House of Commons - Air Travel Organisers' Licensing (ATOL) reform

Air Travel Organisers' Licensing (ATOL) reform - Transport Committee Contents

1 Introduction

Holidaymakers at risk

1. Every year, over 30 million people in the UK book holidays abroad. The vast majority will complete their holiday and return without difficulty. An unlucky few, however, will face disappointment or worse because one of the companies involved in providing the holiday becomes insolvent.[2] If this occurs before departure, the consumers risk losing their money; if it occurs during the holiday, the holidaymakers may be stranded abroad. The Air Travel Organisers' Licensing (ATOL) scheme was introduced in the 1970s to protect consumers against the financial consequences of such occurrences.[3] According to the Civil Aviation Authority (CAA) which administers the ATOL scheme, in the past three years over 100,000 people have been repatriated by the CAA following business failures and over 250,000 have received refunds as a result of the scheme.[4]

Changes in holiday bookings

2. The way in which holidays are booked has changed greatly in recent years due to the advent of the internet, budget airlines and developments in the travel industry. The legal framework for ATOL has not kept up. While traditional package holidays sold by travel agents and tour operators are ATOL protected, holidays sold by airlines are exempt. In addition, "agents for the consumer" are also exempt. (These are companies which the courts have held to be acting on behalf of the consumer rather than on behalf of the airline. As such, unlike airlines or tour operators, they do not provide or sell flights.[5]) As a result, only around one half, some 18 million, of holiday bookings are now covered by the ATOL scheme.[6] In addition, the Air Travel Trust Fund (ATTF), from which payments should be drawn, has a deficit of some £42 million, underwritten ultimately by the Government.[7]

3. ATOL is a subject of considerable concern amongst parts of the travel industry, not least because of its partial coverage and the perceived commercial disadvantage to those companies obliged to include the ATOL Protection Contribution (currently £2.50 per passenger) in their charges to consumers. Members of ABTA (formerly the Association of British Travel Agents) and the Association of Independent Tour Operators (AITO) in particular have called for swift and substantial reform.[8] However, different sectors of the industry hold strong and diverging views about how the scheme should be changed.

Government reform of ATOL

4. The Government has announced both short-term and long-term changes to ATOL. Using secondary legislation, it will bring a wider range of "Flight Plus" bookings made through travel agents within the ATOL scheme.[9] In addition, agents selling ATOL protected packages will be required to issue the customer with an ATOL certificate. In the longer term, the Government intends—subject to consultation[10]—to extend the ATOL scheme to holidays and packages sold by airlines and agents for the consumer, by means of provisions in the Civil Aviation Bill,[11] which is currently awaiting Report Stage in the Commons.[12] It does not intend to extend ATOL protection to flight-only sales by airlines and cannot do so under existing EU insolvency protection law.[13] The result of the Government's current and proposed reforms of the ATOL scheme are summarised in Table 1 below. Despite dissatisfaction with the existing arrangements and a desire for change on the part of many in the travel industry, the reforms are proving controversial.[14]

Figure 1: Overview of ATOL protection by type of company and holiday

Product:

Company type
Traditional package holidays Dynamic packages* included in Flight Plus Dynamic packages* outside Flight Plus Flight only

Travel agents and tour operators ATOL protected ATOL protected from 30 April 2012 Not ATOL protected ATOL protected since 2012 **

Airlines and Agents for the consumer Not ATOL protected (unless sold through a subsidiary holiday company). May be protected as a result of the Civil Aviation Bill. Not ATOL protected (unless sold through a subsidiary holiday company). May be protected as a result of the Civil Aviation Bill. Not ATOL protected (and no change proposed). Not ATOL protected (and no change proposed).

Notes:

* "Dynamic packages" refers to combinations of flights, accommodation or other services, independently assembled by consumers using the internet.

** Unless they qualify as an Airline Ticket Agent

EU Package Travel Directive

5. The ATOL scheme allows the UK to comply with the EU Package Travel Directive[15] which requires member states to have a scheme which provides financial protection for consumers buying package holidays. The CAA has provided us with a brief analysis of how other states comply.[16] It would seem that the ATOL scheme is more extensive than most EU comparators, the majority of which rely on bonds or insurance rather than a dedicated fund. The UK scheme was established before the directive came into effect. Witnesses from the travel industry told us that ATOL was probably the best scheme in the EU[17] although the CAA said the costs of such schemes across Europe were broadly similar.[18] As an island nation with well-established package holiday and budget airlines industries, the UK has a higher percentage of overseas holiday flights than most other EU states.

6. The Package Travel Directive is due to be revised within the next few years.[19] Some witnesses argued that ATOL reform should await the revised directive to avoid disjointed or abortive changes.[20] The Aviation Minister Theresa Villiers MP told us, however, that reform of ATOL was needed sooner. She was confident that the Government's proposals would be consistent with likely changes to the directive.[21]

Private insurance

7. The Government has considered whether private travel insurance could replace the mandatory ATOL protection. A number of problems were identified, including the need to comply with the EU Package Travel Directive and greater complexity for the consumer.[22] Moreover, the Government cannot avoid its liability to help repatriate UK citizens. We note the lack of suitable insurance policies at present and the prospect that cover may be incomplete or withdrawn when it is most needed.[23] However, the potential role of private insurance should remain a consideration in any future review.

Our inquiry

8. ATOL has been the subject of concern for our Committee and our predecessors.[24] We have had regular correspondence from organisations representing travel agents and tour operators, highlighting problems and urging change. Because of the reforms that the Government is now implementing, we have conducted a short inquiry. The travel trade is currently working hard to meet the deadlines set by the Government for Flight Plus and ATOL certificates. We welcome these measures for the additional protection offered to consumers. Although we comment on the measures, we do not suggest short-term changes, which would be disruptive for the industry. We have therefore concentrated on wider reforms, which we consider are needed. This report is a supplement to our earlier report on the draft Civil Aviation Bill which did not contain provisions relating to ATOL.[25] We are grateful to those organisations and individuals who contributed to our inquiry. We have been assisted in this inquiry by our aviation specialist adviser, Louise Congdon.[26]

2 According to accountants Wilkins Kennedy, Anthony Cork, 41 UK travel agents were forced into bankruptcy in 2011. The economic downturn, natural disasters and the Arab spring all played a part in their downfall. See The Guardian, 30 Dec 2011, p26. Back

3 For further details of the development of ATOL, see Ev 29. For commentary see Ev 50. Back

4 Ev 29, para 1.4 Back

5 See Ev 29 paras 5.1-5.4 and Ev 35 para 32. An example is Sun4U which collapsed in 2009. Back

6 Ev 29, paras 1.4 and 2.6 Back

7 Ev 55, para 5. The Government provides a £30m guarantee. The CAA is also financially liable. Back

8 Ev 35 and Ev 44 Back

9 Statutory Instruments 2012, No 1017, The Civil Aviation (Air Travel Organiser's Licensing) Regulations 2012, laid before Parliament on 4 April 2012, coming into force on 30 April 2012. Back

10 The DfT expects to consult in 2013 - see Q 153. Back

11 Clause 94 Regulation of provision of flight accommodation. Back

12 Timetabled for 25 April 2012. Back

13 Ev 55, para 21 Back