Analysis: Who can now doubt the Atol scheme works?

The Air Travel Trust fund’s return to its level before Thomas Cook’s collapse and on to a record high should quash concerns about its long-term viability.

 

The trust’s latest accounts note the fund held £261 million at the end of March this year and £278 million at the end of June, compared with £221 million in March 2019 ahead of Thomas Cook’s failure that September which knocked the fund back down to £20 million.

 

The ATT fund must be above £300 million by now, given the continuing strength of demand, and backed by a £75-million overdraft facility which has been extended to next May.

 

The insurance the trust formally held in case of a major travel group’s failure – which was called on to cover the repatriation and refund costs of Thomas Cook’s collapse – has not been replaced, presumably due to the reticence of insurers.

 

This cover was provided by a panel of insurers at a cost of up to £12 million a year but paid out more than £192 million following Cook’s failure, allowing for a total call of £448 million on the fund in 2019 – all but £3 million to cover the costs of Thomas Cook.

 

The insurers had insisted the cover be modified at the time of Cook’s Atol renewal in March 2019 due to intense speculation in both the market and the media as to whether the group would survive.

 

The trustees had to accept a £100-million extension of the trust’s liability in the event of a major failure, raising it from £150 million to £250 million, as a condition of the policy renewal. Without that, there would have been no insurance cover when Cook collapsed with who knows what political consequences.

 

Despite the lack of replacement insurance, the trustees make clear in their latest report that the government financial guarantee which provides the ultimate backstop to Atol protection remains in place.

 

They note that “should a large Atol holder” or multiple smaller Atol holders fail, “the Trustees’ expectation” is that the government “will provide additional financial support to the ATT . . . as necessary”.

 

That expectation “is based on the support provided over many years” by the government and “written assurance by the Secretary of State for Transport”.

 

The trustees note the CAA continues to refine plans “to mount a successful repatriation” in the event of another large Atol failure, with “negotiation of improved contracts with various airlines” on replacement flying, contracts “with additional airlines” and “arrangements with various suppliers of ground handling and support services” made in the past year.

 

They also report a new CAA claims portal for customers of failed Atol holders went live last September and is “expected to deliver significant improvements”.

 

The trustees note the CAA’s “compliance work”, “regular monitoring” and “detailed analysis” of licence-holders’ returns, “supplemented with reports from independent auditors” remains essential to the financial protection scheme.

 

Aside from the impact of macro-economic events on demand, the trustees warn that more frequent and more extreme weather events “will undoubtedly impact the travel industry” and suggest: “Businesses will have to make adjustments and consumer demand may be impacted [leading to] an impact on APC revenues and the number of insolvencies.”