Keywords

1 Introduction

Air passenger rights as an important part of consumer protection policy have controversially been discussed on EU level for more than one decade. As a consequence of deregulation processes in the field of public transport, the Air Passenger Rights Regulation (EC) No 261/2004 of the European Parliament and Council of the European Union represents the main legal framework in EU Law (European Parliament and Council of the European Union 2004). On the one hand it was established in order to strengthen air passenger rights in cases of denied boarding, of cancellations or long delay of flights, on the other hand, thus the regulation should ensure that airlines act under harmonized conditions in a liberalized market (compare as well recital 4 of Regulation (EC) No 261/2004). Originally the adoption of the regulation was predicted to be a milestone for the improvement of air passenger rights since it went into force on February 17th in 2005. From a substantive legal standpoint it is even the case. However, for several reasons the enforcement process of the legal entitlements on basis of the regulation remains arduous. Although national enforcement bodies have been established by all EU member states (as well by Iceland, Norway and Switzerland which have also adopted the legislation), there is a widespread reluctance among airlines to deal with passenger claims in a correct manner, e.g. they generally deny paying compensation for cancelled flights due to alleged extraordinary circumstances (Bollweg 2013). In addition, the legal framework of the regulation consists of many undefined terms and loopholes and therefore it has been extended by a huge body of case law, especially by decisions of the European Court of Justice. The high level of legal uncertainty and the related risk of transactions costs for a lawsuit led to a lack of enforcement of air passenger rights.

This status quo has created a lucrative business opportunity for specialized service providers such as Flightright, EUclaim, FairPlane…etc. They advertise to claim against the airlines without any cost risk for the affected passengers; compare as an example the website of EUclaim (EUclaim, n.d.).

Meanwhile this gap of enforcement was also recognized by the German legislator which introduced the obligation for every airline flying to and from an airport in Germany to take part in a conciliation procedure in cases of service disruptions, in which consumers were affected. Both procedures, those offered by service providers and those by conciliation bodies, have made significant contributions to the enforcement of air passenger rights. The paper intends to give a short insight into the current legal situation of air passenger rights on EU level. It analyses which obstacles prevent passengers from enforcing their rights. Furthermore, it focuses on different routes of enforcement offered on the one hand by claims management companies (like Flightright, EUclaim, FairPlane,…etc.) and on the other hand by the Conciliation Body for Public Transport in Germany (söp). Both institutions are analyzed concerning their legal framework and procedures. Differences and similarities are figured out by a comparison. As a conclusion it is summarized how they interrelate with each other, which incentives they offer in order to reduce the customer’s inhibition threshold to enforce his/her entitlements and that both have made contributions to the enforcement of air passenger rights.

2 Air Passenger Rights Under EU Legislation

The Air Passenger Regulation (EC) No 261/2004 sets up standards in the event of denied boarding, cancellation and long delay of flights. Re-imbursement of the ticket price, re-routing to the final destination, rights to compensation and taking care of the passengers—whereby especially the needs of passengers with reduced mobility and unaccompanied children have to be taken into consideration—are content of the legislation. It is applicable on all flights which depart from an airport in the EU and for all incoming flights into an airport in EU (that is to say if the air carrier is a so called “community carrier” concerning Art. 2c of the Regulation (EC) No 261/2004. The core aspect of the regulation can be seen in the compensation regime established in Art. 7. In the event of denied boarding (see Art. 4 of the Regulation) and in case of a flight cancellation—if the passenger was not informed in good time concerning Art. 5 of the Regulation—the passenger is entitled to receive compensation pursuant to Art. 7. With the help of Art. 7 the EU Legislator established a so called “flat-rate damage compensation”, which means that depending on the flight distance a lump-sum for the compensation is fixed:

  • 250 EUR for all flights up to 1500 km (category 1)

  • 400 EUR for all intra-EU flights of more than 1500 km and all other flights between 1500 and 3500 km (category 2)

