Civil Aviation Bill

Memorandum submitted by ABTA The Travel Association (CA 14)

INTRODUCTION

1 This response is submitted on behalf of ABTA – The Travel Association. ABTA was founded in 1950 and is the largest travel trade association in the UK, with over 1,200 members and over 5,000 retail outlets and offices. Our Members range from small, specialist tour operators and independent travel agencies through to publicly listed companies and household names, from call centres to internet booking services to high street shops. ABTA Member sales account for 90% of the package holidays sold in the UK annually, accounting for roughly £41.2 million of the Air Travel Trust Fund’s (ATTF) £46.2 million annual income. ABTA Members are also responsible for the sale of millions of independent travel arrangements to UK travellers annually.

2 ABTA welcomes the Civil Aviation Bill. ABTA supports the Government’s commitment that the Bill will put the passenger at the heart of the aviation experience. As an organisation with a strong consumer presence, we support measures that add to the passenger experience. Key to this experience is confidence, and financial protection is central to improving consumer confidence in travel products. For that reason, ABTA is particularly eager to comment on Section 94 of the Civil Aviation Bill which directly pertains to the reform of the Air Travel Organisers’ Licencing (ATOL) scheme. As such, the evidence contained within this submission is limited almost exclusively to Section 94 of the Civil Aviation Bill.

3 Currently, 631 ABTA Members are ATOL holders. It is estimated a further 629 ABTA Members could be required to enter the ATOL scheme under the reforms currently being implemented by the Department for Transport and the Civil Aviation Authority. The reforms to the ATOL scheme will entail significant systems and process changes for ABTA Members.

4 ABTA welcomes this opportunity to submit written evidence on the Civil Aviation Bill, and we were very happy to have the opportunity to participate in the oral evidence session held on 23 February 2012. This submission elaborates on the key points raised by ABTA’s Chief Executive Mark Tanzer during that oral evidence session.

KEY EVIDENCE

5 ABTA welcomes that the scope of the Civil Aviation Bill includes the reform of the ATOL scheme of financial protection. Section 94 of the Bill will enable the Secretary of State to include holidays sold by airlines and arrangements made on an ‘agent for the consumer’ basis within ATOL protection. ABTA welcomes this extension of the Secretary of State’s powers and we believe this to be a major step in the right direction for consumer protection. Furthermore, Section 94 is the clearest indication to date that the Government is aware of the travel industry’s key concerns surrounding ATOL reform, namely that the ATOL reforms will only be workable for the industry and for consumers if holidays sold by airlines are included within ATOL’s scope.

6 The airline-led unprotected flight holiday market is substantial and a solution that excludes airline holidays beyond the short term can neither be effective in terms of consumer protection, nor can it be fair from a competitive point of view. Consumers will continue to be confused as the system will not offer clarity to consumers buying similar products – their level of financial protection will continue to vary; furthermore, with travel agents and tour operators facing regulation when selling a holiday that airlines are also selling unregulated, the market distortion is glaring.

7 ABTA believes it is essential that all customers buying similar products should be entitled to clear, comprehensive and similar protection – therefore, airlines selling holidays must be included within ATOL. All holidays – however they are booked – should be financially protected. This is the starting point for our call for an extension of consumer protection.

8 ABTA notes however, that the current Department for Transport reforms will mean that only 56% of all holidays taken by UK nationals will be protected by the ATOL scheme. The current proposals are a first step towards creating a more comprehensive, clear and transparent system of consumer protection. However, we believe the scheme cannot be made fairer or successful if at a minimum, airline holiday sales are not brought within the scope of the reform.

9 ABTA notes that the Department for Transport's June 2011 consultation on ATOL reform directly addressed the question of holidays sold by airlines. At that time, all stakeholders (including airlines) had the opportunity to respond to the proposals. Furthermore, the case for inclusion of holidays sold by airlines was emphatically made by ABTA and other respondents during that consultation period. For this reason, and in order to avoid delay in creating a comprehensive and fair scheme of consumer protection, ABTA believes a further consultation on the case for bringing holidays sold by airlines into ATOL is unnecessary.

10 We will continue our work with the Department for Transport and the Civil Aviation Authority to ensure that the Civil Aviation Bill is not a missed opportunity for consumer clarity, and establishing a level playing field for travel businesses. We urge the Public Bill Committee to ensure that Section 94 of the Bill is protected to ensure the Government can achieve its stated objectives of clarity, transparency, and comprehensiveness in consumer protection.

THE CASE FOR INCLUDING AIRLINE HOLIDAY SALES WITHIN ATOL

11 In developing the ABTA response to the June 2011 consultation on the reform of ATOL scheme, ABTA carried out a thorough consultation of Members, including the distribution of a comprehensive questionnaire. The results of this questionnaire were overwhelming; 95% of ABTA Members believe that airlines should be included within the ATOL scheme if the reforms were to achieve the Government’s stated objectives.

