A legal bid by international airline association IATA to block new EU passenger rights was thrown out by European Court judges yesterday.

The new rules offer greater compensation for cancellations, delays and overbooking by airlines.

But low-cost fliers claimed the deal was unfair and too expensive - because in some cases the level of compensation was more than the bargain-rate price of travel.

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But the European Court of Justice said yesterday the arrangements were in line with EU rules and could carry on as planned.

The new rules were hailed when launched last year as a new era for air travellers fed up with being bumped off flights through overbooking or suffering long delays with little compensation.

Under the EU deal, which applies to scheduled and chartered flights, including package holiday flights, passengers who are denied boarding receive compensation of £167 for short-haul flights, rising to £401 for long-haul flights.

A full money-back scheme, plus free hotel accommodation, applies to extensive delays.

IATA, which represents 95 per cent of the world's larger airlines, said its member companies already offered compensation when denied boarding, sometimes with better terms than under the EU rules.

But it went to the High Court in London arguing that the EU arrangements extended liability beyond areas within airlines' control, such as cancellations because of poor weather.

IATA claimed the EU rules breached the "Montreal Convention" stating that airlines could not be held responsible for poor weather.

The Association also claimed that because the legislation only applied to airlines and not other forms of transport, it was discrimination in breach of EU law.

Yesterday the Luxembourg judges, who were sent the case by the High Court, said the compensation arrangements did not breach the Montreal Convention, nor did they amount to discrimination.

IATA had warned that if the compensation scheme was not stopped, it could force some airlines to pull out of some routes. Runways on some remote Scottish islands, for example, can remain closed for a week at a time because of poor weather.

Before the verdict, IATA director general Giovanni Bisignani said: "Airlines accept the need to compensate passengers for denied boarding, but we cannot accept to pay compensation for areas beyond our control. With this regulation, the EU regulators have endangered the consumer interest they seek to protect."

The European Low fares Airline Association (ELFAA) had challenged the passenger compensation legislation on the basis that it was "discriminatory and limits consumer choice".

The association said: "We strongly feel the legislation does nothing to ameliorate delays and cancellations in air transport, with the vast majority of incidents being beyond the control of airlines."

Low-fare airline easyJet said: "We are disappointed but not surprised by this ruling.

"We are calling for an immediate review of this compensation law. We think it is one of the worst pieces of legislation ever produced by Brussels because it makes airlines responsible for paying compensation for events wholly out of their control."

Midland Conservative MEP Philip Bradbourn - Tory transport spokesman in the European Parliament - said yesterday's verdict removed any doubt about airline liability.

"This is good news for air passengers," he said. "Finally there is no doubt as to the liability of airlines for unwarranted delays and the legislation approved last year provides for exemptions in circumstances which are beyond the airlines' control, such as bad weather."