Air Travel Organisers' Licensing (ATOL) Reform

Written evidence from the Board of Airline Representatives in the UK (BAR UK) (ATOL 08)

1. Introduction

1.1 The Board of Airline Representatives in the UK (BAR UK) Ltd represents the interests of 86 scheduled airlines in this country. Full details are provided at www.bar-uk.org .

1.2 On their behalf, BAR UK is pleased to have the opportunity to provide evidence to the Transport Committee in its assessment of the proposed reforms to the ATOL regime.

2. Response to the ATOL Reforms consultation

2.1 BAR UK has responded to the DfT’s consultation on ATOL Reform, a copy of which can be found at http://www.bar-uk.org/consultations/consultations.htm . That response was not shaped by a self-serving interest on behalf of the scheduled airline community, but one that considered whether or not the proposed reforms solved existing problems and confusion for consumers.

2.2 BAR UK summarised that:

· the proposed reforms fail to meet their objectives.

· consumers will encounter more confusion, not less.

· ATOL Protection charges can be paid, sometimes twice, without offering consumers protection.

· the Flight Plus proposals impose onerous liabilities and could discourage their applicability.

· the Right to Fly/Specified Operator proposals would add more even more confusion to all parties, not just consumers, and are highly likely to prove unworkable.

· for utter clarity to consumers, only traditional packaged travel purchases should be provided with ATOL protection, and all other purchases should explicitly exclude ATOL protection.

· BAR UK formally objects to any proposals to impose the ATOL-regime on direct airline sales.

· BAR UK is concerned that the proposed Flight Plus reforms may, inadvertently, include direct airline sales, despite the lack of any new primary legislation, and call on the DfT to rewrite the Regulation so that they are excluded.

3. Background sentiments about the ATOL regime

3.1 The ATOL system was originally simple to understand, and explain. Consumer protection was provided to the purchasers of package holidays, e.g. those holidays whose arrangements tended to include hotels, flights, and transfers at one quoted price. Other elements, such as sightseeing, might also have been included. ATOL was specific to the UK.

3.2 At this time, travel distribution and booking systems were largely reliant on personal visits by consumers to ‘bricks and mortar’ travel agents/tour operators, or bookings made by phone or mail.

3.3 In the course of time, the Package Travel Directive was introduced to fulfil a similar role on an EU-wide basis. In that respect, the ATOL regime was the UK’s fulfilment of its obligations under the Package Travel Directive and its Regulations.

3.4 Over the years

§ the ATOL regime was expanded to include a range of non-pre-packaged travel arrangements, including so-called ‘packages’ assembled as separate items by consumers, travel agents and/or other trading entities.

§ distribution/booking methods mentioned in paragraph 2.2 have been enhanced, or replaced, by electronic systems, not least the internet.

§ changes to distribution have also introduced new ‘intermediaries’, who legal relationship with the consumers can be unclear.

3.5 The ATOL scheme has been well-publicised and its logo is well-recognised, possibly to the detriment of itself.

3.6 The situation today. Great confusion exists:

§ among consumers as to whether or not they enjoy the protection of the ATOL scheme

§ among the industry as to what their legal relationship with consumers may be in respect of ATOL obligations and liabilities

§ between the CAA and agents/intermediaries, disputing legal relationships and liabilities which have given rise to a number of court cases and appeals.

The Transport Committee is asked to consider Appendix 1. This contains some Questions/Answers provided by DfT to interested parties. These Q/As amply demonstrated some of the confusion, or lack of clarity, created by the proposed reforms, by being difficult to grasp and comprehend.

3.7 Separately, the expansion of the ATOL regime to travel purchases, over and above pre-packaged holidays, has increased the liabilities that ensue when failures occur. The extent is now so great that the Air Travel Trust Fund’s deficit is £42m (as at March 2011).

3.8 It’s widely agreed that effective reforms are required, but those proposed are not in that category.

4. BAR UK/ CAA cooperation

4.1 The CAA was proactive in establishing bilateral dialogues with various industry organisations, of which BAR UK was one. Consequently, the opportunity arose to invite CAA representatives to discuss, directly with our airline members, the specific aspects of the Right to Fly/Specified Operator proposals. It soon became evident that unintended consequences to airlines, namely unlimited liabilities in respect of agents, and their various sub-agents.

4.2 A BAR UK/CAA working group was suggested, established, and met shortly later. During that first meeting, and a second one that followed, the CAA seemed minded to recommend some changes to DfT that would limit liabilities to the airlines’ appointed agents only. At the time of writing to the Committee, it is not clear how far these recommendations may have gone.

