UK Aviation Consumer Policy Reform

Is the Department for Transport consultation a missed opportunity?

Airlines and travel businesses will now be preparing their responses to the latest in a series of UK Government proposals for reform of consumer protection. The Department for Transport issued a consultation[1] on 31 January 2022 entitled “Aviation Consumer Policy Reform” and responses are due by 27 March. Although the proposals are not as extensive as they could be, if carried through they will have a significant impact on airlines, and to some extent other travel businesses, who should therefore consider having their say before the deadline.

The consultation paper addresses four main areas.

1 Compensation for delays and cancellations to domestic flights

The most eye-catching item is almost certainly the proposal to change significantly the basis of compensation for domestic delays and cancellations. The proposal is that, instead of a single compensation level on late cancellation or a delay over three hours, compensation is based on an escalating proportion of the ticket price as the delay increases:

Delay of between 1 and 2 hours: 25% of ticket price

Delay of between 2 and 3 hours: 50% of ticket price

Delay of more than 3 hours: 100% of ticket price

The comparison drawn is with the domestic rail regime. The logic of this proposal is that under the current system, delays to short haul flights are undercompensated, whereas longer delays are overcompensated – often by a factor of several times the ticket price.

Although the consultation seeks views on modifying Regulation 261 as now applied in the UK (‘UK261’), no proposals are made in relation to cancellation and denied boarding. There is no suggestion of reform of the assistance and refund obligations. It is perhaps unsurprising, given the overall tenor of the consultation, that no consideration is given to modifying the burden of UK261 in extreme circumstances such as a global pandemic.

It is curious, and somewhat unsatisfactory, that the consultation does not address international flights. The cursory explanation, that the UK is bound by treaty obligations, is unconvincing. The only treaty referred to is the Montreal Convention, which did not prevent the EU introducing Regulation 261 in 2004. The Trade and Cooperation Agreement between the UK and EU does of course require consultation on changing certain aspects of consumer protection – though whether something which purely affects UK domestic flights requires consultation is debatable – but that is purely a consultation obligation, not a prohibition on changing the law, and the TCA is not cited as a reason.

In any event, any change will need to address how that proposal applies to through flights with distinct domestic and international sectors. The result in any case is the potential for multiple compensation regimes, and the Government has not taken the opportunity to address international flights. It would however be plainly inappropriate for a one-hour delay on a long-haul flight to trigger a 25% refund, and there is a risk that this proposal sets that expectation.

2 Mandatory alternative dispute resolution

As matters stand, although all airlines may join approved ADR schemes for resolution of consumer disputes in the UK, and those that do cover about 80% of UK air traffic, it is not mandatory. The consultation proposes, under the banner of ‘Resolution for individual customers’, that ADR becomes mandatory for all airlines operating to, from or within the UK.

It is worth noting that the current schemes are not a traditional mediation process. They are more a form of expert determination which operates as a ‘one way bet’ – in other words, if the passenger likes the outcome, the airline is bound. The reverse is not true, and the passenger can always proceed to Court if unhappy with the outcome. This begs the question as to whether airlines should also have a right of appeal if they are to be obliged to submit to those processes.

As with the proposal to change compensation levels for domestic delays, the consultation features an Impact Assessment, which is designed to demonstrate that the overall impact – on both airlines and their passengers – is reasonable. What is notable – and this is also true of the compensation assessment – is the uncertainty of many of the estimates on which the assessment is based. For what should be an evidence-based approach, this is unsatisfactory. For instance, the estimates of time spent by airlines in handling compensation claims look very modest to us. Airlines who have more information on these issues, and who wish the Government to reconsider, will do well to submit detailed evidence of the workload entailed in dealing with UK261 claims.

3 Regulatory enforcement powers

One of the major themes that emerged during the COVID-19 pandemic was whether the UK Civil Aviation Authority has appropriate powers to enforce airlines’ compliance with consumer protection measures such as Regulation 261. As matters stand, the CAA often has to take a company to Court to impose fines for non-compliance and this is said to reduce the incentive to comply promptly, particularly in times of difficulty such as a pandemic when numerous refunds are required.

