APPENDIX 10
Supplementary memorandum submitted by
Virgin Atlantic
In advance of Wednesday's evidence session for
the Transport Committee's enquiry into the financial protection
of air passengers, I wanted to give you an update on the Department
for Transport's proposed voluntary scheme.
As you know, Virgin Atlantic was very disappointed
that the Government chose not to support the CAA's proposal to
replace the outdated ATOL-bonding mechanism with a straightforward
and inexpensive £1 levy per UK-departing passenger. We believe
this would have benefited consumers and industry alike, by providing
comprehensive and transparent repatriation and refund protection
for passengers, whilst saving tour operators (and therefore ultimately
consumers) tens of millions of pounds per annum. It would also,
of course, have applied to all passengers purchasing tickets in
the UK, including those using foreign airlines.
Last week we were invited to a meeting with
the Aviation Minister to discuss various voluntary measures which
the DfT claims will minimise the adverse impact on passengers
of airline failures. Two meetings were held with two groups of
airlines. Ryanair was the only non-UK registered airline represented.
We have several concerns with the voluntary
approach put forward by the DfT, not least the timescale for agreeing
to the Department for Transport's proposals. While Virgin Atlantic,
the tour operators and consumer groups lobbied in support of the
CAA's £1 levy recommendation, many of the other scheduled
airlines had supported voluntary measures. It is evident that
the Aviation Minister regards such voluntary measures as a condition
for the Government's refusal to support the £1 levy.
After the meeting on Monday 24 October, a Ministerial
statement was circulated to the attendees for their approval.
We have since been told that if we do not agree to the voluntary
measures contained in the Minister's draft statement we run the
risk of being "named and shamed" in front of the House
of Common's Transport Committee enquiry on Wednesday. This is
an unfortunate course of action for the DfT to take and I wanted
to ensure that Members of your Committee were aware of the reasons
for Virgin Atlantic's initial reluctance to accept a proposal
on which we feel we have not been fully consulted.
The DfT has asked us to agree a voluntary commitment
to repatriate passengers in the event of the failure of another
airline. Such a proposal adds little to what is already common
practice. IATA carriers, for example, have for many years followed
an informal policy of honouring other members' tickets and reservations
in the event of an IATA airline's failure. The recent EUjet bankruptcy
showed that when it is in their commercial interests, which it
frequently is, airlines such as easyJet will offer otherwise empty
seats at a relatively low price, in this case £25 per passenger.
The Department for Transport has also asked
carriers to include "pop up" messages in their online
booking processes which will alert passengers that they are not
covered by the ATOL protection scheme. Whilst we have no objection
in principle to such a message, we are concerned that the DfT
has only approached UK-based carriers (with the exception of Ryanair,
which has a distinct approach towards customer service). The DfT
does not appear to understand that we compete directly with foreign-owned
airlines on our key routes. To ask Virgin Atlantic, which is in
good financial health, to warn its passengers about the risk of
airline failure, whilst some of our biggest US competitors are
already subject to Chapter 11 bankruptcy proceedings and will
not have to make a similar disclosure, is perverse. The DfT has
failed to grasp the inherent contradiction in asking financially
sound UK-based airlines to warn their passengers of the risks
of airline failure, whilst apparently ignoring the large number
of foreign-owned and smaller UK-based carriers which, history
has shown, have a greater preponderance towards financial instability.
EUjet would not have been included in the DfT's proposal.
There is a large amount of information—relating
to security and immigration procedures, terms and conditions of
sale, and special assistance needs—that must be communicated
to passengers when they book their tickets. We are concerned that
some of these essential messages may be diluted or overlooked
if we keep adding to them. In addition to a basic message advising
passengers that they are not be covered by the ATOL bond, the
DfT has asked us to advise passengers that they may wish to pay
by credit, rather than debit, card in order to provide protection
in the case of the airline becoming bankrupt. Credit cards may
not, of course, provide such protection for many passengers travelling
on short-haul routes. In addition, several airlines (though not
Virgin Atlantic) make a charge for the use of a credit card which
far exceeds the £1 levy which the Government has rejected.
It is difficult to identify how the DfT's action will benefit
the consumer.
Virgin Atlantic already offers travel insurance
cover to our passengers, as do most airlines and tour operators.
We have explored extending the cover provided to include scheduled
airline failure, but our insurance providers, in line with the
majority of insurance companies, tell us they are not able to
do this. Such coverage is in fact very rare.In her statement to
the Commons, the Aviation Minister said that she had requested
the CAA to look again at the ATOL-bonding mechanism. We would
be grateful for your support in urging the CAA to do this as soon
as possible. The cost to the industry (and therefore eventually
to consumers) of maintaining the present ATOL scheme (estimated
by the tour operators to be up to £100 million per annum)
is considerable, particularly in relation to the decreasing number
of passengers to whom it provides cover. It is apparent that
not only has the Government missed an ideal opportunity to increase
substantially the protection available to air travellers, but
it has also produced voluntary procedures which have not been
fully thought out.
1 November 2005
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