APPENDIX 9
Memorandum submitted by Virgin Atlantic
The CAA's ATOL bonding scheme was established
over 30 years ago, following the collapse of a major travel company.
It has been a success, providing UK overseas travellers with a
high level of financial protection at modest cost. However, the
growth of no-frills airlines in Europe and beyond, and the increased
sophistication of travellers willing to make their own travel
arrangements rather than rely on packages, have changed the industry
beyond recognition since then. It has become apparent that the
ATOL bonding mechanism is long past its sell-by date and is in
urgent need of fundamental reform. The debate of the Civil Aviation
Bill would appear to be an ideal opportunity to legislate for
this reform, instead of maintaining the current situation by seeking
merely to replenish the Air Travel Trust Fund
Tour Operators have estimated that the ATOL
bonding mechanism costs the UK industry £100 million a year
to maintain; a cost that is ultimately passed on to the consumer.
Virgin Atlantic and Virgin Holidays, like all companies in the
Virgin Group worldwide, pride themselves on being dynamic and
entrepreneurial, but the need to finance bonding has been a significant
restriction on growth. For smaller companies, especially those
just being created or in the early years of growth, this must
be an even more difficult obstacle to overcome. In requiring companies
to ring-fence substantial amounts of capital in anticipation of
a possible failure, the ATOL scheme actually discriminates against
young, expanding companies. If Government policy is to encourage
an entrepreneurial society, it is important to ensure that regulation,
no matter how well intentioned, does not act as an impediment.
There is also real confusion for air passengers,
many of whom believe themselves to be covered when they aren't.
Although there are travel insurance policies which include cover
for airline or tour operator failure, these are few and far between.
As seen in the recent collapse a no-frills airline, there is a
need to provide financial protection to all UK originating travellers,
not just those buying packages or tickets through UK-based travel
agents and tour operators.
The CAA has proposed a scheme whereby a £1
levy is placed on each UK originating flight (be it part of a
package or "seat only") that feeds into a common fund.
This levy would only need to be collected for a limited period,
until the fund reaches a sufficiently high level. The fund would
then be used, like the ATOL bond it replaces, to reimburse passengers
in the event of airline or tour operator failure, and repatriate
where necessary. As it would apply to all passengers irrespective
of where or how they purchased their flight, it would end consumers'
confusion regarding the extent of financial protection available.
Virgin Atlantic regards this proposed scheme
as an improved form of regulation, or even a reduction in regulation,
rather than the imposition of new restraints on the industry.
The CAA's proposal would remove a major impediment to the industry's
growth and viability, to the benefit of consumers; they would
be relatively easy and cheap to introduce and maintain; the surcharge
on travellers would almost certainly only be needed for a limited
period and probably be at least partly off-set by cost savings
to tour operators; and not only would they maintain the high level
of financial protection that UK consumers have come to expect,
but significantly extend it to areas not currently covered.
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