Compensation for Denied Boarding, Cancellation and Delay in the Flight Industry

Kristina Jensen & Matthias Bødewadt Lund

Student thesis: Master thesis

Abstract

In 2005, Regulation (EC) no. 261/2004 came into force, and regulated European flight passengers right to compensation, in regards to denied boarding, flight cancellations and flight delays. The purpose of these compensation rights, was to ensure a high level of consumer protection for European flight passengers. One of the major exceptions for the right to flight compensation, is the rule of extraordinary circumstances, granting the air carriers some leeway, and balancing the regulation between businesses and consumers. Since the inception of the regulation, the level of consumer protection has been greatly expanded by The Court of Justice of the EU, who have interpreted the law in favour of the European consumers. Thus, the regulation has imposed the air carries with operating costs, greater than originally planned. However, these increased operating costs have subsequently been passed on to the flight passengers, since the air carriers have been forced, to incorporate these new legal risks into their business models. These legal risks also include the risk for vague, ambiguous and sometimes contractionary interpretations of the regulation. Therefore, there has also been a need for clear, unambiguous and transparent rules, that assure legal clarity and firm expectations for both consumers and businesses. The economic consequences of an expanding interpretation of the law, in favour of the consumers, will ultimately be borne by the consumers. This leads to an economic deadweight loss for society, as the consumer surplus will decline and producer surplus will rise, due to the air carriers’ over-assumption of legal risks. The solution is a dual-split compensation, where the air carriers are either rewarded or punished, for a successful or unsuccessful flight. The measure for this, is governed by the time delay, and can be further regulated by a per-hour compensation, rather than a fixed right to compensation. Other non-structural solutions include, a clearer and firmer legal interpretation, securing all market operators a more accurate method for analysing legal risks.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages141
SupervisorsKathrine Søs Jacobsen Cesko