Originally Posted by
ExXB
The compensation levels were intended to be punitive and dissuasive. The Commission wanted to stop oversales and economic-reason cancellations so they set the compensation amounts at high fixed amounts with no relation to the fare paid
This in part, but also to provide a substantial incentive to airlines to provide a proper and quick service recovery for passengers. What was happening was an initial delay (say fog at a remote location) was being used to justify substantial knock-on issues which were far more about scheduling 20 minute turnrounds all day, staff not being retained on overtime to handle a delayed arrival, etc.
The real clincher was a well-known LCC who had an infrequent service from some European city into a Greek island, the inbound was cancelled, and the return passengers, almost all of whom were returning home from holiday and had checked out of their hotels, were offered either their (return sector only) money back, or being booked on the next flights with seats on that carrier, which were a couple of weeks away. Apart from that, they were left on their own.
The real mistake with the regulations was the "exceptional circumstances" section. That should be done away with. Airlines have a good idea of the numbers of such Exceptional Circumstances over time, and should budget to handle these. Then there would be much more pressure applied by, say, the Heathrow carriers to the airport leaving runways uncleared of snow for days.