Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 2 NOVEMBER 2005
MS KAREN
BUCK MP, MS
SANDRA WEBBER,
SIR ROY
MCNULTY
AND MR
RICHARD JACKSON
Q20 Chairman: Mr Jackson, do you
have a view on this creative accounting?
Mr Jackson: I was just making
the point that the parent company had a UK Stock Exchange listing.
Q21 Chairman: Yet, nevertheless,
this unit went bust?
Mr Jackson: No, nevertheless it
might not have been audited by Irish accountants.
Q22 Mr Wilshire: On this specific
point, whilst you have no formal remit to look into a foreign
airline's accounts, if you hear a rumour, what steps do you take
and can you take informally to try and see whether there is any
substance?
Sir Roy McNulty: If we hear information
that leads us to believe that something ought to be looked at
we have, on occasion, contacted the regulatory authority in the
country concerned.
Q23 Mr Wilshire: Did you do that
on this occasion?
Sir Roy McNulty: No.
Q24 Mr Wilshire: Although you heard
rumours?
Sir Roy McNulty: We heard rumours
but, frankly, you hear lots of rumours, and on this occasion we
did not contact the IAA.
Q25 Mrs Ellman: How realistic is
it for passengers to be able to get better information on the
financial state of airlines before they book? I would like to
ask Sir Roy first and then the Minister.
Sir Roy McNulty: In our opinion,
it is of limited utility. The average passenger is not well-placed
to make a financial analysis of an airline's accounts. While we
get monthly accounts from airlines, These are confidential. People
have to rely on published annual accounts and people are booking
tickets for, maybe, six or nine months ahead, not only do they
have to analyse that balance sheet and set of accounts but they
have got to make an informed projection on where the airline will
be six or nine months ahead. I think it is a terribly tall order
for the average traveller.
Q26 Mrs Ellman: The Government does
seem to be proposing a voluntary system where passengers can get
more information. Is that realistic, particularly after listening
to what has been said?
Sir Roy McNulty: As you know,
and we have discussed it in this Committee before, we have found
we have had limited success through providing more information
to passengers. Perhaps part of the problem has been that the ATOL
scheme is quite complicated; we find it complicated, the trade
finds it complicated and the average traveller finds it extremely
complicated. I am sure all of us receive, from time to time in
our own personal mail, updates on the conditions attached to our
credit cards or our bank accounts and we stare at all that fine
print and we file it up there somewhere. I think the average citizen
struggles with the fine print to connect it to something like
ATOL and the ins and outs of what is covered by insurance and
what is not.
Q27 Mrs Ellman: So from the Government's
point of view the alternative to the levy is said to be various
voluntary arrangements. How is it going to be practicable for
passengers to get relevant information about the state of the
airline?
Ms Buck: I do not disagree with
Sir Roy. I am not advocating that the way forward is for the average
passenger to start hunting around to establish the financial health
of airlines. Clearly, we want people to take out insurance, as
far as possible, or there are a number of different options that
can cover people. We want people to insure themselves or to make
an informed decision that the risk does not warrant them taking
out insurance. That is for them to do. If you look, particularly,
at some of the low-cost flights, it is quite clear that people
are making decisions really at the margins financially. It is
very much for them to say: "Are we prepared to pay a credit
card surcharge? Are we prepared to take out insurance?"—given
that what we sense and the information we have out there is that
the risk of an airline insolvency, I think, Sir Roy, is 2 to 3%
in any one year. Perhaps we do not want to take that risk at all.
So it is very much for the consumer in this increasingly independent
travel world that we live in to make that decision to insure or
not to insure.
Q28 Mrs Ellman: Why did the Government
say that they would not go ahead with the levy on grounds it is
regulation when, in fact, it is a charge on passengers to protect
them? It is not regulation, is it?
Ms Buck: I think the airlines
felt it was.
Q29 Chairman: I think we should be
precise: one very vocal and very large airline. They were not,
of course, necessarily representative of anything except themselves.
Ms Buck: No, but, in fairness,
both sides, broadly speaking, of the interest group in the industry
were fairly voluble in presenting their own views. What we are
saying is that the levy in the proposal that was in front of us
was raising £250 million over three-five years compulsorily,
and we thought that the compulsion and the scale of that did not
outweigh the advantages. So there is a total cost and an expectation
upon the industry and the consumer to pay for something that had
some downsides as well and, broadly speaking, moved against the
current of the more risk-based deregulatory framework.
Q30 Chairman: I am sorry to interrupt,
but how would people know about the choice on which they should
determine their need for insurance? Where would they get this
information? How many people when they are going on holiday sit
down and trawl through Companies House reports on the finances
of any aviation package? I am interested to hear, Minister.
Ms Buck: I am not saying that.
I believe I said in response to Mrs Ellman's question, I do not
think it is asking consumers to say: "Let's find out whether
this kind of booking we are going to make is with an airline that
might be in a high-risk category in six months' time". It
is for the consumer to say: "I am making this decision on
a particular independent holiday or a one-off flight to visit
a friend or to go to my second home. Am I covered? Do I want to
be covered?" I appreciate that due to the enormous success
of ATOL, and it was a very successful advertising campaign, there
is still an issue where people believe they are covered when they
are not. That is why part of our task now is to move forward with
the airlines and with others to try and ensure that people are
better informed about what they are covered for and what they
are not.
Q31 Mrs Ellman: What exactly are
the airlines being asked to do voluntarily?
Ms Buck: Broadly speaking, two
things. If I may, Chairman, could I pass round a note with the
two paragraphs of the agreement?
