Implementation of the Package Travel Directive 2015 on 1st July 2018
In this article, Travlaw Partner Stephen Mason discusses, at length, various issues relating to the incoming Package Travel Directive. As leaders in this field, we consider that this is a comprehensive guide to what is currently a grey area. Feel free to contact Stephen@Travlaw.co.uk for more information or to discuss.
In 2015 the EU published the final version of Package Travel Directive 2015/2302. It requires Member States to have their implementing regulations in place by 1st January 2018, and those Regulations must come into force on 1st July 2018.
It replaces the 1990 Package Travel Directive. It is obvious that the travel industry (and indeed, the world) has changed out of all recognition since 1990. In those days, consumers traditionally booked holidays after studying a glossy brochure, which contained pre-arranged combinations; for example, a holiday might have been presented as a clear package, at a clear price, to include flights, hotel, transfers, and whatever other services were relevant. These clearly come within the 1990 definition of a package, ‘a pre-arranged combination of services when sold or offered for sale at an inclusive price’.
Now holidays of that nature are still sold and bought, of course. But commonly, consumers will buy elements of the holiday on the internet (via a PC, laptop, tablet or mobile). Sometimes they will buy each element quite separately (e.g., flight, hotel); but it is also common for the elements to be bought via an online travel agent (or in a travel agency shop, or via a telephone sales facility) where separate sales of each element, at separate prices, are being made, but the consumer might believe he/she is buying a package. UK case law such as ABTA v CAA (2006) and CAA v Travel Republic (2010) show that holidays sold in this broken down way, and are not packages. Although the UK (and some other countries) responded to that by introducing the concept of Flight-Plus, this did give some financial protection for prepayments, but none of the other benefits of packages, especially the liability of a package organiser for things that go wrong during the holiday.
The first of several significant changes introduced by the new Directive is this: a new definition of ‘package’ which will capture millions more arrangements which are sold, and thereby greatly increase consumer protection.
Instead of just one definition, there are now no less than 6! An arrangement only needs to come within one of these to be a package.
- So what are the new definitions?
‘package’ means a combination of at least two different types of travel services for the purpose of the same trip or holiday, if:
- those services are combined by one trader, including at the request of or in accordance with the selection of the traveller, before a single contract on all services is concluded; or
- irrespective of whether separate contracts are concluded with individual travel service providers, those services are:
- purchased from a single point of sale and those services have been selected before the traveller agrees to pay
(ii) offered, sold or charged at an inclusive or total price,
(iii) advertised or sold under the term ‘package’ or under a similar term,
(iv) combined after the conclusion of a contract by which a trader entitles the traveller to choose among a selection of different types of travel services, or
(v) purchased from separate traders through linked online booking processes where the traveller’s name, payment details and e-mail address are transmitted from the trader with whom the first contract is concluded to another trader or traders and a contract with the latter trader or traders is concluded at the latest 24 hours after the confirmation of the booking of the first travel service.
Let’s examine these in more detail:
Definition (a): there are no surprises here. This is in effect the traditional package holiday. It is not dissimilar from the previous definition of a package, but the requirement for there to be an inclusive price has gone. It expressly includes tailor-made arrangements.
Definition (b)(i). A ‘point of sale’ means a shop, a website, or a telephone sales facility. It will cover the majority of situations where a consumer goes into a travel agency shop, or visits an Online Travel Agent’s website, for this practical reason: if a consumer desires, say, a week in Greece, the agent may source a suitable flight which fits the bill. But if the agent/website demands payment at that point, the consumer is very likely to say “hang on, I can’t commit to buying the flight until I know there is an available hotel which I like”.
Definition (b)(ii) . This definition is so wide that it almost makes definition (b)(i) redundant! Again, we see that the old requirement for an inclusive price is gone; a total price (equivalent to what happens when you go to the checkout in a supermarket, and they just add up the prices of each item you have chosen to make a total) still creates a package. And that applies even if the elements of the holiday are offered or sold separately, but charged as a total.
