APPENDIX 3
Memorandum submitted by the Air Travel
Insolvency Protection Advisory Committee
INTRODUCTION
1. The Air Travel Insolvency Protection
Advisory Committee (ATIPAC) was established by the Secretary of
State for Transport, Local Government and the Regions in 2000
to provide advice to the Civil Aviation Authority, the Trustees
of the Air Travel Trust and the Secretary of State for Transport
on the financial protection arrangements for air travellers and
customers of air travel organisers.
2. The Committee includes representatives
from key trade associations affected by Air Travel Organiser Licensing
(ATOL), consumer representatives, independent members and members
appointed by the CAA.
REDUCTION IN
ATOL PROTECTION
3. The Committee has been concerned for
some time that the proportion of leisure air travel protected
by the ATOL system has declined from 98% in 1997 to 66% in 2004.
The Committee's Annual Reports in 2003, 2004 and 2005 have all
highlighted this concern. This is a result of changes in the airline
business, notably the emergence of no-frills carriers and direct
selling by tour operators' in-house airlines.
4. The growth of no-frills carriers and
the increased acceptance of the Internet as a sales medium have
led more of the public to organise their holidays themselves,
on the basis of a no-frills flight and separately-booked accommodation.
In some cases, accommodation is bought via the carrier's web site
through the use of a direct link to a website that is branded
as the carrier's but is in fact owned and operated by a completely
separate company. The UK's four major tour operators have also
readjusted their capacity to enable their in-house airlines to
sell flights in the same way as no-frills carriers. In 2005 the
major operators plan to sell 3.3 million seats direct to the public,
compared with 1.8 million in 2004. Moreover, the established UK
full service airlines, including BMI and British Airways, have
adopted similar pricing policies for domestic and European destinations,
with the result that the availability of cheap flights to both
business and leisure destinations has increased enormously.
5. The Committee believes that the reduction
in ATOL coverage is extremely concerning because, if not resolved,
it is likely to lead to the progressive erosion of ATOL as an
effective scheme for consumer protection. This belief is held
by both the travel trade and independent members of the Committee.
PUBLIC CONFUSION
6. A survey commissioned by the CAA[2]
found that although the public regarded financial protection as
important, most tended to assume that protection existed when
in fact it did not. Moreover, many tended to assume that such
protection as there was came from travel insurance policies, whereas
in reality only about 10% of travel insurance policies provide
such comprehensive protection. The survey's results pointed clearly
to a conclusion that the public did not understand the protection
system and was not in a position to make an informed choice between
buying protected and unprotected seats.
7. The Committee's unanimous view is that
consumers are totally confused by the protection now offered,
and many believe they are protected from the consequences of failure
when they are not. Although much effort has been expended on consumer
education, the level of awareness has remained virtually static.
CAA research has noted that 51% of air travellers believed that
all flights on airlines were protected.
8. The Committee believes that there is
also confusion within the travel industry about which travel products
are protected. As the differentiation between travel agents, tour
operators and airlines becomes increasingly blurred, we believe
it will become more difficult for the industry to identify where
protection should be in place.
CAA'S ADVICE
TO GOVERNMENT
9. The CAA issued a public consultation
in 2003 asking what the scope of the UK's mandatory protection
regime should be, as well as what mechanisms should be used to
fund it. Responses received from consumer groups and tour operators
were in favour of an expansion in the scope of protection to include
all sales made by scheduled airlines, whereas scheduled airlines
were strongly opposed to that. There was some support from travel
agency bodies for a wider increase, which would also include all
UK-based sales of separate holiday components such as accommodation
and car hire.
10. On the basis of these responses, the
CAA published draft advice to the Government in March 2004 and
(having considered further responses to the draft advice) it published
final advice in July 2004. The final advice was that the scope
of mandatory financial protection should be extended to cover
all UK-originating air travel, whether sold by ATOL-holders or
directly by airlines. During this process, the Committee has discussed
the scope of protection at length, and strongly endorses the principle
of extending protection so that it is unambiguous in its application
and fully understood by the public. It strongly endorsed the CAA's
advice.