Q32 Chairman: We would be interested
in the voluntary agreement. We will want to ask about that. (Document
circulated)
Ms Buck: I met with representatives
of British Airways, BMI, Virgin, Easyjet, Flybe and a number of
other airlines last week, and have expressed my intention to do
so again. We discussed with them the two core issues, I believe,
one of which was about improving the kind of information that
people might get when they seek to make a direct booking. I think
at the heart of this, although it is not the only thing, is the
increasing use of the Internet for people to shop around for their
own travel. Perhaps I should pause for two minutes to let people
read this.
Chairman: I think Mr Martlew wanted to
come in.
Q33 Mr Martlew: Thank you, Minister
and Sir Roy. I was not a Member of the original Committee and
I suspect that my experiences of the last year would have changed
my mind—experiences with the insurance companies when my
constituency had a massive flood where 3,000 homes were flooded.
This particular problem is that a lot of people buy insurance
but they do not realise they are not covered. The answer must
be to get the insurance companies to actually cover this particular
risk. What is happening at the present time with some of my constituents,
and some of everybody else's, is that they would have actually
insured against this risk and what this is doing is asking them
to pay twice. In fact, if they paid through a credit card the
right insurance they may be paying three times. This seems very
unfair on those. Surely the answer is that instead of 10% of the
insurance companies selling this policy, 90 or more per cent of
them should be selling this policy. Perhaps we should have the
ABI in front of us today to ask why they are mis-selling policies.
There will always be cases of an individual who decides not to
insure. All of us have car insurance, and unfortunately I took
the decision that the first £150 of any damage I would pay
myself; last year it cost me £300 because I had two accidents,
but that is a positive choice I take. The other thing from the
experience I had with my constituents is that there will be some
people who are so desperate and could not afford to get back that
the Government will have to intervene. When people's houses were
flooded and structural damage was done, at the end of the day,
after a lot of argument and a lot of debate about whether they
should have been insured or not, the Government had to pay for
a few people to have their houses repaired. Will there always
be a case where the Government will come in and assist where there
is desperation, as apparently was the situation in Mexico where
we had to fly them out from the hurricane?
Ms Buck: I always think in these
things, never say "never". It is hard to speculate on
particular circumstances but I suppose there are always particular
sets of circumstances where it is possible that someone will have
to intervene at the bottom line. I think you made two important
points. One is the point that the levy did run the risk of a proportion
of travellers actually paying up to three times for the same cover.
The second point is about insurance. It is absolutely true, and
I am not going to argue, that the proportion of passengers taking
out insurance that covers a scheduled airline failure is currently
quite low. I do not know and it would be speculation to say: "Why
is that?" I will invite myself to speculate a little bit:
it may be because that is on the back of ATOL and the fact that
the industry has not quite caught up with the fact that ATOL did
cover. However, that figure is actually already changing. There
are entrants into the insurance market—the Post Office travel
insurance scheme, for example, and Airmiles—that are increasing
that degree of protection. So clearly the direction is as you
say; we need to see what we can do to encourage the insurance
sector to improve their schedule flight cover. One of the things
I would like to do, and intend to do, is to talk to colleagues
in the DTI about the way in which that message can be put over.
However, there will always be people who choose not to take out
cover. Even on the EUjet experience, there were a third of passengers,
according to the survey, who knew they were not covered. For some
of those it was a difficult and painful lesson, but I am struck
by one figure in the EUjet response, which is that only 1% of
those surveyed said they would think twice about taking a low-cost
airline flight again. So although it was a horrible experience
for those people, and I would not wish on anybody any form of
disaster for which you are not covered, nonetheless it was in
a proportion which did not make people feel: "Oh my God,
I am never going to set foot on one of these flights again".
Q34 Mr Martlew: You mentioned the
DTI. Has your department had discussions with the insurance companies?
That would have seemed sensible before you came before us because
that, obviously, is the solution.
Ms Buck: It has not been done
yet, partly because the insurance sector is a kind of DTI area.
However, in that relatively short time since taking the decision
and going through the Civil Aviation Bill and having meetings
with the airlines—because the first priority was to talk
to the airlines about some of the measures that they could take,
which are set out here—
Q35 Mr Martlew: You are saying it
will be done?
Ms Buck: I am saying I will make
sure that it is flagged up within the DTI to see if there is a
way forward in that area as well.
Q36 Chairman: So you would expect
the DTI to do it? You would not do it yourselves?
Ms Buck: My understanding is that
the insurance industry is not a departmental responsibility. I
am not saying no, I am saying it needs to be done in the appropriate
manner.
Q37 Chairman: You have had well over
a year, of course, to do this.
Ms Buck: The decision was taken
on the choice that we made at the end of September.
Q38 Chairman: Yes, but that was at
the end of the year in which this Committee had been asking for
a reply. Normally there is a time limit on replies from government
departments and you had before you detailed explanations from
your own agency which advises you on these matters.
Ms Buck: The information that
was supplied to us, which was somewhere around six months in the
production, came to us in the late spring, and we announced that
the consideration that has been taken by the Secretary of State
and myself would be in the context of the Civil Aviation Bill,
and we wanted to give it proper consideration and hear the views
expressed of a whole range of different agencies.
Q39 Clive Efford: Can I ask Sir Roy
just exactly what would the £1 levy cover in terms of costs
in returning back to your car at an airport?
Sir Roy McNulty: It would cover
refunds for people who had booked and paid but not yet travelled
and it would cover the cost of repatriation for those who were
already abroad.
| 
