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Our responses to the 2016 ATOL Consultation

Question 1

What are your views on the proposal to align the scope of the ATOL scheme so that it is consistent with the new definition of ‘package’ in PTD 2015? This will mean that any UK-established business that offers or sells a ‘package’ (as defined by PTD 2015), which includes a flight, will need to meet their insolvency protection obligations by holding an ATOL and complying with the scheme. Please explain your reasoning.

It is essential that definitions are consistent across the PTD and the ATOL Regulations to maintain clarity, predictability and fairness. These definitions are consistent currently which means that any flight inclusive ‘package’ (under the current definition) requires an ATOL and any non-flight inclusive ‘package’ requires full financial protection. If definitions become inconsistent, then anomalies would result such that only old-style flight inclusive ‘packages’ would require an ATOL yet ‘packages’ under the new definition wouldn’t, yet would still need full financial protection from another source. This would cause confusion both to consumers and the industry alike.

Question 2

What would be the impacts on your business if Flight-Plus and agent for the consumer business models need to comply with the same terms as an ATOL flight-inclusive package?

Our business (as the provider of travel trust account services) would see an impact on clients of ours that currently sell Flight-Plus and/or act as agent for the consumer (largely OTAs) and those that acts as Accredited Bodies. Liabilities (both in terms of financial protection and civil responsibility to consumers) will generally increase, causing an impact on:-

  • insurance premiums (supplier failure and public liability);
  • costs in ensuring compliant health and safety standards/dealing with consumer personal injury claims;
  • financial protection (liability to pay APC (discounted and undiscounted); increased licensable turnover increasing the level of bond, insurance or sums to be put into trust; and increased liabilities to consumers in the event of a supplier’s failure);

Some of these costs are currently borne further up the supply chain: at the supplier level. But it wouldn’t simply be a case of redistributing the same costs further down the chain (with a resultant reduction in supplier prices) because inevitably there will be a duplication in protection of all kinds. Supplier businesses don’t have the ability to look down the supply chain for every booking made to see which of their trade customers have contractual liability with the ultimate consumer giving rise to an obligation to protect arrangements. This will result in an ‘erring on the side of caution’ such that suppliers will tend to protect arrangements as well as consumer-facing companies, leading to an overall increased level of overheads across the industry which will inevitably be passed onto the consumer.

Question 3

Do you currently offer or facilitate travel arrangements that are likely to fall into the Linked Travel Arrangements category? If so, what percentage of your bookings would likely fall into the Linked Travel Arrangements category?

Not applicable. We do not offer or facilitate any travel arrangements.

Question 4

Do you think businesses should be required to licence their LTA flight bookings and source their protection from the ATOL scheme (option a), or should protection be implemented through a market solution (option b), or through another mechanism entirely? Please explain the reasons for your preference.

Option a. In the eyes of the consumer, the ATOL scheme has become synonymous with the protection of flights. Any small, obscure area of flight sales that are carved out of the ATOL Regulations (particularly after the CAA have worked so hard to make ground with the ‘Pack Peace of Mind’ advertising campaign) would confuse the public. They are unlikely to know the difference between an LTA and a package: they will just expect to be covered by an ATOL simply because they have booked a flight.

A halfway house isn’t sensible as it causes confusion both to consumers and the trade alike: either the ATOL scheme should be completely replaced by a market solution or it should continue to cover all flights (including flight only and perhaps even those sold by airlines). As the former would represent too much of a change, then the scheme should initially be extended to fit with the new PTD categories with a view to broadening the flight cover over the medium term.

Question 5

If LTA bookings are included in the ATOL scheme, do you think the less comprehensive protection they offer means that they should attract a different APC contribution rate, and should they be branded differently to ATOL? Please explain the reasons for your preference.

