Note: we started working on this piece in December 2024 when there was a lot of discussion regarding the implementation of a flight cancellation and delay compensation scheme in Australia. We kinda forgot about it, but picked it up again given that the Aviation Industry Ombuds Scheme is due to be released soon.
EU261 is the European Union’s Air Passengers Rights Regulation that is often view as a model for air travel regulation in Australia. A defining and popular feature of EU261 is the compensation that passengers are due in the case of cancelled or delayed flights. Who wouldn’t want to be compensated €600 if your flights was cancelled or delayed?
While this sounds enticing, few consider the unintended consequences of regulations. Simply put, “there’s no such thing as a free lunch”, and fixed cost compensation schemes will likely result in airlines optimising their operations to minimise compensation rather than minimising cancellations and delays. Let’s delve a little deeper into understanding how airlines are likely to respond.