Airline compensation

According to the UK's Civil Aviation Authority, Britons spend 2m hours annually waiting for delayed flights. While a boon for airport retailers of lager, money belts and plug adaptors, this is far from ideal. The European Union has come to the rescue with a new compensation scheme that makes airlines liable for passengers who are bumped off, or whose flights are delayed or cancelled.

So far so good. But the rules may be more dangerous than first appears. The compensation levels - EU250-600 for a cancelled flight - are a multiple of the price of most economy tickets. Secondly the regulation is extremely badly drafted. It exempts airlines from liability if cancellations are due to "exceptional circumstances" such as strikes or air traffic control problems. Yet, alarmingly, this qualification does not seem to apply to delays. And the guidance accompanying the regulation says even "the most difficult of weather conditions" will not be considered exceptional.

The EU has not attempted to cost its new rule. While the low-cost airlines seem relaxed, one major European carrier estimates its costs will rise by EU35m. This implies a sector-wide bill of about EU200m annually, a figure backed up by preliminary UK government estimates. Given that Europe's conventional airlines only made a EU700m profit in 2004 according to the Association of European Airlines, that is significant. It also excludes probable future administrative costs from dealing with the several million passengers eligible under the scheme.
As a piece of poorly executed red tape, this regulation is hard to beat. The EU is being challenged by some airlines in the European Court of Justice. Unless they win, the scheme's true cost may yet come back to haunt passengers and investors.