Aviation Customer Rights Charter and Aviation Industry Ombuds Scheme Recommendations to industry
The proposed Aviation Customer Rights Charter [Aviation Customer Rights Charter | Department of Infrastructure, Transport, Regional Development, Communications, Sport and the Arts] and Aviation Industry Ombuds Scheme (AIOS) display a fundamental misunderstanding of airline operations and existing complexities in light of the following issues:
1. Overview of the Charter and External Challenges: The aims of the Charter must be achieved in light of airline practices, international conventions, impacts on the industry and external challenges facing the airlines.
2. Aviation Industry Ombuds Scheme: Acting as rule-maker, investigator, adjudicator, and enforcer is contrary to good governance, and risks denial of procedural fairness. Further, decisions binding on airlines but not on passengers creates an unfair and burdensome process.
3. Complaints to AIOS and competing legislation and international conventions: The AIOS's proposed scope of complaints overlaps with existing legislation and international conventions governing safety, privacy, and carrier liability – this outcome must be avoided.
4. Airlines reliance on third parties: Airlines are not responsible for all sales, nor are they responsible for all delays and cancellations, and as such should not be always held, or be the only party held, responsible.
5. Compensation: The Australian Government’s current proposals put forward compensation based on refunds for fares paid rather than set financial payments like in European Union. These Government proposals are to be encouraged as some consumer response submissions suggest excessive compensation schemes which are only likely to unnecessarily enrich the middlemen, and should instead focus on capping refunds to the cost of the airfare, or 50% of the airfare for small operators, whilst consequential losses should always be excluded.
6. Minimum Exemptions Recommended: A "one size fits all" approach is not appropriate. Small airlines should be exempted from AIOS to continue providing services to regional areas of Australia and Pacific Island Countries. Passengers who have not paid for their own travel should be ineligible to lodge a claim with AIOS.
It is recommended that industry strenuously advocate for reconsideration of the Charter and AIOS, noting proactive opposition to many of the proposed changes is necessary given the Australian Government’s recent successful return to power and the need for these changes to be implemented via changes to legislation (which will need the Greens support). As currently structured, some proposals are unlikely to improve passenger experiences and risk disruption, delayed claim resolution, and the cessation of essential services so the industry’s call to action is essential. The Australian Government’s 2024 Aviation White Paper seeks to address what it sees as the aviation industry not delivering on, nor being held accountable for, its obligations to passengers. This displays a fundamental lack of understanding of both the extent of the services that most airlines already provide along with the challenges that all airlines and airports face in today’s challenging economic environment. For the purposes of this article, we will focus on the challenges facing airlines whose operations are complex and diverse and require the balancing of competing interests. Our view is that the proposals set out in respect of the Aviation Industry Ombuds Scheme (AIOS) and Aviation Customer Rights Charter have not been considered in the context of the complexities faced by industry.
1. Overview of the Charter and External Challenges
The Charter proposes 6 rights for aviation customers. These are to:
1. be treated with dignity and respect, in an accessible and inclusive environment.
2. provide accurate, timely and accessible information and customer service.
3. offer prompt and fair remedies and support during and after cancellations, delays and disruptions.
4. deliver safe and timely baggage handling and fair remedies for damage and delays.
5. protect passenger’s personal information.
6. provide feedback, make complaints and exercise their rights without retribution
These rights are said to be aimed at airlines improving customer standards, making complaint processes more accessible, ensuring customers are kept updated throughout the travel process whilst also improving timely responses to complaints and/or incidents. The Charter also seeks to introduce an Aviation Industry Ombudsperson who is able to refer matters to appropriate regulators for further action.
Whilst these changes could improve customer experience, they will only be successfully implemented if they are modified with a full understanding of airline practices, applicable international conventions and in the context of the financial impacts such changes will have upon an already challenged industry.
Naming conventions
We cannot help but address our concern regarding the naming conventions being introduced by these proposals. The Charter is predominantly focused on airline passengers not ‘aviation customers’ and hence we strongly encourage the industry to advocate to rename the Charter to “Airline Passenger Rights Charter” in accordance with equivalent international naming conventions. With that proposal in mind, our paper will reference the proposed Airline Passenger Rights Charter (APRC) instead.
