The Big Question: Is it time to reform the Atol scheme?
James ChappleFive travel experts give their views on the state of the Atol scheme and the CAA’s plans for reform in the second of a new series of monthly Big Question features from TTG.
Atol has long been a cornerstone of how travel does business – but has the pandemic both highlighted its strengths and exposed its flaws?
At TTG, we believe high-quality debate and discussion is vital to progress, and we’re keen to encourage it. Our new series of Big Questions continues as we weigh up another challenging issue, one brought into sharp focus in recent years by the collapse of Thomas Cook and the pandemic.
With the government keen to strengthen consumer protections by giving new powers to travel’s regulators, Atol reform has emerged as a key battleground – one that will require travel to think carefully about some of the fundamental principles upon which it is built and has long operated.
What do you think? Join in the debate in the comments section below, or email feedback@ttgmedia.com. Alternatively, head to one of TTG’s social media channels to get involved.
'Atol stood up well during Covid'
Abta is not convinced by the CAA’s rationale for Atol reform. The travel industry and the Atol scheme stood up well during the pandemic.
If reform is to happen, Abta members favour having a range of financial protection methods, such as bonds, segregation and insurance, which could be used transparently and flexibly. These are all currently allowed under the Atol Regulations and Package Travel Regulations (PTRs). Additionally, Abta already provides pipeline protection.
There’s general industry opposition to mandatory segregation of customer monies, and scepticism about many businesses’ ability to adapt to this. Segregation is costly, complex to put in place when businesses in the supply chain demand advance payment, and could result in market distortion.
Similarly, market distortion is a concern for members with regards to variable Atol protection contribution (APC). The charging of APC shouldn’t result in duplicate protection.
Additional consumer protection is provided under Section 75 of the Consumer Credit Act, and chargebacks. These schemes reduce risk to the Atol scheme in the event of a failure, yet they’re not acknowledged in the CAA’s paper.
The paper also fails to acknowledge insolvency protection – the PTRs – is under review by the Department for Business and Trade. This provides a timely opportunity for the CAA to make a recommendation that the Department for Transport travel’s financial protection mechanisms are aligned and ensure both sets of regulations allow bonds, segregation and insurance.
This would enable businesses to use one protection method across their entire programme, resulting in cost savings and reduced regulatory complexity.
Rachel Jordan is Abta's director of membership and financial protection.
'We must increase financial resilience'
At the very core of our proposals to reform the Atol scheme is an objective, for the benefit of consumers, to increase the financial resilience not only of the scheme but also of the wider travel industry.
Our research tells us consumers expect their chosen holiday company will deliver their trip. Consumers favour financial vetting of the travel companies to ensure their company is financially resilient, with some pointing out the travel companies should have their own measures or contingencies in place to be able to deliver.
It’s clear changes need to be made and that, for some Atol holders, this may mean having to look more closely at how they use customer monies. We’ve indicated some form of segregation of funds is our emerging preferred option, but it is important to note no final decisions have been made at this stage.
We recognise businesses in the travel sector have different structures and ways of operating, and reflecting that, there are differing views on the preferred outcome of reform. We need to bring those differing views together and make sure any changes we implement are viable across the sector.
We also want to continue to support a competitive and vibrant industry that meets the varying needs of holidaymakers as the appetite to travel again continues after the pandemic. We want to get reform of the Atol scheme right, and we will be listening to all evidence we receive to inform our decision-making.
Michael Budge is the CAA's head of Atol.
'The pandemic has changed everything'
In my 53 years in travel, there’s never previously been concern raised about tour operators using customers’ money to fund their operations.
The pandemic changed that. Suddenly regulators, licensable and non-licensable, who were caught out by large collapses which severely dented back-up funds in recent years, decided to restrict liquidity precisely when it was vital to the recovery of the outbound industry.
Trust and escrow accounts have come to the fore, making money for accountants and restricting SMEs from growing. Regulators, merchant acquirers and bond obligors alike seek cover behind cash-backed bonds plus blocked funds, both of which severely damage cash flow.
What we need from the CAA is a definition of customer money before they begin imposing new regulations. Currently, they take a figure of 75% of income as belonging to the consumer. What is completely ignored is
the fact that, at the deposit stage of a booking, most SME tour operators pay airlines in full and, in many cases, a deposit on accommodation too.
Who does the money going out to airlines and accommodation providers at the deposit stage belong to? It is not money the operator is using to run its company, it’s paid out on behalf of the client.
To crucify the operator by expecting it to cover what is paid to an airline, which provides no financial protection and freely uses client monies, is wholly unjustified. And what about the expertise and time required to sell the holiday? That, too, is money used on behalf of the client, via salaries paying team members.
The mechanics must be understood by regulators, or further regulations will cause huge, unnecessary damage to operators.
Noel Josephides is chair of Sunvil and a director of Aito.
'Segregation will offer long-term benefits'
Consumer protection in travel is a complex issue. To ensure fairness and complete protection of consumers while allowing different models is where the complexities lie.
We should concentrate on the essentials and offer robust consumer protection that does not rely on government support. Fundamentally, consumer money is consumer money – it is not, and never should be, working capital.
The recent discussions concerning Atol reform and the potential introduction of client accounts are of huge concern and represent a significant step backwards. Many recent Atol failures reflect misuse of consumer money, first to finance working capital and later to finance losses.
The main difficulty with client accounts is that they remain controlled by the Atol holder. Client accounts are vulnerable to misuse to solve a perceived temporary shortfall in working capital – there is only independent confirmation the correct balance is held once a year in an audit months after the year end. A properly controlled trust account removes the temptation to dip into client funds.
I appreciate segregation of client funds may seem impossible for many. However, to ensure consumer funds are safe, they should be segregated in an independently administered trust account. A client account leaves consumer funds open to being misspent. A trust account managed by an independent trustee offers the best protection.
In the short term, a move towards segregation of funds in trust accounts will be hard for many travel businesses but in the long-term it offers a better and more complete solution.
Tom Clay is chief financial officer at Protected Trust Services.
'What about the airlines?'
It is clear the CAA began from a position that Atol holders should move to all customer funds being held in trust for the consumer, or in the event of financial failure, for the benefit of the Air Travel Trust (ATT).
It appears to have come as a shock to them to discover their first consultation produced a very negative response from Atol holders to the idea and indeed, they suggested almost anything else would be better.
At that point, the CAA appears to have backtracked and tried to claim they never intended to suggest a full trust would be necessary, despite the fact that for the past two years, the CAA has been telling new applicants trust accounts were expected of them.
The problem with accounts, whether trusts or client accounts, is that they have to be monitored so carefully to avoid loss that they can become extremely expensive and cumbersome to operate – and unlike Atol protection contributions (APC), which are payments that can easily be passed on to consumers, they become another cost of doing business.
So is change necessary at all? With more than £100 million in the ATT at the start of the year, another £60 million or so due to be paid this year and an overdraft facility of £75 million, surely the protection in place is more than adequate already?
The real question is what sort of protection should airlines, including those that are part of integrated Atol holders, be providing – that is the real risk to the ATT, not the average Atol holder.
Alan Bowen is legal advisor to the Association of Atol Companies, writing in his personal capacity. The AAC has issued its own response to the latest Atol call for evidence.
The Big Question by TTG
The Big Question is a monthly feature from TTG taking on some of the burning issues facing travel through expert commentary, insight and debate. While it's not designed to be adversarial, it won't flinch from placing a spotlight on some often uncomfortable topics travel – like it or not – will one day have to reckon with.
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