Decision causes airline turbulence

After a recent High Court decision airlines face paying back millions to travel agents. Roger Pearson reports on the case. Airlines are bracing themselves for a complex payback to travel agents following a recent High Court decision.

The three airlines involved in the test case of the Association of British Travel Agents (Abta) & ors v British Airways & ors are British Airways, Virgin Atlantic Airways and Deutsche Lufthansa AG.

But travel industry insiders say that the outcome of the ruling could see some 80 airlines facing paybacks to travel agents and travel companies.

The action was brought against the airlines by the Association of British Travel Agents (Abta), Jetset Europe, Majestic Travel and Phoenix Travel after they were faced with loss of commission on passenger service charges.

In a complex 33 page judgment Mr Justice Timothy Walker ruled that the airlines were not entitled to refuse to pay commission on charges.

It is believed that there are many more travel agents throughout the UK who have been hit by the refusal by the airlines to pay commission.

Travel agents hope that other airlines will accept the decision and revise their ticket information and commission strategy. If not, Abta has pledged to assist its members in taking legal action against airlines throughout the country.

The payment will be spread among 2,300 travel agents and travel companies throughout the UK.

It is estimated that passenger service charge commission in respect of British Airports Authority (BAA) airports will run to a total of around £40m.

And when other non-BAA airports such as Luton and Manchester are taken into account, it could amount to £60m.

In relation to the commission that travel agents and companies are entitled to be paid, the judge said: "On true construction of the passenger sales agency agreements of the passenger sales agency rules, the applicable fare on which commission has to be paid to the claimants includes any such amount payable in respect of the use of United Kingdom airports by way of passenger service charge."

Abta and the travel agents were represented in court by Philip Shepherd and Bajul Shah from the chambers of Martin Mann QC and Alan Steinfeld QC at 24 Old Buildings. They were instructed by Abta's in-house legal department, headed by Riccardo Nardi.

Stephen Balonwu, Abta's legal adviser, draws a parallel between this case and an action that took place in Germany aabout a year ago.

Balonwu says: "The German equivalent of Abta took Lufthansa to court over its refusal to pay commission and the German courts held, as Mr Justice Timothy Walker did in our case, that commission was payable on passenger service charges."

Some reliance was placed on the German decision in this case but the judge, while reaching the same decision as the German courts, did so for different reasons and by applying UK legal precedents.

Balonwu says: "The really important points to look at are the implications for the industry and the process of unwinding what has gone on.

"There are about 7,000 travel agents in the UK and about 80 airlines have adopted the practices that have been challenged.

"The practice was introduced on 1 February this year in respect of tickets issued on or after 1 February for travel on or after 1 April.

"A huge administrative burden is going to stem from this judgment though Abta's lawyers are investigating various means of reducing this burden. But everything has got to be put back to the way it was."

He adds that this was probably the first time that the International Air Transport Association standard form contracts which govern the relationship between travel agents and airlines have been interpreted by a court in the UK .

Leave for appeal against the November judgment has been granted.