Synopsis

  • Despite widespread reports that the CAA closed UK airspace during the ash crisis, in fact it was never formally closed. NATS – the sole provider of air traffic control services in the UK – simply reduced the flow rate of aircraft to zero and refused to provide flight clearances, achieving the same result.
  • A new limit of tolerable ash density in the air for aircraft operation is hoped to prevent such large scale 'closures' of airspace from recurring. These wider parameters for airlines to operate in may result in a reduction of losses suffered by the airline industry in any future incidents of a similar nature.
  • IATA estimates that the eruption of Icelandic volcano Eyjafjallajkull caused approximately $1.7bn of losses to the airline industry in respect of scheduled passenger and cargo services.
  • A large proportion of losses suffered by airlines are likely to stem from the open-ended obligation on them under Regulation 261 to care for affected passengers.
  • Many critics feel there is a need to reform certain aspects of Regulation 261 to take into account the substantial financial burden imposed on airlines by 'extraordinary circumstances', such as the recent volcanic ash crisis. The Commission is currently undertaking a review of Regulation 261 and will revert with its findings by the end of December 2010.  

The legal basis for the 'closure' of the UK's skies

In the aftermath of the losses that airlines have faced as a result of the 'closure' of European airspace and the cancellation of over 100,000 scheduled flights, it may come as a surprise to many to learn that UK airspace was never formally closed by the CAA, Government or any other public body.

Following the explosion of the volcano on 20 March 2010, the London Volcanic Ash Advisory Centre (one of nine such centres around the world responsible for advising international aviation on the location and movement of volcanic ash) issued a forecast that the ash cloud would impact UK airspace. In response to this forecast, on 14 April 2010, the CAA-sponsored National Aerospace Crisis Management Executive ("NACME") convened and held regular meetings throughout the crisis in order to monitor the situation and determine what response, if any, was necessary.

At one of the earlier meetings, on the morning of 15 April 2010, NATS advised that it had imposed a zero flow rate in the north of the UK to prevent aircraft entering the vicinity of the approaching ash cloud. The CAA considered that – in order to formally close UK airspace – approval would need to be given by the Secretary of State and noted that there were two available options: (i) to put pre-emptive measures in place to restrict flying; or (ii) to monitor the situation. NACME decided that restrictions should not be imposed and, instead, requested a draft Statutory Instrument to be produced which could be implemented at a later time if required.

At midday on 15 April 2010, NATS decided to reduce the flow rate in controlled airspace across the UK to zero and refuse to provide any flight clearances to any aircraft. As a result, NACME considered that it was not necessary to proceed with any other formal arrangements to close the UK's skies whilst NATS was continuing to achieve this by managing the flow rate. Although UK airspace was not legally closed, should any aircraft proceed into UK controlled airspace without the necessary clearances from NATS, it would be: (i) acting illegally (and subject to penalties from the CAA); and (ii) uninsured.

By 18 April 2010, a draft Statutory Instrument under the Transport Act 2000 had been prepared and was in a near-final form – it was capable of manipulation (if necessary) and proceeding to publication within an hour. The CAA was, therefore, standing by to effect a formal airspace closure through the powers of the Secretary of State, if it proved necessary. As it turned out, however, the draft Statutory Instrument was never published and UK airspace was never formally closed. NATS had successfully managed the skies throughout the crisis. Having said that, at least one charter company using executive jets continued to operate flights legally throughout the crisis by flying low under visual flight rules while in the vicinity of the ash cloud.

This raises an interesting question in relation to NATS itself. Under the licence issued by the Government to NATS to provide en route traffic services in the UK (pursuant to the Transport Act 2000), NATS has an obligation to provide a continuous service for the purpose of expediting and maintaining an orderly flow of air traffic. When it reduced the flow rate to zero, NATS was, technically, in breach of the terms of its licence. The Transport Act 2000 gives the role of economic regulator of NATS to the CAA, meaning it has a duty to enforce the obligation to provide the continuous service.

For there to be no question of licence enforcement action for the recent suspension of the service, a statement by the CAA's Safety Regulation Group was required to confirm that it had not been safe in the circumstances for NATS to provide the service. The statement regarding safety needed to make clear that the suspension of service had been in accordance with the then-current safety standards (zero tolerance of volcanic ash) rather than a lack of safety per se.

Presumably, had the CAA/ SRG not 'ratified' NATS' breach of its licence to provide en route air traffic control services in the UK, NATS would have been exposed to significant liability through: (i) enforcement action taken by the CAA in its role as economic regulator of NATS; and (ii) potential civil claims against NATS by airlines for losses suffered as a result of the breach of the licence.

