EU court dismisses airline challenge over compensation

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The European Union’s highest court on Tuesday dismissed a challenge by airlines against new rules forcing them to pay higher compensation to passengers stranded by denied boarding and flight cancellations.

The rules, which came into force almost a year ago, have been particularly opposed by Europe’s booming low cost airline sector, because the new compensation scheme is not based on the original fare but instead applies an escalating scale depending on the length of the flight.

In practice, that could force airlines to reimburse many times the actual price of a ticket, which EasyJet, Ryanair and others consider to present a ridiculously large financial risk for them.

The International Air Transport Association (IATA), which represents airlines and led the court challenge against the new rules, said the ruling marked “a sad day for Europe, for consumers, for international law and for the airline industry.“

IATA has argued the new rules could punish carriers for events often beyond their control and would represent an annual cost of €560m for EU airlines, over and above existing compensation.

For a medium-sized European carrier, that should amount to about €40m a year, or a fifth of its operating profit.

Giovanni Bisignani, IATA’s chief executive, said on Tuesday: “ Higher costs for air transport with no added value does not pass the good regulation test, let alone the common-sense test.’’

However, the European Commission welcomed Tuesday’s decision by the European court of justice to uphold rules that are “good news for passengers.’’

Following a gradual decline in overbooking practices, Brussels is hopeful tougher compensation rules will provide an incentive for airlines to reduce delays and cancellations, apart from “exceptional circumstances’’ where the airlines have no way of avoiding the disruption, such as the wildcat catering strike that left thousands of British Airways passengers stranded last year.

Lufthansa and other airlines said on Tuesday they would continue to push for a review of the rules.

But some lawyers warned that airlines could face even tougher penalties following a review of the effectiveness of the new rules, due to be carried out by Brussels by year-end.

Mark Franklin, head of the aviation group at DLA Piper Rudnick Gray Cary, an Anglo-American law firm, said: “I think this is entirely the end of the road for the challenge. The airlines now need to focus their efforts on maintaining the status quo, even if they don’t like it, because it could get worse.’’

The Commission has already questioned the airlines’ claims about the financial burden of paying higher compensation, arguing that clearer rules could help airlines avoid even more onerous individual claims.

In its ruling, the court rejected the airlines’ arguments that the penalties are disproportionately high and in breach of the principle of equal treatment among different transport sectors.

Notably, the court dismissed the view that low cost airlines should not face such heavy compensation claims, noting that “the damage suffered by passengers of air carriers is similar whatever the airline with which they have a contract and is unrelated to the pricing policies operated by the airline.’’

The court also dismissed a claim by Iata that the rules took the EU beyond its international obligations under the Montreal Convention on air transport and would create a legal quagmire for international airlines.

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