Holidays taking off: when can businesses offer alternatives to full refunds?

United KingdomScotland

With foreign travel opening up this week and the UK summer holiday season almost upon us, there is optimism in the air for an escape from the UK shores, at least so far as “green” list countries are concerned. Given the welcome uptick in travel for holidaymakers, it sadly comes as no surprise that the UK consumer law regulator, the Competition and Markets Authority (“CMA”) is flexing its muscles again. Last week, the CMA wrote a second open letterwarning package holiday companies to respect refund rights” and outlining the CMA’s expectations on consumer law compliance even as the “travel sector recovers from the pressures caused by coronavirus”. With a more balanced approach, the Department for Transport (“DfT”) has this week released its Passenger COVID-19 Charter (the “Charter”), setting out its views on passenger rights, but also passengers’ responsibilities in these times.

It has undoubtedly been an extraordinarily challenging period for travel companies and the laws surrounding cancellations and refunds during the pandemic are not necessarily straightforward for all travel businesses. What is clear is that the position for businesses is far more nuanced than regulators like to make it seem. This is particularly so where messaging on the legal position is confused, with the UK Prime Minister warning holidaymakers not to visit “amber” list countries, despite it being legally permitted.

Our previous articles explored ‘When it’s lawful to refuse refunds’ and ‘Recent lessons on refusing refunds in the travel sector’. This article serves as a reminder in the context of the latest updates from the CMA and the DfT that there are fact-specific circumstances under consumer laws in the UK where it could be entirely appropriate for holiday companies to offer alternatives to a full refund.

The CMA generally (and, unsurprisingly) takes a consumer-friendly view on the interpretation of consumer law. It is worth reiterating that the CMA’s view of the law is not itself law and there is often ample scope for businesses to pushback and consider adopt interpretations.

For instance, whilst the Package Travel and Linked Travel Arrangements Regulations 2018 (the “PTRs”) (which impose the most stringent obligations on businesses) do contain a descriptive procedural regime regarding refunds, there are circumstances where it may not be appropriate under the PTRs for package holiday providers to provide full refunds, such as:

  • if the particular holiday does not fall within the definitions caught by the PTRs;
  • if the holidaymaker simply chooses not to go on the holiday (in such circumstances it could be fair for an appropriate and justifiable deduction to be made from any refund); and
  • if an alternative offer, made alongside the cash refund offer, would put the consumer in a better position (e.g. where a voucher, discount, credit note or holiday upgrade is actually worth more than the particular cash refund).

The latter is readily accepted by the DfT in the Charter, together with the need for (and responsibility that should be accepted by) consumers to properly understand the terms and conditions of their bookings and to make sure they have adequate insurance in place.

Where flights are concerned, most cancelled flights would be caught by Regulation (EC) No 261/2004 (the “Flight Compensation Regulation”). Under Article 8, airlines are able to offer passengers the choice of an alternative flight (at the earliest opportunity or at a later date at the passenger’s convenience), reimbursement through a travel voucher, or a full refund. Consistent with these options and recognising the implications of the COVID-19 pandemic on travel, last year the EU Commission issued a recommendation regarding vouchers offered to holidaymakers as an alternative to reimbursement.

Whilst the Flight Compensation Regulation also imposes a separate, additional compensation regime where flights are cancelled less than 14 days before their scheduled departure, compensation is not due where “the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken”. In many cases, airlines will be able to make use of this exclusion where flights have been cancelled due to the pandemic. For example, EU guidelines have suggested that cancellations due to airlines protecting crewmembers’ health (from COVID-19) or due to authorities prohibiting or limiting certain flights or travel would be considered a cancellation “‘caused’ by extraordinary circumstances”. Civil Aviation Authority guidance goes further, suggesting that (for example) where the Government advises against all travel (or all but essential travel) to a destination, or where operations are seriously restricted in other ways, no compensation would be due.

If your business is one of the hundred package travel companies who has received a copy of the CMA’s letter or if you consider that your business is impacted, it is important that you evaluate your practices and policies against the actual requirements of consumer protection law (but not necessarily the CMA’s expectations, which may take a more consumer-friendly interpretation). For assistance on consumer law issues, please do not hesitate to contact one of our specialists.