On 1 March 2021, the European Commission reported on the transposition and application of the Package Travel Directive (EU) 2015/2302 (‘the 2015 Directive’). The report assesses Member States’ transposition of the 2015 Directive in the context of the 2019 Thomas Cook bankruptcy and the COVID-19 pandemic.
In this blog post, Cressida Mawdesley-Thomas summarises the key points.
The report focuses on two big issues: insolvency and cancellation. However, it also notes the difficulties that have arisen in defining and distinguishing packages from linked travel arrangements (‘LTAs’).
An underlying theme within the report is the disparity between package travel organisers and transport providers. For example, travellers have the right to cancel in the event of unavoidable and extraordinary circumstances[1] and to demand a full refund from organisers, but they do not have equivalent rights against transport providers. Further, organisers are obliged to refund travellers if a package has to be cancelled due to an airline’s failure.
Background
The 2015 Directive built on the key features of the 1990 Package Travel Directive, including information requirements, provisions on contract changes and cancellation rights as well as insolvency. It provides important consumer protection and introduces the concept of LTAs to take account of new online booking models for combinations of travel services.
The organiser of a package is responsible for the performance of all services forming part of the package, irrespective of whether those services are to be performed by the organiser itself or by other service providers (see article 13). However, traders facilitating a LTA are only liable for the performance of travel services they undertake, with the exception of insolvency protection and certain pre-contractual information requirements.
Package Holidays
Any combination of at least two different types of travel services (e.g., carriage of passengers, accommodation, vehicle hire) for the same trip or holiday combined by one trader, including at the request of the traveller, is a package if all services are included in a single contract and the traveller pays an inclusive price.[2] Exemptions from the scope of the Directive are limited and are set out under article 2(2) of the Directive.[3]
The report gives two examples of organisers of packages:
- A farmer who advertises on its website horse-riding holidays, including accommodation and horse-riding classes at a total price.
- A travel agent who advises his/her customer about possible safari tours and, in accordance with the latter’s selection, books a flight, accommodation in different lodges and a guided tour, for which the traveller agrees to pay once he has selected all the components, is the organiser of that package and liable for the performance of the different travel services.
LTAs
A LTA involves a looser combination of two or more travel services for the same trip or holiday than a package.
The report gives two examples of LTAs:
- A travel agent books a flight for a customer and the traveller pays for the flight. Then, still during the same visit at the travel agency, the travel agent books accommodation at a hotel for the same trip, which had not been selected (nor its availability checked) before the booking of the flight, and requests payment or a down payment for the hotel. Through separate selection and separate payment of each travel service, the travel agency has facilitated an LTA.
- In the e-mail confirmation of a flight booking, the airline provides a link to a hotel booking website offering the traveller the possibility to book a hotel at the travel destination. If the traveller clicks on the link and, within 24 hours after receiving the flight booking confirmation, books a room for his trip, the airline has facilitated an LTA in a ‘targeted manner’.
Recital 12 clarifies that the posting of links through which travellers are merely informed about further travel services in a general way should not be considered as facilitating a LTA. An active promotion, based on a commercial link between the trader facilitating the procurement of an additional travel service and the other trader, will generally be required (see Recital 13).
However, the report notes that one of the difficulties with the concept of a LTA is linked to the fact that the insolvency protection obligation depends on an uncertain event in the future, i.e., whether the traveller books an additional travel service from another trader within 24 hours of the first booking. If this is the case, the provider of the first travel service who receives pre-payments from the traveller has to provide insolvency protection for those payments (i.e., for the other services booked later). Although article 19(4) of the 2015 Directive requires the second trader to inform the trader facilitating the LTA about the conclusion of a contract with the traveller, the first trader is not always provided with this information (e.g., due to GDPR concerns) and therefore does not know if a LTA has been formed.
Insolvency Protection
Pursuant to article 17 of the 2015 Directive organisers must provide security for the refund of payments made by travellers when the relevant travel services are not performed as a result of the organiser’s insolvency.
In 21 Member States, the insolvency protection is organised by the sector itself, either through private guarantee funds, insurance companies, a combination of both or other forms of private arrangement, such as bank guarantees. Two Member States (Finland and Portugal) have set up a guarantee fund established as a public entity. Four Member States (Czechia, Denmark, Malta, Poland) and the UK have a mixed system, which means that a form of private security is complemented by a publicly administered guarantee fund (double layer) or that the guarantee funds are administered by private-public organisations.
Thomas Cook – A Case Study
The Thomas Cook bankruptcy affected around 600,000 holidaymakers and the UK Civil Aviation Authority (‘CAA’) organised the largest peacetime repatriation of more than 140,000 travellers. In the UK alone, ATOL settled around 340,000 claims at a cost of almost £350 million.
