2 Short-term reform
Objectives
9. The Government has two key objectives for its
short-term reform of ATOL:
[...] to:
- Provide greater consumer clarity about which
holidays are protected by the ATOL scheme and which are not.
- Restore the scheme's finances to a self-sustaining
position so that the Government guarantee can be removed.[27]
10. The Government's first objective (consumer clarity)
was widely supported by witnesses to this inquiry.[28]
The Government says that there can be considerable confusion for
consumers, the travel trade and the CAA about whether a holiday
is ATOL protected or not.[29]
ABTA and others confirmed to us that ATOL was complex and confusing
for the industry; and the CAA has had to resort to the courts
to establish who was or was not protected.[30]
The consumer body HolidayTravelWatch provided anecdotal evidence
of consumer confusion in cases where holiday companies or airlines
had become insolvent.[31]
However, we received no other evidence from consumer groups regarding
the Government's objectives or proposed reforms.
11. Regarding the second objective (restoring the
scheme's finances and, by implication, the elimination of the
deficit in the ATTF), witnesses recognised that this was necessary
but disagreed as to how the financial burden should be shared.[32]
The consumer's view
12. The Government undertook public consultation
on its proposed reform to ATOL in June 2011;[33]
in February 2012 it published a summary of the responses and its
decisions.[34] Most of
the consultation responses are from the travel industry and other
stakeholders. Only four responses were from consumer groups and
these barely feature in the report. The views of the consumer—as
holidaymaker or airline passenger—and the precise nature
of their awareness or difficulties are not made clear. There seems
to be a lack of robust research by the Government or CAA in this
area.[35]
13. Some witnesses to our inquiry said that many
consumers did not expect dynamic packages, now part of Flight
Plus, to be covered by the ATOL scheme.[36]
The only consumer organisation (HolidayTravelWatch) that submitted
evidence to our inquiry did not support the reforms.[37]
The Government has not presented evidence on the extent to which
consumers want the ATOL scheme to be extended. Some consumers
no doubt like the protection afforded by ATOL but equally there
are those who are very price sensitive and may object to paying
for protection which they may not want or need.[38]
14. The Government
has not clearly based it reforms to the ATOL scheme on evidence
from consumers. We recommend that the Government undertakes research
into consumer awareness of the consequences to holidaymakers of
a failure by their airline or tour operator, the consumer protection
options available to them, and their views on whether and in what
ways the ATOL scheme should be extended. The results should be
used to inform the consultation on further ATOL reform that is
intended to follow the passage of the Civil Aviation Bill.
Principal measures
15. The two principal measures that the Government
is introducing to further these objectives are the introduction
of "Flight Plus" and ATOL certificates for consumers.[39]
Theresa Villiers announced on 9 February 2012 that the Government
would go ahead with its proposed changes under secondary legislation:
the new regulations were planned to be laid in Parliament in March,
before coming into effect on 30 April 2012. However, the full
implementation date was again put back: Flight Plus will take
effect from 30 April but the certificates will not be mandatory
until 1 October 2012.
Flight Plus
16. The Government has decided to define certain
combinations of bookings made with ATOL holders as Flight Plus
packages and to require that they are protected under the ATOL
scheme. Where the request for a flight is made on the same day
or within a day either side of a request for accommodation and/or
car hire, this will constitute a Flight Plus booking.[40]
Department of Transport witness Kate Jennings, Head of Aviation
Policy Implementation Division, described Flight Plus as a "permissive
regime": combinations of bookings made outside the two-day
window could be ATOL protected if the ATOL holder chose to offer
this to the consumer.[41]
The holiday must have its outbound leg departing from the UK and
the trip must be over 24 hours in duration, or include an overnight
stay. Domestic flights are not part of Flight Plus and sales to
businesses are likely to be exempt.[42]
These changes do not apply to sales by airlines or agents for
the consumer, which are currently outside the ATOL scheme.
17. The creation of Flight Plus was broadly welcomed
by the bodies representing traditional travel agent and tour operators.
ABTA and AITO have campaigned hard for dynamic packages and the
companies selling them to be brought within the ATOL scheme. They
saw Flight Plus as a step in the right direction, albeit with
some reservations about the details. AITO felt that the booking
window was too short and should be increased to 7 days to reflect
consumers' needs. Mr Farrow of the Society of Our Lady of Lourdes,
who made bookings on behalf of a group of travellers with disabilities,
said that a two-day period was insufficient to complete their
more complex arrangements.[43]
Theresa Villiers defended it on the grounds that a longer period
would prove more onerous for the industry to administer but said
that she had an open mind about further reform.
