We all remember the dire financial consequences of the unexpected announcement by the Chancellor of the Exchequer on 6th December 2006, when he announced the doubling of Air Passenger Duty (“APD”).  The reason for the drama was the announcement that the increase was to take effect from 1st February 2007, only seven weeks later.  This meant that there were large numbers of passengers who had purchased tickets or overseas holidays and flights before 6th December 2006, who had paid the old rate of APD, but who were due to pay twice the amount for departures after 1st February 2007.  As APD is collected from airlines or tour operators, the increase at such short notice caused financial difficulty for many in the travel sector.

Probably worst off were tour operators.  Many would have given “no surcharge guarantees” for people who had booked, and therefore had no prospect of recovery of the increased duty.  Also under the Package Travel Regulations, tour operators are obliged to absorb the first 2% of increases before being able to pass surcharges on to the consumer.  The increased APD would in most cases fall within that 2%.  The Package Travel Industry reckoned it lost some £50 million from the irrecoverable increases of APD. 

Airlines fared no better.  For passengers who had booked before 6th December 2006 for travel after 1st February 2007, there were real difficulties in collecting the extra APD.  Many business travellers check in online and proceed straight to the boarding gate, giving no opportunity for any collection process.  The extra staff and management of the collection process was too difficult to manage.  For some low cost carriers with email links with passengers, collection was possible at check-in.  Many airlines simply wrote off the possibility of collecting the extra duty they were obliged to pay to UK Government. 

Legal Challenge

Between 17th and 20th July 2007, the High Court heard an application on the part of the Federation of Tour Operators, which sought to argue that APD was itself unlawful.  Understandably, it is nigh on impossible to challenge a tax decision made by a Government in power in its budget.  It was only open to the FTO to argue that APD itself was unlawful.  Were the challenge successful, there would be significant impact on the aviation and travel business as a whole. 

The Arguments.

The FTO argued that APD was unlawful because the tax was in breach of Article 15 of the Chicago Convention 1944, incorporated into EU law on the creation of a “Single European Sky”.  Secondly, they argued that the way in which the duty was increased breached the European Convention on Human Rights. 

Article 15 of the Chicago Convention sets out that each participating State may only impose charges relating to its airports, provided that the same conditions apply to aircraft using the airport from all other participating States.  The argument distilled down to whether APD as a tax was included in the definition of a “charge” under Article 15.  The Judge found that Article 15 did not prohibit the imposition of APD, or its increase.  In respect of the arguments under the European Convention on Human Rights, the Judge found that the decision to increase APD was proportionate and could not be argued to be “devoid of reasonable foundation”.  It was argued that the increase was a restriction on the freedom to provide services within the community, under Article 49, and so should be disallowed.  Again, this argument was rejected. 

Whilst it is open to the FTO to appeal, it seems unlikely that there would be a positive outcome. 

EU Unfair Commercial Practice Directive

This comes into UK law from April 2008, and is an important step in the regulation of advertising and prices.  Those marketing travel and flights have long been regulated by the Trade Descriptions Act 1968 (covering misleading statements relating to goods or services) and the Consumer Protection Act 1987 Part 3 (regulating the giving of misleading price indications).  The travel business generally has been under the spotlight under the present consumer protection legislation for many years, particularly in respect of all advertising media (paper, internet, window cards and mailings) and there have been some notable prosecutions.  More recently, certain airlines have been targeted for failure to include in headline prices, all non-optional extras, such as departure taxes and fuel surcharges. 

The new legislation will therefore be of significant interest to all those producing advertisements for flights and travel services, as well as those businesses and passengers responding to advertisement.  The new Unfair Practices Directive, imposes a duty to act fairly with professional diligence and outlaws misleading practices, aggressive commercial practices, and bans certain advertising and marketing activity.  Those responsible for drafting or placing advertisements will need to pay careful attention to this new legislation to avoid prosecution.

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