Regulation (EC) No.261/2004 (EU261), which sets out rules for compensation and assistance to passengers affected by cancellations and delays for more than three hours, has been extremely controversial and represents a considerable burden for carriers.
ERA (European Regions Airline Association) has published a study highlighting the particular impact on its airline members and the negative impact on aviation safety. The ERA study has been published to compliment the current review being conducted by the Steer Group on behalf on the EU, as this does not recognise regional carriers and therefore will not provide a proper, full evaluation.
ERA represents 51 European airlines, many of which operate regional and intra-European flights. They are predominately small and medium-sized enterprises (SMEs) providing essential connectivity and logistical support to Europe’s regions. The association has long recognised that regulation EU261 bears significantly more heavily on its members than on larger airlines.
EU261 has given rise to 29 cases before the Court of Justice of the European Union (CJEU) to date – more than any other piece of EU legislation. The original purpose of the regulation was twofold: to deter carriers from denying boarding, cancelling flights and causing long delays, and to give passengers protection when it does happen. Nevertheless, as part of the study legal firm Clyde & Co reviewed the difference in the regulation’s purpose and its current interpreted use by the CJEU. It was found that a number of aspects had been modified, including boarding denied on grounds such as operational reasons; extending Article 7 Compensations to situations of delay in arrival; and severely limiting the circumstances in which an air carrier is able to invoke an Extraordinary Circumstances Defence. This suggests there is influence from those with interests in maximising short-term compensation rather than long-term European cohesion and regional connectivity.
Risk management firm Gallagher’s specialist global aerospace division analysed data direct from airlines – in the region of 170,000 rows of flight data, including 135,000 flights, 30,000 rows of customer data and more than 1,500 delays or cancellations – to get detailed insight on how the regulation is affecting carriers financially. Their findings show that in recent times, carriers have seen expenditure on EU261 doubling year on year, and for the airlines studied, the amount spent on passenger claims has more than tripled since 2016. In addition, compensation payments are on average 296 per cent more than the ticket price paid by passengers. These costs clearly have a serious impact on revenue, especially for regional airlines which have much smaller budgets than their low-cost carrier or legacy competitors.
Airline staff cannot fail to be aware of the financial implications of delays, therefore the study continued to analyse the impact on safety behaviour. Aviation safety specialist Baines Simmons ran a confidential online survey of more than 300 front-line members of staff at a number of European operators and aviation-related companies, asking a series of questions about perceptions, behaviours and decision making. The results were:
- 67 per cent of respondents, professionals in their field, felt that the regulation had had a negative impact on aviation safety.
- 10 per cent of respondents stated that they had reported safety concerns relating to the regulation.
- 20 per cent stated that their employers had taken action to counter the safety threat from the regulation.
- 75 per cent of respondents feel that compensation is not justified when the reason for the delay is an unforeseen aircraft technical failure or event impacting aircraft safety.
- 49 per cent of respondents believe that EU261/2004 has had a negative impact on their organisation’s safety culture.
As the study shows, the effects of EU261 are both anti-competitive and unfair, and has clear risks, including: risk of losing connectivity and interlining; risk of regional and small airlines disappearing; risk of services to remote regions; damage to the national economies of certain countries; and concerns about safety.
Consequently, the recommendations from the ERA study are as follows:
- Operators with an annual passenger load of 2.5 million or less in the preceding year should be subject to reduced compensation of 50 per cent.
- There should be a complete exoneration from compensation on Public Service Obligation (PSO) routes.
- There should be a cap on the liability towards passengers limited to the proportion of the airfare that the operator bears (that is, compensation per flight and not per journey).
- Extraordinary circumstances should account not just for the one flight directly affected but for the whole flight programme for the day to acknowledge the knock-on effect on subsequent flights.
- There should be a complete exoneration if delays or cancellations arise for any safety-related reason (in line with the recently-approved Canadian regulation).
- To allow the airline enough time to perform all the necessary operational checks, the time threshold should be extended from three to five hours.
- The regulation should provide that an airline incurring costs and expenses as a result of the application of the regulation may not be prevented from recovering such costs and expenses by any contractual provision excluding or limited liability.
ERA Director General, Montserrat Barriga, says: “EU261 is putting an unbearable financial burden on small to medium-sized airlines that operate on very low margins, have lower average ticket prices, tighter schedules and smaller teams to deal with claims and legal and administrative procedures and costs; they are therefore disproportionately affected by the regulation. Recent airline failures are sadly reducing competition and choice in Europe. Some ERA members are already abandoning routes that are not profitable, including PSO-subsidised routes. Additionally, an airline should never be financially penalised for taking all the necessary time to carry out safety-related procedures.”
Clyde & Co Partner, Robert Lawson, says: “EU261 has been metamorphosed by the European Court of Justice such that it places an unfair economic burden upon carriers. Most worryingly, EU261 as augmented by its decisions has the effect of penalising carriers faced with potential safety shortcomings beyond their actual control and threatens the viability of many smaller carriers. It is not difficult to conclude that a better balance needs to be struck in the long term interests of the travelling public."
Peter Elson, CEO of Gallagher’s specialist global aerospace division, says: “As a global specialist in aviation risk management and insurance and through our work with our clients, Gallagher recognises the negative impact EU261/2004 is having on the European airline industry. Our analysis of more than 135,000 flights occurring in 2018 has enabled ERA to determine airlines’ total EU261 exposure. The findings demonstrate that, in its current format, EU261 presents an unsustainable financial burden for regional airlines and potentially poses a threat to regional connectivity. No other transport industry is penalised so aggressively under EU regulation. This is not good for the consumer or the industry and needs to be addressed before irreparable damage is done.”