11. In October 2004 the Government responded
to the CAA's advice in the form of a press notice, issued jointly
with the CAA, recognising that there was a problem and that CAA
and DfT would now undertake detailed analysis of the options,
in conjunction with an industry group, with the aim of producing
a Regulatory Impact Assessment covering the costs and benefits
of different options. The Committee welcomed the Government's
recognition that there was a problem and agreed that legislative
proposals with material cost implications should be thoroughly
examined. However, it also warned that a decision had to be taken
as quickly as possible.
12. During the course of this work major
tour operators, who are represented on the Committee, have already
made arrangements to sell an increasing proportion of their in-house
airlines' seats outside the scope of ATOL so as to compete more
effectively with scheduled airlines. If there seems no prospect
that a legislative solution will be implemented in a reasonable
period, they now have the systems in place to transfer more seats
out of ATOL rapidly and trade representatives on the Committee
have confirmed that this will take place. If this happens then
the decline in the coverage of protected air travel will accelerate.
13. The Committee has now had sight of the
CAA's advice to the Government dated September 2005. It fully
endorses the CAA's recommendation that there should be a £1
levy on all UK originating flights. It also welcomes the expected
reduction in the regulatory burden placed upon tour operators
which is derived from the removal of bonding and the simplification
of the ATOL system. This will remove a huge cost from the tour
operating industry and allow it to compete more effectively with
airlines that are increasingly offering customers additional items
such as hotels and car hire alongside their flights.
COLLAPSE OF
EUJET
14. The most recent example of a scheduled
airline failure was the collapse of EUjet. This followed the earlier
failure of Duo in 2004, which had many of the same consequences
as this more recent failure. EUjet was a small airline and operated
only four small aircraft, yet its collapse left 12,000 passengers
stranded abroad. These passengers will have been faced with finding
and paying for flights to the UK, being unable to fly home to
Manston Airport and having to fund transport costs to return to
pick up their cars from Manston Airport. Although four UK airlines
offered reduced fares to EUjet passengers it would appear that
only a minority benefited from reduced fares. As the offers were
only in place for one week any passengers returning home after
that date would have been unable to obtain a reduced fare.
15. Passengers who paid by personal credit
card are expected to receive a refund, subject to their payment
being in excess of £100. However, debit card payments would
not normally be refunded and customers paying in this way will
become a creditor of EUjet. Passengers booking on-line are increasingly
paying by debit card to avoid the higher fees charged for payments
made by credit card. In the EUjet case it is estimated that approximately
20% of passengers paid by debit card.
16. By way of contrast, some passengers
travelling on EUjet had booked their flights through ATOL holders.
The ATOL holders concerned have organised replacement flights
for passengers who were abroad and re-organised flights for those
due to travel, at no extra cost to the passenger.
17. The EUjet case clearly demonstrates
that even the failure of a small airline can affect significant
numbers of passengers. Although there was enough spare capacity
available to enable most of the stranded passengers to travel
home as planned, many had to bear considerable extra costs to
return home. The failure of a larger airline would result in far
more passengers being stranded abroad, without sufficient available
capacity to allow them to travel home. This could result in passengers
having to stay abroad longer than planned at a greater cost. It
is significant that those who booked through ATOL holders enjoyed
significantly better protection than refunds of tickets already
paid for; those that were abroad were repatriated, with the return
flights being organised for them. This is all provided for in
the current ATOL system.
RECOMMENDATIONS FOR
ACTION
18. The Committee believes that protection
should be extended to cover all UK-originating air travel. An
important component of ATOL protection is repatriation of passengers
stranded abroad when failure occurs. This has worked well for
30 years, with the CAA assuming responsibility for the inbound
travel of such passengers. Furthermore refund protection for advance
payments gives consumers confidence that, whichever firm they
book with, their money is not at risk, thus enabling easier market
entry and the development of new small businesses. In the past
year, 11,500 passengers have been repatriated, after completing
their holidays, and 22,000 people have received compensation after
the failure of their tour operator. Each such case is an individual
success story.
19. The system works, and should be extended
to cover all UK-originating air travel, in order to enhance protection
and eliminate confusion.
20. The Committee would like to see a decision
taken quickly by the Government and a legislative slot found as
quickly as possible to forestall the risks not only of a major
unprotected collapse but also of a major realignment by major
tour operators to sell outside the scope of ATOL.
2 "Financial Protection for Air Holidays",
NFO Transport and Tourism. Back
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