Package Travel: the new Directive
The original Package Travel Directive (the "Old Directive") has been around for a very long time. According to Wikipedia it was introduced the same year as the reunification of Germany, the launch of the Hubble Space Telescope, the release of Nelson Mandela from prison and the resignation of Margaret Thatcher as the Prime Minister. It was truly a time of great change. Can you guess the year?
The Old Directive created valuable rights for travellers who purchased a package holiday. It created a requirement for customer payments to be financially protected against the insolvency of the tour operator; it made the tour operator liable for the negligence of its suppliers; and it introduced other important protections concerning the provision of information to the traveller and the terms of the contract between the tour operator and the traveller.
The dawn of the internet has allowed travellers easily to put together their own travel arrangements which fall outside the protections of the Old Directive. In turn this has led to calls for the Old Directive to be changed so that it captures these new travel arrangements. After much lobbying and debate these calls have now been answered by the publication of a new Package Travel Directive (the "New Directive"). So what does it all mean?
If you thought that the era of package holidays was over then think again. There will now be more packages than ever because the rules are being changed. There is a new and expanded definition for what constitutes a package and nearly everything is going to fall within it: traditional packages, flight-plus and click-through sales. All the hard work done by agents in disentangling their packages to take them outside the burdens of the Old Directive will be undone. Any simultaneous purchase of separate "Travel Services" is likely to be a package.
To be more precise, the definition of a package envisages the combination of “Travel Services”, which are defined as:
- Carriage of passengers;
- Car rental; and
- Other tourist services not intrinsically part of any of the above.
In essence, a package is a combination of at least two of these Travel Services if one of six circumstances exist, namely that the Travel Services:
- Are combined by one trader and a single contract on all services is concluded;
- Are purchased from a single point of sale;
- Are offered, sold or charged at an inclusive or total price;
- Are advertised or sold under the term ‘package’ or under a similar term, for instance 'combined deal', 'all-inclusive' or 'all-in arrangement';
- Are 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;
- Are purchased from separate traders through linked online booking processes where the traveller’s name, payment details and e-mail address are transmitted from the first trader to the second trader and a contract with the latter is concluded within 24 hours.
The consequences of organising and selling packages will be similar to before. The New Directive imposes financial protection requirements, liability for the negligence of suppliers and the regulation of the provision of information to the traveller and the terms of the contract between the tour operator and the traveller.
The New Directive introduces a pared down version of packages which will be called Linked Travel Arrangements ("LTA"). The concept is designed to capture business models which are not packages but which often compete closely with packages. It is therefore thought that some obligations should be imposed on the sale of LTAs, but not all of those applicable to packages.
In essence, an LTA will exist where the traveller purchases two different types of Travel Services (with different travel providers) which is not a package and where the trader facilitates:
- The separate selection and payment of each Travel Service; or
- In a targeted manner, the procurement of at least one additional Travel Service from another trader and that Travel Service is purchased within 24 hours.
By way of example, an LTA is likely to exist where, along with the confirmation of booking of a first Travel Service (such as a flight), a traveller receives an invitation to book an additional Travel Service available at the relevant destination (such as accommodation), with a link to the booking site of another Travel Service provider or intermediary. Having said that, linked websites will not always lead to the sale of LTAs. The New Directive suggests that an LTA will not be formed where travellers are simply informed about further travel services in a general way, for instance if a hotel’s website includes a list of all operators offering transport services to its hotel, independently of any booking.
The consequences of a trader facilitating the sale of an LTA is that it will be obliged to provide financial protection for the refund of payments it receives insofar as a Travel Service is not performed as a consequence of its insolvency. Moreover, insofar as it is responsible for the carriage of passengers, the insolvency protection must also cover the travellers’ repatriation. However, one very significant difference is that the New Directive does not impose liability on a facilitator of LTAs for the negligence of its suppliers, neither does it impose the same requirements concerning the provision of information to the traveller and the terms of contracts with the traveller. The real focus of LTAs is to provide financial protection for travel arrangements which are not quite packages.
Mutual recognition of insolvency protection
As already described above, the New Directive maintains the requirement that organisers of package holidays must provide security to cover the risk of their insolvency. The security must provide for the refund of all payments received in relation to forward bookings and the repatriation of travellers who have already departed. However, the New Directive adds a significant new twist.
The New Directive provides that all member states of the EU must recognise the insolvency protection regimes of other member states. To be more precise, a member state cannot impose its own insolvency protection regime on a foreign company selling to travellers who live in its country if that company is established in another member state and complies with the insolvency protection rules of that other member state. In practice, what this will mean is that a company based in, say, Spain, but selling into Spain, France, Germany and the UK, will not have to comply with the insolvency protection rules of each of those member states. It will only have to comply with the Spanish rules.
This change is going to be significant because it will effectively put member states in competition with each other. An inadequate or expensive insolvency protection regime may drive travel companies to establish in jurisdictions which have more cost-effective regimes. However, this does create a serious practical issue. It is possible under this scenario for a Finnish traveller to book a package holiday to Mexico with an Estonian travel company. In the event of the insolvency of the Estonian travel company whilst the traveller is on holiday, will the traveller be expected to make contact with the Estonian authorities to ensure that he is repatriated? How will the Estonian authorities liaise with Finnish customers who have forward bookings? This is just one of the practical issues which will have to be worked through before the New Directive can effectively be implemented.
At the time of writing the European Parliament has just adopted the New Directive. This means that member states now have two years to incorporate the new rules into their national law and a further six months to being them into force. There will be a period of consultation about how this will be done in the UK and what will be particularly interesting is whether the Government will take the opportunity to signal that the UK is open for business for international travel companies and position the Civil Aviation Authority as the regulator of choice within the EU.
As for the Old Directive, it will be replaced having had a profound effect on the travel industry since its introduction in…1990 of course.
Rhys Griffiths is a partner and the Head of the Travel Group