Select Committee on Transport Written Evidence


Memorandum submitted by ABTA

  ABTA welcomes the opportunity to contribute to the inquiry into the remit and work of the CAA.

  ABTA is a trade body representing travel agents and tour operators who sell travel arrangements to consumers in the UK. ABTA is also an Approved Body for the purposes of Regulation 18 of the Package Travel, Package Holidays and Package Tours Regulations 1992 (PTRs"). ABTA also currently maintains a voluntary bonding regime in respect of the business of its members that is not required to be bonded under the PTRs or the Civil Aviation (Air Travel Organisers' Licensing) Regulations 1995 (ATOL Regs").

  ABTA's involvement with and interest in the CAA arises out of the work of the CAA's Consumer Protection Group which is responsible for the management of the Air Travel Organisers' Licensing (ATOL) scheme.

  The ATOL scheme provides the framework for the provision of consumer financial protection in the sale of air tickets. Whilst the scheme covers the sale of air tickets both as single items and as part of a package holiday, it does not protect consumers against the failure of an airline where the tickets are sold by the airlines themselves or where the tickets were sold by a travel agent and issued immediately.

  The ATOL scheme has worked effectively to ensure that passengers are repatriated following the failure of an ATOL holding tour operator. The CAA has developed an expertise in managing failure situations by arranging return flights using the monies available under the bonding regime. The CAA has also established sensible licensing criteria and carries out that function effectively and efficiently.

  ABTA is concerned that the financial protection mechanisms of the ATOL scheme (the bonding and consumer claims process) contribute to the overly complex and unnecessarily bureaucratic system of financial protection that exists in the UK travel industry. ABTA believes that this prevents the CAA from properly carrying out its statutory objectives and functions.

  The Committee is already aware of the general reduction in the numbers of consumers protected under the existing schemes due to changes in consumers' buying patterns which have affected the industry.


  For the purposes of illustration we focus on the profile of the travel industry as reflected by those companies that are members of ABTA.

  At present ABTA has 1,702 companies in membership who are required to provide financial protection in the following ways:

1.   Statutory requirements—package holidays

  1.  844 Members are organisers for the purposes of the PTRs and provide bonding in order to comply with Regulation 16 of those Regulations.

  2.  This bonding will be held by the CAA in respect of those package holidays that include flights and fall within the scope of the ATOL Regs (licensable packages").

  3.  In respect of those packages that do not include flights and do not fall within the scope of the ATOL Regs (non-licensable packages"), bonding is held by ABTA or by the other bodies that are Approved Bodies for the purposes of Regulations 17 or 18 of the PTRs.

  4.  365 members provide bonding for all of their package holiday business to the CAA.

  5.  105 Members provide bonding for all of their package holiday business to ABTA or another Approved Body.

  6.  374 members provide bonding to both the CAA and ABTA or another Approved Body in respect of their package holiday business.

2.   Statutory requirements—flight accommodation

  1.  Members will also be licence holders for the purposes of the ATOL Regs selling flight accommodation that does not form part of a package holiday.

  2.  Those Members provide bonding or undertakings from air carriers (see below) to the CAA in respect of that part of their business.

3.   Non-Statutory bonding—principal business

  1.  Members will also sell non-flight travel arrangements that do not constitute packages for the purposes of the PTRs as principal and provide bonding to ABTA in respect of this part of their business.

4.   Non-Statutory bonding—retail business

  1.  1,393 Members sell travel arrangements as agent for other company principals and provide bonding to ABTA in respect of this part of their business. Many of these companies will also be acting as agents for ATOL Holders and ticket providers for the purposes of the ATOL Regs.

  Even when considering only the statutory requirements, it is clear that companies trading in the travel sector, or contemplating trading in the travel sector, are faced with different, complex and varied requirements from different bodies with no obvious or logical reason for the differentiation.


  At present, the two statutory regimes provide for four different methods of providing financial protection. These methods are not always interchangeable.

  The PTRs require financial protection to be provided. Under the PTRs this can be provided by way of bonding, the holding of monies in a trust account (although no specific rules as to how this should operate or who should be the trustees), or the provision of a policy of insurance.

  Likewise, under the ATOL Regs, financial protection may be provided by way of bonding, the holding of monies in a trust account, and the provision of undertakings given by air carriers to the CAA to underwrite the costs of air accommodation booked with those air carriers.

