Article written by FTPA Aviation Law team: Juan Diego Ninon Vargas, Abdelmajid Nedjari, Jean Guillaume Leneveu and Rajeev Sharma Fokeer.
The COVID-19 pandemic has triggered a global health crisis and an economic one too, for years to come. One of its many consequences has been and continues to be the cancellation of booked trips on account of worldwide travel bans still applying. The question that has very quickly arisen is whether travel service providers are required to refund and/or compensate consumers have suffered such cancellations. In answering this question, a distinction must be drawn between holiday packages (I.) and what are known as “dry seats” (II.).
1. Fate of holiday packages
In France, an Ordinance n°2020-315 enacted on 25 March 2020 creates an exceptional legal regime, applying to holiday packages. This statutory instrument applies essentially to packaged travel and accommodation deals, i.e., packages that include transport and hotel accommodation, typically, an organized tour, booked through a travel agency or tour operator.
If the cancellation of such deals is notified between 1 March 2020 and any date before 15 September 2020, either by the customer or the service provider; the service provider may instead of making a refund, choose to offer a voucher for the same value, which the customer may elect to use for a subsequent identical or equivalent service.
The tour operator must inform his customers in writing if it wishes to use this option within thirty days, Importantly, the customer may neither refuse nor demand an immediate refund. The new offer made for the same monetary value, must be conveyed within three months thereafter and the option remains valid for eighteen months. If the voucher is not consumed by the customer, only then will the tour operator have to make a refund .
The purpose of this exceptional regime is explicitly stated in the Report to the French President of the Republic regarding this Ordinance, is to “preserve the cashflow” of travel / tour operators in order to prevent them from “defaulting”. The intention of the legislator is obvious: to protect travel agencies/ tour operators from bankruptcy. Unfortunately, no exceptional regime has been enacted in favour of air carriers and airlines, in the case of ‘dry-seats’, ie cancellations of air tickets booked during the pandemic and /or flight closures.
2. Fate of ‘dry-seats’
It is no surprise that on 18 March 2020, the European Commission recognized that the COVID-19 pandemic constitutes an extraordinary circumstance within the meaning of the relevant regulations applying to passenger rights for flight cancellations. Airline companies are therefore not required to pay passengers the lump-sum compensation provided under the regulations in the event of flight cancellations.
However, as law stands, airlines are still obliged to refund passengers their cancelled tickets and within just seven days, even as air traffic has come to an all but complete standstill with a few exceptions and that the IATA which has recently outlined its (mutli-)layered approach for restarting the aviation industry does not expect air traffic to return to pre-crisis levels before 2023 at the earliest. The reimbursement must be in full and would therefore at first glance, need to include airport tax, which the airlines pays to the States. The overall cost of these refunds is estimated at 35 billion dollars, for the second quarter of 2020 alone.
Evidently all airlines are already suffering significant distress. In order to avoid a nightmarish scenario of bankruptcies in cascade, it is very much hoped that an exceptional regime at least comparable to one established to help package tour operators would be implemented sooner rather than later to deal with the fate of dry-seats. Such exceptional measures are also supported by the French union of travel agencies and of course, by the CEO of the International Air Transport Association.
The European Commission may well have taken a small first step in this direction on 13 May, noting that “if (…) carriers become insolvent, there is a risk that many travelers and passengers would not receive any refund at all“. It therefore recommends increasing the attractiveness of vouchers that airlines can offer to passengers in the stead of a full refund, by setting up a guarantee mechanism against potential insolvency of the airlines and a minimum voucher validity period of twelve months. The fact remains that neither the passenger’s right to demand a refund nor the all too short seven-day period which airlines have to process the refund have been revisited. This is somewhat regrettable, especially since the Commission itself accepts that the “numerous cancellations entailed by the COVID-19 pandemic have led to an unsustainable cash-flow and revenue situation for the transport and travel sectors“.
It is worth restating the obvious to conclude. Exceptional measures to bounce back and come out stronger in the aftermath of this pandemic are necessary, of course, to preserve the air transport sector at large allowing airlines to re-start their post-COVID activity by safeguarding as many jobs as possible that directly or indirectly depend on them. Crucially, the interests of passengers themselves is to avoid a situation where their right to an immediate refund gets stalemated by airlines filing for bankruptcy or even worse, precipitates them into such a state. This could ultimately deprive us all of nothing less than one of our fundamental freedoms: that of free movement and circulation. Let us all therefore remind ourselves that patience, more than ever before, is a virtue.
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