Retrospective analysis of the effect of the ash cloud on aircraft

The ICAO zero tolerance policy has since been revisited with the aid of key engine manufacturers. Revised guidelines have been issued allowing for aircraft to operate in airspace with low concentrations of ash without safety being compromised.

Many commentators and airlines have suggested that the 'closure' of UK airspace was premature and unnecessary given the levels of volcanic ash that were actually present. Such criticisms have been compounded by the revelation that the forecasts provided by the Met Office were generated from computer models and were not based on real-time data and sampling. Furthermore, even when samples were taken, the model was incapable of accepting these in order to refine the forecasts.

Clearly, in this case, hindsight has revealed that airlines may have been able safely to operate at times when they were not permitted to do so. However, NATS responded to the situation in a manner that was in line with the ICAO zero-tolerance policy for ash and the decision to do so was effectively ratified by NACME at the time, and the CAA/ SRG after the event. In any event, the revised limit of tolerable ash density in air for aircraft operation is designed to prevent such large scale 'closures' of airspace from recurring in the future. These wider parameters for airlines to operate may result in a reduction of losses suffered by the airline industry in any future incidents of a similar nature.

It has also been suggested that in future the role of the authorities should be to supply accurate information about the density and location of volcanic ash in the air and that airlines should then themselves decide whether or not to fly based on their own risk assessment. That would seem a big step but one which would be welcomed by larger airlines.

EC Regulation 261/2004

The volcanic ash crisis in April 2010 had a massive impact on airlines worldwide, with over 100,000 flights being cancelled at great cost to the airlines. IATA estimates that the revenue losses affecting the airline industry began at approximately $200m per day at the start of the period of the volcanic ash cloud and rose to a high of $400m per day at its peak. The cumulative losses over the period from scheduled passenger and cargo services have been estimated at approximately $1.7bn.

Although some of these losses resulted from an inability to operate and generate revenue, it is thought that a large portion will have stemmed from duties imposed on airlines under EC Regulation 261/2004 ("Regulation 261"), or the 'denied boarding regulation' as it is often known. This regulation was designed to give consumers protection in the event that a passenger was denied boarding owing to an airline having overbooked that consumer's flight. Regulation 261 provides that a compensatory payment must be made to a passenger whose flight is delayed or cancelled (with varying amounts of payment due depending on the length of the delay and distance of the flight). Article 9, however, goes even further and imposes an open-ended care obligation on airlines in respect of those passengers who are unable to travel as a result of a delay or cancellation, such as to provide reasonable accommodation and sustenance.

What Regulation 261 does not appear to do is to contemplate a scenario where European airspace is closed by the authorities for days at a time due to a natural event, such as a volcano eruption. As a result of this, it has recently come under much scrutiny and criticism from airlines who not only suffered a loss to their core business during the ash cloud crisis, but had to incur further expense in caring for those passengers who were unable to travel due to airspace closures – in many cases, at a greater cost than the fare that they had paid for the ticket.

The case for updating Regulation 261 to take account of such circumstances may certainly be made and is persuasive. Whilst it continues to serve its basic purpose of protecting consumers, when applied to more extreme factors that are capable of disrupting air travel, Regulation 261 appears to be unduly unfair on airlines. It exposes them to potential liabilities that are far greater than the fare that passengers pay for their tickets and makes it extremely difficult for them to assess the risks and liabilities that may be incurred. Furthermore, the recent ECJ decision in Sturgeon sought to extend the liability for fixed-sum compensation resulting from cancellations to delays of over three hours as well, which has been further criticised by airlines.

Reform

Many people in the airline industry believe that there should be some degree of reform to Regulation 261 in order to reduce the burden on airlines where there has been a disruption caused by events outside of their control.

Recital 14 to Regulation 261 states:

"As under the Montreal Convention, obligations on operating air carriers should be limited or excluded in cases where an event has been caused by extraordinary circumstances which could not have been avoided even if all reasonable measures have been taken. Such circumstances may, in particular, occur in cases of political instability, meteorological conditions incompatible with the operation of the flight concerned, security risks, unexpected flight safety shortcomings and strikes that affect the operation of an operating air carrier."

However, the only reference to 'extraordinary circumstances' in Regulation 261 itself is contained in Article 5(3), which states that airlines are not required to pay compensation under Article 7 where they can prove that the cancellation is as a result of an extraordinary circumstance. As a result, Article 9 – the obligation to care for passengers –applies regardless of whether such disruptions to flights are caused by extraordinary circumstances or the airlines themselves.

This seems illogical and is a very unsatisfactory state of affairs for airlines who, as a result, are exposed to enormous (and unforeseeable) liabilities resulting from an open-ended obligation to care for affected passengers at a potentially unlimited cost in circumstances which have come about through no fault of the airline.