12 87% of our Members believe that all airline sales, including seat-only, should be brought within the scope of the scheme. 93% of Members agree that airline website sales resulting in click-through arrangements should be included as Flight-Plus. This supports ABTA’s long-advocated position whereby all holidays should be protected regardless of how they are booked.

13 The airline-led unprotected flight holiday market is substantial and a solution that excludes airline holidays beyond the short term can neither be effective in terms of consumer protection, nor can it be fair competitively. We believe it is essential that all customers buying similar products should be entitled to clear, comprehensive and similar protection – therefore, airlines selling holidays must be included within the protection regime.

14 Airlines can, and do, fail financially. The recent examples of Spanair and Malev Airlines, who have both collapsed in the last month, are evidence of this; we expect that they will not be the last. Comprehensive evidence of other recent failures of airlines is included within this submission. ABTA firmly believes that not only will the Government’s aims remain unachievable if airlines are not included within the scheme, but furthermore, in their current form, the reform proposals would create a system with market distortions. Such distortions are not only unfair in a competitive marketplace, but we believe they also perpetuate consumer confusion about whether their holiday arrangements are protected or not.

15 Consumer confusion coupled with the distorted competitive landscape in favour of airlines could well lead to fewer and not more consumers choosing financially protected travel arrangements. ABTA estimates that it will cost a Flight Plus arranger roughly £5-£10 per person to financially protect a holiday arrangement (costs will include the Air Passenger Contribution (APC) to the Air Travel Trust Fund (ATTF), bonding costs on the business, insurance costs, and other administrative costs); this expense is passed on to the consumer via a higher price. These costs represent a considerable financial disincentive to purchasing protected arrangements especially in an era of price-comparison websites and squeezed incomes. ABTA believes excluding holidays sold by airlines will also incentivise traders to seek to avoid the scheme, as far as legally possible, in order to remain competitive against those companies trading without the costs of protection.

16 For example, an identical flight and an identical hotel sold by a travel agent as a Flight Plus arrangement could cost a family of four an additional £40 to the overall price of the holiday over the same hotel and flight being sold by an airline, as they are excluded from the costs of compliance. The travel agent would be required to financially protect the customer’s monies, provide an ATOL Certificate and put in place arrangements to replace any failed elements.

17 The majority of ATOL failures that have involved significant withdrawals from the Air Travel Trust Fund (ATTF), leading to the current deficit in the fund, have largely been the result of airline failures, usually driven by external crises, which impact on the businesses of airlines and travel companies. Throughout the lifetime of the ATOL scheme, systematic collapse, where the failure of an airline has subsequently led other travel businesses to cease trading, has been a common occurrence.

i The first example of this was the failure of Courtline in 1974. The failure of Courtline was driven by the oil crisis of the early 1970s and the failure of the parent shipping line. As a result, the impact on Clarkson Holidays was significant, and a failure resulted – leading to the creation of the ATOL scheme.  

ii In 1982, Laker Airways collapsed, taking along with it subsidiary operators Aerosmith Holidays and Laker Holidays. The Air Travel Trustees was able to deal with the resulting costs. By 31 March 1990, the ATTF stood at +£25 million, rising to +£28.3 million in 1991.

iii However, on 8 March 1991, in the midst of the uncertainties of the Gulf War, Air Europe failed, taking down the International Leisure Group (Intasun/Global/Lancaster/Club 18-30 etc. – the UK’s second largest operator only to Thomson at the time) with it. By March 1992, the ATTF was +£19.3 million and by March 1993 had fallen to +£7.6 million – the link between the collapse of ILG and the depletion of ATTF is clear.

iv Best Travel Group (including Ambassador Airlines) ceased trading in 1994, further depleting the ATTF until by 1997, it was -£5.2 million in deficit and it has not been able to climb back into the black from this point.

18 The major jump in the ATTF deficit can be attributed to the economic climate of recent years, when airlines have failed: XL Travel and Leisure; Kiss Flight; Freedom Flights to name but a few.

19 According to the Air Travel Insolvency Protection Advisory Committee (ATIPAC) reports (2000-2011), drafted by the ATIPAC Group responsible for advising the CAA and the Air Travel Trustees, substantial amount of monies have been paid out from the ATTF on failed ATOL holders, whose failures can be directly attributed to airline insolvencies over the last 11 years. This comes to £50,140,000 of a total £108,101,000 in calls, representing 46.38% since the inception of the ATIPAC online reports in 2000. This clearly demonstrates the importance of including airlines within the ATOL Scheme if the Government wishes to achieve its stated objection of eliminating the ATTF deficit.

