Brussels, Belgium (AHN) – The European Union is set to rewrite Regulation 261, which has been heavily criticized by the aviation industry and blamed for their losses running to billions of dollars, European Commission Vice President Siim Kallas said Monday.

Airlines–which also have to deal with rising aviation fuel prices–are facing a $3.3 billion bill because of the eruption of the Eyjafjallajokull glacier in 2010. The bulk of the bill is passenger compensation and hotel accommodation mandated by Regulation 261. The natural catastrophe caused the cancelation of over 100,000 flights and displacement of millions of air travelers.

Aside from the volcanic eruption, the air carriers also had to compensate passengers who were stranded because of airline or ground crew strikes and the snow that froze many European and North American gateways for days toward the end of 2010.

The EU mandated passenger compensation because of the aviation industry’s practice of overbooking flights, which caused some passengers to be bumped off. While Kallas acknowledged that the regulation has provided protection to travelers from overbooking, he said the financial burden for flight cancelations caused by natural or man-made calamities could be shared more widely.

Last month, budget carrier Ryanair imposed a $3 (GBP 2) levy on passengers to cover the cost that the airline incurred in compensating passengers whose flights were canceled because of the natural calamities and strikes.

Ryanair Chief Executive Michael O’Leary said the $155 million (GBP 110 million) to be raised by the new passenger levy is expected to be sufficient to cover any compensation cost that Ryanair is expected to pay in the next 12 months for last year’s catastrophes that battered the aviation industry.

O’Leary said other air carriers would likely follow Ryanair’s example unless the EU amends Regulation 261. He stressed the air carrier is not punishing travelers by collecting the levy since the airline charges the lowest fares and is very punctual.

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