It repealed Regulation (EEC) No 295/91, and went into effect on 18 February 2005. It sets out the entitlements of air passengers when a flight that they intend to travel on is delayed or cancelled, or when they are denied boarding to such a flight due to overbooking, or when the airline is unable to accommodate them in the class they had booked.

Regulation 261 should aim at ensuring a high level protection for passengers. Because denied boarding and cancellation or long delay of flights cause serious trouble and inconvenience to passengers, the Community should therefore raise the standards of protection to strengthen the rights of passengers. Regulation applies (inter alia) to all passengers departing from the EU provided they have a confirmed reservation and present themselves for check-in at the time indicated in advance. This Regulation also applies to tickets issued under FFP.

According to Article 5 of this Regulation, cancellation (at short notice): in the case of cancellation of a flight the passengers concerned shall have the right to compensation by the operating air carrier in accordance with Article 7 unless:

1. They are informed of the cancellation less than seven days before the scheduled time of departure and are offered re-routing, allowing them to depart no more than one hour before the scheduled time of departure and to reach their final destination less than two hours after the scheduled time of arrival.

2. “extraordinary circumstances” - Carrier is not obliged to pay compensation if it can prove that the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken

Recital 14 of Regulation 261 clarifies that such circumstances may, in particular, occur in cases of political instability, meteorological conditions incompatible with the operation of the flight concerned, security risks, unexpected flight safety shortcomings and strikes that affect the operation of an operating carrier.

There are 3 levels of compensation, they are: 250, 400 and 600 € corresponding to 3 levels of flight of below 1,500 km, from 1,500 to below 3,500 km and from 3,500 km, respectively.
In accordance with Article 6 of the Regulation, where an operating air carrier reasonably expects a flight to be delayed beyond its scheduled time of departure passengers shall be offered: meals, refreshments, hotel accommodation and transport between hotel and airport, two free telephone calls, telex or fax messages, or emails; and if the delay is at least 5 hours, reimbursement and, when relevant, a return flight to the first point of departure.

Regulation 261 requires carriers to pay compensation for delays. Compensation obligation arises if passengers reach their final destination three hours or more after original scheduled arrival time.

Source: Willis.