Overbooking is quite common in the civil aviation industry. In the case discussed in this article, the Shanghai First Intermediate People's Court discussed an airline's liability for overbooking in detail, including:
- the scope of compensation;
- whether overbooking constitutes fraud under Chinese law; and
- the airline's notification obligation.
On 17 August 2014, the plaintiff bought two tickets from Shanghai to Rome for her and her husband via an online service platform operated by a third party. On the same day, the airline printed the two tickets.
On 21 September 2014, when checking in for the flight at the airport, the airline prevented the plaintiff and her husband from boarding the plane due to the flight being overbooked. The airline offered to transfer them to another flight, scheduled to take off the next day (on 22 September 2014), and issued an irregular flight certificate, which described the fact that the airline had overbooked the flight and the subsequent flight transfer arrangement.
The plaintiff and her husband accepted the arrangement but refused to accept the airline's proposed compensation of 2,500 yuan. The plaintiff then chose to take action against the airline, claiming:
- direct losses of 7,521 yuan, caused by the flight being overbooked and the consequent delay to the trip, including:
- hotel expenses in Europe – 369 yuan;
- transport expenses in Europe – 816 yuan; and
- compensation for the plaintiff's one paid vacation day – 6,336 yuan; and
- punitive damages of 13,911 yuan, amounting to triple the ticket price, for the airline having overbooked the flight, which the plaintiff alleged constituted fraud under Chinese law.
The plaintiff also requested the airline to apologise in writing for overbooking the flight and the consequent delay.
After a passenger purchases a ticket, the air carrier shall transport the passenger safely to their destination within the agreed period, or a reasonable period. This is the main obligation for a carrier under an air passenger transport contract. In this case, due to the flight being overbooked, the plaintiff arrived at her destination a day later than the agreed time. Therefore, the airline failed to perform its obligation and breached the contract.
According to Convention for the Unification of Certain Rules for International Carriage by Air (the Montreal Convention), an air carrier shall bear liability for losses suffered by the passenger due to delays in air transport. Further, pursuant to the laws and regulations of China, the breaching party is obliged to compensate the rest of the non-breaching party's losses even if the breaching party has taken remedial measures to mitigate the consequences arising from the breach. In another words, when a flight is delayed due to a fault of the carrier, the carrier shall arrange for the passenger to take another flight or refund the ticket price, depending on what the passenger requests.
In this case, the airline took remedial measures by transferring the plaintiff to another flight after informing the plaintiff of the fact that the flight had been overbooked and of the consequent delay. However, considering the relatively long delay period, the airline was still obliged to compensate the plaintiff for her actual losses.
The Court decided the following with respect to the airline's scope of compensation.
With regard to the direct losses:
- hotel expenses (369 yuan) – the plaintiff could not arrive at the destination as scheduled due to the airline having overbooked the flight. The booked hotel could not be cancelled and the plaintiff had already paid for it. The Court found such expenses reasonable and supported the plaintiff's claim in this respect;
- transport expenses (816 yuan) – the plaintiff had changed her railway ticket twice on 23 September 2014 after arriving at her destination. The Court thus found that she had not performed her obligation to mitigate the losses. Therefore, such expanded losses should not be borne by the airline. The Court decided that the carrier shall compensate 500 yuan to the plaintiff for these expenses; and
- compensation for the plaintiff's paid vacation (6,336 yuan) – the plaintiff alleged that if she had not used one paid vacation day, her employer would have indemnified her an amount of 6,336 yuan. The plaintiff thus claimed compensation for one wasted paid vacation day due to the delay caused by the airline overbooking the flight. However, the Court denied the plaintiff's claim for her paid vacation day, holding that the plaintiff had not suffered any losses in regard to her paid vacation days, even though the plaintiff could prove her employer's indemnification policy. The plaintiff had used the paid vacation day at issue before her departure for vacation. In other words, the plaintiff had given up the indemnification for such a paid vacation day. Regardless of whether the overbooking and consequent delay had occurred, and regardless of whether the plaintiff enjoyed her first vacation day, the plaintiff would not be indemnified for it. Further, the Court held that the relationship between the airline and the plaintiff was not subject to the Regulations on Employees' Paid Vacation Days, which was basis of the plaintiff's allegation.
