ATOL scheme needs to upgrade from “Financial Protection” to “Holiday Protection”

The consumer protection scheme needs to move from ‘financial protection’ to ‘holiday protection’, argues Steve Endacott

The CAA’s ATOL bonding scheme was created in 1973 when the popularity of overseas holidays was increasing. The initial aim was to prevent fraudulent companies from selling holidays that did not exist and to create a fund to pay for the repatriation of customers stranded overseas if a holiday company collapsed.

The financial protection element was only introduced later, after the collapse of Clarksons Travel Group in 1974 leaving 100,000 customers with bookings without a refund.

However, the introduction of Section 75 of the 1974 Consumer Credit Card changed the landscape, making an ATOL holder’s credit-card clearer liable for repaying any monies paid on credit cards for holidays not delivered.

Ever since, the CAA and Abta have passed off as much liability as possible in a collapse, in effect making the merchant clearer a ‘shadow’ bonder.

This liability made travel businesses higher risk for clearers. But the collapse of Monarch and Thomas Cook, combined with the debt mountains created during Covid-19, has led to a ramping up of travel to a high-risk sector with some clearers withdrawing or drastically reducing their exposure to the sector.

The consequence is both an increase in clearing costs and in the amount of monies held by merchant clearers.

A second problem of the current ATOL scheme is that it creates an uneven playing field, as online accommodation players and airlines remain unregulated.

They don’t have to pay the £2.50 per passenger ATOL Protection Contribution (APC) on bookings and don’t have to provide bonds or tie up working capital in trust funds, giving them a significant cost advantage.

Customers shop around looking for the cheapest deal and seem happy to financially protect themselves by booking on credit cards.

So, what is the value of Atol?

 Why should the industry continue to pay £2.50 per passenger if customers don’t value the financial protection element and the CAA repatriates all stranded holidaymakers during a collapse, irrespective of whether they have paid the APC?

ATOL reform: Protect the holiday

The ATOL scheme could still be a valuable tool for the traditional travel industry if tweaked a little.

When a customer buys a holiday, they are paying a large amount of money for a promise that the holiday will be delivered at a date in the future and receive an ATOL receipt, which promises a refund in the case of failure.

I believe that instead of focusing on financial protection, the Atol scheme should offer a guarantee that ‘Your holiday will always go ahead’ if an ATOL holder fails.

This would require some key changes.

1. Central data storage of all Atol holidays booked

If a company collapses, the CAA needs to move quickly to arrange alternative flights home and rebook future flights, but they are often left with poor data and no expert staff capable of making large volumes of holiday amendments.

This leads to a situation where the easiest route is just to get people home and cancel all future bookings, disrupting many holiday plans.

Yet today all travel companies have electronic back offices and can provide booking handoffs via APIs that could be used to create a central, live Atol registry of all bookings. This could be implemented by travel technology firms in months as it’s a key element of their day-to-day work.

2. Rebooking partners

The CAA cannot afford to have expert staff sitting around doing nothing so rebooking needs to be outsourced to a panel of partners. I estimate this would cost around 3% of the original booking, as the agent would have both a high volume of bookings and no advertising costs.

3. All dynamic packaging flights must be booked with virtual cards

The major OTAs protected themselves during the Monarch and Thomas Cook collapses because they had booked flights on virtual cards, which at the press of a button could create chargebacks against the airlines’ merchant clearer.

This moves the flight risk back to the airline’s merchant clearer and means the airline starts paying for ‘shadow bonding’ costs.

4. Insurance

The CAA may wish to self-insure once the fund reaches an acceptable level. However, initially, it would seem sensible to insure both the 3% rebooking cost and the cost of rebooking flights, which often cost 50% more than the original flight as carriers boost prices following a collapse.

Tour operators versus dynamic packaging.

The above would operate effectively for dynamic packages as the original flights will have been paid for.

In the case of tour operators with in-house airlines, the cost would be much greater as new flights would have to be secured.

However, in the modern world where virtually all destinations are served by multiple low-cost carriers, there would normally be sufficient capacity or airlines willing to replace the flight schedule. This may require the CAA to have short-term rights over a collapsed airline’s airport slots.

The CAA has said it’s not the ‘risk’ of failure that varies greatly in our highly competitive sector, but the ‘impact’ of a failure.

But the collapse of Thomas Cook, which wiped out the Atol fund, proved the bigger a company and the bigger its in-house airline, the bigger risk it represents.

The CAA, therefore, needs to move away from a flat £2.50 APC as soon as possible and create impact-based rates with companies which have higher costs, if they fail, paying higher premiums. This may be because they have an airline or simply sell higher-value holidays.

This is no different from any insurance-based scheme. In the case of dynamic packages, nothing is lost except the rebooking cost, hence these would carry a low premium. Tour operators would need to pay more.

The value of the ATOL brand

The ATOL brand has been around for 50 years and, even with its faults, the Atol logo provides reassurance and is one of the reasons many customers still book ‘packages’ rather than buying components online.

If we could enhance the proposition to ‘Holiday Protection’ with a guarantee that a holiday would still go ahead if an Atol member fails (excluding exceptional circumstances), we would create a clear differentiation from component booking.

Combine this with the experience customers had during Covid, with Atol holders rebooking holidays many times at no extra cost, then you have a powerful reason for customers to book Atol-protected packages.

The CAA could then spend more of the ATOL levy on funding advertising, pushing this new, stronger message.

To make any of the above happen, we need open and honest debate between the major players and not paper-based responses taking months to collect and that produces no clear outcome.

However, consultation is needed and needed fast, as the current ATOL scheme is in danger of sleepwalking into being a bureaucratic burden that adds no meaningful value to the customer.

