FAQ on Package Travel Directive
General Questions
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ECTAA believes that the pandemic has exposed the limits of the principles on which the PTD is grounded, namely that the sole responsibility of the performance of the package shall be carried by the organiser
Firstly, what was deemed protective for travellers in the 1990s, when package travel was by far the most popular product, has lost its relevance 30 years later. According to Eurostat, traditional packages constituted only 9% of the travel products sold in 2017 and only a minority of travellers benefit from the PTD. It is simply not possible, in the current context, to have a clear, future proof protection for all travellers while also guaranteeing a level playing field by only revising the PTD. Travel legislation will need to be more flexible and more protective towards travellers. There is therefore a need for an in-depth reform consisting of a harmonisation of the PTD and passenger rights regulations (in particular air travel) to balance the obligations and risks between package organisers, airlines and consumers.
Secondly, the PTD is not adequate to deal with large scale events such as pandemics. While some emergency measures and financial support provided by Member States have allowed most travel companies to survive up until now, emergency mechanisms have to be put in place in order to better handle highly remote risks such as pandemics and ensure customers are quickly refunded in the future. To make sure that the PTD revision is successful, proportionate, and balanced we need to consider credible scenarios/ policy measures in both the revisions of the package travel directive and in the air passenger rights regulations. A meaningful cooperation between DG MOVE and JUST on these topics is therefore imperative.
If we want to improve the protection of travellers, we need a clear, future -proof protection regime that would also ensure a level playing field, we need to look beyond only revising the PTD. Travel laws will need to be more flexible and provide better protection to travellers.
The package travel directive is already the most protective piece of legislation for travellers when they are booking a trip. Elevating the level of protection in the PTD alone will increase costs and drive consumers towards cheaper, less protective alternatives (standalone travel services). The solution to prevent this is to instead elevate the protection in standalone travel services to the same level as that of package travel arrangements. That way it guarantees that there is a level playing field and travellers are better protected, irrespective of the travel component they book.
There is therefore a need for an in-depth reform consisting of a harmonisation of the PTD and passenger rights regulations (in particular of air travel) to balance the obligations and risks between package organisers, airlines and consumers.
Without any harmonisation of Air Passenger Rights, the assessment exercise on the PTD is mostly meaningless in our opinion as there will always be some gaps in the protection of travellers depending on the applicable legislation. This is particularly relevant in areas of prepayments; B2B refunds, and any envisaged crisis management measures.
Limitation on pre-payments
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ECTAA cannot support a limitation on prepayments only applied to package organisers or LTA retailers without including all other service providers in the travel value chain. The PTD, as drafted, does not prevent an organiser from using alternative prepayment business models. What more frequently prevents them from offering other options is that service suppliers require advance payments, in particular if air transport is involved.
Should a limitation on prepayment be implemented, it has to be done along the whole value chain and applied to standalone travel services. Otherwise, it would put a new insurmountable burden on the package travel industry and the SMEs comprising the vast majority of these companies. We acknowledge that imposing such a general limitation will be extremely challenging, in particular for service providers based outside of the EU.
While there were refund issues with packages during the Pandemic, it was in terms of scale, far less serious than what happened in the airline sector. To illustrate the difference in the number of complaints raised, we can see from the 2023 consumer scoreboard in fig 14 that the most problematic sector is by far air transport. In 2020 at its worst, there were four times the number of air travel complaints than package travel complaints in 2020 versus 10 times the number in 2022.
All documentation, reports, studies, and audits have shown that in terms of number of complaints from consumers, the amount and the purpose of state aid (and tax payers’ money), the enforcement of the existing rules, and the overall level of protection of consumers, that this crisis represents first and foremost a failure of Regulation 261/2004 and the refusal of the airline sector to refund passenger and intermediaries, rather than the more minor Package Travel sector.
Moreover, as pointed out by the Court of Auditors’ Report, 90% of State Aids received by tour operators was targeted at refunding customers. State Aid for airlines was 10 times more important and didn’t have such conditionality. Refunding package travellers has always been a priority for tour operators.
Package vouchers, even mandatory, were protected against insolvency and the vast majority of travellers were reimbursed. Airlines did not follow the recommendations of the Commission, forcing vouchers on customers that were not protected. In the case of organisers, the refund of package travellers was prioritised.
In terms of the enforcement of the rules, there is a big difference in the way the rules are enforced between intermediaries and airlines. Indeed, there is a difference between launching 12 infringement procedures against Member States in July 2020 (so not more than 4 months after the release of the first mandatory vouchers) and getting voluntary commitments from airlines in October 2021.