External challenges facing the airlines
The International Air Transport Association (IATA) published its Airline Profitability Outlook on 3 June 2024. Whilst there were strengthening profitability projections in 2024 for the global airline industry off the back of low profitability in 2023, the aggregate return above the cost of capital continues to elude the industry. As part of their analysis, IATA has identified a number of risks facing airlines which include:
Global Economics: Airlines are significantly impacted by global economic trends. Therefore, further downward shifts in these economic positions could greatly impact airlines, especially in the context of the more recent uncertainty that the Trump Administration has introduced to global markets.
War: An escalation of the conflicts in Russia-Ukraine or Israel-Hamas or further wars in China-Taiwan or elsewhere is likely to shift airline’s economic outlook negatively.
Regulatory Risk: Airlines are facing the risks of increasing compliance costs including in respect of punitive passenger rights regimes, regional and environmental initiatives and increasing accessibility requirements.
Supply chains: Airlines have been directly impacted by supply chain issues in the delivery of new aircraft and parts which have impacted the ability of airlines to maintain and deploy their existing fleets.
In this somewhat unstable global economic and geopolitical environment, the imposition of further direct and potentially significant costs upon the Australian airline industry must be approached with caution.
2. Aviation Industry Ombuds Scheme
Traditionally, an Ombudsman scheme is designed to try to find a resolution acceptable to both parties to a dispute. The Telecommunications Ombudsman, for example, resolves 88% of complaints at a ‘stage 1’ level by referring the complaint to the provider.
The White Paper foreshadows that the AIOS will be empowered to resolve disputes, direct airlines and airports to provide remedies, publish reports on airline and airport conduct, issue penalties and issue guidance on obligations. This proposed structure significantly deviates from the traditional role of an Ombudsman and creates an organisation which is responsible for creating a Customer (Passenger) Charter, investigating suspected breaches, whilst also issuing and enforcing determinations.
A single organisation should not be empowered to make rules, investigate breaches, adjudicate and enforce the rules. Such a structure is contrary to principles of good governance and is a fundamental departure from the traditional separation of powers. In addition, such a structure gives rise to the risk of denial of procedural fairness as the checks and balances ordinarily in place to ensure due process are abandoned.
The proposed structure of the AIOS, as both a rule-maker and an adjudicator, is fundamentally flawed and we strongly recommend that the role of the AIOS be limited to a body designed to obtain conciliated outcomes between passengers and airlines/airports.
If there is to be the power to bind airlines/airports with orders, that power should apply equally to bind passengers. The Consultation Paper about the creation of the AIOS states, ‘decisions made by the ombudsperson will be binding on airlines and airports (but not on customers, who will retain their rights to pursue action through a relevant court or tribunal if they are unhappy with an ombuds scheme outcome).’ This creates a scheme where airlines/airports risk being put to the expense of claims adjudicated by the AIOS, only to have the outcome rejected by the passenger. Airlines/ airports are then forced to address with the claim a second time through the Court system, whilst passengers can ‘try out’ their claim in the AIOS but move on to the Court process if they do not like the outcome. Such an approach is burdensome and unfair.
3. Complaints to AIOS and competing legislation and international conventions
The Australia aviation industry is highly regulated and it is important to ensure that the types of complaints investigated by the AIOS do not overlap with matters dealt with in existing legislation. In particular:
any function with potential safety implications for airlines, such as setting standards regarding acceptable and unacceptable delays, should be transferred to the Civil Aviation Safety Authority (CASA);
the power to issue penalties for breaches should remain exclusively with CASA to avoid any situation where airlines face a conflict between potential breaches and safety concerns;
privacy complaints should continue to be directed to the Office of the Australian Information Commissioner;
matters dealt with by the Civil Aviation (Carriers’ Liability) Act 1959, the Montreal Convention 1999 and other international liability conventions should be excluded from consideration by the AIOS including in respect of baggage claims and personal injury matters; and
allegations of breaches of the Australian Consumer Law, being a Commonwealth Law with the potential for imposition of penalties, should not be dealt with by the AIOS.
