Memorandum submitted by the Federation
of Tour Operators
This response is submitted on behalf of the
Federation of Tour Operators (FTO), a trade association representing
the major outbound tour operators in the UK. Our members are Tui
UK, Mytravel, Thomas Cook Holidays, First Choice Holidays, Cosmos
Holidays, Kuoni, Virgin Holidays, British Airways Holidays, Libra
Holidays, Kosmar, Inghams and RCI. Collectively, these operators
carry approximately 16.5 million customers or 63% of Fully Bonded
ATOL customers, As such, FTO and its members have close and regular,
day to day contact with the Economic Regulation Group of the CAA,
responsible for the ATOL scheme.
It is also true to say that a number of these
members operate in house airlines, who are regulated and licensed
by the CAA in its other capacity. However, as FTO does not act
as a trade association on behalf of those airlines, we make no
specific comments in relation to that work of the CAA.
As stated above, the primary interaction of
FTO and its members with the CAA is in relation to the ATOL scheme.
However, as major airport users, FTO members have a concern in
how the CAA performs its regulation of airport charges in those
airports subject to the regulatory regime.
The ATOL scheme was designed and implemented
in the 1970's, at a time when the leisure travel market was very
significantly different to the trading environment today. The
majority of leisure travellers purchased organised package holidays,
either directly from tour operators or through High Street travel
agents. Typically, families would have one or at most two overseas
trips each year, and book their arrangements significantly in
advance of travel. At the high point in 1997, 98% of leisure travellers
had protection under the ATOL scheme.
The leisure travel market today is very significantly
different. Whilst the numbers of package holidays sold remain
relatively consistent, showing only a very small decline, the
total number of journeys has increased very significantly. There
has been a massive growth in the no frills" scheduled airline
sector, operating largely to leisure destinations, with bookings
primarily being taken on line. This has encouraged a significantly
increased propensity to travel. Customers are additionally looking
for more flexibility in their travel arrangements, and are choosing
to book either individual components of their holidays on line,
or book dynamic" arrangements with travel agents. Those bookers
are also generally made much closer to the date of departure.
Furthermore, individuals are generally travelling more frequently,
and for shorter durations.
It is true to say that the regulatory regime,
whether under the ATOL Regulations or under the Package Travel
etc Regulations 1992, implementing the EU Package Travel Directive,
were not designed to cope with the new means of trading, and new
suppliers. In consequence, customers either book without adequate
protection, or regulators attempt to shoehorn" certain arrangements
into the scope of the existing regulatory regime.
Neither option works comfortably, nor is particularly
effective, and it is our view that the time is right for a fundamental
reappraisal or the whole regulatory regime for leisure travel.
We appreciate that this was a significant part of the motive behind
the CAA submission to government, which was so strongly supported
by the Transport Select Committee, and it is regrettable that
the government chose to ignore those recommendations.
In regulating the travel sector, there are two
overlapping, and sometimes mutually exclusive statutory regimes;
namely the ATOL scheme, entirely administered by the CAA, and
the Package Travel etc Regulations 1992, regulated and administered
in a variety of locations, and in relation to air travel, primarily
by the CAA. It is our submission that the overlap and duplication
causes additional, unnecessary and inappropriate regulatory burdens,
and therefore significantly adds to the total cost of compliance
of the industry. We also believe that there is inconsistency and
uncertainty in the scope of regulation.
By way of example, seat only sales made by tour
operators require protection under the ATOL scheme, whereas they
do not under the Package Travel Directive. There is no actual
difference in a Seat Only sold by First Choice Holidays on a First
Choice Airways flight from Manchester to Palma de Mallorca, when
compared to a Monarch Scheduled flight on the same route sold
directly by Monarch. However, the latter does not require any
form of financial protection. Similarly, if an operator sells
a Fly Cruise" holiday, flying to Tenerife and then cruising
back to the UK, this is protected under the ATOL scheme. If the
same cruise departs from the UK, travels to Tenerife and then
returns to the UK, the ATOL scheme cannot provide protection,
and the operator must protect their arrangements under the Package
Travel Regulations, and place bonding with a different Approved
Body. A particularly perverse situation arises when an airline
wishes to sell Package" arrangements. British Airways Holidays
is a member of FTO. It sells holidays on line, through the ba.com
website. As those holidays are sold directly by the airline, the
ATOL scheme cannot apply to them, and BA Holidays has to put in
place a different form of financial protection, at a significantly
higher cost than under the ATOL scheme.
It is therefore our submission that there is
an urgent need to address the anomalies in regulation, by government
creating a coherent system of regulation and control for all modes
of travel, combined with a single system of compliance.
Logically, any such scheme should be modelled
on the existing ATOL arrangements. However, our experience is
that the CAA tends to see itself as philosophically and practically
aligned to aviation interests, and it therefore appears reluctant
to take on any responsibility for any form of regulation other
than that connected with aviation. We would therefore recommend
that consideration is given to removing the Consumer Protection
Group from the CAA, and moving this to a separate body, with responsibility
for regulating all travel arrangements, including those with the
scope of the existing Package Travel Regulations.
For the reasons outlined above, we do believe
that the time is in any event right for a fundamental re-evaluation
of the Package Travel Regulations, which can only be undertaken
by the EU. However, we would urge that this be driven by the UK
government, particularly as the UK is witnessing the largest impacts
from the changing marketplace, as well as constituting one of
the largest outbound markets of Europe.
Allowing for the concerns expressed regarding
the CAA's desire only to regulate aviation, in general, the CAA
performs relatively efficiently in regulating the travel sector.
Costs are kept relatively under control, and we regard the CAA
as offering reasonable value for money. Failure administration
tends to work well, with little complaint from affected customers.
However, for various reasons, there still tends to be a number
of occasions when failures result in a call on the Air Travel
Trust, due to the failed business having put in place insufficient
bonding. This does suggest some deficiency in the monitoring regime.
FTO members, being the largest ATOL holders, are subject to detailed
monitoring, normally on a monthly basis, by the CAA. Smaller businesses
are subject to a lower standard of monitoring. Whilst we appreciate
that the CAA is attempting to manage its largest perceived risks,
experience has tended to demonstrate that it is not generally
the largest, well managed and well established businesses which
fail. We recommend therefore that additional resource be focussed
on smaller, less stable businesses.
We have also referred earlier to the tendency
to attempt to shoehorn" businesses into the scope of regulation.
We believe that on occasion, such actions are undertaken without
taking account of the views of the industry and their trade associations.
Irrespective of the outcome of the Judicial Review proceedings
brought by ABTA in relation to CAA Guidance Note 26, it is unseemly
that the CAA should end up in litigation with a major trade association
regarding the shape and scope of its guidance.
As mentioned earlier, as major users of the
regulated airports, FTO members have a strong interest in the
nature and extent of regulation undertaken by the CAA of the charges
imposed by the major airports. In general, this regulatory regime
appears to have worked well, although the charges of some regulated
airports remain high, with very significant profits being made
by the airport operators. As such, we believe it essential for
a robust regulatory regime to continue in this sector, ensuring
in particular that the monopoly airport supplier of the London
airports is not in a position to seek to cross subsidise infrastructure
work between the South Eastern airports, by making users at Gatwick
and Heathrow pay for unwanted and expensive expansion at Stansted.
14 November 2005