Regulatory reform in 2022 – new powers for CAA and CMA
The following article appeared in ABTA's issue of Travel Law Today - Spring 2022.
With the demise of Thomas Cook and Monarch Airlines, followed by the COVID-19 pandemic, the travel industry has received considerable attention in relation to consumer protection.
Between 31 January 2022 and 27 March 2022, the Department for Transport (DfT) ran a consultation entitled Reforming aviation consumer policy: protecting air passenger rights in which it proposed reforms to the Civil Aviation Authority (CAA) consumer protection regime.
The consultation addressed four main areas:
Regulatory enforcement powers
One of the major themes emerging from the COVID-19 pandemic was whether the CAA had sufficient powers to enforce airlines’ compliance with consumer protection measures such as Regulation 261. Currently, the CAA is required to take a company to court to seek a remedy for non-compliance. This has been seen as inadequate in terms of ensuring prompt compliance, particularly in times of difficulty such as the pandemic when numerous refunds are required.
Both the CAA and the Competition and Markets Authority (CMA) have jurisdiction to enforce consumer protection in the aviation industry under the Enterprise Act 2002. The consultation therefore needs to be assessed in the context of the wider-ranging Department for Business, Energy and Industrial Strategy (BEIS) consultation on Reforming competition and consumer policy, which has proposed increased consumer enforcement powers for the CMA.
BEIS announced on 20 April 2022 that the following reforms would be introduced:
- A specific new offence of commissioning, hosting or offering fake reviews
- New prohibitions on unfair subscription contracts
- Powers for the CMA to impose fines of up to 10% of turnover on businesses infringing consumer laws (rather than the CMA having to seek an order in the courts)
- Increased penalties for failure to comply with CMA competition law investigations
- No merger control for deals involving companies with turnover less than £10m
The DfT consultation sought views on a wider range of enforcement powers, specific to aviation, than those currently available across other consumer sectors generally.
Some argue that the DfT consultation provides mixed messages. On one hand, it acknowledges that the vast majority of airline passengers do not experience problems. On the other, this appears to be at odds with the scenario portrayed by the quoted consumer groups. The answer appears to lie within the ‘severity of detriment’. In other words, how significant the impact on the passengers themselves is when something goes wrong.
In contrast to other issues addressed in the DfT consultation, such as delayed or cancelled domestic flights or mandatory alternative dispute resolution (ADR), no
specific proposals have been made in relation to regulatory enforcement powers. The consultation merely seeks views on the ability of the CAA to determine breaches of law to ensure businesses comply promptly, and to order them to pay compensation or financial penalties. The reform, if carried out, would effectively see a dramatic shift in the burden of proof from the CAA and CMA having to state their case in the courts to one where the recipient of the fine has to prove their innocence in court should they wish to challenge the ruling.
The consultation is vague on the possibility of turnover-based fines, as used by the CMA. The current indication is that CAA powers of this nature are likely to be
addressed in the BEIS consultation.
Compensation for delays and cancellations to domestic flights
The consultation includes a proposal to change the basis of compensation for domestic flight delays and cancellations. Rather than a single compensation level for late cancellation or a delay of more than three hours, it will now be based on a sliding scale:
- Delay between 1 and 2 hours: 25% of ticket price
- Delay between 2 and 3 hours: 50% of ticket price
- Delay of more than 3 hours: 100% of ticket price
The logic behind this proposal is that under the current system delays to short-haul flights are undercompensated, whereas delays to longer-haul flights are overcompensated.
Mandatory Alternative Dispute Resolution
Currently, while aviation businesses may join ADR schemes, ADR is not mandatory. The consultation proposes to change this for all aviation businesses operating to, from, or within the UK.
The proposal is that if a passenger accepts the outcome of ADR, the airline is bound by the determination. On the other hand, if the passenger is dissatisfied with the outcome, they are entitled to take their claim to court.
If this process is to become mandatory, it raises the question as to whether airlines should have the right to appeal the determination as well as passengers.
No specific proposal for change has been put forward in relation to accessibility issues. However, the consultation invites views on matters such as (i) increasing limit of liability for damage, and (ii) the practicalities of special declarations of value in relation to passengers travelling with specialist mobility equipment. The consultation also asked for aviation businesses to submit reviews on more general terms about other possible reforms that may improve facilities for passengers with accessibility needs.
There is also a related request for views on:
- Whether, and if so how, individuals with protected characteristics, such as race, sexual orientation or age, would be affected by changes in this area; and
- How these reforms might achieve the objectives of eliminating discrimination and advancing equality.
The aviation consumer protection measures address issues ranging from isolated failures such as a flight delay, through to major industry-wide issues such as airline insolvency, Consumer Credit Act rights, and accessibility for those at a disadvantage.
Overall, the consultation appears to propose only two specific changes, with several more open-ended reforms for consideration. Perhaps this stems from a recognition that the system is already complicated and any changes risk causing further fragmentation of the EU and UK aviation sectors as the UK moves away from the Regulation 261 regime.
Further, at a time when the aviation industry is attempting to ‘build back better’ after the pandemic, this consultation has come in parallel with: (i) the European Commission’s review of the Package Travel Directive, (ii) the airline insolvency review and (iii) the BEIS consultation (now completed). This suggests that there are likely to be several interrelated, and potentially competing or contradictory, changes to an industry facing what is already a challenging and complex future.
The DfT is continuing to review the feedback it has received to the consultation. However, there is no indication of when an update report will be published.
Neil Baylis, Mishcon de Reya LLP – Partner, Competition and Regulatory Group