The APC contribution rate should represent the risk to the ATT of the consumer purchasing the arrangements in question being unable to have its contracted travel arrangements supplied in the event of the financial failure of the party offering the arrangements for sale. Anything that impacts on that risk should result in a difference in APC rate eg:-

  • Contractual liability of suppliers acting as principal in the consumer contract to supply the contracted arrangements despite the sellers financial failure (as would be the case with an LTA), particularly where suppliers have been paid;
  • Funds received from consumers to pay for the entire LTA or package are placed in a trust account either until after travel or payment is made to a supplier of a travel component where that supplier is covered by failure insurance;
  • Sales of flights alone where there are mitigating factors which result in reduced risk on the ATTF.
  • Collection of low deposits and/or late balances.

It is possible that consumers buying an LTA with ‘ATOL Protection’ would assume that they were receiving ‘full’ protection but ATOL certificates could be made clear so as to set out exactly the circumstances and funds that are protected.

Question 6

What do you think of the proposal to change the scope of ATOL from “place of sale” to “place of establishment” as outlined above? Please, include any views on whether it will encourage your business or others to establish in or out of the UK.

There are positive aspects of this change:-

Mutual recognition of financial protection promotes cross border trade and this should be promoted and facilitated not just for the sake of the UK economy but to promote the ‘ATOL brand’. Our experience is that businesses established in Europe that currently aren’t obliged to comply with the ATOL Regulations when selling to the UK public still choose to become licensed simply because consumer awareness of the ATOL brand is so high and the ATOL logo represents a selling tool for them. We expect this to continue even after extension of the scope of ATOL in line with the PTD: More non-UK business are likely to become ATOL holders if they are competing in their own countries with UK established businesses that hold an ATOL. This is a good thing as the ATOL scheme should be promoted across Europe as a pillar and yardstick amongst Europe’s various schemes of financial protection. More licence holders would bring increased APC revenue into the ATTF and would spread risk across more travel businesses in more countries.

 But also negatives ones if companies established outside the UK but within the EU are able to make sales of flight inclusive packages without an ATOL:

The UK ATOL scheme is a more robust scheme of financial protection than other European countries enjoy. UK Consumers will not be aware that a sale made in the UK is not necessarily covered by UK ATOL financial protection requirements and there will be no effective Regulations to oblige non-UK EU established sellers to advise them otherwise. Non-EEA established companies will have to hold an ATOL to sell to UK consumers but EU established ones may not – which is s slight anomoly.

Question 7

What do you think of the proposal that an updated ATOL certificate should continue as a recognised way for ATOL holders to meet some of the after sale obligations? Please explain your reasoning.

ATOL Certificates haven’t caused the trade undue hardship since their introduction, and consumers’ awareness and understanding of them is slowly growing (although confusion still arises). It would be a shame to halt this progression and confuse the position by changing the requirement.

Question 8

What are your views on the proposal to exempt business to business sales from the ATOL scheme? Could you also please indicate whether your business currently sells business travel through a general agreement, and if yes whether your business also sells other transport services to consumers that will be in scope of PTD 2015?

We do not sell business travel. See answer to question 1 – As business to business selling under a general agreement is to be exempt under the PTD, the exemption under the ATOL Regulations should be exactly consistent.

Question 9

If you are a business affected by these proposals, what do you anticipate the familiarisation costs (as outlined above) will be for the proposed regulations? Do you anticipate any difficulties with implementing any of the proposed changes? Please explain your reasoning.

We will only be affected indirectly so our data isn’t really relevant.

Question 10

What are your views or preferences on the options for improving financial sustainability of the fund or fairness in the scheme as outline above? Please explain your reasoning, and also whether you anticipate any issues or impacts with these options. Are there any other options that could achieve similar policy outcomes, but with lower impacts?

Improving financial sustainability:

We agree that there should be greater involvement of the market:-

 

The infrastructure exists for the use of trust accounts as a form of security for licence holders but the infrastructure is largely under-utilised. Making trust accounts mandatory for Accredited Bodies’ licensable turnover in 2013 did not result in undue hardship for the companies concerned and the resultant benefits to the ATTs risk have been significant. Use of trust accounts should be considered more readily, particularly where companies are willing to utilising trust account financial protection as an alternative to meeting the CAA’s financial criteria or minimum bond requirements where those criteria/requirements can’t be met for some extenuating reason or where the effect of those criteria/requirements are capricious.

