Analysis: Europe proposes full package of reforms

Changes to the European Package Travel Directive will impact companies trading in the EU. Rhys Griffiths, partner and head of the travel group at Fox Williams, explains

The European Commission published a series of proposed reforms to the Package Travel Directive (PTD) and passenger rights regulations towards the end of last year and the changes are significant.

They could make a real difference to travel companies selling to customers in the EU and have already attracted a critical response from some in the sector.

The proposals came after the EC carried out a planned review of the PTD, in particular taking into account issues which arose following the failure of Thomas Cook in 2019 and the Covid-19 pandemic. This highlighted three broad problems with the current directive:

Refunds for cancelled packages: the 14-day deadline to refund customers is not feasible at a time of major disruption, particularly where package organisers have passed on customer payments to travel suppliers and those suppliers have not refunded the package organisers.

The scope of insolvency protection: it is unclear whether vouchers and outstanding refunds are covered by the insolvency protection mechanisms of the PTD.

The confusing nature of the directive: some aspects of the PTD are not clear, which has led to customer confusion and inconsistent implementation across the EU.

The key elements of the EC’s proposed amendments are set out here. A major element is a proposed limitation on advance payments.

The EC suggests package organisers should not be allowed to take more than 25% of the price of a package at the time of booking, with the balance taken no earlier than four weeks before the start of the package.

However, there is an important exception. Package organisers would be allowed to take a higher payment at the time of booking if necessary to cover the costs of organising and performing the package.

This exception specifically includes sums paid to suppliers at the time of booking. So, if the package organiser has to pay 40% of the price of the package to an airline at the time of booking, it will be permitted to take a deposit of 40%.

Secondly, on refunds from travel suppliers, the ‘right to redress’ set out in the PTD is to be clarified to make clear that, if a supplier cancels or fails to provide a travel service, the supplier will have to refund the package organiser within seven days. This will aid the organiser in rebooking or refunding the customer within 14 days.

The EC proposes to introduce controls over the issue of vouchers to customers in lieu of refunds. The PTD will make clear that customers must be offered a choice between a voucher and a cash refund.

The validity period of vouchers will be capped at 12 months, although this can be extended by 12 months with the written agreement of the customer. Upon expiry of the voucher, a cash refund must be paid. Vouchers must also be transferable to other travellers, setting up the possibility of a secondary market for vouchers.

The proposals also clarify that vouchers and outstanding refunds must be covered by insolvency protection.

The EC proposes to clarify that member states may set up a fund to help ensure customer refunds are paid within 14 days during periods of major disruption where package organisers might not be able to do so.

However, this must be funded by package organisers and not the member state, save for in exceptional circumstances.

Expanded definition of a ‘package’

The EC proposes to expand the already extensive definition of what is a ‘package’ so that any website or retail store where it is possible to purchase two different travel services will now be within scope.

It will even be possible for a package to be created where a customer buys the travel services from different websites.

The expanded definition will include the following situations:

  • The customer books a travel service (e.g. a flight) and then returns within three hours to the same point of sale (a website or store) to book a different travel service (e.g. a hotel) for the same trip. This will be a package.
  • As above, except the customer is invited to book additional travel services before the first booking is made. In this situation, if the customer returns within 24 hours to book an additional travel service, this will be a package.
  • The customer books a travel service on one website and is then linked to another website and buys a second travel service. If the first website passes on either the customer’s name, payment details, email address or other personal data to the second website, this will be a package.

The extended definition of a package will mean the first type of Linked Travel Arrangement (LTA) under the current directive will be deleted, becoming subsumed within the new package categories.

This will leave only the second type of LTA, which would be modified so that it only captures travel suppliers.

An LTA will only now exist where a travel supplier (e.g. an airline) cross-sells a customer to another trader to buy an additional travel service (e.g. a hotel) and the customer books with that second trader within 24 hours.

Curiously, the airline must ask the customer to take screenshots to prove they have booked an LTA and inform the airline of this fact within 24 hours (by email or some other online facility).

Customer right to cancel

The proposals include a significant extension of a package customer’s right to cancel and receive a full refund due to “unavoidable and extraordinary circumstances”.

Currently, this right only arises if these circumstances significantly affect travel to a destination or the performance of the package in the destination itself.

Unavoidable and extraordinary circumstances at the place of departure are not relevant. So, during the pandemic this right was not triggered when customers had to quarantine upon returning home.

The EC proposes to change this so the customer’s full refund rights will be triggered whenever it is reasonably expected that unavoidable and extraordinary circumstances will significantly affect the package. This may include circumstances occurring at the destination, the place of departure, the customer’s place of residence or on the way to the destination, if these significantly affect the package.

However, the EC does not propose to give customers automatic rights to a full refund whenever the official travel advice (such as UK Foreign Office advice) is not to travel to a destination. Rather, as is currently the position, official travel advice will be an “important element” to take into account.

Similarly, any serious restrictions (e.g. quarantine) imposed on a customer at the destination or after returning will be an “important element” to take into account in assessing whether refund rights are triggered. The EC has emphasised the importance of maintaining “a case-by-case assessment”.

Denied boarding

Proposed reforms to passenger rights regulations, issued alongside the PTD reforms, mainly affect operators of transport services. However, there are important changes to the EC’s Denied Boarding Regulations which will affect travel companies.

If the customer has purchased a flight through an intermediary (such as a travel agent or package organiser), the EC proposes to allow airlines to pay any refunds due under the Denied Boarding Regulations via the intermediary. However, it does not propose to require this. The proposed change would affect mainly flight-only sales.

In addition, where flights are purchased through intermediaries, the intermediary must provide the customer’s contact and booking details to the airline (as opposed to the intermediary’s own contact details).

The airline must only use this information to perform its regulatory obligations towards the customer and must ordinarily delete this data within 72 hours of completion of the flight.

For intermediaries acting as an agent for the customer in booking the flight, the intermediary will be obliged to inform the carrier at the point of booking that it has booked the ticket as an intermediary. The intermediary must also provide the airline with its own postal and e-mail address.

The intermediary will be entitled to require the airline to provide it with a copy of correspondence sent to the customer.

Next steps

The reforms proposed by the EC are significant but are some way off coming into force. The proposals will now pass through the legislative machinery of the EU and the details may yet change.

Once passed at EU level, member states will have a period to implement the amendments, and there is usually a further period of time before these national laws take effect.

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