|By Jnpet [GFDL or CC-BY-SA-3.0], from Wikimedia Commons|
There are two reasons to require airlines to provide food and lodging -- risk aversion and economies of scale. Humans do not like risk. They hate to change their plans in an unexpected and expensive way like when the flight is cancelled because of bad weather or industrial dispute. Obviously, the airlines hate to pay these costs as well. They simply collect the money from the passengers themselves in form of more expensive airfares. Essentially, the airlines act as insurance providers, charging passengers a little more for their flights, and providing food and shelter when needed. As airlines operate many flights, delays and cancellations occur quite often, and it is relatively easy for them to collect and maintain related funds.
Large firms can handle occasional disruptions lot easier than individual passengers. Hence it makes sense to shift more of the risk to the firms. Second, as airlines have a base or partner in the airport, it is easier for them to provide the hotel. Imagine yourself stranded in an airport far away with little money, extremely expensive cellphone prices and no idea about the hotels. How would you get to an affordable one? Airlines could easily (eventually through airports) make an agreement with a number of hotels and taxi companies. Even more, they have access to phones, internet and office facilities, which tremendously simplifies booking. It costs a lot less for them to do the actual bookings in case of cancellations.
The arguments above work best if all passengers are similar. But they differ. First, people have inherently different tendency to take risks. Second, your risk aversion depends on the circumstances. Your outbound flight was delayed? Bad, but not a big deal. Just go home and sleep till morning. You are probably not that interested in a hotel just a few blocks away from your home. However, if this happens to be your flight home, the situation is different. Third, people value lodging differently. A backpacker may find it completely acceptable to spend a few nights in the airport (in exchange for cheaper airfare), while others are willing to pay a lot for a good hotel.
The current directive 261 requires the airlines to offer a one-size-fits-all compulsory insurance. But sometimes you may rather want to get cheaper tickets and take the risk, another time you may want to pay even more to get better provision. The current directive does not allow for this kind of flexibility. Fortunately, there is an easy solution -- make the insurance voluntary, an explicit choice with corresponding price tag, while buying the tickets.
Does this mean that current directive 261 should be replaced by a voluntary insurance? Maybe. It depends on how different the passengers typically are, and whether they actually understand the risks and make the right choices. But it might be a good idea to experiment with this option.
This story is inspired by discussions with Idir Laurent Khiar. Here I use the opportunity to acknowledge his role.