Bankruptcy

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.


See also a report from the EU from March 2011 - Impact assessment of passenger protection in the event of airline insolvency.

Does the Icelandic Transport Authority (ICETRA) 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?

ICETRA 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. ICETRA does not oversee the travel and ticket sales of Icelandic air operators. ICETRA is responsible for enforcing regulation no. 1048/2012 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. ICETRA 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.
ICETRA 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 Icelandic air operator requires the necessary licences from ICETRA (air operator licence) and Icelandic air operators are overseen by ICETRA. Regulation (EC) No 1008/2008 on common rules for the operation of air services in the Community, provides for the conditions for granting an operating licence and for the validity of a licence where an air carrier must i.a. fulfill requirements regarding fixed and operational costs incurred by operations. ICETRA may suspend or revoke operating licence issued to an Icelandic air carrier if it is no longer satisfied that the carrier can meet its actual and potential obligations.
If for some reason an Icelandic air operator goes into administration or is declared bankrupt, passengers will have to file their claims to the administration/liquidator.
Passengers whose ticket was paid with a credit card could contact their credit card company to check whether a refund of the ticket cost will be issued. Passengers who may have bought travel protection, or those passengers whose credit card terms may include such protection, may be entitled to claim compensation and assistance due to delays or travel disruption.

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.



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