There are 2 countries where packages have a 20% limitation, and in short, there are a lot of caveats in the way the rules are applied…
In Germany the rules allow the organiser to pass on all prepayments above the 20% threshold onto the consumers[1] upon justification. That means that the package organiser can pass on the costs to consumers if the prepayments amount to more than 20% of the total package price.
Another limited prepayment model often quoted is Austria. Again, the Austrian limitation on prepayment comes with an exception. This limitation only applies to companies that do not have an unlimited cover of consumers’ prepayments. Insolvency protection schemes with unlimited cover (e.g. NL, BE…) are not subject to such an exemption, as provided in the Austrian transposition law of the PTD §4 Point 4[2]:
“(4) Customer funds may be accepted at the earliest eleven months before the agreed end of the trip. Customer monies of more than 20% of the travel price may not be accepted earlier than twenty days before the start of the trip; this does not apply to persons entitled to travel services who have reported unlimited risk coverage in terms of amount.”"
(1) BGH – X ZR 71/16
http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&nr=79534&pos=0&anz=1
BGH - X ZR 85/12
http://juris.bundesgerichtshof.de/cgi-bin/rechtsprechung/document.py?Gericht=bgh&Art=en&sid=46187c163b972182902743377a1dcc62&nr=70493&pos=0&anz=1
No not really, for two reasons:
Firstly, even with a rule on passing on the costs above the 20% threshold, that still means that 100% of the money received will go to securing the different services. Most intermediaries will not make any money on the first instalment at the time of the booking and will therefore not be able to charge for the intermediation service provided, salaries and fixed costs.
It is important to understand that the intermediary business does not consist of a stable stream of bookings ensuring a steady revenue throughout the year. 60% of all bookings for the year are made in the first 4 months, mostly for summer vacations. The limitation would imply that a travel agent/tour operator will not make any money from packages before June. That would be unsustainable.
Secondly, this rule is applied in Germany, which is the biggest market of package travellers in the EU. It is fair to believe that German Tour Operators, due to the potential high number of clients it can bring, will have more bargaining power when negotiating payments with service providers than its counterparts from smaller markets. Therefore, this rule will be particularly disproportionate in smaller Member States.
- It will drive SMEs out of the market without a doubt and prevent newcomers from entering the market.
- Other businesses will likely de-package their products and/or will adapt their business model to one closer to a booking platform business model (direct contract between suppliers and travellers against a commission fee).
- All in all, we can expect less packages to be offered by traders, at a higher, less competitive price.
- As a consequence, fewer packages will be sold, and fewer consumers will be protected under the PTD as a result.
This is not acceptable as it is only limited to the context of package transactions.
Limitation on prepayments, ring fencing/escrow account are acceptable measures to protect customer refunds but they have to be applied to the service providers of standalone services too and standalone flights first and foremost. If only applied in the context of packages, packages will become unattractive for suppliers and in particular for airlines. There will be nothing preventing an airline from simply refusing to sell flights via an intermediary if it aims at being combined in the package travel.
In the scenario envisaged in option 4, an airline will still be able to directly sell its standalone flight to the customer, asking 100% of the ticket price at the time of the booking. If combined in a package, the ticket will only be partially paid for and in the case of UEC, fully refunded even if the flight can operate. There is no incentive for airlines to grant a ticketing authority to agents/organisers when organising packages. The right to distribute and sell flights is contractual and will be outside of the scope of any of the legislations currently under review. Airlines will simply refuse to sell flights to intermediaries if they are to be combined in travel packages. Ultimately, there will be fewer packages with flights offered, fewer packages sold, and fewer consumers protected.
If these limitations are also applied to standalone services, this would result in less disincentives to sell flights as part of a package; a better understanding of the pricing policies for travellers; and better protection of refunds, irrespective of the sale channel as the prepayments will be limited throughout the value chaine.
https://www.ectaa.org/Uploads/documents/CONPAX-PTD-infographic-on-prepayment.pdf
- Variation due to duration: The flight element, in particular if it is booked with a scheduled airline, will be the determining factor in setting the level of prepayment in a package (the accommodation can also be costly in terms of prepayment, but that will depend on the B2B conditions of sale). The flight must be paid in full at the time of booking and its share in the total price of the package will depend on the cost of the other services combined with it, in particular the number of nights spent. A flight will usually account for a more important share of the total price of the package on short trips (e.g. city trips) than on 2-weeks vacations.
