Bankruptcy
See also a report from the EU from March 2011 - Impact assessment of passenger protection in the event of airline insolvency.
Does the Icelandic Civil Aviation Administration (ICAA) have a process in place which is initiated if an airline/air operator or travel agency (which sells tickets, not package tours) declares bankruptcy or goes into administration?
The ICAA oversees whether Icelandic air operators fulfill the requirements set for the operation of such companies. The requirements are based on EU regulations and international standards. The ICAA does not oversee the travel and ticket sales of Icelandic air operators. The ICAA is responsible for enforcing regulation no. 574/2005 on the rights of passengers. The regulation makes provision for the rights of passengers towards air operators in relation to flight delays, flight cancellations, and when passengers are denied boarding. The ICAA is also responsible for enforcing regulation no. 475/2008 on protection of and assistance to disabled passengers which makes provision for their rights to services in air travel.
The ICAA does not oversee travel operators nor administrating bodies in travel affairs.
What is the legal status of passengers when air operators and travel agencies experience financial difficulties?
The legal status of passengers when air operators and travel agencies experience financial difficulties varies depending on what services were purchased, from whom, and where. It may be said that the legal status of passengers is best ensured by purchasing a package tour from a travel agency with a travel agency licence.
Generally, the rule applies that if a so-called package tour is purchased from a travel agency with the required travel agency licence issued by the Icelandic Tourist Board and the travel agency experiences financial difficulties, the mandatory insurance of the travel agency goes into effect. Article 14 in the Tourism Administration Act no. 73/2005 states the following: “A travel agency shall provide security for the reimbursement of money that a customer has paid for a package tour that has not yet taken place, and for the customer’s transportation home from a package tour, whether within Iceland or abroad, in the event of bankruptcy or the cessation of the travel agency’s operations. The security shall also be sufficient to allow the customer to complete a package tour in accordance with the original itinerary of that tour.”
However, the legal status changes considerably if a package tour has not been purchased from a travel agency with a travel agency licence as is common today, that is, the purchase only entails a flight between locations A and B which is either purchased from a travel agency or directly from the air operator through its home page. Such instances do not include the same kind of mandatory insurance as goes into effect in the case of a package tour, and passengers can then only state a claim against the estate for the cost which they incur in the event of bankruptcy. The same applies if a trip is bought from an administrating body.
What is an air operator and can passengers safeguard themselves against the bankruptcy of an air operator?
An air operator is an individual, company, or institution which operates or offers to operate an aircraft for professional use. An air operator requires the necessary licences from the ICAA (air operator licence) and Icelandic air operators are overseen by the ICAA. Regulation no. 969/2008 covers the granting of air operator licences, market access of air operators, fares, and freights in aviation services within the European Economic Area and introduces council regulation (EEC) no. 2407/92 on the granting of air operator licences to airlines. The regulation specifies a requirement that an air operator shall submit a financial plan and balance sheet for the annual maintenance of the air operator licence. The regulation also specifies a requirement that for three months after starting operations, an air operator shall be able to finance fixed expenses and running costs for operations according to a business plan and on the basis of viable premises without consideration for revenue from the operations of the company.
The ICAA can also request financial data from Icelandic air operators at any time.
If for some reason, however, an Icelandic air operator goes into administration or is declared bankrupt, and it can not fully operate during those three months, a passenger has, whether or not a trip has begun, only a claim against the estate. In some instances, though, if the ticket was paid with a credit card, the credit card company can be contacted to request a reimbursement.
What is a package tour?
Act no. 80/1994 on Package Tours states the following:
- A package tour is a predetermined combination of no fewer than two of the following items, when the tour is sold or offered for sale at an all-inclusive price and when services related to the tour cover a period of at least 24 hours or include accommodation
- a. transportation,
- b. accommodation,
- c. other services rendered to the customer, which cover a significant portion of the tour
- A tour shall be considered a package tour even if separate invoices are prepared for each item.
What is a travel agency?
According to the Tourism Administration Act, a travel agency shall refer to a party, either an individual or a legal entity, who, either on his own initiative or at the request of a customer, organises, offers, and sells package tours professionally, either in Iceland or abroad. A travel agency may also handle and offer all travel-related services offered by a tour operator, whether these are provided in the form of package tours or not. The term “travel agency” refers both to tourism wholesalers and to tourism retailers pursuant to Act no. 80/1994 on Package Tours.
Any party intending to operate as a tour operator or travel agency shall obtain a licence to do so from the Icelandic Tourist Board. The home page of the Icelandic Tourist Board includes a list of issued travel agency licences and issued tour operator licences.
What rules apply if a passenger purchases only tickets through a travel agency (not a package tour)?
If passengers only purchase tickets through a travel agency, that is, not a package tour, they themselves need to cover the expenses associated with getting back home if the trip has begun. They then can choose to state a claim against the estate of the travel agency.
Do air operators have insurance to guarantee that passengers who are located abroad can get back home free of charge and to repay those who have paid for tickets in full or in part and whose trip has not taken place?
The mandatory insurance which is a prerequisite for a travel agency licence is only valid if a package tour has been purchased. In the conditions for the issue of an air operator licence and its renewal where it is required that for three months after starting operations, an air operator shall be able to finance fixed expenses and running costs for operations according to a business plan and on the basis of viable premises without consideration for revenue from the operations of the company, there is no provision that an air operator shall keep scheduled flights unchanged nor that it shall be able to or responsible for repaying purchased tickets or services in the event of bankruptcy or suspension of operations.
Where should passengers turn and what should they do if they are abroad and have not completed their trip when an air operator goes bankrupt?
If the trip is not a package tour purchased from a travel agency with a travel agency licence, passengers have a claim against the estate for the cost they incur by traveling home.
Where should passengers turn if they have not begun their trip but have paid for their tickets in full or in part?
Passengers can state a claim against the estate.
If the ticket was paid with a credit card, it is possible that the credit card company can be contacted to request a reimbursement.
Which rules apply on passenger rights if companies like Icelandair or Iceland Express go bankrupt or announce suspension of operations?
If a package tour is purchased through Icelandair which has an air operator and travel agency licence, a mandatory insurance, which is one of the prerequisites for the travel agency licence, goes into effect and compensates the passenger for the damages. If services other than a package tour are purchased from Icelandair and the company goes bankrupt or announces suspension of operations, passengers have a claim against the estate of the company.
The following information concerns Iceland Express which according to public information in the shareholder's register organises scheduled flights and air operations, but still is not an air operator and does not hold an air operator licence. If the company goes bankrupt or announces suspension of operations, a passenger has a claim against the estate. Today, it is the air operator Astreus which flies for Iceland Express. Astreus has a British air operator licence and is not responsible for a package tour being completed if a trip has begun.
Do different rules apply to these two companies?
Icelandair is an Icelandic air operator and has an Icelandic air operator licence as well as a travel agency licence. Package tours purchased from Icelandair are therefore guaranteed according to provisions in the travel agency licence. In regard to other trips and services, a passenger has a claim against the estate in the event of bankruptcy.
Iceland Express is a tour operator, that is, not an air operator, and does not have an air operator licence nor a travel agency licence. If an air operator which they charter planes from goes bankrupt, passengers do not have a claim against the estate of the air operator but could pursue their rights against Iceland Express. If Iceland Express goes bankrupt, passengers do not have a claim against the air operator but could pursue their rights against the estate of Iceland Express. According to information on the home page of the Icelandic Tourist Board, the company “Express ferðir” (Express trips) does however have a travel agency licence and therefore insurance for package tours is in effect if a package tour is purchased from the company.