How do we protect holidaymakers from airline failure? Germany may have found the answer

Scroll back a few months, to October last year. Monarch, one of the UK’s biggest holiday airlines, went bust. For a few days there was chaos: 110,000 people were stranded abroad; hundreds of thousands more, who had booked and paid for future departures, were left without tickets. The CAA, to its credit, and at a cost of ￡60 million, intervened and arranged to fly back all the stranded passengers, even those who weren’t technically entitled to free repatriation.

Monarch was the biggest failure in British aviation history, but collapsing airlines have been a problem for decades. The first one I wrote about was Air Europe in 1991. Since then we’ve seen lots more – Zoom, Debonair, Silverjet – but also major collapses such as XL in 2008 (85,000 stranded) and Flyglobespan (4,400) in 2009. In each case, I’ve found myself emphasising over and over again how unsatisfactory the situation is and how difficult it is for holidaymakers to understand the complex rules and loopholes in this area.

The biggest airline failures of all time – where does Monarch rank?

In March this year, the Department for Transport set up the Airline Insolvency Review to examine the problem in the light of the Monarch failure. Last week, an interim report confirmed what we have been saying for years that “too many [passengers] do not have protection” and that consumers “must have clarity and confidence about the risks of airline insolvency and how they are protected when they travel”. 

As well as stating the obvious, an interesting potential solution was mooted. The problem with the way financial collapses work is that once a company is declared insolvent, it has to stop trading. That’s fine if you are a restaurant or a carpet shop. Some customers may lose money on advance orders, and employees are left in the lurch. But no one is left stranded miles from home, facing substantial costs and the difficulty of arranging new flights.

One of the interim report’s suggestions is that airlines, instead of losing their licences to operate as soon as they are declared insolvent, be allowed to wind down gradually – to continue operating as long as is necessary to bring back passengers with minimal disruption. This is what happened in Germany last year when Air Berlin went into administration.

There was still a cost to the German government, but the review suggests it was a more efficient solution than the huge operation to rescue Monarch’s passengers. It is still early days – the final report isn’t due to be handed to the Secretary of State until this winter – but at least some progress is being made and some serious and creative thinking is going on.

Cheap fare adverts need closer scrutiny

On a completely different subject, I was interested in a recent ruling by the Advertising Standards Authority (ASA) which criticised Eurostar for suggesting on its booking site that there were only two tickets still available at ￡98 on one of its trains to Paris. 

The implication was that, once those tickets were sold, the fare would be higher. However, it subsequently offered more lower-priced tickets on that train in a sale. 

A passenger who had bought the tickets at ￡98 noticed this and complained to the ASA. Its ruling acknowledged Eurostar’s argument that normally tickets would be sold at a higher price, but that there “were nevertheless circumstances where subsequent prices would be lower”. 

The ASA accepted that such claims wouldn’t always be classed as misleading. However, its conclusion in this case was clear: “We considered that where Eurostar knew, or could reasonably have anticipated, that the seats would subsequently be available at a lower price – for example, where a promotion was due to begin or where they were already aware that ticket sales for that train had been poor – it was misleading to describe the current prices in a way that suggested prices would increase if consumers did not act quickly.”

It is encouraging to see the ASA policing this kind of marketing, but it is facing an uphill struggle. The phrase “last few seats (or hotel rooms) available at this price” is now ubiquitous on airline, rail and hotel booking sites – and there is no sure way of a customer knowing whether the claim is true, or simply an attempt to fluster them into booking.

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