Definition b(iii). It has long been the law in the UK, anyway, that a travel company that describes its offering as a ‘package’ can hardly be surprised if a court later says ‘yes, that’s a package’. But what is meant by a ‘similar term’? For example, would the word ‘holiday’ be a similar term? We must wait and see what courts say; but remember the context in which courts are most frequently asked to make a ruling as to what is a package. It’s where a consumer is seriously injured whilst on holiday, and wishes to bring a claim for compensation for his (possibly life changing) injuries. To enable that to happen, the judge has to find that the word ‘holiday’ is a similar term to package. I will leave readers to decide which way they think most judges are likely to go , faced with that decision.
Definition b(iv). This covers purchases like holiday ‘gift boxes’, and clarifies that they can be packages even if the precise hotel, for example, or precise combination, is yet to be ascertained.
Definition b(v). The Directive is keen to bring the concept of the ‘click-through’ within regulation. In part they will be packages, and if not a package, they are likely to be Linked Travel Arrangements, see below. To be a package, the click-through must have followed the strict definition; in particular, when the consumer clicks through from the website of Trader A to that of Trader B, his name, e-mail address and credit (etc) card details must be transferred with him; so he will not need to input them again on the website of Trader B. Although the issue is controversial, most people appear to think that it is very rare for all that information to be automatically transferred in practice, and if that’s correct, not many click-throughs will be packages.
- Travel Services
As we have seen, to be a package, there needs to be a combination of at least 2 travel services. What are these. Previously there were 3 types of such service: in short form, transport, accommodation, and other significant tourist services. This has been expanded as follows:
“travel service’ means:
|(a)||carriage of passengers;|
|(b)||accommodation which is not intrinsically part of carriage of passengers and is not for residential purposes;|
|(c)||rental of cars, other motor vehicles within the meaning of Article 3(11) of Directive 2007/46/EC of the European Parliament and of the Council ), or motorcycles requiring a Category A driving licence in accordance with point (c) of Article 4(3) of Directive 2006/126/EC of the European Parliament and of the Council;|
|(d)||any other tourist service not intrinsically part of a travel service within the meaning of points (a), (b) or (c)”;|
- Car hire and the like now have their own discrete category.
- It is made clear that if in deciding whether something is a package, one of 2 elements is from category (d), then that element needs to be significant, indeed an essential feature of the combination, or, as the Pre-amble to the Directive suggests, that the tourist service represents at least 25% of the value of the combination.
A new development in this Directive is that business travel is excluded, or in the words of the Directive: “ purchased on the basis of a general agreement for the arrangement of business travel between a trader and another natural or legal person who is acting for purposes relating to his trade, business, craft or profession.”
Also excluded from regulation are packages sold on an occasional not-for-profit basis and those packages which do not cover a period in excess of 24 hrs unless they include overnight accommodation.
The Pre-amble suggests that short transfers between e.g. airport and hotel are not carriage of passengers for the purpose of establishing whether a package has been sold.
- Linked Travel Arrangements (“LTA’s”)
In the build up to implementation of the Directive, this new concept, LTA’s, occupied a great deal of discussion time. But in considering how important they really are, one should keep in mind why the EU created LTA’s. It was not with a view to creating a whole new industry of LT Arrangers; but to capture almost all combinations within ‘package’, and – just in case something falls outside ‘package’, to ensure that some sort of financial security is provided to consumers. Note however that the other benefits of buying a package (especially the liability of the organiser when things go wrong) do not apply to LTA’s.
There will be 2 types of LTA:-
“ ‘linked travel arrangement’ means at least two different types of travel services purchased for the purpose of the same trip or holiday, not constituting a package, resulting in the conclusion of separate contracts with the individual travel service providers, if a trader facilitates:
- on the occasion of a single visit or contact with his point of sale, the separate selection and separate payment of each travel service by travellers; or
- in a targeted manner, the procurement of at least one additional travel service from another trader where a contract with such other trader is concluded at the latest 24 hours after the confirmation of the booking of the first travel service.”
