APPENDIX 32
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.
COMPLEXITY OF
FINANCIAL PROTECTION
IN THE
UK TRAVEL 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.
BONDING AND
ITS ALTERNATIVES
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.
ONE FINANCIAL
PROTECTION BODY
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.
REPLACING BONDING
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.
DISCHARGE OF
STATUTORY OBJECTIVES
AND FUNCTIONS
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.
SUMMARY
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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