Special Report: Atol – the early years

The CAA marked 50 years of Atol protection last week. But the scheme did not emerge fully formed. Ian Taylor reports

The Air Travel Organiser’s Licence (Atol) scheme, which began 50 years ago, developed in stages and through many reforms.

The first licences were issued from April 1973 – the date of the very first remains unclear – following the Civil Aviation Authority’s announcement of the scheme in December 1972.

The CAA, itself, was only established in December 1971 and became fully operational on April 1, 1972, following the report of a government-appointed committee on ‘British Air Transport in the Seventies’, published in 1969.

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The regulator issued 274 Atol licences to travel firms selling overseas holidays with flights in that first summer. These ‘travel organisers’ had to provide a bond as a condition of the Atol licence.

But airlines, airline agents and agents of licence holders were not required to have an Atol, just as now.

The scheme aimed to ensure travellers were not stranded abroad if a travel organiser failed, and to prevent fraudulent operators taking money for non-existent flights – a practice which dogged the sector from the outset because of the lapse in time between consumers paying for a holiday abroad and their departure.

As a result, the CAA was required to assess the ‘fitness’ to operate of businesses it granted Atols.

However, at its outset, the Atol scheme did not offer consumers full financial protection. That only came following the first major outbound travel company failure at the height of summer just over a year after the scheme’s introduction.

The UK’s second-largest tour operator Clarksons Holidays and its parent the Court Line Group collapsed in August 1974 in what at the time was the biggest economic crisis since the Second World War, exacerbated by a huge rise in the oil price when Gulf-producing states temporarily embargoed oil exports to the UK and US over their support for Israel.

Clarksons’ Atol and the bond behind it ensured there was the money to bring home the 35,000 Clarksons’ holidaymakers abroad. But there was not the money to refund 100,000 forward bookings which had been paid in full.

The resulting media uproar, coming amid a political crisis which saw two general elections in 1974, forced the government to commit to protect all customer payments and led to legislation to create an Air Travel Reserve Fund – forerunner of the Air Travel Trust fund – in 1975.

Advent of financial protection

The Air Travel Reserve Fund which backed up bonding to ensure financial protection in the early days of the Atol scheme was set up with a £15 million loan from the government to refund Clarksons customers and to allow time for a levy on Atol-protected holidays to accumulate funds.

The levy, initially set at 1% of Atol holders’ turnover, rose to 2% before being wound up in November 1977 when the fund held about £15 million.

Thereafter, the interest on the fund proved sufficient to cover any failures and maintain a healthy balance well into the 1990s, with the fund only falling into arrears from 1997.

In the meantime, the fund’s set-up and management were changed following a review of the Atol scheme in 1983. This looked, not for the last time, at replacing the scheme and its bonding requirements with insurance.

The report concluded insurance could not replicate both the repatriation and subsequently introduced financial-protection elements of Atol.

But it recommended the government bring the fund within the remit of the CAA rather than the agency under which it was initially set up. So, in 1986 the Air Travel Trust was established to replace the Air Travel Reserve Fund and back up Atol protection, with CAA board members and officials as its trustees.

Bonding emerged before Atol

The system of bonding which underwrites financial protection was not created by the government or CAA but by the industry to protect holiday pre-payments in advance of the Atol scheme’s emergence.

Bonding was established voluntarily by Abta and the forerunner of the Federation of Tour Operators – now part of Abta – known in its early days as the Tour Operators Study Group (TOSG).

It was TOSG which introduced the first bonding scheme in October 1970, requiring its members to obtain bonds equivalent to 5% of their annual turnover. The bonds were payable to fund repatriation of holidaymakers and to refund forward bookings in the event of the company’s failure.

Abta followed suit by introducing its own bonding scheme for members in 1972.

When the Atol scheme began in April 1973, the CAA accepted proof of an Abta or TOSG bond as good enough for it to grant a licence without demanding an additional bond.

However, the requirements changed in the early 1990s when both Abta and the Federation of Tour Operators ceased to hold Atol-holders’ bonds, meaning the scheme required the CAA to hold bonds on behalf of all Atol holders instead.

Abta did continue to require bonds to cover pipeline payments between members and non-flight package holidays which are not covered by Atol.

The requirement for all Atol holders to provide bonds to the CAA continued until 2007 when the CAA introduced the Atol Protection Contribution (APC) on protected bookings to fund the Air Travel Trust, in place of bonding.

Thereafter, the CAA retained bonds only for new licence holders and companies it considered to be at financial risk. This system of funding remains in place today, subject to the Atol Reform proposals the CAA is now considering.

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