In order to assist airlines in quantifying their liability under Article 9, it has been suggested that Regulation 261 be amended to provide for a fixed compensation scheme, setting out fixed amounts for expenditure by passengers on specified items such as accommodation and refreshments. This is already the case under Article 7 of Regulation 261 and even under the Montreal Convention, whereby fixed limits of liability are set out in respect of all liabilities of airlines to passengers (subject to certain exceptions in the case of injury or death). To date, however, it has not been applied to Article 9.

The Commission has announced that it is currently undertaking a review of the application of Regulation 261 and is taking into account the experience of the volcano ash cloud to decide whether improvements are necessary. It is thought that evaluation will be completed by the end of December 2010.

The Commission will, of course, have to consider both the advantages and disadvantages of such a fixed-sum scheme. On the one hand, airlines will benefit by being able to assess their liabilities on a 'per passenger' basis, whilst passengers themselves might benefit from greater certainty that they will receive such compensation. Conversely, however, fixed compensation might make it possible for airlines to calculate whether it is more economic to make an ad-hoc cancellation of a scheduled flight rather than to operate it at all. Such concerns of tactical cancellations may be alleviated by ensuring that any fixed sums are set at a high level, although, if set too high, this could defeat the very purpose of reforming Regulation 261 by actually increasing the financial burden on airlines.

Recent guidance

In the meantime, however, the Commission's decision to issue proposed informal guidelines to national enforcement bodies ("NEBs") on how to address failures of airlines to comply with Regulation 261 during the volcanic ash crisis may well demonstrate that the Commission is aware of Regulation 261's shortcomings.

In August 2010, the Commission issued a "non paper" entitled "Proposed informal Guidelines on the application of some articles of (EC) Regulation 261/2004" (the "Guidelines") which seek to establish a common interpretation of Regulation 261 across Member States in relation to the volcano eruption. The guiding principle is that, in summary, sanctions shall not be imposed on airlines where they can prove that they used their best endeavours to comply with their obligations under the Regulation, taking into consideration the particular circumstances linked to the ash cloud.

In respect of Article 9, the Guidance sets out some helpful principles which may be viewed as encouraging in respect of the positive stance that the Commission has decided to take towards the apparently unfair application of Regulation 261 to airlines. In particular, the Guidelines remind NEBs to consider the following points when deliberating on any affected passenger's claim against an airline:

  1. The right to care subsists only as long as passengers have to wait for a rerouting. As such, when the passenger opts for reimbursement of the full cost of the ticket, the right to assistance ends.
  2. Although the Guidelines acknowledge that Article 9 does not leave room for an interpretation limiting the number of hotel nights or meals and refreshments that a passenger is entitled to, it does reinforce that the intention of Regulation 261 is that adequate care of the needs of passengers is to be provided. This should be done without imposing a disproportionate and unfair burden on the airline concerned. Accordingly, NEBs are recommended to take a qualitative approach and assess – on a case by case basis – what constitutes "adequate care", having due regard to this principle of proportionality.
  3. The Guidelines set out a number of criteria which may be considered by NEBs when assessing whether a carrier's offer to compensate a passenger's expenses linked to assistance/ rerouting may be considered as "adequate". These criteria include the availability, average condition and prices of hotel rooms in the relevant area and the treatment of other passengers in comparable situations. It is certainly noteworthy that the duty to provide passengers with accommodation does not necessarily imply the continuation of the stay of the passenger in the same hotel where he was previously lodged, nor the automatic right for the passenger to decide himself where, and at what condition, he is to be accommodated.

By highlighting such factors that NEBs are to bear in mind, the Commission has sought to emphasise that "adequate" is measured on a sliding scale that varies depending on the circumstances at hand. This will, in turn, assist airlines by helping them to mitigate the extent of the damage that is suffered as a result of the volcanic ash crisis.

The Guidelines also state that NEBs may accept that air carriers reimburse passengers' expenses against receipts up to a certain "reasonable" level in line with these criteria, suggesting that any expenses that a passenger has incurred above the reasonable/ adequate level will not be recoverable. Such guidance is encouraging as it suggests that the Commission is keen to balance the interests of the passenger and the airlines in order not to prejudice either party unfairly. It remains to be seen, however, whether this will be reflected in any proposed reform of Regulation 261.

Conclusion

The ash cloud was a disaster for the European aviation industry. However, it has at least led to a re-examination of both the procedures for dealing with such a disaster and also of the inequitable operation of Article 9 of Regulation 261 and such re-examination is likely to benefit the industry in relation to the procedures if not the compensation and care regime.