  • 600 EUR for all other flights not falling under category 1 or 2 (category 3), that is to say of more than 3500 km

This compensation is independent of the actually caused damage and as well independent of the ticket price. Thus it differs fundamentally from other legal compensation systems; e.g. in railway sector where a ticket price reduction in cases of long delays is foreseen (Your Europe 2017). Another special feature of the compensation system represents Art. 5 according to which the above mentioned entitlement of compensation can be excluded if the air carrier can prove that the cancellation

  • was caused by extraordinary circumstances (which means beyond the airline’s control)

  • and therefore the cancellation could not have been avoided, even if the airline had taken all reasonable measures.

Also this exculpation in so to say cases of “force majeure” is not typical in the transport sector, e.g. in railway sector it does not exist—the above mentioned ticket price deduction cannot be excluded due to any circumstances that are beyond the railway company’s control (Your Europe 2017). Lately after the regulation went into force it had to be recognized that in practice it suffered from several not sufficiently defined terms and loopholes. Since that the European Court of Justice (ECJ) interpreted the regulation in several cases. The term “extraordinary circumstances” which is the core of many debates of the regulation generated a wide jurisdiction. As a definition of the term “extraordinary circumstances” there is only recital 14 of the regulation which numerates cases like:

  • political instability;

  • meteorological conditions;

  • security risks;

  • unexpected flight safety issues;

  • and strikes.

This represents an exemplary list, and does not give an exhaustive enumeration. The most famous decision of the ECJ dealt with the case Sturgeon versus Condor Flugdienst GmbH which has been confirmed several times in the meantime (European Court of Justice 2009). The ECJ decided that “Passengers whose flights have been cancelled and passengers affected by a flight delay suffer similar damage, consisting in a loss of time, and thus find themselves in comparable situations for the purposes of the application of the right to compensation laid down in Article 7 of Regulation (EC) No 261/2004” (European Court of Justice 2009). Therefore delayed passengers shall also have a right to compensation pursuant to Art. 7 Regulation (EC) No 261/2004 “when they reach their final destination 3 h or more after the arrival time originally scheduled by the air carrier” (European Court of Justice 2009). This means that also in the event of long delays (minimum 3 h, no matter which flight distance) the passengers have the right to be compensated according to the above mentioned standards (see Art. 7 Regulation (EC) No 261/2004). This decision was discussed controversially concerning the competencies of the ECJ. But ever since the ECJ has been going on to supplement the regulation with a wide body of case law. Its contributions to the application of the regulation are that accepted that it is intended to overtake parts of the jurisdiction into the revised version of the regulation (European Parliament and Council 2013a). Finally, in theory Regulation (EC) No 261/2004 can be seen as a significant improvement of air passenger rights. But in practice it encounters obstacles like the unclear legal situation, which cannot be resolved on the basis of a steadily growing body of case law.

