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Your Compensation is Cancelled – Please See Airline September 12, 2015

Posted by Audit Monkey in The State of the British Nation.
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In the recent decade, we have witnessed the huge growth of regulation in Financial Services (FS). While other industries in the UK are regulated, such as telecoms, water, food and travel, the level of regulation of these industries has been light as these industries are, to a degree, self-regulating. If you don’t like your mobile phone company, you can switch. If the water company doesn’t treat the water properly, there would be an endemic. (I’ll ignore the fact untreated sewage is dumped into the Thames but still.) You get the gist.

Airlines in the UK are regulated by the CAA (Civil Aviation Authority). Historically, the CAA’s main role has been to ensure aircraft in the UK were airworthy and control UK airspace. There has been little consumer protection work as most airlines had broad conditions of travel which meant they would, by hook or by crook, get you to your destination or simply refuse to take you. If you were delayed, tough. However, due to changes in EU law, if a passenger’s flight delay exceeds 3 hours, customers are entitled to compensation. On the face of it, I can’t take issue with this but while I was reading the Sunday Times article (published 30/08/15) written by Mark Frary, I couldn’t help but see the parallels with the growth of regulation in FS.

First, there’s the cost of administration. The CAA employees 58 people at a cost of £7m per annum to review complaints. Similarly, the cost of regulation in FS is thought to account for 10% of operating costs. I would hazard a guess that this is a conservative estimate.

Then there is the issue of redress. The CAA is receiving a high volume of complaints from travellers who have not received compensation payments and expect the CAA to champion their cause with the respective airlines. This is not an easy task as the airlines are being sly by changing the reason for a delay so claims become ineligible. Moreover, the CAA doesn’t maintain a record for airline delays (why would it?) and some airlines don’t bother replying to CAA inquiries. I suspect the CAA will be forced to record such ‘delay data’ so consumers can seek proper redress. Similarly in FS, the Regulator has sought to increase the transparency of the treatment of customers, e.g. assessment of client suitability, which has necessitated more bureaucracy and record keeping but there seems to be a Regulatory expectation that every customer decision however trivial is captured and recorded.

Frary advocates the appointment of an independent Ombudsman and enforcement in keeping with FS. The Ombudsman would assess claims but the scheme will not be mandatory. It comes as no surprise that airlines, while they are prepared to fund the current system, they don’t wish to fund an Ombudsman. I can’t say I blame them. The FS Ombudsman has grown in power in recent years and has become a huge bureaucratic machine with HR departments, support staff and a well paid CEO. Worse still, Ombudsman judgements often inconsistent. Frequently they side with the consumer even though they have been negligent or plane stupid (geddit, plane, airline?!!). I suspect this will necessitate a body like the FSCS (Financial Services Compensation Scheme) to calculate the industry levy. Back in the day, the FSCS levy was immaterial but just as the big players in FS have questioned the every increasing levy costs, I suspect the good airlines will resent paying for an Ombudsman which continually finds against the industry bad boys who fail to pay up.

Let’s not forget the growth of the rogue claims firms and solicitors who will advance spurious and dubious claims. We’ve witnessed this in FS, especially in motor insurance, so it comes as no surprise these firms are homing in on airline compensation to make a quick buck.

What’s my view? When I started to write this post, my conclusion was going to be more regulation equals more bureaucracy. Then it came to me, it’s all unnecessary. Correct me if I’m wrong but EU stipulated compensation is a maximum of 600 Euros per person which equates to £420. That’s falls into the Small Claims Court arena in England & Wales. You might as well pay the nominal Court fee and sue the airline to recover costs if you have been unreasonably delayed. Most foreign airlines have a UK office to which you could lodge a compliant and there’s always travel insurance to fall back on. So there is no need to contact the CAA, no need to rely on the CAA to be your advocate, no need for a legion of CAA Complaints staff, no need for an Ombudsman. Everyone can live happily ever after and the travel journalists can stick to writing about holiday lets in Berkino Faso in the rainy season. The EU legislators have legislated for a problem that didn’t need fixing but airline fares will no doubt increase to cover compensation costs which will be to the detriment of customers which the FCA seeks to avoid.

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