Economy & Politics

What the blockchain can do for passenger rights

In the event of flight cancellations, passengers have to laboriously fight for their right to reimbursementimago images / Sven Simon

“Embarrassing and scandalous”: With these words, Klaus Müller, board member of the Federation of German Consumer Organizations, criticized the slow repayments by airlines for canceled flights. Not least against the backdrop of bailout packages worth billions that are financed by taxpayers. This behavior was by no means surprising. Airlines have always been creative when it comes to avoiding the legal compensation for canceled or delayed flights. So creative that a new branch of IT-based legal service providers has emerged as a result. Such legaltech companies first established access to the law for passengers and then set out to revolutionize the legal market in other areas with low-threshold digital legal services for millions of consumers.

Dr. Philipp Kadelbach, lawyer and managing director of Flightright

At first glance, it may seem surprising that the EU Air Passenger Rights Regulation acts as a catalyst for a fundamental change in the German legal system. At second glance, however, the well-known proverb that everyone is familiar with, especially when it comes to passenger rights, that being right and being right are two different pairs of shoes, becomes particularly clear. The Air Passenger Rights Ordinance has been in place since 2005 and gives passengers unaccustomed clarity with specifically quantified rights to compensation for flight cancellations – since 2009 also for delayed flights. The compensation payments amount to between 250 and 600 euros, depending on the route. That’s the theory.

In practice, in the early years – i.e. the pre-passenger portal era – the airlines were very successful in avoiding compensation payments, usually with the scintillating excuse that it was a matter of force majeure. Whatever was always like that. Legaltech consumer portals have put an end to this – in the unanimous opinion – not entirely decent compensation practice to the detriment of consumers: the airlines could do little to counter simple online commissioning, purely success-based remuneration, highly automated processes and consistently conducted legal proceedings.

When it became clear that the previous practice of simply refusing to pay was no longer working on the passenger portals, the lobby machine was started. The industry tried with skillful lobbying to “revise” the Air Passenger Rights Ordinance, in other words to undermine it – almost successfully. In 2013, the EU Commission proposed a revision that would have actually meant the abolition of the regulation, but which has not yet been implemented. The reason was probably that the number of cases and the compensation payments had increased massively in the new era of passenger portals.

In the absence of a revision of the Air Passenger Rights Ordinance, airlines have continued to deny legitimate claims out of court, so that millions of frustrated customers have used the services of passenger portals in order to get their rights. This has led to a flood of lawsuits; in some local courts, passenger rights make up 70 percent of all proceedings.

An incident that actually happened like this: A passenger calls his airline’s hotline to request payment of his compensation. Analogous answer from the airline: “You won’t get anything from us! You can contact Flightright and we will pay. “

This anecdote is an example of the ten-year success story of the passenger portals (and a large number of other legal tech portals in other legal areas). Word of this has meanwhile also got around at the Ministry of Justice and Consumer Protection and a few weeks ago led to a welcome draft law for Legaltech. Nevertheless, a large number of consumers do not use these (paid) services to this day, so that only a fraction of the actually justified compensation payments reach those affected – approx. 5 to 15 percent, depending on the estimate. This means that in Germany alone, passengers lose hundreds of millions of euros every year to which they are legally entitled.

End of prepayment

A constitutional state should work through intelligent regulation to fill the gap between “being right” and “getting right”. A tailor-made legislative suit for legaltech passenger rights portals is a useful component. He’s not a real game changer, also because the chutzpah to break the law is deeply anchored in the DNA of most airlines.

Still – such a world would be possible. What it takes: an end to the prepayment obligation for flight tickets. Consumers would only have to pay for flight tickets when the service has actually been provided, similar to what is customary with hotel bookings. In this way, lengthy processes for ticket reimbursements – as emerged above all in the current Covid19 crisis – could be avoided. In addition, the financial risk for passengers in the event of an airline bankruptcy would be considerably reduced. The Air Berlin example has shown that such insolvency protection for passengers is long overdue. In all probability, it will not be the last major airline bankruptcy.

Automated law enforcement using blockchain

Better payment methods for booked air travel would be a solution to a large number of problems that consumers have faced in the past. A solution for the efficient enforcement of compensation payments in the event of delayed or canceled flights would not be associated with this.

Nikolas Guggenberger, junior professor for IT law at the University of Münster, made a forward-looking proposal for leveling the relationship between companies and consumers. The statutory regulations on compensation are assigned in an automatically executed set of rules (smart contracts) on the blockchain, without consumers or the airline being able to influence the actual execution. If a flight is delayed by more than three hours, the traveler is often entitled to compensation, even if the airline claims (as is often the case) “exceptional circumstances”. This proof is very seldom successful in court. The legislature has put the burden of proof on the passengers here.

Using smart contracts, compensation in the calculated amount could be paid out automatically if the statistical probability of an enforceable claim by the consumer is over 50 percent. Certain data signals (such as volcanic eruptions or strikes) could stop a payout and thus shift the burden of enforcement back again. An autonomous algorithm would make a preliminary decision about the payout instead of a human.

The airline can raise an objection

The paying party (the responsible airline) could object to the automated payment process and take action against what it considers to be an unjustified compensation payment by means of a recovery process.

This would dramatically reduce the number of pending air passenger rights lawsuits, as airlines would only pursue judicial recovery processes in cases in which exceptional circumstances (such as fog at the airport of departure) could be proven.

Such mechanisms could be used in a multitude of comparable, schematically similar constellations between consumers and companies. Another conceivable use case are consumer rights in liability for defects under commercial law. So-called smart products could in future provide reliable data on their functioning. If a malfunction is not remedied within a reasonable period, a (partial) repayment of the purchase price could be triggered immediately. A reduction is then very likely to be justified.

The best thing about it: Almost everyone benefits

In the area of ​​passenger rights, automation in the sense described would already be possible today based on the data and algorithms available. Almost everyone would benefit from this: the customers, because they could get their money much more quickly and effortlessly, and the courts, because they would no longer be suffocated by the flood of consumer lawsuits and confidence in the rule of law would be strengthened.

And the passenger rights portals? They would have accomplished their mission and made themselves superfluous. Is that acceptable in times of troubled aviation? Rather not. Either way, we won’t get bored.

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