Also in this report: The ABTA view | The CAA view | How to comment
The trade is all too familiar with the options presented in the Civil Aviation Authority consultation document on reform of ATOL bonding and replenishment of the Air Travel Trust Fund that backs it up.
The choice is to do nothing, to rebuild the fund through a levy on ATOL holders alongside the existing bonding scheme, or to raise a £1-per-passenger levy to replace bonding.
This levy – formerly known as a Consumer Protection Charge – is now referred to as an ATOL Protection Contribution, possibly because the Government does not want something that sounds like an additional tax on passengers.
Otherwise, the document contains little that is new. The APC option already has industry backing – as responses to a previous, preliminary consultation last year made clear.
There remains a widespread desire that a levy be extended to all air travel and not just to ATOL holders, but that option is not on the table.
A levy to replace bonding is also the preferred option of the CAA, and the Ministry of Transport has signalled its support for the proposal to minister Gillian Merron.
The case for another consultation
In the circumstances, the need for another consultation may not be immediately clear. The CAA is keen to stress the regulatory simplification involved in the preferred proposal.
But, crucially, it wants the trade to approve the figures projecting future ATOL bookings on which it has modelled the replacement levy scheme.
The numbers need to be right, or the scheme will not offer the degree of consumer financial protection required.
CAA consumer protection group director Richard Jackson said: “We hope the industry will comment on the validity of the model. The trade must say whether the figures are realistic.
“People may also want to comment on specifics – for example, how should we define a passenger? Does a two-year-old fall within the ATOL Protection Contribution?”
The CAA’s proposal
The consultation document offers a 10-year financial model of the fund and the revenue it should raise, based on projected ATOL bookings. This includes provision for a major company failure.
Jackson said: “If our assumptions hold good, the revenue should be sufficient for a three to four-year transition phase. We need to pay off the ATTF overdraft and ensure there is sufficient cash to deal with any failures.”
The CAA would expect to pay off the fund deficit within two years.
“If there is a major failure earlier than anticipated, there seems general agreement from the trade that the levy could be doubled for a couple of years,” said Jackson.
The CAA concludes a £1 APC would build a fund of close to £100 million by 2014/15.
The fund would not rely solely on cash from the APC. It would also be used to borrow against future income and to take out insurance against losses from a failure costing more than £50 million.
Once the fund is back in the black it would also provide investment income.
Is £1 enough?
The document invites views on setting a higher charge of £1.50 to begin with, but says: “It is highly unlikely there would be any material change in the structure or level of the APC during the first three years.”
However, the document also notes: “An increase in the APC over the 10-year time frame cannot be ruled out.”
It adds: “A reduction in the liability borne by [credit and debit] card companies would be likely to lead to an APC of more than £1.”
Jackson said: “We are very keen it should be £1. We looked at other rates to build the fund more quickly, but felt £2 would be disproportionate given the risks.”
He stressed the levy could not be increased without consultation with the industry.
Who pays?
The CAA does not have the power to levy consumers so the APC would be paid by ATOL holders.
The document makes it clear: “It is a commercial decision for an individual ATOL holder as to whether it wishes to pass on the contribution to the consumer.
“ATOL holders will be required to make a statement on their invoices, brochures and websites that the sale is ATOL-protected.” This provision will lead to yet another consultation on the changes this autumn.
A decision to switch from bonding to a levy should be made in early September in time for the autumn ATOL renewals. Bonding would then be removed from April 1 2008.
by Ian Taylor
How to comment
On the blog
Travel Weekly will be hosting comments and discussion on an ATOL reform blog post.
By email
If you wish to send us your comments directly, email travel.weekly@rbi.co.uk.
Extracts from your comments
“The key issue for the CAA is to stop making ATOL bonding an unattractive options for the new age of Dynamic packaging retailers.
Previously the CAA has demanded that ATOL holders have 5% of their turnover in net free asset equivalents e.g. Cash. Given that most travel businesses do not make a profit of 5%, this in essence punished fast growing, high volume, low margin operations.
A simple levee would appear to remove this problem making it a straight forward commercial descision as to whether customers will pay £1.00 per passenger for financial protection.”
Steve Endacott
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