3 Long-term reform
Objectives
28. The Government has two key objectives for its
long-term reform of ATOL:
[...] to:
- Further improve the clarity of the scheme and
develop a more consistent and coherent regulatory framework for
businesses.
- Look at options for how ATOL is managed and financed
once it is financially self-sustaining.[63]
29. We heard from a number of witnesses that the
Government's objectives for ATOL reform were not sufficiently
clear. For example, Jill Brady of Virgin Atlantic questioned whether
the purpose of the Government's aim was to provide consumer protection
or repatriation cover.[64]
30. The Government's
long-term reform objectives seem to involve modifications and
extension of the existing ATOL scheme rather than a comprehensive
review of the issues and options. In our view, there are two purposes
of the ATOL scheme which have not been sufficiently disentangled.
ATOL provides protection for the consumer's holiday and an assurance
that the holidaymaker will not be stranded abroad. Consumer protection
is essentially a private matter, though subject to the EU Package
Travel Directive; repatriation of UK citizens involves the passenger
and the state. In devising future schemes, we recommend that the
Government should distinguish more clearly between these two issues.
Holiday sales by airlines and
agents for the consumer
31. Under current legislation, holidays sold by airlines
are outside both the EU Package Travel Directive and the primary
legislation on which the ATOL scheme is based. In addition, some
companies which may appear to be operating as travel agents are,
in law, acting as agents for the consumer and are not required
to provide ATOL protection. The Government proposes to change
this by taking powers in the Civil Aviation Bill:
The Civil Aviation Bill was introduced into
Parliament on 19 January, and includes a provision to widen the
Secretary of State's existing power to regulate the provision
of flight accommodation. The new power gives the Secretary of
State the option to create new regulations to require airlines
to hold an ATOL for the sale of their flight-inclusive holidays.
It would also allow the Secretary of State to require businesses
procuring flight-inclusive holidays for clients as 'agents for
the consumer' to hold an ATOL.[65]
32. While there is little disagreement on the inclusion
of agents for the consumer within the ATOL scheme, the travel
industry is divided on the matter of including the airlines. ABTA
and others want not only holidays but all overseas flights sold
by airlines brought within the ATOL scheme.[66]
The lowcosttravelgroup recommended a two-tier payment system,
including flight-only sales by airlines. Flights would attract
a lower contribution (say 50p) to cover repatriation costs only
while those consumers booking holidays would pay a higher contribution
(say £1.00) for full ATOL protection.[67]
The airlines, however, are generally opposed to these measures.
33. We welcome
the inclusion of provisions in the Civil Aviation Bill to bring
holiday sales by airlines and agents for the consumer within the
ATOL scheme. It is an anomaly that one type of company should
be required to provide ATOL protection while another type of company,
selling the same product, is not. This will help to create consistency
for consumers and a more level playing field for the industry.
However, extending the ATOL protection to holiday sales by airlines
does not mean that flight-only sales by airlines should be brought
within the ATOL scheme.
Flight-only sales by airlines
34. The airlines are particularly concerned that
flight-only bookings might be included in the ATOL scheme
at some future stage. Indeed, in 2005 the CAA attempted to impose
a £1.00 levy on all outbound flights to provide a fund for
ATOL. This move was rejected by the then Government.[68]
The Government says that it cannot now include flight-only sales
by airlines in the ATOL scheme:
The power in the Civil Aviation Bill would
not permit all flights sold by airlines to be protected under
the ATOL scheme. It would not be possible to do so unless insolvency
protection for airline passengers was required at EU level. The
European Commission is currently considering options on this issue,
the Government will respond to any proposals as and when they
are made.[69]
35. The airlines argued that the incidence of scheduled
airline failure was uncommon and that, in the few instances that
it had occurred, the industry had collaborated to assist passengers
to return to the UK at reasonable cost.[70]
Many passengers also had private insurance cover or were able
to claim refunds from their credit card company.[71]
36. Despite their opposition to being included in
ATOL, the airlines would appear to welcome moves towards a clearer
and more consistent approach from the Government and EU to consumer
protection for airline passengers. John Hanlon of the European
Low Fares Airlines Association advocated closer regulatory oversight
of airline companies, an industry-run "rescue fares"
scheme and mandatory opt in/out for Scheduled Airline Failure
Insurance (SAFI).[72]
He told us that its members offered travel insurance policies
which included scheduled airline failure cover.[73]
37. The Government
has said that it does not intend to bring flight-only sales by
airlines within the ATOL scheme, and cannot do so under EU law.
