Comment: An EC review of the Package Travel Directive

The European Commission has assessed the PTD in the light of the Covid-19 pandemic and found a need for re-balancing, says Rhys Griffiths, partner and head of travel at Fox Williams

The European Commission published an assessment of how the Package Travel Directive (PTD) has been implemented on March 1.

Whilst the UK is no longer a part of the EU, the report does refer to the UK in parts and will be relevant to those organisers which sell into the EU.

The report sets out a wide-ranging review of the PTD, picking up on scenarios such as the failure of Thomas Cook and the coronavirus pandemic. These scenarios illustrate how the PTD has been applied in practice and where problems have arisen.

Moreover, in what will be welcome news for many organisers, the EC has signalled a clear intention to look at rebalancing the obligations of organisers and transport providers in relation to insolvency and cancellation.

Cancellations due to the coronavirus pandemic

The report outlines the serious impact of the pandemic on the travel industry and reminds us that the PTD provides two cancellation rights in this context.

The traveller may cancel the booking and demand a full refund where a three-stage test is satisfied. The organiser also has the option of cancelling and paying a full refund where it is “prevented from performing the contract” because of the pandemic.

The report emphasises that a blanket approach cannot be taken when assessing whether these cancellation rights have arisen. Rather, the determination must be “based on a case-by-case assessment”.

In carrying out this assessment, the report reiterates that official travel advice, such as that published by the Foreign Office (FCDO) is an important indicator that these cancellation rights might have arisen, but the PTD is silent on the legal value of such advice.

This is by design because some member states were strongly opposed to the inclusion of a reference to travel advice in the PTD.

For this reason the report explains that, while the original draft of the PTD did refer to national travel advice, this was removed from the PTD during the legislative process because of objections from member states.

Rebalancing of the travel eco-system

The European Parliament has previously called upon insolvency protection to be extended to flight-only sales so that consumers are not exposed to the failure of an airline.

However, the report explains that such a failure can also affect intermediaries such as organisers because they are obliged to refund the customer if a package has to be cancelled as a consequence of an airline’s failure.

The EC recognises the regulatory gap in this regard and so proposes to analyse this issue in more detail to decide whether insolvency protection should be extended to flight-only sales.

The report also describes the unprecedented pressures suffered by organisers during the pandemic as a consequence of the cancellation and refund rights set out in the PTD.

Whilst in normal circumstances these obligations are manageable, not least because organisers can often amend the package in order to enable it to go ahead, the pandemic meant this was just not possible.

This led to significant liquidity challenges for organisers as refund obligations were significantly higher than the income received from new bookings, a challenge which the EC recognises was further complicated by some airlines stopping the automatic payment of refunds to organisers.

The EC recognises the uneven character of the market, which it says is further aggravated by the different legal regimes which apply between organisers and transport providers and their customers.

For instance, whilst travellers have powerful rights to cancel and demand a full refund from organisers, they do not have equivalent rights against transport providers even where the cancellation is due to extraordinary circumstances.

The EC intends to look at these issues in further detail, particularly at how it might achieve “a fairer sharing of the burden among economic operators along the value chain”.

To this end, the EC proposes to “assess whether the differences between the PTD and the passenger rights regulations as regards insolvency protection and cancellation rights are justified or if the rules should be more aligned and whether specific rules for situations like Covid-19 should be proposed”.

This will be good news for organisers which have long criticised the unequal burdens placed upon organisers compared with transport operators.

Insurability of risks

The report describes how events such as the failure of Thomas Cook and the coronavirus pandemic have made it increasingly difficult for organisers to find providers of insolvency protection which are willing and capable of covering the risks of failure.

There were already relatively few providers in the market, which has diminished further with the recent withdrawal of certain well-established providers. The EC recognises this and intends to look at how to address the issue.

Two ideas have already been put forward for consideration: having multiple providers of insolvency protection for a single organiser, or setting up a pan-EU guarantee fund which would provide a form of reinsurance to providers of insolvency protection.

Limitation on pre-payments

The report explains that some member states limit the pre-payments which can be taken for package holidays. This has been picked up by certain consumer organisations which have suggested the EC should only allow organisers to collect payments when travellers have received the services.

It is suggested this would help to limit the exposure of travellers and providers of insolvency protection.

It would also protect the consumer against the risk of cancellation given that there would be no need to extract a refund from the organiser.

This would obviously create a cash-flow issue for organisers, particularly if they must make pre-payments to suppliers in advance of travel. Accordingly, the EC recognises that any such limitations on pre-payments would have to be assessed within the “broader tourism eco-system”.

There are also concerns that limiting pre-payments will increase prices for customers because it will limit the opportunity for organisers to obtain discounts by making advance pre-payments to suppliers.

Next steps

The EC intends to analyse the issues identified in its report in more detail. By 2022, it will report upon whether the existing regulatory framework for package travel is adequate.

This presents an opportunity for all participants in the travel eco-system to have their say, which will be particularly important for those organisations selling into the EU.

Rhys Griffiths is partner at Fox Williams

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