Type 1: I do not believe that many LTA’s of this type will be created. The reason is exactly the mirror image of what I said under Definition (b)(i) of ‘package’. ‘Separate selection and separate payment’ is a tough test to fulfil – especially where , as I have said, the trader is arguing for an LTA in a court where a consumer brings a claim for injury compensation. The consumer will say, ‘that was not separate selection – the hotel and flight bookings were dependent on each other’.
Type 2: This brings us back to the world of click-throughs. Given what was said above, that not many click-throughs will be packages, most of these arrangements will be LTA’s. Questions will no doubt arise as to the meaning of the words “in a targeted manner”.
- Notice to Consumers of LTA
Note that it is Trader A who has the job of both notifying the consumer that an LTA has been created (and to provide the – rather weak – financial protection – see below).
“Before the traveller is bound by any contract leading to the creation of a linked travel arrangement or any corresponding offer, the trader facilitating linked travel arrangements, including where the trader is not established in a Member State but, by any means, directs such activities to a Member State, shall state in a clear, comprehensible and prominent manner that the traveller:
- will not benefit from any of the rights applying exclusively to packages under this Directive and that each service provider will be solely responsible for the proper contractual performance of his service; and
- will benefit from insolvency protection…”
One can imagine disputes in court as to whether the required Notice was in fact given, in particular cases. The effect of failing to give effective notice is that the arrangement is treated as a package, as far as liability and the requirements of financial protection are concerned – a very serious consequence for the trader!
- Price Alterations
Article 10 of the Directive explains what can and can’t be done to alter the price of a holiday, after the booking is made. It says:
Member States shall ensure that after the conclusion of the package travel contract, prices may be increased only if the contract expressly reserves that possibility and states that the traveller is entitled to price reduction under paragraph 4. In that event the package travel contract shall state how price revisions are to be calculated. Price increases shall be possible exclusively as a direct consequence of changes in:
- the price of the carriage of passengers resulting from the cost of fuel or other power sources;
- the level of taxes or fees on the travel services included in the contract imposed by third parties not directly involved in the performance of the package, including tourist taxes, landing taxes or embarkation or disembarkation fees at ports and airports; or
- the exchange rates relevant to the package.
- If the price increase referred to in paragraph 1 of this Article exceeds 8 % of the total price of the package, Article 11(2) to (5) shall apply.
- Irrespective of its extent, a price increase shall be possible only if the organiser notifies the traveller clearly and comprehensibly of it with a justification for that increase and a calculation, on a durable medium at the latest 20 days before the start of the package.
- If the package travel contract stipulates the possibility of price increases, the traveller shall have the right to a price reduction corresponding to any decrease in the costs referred to in points (a), (b) and (c) of paragraph 1 that occurs after the conclusion of the contract before the start of the package.
- In the event of a price decrease, the organiser shall have the right to deduct actual administrative expenses from the refund owed to the traveller. At the traveller’s request, the organiser shall provide proof of those administrative expenses.
Two new provisions about cancellation
Article 12 recognises (for the first time) that it is reasonable for package organisers to stipulate ‘reasonable standardised termination fees’, when a consumer cancels a booking. But these have to be justifiable.
On the other side of the coin, consumers are given a new right to cancel without paying cancellation charges, as follows:-
“the traveller shall have the right to terminate the package travel contract before the start of the package without paying any termination fee in the event of unavoidable and extraordinary circumstances occurring at the place of destination or its immediate vicinity and significantly affecting the performance of the package, or which significantly affect the carriage of passengers to the destination. In the event of termination of the package travel contract under this paragraph, the traveller shall be entitled to a full refund of any payments made for the package, but shall not be entitled to additional compensation.”
