Regulation (EC) 261/2004 of the European Parliament and Council, which entered into force on 2005, lays down common rules regarding compensation and assistance for passengers in case of:

flight cancellation;
(significant) flight delay; and
denial of boarding in case of overbooking;
when a passenger is transferred to a lower class than that for which the ticket was purchased.

Regulation (EC) 261/2004 applies to flights departing:

from an airport located within the European Union (EU) for all airlines
from an airport located outside the EU, only for airlines under European jurisdiction

You have the legal right to either:

a full reimbursement - including other flights from the airline that you won’t use in the same booking
a return flight to the first point of departure
a replacement flight to get you to your final destination (in this case it is considered as a delay not a cancellation)

You also have a legal right to:

assistance if the cancellation delays you 2 or more hours
compensation - if you’d be delayed 3 or more hours by the replacement flight offered

The airline legally has to help you with things you need while you’re waiting at the airport for your replacement flight. This includes:

food and drink
access to phone calls and emails
hotel accommodation if you’re delayed overnight, as well as journeys between the airport and the hotel

If they don’t give you help at the airport, keep receipts for your expenses in order to claim later. Airlines only pay for ‘reasonable’ expenses - you won’t get money back for alcohol, expensive meals or luxury hotels.

Passengers can receive compensation amounting to:

EUR 250 for all flights of 1 500 kilometers or less;
EUR 400 for all between two EU State flights of more than 1,500 kilometers, and for all other flights between 1,500 and 3,500 kilometers;
EUR 600 for all flights not falling under (a) or (b).
If the flight was canceled more than 14 days before the schedule departure date then it’s not possible to claim cancellation compensation.

You’re legally entitled to get compensation if the delay is the airline’s responsibility and either:

the replacement flight delays your arrival by 2 or more hours
your flight was canceled at least 7 days before departure
a replacement flight to get you to your final destination (in this case it is considered as a delay not a cancellation)

The amount of compensation you’re entitled to depends on:

when the flight was canceled
the distance of the flight
the departure and arrival times of the rescheduled flight

If the flight was canceled less than 7 days before the original departure date, then in addition to re-routing or a refund you would be entitled to compensation.

For flight cancellations less than 7 days before the expected departure date you can claim flight cancellation compensation. The amounts are slightly higher to reflect the greater inconvenience you suffer with such short notice compared with 7-14 days.

If the flight was canceled between 7 and 14 days before the original departure date, then in addition to re-routing or a refund you would be entitled to compensation.

the cancellation is caused by extraordinary circumstances which could not have been avoided even if all reasonable measures had been taken such as bad weather, or
you were informed 14 days before the scheduled flight date, or
you were offered an alternative for the same route with a similar schedule to the original one.

Please also keep in mind that if the original flight was delayed and you are put on an alternative flight with a different airline that arrives more than 3 hours late then you can claim against your original airline, rather than the replacement one.

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