3 Obstacles Which Prevent Passengers to Enforce Their Rights

One year after the Regulation (EC) No 261/2004 went into force the European Commission launched an independent review of its functioning which was undertaken by a consulting company in 2010 (Steer Davies Gleave (SDG) 2010). A second review on behalf of the European Commission made by the same company followed in 2012 (Steer Davies Gleave (SDG) 2012). Both evaluations proved that most passengers do not enforce their claims against the airlines. There are several reasons. Many passengers still do not know their rights (Finanztip 2017). Although the airlines are obliged to inform their passengers about the regulation (compare recital 20 of Regulation (EC) No 261/2004) many of them do not fulfill this duty. It can be even observed that the air carriers adopted a strategic behavior to avoid paying a compensation (Bollweg 2013). Therefore they developed for example the following modes of behavior: Some airlines ignore passengers’ claims in general, others deny the passengers entitlement due to alleged “extraordinary circumstances” (e.g. they wrongly allege bad weather conditions or they refer to technical problems which are not accepted as extraordinary circumstances because they are not beyond the airline’s control). The affected passengers find themselves in a weaker position due to their lack of information which is the typical consequence of asymmetric information, in which consumers are often caught in relation to the stronger enterprises (Decker 2017; Damania and Round 2000). In this situation the consumers are in need of assistance. Normally consumers would charge a lawyer with the case or easily surrender following their rights. Due to the risk of high transaction costs in relation to low amounts of compensation, it is comprehensible that most passengers refrain from starting a lawsuit, also referred to as a “rational lack of interest” (Berlin 2014). To show an example: Procedural costs for a trial with a litigation value of 600 Euro exceed more than 750 Euro concerning German requirements, including fees for the lawyers on both sides and court fees (Geier 2016). Moreover the court fees and as well at least a part of the fees for the claimant’s lawyer have to be paid in advance. In case of success all fees have to be reimbursed by the party which loses the trial—concerning the “loser pays rule”. Especially when the litigation value is extremely high or very low consumers remain inactive; this status is also known as so called “rational inactivity” (Augenhofer 2012).

So, how can the financial risk and thereby the inhibition threshold of the passengers be reduced?

4 Different Routes of Enforcement of Air Passenger Rights

There are two routes of enforcement which have established in the last years. On the one hand a market solution in form of claims management companies like Flightright, EUclaim, FairPlane…etc. and on the other hand conciliation bodies which had to be created due to legal obligations of the German Legislator. The large number of cases and high success rates of claims management providers (e.g. EUclaim, n.d.) indicate that it must be a successful model. On the other hand also the Conciliation Body for Public Transport in Germany (söp) generates a growing number of cases in the field of air transport; and the acceptance rate of its conciliation recommendations of more than 90% in the flight sector in 2014 and 2015 (söp 2017) also implies a story of success.

At present it is also discussed whether the opportunities for group actions and so called small claim procedures as further routes of enforcement should be expanded in the EU Member States in order to strengthen the enforcement of air passenger rights (Augenhofer 2012). These procedures could also help to overcome rational inactivity and improve consumer protection as well in other fields than air passenger rights (Cortés 2016). Whereas this paper intends to focus on the existing routes of enforcement of air passenger rights; it analysis the two models mentioned above concerning their legal construction, scope of application, accessibility, time of procedure and other positive effects. By the end of this paragraph a short comparison is drawn.

4.1 Claims Management Companies

Flightright, FairPlane, EUclaim, Flug-Rechte.de, AirHelp, refund.me, ClaimFlights, Flugrecht,…etc. are the best known claims management companies which have established on the market in Germany and as well in many other countries. They advertise to help passengers to enforce their rights under Regulation (EC) No 261/2004 without any financial risk. This means that their fees only have to be paid by the client in case of success and will be directly deducted from the amount of compensation. If the procedure is not successful the costs for the efforts stay at the claims management company. As we have seen above the legal situation and the actual circumstances of the flight are often unclear. How can these service providers work cost efficiently and achieve high rates of success of more than 90% as they publish on their websites? And why are they allowed to work with a contingency fee which is for lawyers in general forbidden by law?

4.1.1 Legal Construction of Claims Management Companies

Currently there are even two different types of service providers in form of private enterprises who offer to enforce air passengers’ entitlements towards the airline: Those which let assign the claim from the customer and pay an amount of round about 50% of the predicted compensation at once (e.g. Wir kaufen Deinen Flug, Flightcash, FairPlane Express,…etc.). And those companies which assert the claims on behalf of the affected passengers. The first type is the younger model whereas the paper focusses on the second type, the common model which is much more popular up to now.

