"delays of longer than three hours are considered cancellations..."
Not quite, passengers who experience delays in excess of 3 hours are entitled to the same compensation as those whose flights are cancelled, but the distinction remains between delayed and cancelled flights as there are other entitlements in play under the Reg which are only appropriate dependent on whether it is a delay or cancellation.
"That will only mean fare increases".
I don't see why that should necessarily be the case, the Reg has now been in place for nearly 8 years and delay compensation was originally ruled applicable 3 years ago so there should not be an increase just because a previous ruling was upheld.
Full text of judgment can be found here: eur-lex.europa.eu/LexUriServ/LexUriServ.do…
Edited: 5:00 am, October 23, 2012