State aid: Commission approves €840 million German guarantee scheme to protect consumers and support the travel industry in the context of the coronavirus outbreak

The European Commission has approved, under EU State aid rules, a German State guarantee scheme worth €840 million to cover vouchers issued by travel operators for cancelled travel packages booked prior to 8 March 2020.

This scheme is in line with the objectives pursued by the Commission Recommendation (EU) 2020/648 adopted on 13 May 2020 to make vouchers an attractive and reliable alternative to cash reimbursements. 

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “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. The use of vouchers should be encouraged and travelers should be able to accept them without fear of losing their money. This €840 million German guarantee scheme will protect consumers, while helping companies in the travel industry to cover their immediate liquidity needs and continue their activities.” 

The German support measures

Germany notified the Commission of its plan to grant State guarantees to tour operators under Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU).

In Germany, as of end-April, travel packages amounting to €6 billion in total were booked before 8 March and still outstanding.. Some of these bookings were already cancelled because of the emergency measures necessary to limit the spread of the coronavirus, and more may have to be cancelled in the future. For a large portion of the cancelled bookings, customers have been refunded by tour operators or have been offered replacement bookings. Still, it is estimated that travel operators will issue €1.5 billion worth of secured vouchers to compensate customers for the remaining cancelled travel packages.

All customers of travel organisers who have a right to a refund under the EU Package Travel Directive can benefit from these secured vouchers regardless of their service provider as long as German law is applicable. 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 vouchers will remain valid until 31 December 2021. If not used before this date, the full amount paid will be reimbursed to the customer.

By guaranteeing repayment of these vouchers in the event of insolvency of the tour operator concerned, today’s scheme aims (i) to protect consumers, (ii) to ensure effective settlement of related refunds or reimbursements to travellers, and (iii) to ease liquidity pressure on the travel industry by encouraging the uptake of vouchers instead of direct repayment. In return, tour operators will pay a premium to the German State (0.15% of the value of the voucher covered for small and medium-sized enterprises, 0.25% for large companies).

The Commission found that the measure is in line with Article 107(3)(b) TFEU, which enables the Commission to approve State aid measures to remedy a serious disturbance to the economy of a Member State. In particular: (i) the guarantees cover 100% of the value of the vouchers; (ii) the guarantees are granted by 31 December 2020 at the latest; (iii) the measure requires a minimum remuneration for the guarantees; and (iv) the scheme is open to all tour operators, so long as German law is applicable.

The Commission found that the scheme is necessary, appropriate and proportionate to remedy a serious disturbance in the German economy.

On this basis, the Commission approved the measure under EU State aid rules.

Background

On 13 May 2020 the Commission adopted a package on tourism and transport, including 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. One of the objectives of this Recommendation was to make vouchers an attractive to passengers or travellers, possibly also through the adoption of schemes to support operators in the travel and transport sectors, in line with Union State aid rules.   

In case of particularly severe economic situations, such as the one currently faced by all Member States and the UK due the coronavirus outbreak, EU State aid rules allow Member States to grant support to remedy a serious disturbance to their economy. This is foreseen by Article 107(3)(b) TFEU.

On 19 March 2020, the Commission adopted a State aid Temporary Framework based on Article 107(3)(b) TFEU to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework provides for the following types of aid, which can be granted by Member States: (i) Direct grants, equity injections, selective tax advantages and advance payments; (ii) State guarantees for loans taken by companies; (iii) Subsidised public loans to companies, including subordinated loans; (iv) Safeguards for banks that channel State aid to the real economy; (v) Public short-term export credit insurance;(vi) Support for coronavirus related research and development (R&D); (vii) Support for the construction and upscaling of testing facilities; (viii) Support for the production of products relevant to tackle the coronavirus outbreak; (ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions; (x) Targeted support in the form of wage subsidies for employees; (xi) Targeted support in the form of equity and/or hybrid capital instruments.

The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. With a view to 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. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.

The non-confidential version of the decision will be published in the State aid register on the competition website under the case numbers SA.57741 once possible confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

More information on the temporary framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.