In order to claim against the airline the passenger has to give his mandate to the claims management company. If the claims management company is not successful against the airline and has to file a lawsuit a lawyer is still needed. Usually the claims management companies cooperate with lawyers but nevertheless the air passenger also has to get into a contract with the lawyer. As lawyers in general are not allowed to work on the basis of contingency fees, it is the claims management company which overtakes the costs for the lawyers and the court. With the help of this legal construction they charge fees in case of success of 25–30% plus VAT of the paid compensation without getting in conflict with the prohibition of contingency fees for lawyers. Thus the customer does not have to pay any fees in advance and moreover does not risk paying the whole fees for the trail in case of losing the trial.

4.1.2 Scope of Application and Requirement to Offer Services

The claims management companies specialized on cases of cancellation, overbooking and long delays of flights in which the Air Passenger Regulation (EC) No 261/2004 applies. Moreover they reduced their business to claims of compensation pursuant Art. 7 of the Regulation which means the lump-sums whose heights depend on the flight distance. Before they enter into a contract they calculate the predicted success rate. Therefore they maintain huge databases with data about cancellations, delays, overbookings and the outcomes of other claims. Within a few minutes they are able to calculate whether the case has high prospects of success. This method is currently also discussed in other fields related to legal services under the buzzword “Legal—Tech” (Scherer 2016). In general claims management companies only enter into a contract with the client if the success rate is high enough. This precondition explains how they achieve such high success rates of more than 90% (e.g. EUclaim, n.d.).

4.1.3 What Makes Claims Management Companies So Attractive?

On the one hand there are many cases in which passengers suffered from flight cancellations, long delays and overbooking and the trend is even worse (Kowalewski 2017). On the other hand claims management companies inform passengers about their rights and the procedure itself is very easy to handle. Passengers can give in their data on the website and check whether the claims management company is willing to overtake the case due to an expected success rate that must be high enough concerning their databases. Thus they reduce the lack of information among passengers, reduce the inhibition threshold of customers and take off the financial risk. Concerning the financial risk there is a psychological explanation why customers do not mind to pay the contingency fees, that is to say they do not feel a lost, just a gain (Rott 2016). When passengers receive the compensation minus the fee and VAT (e.g. Flightrigt, n.d.), it still feels for them like a gain, because they did not expect the money. According to the legal idea of the regulation the compensation pursuant Art. 7 represents an indemnification for a loss of time and trouble the passengers had but what the real damage was stays an individual experience. In many cases passengers do not feel a damage that can be assessed in an amount of money. For many passengers the fact that the airline is hold to be accountable after they did not handle the passenger’s rights in a correct manner is more satisfactory than the money itself. These are the reasons why passengers feel attracted to their services and do not mind paying a contingency fee in case of success.

4.2 Conciliation Bodies: The Conciliation Body for Public Transport in Germany

In the European Member States there are different types of conciliation bodies which deal with passenger rights (Schiefelbusch 2009). Most recently their development was promoted by the implementation of the Directive 2013/11/EU for alternative dispute resolution of consumer disputes (European Parliament and Council of Europe 2013b). As conciliation procedures differ from each other especially due to various national contexts (Hodges et al. 2012) the Conciliation Body of Public Transport in Germany serves as an exemplary model in this examination. The German legislator had already decided to require that airlines had to take part in a special conciliation procedure concerning § 57a LuftVerkehrsgesetz (LuftVG) before the above mentioned ADR Directive had to be implemented. Therefore a new law on ADR in aviation sector (Gesetz zur Schlichtung im Luftverkehr) came into force on 1st of November 2013 in Germany. Thus the German legislator took as well measures against the lack of enforcement in the field of air passenger rights (Bundesamt für Justiz, n.d.).

4.2.1 Legal Construction of the Conciliation Body for Public Transport in Germany and Its Conciliation Procedure

Initially in 2009 the söp was founded as an independent arbitration service in the field of train travels. In the meantime its competencies include as well travel by bus, ship and—since November 2013—by plane (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2017a). The aim of the söp is to conciliate consumer complaints amicable and out of court (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2014). It is a private non-profit institution in form of a registered association. For the consumers the service is free of charge. The costs are borne by the transport companies. That is to say in the field of aviation matters by those airlines which are members of the söp (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2017b). According to German legislation the airlines are free to choose which ADR institution is responsible for them. They are even free to establish one on their own. If they do not become member of a private ADR institution the procedure has to take place before the public conciliation body which is organized within the Ministry of Justice (Bundesamt für Justiz, n.d.). During the last 3 years most airlines operating in Germany have become a member of the söp.

