Are passengers just pawns, and airlines kings in the game of air transportation?

9 March 2010

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All packed and ready to go… to that important business meeting, that promising job interview, that well-deserved holiday or to watch the World Cup of the “beautiful game”. Passport, cellphone, cash and ticket? Check. Having arrived at the airport in plenty of time, you head to the check-in counter only to be told that the flight you’ve booked and paid for has been over-booked, and offered a flight voucher or a seat on the next available flight (which may only be in a couple of days). “Where is the justice “ “Is there no accountability?”, you ask in earnest. Add this to the Competition Commission question mark over the alleged price fixing conduct of certain airlines, and you think to yourself, “Are we passengers just pawns in the game of air transportation?”.

The short answer is yes, individually passengers are pawns, but collectively they are something much stronger – they are consumers. This group is increasingly becoming one to reckon with, not only because of their immense market sway, but by virtue of the legislative protection soon to be afforded by the “unashamedly pro-consumer” Consumer Protection Act. But let’s play Devil’s Advocate for a second and look to the king in this game, the airline itself. The King may be an important piece, but it too can only move one square at a time (albeit including backwards). It is no secret that the airline industry has gone through some tough financial times over the last decade, citing the increase in the price of fuel, high insurance costs, excess capacity and alteration of business models as a few of the many contributing factors. In order to afford some protection of their revenue, airlines worldwide have adopted the practice of over-booking. Airlines contend that if they did not overbook to a certain extent, no-shows would mean too many empty seats, lower revenue per seat, a decrease in efficiency, with the overall reduced ability to cover their costs. The theory behind the practice is that airlines attempt to predict how many passengers will not check-in for the flight, over-book the flight for that number with the view that the extra bookings will compensate the “no-shows”. A blunder over the numbers leads to some very unhappy stranded passengers.

In March 2008, the Consumer Protection Bill certainly threw the cat amongst the pigeons by placing a compensatory obligation on airlines (as suppliers) who accept reservations, are unable to supply the service because of insufficient capacity, and who cannot supply the passenger with a comparable service (e.g. a seat on another airline to the same destination, at a similar time). Airlines are afforded some protection against claims beyond a refund of the ticket price (together with interest) if the inability to provide the service is due to circumstances beyond its control and if the airline took reasonable steps to inform the passenger of the shortage as soon as it was practicable to do so.

But in instances where this is not the case, the Bill initially required that airlines (as suppliers) not only refund the airfare to those passengers bumped off flights, with interest, but also to fund any “consequential damages for any economic harm” suffered by the stranded person. Immediately consumers and airlines alike honed in on the term “consequential damages” which seemingly was wide enough to include damages for all sorts of missed opportunities, including jobs and business contracts. Battle lines were drawn, with extreme stances being adopted that range from advocating that the bumping-off practice be declared an unfair business practice and outlawed completely, to cries that the onerous financial implications imposed on airlines by the consumer legislation may result in a collapse of the viability of the industry. As with all things in life, the truth could be found somewhere in between and, after public comment and debate, the phrase “consequential damages” was replaced in the Consumer Protection Act with the term “costs directly incidental to the supplier’s breach of the contract”.

What exactly is meant by this term is debatable, but it is evident that it is not nearly as broad as its predecessor. Particulars regarding the monetary compensation payable to bumped-off passengers are to be incorporated into the regulations to be promulgated in terms of the Consumer Protection Act. Until such time as these regulations are forthcoming, there is no certainty on the level of compensation payable. Perhaps our legislature should look to the 2004 Regulations of European Committee Council which set out the specific amounts of compensation payable, ranging from €250 in cash and a ticket voucher worth €350 for a two-hour delay (for a distance of between 0 – 1499km) to €600, and a €700 ticket voucher for a four-hour delay over a distance of 3 500km. Only time will tell if these guidelines are matched.So what is the truth (i.e. the consequences of this unashamedly pro-consumer piece of legislation), that lies somewhere in the fog between the two extremes? My guess - an increase in the price of tickets (and not for the reasons being probed by the Competition Commission) with less flexible ticketing rules, but more satisfied passengers. Tit for tat.

Norton Rose South Africa (incorporated as Deneys Reitz Inc) joined Norton Rose Group on 1 June 2011.