believes the compensation airlines have to pay should be proportionate to the original fare.

"The compensation element is something we really do not agree with," a spokesman told the BBC.

"To put this into perspective, 250 euros in compensation for cancellations amounts to 400% of Easyjet's average fare - one way, excluding taxes - on top of a refund to the passenger concerned."

'Price strategy'

Easyjet says the European Commission, which framed the rules for the EU, failed to consult the industry and the result is a "bad piece of legislation", which penalises airlines.

"The new rules are going to be confusing to most passengers because compensation only applies in certain cases and the EU has totally failed to manage expectations on this front," it added.

Passenger sleeping in airport
Airlines must come up with accommodation for the stranded

No-frills rival Ryanair also said compensation of 250 euros was a huge percentage hike on its average ticket cost of 35 euros.

"We are not happy about these new rules, but we will comply with them," Peter Sherrard of Ryanair told BBC News.

"It is going to have an effect on our cost-base. However whether or not we absorb the impact, or whether we re-examine our price strategy, is something we will have to look at."

However, already the airline industry has launched a two-pronged counter-attack.

One legal appeal to the European Court of Justice is in the pipeline from Elfaa, the European Low Fares Airline Association, and is being spearheaded by Ryanair.

The market is too competitive at the moment, and there is too much capacity chasing not enough demand - fare increases are not going to happen
Tim Coombs, Aviation Economics

Another one has been lodged by the International Air Transport Association, Iata, which represents most of the large scheduled airline companies.

It calls the EU rules "a bad piece of legislation, which will add costs for consumers and will be difficult to implement".

"These changes do not take into account the reality of the current airline industry," an Iata spokesman told the BBC.

The organisation says more than half of delays - such as bad weather, controller strikes or government security requirements - are outside of the control of airlines.

'Confusing rules'

However, while airlines will have to provide help and assistance in all cases of delay or cancellation - whatever the cause - they will not have to pay the new compensation rates if the reason for delay is not their fault.

Poor weather, strike action, or delays caused by air-traffic control are all examples where compensation rules do not apply.

"We are not arguing about the part of the rules relating to compensation," says the Iata spokesman.

"However these new rules are confusing for consumers and we expect it to be very expensive for the airline industry. We can't speculate about the possible effect on prices at this stage."

But Tim Coombs at Aviation Economics believes airlines dare not raise fares to make up for compensation payments.

"The market is too competitive at the moment, and there is too much capacity chasing not enough demand. Fare increases are not going to happen."




SEE ALSO:
Air passenger rights given boost
17 Feb 05 |  Business
Q&A: New air passenger rights
16 Feb 05 |  Business
Airlines contest passenger rights
21 Apr 04 |  Business
Plan to protect stranded tourists
20 Jul 04 |  Business
EU widens air payout rules
16 Oct 03 |  Business
New EU law over air misery
16 Jul 03 |  Business


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