On 9 July 2013, the European Commission adopted a proposal for a new Directive on package travel and assisted travel arrangements to replace the Package Travel Directive1 (the Directive) which has been long thought to have become outdated in the face of the growth of the internet and the “dynamic packaging” industry. Following extensive consultation with industry representatives and trade bodies, an amended version of the Commission’s proposal was adopted by the European Parliament on 12 March 2014 (the Proposed Directive).

Discussions to agree the final wording of the Proposed Directive continue, but it is timely to consider some of the more important provisions and how they differ from the current regime.

Scope

As was expected, the Proposed Directive extends the existing coverage under the Directive by expanding the definition of package holidays and creating a new type of holiday, the linked travel arrangement (LTA), which crucially requires retailers of such products to maintain security in relation to insolvency. This new category is designed to capture within the scope of the Directive those “click-through” on-line sales which have hitherto, to a large extent, escaped the application of the existing package travel framework, although doubts remain as to the clarity and scope of the new definitions currently proposed.

Cruises have always been considered a ‘package’ under the Directive and the Proposed Directive confirms that “Cruises... should also be considered as package travel, as they combine transport, accommodation and catering”.

Contractual obligations

The Proposed Directive continues to permit, where the contract so provides, the revision of contract prices linked to the cost of fuel, taxes and relevant exchange rates provided that reciprocal provisions are included in the contract for upward and downward revision. However, unlike the Directive which contains no minimum threshold, the price can only be increased where there has been a price increase of more than 3%.

Under the Directive, the price cannot be increased less than 30 days before departure. Under the Proposed Directive any increase in price (up to a cap of 8%) must be justified to the traveller in writing together with a calculation, at least 20 days prior to departure. If the price is increased by more than 8%, the traveller must be informed in writing that they can terminate the contract (without penalty) or accept an alternative equivalent travel package and that if they do not exercise either option, the travel package at the higher price will be considered accepted.

Insolvency requirements

The Directive provides that the organiser and/or retailer party to the package contract shall provide sufficient evidence of security for the refund of money paid over and for the repatriation of the consumer in the event of insolvency. The Regulations which bring the Directive into effect require such retailer or organiser to establish security in the form of a bond, insurance or monies in trust.

Under the Proposed Directive, only organisers of packages or retailers facilitating the procurement of LTAs established in their territory will be responsible for the financial security arrangements. However, if an organiser is established outside of the EEA and a retailer established in a Member State facilitates the procurement of a package on their behalf, the retailer will be liable for providing insolvency protection unless it can be shown that the organiser already has adequate insolvency arrangements in place.

The proposed insolvency protection covers travellers who purchase packages irrespective of their place of residence, place of departure or where the package/LTA is sold. Rather than insolvency protection being linked to the place where the package/LTA is sold or offered for sale, the obligation instead is linked to the place of establishment of the organiser: EU Member States must require organisers established in their territory to put financial protection in place. So, under the new regime, the security arrangements must cover travellers who buy packages sold by a business established in a Member State and their repatriation to their place of departure, anywhere in the world. There are concerns relating to the potentially increased costs of coverage should this remain the position in the final version of the Proposed Directive. Some concern has also been expressed by, for example, the UK Department for Transport, that basing the insolvency protection requirements on place of establishment will lead to “forum shopping” by organisers seeking to establish themselves in those jurisdictions which have the least onerous schemes and that consumer protection, which is supposed to be enhanced by the Proposed Directive, may in fact be reduced. In the UK recently, similar issues arose in a fairly well-publicised case of an organiser moving its establishment from the UK to Spain, with doubts expressed as to the level of financial protection provided by the scheme in place in the Balearic Islands compared with that provided under the UK’s ATOL scheme.

Whilst the Proposed Directive confirms that Member States must recognise the insolvency protection provided by other Member States and cannot require compliance with their own insolvency regime, doubts have been expressed as to whether there will be sufficient confidence in the protection required in all Member States. The draft also leaves some uncertainty as to how insolvency protection rules will be applied to those organisers established outside the EU, but which sell packages and LTAs in the EU. There is opposition amongst regulators to the insolvency protection rules as presently framed and a close eye should be kept on this aspect of the draft Directive as discussions on the legislation continue over the coming months.

Relationship with international conventions

As under the current regime, organisers should be able to rely on relevant international conventions to limit their liability, including the Athens Convention. In this regard, the global limits applied in the various Tonnage Conventions will continue to apply.

Timeframe

The Council of Ministers is currently considering the Proposed Directive and discussions between the Council, the European Parliament and the Commission (inevitably delayed by this May’s EU elections) are generally expected to result in a final agreed Directive in 2015. Thereafter, implementation at national level in Member States is likely during 2017. Whilst the existing Directive has some time left, it is inevitable that preparatory work to comply with the new rules will be required and so the cruise industry should keep a close watch as the legislative process continues.