The risks—admittedly small—to individuals and to the
Government of passengers being stranded abroad if an airline fails
will therefore remain. We recommend that the Government, in collaboration
with the CAA and the airline industry, work towards simpler but
more comprehensive arrangements that minimise the Government's
liability and provide clear choices for the individual. These
arrangements should be based on the following principles:
- explicit choices
for consumers to opt in or out of repatriation cover;
- based on evidence of consumer
preferences and needs;
- clear information for consumers,
and
- industry-designed and funded.
If EU legislation is a barrier,
the Government should use its involvement in reform of the EU
Package Travel Directive to press for necessary changes.
Air Travel Trust Fund
38. The debate about ATOL reform is as much about
costs as principles, at the heart of which is the level of the
ATOL Protection Contribution (APC)—the per-passenger levy
that ATOL holders are obliged to pay to the CAA. This was introduced
in 2008 at £1.00 per passenger, to reduce the deficit that
had built up in the Air Travel Trust Fund (ATTF). Previously the
scheme had operated on the basis of bonds and guarantees.[74]
Less than two years later, in October 2009, the APC was raised
to £2.50 as a consequence of the collapse of XL Leisure.
Since the introduction of the APC, the number of ATOL bookings
has fallen sharply.[75]
A number of witnesses told us that, in a price-sensitive market,
the APC represented a significant disadvantage for those companies
obliged to pay it who were increasingly competing with airlines
and others who were not, even though the product was largely the
same.[76] The airlines,
concerned that the APC may be applied to flight-only sales in
the future, said that £2.50 in relation to a no-frills flight
costing perhaps only £50 was a significant and unreasonable
additional cost. It
is unfair that those consumers booking a short, low-cost package
pay the same ATOL Protection Contribution (currently £2.50
per passenger) as those booking an extensive luxury holiday. We
recommend that the level of ATOL Protection Contribution be made
broadly proportionate to the value of the booking.
39. The CAA recommends the level of the APC and it
is set by Government. This seems to be a relatively slow and inflexible
mechanism, out of step with the reforms to the CAA's powers in
the Civil Aviation Bill. The CAA has said it hopes to reduce the
APC once the ATTF deficit is eliminated.
40. The Government's Impact Assessment of the ATOL
reforms makes the assumption that the APC will stay at £2.50
for four years and thereafter reduce to £1.50. The Government
has projected that, on current trends and without ATOL reform,
it expects the ATTF deficit to be eliminated within three years.
With the short-term Flight Plus changes, the deficit is expected
to be reduced more quickly.
41. We recommend
that the Government proceeds as soon as possible to develop an
industry-financed ATOL scheme. This should take account of the
twin requirements of protection for consumers and for the taxpayer.
It should be overseen by the CAA with the travel industry playing
a substantial role in the design and operation of the scheme.
The scheme must ensure that costs are allocated fairly across
the industry, according to risk and benefits, without undue cross
subsidy.
63 Ev 55, para 8 Back
64
Q50 Back
65
Ev 55, para 15 Back
66
Ev 35, para 18 Back
67
Ev 50 Back
68
Ev 32. The CAA now has no position on whether a levy should be
imposed flight-only sales by airlines (Qq 108-215). Back
69
Ev 55 para 21 Back
70
Ev 27 and Q 55 Back
71
Ev 57 Back
72
Qq Q47, 54, 56 Back
73
Ev 27 Back
74
Ev 29, para 2.7 and Ev 50 Back
75
DfT, Impact Assessment, p4 Back
76
Q 9 Back
| 