4. Airlines reliance on third parties
It needs to be recognised that airlines are not responsible for all distribution channels in relation to the sale of airline tickets. It is therefore unfair to hold airlines accountable for the actions of travel agents or other third parties such as airports. If airlines are to be solely held accountable to passengers, their liability should be limited to those tickets that they directly distribute. This is how applicable contract laws in Australia ordinarily operate in respect of tickets sold to passengers.
In addition, depending on the reason for the delay eg: delays caused by the airport, airline or air traffic control and/or the authority responsible for directing a delay or cancellation of a flight should be held accountable to passengers, not the airline purely because they are the operator of the service and the party who sells the ticket to travel. This is particularly so where the airline has no authority to refuse the direction of the airport and/or air traffic controller and the airline is legally bound to comply with those directions for sound safety reasons and to comply with aviation safety regulatory requirements.
5. Compensation
The positions proposed in the APRC in respect of compensation are broadly speaking reasonable proposals. However, there is a real concern that in the current political environment, there may be undue sympathy given to some of the more unreasonable proposals submitted. Of the 36 submissions received on the APRC, there are at least five submissions that are raising alarms due to the disproportionate levels of compensation being advocated.
Costs of replacement flights
The Justice and Equity Centre contend that if customers have had to book a new flight with another airline due to their original airline not having a reasonable replacement flight, then the original airline should also compensate the customer for any additional costs incurred. This proposal is broad, vague and unsustainable. Changes to aviation services must be an accepted part of a passenger’s choice to travel and airlines cannot be expected to compensate for every aspect of disruption that may arise. If such compensation were to be imposed upon airlines, the costs would ultimately be passed onto passengers, making air travel less attractive and affordable for all.
Consequential and emotional losses
The Australian Lawyers Association submit that remedies for monetary losses flowing from flight cancellations or delays, as well as emotional losses, should be included in the Charter. The expectation that passengers should be entitled to claim consequential losses (for pre-booked tours, concerts or sports game tickets etc) or emotional losses (for inconvenience, disappointment and distress etc) misunderstands the economic landscape within which airlines operate. These risks can be addressed more cost effectively through existing alternative means, such as travel insurance and the already established Montreal Convention 1999 and other international liability conventions (referenced above) which govern through international agreements the extent of, and the limitations upon, airline liability for all loss, damage and delay. Any liability imposed beyond these established alternatives should be strenuously resisted.
Fixed-fee compensation
CHOICE, the Queensland Consumers Association and AirHelp each advocate for the inclusion of a right to set compensation amounts for delays and cancellations, similar to compensation regimes applicable abroad, particularly in the European Union. For example, AirHelp proposes that compensation be payable independently of ticket prices. They propose that cancellations should entitle customers to receive compensatory payments of $1200 for domestic, and $2400 for international flights. As the world’s largest flight compensation company, with a 35% fee on all compensation claims pursued, it should come as no surprise that AirHelp are strong advocates for flat fees claimable independently of ticket value.
It is crucial that any new systems introduced avoid unjustly enriching those who provide services to passengers making compensation claims. Bott & Co. in the UK boast that they have collected over GBP 75 million in compensation on behalf of passengers since 2013. Firms like Bott & Co. charge a 50% commission, creating a lucrative opportunity for middlemen. Australia must avoid such an outcome which in no way benefits passengers nor the industry as a whole.
Finally we would advocate that any liability placed on the larger airlines should be capped at the cost of the airfare paid by the passenger and no additional fixed compensation amounts should be payable. For smaller operators and/or smaller aircraft, the compensation should be further reduced to 50% of the cost of the airfare paid by the passenger. This approach offers the best balance between the loss actually incurred by passengers with the goals of maintaining (and not inflating) current airline ticket values.
Compensation for delay
Compensation values based on length of the delay are also not reasonable nor commensurate with the loss the passenger may suffer in most cases. This methodology of determining compensation must be avoided particularly if carriers operating to regional and remote locations are expected to continue to operate. Reviewing the cost benefit analysis with the view to balancing the competing priorities is critical for any changes proposed in this space.
Recommendations
In this context, in addition to our recommendations below regarding exemptions for regional and Pacific Island carriers, we recommend the following amendments to current compensation proposals:
1. in respect of larger operators, any liability placed on the airline should be capped at the cost of the airfare paid by the passenger, with no additional fixed compensation amounts payable;
2. smaller operators or those operating small aircraft should be subject to a reduced compensation of 50% of the cost of the airfare paid by the passenger.