- Variation due to the destination and the country of origin: Again, a flight being the prime element to define the prepayment, the level will vary depending on the destination (long hauls are usually more expensive than short hauls). The price will also vary depending on your country of origin. In some smaller, peripherical Members States, travellers will rely heavily on connected flights to reach a destination, thus increasing the price of flights and the level of prepayment required (See example of Estonia below).
- Most importantly, variations are determined by the type of package booked:
Depending on the type of package that is booked, the level of prepayment will vary greatly. The vast majority of them will require a prepayment of more than 20%:
- Pre-arranged packages using charter flights will usually require 20 to 30%. Organisers offering these “traditional” packages typically buy the services in bulk far in advance (1 to 2 years before putting the package for sale). They are usually the ones who are able to offer the lowest requirements in terms of prepayments. These packages offer good value for money and are also the ones offering the most flexible payment options for consumers (e.g., payment by instalment), making them particularly popular with lower income families.
- Dynamic packages usually rely on non-refundable scheduled air tickets which are more expensive and require the full payment at the time of booking. That increases the prepayment requirements to around 40%. This price remains stable irrespective of the sale channel (IATA BSP or direct sales via NDC) as the price and the payment requirements are similar.
- Other models such as bongos and other travel boxes, are paid 100% at the counter. As these boxes are usually purchased in retail stores that require you to pay for what you buy, the perennity of such models will be challenged.
- Similarly, if Linked Travel Arrangements are included in the definition of a package (as currently envisaged), the 20% limitation will be difficult to apply as the first service is usually purchased in full before an LTA had been constituted.
Studies related to the limitation of prepayments
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- It seems that the data used to justify a limitation on prepayment is based almost exclusively on Tui’s business model and financial results. The study doesn’t take into account SMEs. The study limits itself to extrapolate TUI’s results and payment model to SMEs by affirming that an unnamed single expert finds TUI’s model representative of the industry. The study is limiting itself to the German market but does not take into account the fact that Germany is the biggest package market in the EU, and that the TUI business model is unique. TUI also owns an airline and hotels. The majority of TUI's products are not scheduled flights. By using its own or a charter airline, TUI will be in a more comfortable position to negotiate better and more flexible payment terms than an SME sized package organiser. We do not believe that the study has looked sufficiently at the impact that an EU wide limitation will have on SMEs.
- To absorb the costs of the new payment model and to limit the price increase, the study assumes that the additional costs (which are substantial) are covered by bank loans or equity capital.
- Firstly, these figures do not work anymore as we are in a high inflation period with interest rates going up for bank loans… so therefore the costs of cover will be higher than expected at the time of this study.
- Secondly, these projections assume that it would be easy for a travel company to contract a loan or find investors and that every business will find one. This is not true for SMEs.
The Dutch Ministry of Economic Affairs and Climate (EZK) published on its website a report on the funding of the package travel sector during Covid 19 and on the opportunity to introduce a limitation of prepayment. The report can be found here:
https://www.rijksoverheid.nl/documenten/rapporten/2023/03/14/onderzoek-financiering-pakketreissector
This study has been conducted following a request from Members of the Dutch Parliament. The Dutch Ministry of Economic Affairs and Climate commissioned the research agency Panteia to conduct this study into the financing of the travel sector in view of necessary supports during Covid.
The researchers came to the conclusion that a crisis like Covid has never happened before and that government aid has worked well, and there is no need to adjust the rules. At the request of the Ministry, Panteia also looked at the effects of a limitation of the down payment. The report shows the very negative effects for the sector, but ultimately also for consumers
ECTAA fully supports the principle that the collection of pre-payments should operate in a manner that achieves the right balance between a high level of consumer protection and the competitiveness and resilience of businesses.
Ex: Prepayment should be appropriate, proportionate and justifiable. They should cover the commitments of the organiser towards the different travel service providers and a reasonable service fee.
Alternative to limiting prepayments: airline insolvency protection
Best Option:
| No limitation on prepayment + mandatory airline insolvency protection |
In Denmark a fund had been set up to protect against airline insolvency:
- The Danish TGF covers travellers with a flight only ticket (return), departing from and returning to a Danish airport.
- Domestic flights are not covered
- The fund will cover stranded travellers abroad who are repatriated by TGF.
- If there is sufficient money in the fund, travellers who were supposed to depart after the time of the bankruptcy will get their prepayment reimbursed with a deduction of EUR 134 per person.
- If the fund is insufficient, a proportional coverage will be calculated.
- The fund is separate from the package travel fund, and has been developed through contributions from all airlines departing from Danish airports.
