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According to this summary of case law for EC261:
DETERMINING THE AMOUNT OF THE COMPENSATION
With regard to the right to compensation, Regulation (EC) No 261/2004 makes no distinction as to whether the passengers concerned reach their final destination by means of a direct flight or an air journey with connecting flights. In both cases the passengers must be treated equally when calculating the amount of compensation. Consequently, when determining the amount of compensation in case of a connecting flight, only the radial distance (βgreat circleβ distance) that a direct flight would cover between the departure airport and the arrival airport should be taken into consideration. C-559/16 Bossen: http://curia.europa.eu/juris/liste.jsf?num=C-559/16