Package Travel Directive: a balancing act needed between business viability and consumer protection

Recent news about the insolvency of Europe’s third largest tour operator FTI Group sheds light on the important discussions currently taking place at EU level on revising the Package Travel Directive (PTD).

Tourism is a crucial contributor to the European economy and while package travel has seen a decline over the past decade from 40% to 15% of the market share due to the emergence of online platforms simplifying direct booking processes for tourism services, millions of travellers continue opting to travel through organised packages.

The current legislation, adopted in 2015, exposed failures following several unprecedented challenges faced by the tourism sector, including the earlier insolvency of major international travel operator Thomas Cook and the Covid-19 pandemic. This led the European Commission to propose a revision of the Directive towards the end of last year.

The revised PTD proposes changes to numerous aspects of the legislation, such as how to define what constitutes a package, it introduces limitations for businesses to charge downpayments, broadens the conditions for a customer’s right to terminate a package, codifies voucher schemes, strengthens insolvency protection and the refund mechanism.

To close what the European Commission asserts to be a circumvention of consumer protection related to package travel, it proposed that individual travel services, such as booking a flight and accommodation separately with the same provider within the space of 3 hours of the first booking, or within 24 hours after a travel agent would have invited the traveller to book more services before agreeing to pay for the first travel service, will start constituting a package and become subject to the rights and obligations of the PTD.

Another provision will limit travel agents to only charge up to 25 percent of the total value of a package for downpayment, with the remaining amount allowed to be claimed by no more than 28 days before the date of travel.

The Commission also proposed to extend the possibility for a package to be cancelled by a traveller with a right to a full refund in the event of unavoidable and extraordinary circumstances occurring not only at the travel destination but also at the place of the traveller’s residence or departure.

Where a service is cancelled, travel agents could propose to travellers to voluntarily accept a voucher with a validity period of a maximum of 12 months, which can be extended, and must be refunded if not used within 14 days of expiry. It shall also be possible for vouchers to be transferable to another traveller without any additional cost.

Contribution to national insolvency funds for the sale of package holidays is being extended to companies established outside the EU, which will be required to provide security in accordance with the law of that Member State to which they direct their activity.

And with regards to redress, customers will continue enjoying the right to receive refunds for disrupted or cancelled travel within 14 days. Furthermore, the Commission is proposing that service providers such as airlines and hotels must refund travel agents within 7 days for them to be able to refund clients within the legal timeframe.

From a business perspective, while understanding the need to provide a strong consumer protection framework, it is concerning that the proposed new requirements by the Commission will ultimately increase the financial and administrative burden on companies. The broadening of the scope of what constitutes a travel package, risks converting the role of travel agents to tour operators, which will require such businesses to undertake new obligations under the PTD.

Moreover, by extending the travellers’ right to terminate packages for events occurring at their place of residence or departure, travel operators will become subject to higher liability risks and will consequently raise the prices of packages, which will make the sector less competitive and at the same time more expensive for the segment of customers, which is substantial, that chooses organized travel for peace of mind.

This additional liability also creates a disproportionate risk shift to tour operators by overlooking the fact that travelling comes with associated risks and companies should not suffer the consequence of a traveller cancelling a contract when the services offered in a package remain intact and fully operated by a service provider. Travellers have the option to mitigate such risks by taking an additional travel insurance.

The revision of the PTD also fails to include provisions that differentiate between ordinary and extraordinary circumstances. For instance, while the requirement for service providers to refund travel operators within 7 days from the cancellation of service is in principle a fair development as it provides a fairer distribution of burden sharing throughout the whole supply chain, this proposed timeline would be effectively impossible for airlines and hotels to comply with in extraordinary circumstances of mass cancellations such as in a pandemic. The law must include special provisions providing more flexibility in such situations.

As the PTD is currently being negotiated by at EU level, one augurs that practical solutions can be found by legislators to safeguard consumers without increasing unnecessary burdens on companies operating in a sector that has strongly suffered during the pandemic when tourism came to a halt. It would be unfortunate to disrupt the steady path of recovery experienced more recently.

Daniel Debono is the EU Affairs Manager and Head of the Brussels Operations at the Malta Business Bureau (MBB). The MBB is the EU-business advisory organisation of The Malta Chamber and the Malta Hotels and Restaurants Association. It is also a partner of the Enterprise Europe Network.

This opinion piece was published in the Malta Business Weekly on 13 June 2024.