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What Goes into Flight Disruption Compensation

By Dawit Habtemariam / July 23, 2018 / Contact Reporter
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"This is something that's been a blind spot for companies, and they are just happy to find new, virgin savings," said Mads Pedersen, sales director of PaxFour, a firm that helps companies claim compensation for flight disruptions. Pedersen was referring to the European Union's Flight Compensation Regulation EC 261/2004, a 14-year-old statute that entitles any air passenger to compensation, as much as 600 euros cash, from an operating airline for a cancellation, denied boarding or delay over three hours.

In June, travel management company network GlobalStar partnered with PaxFour to help clients capitalize on these untapped savings. "Over the years, the money has been left there untouched. We wanted to do something for clients, especially [because as their] travel programs became more mature, the opportunities to drive deeper savings are becoming fewer," said GlobalStar VP of global sales and services Chris Weedon.

EC 261/2004 applies to disruptions from technical issues caused by the airline but not to disruptions that fall outside the airline's control, such as extreme weather conditions and civil unrest. Flights that fall under the regulation are those that originate and/or end in the EU; flights that end in the EU must be operated by an EU-based airline, but any airline taking off from an EU country is subject to these rules. In the U.S., no laws entitle passengers to compensation for flight delays and cancellations, but U.S. citizens are eligible when flying on flights that fall under the regulation.

"From a corporate perspective, I don't think corporate clients have really understood how well their travelers, or even if their travelers, have been claiming compensation and where they stand on being able to claim on behalf of the individual," said Nicole Wilcock, senior director of global implementation, client technology and product for Radius Travel, which partnered with PaxFour in July.

Less than a quarter of passengers on disrupted flights file a claim. That's according to flight disruption compensation firm AirHelp, which surveyed 2,062 U.S. citizens about their knowledge of passenger rights. Those who did not file claims when they could have were asked to cite their top reasons:

  • 63 percent were not aware of their rights.
  • 47 percent did not think they were eligible for compensation.
  • 42 percent did not know how to file a claim.

Claiming Compensation

To claim compensation, a traveler can fill out the airline's online form, e-mail the relevant contact at the carrier or fill out and send the EU's complaint form to the airline. Depending on the airline, processing could involve a lot of e-mails and drag out over as long as two months. An airline might respond at a glacial pace, push back by citing previous court verdicts, cite an EU country's local legislation or claim that the disruption was out of its control. The airline also may offer a voucher or compensation that is less than what the claimant believes he or she is entitled to.

If the traveler is unhappy with the airline's judgment, he or she can appeal to the country's national enforcement body to arbitrate, but the decision is not binding. The traveler can take the issue to an EU small claims court in the airline's registered country, the country of arrival or the country of departure; in most EU countries, the statute of limitations is three years after a disruption. "The process can be onerous for a corporate client who has thousands of these a year," said Wilcock.

Flight Disruption Compensation Service Providers

Some TMCs manage the compensation process for their clients. Reed & Mackay has provided such services for over 10 years. Its agents notify clients after rebookings and request approval to conduct the compensation process on their behalf. Nine times out of 10 the traveler will approve the request, said commercial director Tom Rigby. If the process drags out, he said, Reed & Mackay can leverage its relationship with the airline to expedite a decision.

AirHelp, Service and PaxFour are among companies that specialize in managing the flight disruption compensation process and take a cut of the funds retrieved. They leverage their knowledge of passenger rights and regulations and use flight data to spot disruptions eligible for compensation. "When it comes to rights and laws, it comes down to proof," AirHelp VP of product Johnny Quach said. "You need to prove the flight delay was the airline's fault." And the proof, he said, is in the data. "We have most of the flight data in the world, so we know which flights are eligible and which are not."

PaxFour analyzes a client's travel data against its database of known delays, cancellations and missed connections to find disruptions eligible for compensation. If it spots an opportunity, PaxFour reaches out to the affected employee, obtains power of attorney from him or her and takes over the process, including the legal proceedings. Paxfour gives the compensation to the traveler's company.

Who Should Receive Compensation for Business Trips?

Some companies' travel policies state that employees should give the compensation back to their companies because their companies paid for the tickets. The EU regulation, however, entitles only the passenger to compensation. "According to the law, it's the passenger who is entitled to the money," said AirHelp chief legal officer Christian Nielsen.

PaxFour is able to give compensation to a traveler's employer via power of attorney. The employee signs off once, and it applies both to the current claim and to future ones, according to PaxFour's Pedersen. The CFO's perspective, he said, is that the disruption "would be inconvenient for the traveler but not a financial loss. … [Companies] suffer direct financial loss whenever employees are just sitting on their behinds in the airport." Travelers run up food, transportation and beverage expenses during the disruption, he said. Travelers may not find the issue so cut and dry. What about flights delayed into a weekend or after business hours? Corporate policies around disruption compensation may need to accommodate such nuances.

AirHelp's approach differs. "It's an individual right to compensation for your personal suffering, but you as a person with an entitlement to some money can decide if you want to give some of that money or all of it to your company," Nielsen said. "That's a discussion between an employee and an employer." He said AirHelp's TMC partners often give the compensation to the traveler. Reed & Mackay told BTN it returns the money to the traveler.

In the U.S., whether the traveler or company gets the compensation depends on the form of compensation the airline offers, according to Service CEO Michael Schneider. If it's flier miles, it will go into a traveler's account. If it's a voucher, the companies tend to use it toward future discounts on their air travel.

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