The consumer protection scheme needs to move from ‘financial protection’ to ‘holiday protection’, argues Steve Endacott

The CAA’s ATOL bonding scheme was created in 1973 when the popularity of overseas holidays was increasing. The initial aim was to prevent fraudulent companies from selling holidays that did not exist and to create a fund to pay for the repatriation of customers stranded overseas if a holiday company collapsed.

The financial protection element was only introduced later, after the collapse of Clarksons Travel Group in 1974 leaving 100,000 customers with bookings without a refund.

However, the introduction of Section 75 of the 1974 Consumer Credit Card changed the landscape, making an ATOL holder’s credit-card clearer liable for repaying any monies paid on credit cards for holidays not delivered.

Ever since, the CAA and Abta have passed off as much liability as possible in a collapse, in effect making the merchant clearer a ‘shadow’ bonder.

This liability made travel businesses higher risk for clearers. But the collapse of Monarch and Thomas Cook, combined with the debt mountains created during Covid-19, has led to a ramping up of travel to a high-risk sector with some clearers withdrawing or drastically reducing their exposure to the sector.

The consequence is both an increase in clearing costs and in the amount of monies held by merchant clearers.

A second problem of the current ATOL scheme is that it creates an uneven playing field, as online accommodation players and airlines remain unregulated.

They don’t have to pay the £2.50 per passenger ATOL Protection Contribution (APC) on bookings and don’t have to provide bonds or tie up working capital in trust funds, giving them a significant cost advantage.

Customers shop around looking for the cheapest deal and seem happy to financially protect themselves by booking on credit cards.

So, what is the value of Atol?

 Why should the industry continue to pay £2.50 per passenger if customers don’t value the financial protection element and the CAA repatriates all stranded holidaymakers during a collapse, irrespective of whether they have paid the APC?

ATOL reform: Protect the holiday

The ATOL scheme could still be a valuable tool for the traditional travel industry if tweaked a little.

When a customer buys a holiday, they are paying a large amount of money for a promise that the holiday will be delivered at a date in the future and receive an ATOL receipt, which promises a refund in the case of failure.

I believe that instead of focusing on financial protection, the Atol scheme should offer a guarantee that ‘Your holiday will always go ahead’ if an ATOL holder fails.

This would require some key changes.

1. Central data storage of all Atol holidays booked

If a company collapses, the CAA needs to move quickly to arrange alternative flights home and rebook future flights, but they are often left with poor data and no expert staff capable of making large volumes of holiday amendments.

This leads to a situation where the easiest route is just to get people home and cancel all future bookings, disrupting many holiday plans.

Yet today all travel companies have electronic back offices and can provide booking handoffs via APIs that could be used to create a central, live Atol registry of all bookings. This could be implemented by travel technology firms in months as it’s a key element of their day-to-day work.

2. Rebooking partners

The CAA cannot afford to have expert staff sitting around doing nothing so rebooking needs to be outsourced to a panel of partners. I estimate this would cost around 3% of the original booking, as the agent would have both a high volume of bookings and no advertising costs.

3. All dynamic packaging flights must be booked with virtual cards

The major OTAs protected themselves during the Monarch and Thomas Cook collapses because they had booked flights on virtual cards, which at the press of a button could create chargebacks against the airlines’ merchant clearer.

This moves the flight risk back to the airline’s merchant clearer and means the airline starts paying for ‘shadow bonding’ costs.

4. Insurance

The CAA may wish to self-insure once the fund reaches an acceptable level. However, initially, it would seem sensible to insure both the 3% rebooking cost and the cost of rebooking flights, which often cost 50% more than the original flight as carriers boost prices following a collapse.

Tour operators versus dynamic packaging.

The above would operate effectively for dynamic packages as the original flights will have been paid for.

In the case of tour operators with in-house airlines, the cost would be much greater as new flights would have to be secured.

However, in the modern world where virtually all destinations are served by multiple low-cost carriers, there would normally be sufficient capacity or airlines willing to replace the flight schedule. This may require the CAA to have short-term rights over a collapsed airline’s airport slots.

The CAA has said it’s not the ‘risk’ of failure that varies greatly in our highly competitive sector, but the ‘impact’ of a failure.

But the collapse of Thomas Cook, which wiped out the Atol fund, proved the bigger a company and the bigger its in-house airline, the bigger risk it represents.

The CAA, therefore, needs to move away from a flat £2.50 APC as soon as possible and create impact-based rates with companies which have higher costs, if they fail, paying higher premiums. This may be because they have an airline or simply sell higher-value holidays.

This is no different from any insurance-based scheme. In the case of dynamic packages, nothing is lost except the rebooking cost, hence these would carry a low premium. Tour operators would need to pay more.

The value of the ATOL brand

The ATOL brand has been around for 50 years and, even with its faults, the Atol logo provides reassurance and is one of the reasons many customers still book ‘packages’ rather than buying components online.

If we could enhance the proposition to ‘Holiday Protection’ with a guarantee that a holiday would still go ahead if an Atol member fails (excluding exceptional circumstances), we would create a clear differentiation from component booking.

Combine this with the experience customers had during Covid, with Atol holders rebooking holidays many times at no extra cost, then you have a powerful reason for customers to book Atol-protected packages.

The CAA could then spend more of the ATOL levy on funding advertising, pushing this new, stronger message.

To make any of the above happen, we need open and honest debate between the major players and not paper-based responses taking months to collect and that produces no clear outcome.

However, consultation is needed and needed fast, as the current ATOL scheme is in danger of sleepwalking into being a bureaucratic burden that adds no meaningful value to the customer.

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