3. passengers should not be allowed to claim consequential losses (for pre-booked tours, concerts or sports game tickets etc) or emotional losses (for inconvenience, disappointment and distress etc) – those claims should be dealt with via existing alternative means, such as travel insurance and/or applicable and established international conventions.
6. Minimum Exemptions Recommended
In respect of regional Australia, the Government’s objective should be to exempt, or largely exempt, small or low capacity airlines operating “whole of aircraft” charter flights to regional and remote areas in Australia from both the APRC and the AIOS. Small foreign operators such as the Association of South Pacific Airlines (ASPA) whose member carriers operate to and from Australia should similarly have the benefit of an exemption.
The exemptions should be implemented to recognise the importance of ensuring the sustainability of services to remote locations. Regional airlines, both within Australia and in the Pacific Island States, are essential for connecting remote communities and providing critical services such as medicines and medical services to which they would otherwise not have access.
Further to our comments above regarding examples of jurisdictions that have gone before us, such as the European Union’s adoption of EC261, illustrate that a now established regime has resulted in almost doubling the cost per passenger on regional carriers. Applying the APRC and the AIOS to regional carriers and/or ASPA member carriers would also be in direct contradiction to the Government’s stated purpose in the White Paper of supporting regional aviation.
Further, airline members of ASPA are almost entirely government owned and the imposition of a new regime on airlines that are largely compelled, either directly or indirectly, to operate into and out of Australia, over and beyond existing international conventions places an onerous burden on neighbouring states.
We strongly suggest that a one size fits all approach is not appropriate in Australia. Different categories of airlines (and airports) should be treated differently. Regional operators face significantly different challenges to those of its established national carriers such as less availability of aircraft, less availability of crew at regional locations as well as limited abilities to carry out maintenance at regional locations. Imposing a consumer protection regime upon competitors that are not operating on an even playing field is fundamentally unjust and must be resisted.
For these reasons, if the AIOS and APRC are to be introduced and apply to aviation operations within, and to and from, Australia, only passengers travelling on Regular Public Transport services should be able to rely on the APRC and AIOS. This means, as a minimum, the following services should be exempt from the operation of both the APRC and AIOS:
1. all operations to regional and remote airports within Australia operated by small or low capacity airlines;
2. all operations to and from Australia operated by small foreign carriers, including operations between Australia and the Pacific States;
3. small operators or those operating small aircraft; and
4. passengers who have not paid for their own travel (eg: FIFO operations).
Aviation services to regional locations within Australia and the Pacific are critical for the connectivity of those living and working in these locations including in particular for the receipt of critical medical supplies and services. The White Paper provides no guidance on whether or not the APRC will apply to charter flights or low capacity regional air transport operations and how it would be applied. There are very material differences between high frequency main line domestic and international operations and flights to remote and regional locations operating with low schedule frequency. If a blanket approach is adopted, it is likely to have unintended consequences such as further reducing the viability of connections within regional Australia and to and from our Pacific Island neighbours, especially where the mitigation of delays (for a wide range of legitimate reasons) may simply not be possible nor reasonable.
7. Summary of Recommendations
In response to the 2024 Aviation White Paper and the ACRC, we make the following recommendations:
industry must continue to advocate for careful consideration of the proposed APRC and AIOS. Despite the government’s best intentions, some of the current proposals are unlikely to improve the experience of either passengers or airlines. The uncertainty surrounding the interaction between the IAOS and APRC and established regulatory requirements and international conventions risks creating conflict, confusion, and delay rather than streamlining the resolution of claims.
operator focused amendments must be made to avoid unacceptable outcomes in relation to unfairly penalising airlines for the actions of third parties and/or denial of procedural fairness within the AIOS.
the six rights proposed in the APRC in respect of compensation (which are broadly speaking balanced) must not be exchanged for proposals that result in the unjust enrichment of passenger claims firms.
a one size fits all approach should be resisted. Minimum exemptions for small and regional airlines are essential to maintain connectivity to remote regions in Australia and the Pacific Islands, and to prevent the cessation of essential services that would further isolate these communities.
Contacts
+61 3 9119 2535
Alison.McKenzie@nortonwhite.com