Monday, 16 October 2017

Take me home! Lessons from Monarch's closure

On Monday, 2 October 2017 Brexit claimed its first major victim! The UK based Monarch (Airlines and Holidays) went into administration. The bankruptcy of the company came for many as an unpleasant surprise,  leaving 110.000 passengers stranded abroad and many more disappointed with the cancellation of their holiday. According to the BBC, Brexit is in the heart of the company’s failure. Namely, following the Brexit vote the value of the Pound has sharply fallen compared to US Dollar, and many substantial costs for running the airline such as for fuel and handling charges were denominated in US Dollars. This means that following the Brexit vote Monarch paid more for these services and goods than before. Conversely, fierce competition from other low-cost airlines and tour operators, disabled the company to recover the additional costs generated by the Brexit vote.

Following Monarch’s administration the Civil Aviation Authority (CAA), took over Monarch's website and coordinated the biggest repatriation operation which concluded on October 15th. However, the ordeal of Monarch’ passengers is far from over, as many still have to make alternative travel arrangements as well as claim refunds or expenses. While customers that booked holiday packages with Monarch are protected by Air Travel Organiser’s Licence (ATOL), a UK protection scheme for holidaymakers (see CAA’s website for more information on ATOL), the same is not true for flight-only customers who need to contact their card issuer to find out how to claim a refund (see the Guidance on Monarch's website). 

The case of Monarch in the UK reflects the state of consumer rights also on an EU level. There is a distinction between consumers that buy package holidays and those that buy only air tickets. The first are protected in case of insolvency, according to art 17 of Directive 2015/2302/EU (the New Package Travel Directive), while the second category falls under Regulation 261/2004 which does not provide for insolvency of the provider and the ensuing difficulties in fulfilling their obligations to compensate consumers and reroute flights as per art.7 of the Regulation.
While it is mandatory for air carriers to insure their passengers, as per art 6.1. of Regulation 785/2004, insolvency is not specified as a risk. Art.9 of Regulation 1008/2008 on common rules for the operation of air services in the Community (RECAST) provides for the suspension and revocation of the operating license of an air carrier facing financial problems, yet does not cover issues of compensation or repatriation of passengers. Thus, flight-only consumers are disadvantaged in the event of insolvency of the airline, compared to package travel consumers.

EU Commission has recognised the changing landscape as more consumers arrange their travel independently rather than book a package holiday, by bringing a Proposal for amending Regulation 261/2004 in 2013. The Proposal includes the obligation of large airport to have a contingency plan in place in case of a large number of cancelled flights, as well as inform passengers of said cancellations.( See art.4 and 14.4 of the Proposal).

Do you think that the current framework and especially Regulation 261/2004 ensures adequate protection of air passengers in the event of insolvency of the carrier or should Monarch be a warning sign that there is need for reform?

Note: This is the first joint post of the blog and I kindly aknowledge the contribution of Andrea Fejős, especially on the role of Brexit to the closure of Monarch.

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