20 In the last three years, 51.2% of all claims on the ATTF can be attributed to monies paid out following failures of ATOL holders as a direct result of airline insolvencies; we would highlight the failures of Silverjet, XL Leisure, and in particular, their Freedom Flights business, as well as Goldtrail and Flight Options Ltd, who appear collectively to have cost the ATTF somewhere between £80 million and £90 million between 2008 and 2011.

21 The failure of an airline tends to have a very significant impact on the ATTF when they occur. We would like to draw your attention to the failure of flyGlobespan, which as a non-ATOL holder did not result in a call on the ATTF. However, some 3,500 passengers had booked directly with flyGlobespan and they were adversely affected, along with some 90,000 passengers yet to travel. This caused considerable consumer detriment that we believe could have been mitigated if holidays sold by airlines had been included within the ATOL protection scheme. It also added to consumer confusion about what holiday arrangements are protected.

22 ATIPAC reports from 2009-2011 also highlight the particular significance of the airline failure in terms of impact on the consumer. 70% of repatriations that were necessitated during the period were due to an airline associated failure (67,424/96,940) and of the licensed passengers affected, the airline associated impact was 63% (1,101,851 / 1,747,605).

23 The CAA was sufficiently concerned about the impact of the EUjet failure in July 2005 to undertake its own report and analysis. When EUjet ceased flying, there were some 12,000 passengers still abroad and 27,000 yet to travel. The failure of Zoom in August 2008 with some 40,000 passengers affected also, we believe, further illustrates the necessity for airlines to be included.

24 In light of this clear evidence, ABTA believes that the Government should make an unequivocal commitment in its response to the consultation to introducing such legislation as is necessary, within the Civil Aviation Bill, to bring airlines into the ATOL scheme. While the announcement on 23 November 2011 is the clearest indication yet that the Government is seriously considering the inclusion of airlines in ATOL, clear and concerted pressure on the DfT will help to ensure that appropriate measures will be taken by Government to bring holidays sold by airlines into the scheme of ATOL financial protection.

25 ABTA is aware of the work of the European Commission to introduce airline insolvency measures. The Commission undertook an impact assessment this year which showed that although the number of passengers affected by airline failures was relatively small, in comparison to the total number of flights across the EU, the impact on those passengers affected was significant [1] . We do not believe that activity in Brussels should preclude activity in the UK and, moreover, believe that without UK action the ATOL scheme is not workable in the medium-term. However, the practical difficulty of applying any UK solution to airlines based outside the UK must be recognised. We would recommend the Department for Transport liaises with colleagues in the European Commission on this matter. ABTA believes that efforts to address airline insolvency in the UK should be cognisant of but not tied to efforts in Brussels. We favour a regulatory route to address airline insolvency in Westminster and in Brussels to achieve a level playing field between providers and clear consumer protection.

INCLUDING ‘AGENT FOR THE CONSUMER’ SALES WITHIN ATOL

26 An ‘agent for the consumer’ scenario is a reversal of the traditional travel agent-tour operator relationship, whereby the principal will be the consumer, the travel agent will be the agent of the consumer and the third party will be a travel services provider. The travel agent, as the consumer’s agent, will source travel services from third parties and place the consumer into contract with those third parties. Under the current Government proposals on ATOL, ‘agent for the consumer’ sales would sit outside of ATOL financial protection as the agent for the consumer is not, itself, making available flight accommodation but is sourcing such accommodation on behalf of the consumer. Such arrangements cause great confusion for consumers and, as they are outside of ATOL, place at risk monies taken by the travel agent from the consumer.

27 In order to include ‘agent for the consumer’ sales within the reform of ATOL, primary legislation would be required. ABTA supports clear signals from the DfT that it intends to introduce primary legislation to bring ‘agent for the consumer’ sales into the ATOL scheme at some point. However, in order to dispel consumer confusion in the ATOL scheme, and to create a level playing field for industry, the DfT’s priority must be the provision for the inclusion of holidays sold by airlines within ATOL in the Draft Civil Aviation Bill.

28 ABTA believes that the current agent for the consumer loophole should be closed as soon as reasonably practicable. If there are failures before the loophole is closed, the current regime of financial protection for air travellers will be brought into further disrepute.

29 25% of ABTA’s Members agree that the agent for the consumer exemption should exist, 52% think it should not, and 23% are unsure. 59% of ABTA Members are not currently acting as agent for the consumer, as defined in the proposals, while 25% are. The majority (52%), are not considering changing their business model in light of these proposals, however 48% have not ruled it out (13% are considering it, 26% are unsure, and 9% are not considering a change yet).

February 2012


[1] European Commission, Impact Assessment of Passenger Protection in the Event of Airline Failure, conducted by Steer Davies Gleave, March 2011

Prepared 2nd March 2012