Airline failures: the confusing position of travel agents

April 29, 2019

The recent failures of Wow Air and FlyBMI, and ongoing concern over the stability of other airlines, has brought into sharp focus the obligations of travel companies when an airline fails. It seems that no other area of travel law has attracted such confusion and misinformation in recent years. No authority has published clear guidance on the issue. To the contrary, the most recent consumer advice published by the CAA would seem to get it wrong and place unnecessary burdens on travel companies. This article shall focus on the position of travel agents in relation to forward bookings, but many of the same considerations will also apply to traditional tour operators.

An inconvenient truth

The ‘old’ flight-plus regulations were prescriptive about the obligations of a travel agent when an airline failed. In relation to forward bookings, a travel agent which had sold a flight-plus arrangement had to make ‘suitable alternative arrangements…at no extra cost to the consumer…for alternative flight accommodation’. If it was impossible to make these arrangements, then the travel agent had to offer the customer a full refund of the entire flight-plus arrangement.

Whilst there might have been some debate about whether a particular flight was a ‘suitable alternative arrangement’ for another (especially if much more expensive), it was clear that if such a flight existed the travel agent had to pay for this alternative flight. Most travel agents also funded a reasonable additional cost if the replacement flight was more expensive.

The flight-plus regulations were repealed on 1 July 2018 as flight-plus became subsumed within the new definition of a ‘package’ set out in the Package Travel and Linked Travel Arrangements Regulations 2018 (“PTR”). However, what is perhaps surprising is that the PTR contain no rules equivalent to the old flight-plus regulations. There is no specific requirement for organisers to source and fund a replacement flight when an airline fails. To the contrary, Part 3 of the PTR, which deals with pre-departure changes to the package, is silent on what organisers must do if a supplier becomes insolvent before departure.

Be careful of misleading advice

In relation to the recent failures of Wow Air and FlyBMI, the CAA issued the following advice to consumers –

‘Booked with an ATOL holder (Package Trip)

If you have booked flights or a trip that includes flights with a travel firm that holds an ATOL (Air Travel Organiser's Licence) and received confirmation that you are ATOL protected, the travel firm is responsible for your flight arrangements and must either make alternative flights available for you so that your trip can continue or provide a full refund.’

This is incorrect. Neither the PTR nor the ATOL Regulations 2012 require travel agents to provide replacement flights in relation to flight-only sales. The travel agent’s ATOL protection only covers the customer against the risk of the travel agent’s failure. It does not cover the failure of an airline itself. This is why we currently have the debate in the industry about whether an ‘all flight levy’ ought to be introduced, so that customers who buy flight-only are protected against the airline’s failure.

The assertion that travel agents which have organised a package ‘must’ make alternative flights available, or provide the customer with a full refund, is also curious. This was the legal position under the old flight-plus regulations, but they have been abolished and there are no equivalent regulations in the PTR. Where does this bold assertion come from?

What is the legal position?

The truth is that the legal position is not clear at all. There is no certainty to the position of a travel agent which has organised a package in this situation. There is also no published guidance on this hot topic. So what should travel agents do?

Clearly, if the flight can no longer be provided, travel agents will have to do something before the start of the package or else they will be liable to the customer for failing to provide the package. What they choose to do will most likely determine the customer’s legal rights.

A travel agent might choose to provide a replacement flight. The travel agent could not charge for any additional cost in doing so as this does not fall within the list of situations set out in regulation 10 whereby organisers may alter the price of the package. However, if the new flight amounts to an insignificant change, and the contract allows the travel agent to make this change unilaterally, then the travel agent can force this change upon the customer. If the change is significant, then the customer has certain rights to decide whether to accept or reject the change. This might be an unattractive option for some travel agents, given that it would perhaps inevitably lead to challenges about whether the change is significant.

Alternatively, a travel agent might wish to cancel the package and provide the customer with a full refund. Regulation 13 allows the travel agent to do so, and not be liable for any ‘additional compensation’, if the travel agent is no longer able to provide the package because of ‘unavoidable and extraordinary circumstances’ and proper notice of cancellation is given to the customer.

The phrase ‘unavoidable and extraordinary circumstances’ is defined to mean a situation beyond the control of the travel agent, the consequences of which could not have been avoided even if all reasonable measures had been taken.

The failure of an airline would seem to be a situation beyond the control of the travel agent, which would prevent the travel agent from providing the package. The travel agent will therefore be able to cancel under regulation 13 if it can show that it took all reasonable measures to avoid the consequences of the airline’s failure. In my view, the ‘consequences’ of the airline’s failure is the customer not being able to go on the holiday booked. Therefore, the travel agent will need to show that it took all reasonable measures to avoid this from happening i.e. it tried to rebook customers onto other travel arrangements (most likely, other flights) so that cancellation of the holiday is avoided.

The key question will be what is reasonable for travel agents to do – how far must they go to ensure the continuation of the customer’s holiday. Ultimately, this will depend on the factual circumstances which exist at the time of the failure. Various factors will have to be taken into account, including the scale of the failure, the number of customers affected, when those customers are due to travel, the availability of replacement flights and the resources available to the travel agent to deal with the failure. The travel agent will need to consider all these circumstances and come up with a reasonable policy which is geared towards fulfilling the customer’s booking, if possible.

This does leave the question as to whether the travel agent must be prepared to fund the cost of any replacement flight, given that the travel agent is likely already to have paid the airline by the time of its failure. Moreover, there is also a question as to whether the travel agent must be prepared to pay the additional incremental cost, if the replacement flight is more expensive than the original flight.

In my view, it is likely to be ‘reasonable’ for the travel agent to fund the replacement flight given that the alternative option (a full refund of the entire package) requires the travel agent to fund the flight element of the refund. In fact, one would expect travel agents to prefer this option, given that it will make some commission if the booking is kept alive, and there may be a prospect of recovering the cost of the sums paid to the failed airline through supplier failure insurance or through the credit/debit card chargeback scheme rules.

However, my view is that it is unlikely that travel agents are required to fund the incremental cost of sourcing replacement flights. This is because the objective of this part of the PTR is to apportion risk between the customer and the travel agent in situations where performance of the package is frustrated by an event which is outside the control of either party. The PTR therefore seeks to strike a balance here. The customer should get his/her money back (this risk sits on the travel agent), but equally the travel agent does not have to provide any ‘additional compensation’ to customers (the risk of additional costs incurred by the customer, such as airport parking, sits on the customer). This objective of limiting the travel agent’s financial exposure to the cost of a refund (i.e. the sum paid by the customer) would not be achieved if in fact the travel agent had to bear the additional financial risk of “topping up” the customer’s payment to fund a more expensive replacement flight.

Where does this leave travel agents?

Through the fog of uncertainty, it seems that travel agents are left in the following position in relation to forward bookings. First, the travel agent must adopt a reasonable process for sourcing alternative travel arrangements for the customer. What is reasonable will depend on the factual circumstances. It is likely to involve having to fund a replacement flight of the same cost, but not a flight which is more expensive. Second, if reasonable alternatives can be found, then the travel agent can force these changes on the customer if they are insignificant and this right is reserved in the customer contract. If not, then the customer must agree to the changes. Third, if it is not possible to source reasonable alternatives, the travel agent may cancel the package and provide the customer with a full refund, but it will not be liable for additional compensation.

The final point to note is that the regulatory position I have suggested above will be superseded by customer booking conditions and other literature made available to the customer which promise more than the legal minimum. Travel agents will therefore need to ensure that such material is consistent with the PTR and the position outlined above.

 


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