Select Committee on Transport Written Evidence


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 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

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