With regard to the punitive damages requested by the plaintiff (13,911 yuan), the Court held that overbooking does not constitute fraud, for the reasons set out below. The Court thus denied the plaintiff's claim for punitive damages.
First, overbooking is not explicitly prohibited by law. Indeed, the General Administration of Civil Aviation of China (CAAC) introduces and permits overbooking on its website. Due to the fierce market competition and business operation costs, overbooking conducted by air carriers is also in line with the ticket booking practice of the international aviation industry.
Second, the airline did not intentionally make false statements or conceal the possibility of overbooking from the plaintiff or other passengers. The airline informed the passengers of the possibility of overbooking and the corresponding compensation mechanism or policy through the passenger instructions on its official website. However, the plaintiff had purchased her tickets from a third-party platform and was not aware of such possibility when purchasing tickets. Therefore, it was likely that the airline had failed to clearly inform the plaintiff of such possibility.
The airline had, however, attempted to mitigate the plaintiff's losses by transferring her to another flight, which indicated that the airline had not intentionally or maliciously hidden the possibility of overbooking or made misleading statements to passengers. Therefore, the overbooking did not constitute fraud, as alleged by the plaintiff
The Court denied the plaintiff's request for a written apology because the plaintiff had sued the airline based on their contractual relationship, and a request for a written apology could only be supported in a tort litigation.
Duty to inform passenger
The Court held that overbooking may have a significant impact on contract performance. Therefore, airlines shall give passengers specific and highlighted notice in advance to notify them of such possibility, so that passengers can make informed decisions on whether to buy a ticket with the risk arising from overbooking.
In this case, although the airline had notified all passengers of the possibility of overbooking on its official website and on the CAAC's official website, such notice was not specific to individual passengers. The airline had also failed to effectively notify the plaintiff when she bought the tickets. Therefore, the Court found that the airline had failed to perform its duty to inform.
Considering such failure, and the fact that the plaintiff had suffered a relatively strenuous travel experience and had not enjoyed her vacation as scheduled, the Court granted the plaintiff compensation of 2,500 yuan.
This case implies that the Chinese courts might not regard overbooking as fraud or support corresponding punitive damages, which complies with article 29 of the Montreal Convention, precluding any punitive damages and any other non-compensatory damages from the potential liability of international air carriers.
However, where overbooking occurs, the airline still has an obligation to mitigate the passenger's losses by taking measures such as transferring the passenger to another flight or refunding the ticket at the request of the passenger. Even after remedial measures are taken, if the passenger still suffers reasonable losses caused by overbooking and consequent delays, the airline is still obliged to compensate the passenger.
Further, it is worth noting that airlines might be required to notify every passenger of the potential for overbooking, in addition to publishing a notice on their website or the CAAC's website. This enables passengers to make an informed decision on whether to buy a ticket with the risk of overbooking, including passengers who buy tickets from a third-party website. Otherwise, the courts may find that airlines have failed to perform their duty to inform and may grant other compensation, depending on the circumstances.
It is debatable whether compensation other than for the actual losses suffered by the passenger shall be supported, as such compensation may fall within the other non-compensatory damages that are excluded under the Montreal Convention. However, with the new regulation, which came into force in 2021, the compensation mechanism for overbooking shall be included in the airlines' general conditions of carriage, which shall be integrated as part of the air transport contract. Therefore, if the compensation standards for overbooking offered by the airline are beyond the actual losses suffered by the passenger, it seems that the Chinese courts will render a judgment according to such standards.
For further information on this topic please contact Jin Yu-Lai at KaiRong Law Firm by telephone (+86 21 5396 1065) or email ([email protected]). The KaiRong Law Firm website can be accessed at www.skrlf.com.