The Supreme Court has dealt a new blow to the Air Europa company in relation to the discount on airfare for residents of the Canary Islands, Balearic Islands, Ceuta and Melilla. If last December the high court confirmed that the airline had to return nearly 14 million euros for bonuses unduly collected between January 2009 and September 2010, in a recent ruling it has rejected the company’s claim that they be returned 6.45 million corresponding to the years 2013 and 2014.
The discussion has focused on the so-called exchange contracts. These are agreements reached between Air Europa and sports entities and clubs by which the airline exchanged plane tickets for advertising (on team shirts, in stadiums…) The Supreme Court had to decide whether those tickets paid in kind, of those that benefited third parties, passengers residing on the islands or autonomous cities, were eligible, if a discount could be applied to them, which, then, was 50% (now, 75%).
The contested resolution, from the General Directorate of Civil Aviation of the former Ministry of Public Works, dates from April 2017 and agreed to reimburse the State for 13.5 million euros corresponding to the undue collection of discounts between 2009 and 2012. However, What Air Europa wanted was for the Supreme Court to declare these tickets eligible and thus be able to recover the 6.45 million that it voluntarily returned for the bonuses to exchange contracts of 2013 and 2014.
The company argued that these tickets allowed residents of the Canary and Balearic Islands to fly to or from the peninsula and that these payments in kind (in exchange for advertising or sponsorship) “had an economic value and a certain price” that was reflected in the tickets. exchange contracts, so he understood that this formula was compatible with the purpose pursued with the discount on air fares.
The State attorney, on the other hand, maintained that neither the resident passengers paid “any price” for the ticket nor did a third party do so on their behalf and that, therefore, an “essential” requirement for the discount was missing: the payment “ cash” of those fees.
Payment to third parties and in kind
In November of last year, the Supreme Court admitted the appeal filed by Air Europa for processing, understanding that the controversy was of interest for the formation of jurisprudence. The exchange contracts, a common practice in the aviation sector, were not questioned, but rather whether the tickets issued as a result of these contracts are likely to be discounted by the State, whether the airline could apply the resident discount to those tickets and then claim the amount from the administration.
In a ruling dated June 21, the sixth section of the Contentious-Administrative Chamber of the Supreme Court has resolved the controversy, agreeing with the State and confirming the ruling challenged by the airline, which was issued in March 2020 by the Court Superior of Justice of Madrid. The main argument is that there is no relationship between these exchange contracts and the object of the subsidy, which is none other than “allowing residents (in the Canary Islands, Balearic Islands, Ceuta and Melilla) to fly at a price” that does not convert their residence “in an element of economic discrimination”.
The promotion or publicity with which these tickets were paid “only benefited” the airline and, therefore, the practice of discounting them with the resident discount was “outside the general interests pursued”. “There was no payment of the price neither by the beneficiary passengers, nor by the entities and clubs,” the sentence emphasizes. The consideration for the delivery of these tickets to the sports entities and clubs was “carrying the logo” of the airline on the sports kit or in the stadiums and, even so, Air Europa “passed the settlement (to the State) as if I would have collected them” with money.
“We are faced with a simulation that, far from favoring the objective of the bonuses, only favors the airline and the recipient entities and clubs, which do not pay any amount for the tickets,” the TSJM ruling collected. The Supreme Court emphasizes that there is no provision in Royal Decree 1316/2001, which regulates discounts on flights for residents of the islands and in autonomous cities, authorizing the subsidy for tickets exchanged for advertising. “There is no objection to payment by a third party on behalf of the resident, but not through the provision of advertising services and without conformity with the granting administration”, that is, with the Ministry of Public Works, the magistrates of the Spanish high court specify .
The ruling of the TSJM confirmed another irregularity. In these exchange contracts, Air Europa issued economy class tickets that were later paid to the State as if they had been higher class, with “the difference in price that this entails.” The company itself admitted in the process that “what would have corresponded” was that the tickets were issued and valued in class Y (the most expensive for its flexibility) instead of issuing them for the cheapest (P, Q) and then value them as the most expensive fare, which is what it did.
Air Europa requested that the principle of proportionality be applied and that, in the event that it was proven that these rates were overvalued, the reimbursement of amounts would be partial, not total. That is, that he was only forced to return the difference between the rate declared to the State administration and the real value of those tickets, which was estimated at 1.82 million euros. However, the Supreme Court notes that, following the criteria established in the judgment itself, the tickets issued through exchange contracts are not eligible for subsidies and that, therefore, partial reimbursement cannot be considered.
The Chamber notes that the practice of overbilling was a “widespread and generalized” behavior of Air Europa, which could make the ticket more expensive “by up to six times the price of the issue rate.”
Air Europa’s ultimate claim in this litigation was to recover 6.45 million euros. This is the amount that the company returned from bonuses applied to the exchange contracts of 2013 and 2014. A “change of criteria” that it adopted after the State requested the restitution of what was paid in previous years for that same practice. The Supreme Court’s response is clear: these subsidies could not be applied neither in the 2009-2012 period nor in the two successive years because they contravened the purpose of the resident discount.