Bob Simmons, Director at Baines Simmons, comments: “My team and I have uncovered worrying levels of risk-taking as a result of the perceived pressure that EU261 causes to avoid costly delays. This ERA paper on EU261 outlines a compelling case for the amendment of the regulation for a number of different reasons and we are delighted to have had the chance to help both EASA and the EU recognise the safety risk perspective.”
ERA celebrates aviation’s high fliers with industry awards
several ERA members celebrated their success as part of the annual ERA Awards. The winners were announced at a formal event in the south of France.
Spanish airline Air Nostrum was declared the winner of the prestigious ERA Airline of the Year Gold Award. An exceptional and impressive airline that has turned its fortunes around from a threatening crisis to a glittering star. The airline is determined to be a true survivor within the aviation industry and was congratulated on its strategic performance and ambassadorial status. With a multitude of positive parameters, this airline is a constant performer and has an impressive achievement of significantly growing in all key areas of activity which led to not only a significant increase in turnover, but more importantly to a disproportionately high increase in profits.
Air Nostrum President, Carlos Bertomeu, said: “The Air Nostrum family is very proud to receive this year’s ERA Airline of the Year Gold Award. This award represents the acknowledgment of not only the 1,500 people who make up Air Nostrum, but also those who have business relationships with us: manufacturers, lessors, financiers, technical and maintenance service companies, customers, etc. We truly are a great family. We feel, at Air Nostrum, as enthusiastic as we did at the beginning of this adventure and shall continue to use the same impetus for the next 100 years. We shall also continue to work hard to become more and more cost efficient, while maintaining our quality excellence. We shall take an active part in the consolidation process of the sector which will undoubtedly come about since the economy of scale and size are two of the few levers regional airlines have left to continue gaining efficiency.”
ASL Airlines Ireland won the ERA Airline of the Year Silver Award for successfully managing and delivering diverse growth and efficiency projects on a major scale, across significantly displaced geographical environments, with differing regulatory regimes and customer requirements. With a clearly growth-focussed organisation, and a dedicated team of staff, this airline has mastered the delivery of large-scale strategic projects. The airline was praised for having taken on new initiatives and challenges, taking them forward to achieve great success.
John Rawl, CEO of ASL Airlines Ireland, said “This is great recognition for the team at ASL Airlines Ireland and I am delighted that their dedication and professionalism has been acknowledged and honoured with the ERA Silver Airline of the Year Award. In Dublin, Shannon, all of our many bases around Europe and our Hong Kong base, we strive to give our customers the best service possible, 24/7, 365 days a year, founded on core values such as safety, reliability and quality.”
Avion Express was this year’s winner of the ERA Airline of the Year Bronze Award, for proving itself to be a stable and determined company delivering creative solutions to diversify itself. A focussed, measured and diverse business with strategic growth in mind, coupled with delivering fundamental efficiencies, the airline was acknowledged for having achieved great things.
Darius Kajokas, Avion Express CEO, said: “Being acknowledged with such a prestigious award is a great honour for us. Avion Express’ team has worked hard for over 10 years developing the company as a reliable ACMI operator. In 2019 we have achieved great results, including our largest fleet in the history of the company and establishment of a subsidiary airline in Malta. Receiving the Airline of the Year Bronze Award shows that Avion Express is moving in the right direction.“
Airlines were not the only winners of the night, with Aarhus Airport taking home the ERA Airport of the Year Award. Aarhus Airport, based in Denmark, demonstrated a significant commercial and operational turnaround, expanding its destinations and increasing its passenger numbers. It completed a major task to change the airport’s structure to a more dynamic commercial business model and has actively engaged with local partners together with modernising its airport facilities to be more appropriate to airlines and passengers.
Peer Kristensen, Aarhus CEO, said: “We are completely thrilled with this award from ERA, it is highly-appreciated recognition of the work we have done and continue to strive at, in turning our airport around and delivering the very best service to the city of Aarhus, our passengers, airline customers and stakeholders. Our 2018 growth achievement made us Scandinavia’s fastest-growing airport and that’s an achievement accredited to all our staff in every department; and we continue to grow, having just unveiled 15 per cent capacity growth by SAS for 2020.”
Finally, each year an individual from one of ERA’s member companies is recognised for their personal contribution to the industry with the ERA Personal Excellence Award. This year’s winner was ERA Vice President Martin Isler from Luxair who throughout his extensive aviation career has worked in virtually every aspect of the airline business. In addition, he has been a dedicated member of the ERA Board for 10 years and is one of the most respected leaders within our sector, industry and association.
Congratulating all the winners, ERA Director General, Montserrat Barriga, said: “The ERA Awards are a fantastic opportunity to celebrate the association’s members, specifically those who have gone above and beyond and accomplished great things over the past year. I cannot congratulate our 2019 winners enough for their contributions to the European aviation industry; they should all be very proud of their respective success.”
ERA President Andrew Kelly added: “These are difficult times for our member airlines as we face rising fuel prices, Brexit, climate change challenges and EU261; and yet all of our winners have performed to the highest degree of excellence over the past year. No matter how difficult the economic, political or regulatory environments, it is clear from the achievements of our winners that ERA members continue to provide airline and aviation services at the highest levels of safety and quality. That is the lifeblood of regions and communities throughout the greater European area.”