The EU Public Interest Clinic and BEUC Present: Eliminating Airline 'No-Show Clauses' in the EU

Abstract

The following paper, prepared by the HEC-NYU EU Public Interest Clinic for BEUC (the European consumers organization), advocates for the elimination of so-called “no-show clauses” throughout the European Union.

No-show clauses operate by permitting airlines to cancel reservations of passengers who have missed either: (a) the first leg of a multi-leg itinerary; or (b) the outbound flight of a round-trip itinerary. These controversial no-show clauses have long been a staple of sales contracts for airline tickets, despite long-standing objections from various stakeholders and, increasingly, from national courts in the European Union.

Although the European Commission has issued a proposal to (partially) ban no-show clauses, which was supported and even reinforced by the European Parliament, the Council has removed the relevant provision from the legislative proposal.

This paper explores several arguments put forward by different stakeholders, particularly BEUC and the airline industry, regarding the use of the no-show clause in airline contracts.

BEUC makes two central arguments in favour of a ban of the no-show clause: 1. No-show clauses are unfair under Council Directive 93/13/EEC on Unfair Terms in Consumer Contracts. Counter to the requirements of that Directive, no-show clauses create a “significant imbalance” between the consumer and the airline. This is further demonstrated by their close resemblance to many of the terms listed in the Directive’s Annex as “indicative of… the terms which may be regarded as unfair.” 2. Several EU Member State courts have already struck down no-show clauses. Both the German and Spanish courts have ruled that no-show clauses are unfair contract terms, following national laws based on the unfair contract terms directive (Directive 93/13/EEC) reasoning, inter alia, that: a. The loss of the entire ticket as a result of the choice not to use part of it is disproportionate and lacks plausible justification. b. Such clauses create a significant imbalance between the consumer and the airline in that the consumer does not receive any proportionate or additional benefit for the curtailment of their right to not travel. c. Such clauses constitute an impermissible “surprise” for consumers, since no justification for denied boarding would exist absent the clause.

Airlines, meanwhile, make both: 1. Commercial arguments suggesting that such clauses are a crucial part of airline pricing strategy and competition within the air travel market; and 2. Legal arguments suggesting that an international agreement, namely the Open Skies Agreement (OSA), prevents the EU from banning the use of no-show clauses in any event.

However, we refute these arguments by demonstrating that: • No-show clauses are not commercially essential because if no-show clauses were prohibited, airlines would be left with a range of other pricing strategies that may compensate for this loss. • Eliminating no-show clauses would not force airlines to withdraw from certain markets. Firstly, given the relatively small cost of individual flights, airlines will not reduce the number of flights on certain routes as long as there is demand for those flights. Secondly, if serving certain markets is becoming too expensive, airlines should (and have) cut costs rather than unfairly penalizing passengers. • Rather than reducing competition, eliminating no-show clauses might actually increase competition within the European airline market by requiring airlines to compete for business on every leg of passenger’s trip. • The language of the Open Skies Agreement leaves it open to the EU to ban no-show clauses; an EU ban on the no-show clause would not be at odds with the object and purpose of the Open Skies Agreement.