Knowledge Platform

Method of Calculating Compensation

The building blocks of the regulations are essentially the same – with the mandated carrier response generally based upon the length of the delay. The disparity however lies in the method by which the carrier is expected to calculate the amount of compensation payable to the passenger where it falls due, which not only creates inequality for passengers but also travel service providers as between modes.

By way of example, for sea and rail, the amount of compensation payable is based upon a fixed percentage sum of the ticket price (for the segment during which the delay occurred if a return ticket), according to the length of the delay. For air, the amount of compensation payable is a fixed sum based upon the length of the journey and length of the delay.

As there is no correlation to the price paid, this can lead to disproportionate sums of compensation being paid out, particularly by low cost airlines, who in some cases, may face having to reimburse the cost of the tickets and pay out compensation in excess of the price paid for the ticket where the delay exceeds a certain length of time.

That said, within the industry as a whole it has never been considered beneficial for airlines to compensate based on ticket price due to the different fare classes – which would mean that those who pay for business or first class for example would be compensated at a higher level because they can have purchased a premium fare. This would contradict the very principle behind the various passenger rights regimes that aims to create a fair liability/compensation regime for all passengers. It should also be noted that ‘compensation’ is in any event payable under both the sea and air regimes for delays and denied boarding and is distinct from the right to reimbursement of the ticket price – which arises in certain circumstances.

Due to the very different fare structure for the various modes of transport, it is difficult to envisage a scenario where the methods for calculating compensation perhaps should or even could be aligned.

Further analysis may need to be undertaken and input from key industry stakeholders and associations sought in order to analyse the potential impact on both passengers and travel service providers of bringing the methods in to line across transport modes.