CAA ATOL Reform. Whom are the CAA looking to protect? Customers or themselves.

The new CAA ATOL Reform document is clearly presented and contains a lot of common sense. However, as usual, the CAA has ignored the same fundamental issues.

Consumers can buy unregulated DIY holidays with a few clicks of the mouse, booking flights via Skyscanner or direct with airlines and hotels via Booking.com, Trivago etc. These providers have no restrictions on how they use customer cash and no ATOL bonding costs.

Although the Covid-19 Pandemic has pushed customer back towards a human touch and personal service, there is a clear limit to how much of a price premium customer will pay for these services.

The Government has already contributed to the destruction of our high streets by making them uncompetitive compared to internet rivals like Amazon, via business rates and VAT. The CAA is now doing the same to travel, by imposing an ever-increasing regulatory load and ATOL bonding costs, that make ATOL protected holidays uncompetitive in price versus booking directly with airlines and building your own holiday.

In my experience customers booking on credit cards, worry little about other elements of financial protection and never even consider health and safety issues.

 Although the word “Aviation” appears in the CAA’s name, they are ducking the question of how airlines protect customer monies, claiming it’s outside their remit and dependent on the Government taking forward an “Airline Insolvency Review”.

As an industry, I suggest we refuse to co-operate with the CAA on this supposed “consultation”, until this ridiculous situation is resolved, and airlines are included.

Airlines and payments to them during the holiday booking process, are fundamental to allowing “Trust Fund Structures” to work smoothly and it’s completely unreasonable for the CAA to expect ATOL holders to carry further regulatory burdens because they are scared of dealing with the powerful airline lobby.

The non-regulation of airlines, when it comes to the use of customers money was the industries fundamental issue during Covid-19. It’s well documented that when Covid-19 hit, none of the major UK airlines had sufficient cash to be able to refund customers causing delays in refunds being processed which directly knocked on to the ability of OTA’s and agents to refund customers, even when trust funds were in place.

The CAA highlight “slow refunds” as a major driver for their suggested changes, but are not including airlines in their recommendations.

The CAA is looking to push all ATOL holders away from “bonding” to operating trust funds, but at the same time are greatly tightening trust fund payment terms and introducing variable ATOL fees, to allow them to reward/penalising ATOL holders with higher fees if they choose what the CAA consider higher-risk options.

The CAA are offering two types of Trust funds.

1. Total Segregation.

Here no supplier payments e.g., airlines, hotels or travel commissions, can be paid before holiday return, with the ATOL holder also having to fund all operational/advertising costs until the return date, when their margins can be released.

This requires a few fundamental changes.

o  Airline payment. A huge increase in working capital will be required to fund these, as customer monies cannot be used and unless forced by the government, it’s unlikely Airlines will change payment terms.

o  Agent Commissions. Agents instead of remitting final balances “net” of their commissions, will have to pay gross and wait an extra 8-10 weeks to receive a commission payment on the return of the customer. Again, requiring an investment of extra working capital.

o  Pipeline money. Any money held by agents will need to be held in a trust fund or segregated account, increasing administration and reducing working capital

2.  Partial Segregation.

The CAA are proposing to allow 20% of the total price of a holiday to be paid in advance to airlines, with the ATOL holder having to provide a “Bond” equal to any extra need to book flights.

o  Example. £2,000 holiday would allow £400 advance (@20%) and if flights cost £1,000 a “Bond” to cover extra £600 is required.

o  Bonds. The bond would be relatively cheap as it would be secured on money held in trust and needed primarily if the airline failed, but no market currently exists for this product.

 Variable ATOL Fees. The CAA are logically suggesting that higher risk companies or higher value bookings should pay a higher ATOL fee. However, its likely that this will mean an increase in cost, over the historic flat £2.50 fee and will give the CAA free reign to charge what they want. In reality any ATOL holder who wants to continue trading has no option but to say yes to what the CAA demands.

A cynical person would say that the only thing happening here is that the CAA are increasing their protection and reducing the likelihood of a claim on the ATOL fund. In essence, they are forcing ATOL holders to hold back further funds to refund customers for flight costs, when this would not be needed, if the CAA were able to force prompt refunds from airlines.

Why should ATOL holders take the working capital hit for this? This must be boarding on a restraint of trade issue and is likely to result in a legal challenge in the courts.

Many years ago, David Speakman (Ex Travel Counsellors) proposed a “Travel Bank” that would hold all customer payments and automatically gave suppliers access to funds once they had delivered their element of a holiday.

This has to be the right approach and airline need to be brought into line, accepting later payment when their flight seats form part of any “holiday package” sold, not just within their own holiday divisions. Only the CAA and Government can impose this, however.

The CAA’s proposed solution will simply push customers into buying cheaper “unprotected” holidays via the web or from travel companies domiciled in other European countries, not governed by the same excessive regulation that the CAA are seeking to impose on UK travel companies.

I fully support the CAA’s core aims, of speeding up customer refunds and restricting travel companies from funding their day-to-day operations from customer’s cash, since as an industry we have seen a lot of “Naked swimmers” as the Covid-19 tide has gone out.  

However, the CAA’s current proposals will just further tilt the unlevel travel playing field to an extent that only the largest OTA’s can take the working capital hit, reducing customer choice in this sector.  It will also effectively force high street agents to sell a much narrower range of bonded holidays, reducing both customer choice and the number of holidaymakers overall protected by ATOL. Neither of which should be the aim of the CAA.

This consultation is misguided and frankly highly dangerous, so please pay attention and resist its implementation.

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