There has been much speculation as to how this provision will work in practice? Is a terrorist attack in Paris ‘in the vicinity’ of Disneyland, thereby justifying consumers in cancelling free of charge? But all the flights and hotels are operating! What about a hurricane approaching one Caribbean island? Or suddenly changing course at the last minute? Where do consumers and traders stand in these scenarios? And can organisers continue to follow precisely the travel advice from their own governments? If so, consumers cannot cancel free, unless governments advise against travel to a destination.
Probably the most important benefit to consumers of buying a package is that the organiser is liable to compensate them if things go wrong – whether that is a sub-standard holiday, or the absence of advertised facilities, or indeed injury or illness sustained on the holiday.
In the new Directive, although there is new wording, it is not expected that this will amount to any change in the way courts approach the issue of liability. There has always been liability for holidays which are below the proper standard, and for advertised facilities (swimming pool, entertainment etc.) which are not provided. And in the case of injury, the UK courts have interpreted liability as being imposed on the organiser where the supplier (usually a hotel, but can be any supplier e.g. ski school, coach company) fails to comply with local Regulations or Standards (e.g. for glass door safety, swimming pool safety, food hygiene etc.).
So the new test for liability in the Directive is ‘lack of conformity’. But there are 2 reasons why this probably effects no change to the liability regime: –
- Lack of conformity is defined as follows: “‘lack of conformity’ means a failure to perform or improper performance of the travel services included in a package”. That wording, failure to perform or improper performance, is the old familiar wording from the 1990 Directive.
- In any event, the new words, lack of conformity, fit precisely within the existing tests – eg a lack of conformity to quality standards, a lack of conformity to the description, and a lack of conformity to local Regulations or Standards.
- Financial protection – the new ‘place of establishment’ test
There are major changes in this area. The Directive states:-
Effectiveness and scope of insolvency protection
- Member States shall ensure that organisers established in their territory provide security for the refund of all payments made by or on behalf of travellers insofar as the relevant services are not performed as a consequence of the organiser’s insolvency. If the carriage of passengers is included in the package travel contract, organisers shall also provide security for the travellers’ repatriation. Continuation of the package may be offered.
Organisers not established in a Member State which sell or offer for sale packages in a Member State, or which by any means direct such activities to a Member State, shall be obliged to provide the security in accordance with the law of that Member State.
- The security referred to in paragraph 1 shall be effective and shall cover reasonably foreseeable costs. It shall cover the amounts of payments made by or on behalf of travellers in respect of packages, taking into account the length of the period between down payments and final payments and the completion of the packages, as well as the estimated cost for repatriations in the event of the organiser’s insolvency.
- An organiser’s insolvency protection shall benefit travellers regardless of their place of residence, the place of departure or where the package is sold and irrespective of the Member State where the entity in charge of the insolvency protection is located.
- When the performance of the package is affected by the organiser’s insolvency, the security shall be available free of charge to ensure repatriations and, if necessary, the financing of accommodation prior to the repatriation.
- For travel services that have not been performed, refunds shall be provided without undue delay after the traveller’s request.
Mutual recognition of insolvency protection and administrative cooperation
- Member States shall recognise as meeting the requirements of their national measures transposing Article 17 any insolvency protection an organiser provides under such measures of the Member State of his establishment.
Insolvency protection and information requirements for linked travel arrangements
- Member States shall ensure that traders facilitating linked travel arrangements shall provide security for the refund of all payments they receive from travellers insofar as a travel service which is part of a linked travel arrangement is not performed as a consequence of their insolvency. If such traders are the party responsible for the carriage of passengers, the security shall also cover the traveller’s repatriation
It is certainly arguable that the biggest long term impact likely to be made by the new Package Travel Directive on the holiday industry will prove to be this dramatic change in the way the industry is to be regulated. It is not exaggerating to say that the whole shape of the industry could be altered as a consequence.
