Analysis: Will Europe’s embrace encourage or suffocate the technological age?

Proposals to bring rules governing the selling of holidays in Europe into the digital age will seek to cover dynamic packages, extending rights for customers buying component trips.

A proposal document published by the European Commission last week prompted a leading member of a UK group representing online agents to claim that 90% of what it wanted had been achieved.

However, views differ on precisely what the proposed changes to the Package Travel Directive will in practice mean for online agents using technology to create trips dynamically from component parts.

The UK-based Association of Travel Agents (ATA) was fearful that the EC was poised to heap the same responsibilities on them as regular tour operators, or organisers.

This would not only add to costs of compliance but potentially leave these retailers open to Tour Operators Margin Scheme (Toms) VAT, something their commercial model was designed to avoid.

While legal experts are continuing to pore over the detail of the proposal, trade association Abta has claimed it vindicated its lobbying stance and that Europe had listened to the UK.

The ATA was established after OTAs within Abta claimed the association was not representing its views, a claim it vehemently denied.

What the EC directive appears to propose is to bring dynamic packages – what it calls ‘customised holidays’ or ‘combined travel arrangements’ – into the PTD making no material distinction from traditional packages.

Its description of ‘customised packages’, and estimation that this represents 23% of the European holiday market, suggests this refers to what many of the new breed of online agents, and increasingly conventional agents looking for additional revenue, sell.

In the UK new Atol rules have been brought in to cover this form of product known as Flight-Plus, providing customers with financial protection but not adding to the responsibilities of the retailer, or agent.

The EC document refers to the fact that such modern forms of distribution online have caused there to be confusion as to whether the customer is protected under the PTD, which covers repatriation, refunds in the event of a problem and responsibility for the performance of the product.

The commission claims customers of these new forms of package are twice as likely to have problems as those of traditional packages and the average cost in the event of an issue is €600 compared to €200.

Additionally it is estimated that the overall loss incurred by customers of these sort of holidays each year in Europe is €1 billion. The EC says its proposal will protect 120 million more travellers and reduce this cost by almost half (€450 million).

However, the EC has also stated it is keen to ensure new online models are kept out of PTD and has defined another form of holiday, the ‘assisted travel arrangement’ characterised by distinct components and no overall end price.

This appears to be an attempt to ensure click-throughs – where consumers are sent to another site to purchase a separate component – are legally distinguishable from pure independent sales of completely unrelated components at different times from different providers. The EC estimates that 54% of travel in Europe are ‘independent travel arrangements’.

The proposals states: “Particular rules should be laid down for both high street and online retailers which assist travellers, on the occasion of a single visit or contact with their own point of sale, in concluding separate contracts with individual service providers and for online retailers which, through linked online booking processes, facilitate the procurement of additional travel services from another trader in a targeted manner, at the latest when the booking of the first service is confirmed.

“These rules would apply for example, where, along with the confirmation of the booking of a first travel service such as a flight or a train journey, a consumer received an invitation to book an additional travel service available at the chosen travel destination, for instance hotel accommodation, with a link to the booking site of another service provider or intermediary.

“While those arrangements do not constitute package within the meaning of the Directive as there can be no confusion that a single organiser has assumed the responsibility for the travel service, such assisted arrangements constitute an alternative business model that often competes closely with packages.

“In order to ensure fair competition and to protect consumers, the obligation to provide sufficient evidence of security for the refund of pre-payments and the repatriation of travellers in the event of insolvency should also apply to assisted travel arrangements.

“To increase choice for travellers and to enable them to make informed choices as to the different types of travel arrangements on offer, it is appropriate to require traders to state the nature of the arrangement clearly and inform travellers of their rights.”

The good news for many online players is that the EC has explicitly stated it wants to encourage cross-border trading and emerging online models, but anyone wanting to avoid being a seller of packages might be faced with changing their model.

The question for many retailers will be how do they make their margin when having to be so entirely transparent about the various individual components they are selling.

European Technology and Travel Services Association (Ettsa), which represents the large multi-national OTAs, said in response to the EC proposals: Instead of addressing the real risks that consumers are exposed to – including the financial failure of suppliers, particularly airlines – the Commission creates a completely arbitrary definition of a package.

“This will entail considerable opacity as to which products are protected and which aren’t. It will hamper innovation in the travel distribution space, invite industry players to find loopholes, and thus create a questionable standard of protection.“By trying to shoe-horn the 21st century travel market place into a 1980s legislative framework, the Commission ignores today’s well-travelled and technology-savvy European consumer.

In essence European legislators are looking to uphold the original intention of the package law, namely that consumers have direct redress to an entity responsible for the product they have bought in their country of residence.

This has been far from assured in parts of the UK travel industry with many firms in the technology-driven dynamic packaging sector of the view that the end supplier, ie the hotelier or airline, should be held ultimately responsible.

In the UK it remains to be seen how online agencies and middle men in the supply chain will react to the EC proposals but the words of newly elected Abta chairman Noel Josephides, a self-confessed traditionalist when it comes to regulation, are likely to be heeded:

“The way I read [the Directive] is it will be awkward for any site that is dynamically packaging to avoid putting a package together. It allows Flight-Plus, but an awkward Flight-Plus,” he said.

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