Air Travel Organisers' Licensing (ATOL) Reform

Written evidence from Expedia (ATOL 06)

1. Executive summary

1.1 We fully support the protection of Package holidays under the ATOL scheme and the effort of the DFT and CAA to provide better clarity to consumers regarding which holidays are protected under ATOL. However, we have serious concerns regarding the ATOL reforms contemplated by the DFT/CAA and the proposed implementation timeframe for the new ATOL Regulations.

1.2 We are concerned in particular about the definition of flight-plus holidays and the proposed 2 day booking window for completion of flight-plus arrangements as we believe they will result in greater customer confusion and disproportionate costs to the industry, especially the online travel agency sector.

1.3 We also believe there are problems with the implementation of the CAA’s approach to ATOL certificates, particularly the requirement for bespoke certificates to be produced for each and every flight-plus package, stand alone flight booking and traditional package booking and that this will affect the whole package of ATOL reform. We have raised these concerns with the CAA and believe that there are steps the CAA could take to mitigate these concerns.

1.4 We are concerned that the industry still does not have clarity about the final form of the new ATOL regulations despite a commencement date of 1st April 2012. There is a great deal of technological development required to implement the flight-plus reforms that can only begin once we are aware of the final regulations. We estimate that this development would take a minimum of 12 months, at significant cost and resources, from the time the final regulations are published which means that full compliance is not achievable in time for the April deadline.

1.5 If the flight-plus reforms go ahead, then an implementation period (coupled with a non-enforcement period) that is achievable for businesses needs to be put in place.

1.6 We strongly believe that the scope of the ATOL scheme should be widened to include airlines and ‘agents for the consumer’ to avoid both significant distortions in a competitive market and customer confusion. As this reform requires primary legislation we consider that all ATOL-related reforms, including those contained in the Aviation Bill, should come into force at the same time.

2. About Expedia

2.1 Expedia is the world’s leading online travel agency. Expedia Inc offers flights, hotels and other accommodation, car hire, cruises and other products on a global basis with Expedia-branded websites in 26 countries, including the Expedia.co.uk site in the UK. Every day our UK website processes thousands of travel bookings.

3. Defining ‘Flight-plus’ holidays

3.1 In its 2011 consultation the DfT proposed that flight-plus holidays be brought within the scope of ATOL protection. The draft Regulations proposed by the DfT define flight-plus as a flight out of, or returning to, the UK and living accommodation or self-drive car hire. Where a flight-plus is formed, the travel agency must also include any ‘tourist services, not ancillary to the flight accommodation, that account for a significant proportion of the flight-plus’. Furthermore, the DfT proposed a time window of 1 day either side of the flight booking in which accommodation or car hire may be booked resulting in a flight-plus holiday being formed.

3.2 We have significant concerns about this proposed scope, particularly the time window identified as this has negative knock-on effects for other reforms to the ATOL scheme. These concerns are summarised below.

3.3 We do not agree with the proposed time period for the creation of flight-plus arrangements as we consider that it will increase consumer confusion as to which bookings are and are not protected, and will impose disproportionate costs on travel agents, particularly Online travel Agents (‘OTAs’) due to the complexity in implementing a tracking system to capture and link independent bookings made over multiple days.

3.4 The proposed time window does not take into account the realities of consumer behaviour in purchasing services online, particularly the frequency that consumers compare, book, amend, cancel and rebook any element of the flight plus holiday. We know that consumers are very price driven and shop around for every element of their holiday, e.g. buying a flight from Expedia, hotel accommodation from another agent and car hire from a specialist provider. Accordingly, we do not believe that creating a flight plus holiday category under the ATOL scheme will provide significant benefit to consumers which outweigh the disruption, costs and consumer confusion that will result from its introduction.

3.5 Actively tracking transactions over the 2 day flight plus booking window poses immense practical problems and technical costs to OTAs, and the consumer behaviour identified above means that it is unlikely to be achieved without scope for error. Over 20 per cent of all bookings on expedia.co.uk are done by guest users while many users have multiple accounts or switch between their account and guest status (e.g. if they are in a hurry or have forgotten their password) so tracking and linking independent bookings is not a simple task. Consumers also interchange between booking and amending elements of their travel bookings online via websites and over the phone via call centre agents creating an additional implementation complexity.

3.6 We do not believe that ‘other tourist services’ should be included in flight-plus arrangements. Requiring travel agents to calculate the cost of ancillary services to determine whether such amounts are a significant proportion of the flight-plus would impose an unnecessary burden on the travel agents, resulting in higher costs with little benefit for consumers. In addition, one travel agent’s definition of ‘significant proportion’ is likely to differ from another’s which creates additional uncertainty for consumers.

3.7 We feel that the best solution to meet the DfT and CAA’s policy objectives of providing consumer certainty and protection by bringing flight-plus within ATOL protection is to limit the definition of flight-plus services to those bought by the customer in the same transaction as the flight and to focus on educating consumers about which bookings do and do not receive ATOL protection, so that customers are at all times making informed decisions regarding their holiday purchases.

4. The ATOL certificate

4.1 The CAA recently consulted on detailed proposals for new ATOL certificates; a key element of the overall package of ATOL reforms. We believe that the ATOL certificate requirements proposed by the CAA will create both an unnecessary burden and a significant cost impact for OTAs which is disproportionate to the benefit to consumers of having such certificates.

4.2 The CAA proposes that travel agents provide a bespoke certificate for each and every flight-plus, stand alone flight and package booking . In order to comply, we would need to develop a detailed back-end tracking system to capture every transaction that may trigger a flight-plus arrangement. Such a system is not currently in place at Expedia as there is no similar requirement in any other country globally to do this type of tracking. The committee should not underestimate the technical complexity, and time and resources required, for implementation of such a system. Given the complexities associated with consumers booking online we believe that even the most sophisticated back-end tracking system could not guarantee certificates would be issued without error.