18. Other sections of the industry were opposed to
Flight Plus. The online travel agents told us that it would impose
significant costs but few benefits. Lastminute.com doubted that
Flight Plus took account of the behaviour or expectations of many
online customers. It estimated that it would cost the company
over £1 million over 9-12 months to introduce the systems
required to track potential Flight Plus bookings.[44]
Expedia said it believed it would increase customer confusion
and add disproportionate costs.[45]
The European Technology and Travel Services Association (ETTSA),
reflecting similar views on behalf of online travel agencies,
said that the UK would be alone in the EU in having such a requirement.[46]
19. Many airlines were also opposed to Flight Plus.
Although, as airlines, they will not be required to comply at
this stage, they were evidently concerned about the possibility
of being brought into the ATOL scheme at a future date. In addition,
a number of airlines have holiday companies that are within the
ATOL scheme and would have to comply with Flight Plus. BAR UK
said that the Flight Plus proposals "impose onerous liabilities
and discourage their applicability".[47]
Flybe was concerned that it would have to invest in systems and
take responsibility for the relatively small number of car hire
bookings that its customers made with Avis through its website.
The airlines' views may also reflect their concerns that the Government,
as part of EU reform of the Package Travel Directive, may seek
to include ticket-only sales by airlines within the ATOL scheme
(or its equivalent) at some future point.
ADDITIONAL COVERAGE AND CONTRIBUTIONS
20. According to the Government, as a result of Flight
Plus, an additional six million holidays will be ATOL protected,
increasing the number of consumers benefiting to some 22 million
a year.[48] This would
represent approximately 60% of the 36 million people travelling
abroad for a holiday.[49]
The Minister acknowledged that the figures involved a "degree
of speculation" and the exact impact was not easy to calculate.
However, she was confident that significantly more holidays would
be covered as a result and that, without these measures, an increasing
number of bookings would fall outside the ATOL scheme.[50]
Insofar as more holidays are covered by ATOL, there will be greater
protection for consumers. Whether the increased coverage will
result in greater clarity for consumers is another matter. Some
of our witnesses thought there would not be.[51]
21. The other major impact of these measures, according
to the Government, will be additional net APC payments to the
Air Travel Trust Fund. The six million Flight Plus bookings will
yield additional APC of £83 million over 10 years.[52]
The Government has assumed that the APC will stay at £2.50
for four years and thereafter reduce to £1.50.[53]
Lowcosttravelgroup, however, challenged the Government's six million
figure, saying that it had been contradicted by the CAA and that
the travel industry would continue to find ways around the regulations.
The number of packages covered and, therefore, the payments to
the ATTF could be lower than forecast.[54]
22. The Government takes the view that the difficulties
with the ATOL scheme, particularly the deficit in the ATTF, need
to be urgently addressed. The Government's principal short-term
solution is the introduction of Flight Plus. The Minister said
that the main purpose was to extend ATOL protection to more holidaymakers
rather than to reduce the ATTF deficit.[55]
It is not evident, however, that the consumer wants this additional
mandatory protection or that it will improve clarity for the consumer
when booking: depending on how and when the "package"
is assembled, it may or may not be protected by ATOL. Flight Plus
will impose significant financial and practical burdens on sections
of the travel industry, which ultimately will increase costs for
consumers. We welcome the
ATOL protection that Flight Plus will provide for a significant
additional number of holidaymakers. However, the failure of the
Government to demonstrate that it has based these reforms on evidence
of consumer views, leaves it open to the accusation that it is
primarily concerned about reducing the deficit in the Air Travel
Trust Fund. The Government needs to address this issue.
23. We recognise that Flight Plus arrangements are
now underway and the industry may not welcome further change at
this stage. We are not convinced, however, that the Government
has arrived at the best definition of Flight Plus. On the one
hand, it appears to extend the scope of ATOL too far: it is not
clear why a flight and car hire should constitute a package that
warrants ATOL protection. On other hand, the two-day Flight Plus
booking window is likely to be too short for the booking needs
of some consumers. We recommend
that the Government monitors the first year of operation of Flight
Plus, particularly in terms of the number of Flight Plus bookings
made, the extent to which companies seek to circumvent it, its
impact on consumer costs and the views of consumers towards it.
This information should be provided as part of the consultation
on further ATOL reform that is intended to follow the passage
of the Civil Aviation Bill.
ATOL certificates
24. The other main short-term measure is the requirement
for customers to be issued with an ATOL certificate. The CAA has
designed these requirements and has provided guidance.[56]
The ATOL certificate is a new document, which must be supplied
when accepting payment for every ATOL protected holiday and replaces
current documentation requirements. The ATOL certificate will
be a standardised document issued by all ATOL holders or their
agents. Each ATOL certificate must have a unique reference number.
