Study on Consumer Protection Against Aviation Bankruptcy
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FINAL REPORT Study on Consumer Protection against Aviation Bankruptcy Prepared for: Directorate-General Energy and Transport European Commission In association with: Mr Erwin von den Steinen Dr Ingomar Joerss Dr Pablo Mendes de Leon London 07 January 2009 This document is confidential and is intended solely for the use and information of the client to whom it is addressed. Disclaimer This report has been produced by consultants acting on behalf of DG Energy and Transport and is intended for information only. The contents or any views expressed herein have not been adopted or in any way approved by the European Commission and should not be relied upon as a statement of the Commission's or DG Energy and Transport's views. The European Commission does not guarantee the accuracy of the data included in this report, nor does it accept responsibility for any use made thereof. Booz & Company Date: 18 March 2009 Booz&Co Study on Consumer Protection against Prepared for European Commission DG- i Aviation Bankruptcy Draft Final TREN Contents EXECUTIVE SUMMARY.................................................................................................................................IV 1 INTRODUCTION ....................................................................................................................................... 1 1.1 GENERAL REPORT ................................................................................................................................. 1 1.2 OBJECTIVES OF THE STUDY .................................................................................................................. 1 1.3 THE AIRREG STUDY AS BACKGROUND............................................................................................... 2 1.4 ORGANISATION AND METHODOLOGY OF THE BOOZ&CO STUDY.......................................................... 2 1.4.1 Scope of the Study ........................................................................................................................... 2 1.4.2 Methodological Approach & Definition of Bankruptcy .................................................................. 3 2 THE AIR TRANSPORT INDUSTRY: ECONOMICS & OUTLOOK.................................................. 5 2.1 TRANSPORT INDUSTRY BACKGROUND.................................................................................................. 5 2.2 EUROPEAN AIRLINE BANKRUPTCIES 2005-2008................................................................................. 10 2.2.1 Scope of Survey ............................................................................................................................. 11 2.3 BANKRUPT AIRLINES 2005 – 2008 ...................................................................................................... 11 2.3.1 Impact of bankruptcies on capacity............................................................................................... 16 3 EXISTING RULES AND PRACTICES FOR PROTECTING AIRLINE TRAVELLERS AGAINST FINANCIAL RISK ............................................................................................................................................. 18 3.1 GENERAL SETTING ............................................................................................................................. 18 3.1.1 A Definition of Bankruptcy............................................................................................................ 18 3.2 ANALYTICAL APPROACH OF THIS CHAPTER........................................................................................ 19 3.3 COMMUNITY REGULATIONS ............................................................................................................... 20 3.3.1 On Consumer Protection Generally.............................................................................................. 20 3.3.2 Precautionary Regulation: On Financial as well as General Fitness of Airlines: Regulation 1008/2008.................................................................................................................................................... 21 3.3.3 Package Travel Directive.............................................................................................................. 23 3.3.4 Air Carrier Liability in General.................................................................................................... 26 3.3.5 Airline-Related Insurance Measures: Regulation 785/2004 ........................................................ 26 3.3.6 Regulation on Denied Boarding, Delay and Cancellation of Flights............................................ 29 3.3.7 General Procedures on Insolvency as Governed by Regulation 1346/2000 ................................. 31 3.3.8 Procedural Remedies: Class Actions and Directive 98/27............................................................ 33 3.4 SYSTEMS OF CONTRACTUAL PROTECTION.......................................................................................... 34 3.4.1 Individual Airline Assurances of Insurance Protections............................................................... 34 3.4.2 Inter-Airline Arrangements........................................................................................................... 35 3.4.3 Options for Personal Insurance and Other Forms of Financial Protection ................................. 35 3.4.4 Credit Card Arrangements and Refund Guarantees ..................................................................... 39 3.4.5 Conclusions................................................................................................................................... 40 3.5 REGULATIONS IN NON-EU STATES..................................................................................................... 40 3.5.1 The United States .......................................................................................................................... 40 3.5.2 Canada.......................................................................................................................................... 42 3.5.3 Conclusions................................................................................................................................... 42 3.6 INTERNATIONAL RULES AND REGULATIONS....................................................................................... 43 3.6.1 The Montreal Convention, 1999.................................................................................................... 43 3.6.2 Other Global Approaches ............................................................................................................. 43 3.6.3 IATA Conditions............................................................................................................................ 44 3.6.4 Conclusions................................................................................................................................... 44 3.7 APPLYING COMMUNITY RULES TO THIRD COUNTRY AIRLINES .......................................................... 45 3.8 GENERAL CONCLUSIONS .................................................................................................................... 46 4 CHANGES IN THE TRAVEL MARKET .............................................................................................. 48 4.1 CHANGING SUPPLY ............................................................................................................................. 49 4.1.1 Low Cost Carriers: a New Business Model .................................................................................. 49 4.1.2 Market Impact and Market Response............................................................................................ 52 4.1.3 Impact of LCCs on the Holiday Markets....................................................................................... 52 4.2 CHANGING CONSUMER PURCHASING BEHAVIOUR ............................................................................. 54 Booz & Company Date: 18 March 2009 Booz&Co Study on Consumer Protection against Prepared for European Commission DG- ii Aviation Bankruptcy Draft Final TREN 4.2.1 Increased Penetration of the Internet – E-Commerce in the EU................................................... 55 4.2.2 Increasing Internet Penetration and E-Commerce: Focus on the UK .......................................... 56 4.2.3 Impact of Internet on Flight and Holiday Bookings...................................................................... 57 4.2.4 Self-Packaging and the Online Market as it Varies across the EU Member States ...................... 60 4.2.5 The United Kingdom: A Case Study.............................................................................................. 64 4.3 SELF-PACKAGING AND POSSIBLE ASSOCIATED CONFUSION ............................................................... 70 4.3.1 Context .......................................................................................................................................... 70 4.3.2 Distributional and Social Effects .................................................................................................. 72 4.3.3 Insurance Offerings on Airline Websites....................................................................................... 74 4.4 ADEQUACY OF EXISTING MECHANISMS.............................................................................................. 76 4.4.2 Industry Responses to Bankruptcy Cases.....................................................................................