- A fee of EUR 0,30 per passenger is paid to the Danish authorities (along with the safety contribution fee that all airlines must pay). The authorities are passing the amounts to the fund every month.
- When the fund reaches approx. EUR 13,4 Mio., further contributions are not collected from the airlines.
- The limit of EUR 13,4 Mio. is a maximum limit meaning that in case an airline bankruptcy costs more than that amount, there will be no coverage.
- The limit of EUR 13,4 Mio. is defined by law and is based on a political agreement.
- If the fund goes below EUR 10 Mio., contributions will be reactivated.
- If the fund goes below EUR 3,5 Mio., contributions will be EUR 0,60 until the fund is built up again to the maximum.
- Coverage of “flight only” was introduced in 2015, and in 2020 the funds were at EUR 14 Mio.
Insolvency protection
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Taking into account the conclusions mentioned above, it would also be important to tackle the high costs and limited availability of insolvency protection schemes. With the Covid19 pandemic, several insurers pulled out of the market and it has become increasingly difficult for organisers to be adequately protected. It is important to avoid any price increase for the protection. The fact that there is no capping in the insolvency protection is an issue as it becomes harder to find enterprises prepared to cover the risk (insurance/reinsurance/funds). It is therefore crucial to open a discussion on insolvency protection to guarantee its affordability, availability and effectiveness based on the findings gathered from the successive crisis (Thomas Cook failure and the Covid19 pandemic) that hit the travel industry in the past few years.
Crisis measures: Vouchers
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Mandatory vouchers were necessary in some Member States to overcome the issue of travel organisers not being refunded by their suppliers such as airlines, and refund claims not being protected under the PTD insolvency protection provision. In the event of an insolvency, a traveller would not have been protected. Does that mean they were appropriate? Certainly not. However, they would not have been necessary if some flexibility had been provided regarding the refund period during a time of a worldwide crisis. It would be better to consider how the PTD can be flexible in those circumstances rather than debating mandatory vouchers.
That would depend on the point of view and the objective you were pursuing. It is generally accepted that there have been fewer travel agents/tour operators’ insolvencies during the Covid period than expected, and lower than usual in particular at the beginning of the pandemic.
In most Member States, vouchers have been used either to rebook travel arrangements or to be refunded. So, in short, yes, it did achieve its purpose.
While vouchers had been a useful emergency measure, there are better instruments to ensure that the refunds of travellers are reduced and general package travel directive obligations are upheld. In particular ensuring that a business to business…
Crisis measure: Crisis Rapid Refund Mechanism
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Several Member States have handled this exceptional crisis well and we would encourage providers to learn from their past experiences, assess the benchmarks, make it faster to trigger, and more automated. For example, Denmark set up a fund from which package organisers could refund their customers quickly and pay back the fund in instalments.
B2B Refund Right
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- During the Covid19 pandemic, the main reason why package organisers/retailers could not refund their customers stems from their inability to recover travellers’ monies from service providers (in particular airlines). Tour operators and travel agents were given vouchers from their suppliers or their requests for a refund were simply not processed. In such a situation there are no means to quickly recover the money or ensure that business partners fulfil their contractual obligations. Due to the dominant position of some business partners on the market, it has, at best, taken months for travel agents to secure refunds. A year and a half later, some airlines still haven’t processed refunds.
- In order to prevent this situation, an obligation to refund a package traveller should also apply to service providers who hold the prepayments. That obligation should be applied to all services that are part of a package, in particular the air transport segment. The refund of prepayments should be processed in the same way the payment of the services comprising the package was done.
- If applied, intermediaries who do not hold the prepayments will be in a position to refund the travellers back and fulfil their refunds obligations. One way to implement such an obligation would be to amend Article 22 of the PTD. As currently worded, Article 22 fails to adequately support an organiser’s right to recover travellers’ monies from the travel service suppliers that are holding the traveller’s monies, where the package is cancelled due to an unavoidable and extraordinary circumstance.
- As seen during the pandemic, having contractual obligations does not mean that these obligations will be met in particular in the context of customer refunds. More effective swift enforcement tools ensuring that B2B contractual obligations are fulfilled would be much welcomed. That can also be achieved via amendments of Article 22 of the PTD. Similarly, such changes should be mirrored in the Air Passenger Rights Regulation[1] by amending Article 8.2 (refund of air transport component of a package travel) and 13 (right of redress).
[1] Regulation 261/2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights
Contractual information
Scope
ECTAA would rather welcome a simplification of the scope of the package.