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New startups gets your money back on delayed or cancelled flights

Delayed and canceled flights are a nuisance that more and more passengers have to deal with. Although those affected have a right to a compensation payment, but that does not end up in the account. Numerous startups help to collect the money. One of them is EUflight from Hamburg.

On 17 February 2005, the EU passenger rights regulation came into force. In brief, this means that passengers on EU-wide or EU-origin flights have the right to compensation in the event of denied boarding, in particular overbooking, flight cancellations and delays of several hours.

There are exceptions, but we will not go into that here. The amount of the sum to be paid by the airline depends on the flight distance. It is 250 euros up to 1,500 km, 400 euros between 1,500 and 3,500 km and 600 euros for even longer distances. Incidentally, regardless of whether you have booked a budget airline or First Class with all the comforts.

Passengers provide compensation

In principle a fairly clear matter, but as so often in legal issues, the devil is in the details. Hardly any airline will make the payment of its own accord, the victims must already be active themselves and take legal action. For the individual this is tedious and time consuming, which is why a whole range of startups has specialized in the business model, to take the work of the injured and to collect a commission for it.

Passengers are called such companies. There are more than 30 of them in Germany alone. Lars Watermann, Managing Director of EUflight.de GmbH. He is actually an M & A expert, that is, deals with business transactions.

In 2015 he came up with the idea of founding EUflight following a conversation with a lawyer who has served passengers in numerous cases. Most of the competitors use the debt collection method, which means that customers only receive their compensation payment if the company they hired has been successful. That can take longer.

At EUflight sufferers get money immediately

EUflight, on the other hand, uses the factoring procedure. After examining a complaint case, the startup buys the claim from the victim and pays it out immediately. So EUflight carries the risk of whether an airline is willing and able to compensate. On the other hand, the commission rate is 35% higher than with collection agencies. Since its launch in 2016, more than 40,000 customers have gone this route.

The business model is associated with a number of pitfalls. First of all, it must be checked whether an applicant has any claim. EUflight relies not on algorithms and artificial intelligence, but on human resources.

They were also able to detect cases of fraud before money had flowed. Another risk factor is the airlines themselves, which react very differently. Most lack the internal structures to adequately manage the problem. Some are quick to pay, others are basically cross and let it come to a procedure, even if they almost always have to pay in the end.

Bankruptcies are the biggest risk for passenger airlines

And then there are the bankruptcies that regularly cause turbulence in the industry. A particularly spectacular event in 2017 was Air Berlin, followed by Niki, Small Planet and a number of other low-cost providers. Germania recently caught the British Flybmi, probably a Brexit collateral damage, only on the weekend. If EUflight has taken on claims against such an airline before the bankruptcy, the money is almost certainly gone.

For all risks: The potential for compensation payments is enormous. Watermann estimates it to be five billion euros per year across Europe. That is why there is constant movement in the market of passenger helper. A pioneer at its founding in 2010 Flightright from Potsdam. At the beginning of 2019, Intermedia Vermögensverwaltung GmbH took over the company.

About half a year before this exit Flightright had bought the competitor Flugrechte.de. Its founder, Dana Oppermann, joined EUflight’s management shortly thereafter, where she mainly looks after marketing and IT. Another Hamburg-based provider is We Buy Your Flight, which was launched by Kreditech founder Sebastian Diemer, who is now mainly involved with the cannabis startup Farmako.

Bankruptcies are the biggest risk for passenger airlines

Marketing is a crucial success factor in this environment. EUflight invests an average of just over € 1,000 a day in Google Ads to stay on top of the search results. Grow the startup in a reasonable framework. At the moment, the team consists of 17 people who are essentially involved in the case review.

There is no real IT department and no own lawyers. The legal proceedings are handled by external lawyers. Theoretically, the business model could collapse any time a law changes or airlines collectively choose to pay without cir- cumstances. Both will not happen so quickly, so that the market for passenger helper remains likely to remain turbulent, but also attractive.

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