4.3 We question the extent to which customer booking behaviour has been considered in the preparation of the draft template certificates. A significant percentage of bookings made online are followed up by customer inquiries to travel agent call centres because customers wish to amend or cancel aspects of their travel arrangements. Any changes to travel arrangements would render the ATOL certificate form proposed by the CAA as inaccurate, effectively requiring the ATOL holder to produce new certificates each and every time a customer amends or cancels a booking. This would be both a costly and time consuming effort for OTAs, and provision of multiple certificates, or revocation of certificates is likely to cause confusion for customers. Customers also regularly make bookings online with their travel agent and then post booking contact the relevant hotel, airline or car hire company directly to make changes to their bookings. Expedia has no oversight of these alterations and so would have no way of knowing whether the ATOL certificate it had issued remained valid or accurate at all times.

4.4 We would also like confirmation that any reform will be implemented on a ‘brand only’ basis and not require companies to track transactions offered by different websites/ brands / affiliate companies on different technology, simply because the affiliates are owned by the same parent company. Expedia Inc. has many brands that operate autonomously (often competing against each other) and use different technical platforms; reconciling these various systems would be almost impossible.

There are several steps that the CAA could take to mitigate the above concerns which Expedia has raised directly with the CAA. These include allowing travel agents flexibility in the mode of delivery of ATOL certificates (e.g. using an online certificate linked to itineraries as opposed to PDFs that require distribution via email), and reducing the amount of bespoke information required in each ATOL certificate.

5. Implementation timeframe

5.1 As of January 2012 we still do not know what the final ATOL reforms will be, despite a planned implementation date of 1st April 2012. There is a great deal of detail that needs to be decided before Expedia can fully begin the process of introducing systems that will allow us to comply with the new regulations.

5.2 The flight-plus requirement currently proposed by the DFT would require OTAs like Expedia to develop the technical capability to link independent bookings made on Expedia.co.uk. This linking capability does not currently exist and would take extensive development effort. We estimate that the technology development required to fully implement the flight-plus reforms onto Expedia systems would take a minimum of 12 months from the time the final regulations are published, at significant cost and resources.

5.3 If the flight-plus reforms go ahead, then an implementation period (coupled with a non-enforcement period) that is achievable for businesses needs to be put in place. Given the technical development that would be required, coupled with the other requirements such as Agency Agreements, back end reporting system developments, changes to site messaging and marketing materials, and training of call centre agents to deal with ATOL queries, we strongly believe that April 2012 is not an achievable implementation date for the travel industry and a further 12 month implementation / non enforcement period would be essential. We also believe it would be essential for the DfT and the CAA to work with OTAs to agree methods of implementation that are cost effective, technically feasible, and practical, so as to not slow down the online booking experience for customers and risk driving them to book through other sources, such as airlines, which still do not have to comply with the ATOL Regulations.

6. Inclusion of airlines and ‘agents for the consumer’ within the ATOL scheme

6.1 We welcome the DfT’s announcement that the scope of the Aviation Bill might be extended to include reforms to the ATOL scheme and we strongly urge the Government to take the opportunity afforded by this primary legislation to include airlines and ‘agents for the consumer’ within the ATOL scheme.

6.2 This is essential if the Government wishes to remove consumers’ confusion around which holidays are ATOL protected. Consumers do not distinguish between the legal status of airlines, agents for the consumer and conventional agency arrangements. In some cases, an ATOL holder may offer services as an ‘agent for the consumer’ with the result that consumers may believe that their holidays are ATOL protected when they are not.

6.3 The growth of the OTA sector has helped the development of an intensely competitive travel industry with price-sensitive consumers who make buying decisions based on price differences of as little as £1. The current exemption of airlines and agents for the consumer does not allow for a level playing field because travel agents are required to absorb or pass on the APC (ATOL Protection Contribution) fee which gives airlines and agents for the consumer a price advantage.

6.4 This situation would be made worse if the DfT’s proposed reforms to the ATOL scheme were to proceed without covering all suppliers. The DfT’s reforms will increase the number of holidays for which agents will have to remit the APC and will result in significant technical development expense. These costs will have to be passed onto consumers. Airlines and agents for the consumer, which will not be subject to these increased costs, will have the competitive edge in offering lower prices. If airlines and agents for the consumer are not brought within the scope of the ATOL scheme then these reforms may have the perverse consequence of encouraging more consumers not to book ATOL-protected holidays.

6.5 The ATOL reform process is already well under way but because widening the scope of the scheme to include airlines and agents for the consumer requires primary legislation we would like to see the current draft ATOL regulations rolled into the Aviation Bill and implementation of all ATOL-related reforms commence at the same time, once the Bill has passed through Parliament. It is vital that all reforms are undertaken in one package in order not to distort further the market in favour of airlines. This would also allow Expedia and other OTAs more time to develop technical solutions to the compliance challenges posed by the regulations.

7. Recommendations to the committee

7.1 We make the following recommendations to the Transport Select Committee:

· The committee should focus on scrutinising the evidential basis for the DfT’s proposed reforms, particularly the 2 day proposed booking window for establishing a flight-plus arrangement and the proposed ATOL certificate, as we are not convinced that sufficient analysis of consumer behaviour in choosing, purchasing and amending holiday packages has been undertaken.

· The committee should question the Minister of State for Transport on her plans to widen the scope of the Aviation Bill to include further reforms to the ATOL scheme.

· The committee should ask the Minister of State for Transport whether she can confirm the timeframe for introducing the draft regulations and whether she will consider ensuring that all ATOL-related reforms, including those contained in the Aviation Bill, come into force at the same time.

January 2012