  It must be noted that the protection of monies in a trust account for the purposes of the PTRs would not necessarily satisfy the trust account requirements or other protection requirements of the ATOL Regulations, and the protection of monies by way of insurance would not satisfy the protection requirements of the ATOL Regulations.

  Likewise, the provision of undertakings by air carriers for the purposes of the ATOL Regs would not satisfy the financial protection requirements of the PTRs.

  As an Approved Body, ABTA requires its members to provide financial protection by way of bonding and does not accept the operation of a trust account or insurance as alternatives.

  Once again, it is clear that there is a multiplicity of schemes for the provision of financial protection which are not necessarily compatible with the range of business activity that one company might be engaged in. This may result in a company providing a bond to ABTA in respect of its non-licensable package business, operating a trust account authorised by CAA in respect of its licensable package business, and an undertaking from an air carrier in respect of that part of its flight only business that is within the scope of the ATOL Regs (no protection is necessary in respect of sales of air tickets where a ticket is issued immediately, even if the air carrier fails financially).

  Whilst it might be argued that having a range of options as to the means of provision of financial protection is beneficial there is often not a genuine choice between them and an individual business will be restricted to one method.

  A company having a weak balance sheet may be unable to obtain bonding as the bond market may not be prepared to adopt the risk. Likewise insurers may not offer cover to customers of such companies.

  Where that is the case, the business is unlikely to be able to operate a trust account approved by the CAA under the ATOL Scheme and would be unlikely to find air carriers that would be prepared to provide undertakings to the CAA in respect of its business.

  Large companies, even if demonstrably sound, may be unable to find an insurer able to provide adequate cover for the size of its business.

  The impact of the operation of a trust account on any company's cash flow makes it an unattractive option for any business that is in a position to provide the necessary protection by other means.

  Therefore, having a range of alternative schemes of protection is distracting and confusing for both businesses and their consumers.

  In practice bonding is used by most companies, certainly for the ATOL Regs in respect of which definite figures are available, and probably for the PTRs although no figures are kept of organisers operating outside the framework of the Approved Bodies.


1.   Package travel

  The two statutory regimes, PTRs and ATOL Regs, are inextricably linked together both as a matter of law (Reg 16(2)(b) PTRs) and as a matter of practice—an organiser selling flight based package holidays for the purposes of the PTRs must hold an ATOL for the purposes of the ATOL Regs.

  The CAA, by virtue of the ATOL Regs are the financial protection body for most of the package holidays sold in the UK, and are responsible to DfT.

  The other methods of providing financial protection under the PTRs are therefore only providing that protection for a minority of the package holidays sold. This has lead, however, to the operation of five Approved Bodies and an unknown number of trust accounts and insurance policies. These methods of protection are the responsibility of DTI.

  There is therefore an obvious logic to bringing the whole of the financial protection regime of the PTRs under one body and one government department. As the CAA currently provides the financial protection arrangements for nearly all the package holidays currently sold it might make sense for mechanisms currently operating within the CAA to be the mechanism that is used to bring all PTR protection under the auspices of one body.

  It is understood that there is some resistance or obstacle to the CAA doing this in respect of non-flight packages. Whether this is a real concern is unclear.

  Whatever the case, ABTA believes that the financial protection mechanisms should be operated by one organisation reporting to one government department.

2.   Flight only

  At present, the ATOL Regs and the CAA provide the financial protection mechanisms in respect of some sales of flight only arrangements. It may be worth considering whether this part of the travel business justifies specific financial protection.

  There is no European obligation on the UK to provide this protection.

  The current protection excludes the sale of flight only arrangements by airlines, meaning that the protection offered is unclear to consumers and is, in any event, diminishing due to the purchasing habits of those consumers.

  If the CAA (or some other body operating the mechanisms currently employed by the CAA) were to relinquish the existing responsibility for the financial protection of flight only arrangements, the mechanisms could easily be adapted to take on that role in respect of non-licensable package holidays.


  The provision of bonds to the CAA under the ATOL Regs and the PTRs and to the Approved Bodies under the PTRs is a considerable cost to the industry.