The Airlines are legally obliged to take part in the conciliation procedure until its end but they are not bound to the final conciliation recommendation (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2014). In contrast the passenger is always free to quit the procedure at any time. Thereby the procedure stands for voluntariness on both sides. That is to say by the end of the procedure the conciliator sends a report and a conciliation recommendation which is based on the current legal basis to both sides and both parties are obliged to let to know the söp whether they accept the recommendation or not. If both parties agree they enter into a contract according to the conciliator’s recommendation and the procedure is successfully concluded. If one party does not agree, the procedure is also concluded and it is up to the parties how to end the conflict, e.g. by filing a lawsuit. The limitation period to bring the case before court is suspended during the conciliation procedure pursuant § 11 of the rules of procedure (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2014).

4.2.2 Scope of Application and Requirements for Its Work

In aviation sector the scope of application is limited to cases with a dispute amount of maximum 5000 Euro. In contrast to the claims management companies the söp deals with all cases to which the Air Passenger Regulation (EC) No 261/2004 applies and furthermore it also deals with the common cases of lost and delayed luggage. Due to the fact that the legal framework requires the opportunity of ADR procedure only for consumers concerning German civil law (“Verbraucher” according to § 13 Bürgerliches Gesetzbuch (BGB)), legal entities cannot join the procedure. This means that by the personal scope, claims based on business trips are excluded in general. The most important requirement for the conciliation procedure consists in the obligation that, at first, the affected passenger has to give in his/her complaint to the airline which then has 2 months to give an answer to the passenger (compare Art. 57b paragraph 2 No. 5 LuftVG). Only if the airline does not answer or the passenger is not satisfied with the result, the services of the söp are accessible. The following procedure is very easy to handle and mostly done by internet with the help of online forms.

4.2.3 Reasons for Its Successful Development and High Acceptance Rate

The söp offers its services without any fees for the consumer. All costs are borne by the airlines which are member of the söp. The air carriers pay an annual membership fee and a fee for every case which is examined by the conciliator. If the airline acknowledges the claim of the customer immediately just after it was given in and before the söp started to examine the case, it stays even free of charge for this case. This policy offers incentives which make the söp procedure attractive for both sides. For the airlines it can be seen as a kind of external customer relation management because it offers (most probably the last) opportunity to retrieve the relation with its customer by ending the conflict with an amicable solution. The söp informs the air passengers very well about their rights and the claimant even gets a report about his/her case, so that he/she can understand his/her individual legal situation. The average duration of the process is only 4–6 weeks (Berlin 2014). Due to the voluntariness of the procedure both parties still have the chance to prefer another route of enforcement. The conciliators are highly educated they are all fully qualified lawyers. With its wide scope of application it offers a route of enforcement for many cases in which air passengers are involved as consumers and where they find themselves in a weaker position due to less legal knowledge and less information. The söp accepts all cases independently of their expected prospects of success. Essential for their success is not the rate of compensation but the number accepted conciliation recommendations (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2017c).

4.3 Comparison Between Claims Management Companies and the Conciliation Body for Public Transport in Germany

Comparing the route of enforcement which is offered by the Conciliation Body for Public Transport in Germany and the one which is offered by the claims management companies, many significant differences and only a few similarities are figured out, which are shortly summarized in the following paragraphs:

The scope of application of the claims management companies is limited to cases, in which the passenger claims for compensation in form of a lump-sum according to Art. 7 of the Air Passenger Regulation (EC) No 261/2004. Furthermore, only if the case fulfills a certain expected success rate which is calculated with the help of the company’s database it undertakes the claim in general. The scope of the conciliation body of Public Transport in Germany seems on the first sight much wider because it deals with all claims in which the Air Passenger Regulation applies plus cases of delayed and lost luggage but it is limited concerning its personal scope only to claims of consumers and cases towards airlines which are member of the söp.

