It is not a comfortable time for the airline sector.  The cost of aviation fuel has ravaged existing business models, and increased ticket prices have resulted in reduced bookings and reduced load factors.  However “it never rains…” and a series of additional burdens are adding to the pain of some airlines, at this difficult time:

Distribution of Settlement Fund to BA and Virgin Passengers

A settlement has been reached in the class action brought in the Northern District of California District Court which affects passengers who may have been overcharged for fuel surcharges by British Airways or Virgin between August 2004 and March 2006.  As a result of the settlement, the airlines are required to refund up to £73,531,076.00 to members of the UK settlement classes who submit valid claims, and in the US a further $59,007,273.00.  Unclaimed funds in the UK will be kept by the two airlines, and unclaimed funds in the US will be donated to a charity.  A website www.airpassengerrefund.co.uk has been set up to enable claims to be made online by passengers who bought a ticket on a long haul flight purchased in the US or UK on qualifying flights between 11th August 2004 and 23rd March 2006.  In addition, the two airlines are required to mount an advertising campaign advising passengers on how to claim which will run for two weeks from 5th July 2008.  Claim forms will be sent by the airlines to passengers whose contact details they already hold.  Passengers/corporates can recover 33.3% of the passenger fuel surcharge paid on qualifying coupons, and therefore can expect a refund between £4.00 and £20.00 per round trip – where a qualifying ticket was purchased in the UK. 

The compensation fund established by the settlement of the class action is in addition to the penalties levied on BA by the Office of Fair Trading and the US Justice Department.  Compensation claims must be submitted by December 2012.

The US court will hold a “fairness hearing” on 26th September 2008 to consider whether the settlement is fair, reasonable and adequate. 

Air Passenger Duty Case lost in the Court of Appeal

The legal battle concerning the hike in the rate of APD announced in December 2006 and taking effect from February 2007 has come to a close.  Many airlines found it difficult to recover the increased duty from passengers who had made travel bookings before December 2006 for travel after February 2007 and paid the old duty prior to the December 2006 announcement.  It was far worse for tour operators who in many cases were prevented by the Package Travel Regulations from passing the increase onto their customers.  The Court of Appeal heard argument from the Federation of Tour Operators, alleging that the duty was unlawful and infringed the tour operators’ rights by imposing a tax upon them without any justification.  The Court of Appeal found that the increase in tax was not an excessive burden on tour operators, who could increase charges for passengers booking after 6th December 2006, nor was it a decision devoid of any reasonable foundation.  An appeal to the House of Lords is highly unlikely. 

Had the case been successful, substantial rebates of tax may have become payable to airlines as well as tour operators.


Rise in Air Passenger Duty

From 1st November 2008, the rules are changing so that airlines offering a single class level of service to passengers will no longer be able to qualify for the lower rate of APD.  From 1st November, single class flights offering a business class service will attract the standard rate of APD, resulting in an increase of £10.00 for all flights within Europe and for flights to other destinations, the increase will be £40.00.  From 1st November 2009 a new aviation duty will replace APD, subject to current reconsideration due to economic factors.  APD is expected to raise £2.1 billion this year. 

Here Come the Green Taxes

The European Parliament has agreed a deal to include airlines in the “European Union Emissions Trading Scheme” in 2012.  Under the scheme, airlines pay for the carbon emissions they produce by licences known as “carbon permits”.  Each airline will have a maximum level of emissions based on their emissions history between 2004 and 2006.  By 2012 the cap on emissions will be at 97% of this historic level, falling to 95% the next year.  The threshold can only be exceeded by the airline buying carbon credits. 

It is estimated that the scheme will cost the aviation industry £2.8 billion a year. 

The Future

There are always some who can see opportunities in a distressed market.  An investment fund involving Sir Richard Branson is presently seeking to raise up to £1 billion from investors to assist carriers in difficulties and new start airlines, and who will look at investment opportunities.