EU Commission: Covid-19 underlines need for package travel reform

The report, published more than two years after the entry into force of an EU directive on package travel and linked travel arrangements (‘the directive’), describes the main changes brought about by the new regime, as well as the various implementation issues observed in most member states. Interestingly, it also explores the defects in the regime that have been amplified by the pandemic; and draws on issues and suggestions for change raised by consumer associations, airlines and travel operators.

However, while the Commission honestly reports on the difficulties faced by the travel sector in complying with such complex legislation, it fails to provide much in the way of solutions. Next year, the Commission is due to publish an in-depth assessment of the current regulatory framework and whether it needs to be amended, particularly around insolvency protections - something that is already quite apparent today.

The Commission will also assess “how a fairer sharing of the burden among economic operators along the value chain could contribute” to the proper protection of EU travellers. The review will take place in parallel with other proposals, including a review of the passenger rights regulatory framework and a proposal for an adequate system of financial protection for passengers, including flight ticket refunds and repatriation, in an insolvency scenario. This “burden sharing” question is an essential one, and we look forward to seeing the results of the Commission’s work in this respect.

Uncertain scope of package travel law

The purpose of the directive was to broaden the scope of the package travel law in order to better reflect the tourism market and improve traveller protection. To do this, EU legislators widened the scope of the definition of ‘package travel’ and created the new concept of linked travel arrangements (LTAs).

However, the report found that these changes only created more confusion and complexity around the implementation of the directive, without necessarily improving protection for travellers. The broad definition of “package” raises various uncertainties around the applicability of the directive to certain services, such as providers of tourist accommodation services that also offer free access to local leisure activities. In addition, in some circumstances, the line between packages and LTAs is blurred, which makes it hard for both providers and consumers to clearly understand their rights and obligations.

The Commission considers the LTA regime in particular as being difficult to enforce because of the overly complicated definition of LTAs. It illustrates in its report how difficult it can be for travel operators to confirm the existence of an LTA, and to then apply their resulting obligations around insolvency protection and information about alternative travel suppliers.

The report also notes that the mandatory LTA information templates have been criticised by the travel sector and travellers’ associations due to their lack of clarity. Travel operators suggest improvements in the information to be provided to consumers, which would allow them to better understand the rights to which they are entitled depending on whether the service booked is a package or an LTA.

Impact of Covid-19

The Covid-19 pandemic has amplified these difficulties, according to the report. The pandemic has seriously impacted travel operators’ liquidity: indeed, the crisis triggered the application of provisions in the directive around “unavoidable and extraordinary circumstances”. Operators were required by article 12 of the directive to refund package travel payments.

Because of the knock-on financial implications for the travel industry, the Commission suggested offering consumers alternatives to refunds, such as incentives to accept vouchers, while reminding operators that these should only be an option for travellers, with cash refunds always available. However, 15 member states decided to help the travel industry by enacting national regulations authorising operators to issue vouchers instead of refunds, regardless of the provisions of the directive. The Commission strictly condemned these regulations, and launched infringement proceedings against the member states concerned.

The challenges raised by the pandemic stem from the opposing interests of travellers and travel operators. Nevertheless, the report points out that consumer protection cannot become detrimental to the survival of the industry. According to the Commission, “this can harm the travellers’ interests if an organiser goes bankrupt and the travellers have to make claims on the insolvency assets”.

Liquidity management

The Commission also reports on the increasing difficulties faced by the travel sector on finding financial guarantors both willing, and actually able, to protect travel operators against insolvency, especially in peak tourism seasons. The Commission proposes the future possibility of one organisation using several guarantors, or the potential creation of a pan-European guarantee fund.

The Commission also notes the detrimental consequences of airline insolvency for package suppliers. Where a package including a flight is cancelled under certain conditions, the organiser must reimburse to the traveller the full package price, regardless of whether the organiser is still holding the traveller’s funds or whether it will be able to recover the price of the flight ticket from the insolvent airline.

A number of suggestions in the report imply that changes are needed regarding the scope of airlines’ refund obligations in the event of travel cancellation.

Adding to the burden on airlines, both consumer protection associations and the travel industry insist on the need to introduce mandatory insolvency protection for airlines, especially in times of pandemic.

The Commission’s report clearly indicates how difficult it will be to reform the travel regulations in a balanced way that protects the interests of consumers, airlines and travel operators.

Co-written by Clémence Marolla of Pinsent Masons