 

Trust accounts also:

  • Avoid the risks associated with insurance policies that can contain loopholes;
  • Reduce the risk of over-trading on a bond or other guarantee.

 

The market is beginning to respond to increased demand by innovating new and different insurance products which are increasingly being used as security in isolation but also to supplement and complement trust account structures to make them more compliant and alleviate risks. This innovation should be encouraged and incentivised by way of reduced APC for trust account holders; better liaison and communication between trustees and the wider CAA; and an improvement in the CAA’s and ATOL holders’ awareness of trust account/insurance schemes. Market innovation should be easy to build in this area as the foundations are already there.

 

The extension of ATOL scheme across Europe should be seen as an opportunity to create more revenue for the ATTF simply by offering the same services to a wider audience.

 

Fairness in the scheme:

We are exploring a number of alternative levy options and we would seek your views on the fairness and feasibility of the following approaches:

  1. Flat rate levy with incentives to de-risk – in this option a flat rate levy would be maintained, however a formal process could be agreed so that companies that do not put consumer money at risk (ie. by utilising trust accounts) could be entitled to an APC discount
  2. Risk based levy – a fixed APC is abandoned in favour of a levy based upon an assessment of the risk and exposure of individual members.
  3. Turnover based levy – fixed APC abandoned in favour of a levy based on a percentage of a travel company’s annual turnover.
  4. Holiday cost based levy – fixed APC abandoned in favour of a levy based on a percentage of the costs of the package holiday.

Option a is a good balance between ease of administration for the CAA and those applying vs a fairer reflection of risk on the ATTF.

Option b would be too subjective an approach and so more liable to criticism, manipulation and allegations of inequity. It would also be time-consuming to administer.

Options c and d – turnover and holiday cost bear less resemblance to risk on the ATTF when one considers other factors such as the contractual basis for the supply of arrangements and funds in trust. They shouldn’t be used as sole gauge for determining the level of a levy but should just be factors that are taken into consideration.

Travel companies should be educated in the risks that their businesses pose in terms of consumer financial protection, and should be incentivised and encourages by way of reduced APCs to implement risk-reducing ways of trading

Question 11

What are your views on the options for encouraging market involvement and commercialisation? Please explain your reasoning, and also whether you anticipate any issues or impacts with these options. Are there any other options?

  1. separating the repatriation and refund obligations, so that refunds are handled in the market and repatriation (whether actually arranging it or simply meeting the cost of repatriation when this more appropriate) continue to be managed by CAA through an ATOL type scheme:

As a small company offering travel trust account services both to ATOL and non-ATOL holding travel companies, we are reluctant to embrace repatriation obligations. This is obviously a reluctance shared by the wider trustee market as there are very few providers of travel trust account services in the market despite trust accounts having been an option for financial protection since the 1992 PTRs were adopted.

Under the current PTD there are no specific repatriation or refund obligations on trustees (although there is a strong implication that trustees would have to take on those roles, them being the physical holder of funds – trustees are simply there to hold the funds). Under current standard ATOL trust deeds, trustees are required only to facilitate the transfer of funds to the ATT in the event of a trust ATOL Holder’s failure. Any changes that impose more onerous repatriation obligations on trustees than is the case currently are liable to drive trustees away from the market rather than to it.

Having said that, the reality of any insolvency situation is that any administering party (be it in the market or via a trade or regulatory body) will usually be approached by an existing travel company with the capacity to take over the bookings left unfulfilled by a failed ATOL holder. So it is the travel industry itself that administers repatriations in the event of a failure – simply via market forces. That being the case, there is little need to allocate this task in advance either to the market or the Regulator.

  1. placing restrictions on when companies can take final balances, as occurs in other markets (e.g. before four weeks in advance of holiday taking place)?