Fortunately, Thomas Cook had insolvency protection in each of the Member States where its different subsidiaries operated so the costs of repatriation and reimbursement were shared amongst different insolvency protection providers in the Member States and did not rest on a single travel guarantee fund or insurance company. However, in some Member States travellers had to wait a long time to receive a refund, contrary to article 17(5) of the 2015 Directive which requires that refunds be provided without undue delay after the traveller’s request.
Ability to Insure the Risk
The report notes that in the future it may be increasingly difficult for big organisers to find appropriate insolvency protection, especially during peak season. Relatively few travel guarantee funds and insurance companies provide insolvency protection and those that do are pulling out of the market (e.g. in Austria and Belgium).
Proposed Solutions
Ideas brought forward to address different challenges include multiple security providers for one organiser or the setting up of a pan-EU guarantee fund as a kind of re-insurance for the first line guarantors.
Consumer and traveller organisations have suggested limiting the down payment travellers are required to make. However, this is likely to only exacerbate organisers’ existing liquidity issues and reduce the ability to provide package travel at a relative discount. It could also distort the level playing field vis-à-vis non-EU competitors.
Levelling the Playing Field: Insolvency
The report notes that the insolvency of an airline can affect travellers, tour operators and intermediaries. For example, if a package travel contract with a flight component is cancelled in accordance with the 2015 Directive, the organiser may have to refund the traveller the full price irrespective of whether they hold the money or will be able to recover it from the airline. In the wake of COVID-19 there have been increasing calls from stakeholders representing travel businesses and consumers for the introduction of mandatory insolvency protection for airlines.
The report also notes that if service providers go bankrupt organisers may not receive refunds at all. This can result in an unfair sharing of the burden among operators in the travel eco-system. Some package organisers and intermediaries reported that, during the COVID-19 crisis, airlines stopped the automatic refund mechanism towards organisers and other travel agents through the Global Distribution Systems (“Computerised Reservations Systems”), while organisers had to refund the money to travellers.
The COVID-19 Pandemic
In many cases (according to the report), COVID-19 triggered the application of the 2015 Directive’s provisions concerning “unavoidable and extraordinary circumstances”, defined in article 3(12) as “a situation beyond the control of the party who invokes such a situation and the consequences of which could not have been avoided even if all reasonable measures had been taken”. In such circumstances the travel and the organiser of a package can terminate the contract without penalty provided. The traveller has the right to a full refund of any payments made for the package within 14 days after termination of the contract. The difficulty for organisers has been financing these refunds when their revenue was simultaneously hit by a precipice in bookings.
The report states that it is “widely recognised” that an official travel warning of national authorities, such as from the Foreign, Commonwealth and Development Office (‘FCDO’) is “an important indicator” that a package travel contract can be cancelled due to unavoidable and extraordinary circumstances affecting the performance of the trip. However, the 2015 Directive is silent on this matter and it does not automatically follow that the FCDO’s advice against travelling will allow a traveller to cancel without penalty (often because the FCDO’s guidance takes a blanket approach, not recognising that certain regions or islands connected to a country may not present a risk).
Commission Recommendation on Vouchers
In order to alleviate organisers’ liquidity issues due to the effects of COVID-19 in March 2020, Commissioner Reynders suggested that tour operators could offer vouchers under the condition that the travellers (1) would have the choice to accept the voucher and (2) should have the possibility to ask for a full refund if, eventually, they did not make use of it. However, consumer organisations complained that EU countries, airlines and tour operators followed the Commission Recommendation poorly. According to the information of the Commission, 15 Member States adopted specific rules temporarily allowing organisers of packages to impose vouchers, instead of reimbursing payments in money, for cancelled trips, or to postpone reimbursement beyond the 14-day period, contrary to article 12(2), 12(3)(b) and 12(4) of the 2015 Directive.
Concluding Comment
A further report will be produced by 2022 with more analysis of whether the current regulatory framework for package travel ensures comprehensive consumer protection at all times. For now, the key issues include the lack of certainty regarding when a LTA is formed (and the concomitant rights and obligations), the disparity between organisers and transport operators liabilities and the inadequacy of insolvency protection, not to mention delays in providing refunds. It is important these issues are addressed to maintain trust between travellers, organisers and across the travel ecosystem.
[1] See article 12(2) of the 2015 Directive.
[2] See article 3(2) of the 2015 Directive.
[3] Article 2(2) of the 2015 Directive provides three exemptions: (1) Trips of less than 24 hours unless overnight accommodation is included; (2) trips offered occasionally, on a not-for-profit basis and only to a limited group of travellers; (3) trips purchased within the framework of a general arrangement for business travel.