  This may act as a barrier to entry due to the costs and other financial requirements placed on members seeking bonds. This might be seen as a benefit in that it makes it more difficult for companies with weak balance sheets to enter the industry.

  However, if it is a stated aim of Parliament to prevent such companies from entering the market then such procedures should be established under the statutory regimes and not left to the vagaries of the bond obligor market.

  This might require additional surveillance by the body responsible but it would have the benefit of being based on transparent criteria and subject to proper scrutiny and control.

  In place of bonding, ABTA would wish to see a financial protection regime based on a compulsory levy to be payable by consumers in the form recommended by the CAA to government earlier this year. ABTA would like to see this extended to provide protection regardless of the type of travel services booked, the nature of the business concerned or whether the travel services constitute a package or not.


  We comment above that the CAA's proper discharge of its statutory objectives and functions can be affected by the complexity and bureaucracy involved in the current protection regimes in the industry. Our concerns in this regard are twofold, centring firstly on the documentary requirements placed on both businesses and consumers under the ATOL scheme, and secondly on the gaps in the protection regime where no ATOL is held even though it is required for the type of business conducted.

1.   Documentary requirements

  The ATOL Regs require businesses trading in the sale of flight accommodation to produce to the consumer specific documentation depending on the capacity in which the business is conducting the sale.

  Where a business does not comply with these documentary requirements the business might be acting in breach of the ATOL Regs, and thus subject to criminal sanction, and the consumer may not have the protection that should be afforded by the ATOL Regs and the PTRs.

  The CAA acts as if it considers that it is able to reject claims from consumers for a refund of monies paid for flight accommodation where the consumer has not been provided with, or is unable to produce, documentation which accords with the requirements of the ATOL Regs. This stance, over a simple deficiency in the consumer documentation is taken despite the fact that the business actually holds an ATOL and is clearly conducting ATOL business.

  We would query whether such a response is appropriate bearing in mind the obligations placed on the government by virtue of the Directive on Package Travel, Package Holidays and Package Tours 1990 (see also Dillenkofer ECJ Case C-178/94).

  We would also query whether such a response is appropriate bearing in mind the aim, stated by the CAA, that

    ATOL protects you from losing money or being stranded abroad when a tour operator goes out of business. All licensed firms have to lodge bonds with the CAA so that if they go out of business, the CAA can give refunds to people who can't travel and arrange for people abroad to finish their holidays and fly home.

    ATOL protection is included in the price of a holiday booked with an ATOL holder, and there's a Government-backed fund called the Air Travel Trust that steps in if any ATOL bond isn't enough to look after everyone affected by a failure." (CAA website)

2.   Protection where no ATOL held

  Our concerns go further in that, as stated by the CAA, the ATOL scheme will only provide protection where the business that fails is an ATOL holder. It does not provide protection where the business that fails should have been an ATOL holder because it was conducting licensable business.

  Again, this raises the question of the effective implementation of the Directive on Package Travel.

  It also raises concerns about the effectiveness of the CAA's enforcement action against businesses who are trading in the sale of flight accommodation in breach of the ATOL Regs. ABTA is concerned that the CAA does not have the resources necessary to effectively police this.

  Of course, due to the voluntary protection schemes operated by ABTA and others in the industry, this restriction of protection dependant upon proper licensing and documentation (both of which are entirely outside the control or knowledge of the consumer) has not lead to significant consumer detriment as the voluntary schemes have operated to provide protection following the failure of the relevant member businesses. However, the underlying concern remains that the present operation and enforcement of the ATOL Regs by the CAA does not provide the protection that is expected or required and that the implementation of the Directive on Package Travel is defective.

  The voluntary nature of the other schemes in the travel industry means that these gaps in protection may not be covered in future.


    1.  ABTA would like to see the financial protection regime required by the PTD sited in one body.

    2.  ABTA believes that a financial protection regime should be established based on a compulsory levy to be payable by consumers regardless of the type of travel services booked, the nature of the business concerned or whether the travel services constitute a package or not.

    3.  ABTA considers that the operation of the ATOL scheme by the CAA is overly dependent upon complex documentary formalities to the detriment, or potential detriment, of business and consumers and potentially in breach of the UK's obligations under the PTD.

    4.  ABTA would like to see a more vigorous enforcement culture operated by the CAA under the ATOL Regs.

18 November 2005

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