If final balance collection were delayed, fees associated with insurance policies, bonds and trust accounts should reduce as risk on the market would be reduced. BUT these restrictions would be very difficult to police – companies need cash flow to pay suppliers so would take increasingly larger deposits to avoid the final balance rules (a counter-productive effect). Furthermore, restricting cash flow in this way could push some companies into a precarious position financially.

Using reduced APC to incentivise later collection of deposits and balances may be an option.

Question 12

What are your views on the financial impacts or benefits of streamlining the regulatory framework? Please explain your reasoning, including any particular views on a single set of regulations, a single regulator or moving to a single scheme covering both air packages and non-air packages.

A single Regulator, scheme of Regulation and set of Regulations would provide a clearer, more efficient and consistent framework for the industry and consumers alike. Untangling the current regimes will be a difficult task but if done incrementally should be achievable over the medium term.

Question 13

Do you have any views on whether the ATOL scheme should:

  1. Continue to include certain Flight Only sales; It should continue to include them – see answer to question 4 – but with heavily reduced levy if airline has issued a ticket following payment or there are other risk mitigating factors.
  2. remove Flight Only sales, without any mitigations;
  3. remove Flight Only, but only following the introduction of new mitigations; making it a legal requirement for these travel companies to issue a valid airline ticket immediately once payment is taken should be an indicator for reduced APC as opposed to a mitigation on removal of the ATOL. If there is to be a mitigation to control entry by way of a licence, then that may as well be an ATOL but without payment of APC as that amounts to the same as the mitigation suggested. It should be a legal requirement to announce any non-protection of travel arrangements across the industry (whether arrangements are subject to the PTD of otherwise) because that would be a consistent and clear approach for the industry and consumers alike.
  4. or be extended, potentially to offer repatriation protection on all seats (this might be optional)? If it were an optional protection then yes, otherwise, this may be going a bit too far.

We remain open to welcome views on the impacts of overlapping protection in the context of the ATOL scheme, and how it can be minimised.

In our experience Section 75 of the Consumer Credit Act 1974 creates a huge overlap in protection arrangements which serves no purpose other than to confuse both the market and consumers. The overlap leads to over-zealous commercial and security terms between merchant services suppliers and travel companies which can often result in soured relationships. In the event of insolvency, merchant suppliers and banks act aggressively and sometimes ulta vires in an attempt to gain priority over funds in bank and merchant accounts. None of this creates a commercial environment that travel companies are relaxed to work in. The benefit to the consumer of S75 doesn’t seem to warrant the negative effects described because a large proportion of the public are unaware of their rights and in any event should be adequately protected by the PTD and ATOL Regulations.

Question 14

We welcome responses from businesses on any of the above areas regarding the impact of the ATOL 2012 reform to inform our Post Implementation Review. Please explain your reasoning.

The introduction of the APC has been an effective means of reducing the deficit in the ATTF but a change in its use is now required. It should be used as a tool to incentivise travel companies to act to reduce risk on the ATT and to the consumer. In doing so, the use of ATOL can be extended both to different types of sales of travel arrangements (flight only and LTAs) and into different markets currently established inside the EU but outside the UK. This in turn would maintain the viability of ATOL as a financially sustainable model. This should be done via education and communication with the industry – both UK and EU-wide.

 

The implementation of Flight Plus has been as useful ‘stepping stone’ to enable the industry migrate more gradually into a more widely applicable financial protection regime but it should now be absorbed into the new definitions under the PTD. ATOL protection should apply to all packages and LTAs which include a flight, tempered according to risk using the APC. This should maintain consistency and predictability for the public, whilst maintaining financial viability of the ATTF via APC contributions.  

The introduction of standard agency terms and ATOL standard terms has encouraged better written commercial terms between principal ATOL holders and their agents as well as more effective contractual terms with consumers. Consequently, pipeline monies are better protected and consumers are better educated and informed about ATOL protection. These provisions should be maintained.

The introduction of ATOL certificates has promoted the ‘ATOL brand’ and has given the consumer better and clearer information about ATOL protection and how it applies. Certificated should be retained and developed in combination with the information obligations in the 2015 PTD.