5. Concluding remarks

5.1 The current ATOL scheme is complex and confusing.

5.2 Reforms are needed that are utterly clear and simple. The ones that have been proposed are not, and still have gaps in the consumer protection levels that are supposedly provided.

5.3 For utter clarity to consumers, only traditional packaged travel purchases should be provided with ATOL protection, and all other purchases should explicitly exclude ATOL protection.

Customers should be free to choose, and may consider that they are already adequately protected through travel insurance policies or credit card entitlements.

5.4 The travel industry collectively provides over £2 billion pounds per annum in air travel taxation (APD). Allocating a mere 2%-2.5% of just one year’s APD revenues would instantly clear the deficit of the Air Travel Trust Fund. The same customers should not endure yet more costs through increased APC levels.

BAR UK has looked at the proposed reforms pragmatically, rather than as an opportunity to place more and more layers of confusing regulation on consumers and the travel industry. That is why we have reached the conclusions we have.

We remain ready and willing to appear before the Committee should they so wish.

APPENDIX 1

ATOL Reform Consultation: Clarification Q&A

(as provided by the Department for Transport)

Introduction

The questions and answers provided below arose in the course of the Department's recent consultation on ATOL reform. They are intended to provide further clarity to stakeholders about the various issues, but do not represent the Department's formal response to the consultation. This is expected to be made later in 2011.

Definition of Flight Plus

(a) Definition of "flight" in Flight Plus

Question : Does a flight in Regulation 22 (1)(a)(i) & (ii) include a flight which constitutes a component of a package? For example, where an agent sells a package (which attracts £2.50 APC), and adds separate car hire, does this create a Flight Plus arrangement and attract a further £2.50 APC because of the car hire? Answer : The Department believes that this scenario should fall within the definition of Flight Plus and believe that the current drafting achieves this. The aim of Flight Plus is to ensure that holidays are protected as a whole, and this includes sales where an agent sells a package holiday and adds an additional service such as car hire. Car hire is a significant part of a holiday booking and can represent a significant proportion of the overall cost of the holiday. The Department thinks it is therefore desirable that there is linked, statutory financial protection for the package and car hire.

These sales will attract two APC payments, as will sales for Flight Plus which include an ATOL protected flight and accommodation and/or car hire.

In annex F to the consultation, the CAA explain that the Trustees of the Air Travel Trust are considering making a contribution to the Flight Plus arranger in the event of the failure of the ATOL holder providing the flight where the flight was obtained on a retail basis. This policy could extend to the scenario in the question. The Department has had initial discussions with the CAA who may consider recommending to the Trustees that where a Flight Plus contains a package, a greater contribution (possibly the full amount of the original package contract) could be paid to the Flight Plus arranger in the event of the ATOL package organiser’s failure. Any decision on this is at the discretion of the Trustees.

(b) Definition of "request" in Flight Plus

Question : Regulation 22 (5) states that the basis for determining a Flight Plus is the request made by the consumer. Is it intended that such request should be a request for specific, named living accommodation, self-drive car hire or other tourist services or a non-specific request that accommodation, car hire or tourist services should be booked at a later date outside of the specific time frame? If so, how could this be regulated?

Answer: The request may be specific, but would not need to be. If the request is made for a flight and another element within the specified timeframe, the fact that the booking is completed outside the specified timeframe does not prevent the sale from being a Flight-Plus.

The Department expects a large element of the regulation of this to be driven by the consumer who will be seeking an ATOL certificate, and who will be encouraged to contact the CAA if a certificate is not issued. The Department also expects the CAA to be proactive in using its full regulatory toolkit which could involve targeted compliance monitoring such as test bookings.

(c) Definition of "contract" in Flight Plus

Question : Where a Flight Plus arranger is acting as an agent for the provider of the flight accommodation, is the intention of this regulation that the other tourist services are only part of the Flight Plus where they are provided by the principal provider of the flight accommodation?

Answer : This is not the intention. The intention is for ‘in connection with the contract’ to be interpreted in its usual meaning in the English language i.e. they are supplied to be used on the same holiday as the flight contract is for.

Flight Plus Arranger as agent or principal

Question : Is the use of the words ‘as a principal’ in regulation 15 (1)(a) intentional or in error? If it’s intentional then does this mean that a Flight Plus Arranger acting as the agent of an ATOL holder or a carrier is not required to supply an ATOL Certificate?

Answer : The Department hopes that it is clear from the consultation document that the policy intention is that the ATOL certificate must be issued by the entity which interacts with the consumer. For Flight Plus, this will always be the Flight Plus arranger. The Department will review the wording of regulation 15 to ensure that it fully reflects this approach.