Both procedures are easily accessible and most paperwork can be done by internet. For the affected passenger the effort for the procedure of the conciliation body is higher due to the fact that the passenger needs to complain at the airline first. Probably this raises the inhibition level of the söp procedure in contrast to the services of the claims management companies which start their procedure directly with claiming against the airline on behalf of the client.

The length of procedure of the söp is extremely short. It may take maximal 3 months (Schlichtungsstelle für den öffentlichen Personenverkehr (söp) 2014). Whereas 2 further months could be needed for the complaint which the passenger has to allege directly to the airline in advance. The duration of the procedure of the claims management companies is not predictable; it depends on whether the case is brought before court. Hence, it takes between several weeks and up to several years.

The passenger does not have to pay any costs for the procedure before the söp. All costs are beared by the airline. For the services of the claims management companies the passenger has to pay in case of success, that is to say a contingency fee of round about 25% plus VAT (e.g. Flightrigt, n.d).

5 Conclusion

As a result of the analysis and the comparison and as an answer to the question which route of enforcement is most beneficial for the affected passenger, it has to be noted that it depends on the case and as well on the individual preferences of the claimant.

Cases of rational inactivity and in which the passenger is not informed about his/her rights will still not be enforced. But both, conciliation bodies and claims management companies, help with their advertisement, websites and their public relation management to inform consumers about their rights and to give them incentives in order to reduce their inhibition threshold of enforcing their rights. Those consumers who dislike any efforts and are even unwilling to complain towards the airline will probably prefer the services of a claims management company. But as a requirement their case must fit into the clearly defined scope and it must have a sufficient success rate that is expected with the help of the database of the claims management companies. As a disadvantage the consumer risks to pay the contingency fee (which most probably does not feel negative for him/her). If the case is rejected by the claims management companies, it does not necessarily mean that nevertheless, it can be successful if the consumer choses another route of enforcement.

From the consumer perspective, arguments for the söp procedure can be seen in its wider scope of application, the high acceptance rate and the fact that the admission to the procedure does not depend on a predicted success rate. There are no costs for the claimant and the procedure takes a very short time. If the consumer is not satisfied with the services of the söp, he/she can stop the procedure at any time and still decide for another route of enforcement, e.g. lawyer or claims management company (as long as there is no conciliation agreement signed). Finally it is also a question of individual preferences which route of enforcement the consumer choses. The aim of the claims management companies is to achieve a high amount of compensation, whereas the intention of the conciliation bodies is to find an amicable solution between the airline and the affected passenger based on the current legal framework. An advantage of the claims management companies consists in their huge databases they maintain. Thus the claims management companies possess a significant edge in knowledge and information which the söp has not yet been able to establish. The databases help them to claim for the maximum amount of compensation against the airline what is necessary for them as a private company because they have to work in a cost efficient way and therefore have to filter out the cases with an expected low success rate. On the other hand this can be a disadvantage for those consumers which suffered from such a “filtered out case”. They are probably not aware of the fact that they can still claim successfully against the airline but therefore need to choose another route of enforcement (e.g. Lawyer, söp).

Finally the claims management companies which started their business nearly 10 years ago contributed a lot to the jurisdiction of the ECJ and thus as well to the interpretation of the regulation. Many of the cases which were submitted to the ECJ by national courts were initiated by claims management companies. Still they bring cases having a precedent character before court. With its larger scope of application one could say that the söp supplements the work of the claims management companies and in some cases it can even get in competition with the claims management companies but all in all unfortunately there are still too many cases that they seriously have to compete with each other.