Spain’s radical approach to package travel contracts to soften the blow of Covid-19 on its tourism industry

Posted: 14/04/2020

Travel and tourism is a key sector in Spain, representing almost 15% of the gross domestic product and providing over 2.8 million jobs, according to the report issued by the World Travel and Tourism Council in 2019. 

In this article, we look at why the Spanish government may have put itself in the firing line of Europe’s lawmakers in a bid to soften the Covid-19 blow.

European Commission’s guidance on package travel contracts

According to Article 12 of the current Package Travel Directive (PTD), which was implemented into Spanish consumer protection law through Royal Decree Law 23/2018, both organisers and travellers are entitled to terminate the package travel contract before it starts in the event of ‘unavoidable and extraordinary circumstances occurring at the place of destination or its immediate vicinity and significantly affecting the performance of the package’.

It is clear that the combination of the PTD and the Covid-19 crisis – which is beyond the parties’ control and can therefore be considered an ‘unavoidable and extraordinary circumstance’ – leaves retailers and organisers with an unprecedented economic vulnerability, as travellers are entitled to a refund of the amount paid for the package within 14 days of cancellation (Article 12.4).  

However, on 19 March 2020, the European Commission issued guidance on the application of the PTD and stated the following:

‘Having regard to the strains on liquidity of tour operators because of missing new bookings coupled with reimbursement claims, travellers should consider accepting that their package tour is postponed to a later point in time. Having regard to the current uncertainty to make travel plans, that could be done by means of a credit note (so-called ‘voucher’). However, the traveller should have the possibility to ask for a full refund if, eventually, he or she does not make use of the voucher. Moreover, it should be ensured that the voucher is covered by appropriate insolvency protection.’

The above, although not legally binding, suggests that organisers may issue vouchers in place of a refund and encourages travellers to consider accepting them in the current circumstances. However, travellers are still entitled to terminate the contract and ask for a full refund within 14 days if they so choose.

Spain’s measures for package travel law

Following mass cancellation of travel contracts, travel agency associations in Spain have petitioned the Spanish government to demand more flexibility in the application of the PTD.

On 31 March 2020, the Spanish government issued Royal Decree Law 11/2020 adopting urgent measures to face Covid-19 and, in relation to package travel contracts, it has gone further than the European Commission’s guidance.

Specifically, article 36 of the Royal Decree Law states the following:

• Retailers and organisers are now authorised to issue vouchers valid for one year from the date of termination of the state of alarm for the same amount received from the customer under the package travel contract and as long as they have sufficient financial support to guarantee its performance. These vouchers may be redeemable for cash if they are left unused after one year.
• Travellers may either accept the voucher or terminate the contract and request a refund. However, refunds are subject to retailers and organisers being able to recover the amounts from their individual suppliers, so that if only one supplier provides a full or a partial refund of its services to the retailer or the organiser, the traveller will only be entitled to receive that partial refund, which will be discounted from the amount shown in the voucher.
• Retailers and organisers must issue the refunds within 60 days from the date of the termination of the contract or from the date on which they received the funds from their suppliers.

These steps will certainly go some way to help retailers and organisers, at least for now, to avoid bankruptcy and manage the refunds to their customers appropriately. They will also provide a margin to bear the costs associated with longer stays for customers who were already abroad when the Covid-19 crisis struck.  

However, these measures clearly contravene the PTD in that a refund is no longer compulsory provided that the retailer or organiser has not received the funds and, additionally, they now have 60 days (as opposed to the original 14 days) to issue the refunds.

As a result of introducing these controversial measures, Spain could be subject to formal disciplinary procedures before the European Court of Justice by petition of the European Commission.  The changes may be considered null and void as European Union law has primacy over the laws of its member states.

It will, therefore, be interesting to see how other member states respond locally in their efforts to protect the industry. The European Commission will, no doubt, be looking further into this and it will be a challenge to provide a satisfactory solution for the market which provides consistency across all member states.

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