European touristic industry after Covid-19: Commission’s approval of German guarantee scheme under State aids rule

The dramatic consequences of Covid-19 outbreak hit heavily almost every economic sector of the European economy, especially the touristic one, in anticipation of the 2020 summer season. In order to tackle with the travellers’ risks and difficulties during the pandemic era, the European Union has allowed the Member States to intervene to protect their rights of movement through the discipline of the State aids. In this respect, the last 31stJuly the European Commission has approved a German guarantee scheme worth 840 million euros to save the touristic industry: it consists in providing liquidity to touristic operators for covering vouchers issued to those customers who had their travel packages cancelled. This is in line with the Commission initiatives, aiming at promoting and protecting consumers’ rights.

The EU State aid regime is enshrined in the Articles 107-109 of the Treaty of the Functioning of the European Union. It normally asserts that the States’ concessions are not compatible with the logic of the internal market, since, through the national assistance to some firms or some types of production, they risk to distort or undermine the principles of competition in the market. Of course, there are several derogations to this rule, as financial aids can be issued just in cases of natural disasters or in case of serious turmoil in the economy of the State.

According to the President of the Commission Ursula von der Leyen’s words, “[t]he Coronavirus pandemic is testing us all. This is not only an unprecedented challenge for our healthcare systems, but also a major shock for our economies”. Indeed, The Commission considered that, taking into account firstly the serious way the pandemic impacted in Italy and progressively in other Member States, its nature and scale would allow the use of the exceptional provisions at the Article 107(3)(b) TFEU, as a situation with serious disturbance to the economy. Moreover, not only it is possible for the European countries to recur to this discipline, but it is admissible since they represent an assistance to the single customers’ needs in the context of a sanitary disaster.

As a consequence, on 13th March the Commission adopted a Communication on a coordinated reaction to the Covid-19 outbreak: the main response can come only from each State’s national budget, giving support both to consumers and to companies. Among the possibilities underlined, a State may decide to take specific measures, such as wage subsidies, suspension of payments of corporate and value added taxes or social contributions. Another option consists in granting financial support directly to consumers, as in the cases of cancelled services or tickets that have not been reimbursed by the operators concerned. Also, EU State aid rules enable Member States to help companies cope with liquidity shortages and needing urgent rescue aid.

In order to fulfil the promise of more flexibility over the transitory measures that the States can take under this discipline, the following 19thMay the Commission approved a State aid Temporary Framework based on Article 107(3)(b) TFEU. The Temporary Framework sets out the possibility for the Member States to provide access to finance for its national undertakings which are suffering shortages after the pandemic outbreak. In some sectors as in tourism, hospitality, culture and retail, the aid can come under the shape of a compensation in case of cancellation of any event or for damages. The compatibility with Article 107(3)(b) TFEU stands whether the Member shows that the State aid measures notified to the Commission under this Communication are necessary, appropriate and proportionate to remedy a serious disturbance to a Member State’s economy and that all the conditions of this Communication are fully respected.

Among the types of aid that can be provided by the States, the list mentions that they can be in form of direct grants, repayable advances or targeted support to industries. Particularly, Article 107(2)(b) TFEU enables Member States to compensate companies for the damage directly caused by exceptional occurrences, including measures in sectors such as aviation and tourism.

The application of this provisional exemption to the discipline on State aid will last until the end of 2020, exceptfor recapitalisation measures, for which the Commission has extended this period until the end of June 2021, since solvency issues may materialise only at a later stage as this crisis evolves. With a view of ensuring legal certainty, the Commission will assess before that date if it needs to be extended. This complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules.

During the last months, the urgent action came in form of the opportunity for Member States to apply public aid for adjusting and revitalizing the economy: in line with the final provisions of the Temporary Framework, many Member States notified the Commission their plans to introduce such measures as early and comprehensively as possible.

Germany’s scheme has been one of the latest approvals of the Commission, entailing the most sensitive sector to the crisis effects. This proposal consists in a guarantee for tour operators, in order to support them in issuing vouchers for cancelled travel packages, reserved by the customers before 8thMarch.Indeed, travel packages that were booked before that date amounted to €6 billion in total and they are still outstanding. Some of these bookings were already cancelled because of the emergency measures that were necessary to limit the spread of the coronavirus. For a large slice of the cancelled bookings, customers have been refunded or offered replacement bookings by tour operators. Still, it is estimated that these ones will issue a total amount of €1.5 billion for secured vouchers to compensate customers for the remaining cancelled travel packages.

All customers of travel organisers who have the right to a refund under the EU Package Travel Directive can benefit from these secured vouchers. These are valid for the use until the end of 2021, while, if not used, the full amount paid will be reimbursed to the customer. With this scheme, the German State aims at ensuring that any traveller that accepts a voucher issued by a travel operator will be able to either use it or receive a full refund.

The proposed scheme aims at protecting consumers, through ensuring the effective settlement of related refunds or reimbursements to travellers. Moreover, the stimulus to uptake vouchers is useful for alleviating pressure on the travel industry, instead of recurring to direct repayments. It foresees also that, in return, tour operators will pay a premium to the German State.

The Commission approved it, stating that the measure is covered by Article 107(3)(b) TFEU, since it concerns the remedy a serious disturbance to the economy of a Member State.

The measure is in line the Package on tourism and transport, adopted by the Commission on 13thMay, whose aim is “to help EU countries gradually lift travel restrictions, allow businesses to reopen and ensure that people in Europe can benefit from a safe summer holiday”. This one includes also the Recommendation (EU) 2020/648 on vouchers offered to passengers and travellers as an alternative to reimbursement for cancelled package travel and transport services in the context of the COVID-19 pandemic. Indeed, the scheme allows that the guarantees cover the total value of the vouchers, in accordance with the Package’s clause regarding insolvency protection; then, the measure requires a minimum remuneration for guarantees and it is open to all tour operators, as long as German law is applicable. Thus, through this scheme, Germany can make vouchers an attractive resource to passengers or travellers, ensuring at the same time the stability and reprise of travel operators’ business.

The regime of derogation from Article 107(3)(b) TFEU has led the Commission to approve many State disbursements which entail the touristic industry: some examples are given by the recent Austrian and Latvian requests regarding the recapitalization of their national airlines, in order to face damages caused by travel restrictions. The necessity of the State intervention involves not only the safety and rescue of travel firms’ finances, but directly the protection of consumers’claims. “The rights of consumers to be compensated for cancelled bookings must be ensured, even in these difficult times for the travel industry due to the coronavirus outbreak” as the Executive Vice-President Margrethe Vestager, in charge of competition policy, said: this “scheme will protect consumers, while helping companies in the travel industry to cover their immediate liquidity needs and continue their activities”.