EU flight compensation rules cry: Airlines decry billions in added costs

EU regulations on compensation for cancelled and delayed flights have increased travel costs for airlines by billions. Carriers will earn an average of £5 this year for every passenger transported.

"Over two decades, poor drafting of the regulation has allowed courts around Europe to create a monster that has added billions to the cost of providing travel. But it has had no positive impact on delays or cancellations," said Willie Walsh, Director General of the International Air Transport Association (IATA), opening the annual general meeting of nearly 300 airlines in Dubai.

This refers to EU Regulation 261 from 2004, which grants passengers the right to compensation if their flight is cancelled or delayed by at least three hours. This can be up to 600 euros.

"Surely, regulators would finally see the irony of airlines picking up the tab for care and assistance of passengers (on top of the costs of restarting their operations), when this was unequivocally an ANSP failure," Walsh added, referring to last year's technical failure in the UK that grounded over 500 planes and tens of thousands of passengers in just one day.

This is not Walsh's first time criticising the right to compensation for delayed flights. It must be emphasized that the regulations developed two decades ago in the European Union are now being emulated by the United States, Canada, and regulators in Asia and the Middle East. A year ago, Walsh, former CEO of Aer Lingus and British Airways, called these regulations a "plague" and "nightmare."

This was shortly after the CJEU ruled that the cancellation of a flight due to the death of a pilot is not an extraordinary circumstance that would exempt an airline from paying compensation to passengers.

The regulation is short, but the case law related to this regulation is already an encyclopedia, said Renata Piwowarska, Passenger Ombudsman at the Civil Aviation Authority (ULC), in a Money.pl program. She explained that claiming compensation for a delayed or cancelled flight is often lengthy. Airlines can avoid compensation if they prove that the delay or cancellation of the flight was not their fault.

The regulations, which have been in force for 20 years, benefit passengers but are a thorn in the airlines' side.

Airlines would like to avoid paying compensation, arguing that sometimes the compensation amount may be higher than the ticket price that the passenger paid. Compensation ranging from 250 to 600 euros is also received by passengers whose ticket was funded by someone else, such as an employer.

It is the passenger who experiences the inconvenience of waiting at the airport. It is the passenger who is entitled to compensation, explained Piwowarska from ULC.

However, changes in the regulations and leniency towards carriers have not been ruled out in the European Union. Discussions on amending the laws have been ongoing since the pandemic when carriers massively cancelled flights. On the table was, for example, the idea to extend the delay time from which compensation is due or to classify technical issues as non-compensable events.

Eurocontrol estimates that technical issues, weather conditions, staff strikes, and difficulties related to airspace management are the leading causes of flight delays and cancellations in European airspace. The average punctuality in Europe in April 2024 was 72.6 percent.

According to airlines, the costs of compensating for delayed flights do not translate into improved punctuality. Walsh pointed primarily to air traffic controllers and inefficient airspace management systems, which could reduce travel time and contribute to reducing carbon dioxide emissions.

These regulations have also created a branch of business for intermediary firms that help passengers obtain compensation in exchange for a 25-50 percent commission from the awarded amount.

IATA represents the interests of over 330 airlines worldwide, including Lufthansa, British Airways, and KLM. The organization forecasts airline revenues to reach $1 trillion this year. However, the profit, "eaten" by operating costs and taxes, is expected to be $30.5 billion.

Unfortunately, this is not a record and signifies a net margin of over 3 percent. But considering where we were just a few years ago, it is a significant achievement, Walsh added, emphasizing that air transport has emerged from the unprecedented crisis caused by the pandemic.

By the end of this year, airlines plan to carry almost 5 billion passengers on over 22,000 routes, performing a total of 39 million flights. These statistics do not include, for example, the results of low-cost airlines Ryanair and Wizz Air, which are not members of IATA. The profit per passenger will be $6.14, or almost £5.

Walsh added that governments that love to examine our industry for new tax revenues must understand that our margins are thin.

IATA calculates that over the past decade, the real cost of air travel has fallen by 34 percent. The average round-trip airfare is expected to be $252 this year.