What agents need to know about Atol reform on the horizon
With Atol reform on the horizon, Luke Golding, director, Deloitte Legal, takes a look at potential changes and how they could impact agents
The Civil Aviation Authority (CAA) is in the process of consulting on potential reforms to the Air Travel Organiser’s Licence (Atol) scheme. With the next stage of that consultation expected in the coming months, here’s a look ahead at what the reforms may mean for the travel industry.
WHAT IS THE ATOL SCHEME?
Atol is operated by the CAA and is designed to regulate the sale of flights in the UK and to provide a means of financial protection for consumers when they book an Atol-protected trip.
The Atol scheme has existed since the 1970s, but has been reformed several times in recent years in an effort to keep up with the rapidly changing landscape of the travel industry and the way in which travel arrangements are sold.
WHY IS THE CAA CONSULTING ON FURTHER CHANGES TO THE ATOL SCHEME?
In 2021, the CAA launched a new consultation on potential reforms to the Atol scheme. The focus of the consultation is on how Atol holders fund their operations. The CAA notes that many Atol holders are reliant on customer payments to fund the operation of their business and considers that this presents a risk to consumers, both in terms of the financial resilience of those Atol holders and the amount of time it takes for customers to receive refunds, where holidays are cancelled.
The main purpose of the consultation, therefore, is to look at changes that can be made to the Atol scheme to mitigate this risk. Although wider issues are also being considered, such as whether changes should be made to the way the APC (the Atol Protection Contribution – currently £2.50 per booking) is calculated.
WHAT CHANGES ARE BEING PROPOSED?
In its consultation, the CAA put forward several proposals that it believes may better protect customer payments and the speed at which refunds are made to customers. Those changes include:
1. Mandatory segregation of customer monies: Requiring Atol holders to segregate the monies that they receive from customers from the funds they use to run their business generally. Those segregated funds would not be able to be accessed or used by the Atol holder until successful completion of the customer’s holiday. Atol holders would therefore be required to fund the operation of their business from alternative sources.
Segregation could either be on a partial or total basis. Total segregation would require the Atol holder to segregate all funds received from a customer, whereas partial segregation would mean that only a portion of the customer funds need to be segregated (the CAA gives an example of 80%), with the remainder being able to be used to pay suppliers, etc.
2. Mandatory bonds: Requiring Atol holders to provide a bond (provided by a bank or insurance company) in an amount set to meet a specified minimum value of customers monies collected by the Atol holder.
3. Hybrid model: The CAA also proposed the option of a hybrid model, offering a choice between segregation of funds or a bond (or using a combination of the two), allowing Atol holders the flexibility to choose the option that best suits their business model.
Aside from the above, wider changes proposed by the consultation include:
1. APC: Changing the way APC is charged to adopt a variable rate (instead of the flat £2.50 per booking) based on either the Atol holder’s risk of failure, the value of the specific booking or a combination of the two.
2. Atol Agency Agreements: Revising the way changes to the Atol Schedule of Agency Terms are implemented. Currently, when the CAA issues an update to the Schedule of Agency Terms, Atol holders must update the agreements they have in place with their agents, within three months. The CAA is proposing a change to this process, so that updates instead apply automatically (unless the change is particularly significant).
3. Pipeline funds: The consultation also focused on pipeline funds, with the CAA noting that a potential risk to Atol holders can arise where a retail agent suffers a financial failure, while holding on to customer monies. The CAA raised the question of whether there should be a requirement for agents to immediately pass pipeline monies to the Atol holder or whether agents should also be required to adopt a form of segregation (of the types set out above).
What do the proposals mean for the industry?
A second consultation, outlining the specific proposals that the CAA intends to implement, is expected in the coming months.
If the proposals are implemented, this could have a significant impact on the way that Atol holders and travel agents fund the operation of their business.
Therefore, while the industry awaits the specific proposals, both Atol holders and travel agents of Atol holders should consider the impact any potential changes may have on their business model.
In the event the CAA mandates the use of segregated funds, considerations should include how well placed the business is to fund its working capital, and whether the business will need to consider seeking funding from alternative sources.
Similarly, businesses should also ask themselves how the use of segregated funds will affect how and when supplier payments can be made and, to mitigate the impact, whether it will be possible to renegotiate supplier payment terms if needed.
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