ETOA, Package Travel regulation and related protection frameworks
- 30 November | On 29th November the European Commission approved proposals for reform of the Package Travel Directive. These include a proposal to limit prepayment at time of booking to 25% of the package price, unless providers face costs which justify an additional amount (e.g. obligation to pay for flights in full). The reform process now moves on to the co-legislators, Parliament and Council.
- 26 November 2023 | The UK government is reported by Travel Weekly to be considering all options, including a complete redraft, of its Package Travel Regulations. Members are encouraged to participate in the current consultation which is open until end of 13th December and available here.
Package Travel Directive (PTD): Background
ETOA is not a consumer-facing association, and we are not involved in bonding or other assurance mechanisms. Our main interests on this topic are industry’s insurance and compliance requirements, and the impact of prevailing or proposed regulation on value-adding within the tourism ecosystem and consumer choice.
European package travel regulation was introduced in the 1990 Package Travel Directive (PTD), primarily to protect consumers from tour operators (and/or airlines) going bust and leaving tourists stranded far from home, and to safeguard their advance payments. Its success in protecting the travelling public is questionable. Much of the growth in retail travel took place outside the scope of the PTD.
Its successor, PTD2, was published in 2015 and came into force in July 2018 by domestic implementation by the EU28 (prior to the UK’s withdrawal from the EU). This reduced national variation, and included welcome modernisation: no more should brochures be reprinted if prices change, electronic updates will suffice; compliance in one EU state is sufficient to sell to consumers in another; the addition of an ancillary service may not necessarily constitute a package. In practice, it also suppresses innovation and causes market confusion. It introduced the concept of a ‘linked travel arrangement’ that can give rise to liability for any entity involved, and may therefore deter collaboration within the supply chain.
During the COVID-19 pandemic, the limitation of PTD2 became more apparent. Agent and operator liability to refund consumers became hard to manage due to near total loss of cash flow, and the agents and operators themselves were often unable to recover pre-payments made to airlines and other suppliers. A fragmented approach was adopted across Europe: some countries permitted vouchers in lieu of cash refunds. The financial safety nets proved inadequate; consumer confidence was damaged. Once business resumed, managing operator liability for proper performance when the business environment and border arrangements remained so uncertain was hard.
Since the pandemic, there has been further review of PTD2 following a Commission report on its implementation. A legislative proposal was expected late 2022 but is now expected late 2023. For update on schedule, click here. The most concerning proposal is to limit the pre-payment agents and operators selling packages can collect from consumers to 20% at booking, with the balance due no earlier than 28 days prior to departure. This would create a near unmanageable cashflow problem for most intermediaries, and is not necessary to secure client funds in the event of insolvency.
What you need to know
- PTD2 enables more cross-border selling (see note on ‘non-EU business’ below)
- ‘Linked Travel Arrangements’ create liability for third-party performance
- Not all travel service combinations give rise to a package
ETOA’s policy objectives
- Appropriate and fair allocation of risk within the distribution chain
- Increased business awareness of opportunity and risk under PTD2
- More value-adding with increased consumer choice across borders
What we are doing
- Participation in European Commission’s expert stakeholder group on package travel
- Consultation and expert webinars in collaboration with partners
In November 2023, the European Commission approved proposals for reform. The process will now move on to the Parliament and Council for examination and debate. Given elections mid 2024, it is likely that a future Parliament will need to approve.
The new proposals are the result of a policy development since the Commission published a report on the application of the Package Travel Directive on 1 March 2021, which addressed PTD’s effectiveness following the collapse of Thomas Cook, and some of the problems caused by the COVID-19 pandemic. This report was a necessary first step prior to any changes to existing arrangements. The passenger rights directive also affects consumer rights. As for PTD, its application during the pandemic proved highly problematic for intermediaries who had made pre-payments for flights which they could not easily recover from airlines, and yet they were still obliged to refund consumers in full unless other arrangements were sanctioned by national governments.
Following the pandemic, there was strong consumer interest in packaged product and buying from agents, partly due to the desirability of support should circumstances change in destination, such as public-health related travel restrictions. Given the inadequacy of financial protection mechanisms, especially during 2020, and the uncertainty related to cancellation rights, industry continues to push for short-term direction from the EC to help restore both business and consumer confidence. Medium-long term, the framework needs further reform which address both business and consumer needs, and makes an appropriate allocation of risk between public and private sectors.
To succeed, European tourism needs a regulatory framework that encourages innovation and value-adding. As for tax, the higher the compliance load, the more the value-adding will happen elsewhere. While insolvency protection is desirable, what sector-specific arrangements are necessary given the availability of credit card payment protection and insurance products tailored to suit consumer’s risk appetite? There has been extensive development of general consumer protection since PTD was first introduced. The case for special protection for packages that do not include a significant travel component is weak. ETOA, with its partners, will continue to recommend further reform.
B2C sales of packaged product cross-border are thought to be minimal: Europeans are conditioned to look for accreditation and proof of compliance from brands they recognise. But sophisticated consumers may be prepared to buy if they find the reassurance they seek.
The withdrawal agreement between the EU and the UK does not mention tourism (other than Art.11 which covers areas of north-south collaboration on the island of Ireland). The UK is free to amend its package travel arrangements: one suggestion is that the definition of package should change such that a significant travel component is required.
The UK’s package travel regulations are still aligned with the EU’s directive (they implemented the 2015 directive, agreed when the UK was still a member of the EU). What changed is that, within the EU, a UK operator compliant with UK administered financial protection schemes etc. would be able to sell to any EU consumer with confidence: compliance in the UK meant compliance within the EU. Now, while they may still make cross-border sales to EU consumers and package EU product, they will be exposed to the consumer protection prevailing in EU consumer’s home country. To check national implementations of the Package Travel Directive within the EU, click here. Operators will also need to check with their insurers that they are appropriately covered.
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