Despite the Icelandair efforts to deliver baggage in one piece and at the same time with the owners, on some flights there still are delayed and missing luggage reports. Both low-cost companies and liners are liable to pay compensations according to the Montreal Convention to passengers who happened to experience inconvenience of a lost luggage. The Montreal Convention is ratified by 132 countries and covers cases of lost, damaged or delayed luggage, including the expense of basic toiletries purchased for the affected passenger.
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Icelandair the same as other airlines is responsible for luggage on hold whether it is a minor damage or it is completely lost. In any case you need to fill out a PIR (property irregularity report) at the airport before leaving. This is the starting point for any further action in regards to compensation. If you had two different operators for two connecting flights on one ticket, the last operator is the one responsible for your troubles with luggage. Also in such cases it is very important to make sure before the flight that the two airlines have a baggage transfer agreement and you do not have to collect your luggage and check-in again at the connecting airport.
One thing you should know, the compensation amount is in no way related to the price you paid for the ticket. If you paid 20euro for your ticket, or if you paid 200, you are entitled in either case to compensation according to Montreal convention. Icelandair will try to reduce the compensation amount since there is no minimum, just a maximum of 1400EUR for lost luggage set by Montreal Convention. This should not discourage you to claim the right amount given all the needed documents are available and the claim of maximum amount is justified.
Your luggage is declared lost only if it was not found during 21 days from your flight. In this period you can use your tracing number and check in the tracing system if there is any update on the status of your luggage. Sometimes airlines are not very helpful in supporting passengers with luggage related issues and it can turn into a real struggle to get hold of airline representatives. This is why we suggest taking a picture of your luggage, to make sure you have as many receipts as possible of the items inside your baggage and to know what are your rights.