Both the CAA and the Competition and Markets Authority have jurisdiction over travel businesses to enforce consumer protection under the Enterprise Act 2002. The current consultation has to be seen in the context of the wider-ranging Department for Business, Energy & Industrial Strategy consultation on ‘Reforming competition and consumer policy’, which closed in October 2021 and considers similar measures in order to ‘conclude cases faster, end infringements and secure redress for consumers’. The Government is analysing the feedback received then, and will feed those views into the DfT consultation on aviation consumer policy.

The latter consultation canvasses views on a wider range of enforcement powers, specific to aviation, than those available across other consumer sectors generally. It raises the question of why aviation should be singled out. The consultation sends mixed messages in noting specifically that the vast majority of air passengers do not experience problems. This is somewhat at odds with the selective messages from consumer groups quoted by the Government when releasing the consultation. The answer seems to lie in the ‘severity of detriment’, in other words, the notion that if something goes wrong the impact on passengers is significant.

In contrast to compensation for delayed domestic flights and mandatory ADR, no specific proposals are made in this area. The DfT simply seeks views on the ability of the CAA to determine breaches of law, to direct businesses to act in a compliant manner, and to order compensation or financial penalties. The consultation is somewhat opaque on the possibility of turnover-based fines – it appears that future CAA powers of this nature will be addressed in the BEIS consultation, will be similar to those of other regulators, and will require application to court. However, industry participants will be aware that the risk of turnover-based fines has led to enormous compliance efforts in other areas – at significant cost.

4 Accessibility

As with enforcement, this is also a subject where no specific proposal for change has been put forward. However, no doubt prompted by a small number of relatively high-profile instances of delayed or damaged mobility equipment, the consultation invites views on matters such as (i) increasing limits of liability for damage in the course of air transport; and (ii) the practicalities of special declarations of value. The latter is of course a subject beloved of students of the Warsaw and Montreal Conventions, but almost never encountered in practice in passenger air transport.

Consultees are also asked in general terms about other reforms that may improve facilities for passengers with accessibility needs. There is a separate – but in this respect related – request that consultees identify whether, and if so how, individuals with protected characteristics, such as race, sexual orientation or age, would be affected by changes in this area or how these reforms might achieve the objectives of eliminating discrimination and advancing equality.

Other participants in the sector

We have commented in the past about the desirability of tackling the entirety of the consumer protection regime for aviation and travel. The consultation recognises that the airlines are just one part of the sector but only touches briefly on many of the other relationships. Airports should consider the observations about mandatory ADR. There is brief reference to a tour operator’s ability to recover refunds following a cancellation: issues of this nature raise the question of whether other regulation requires amendment as well as UK261.

Conclusions

On one view the consultation is quite limited in its ambition. We note above how the proposed change to compensation levels only affects domestic flights. Only two specific proposals are made and in each case the only comparison is with ‘do nothing’ – there are no alternative proposals. Perhaps that stems from a recognition that the system is already complicated: however, we already have the prospect of divergent Regulation 261 regimes in the EU and the UK and this proposal further fragments that regime.

Even within the limits of UK261, there seems to be no appetite to provide greater clarity on vexed issues such as ‘extraordinary circumstances’ as a defence to a compensation claim, nor issues such as relationships with agents. We have seen various instances of travel agencies in administration where the administrator demands that refunds be paid to them but gives no assurance that the passenger will receive a full refund. Clarity of such obligations will remove obstacles to prompt resolution of claims.

Aviation consumer protection measures range from isolated failures such as a flight delay, through airline or tour operator insolvency, Consumer Credit Act rights and accessibility for those at a disadvantage. They impose obligations on many participants, including airlines, airports, tour operators and the financial services sector. It is a multifaceted regime which does not all mesh together well. At a time when the industry is seeking to ‘build back better’ after the COVID-19 pandemic, and facing other external pressures, there are multiple regulatory initiatives: the airline insolvency review is still under way, and this consultation comes almost simultaneously with a European Commission review of the Package Travel Directive (and BEIS has been quoted as saying that they may ‘pinch some ideas’). We trust that these measures will not prove a missed opportunity for simplification and co-ordination in the interests of the industry and its customers.

Coauthored by Simon Phippard and Ayah Elomrani

[1] https://www.gov.uk/government/consultations/reforming-aviation-consumer-policy-protecting-air-passenger-rights