There is no intention to require flights sales between ATOL holders to be conducted either on an ATOL to ATOL basis or on a retail basis. It is a commercial issue for the individual ATOL holders to decide how they wish to obtain the flight element of a Flight Plus.

CAA have indicated that they would expect the required written agency agreements to clarify the basis on which the sale was made, and may provide for specific requirements in the ATOL Standard Terms to ensure that appropriate mechanisms are in place to avoid confusion on failure. The CAA will consult on these in the autumn.

There is also no intention to require Flight Plus arrangers to obtain Scheduled Airline Failure Insurance (SAFI), although some may choose to do so.

Liability of a Flight Plus Arranger

Question : What is intended by ' significantly ' in regulation 24 and what is intended by ' impossible' in regulations 25 and 26 ?

Answer: As stated in the consultation document (paragraph 4.25) these obligations are similar to those imposed on package organisers by the Package Travel Regulations. The Department would expect Flight-Plus arrangers to interpret the ATOL Regulation requirements in the same way that package organisers interpret Regulation 14 of the Package Travel Regulations. There are risks to the Flight Plus arranger from taking on this responsibility. We would expect agents to consider this when making a commercial decision about the principals for whom they act as agent when creating Flight-Plus arrangement.

Contribution by the Air Travel Trust

Question: In paragraphs 30 to 39 of annex F what is intended by ' contribution' from the Air Travel Trust?

Answer: The CAA have advised the Department that the Trustees are considering how best to calculate the contribution. They are aware of the need for this to be consistent and easy for ATOL holders to calculate, so that they are able to assess their exposure. The CAA will be publishing details on this on behalf of the Trustees in the autumn. As stated above, the CAA is considering advising the Trustees that the contribution for Flight Plus arrangements which include a package should be for the full amount of the package.

Credit sales

Question : It is proposed in paragraph 20 of annex F that credit sales should be exempt from the ATOL scheme. What is intended by credit ?

Answer : The Department understands that the CAA intends this to mean sales where payment is made after fulfilment of the travel arrangements, as used by some companies providing travel services to businesses. The main purpose of the proposed reforms is to protect consumers who buy Flight Plus holidays rather than businesses, and the Department will consider options for how this might be achieved.

Insolvency of Flight Plus Arranger

Question : In the event of the Flight-Plus arranger’s insolvency, is it intended that the consumer should be able to continue with the Flight Plus arrangement? What recourse will the consumer have against the Air Travel Trust in the event of the failure of one or all of the contract principals supplying the services under the original Flight Plus?

Answer : The policy intention is that, where possible, the consumer should be able to use the services booked when a Flight-Plus arranger becomes insolvent. To enable this, the CAA is developing the concept of a ‘fulfilment partner’, a third party organisation appointed to take on the role of the failed Flight Plus arranger for future bookings. This approach would ensure that principals honoured contractual obligations and that arrangements could be made to help consumers in the event of a supplier failure.

Provision of flight accommodation by aircraft operator

Question : In regulation 9 (a) does the operator of the relevant aircraft include a carrier selling seat accommodation on an aircraft operated by another carrier under a code-share or similar agreement?

Answer : No, however the CAA already has a class exemption in place for code-sharers so that (in the circumstances set out in the exemption) airlines selling seats on another carrier under a code-share arrangement are not required to hold an ATOL to sell that seat. This can be found in the CAA’s Official Record Series 3.

Agency Agreements

Question: Under regulation 12 (c) does an agency agreement which is available solely online constitute a written agency agreement for the purposes of acting as an agent for an ATOL holder?

Answer : The Department sees no reason in principle why agency agreements should not be available solely in an electronic format. The CAA intends to provide more information on Agency Agreements in its consultation in the autumn.

Right to Fly

Question : In regulation 20 (1) is it intended that a specified operator will confirm that it provides right to fly documents or information to specific, identified right to fly providers or to right to fly providers generally?

Answer : The current intention is for the confirmation from specified operators to be a general commitment to honour any ticket issued on a Right-to-Fly basis. As stated in the consultation document (paragraph 4.65), this aims to resolve the current limitation of the Ticket Provider provision whereby an airline can refuse to honour tickets issued by their agents if they have not been issued according to their terms and conditions.

Airline holiday sales

Question: Is new primary legislation needed to bring airline holiday sales into ATOL, given the recent article by Peter Stewart in Travel Law Quarterly which argues that the draft ATOL regulations accompanying the consultation already require airlines to provide financial protection for Flight-Plus holidays.

Answer: The Government's position is that airlines cannot be required to provide financial protection for the proposed Flight Plus holidays under the Secretary of State’s current powers to make ATOL regulations. The draft ATOL regulations will need to be amended to ensure they are consistent with this.

January 2012