With due respect, CWS, this was not at all the reasoning followed by the CJEU. The CJEU was asked whether delays should be assimilated to cancellations and they clearly said no: a delay is a delay and a cancellation is a cancellation. The CJEU was not concerned by issues of "abuse" but rather with issues of equal treatment between passengers whose flight is delayed versus those whose flight is cancelled.

What the Court said is that the inconvenience suffered by the passenger would be the same whether the flight was delayed or cancelled and that it would therefore be a breach of the principle of equal treatment to treat them differently.

The next question was whether compensation could be read into the Regulation for delays (it is an established principle of interpretation that, as far as possible, you should avoid interpretations of legislation that lead to illegal consequences/invalidity of the act being interpreted). To the extent that the Regulation did not explicitly rule it out and that this was consistent with the aims of the Regulation as expressed in its preamble, the Court came to the conclusion that the Regulation should be interpreted as including a right to compensation for delayed passengers too. The way the Court interpreted the Reg might look surprising to those who are not familiar with the way EU law is interpreted by the CJEU but is not that exceptional to EU Law practitioners.

Now that the principle of compensation is established, the next question is: why 3 hours? Well, the Court looked at the provisions on cancellation and noted that, for last minute cancellation (viz. Art 5(1)(c)(iii) of the Reg), compensation is due if the passenger is rerouted with a departure of no more than one hour earlier than originally scheduled and arrival no more than 2 hours than originally scheduled. Thus, as the Court reads it, the Regulation is premised on the notion that compensation is not due if the travel time is extended by no more than 3 hours (1+2 hours). Since, in the case of delay, there is no issue of leaving earlier than the scheduled time, the Court considered that translating the principle in Art 5(1)(c)(iii) to delays implies a delay of 3 hours.

Now, it is true that there are going to be situations where you are slightly better off with cancellations given the way Art 5(1)(c)(iii) is structure and the fact that compensation will be due if you either leave more than an hour earlier or arrive more than two hours later so that, in practice, the increase in travel time could be lower than 3 hrs and even theoretically down to just over one hour.* Still, the delay of 3 hours is a reasonable transposition to delays of the solution reached in Art 5(1)(c)(iii) for cancellations.

*: It could even be shorter than originally scheduled if the rerouting is shorter.