In summary, the current law requires that sellers of packages ensure that all prepayments received from consumers, for packages, are secured (and provision made for repatriation) in the event of insolvency, in the country where the package is sold or offered for sale. That means, in effect, the country where the consumer lives. So a tour company wanting to sell to consumers in a number of different European Member States has to apply for and comply with regulation in every State where they make sales – a complex and time consuming process.
The new law (applicable from 1st July 2018) is contained in Articles 17 and 18 of the Directive, set out above. The effect of these provisions is:-
- Member States must regulate all package organisers ‘established in their territory’.
- The insolvency protection shall benefit travellers regardless of their place of residence. (As far as I can see, this is not limited to consumers living within the EU or EEA).
- The security (to cover refunds and repatriations) must be effective, based on the organiser’s trading volumes and patterns. Remember that the Court of Justice (EU) has already decided back in 1999 in the case of Rechberger v Austria (C-140/97) that however reasonable the protection appears to be when it is put in place, and however unexpected the reasons for insolvency, the State is liable to consumers if the protection turns out to be inadequate, and there isn’t enough money to pay all refunds etc.
- For those consumers stranded at the time of insolvency, the fund can be used to pay for continuing the holiday and paying for accommodation.
- Companies which have no place of establishment within the EU will continue to be regulated in the old-fashioned way, ie needing to comply with the requirement of the Regulator in each country to whose consumers they sell. (An incentive to establish in the EU!).
Article 18 requires each Member State to recognise that the way in which each other Member State enforces Article 17 does comply with its requirements. There are provisions to allow countries to obtain information from each other both on this topic generally, and about individual organisers.
What does this mean? First of all, it is a fantastic opportunity for large companies to simplify (and save money on) their international operations; and equally, a great opportunity for SME operators to expand into new markets without the nightmare of repetitive and costly regulation. Of course, consumers should benefit from keener prices. And indeed, for example, the UK Government has already announced that it will align the ATOL scheme so that it covers all sales by companies established in the UK, so that sales to other European consumers by British tour companies will be covered by ATOL (assuming of course that the package includes a flight). The CAA will continue as Regulator for all ATOL sales.
But secondly, there is the risk of a downside. If the dismal consequences of the Low Cost Holidays collapse taught us anything, it is that the level of protection is not the same in all EU countries. And it is no use pretending that some companies won’t be tempted to move their place of establishment to the cheapest jurisdiction (Eastern Europe? Greece? Who knows where it will be!). The worry is that (a) the level of consumer protection will be inadequate (b) the UK government can’t prevent this – see Article 18 above – (c) consumers won’t know or won’t understand enough to care – see Low Cost; and (d) British consumers might, for example, have to apply for repatriation or refunds from (say) a Latvian regulator; how will they locate and communicate with them?
Finally, let me add that ‘place of establishment’ is a phrase which is defined in tax legislation. In simple terms, it means that the head office and senior management must be in that country – it’s not enough to get a PO Box address, or a satellite office! So that will probably deter some companies, especially SME’s, from uprooting.
Brexit. It goes without saying that the PTD is European legislation, and that we have no idea what will happen to this after Brexit in March 2019. One hopes that negotiation leads to British companies still having the benefits of the right to sell packages cross-border. But if not, will UK companies be forced into having one business in the UK to sell to British consumers, and one place within the EU for all other sales?
Linked Travel Arrangements
Even the insolvency protection for an LTA is weak, applying as it does only to the first element booked, and only for such time as the agent who sold the first element (and it almost always will be an agent) holds the consumer’s money before passing it on to the service provider eg airline or hotel. So for example, a consumer buys a hotel stay from one website, then is directed to click through to another site to buy transport. (Names/emails/credit card details are not transferred). The only financial protection is for money paid to the hotel company and is only effective whilst that company (maybe a booking agency) holds the money, before passing it on. There is no financial protection for the flight or other transport booked via Trader B.
(C) Travlaw LLP Solicitors
NB – The original publication is available at www.springerlink.com