25. The comments we received regarding ATOL certificates
were largely about the practicalities—the time needed to
install the systems, the costs of issuing bespoke certificates
and the requirements to reissue the certificates if customers
added to or changed their bookings.[57]
ETTSA said that online travel agents needed 12 months to implement
these measures.[58] The
Government decided to put back the requirement to issue an ATOL
certificate from 30 April to 1 October 2012.[59]
INFORMATION FOR ALL CONSUMERS
26. The ATOL certificates should increase clarity
for consumers and for the CAA in the event of a tour operator
or airline failure.[60]
We welcome this greater clarity. However, there remains a risk
that those consumers who are not covered by ATOL, including those
constructing their own travel packages or booking flights only,
will be none the wiser. Theresa Villiers said it was not possible
to insist on the issuance of a "reverse ATOL certificate"
for bookings which do not come within the scope of the ATOL scheme.[61]
In our view, however, more could be done to inform passengers
not covered by the ATOL scheme of their situation and options.
This should be part of the consumer awareness campaign that the
CAA is planning for later this year.[62]
27. We recommend
that the Government and CAA work with the airlines, the travel
industry and consumers to develop a code of practice on information
for consumers making overseas holiday or travel bookings. All
consumers booking an overseas flight that is not ATOL protected
should be provided with information outlining the potential consequences
to the consumer of airline insolvency, the extent of any cover
provided and the options available to consumers to protect themselves
against such risks. This should include a link to more detailed
information, to be provided on the CAA website.
27 Ev 55, para 8 Back
28
For example, Ev 35, para 5;and Ev 73. Back
29
Ev 55, para 3 Back
30
Ev 29 Back
31
For example, Ev 64 Back
32
The Committee heard strongly-argued and opposing views on which
sectors of the travel industry were responsible for the deficit
and who should be required to contribute towards its reduction.
Travel agents currently contributing to the ATTF argued that the
certain airlines and others outside the ATOL scheme were responsible
(Qq18-22); the airlines denied this (Qq 71 and 72); and the CAA
declined to give a view (Q 104). Back
33
Department for Transport, 'ATOL Reform Consultation Document',
June 2011, http://assets.dft.gov.uk/consultations/dft-2011-17/dft-2011-17-document.pdf Back
34
DfT, ATOL reform: summary of consultation responses and Government
decisions, February 2012 Back
35
Some limited research is cited by the CAA: Ev 32 (Q94) Back
36
Ev 73 Back
37
Ev 62 Back
38
Q 62 Back
39
Reference secondary legislation and regs Back
40
Defined in The Civil Aviation (Air Travel Organiser's Licensing)
Regulations 2012, 24 (1) (c) as "such living accommodation
or self-drive car hire is requested to be booked by or on behalf
of the consumer on the same day as the consumer requests to book
the flight accommodation, the previous day or the next day". Back
41
Q139 (Kate Jennings ) Back
42
CAA Improving holiday protection: Your guide to how ATOL is
changing, February 2012 http://www.caa.co.uk/docs/2094/Guide%20To%20How%20ATOL%20Is%20Changing.pdf Back
43
Ev 72 Back
44
Ev 73 Back
45
Ev 59 Back
46
Ev 74, paras 4-6 Back
47
Ev 39, para 2.2 Back
48
The DfT's Impact Assessment (paras 53-73) assumes that, with no
change, the number of holidays with ATOL protection will reduce
by 2 million (to 16 million) over the next four years. It estimates
that Flight Plus will reverse this reduction and add a net 4m
holidays, benefitting up to 22 million consumers per year (para
116). Back
49
Ev 32, Q120 Back
50
Q133 Back
51
Ev 39 Back
52
The impact of the increased number of APCs is partly offset by
the reduced APC on all bookings after Year 4 so the net effect
is an additional £8.5m over the 10 year period. DfT, Impact
Assessment, paras 91-93. Back
53
DfT, Impact Assessment, p 22. Back
54
Ev 50. The DfT has not made a formal assessment of how many holidays
are likely to fall outside Flight Plus as a result of firms seeking
to avoid the new regulations (Q 139). Back
55
Q145 Back
56
CAA Guide Ibid Back
57
Ev 74, paras 7-9 Back
58
Ev 74, para 14 Back
59
Q148 Back
60
The CAA has had to go to court to establish who is covered by
the scheme (Ev 29). Back
61
Q147 Back
62
Q148 Back
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