Insight: Confusion over financial protection

The industry has seized the time to lobby for wider consumer financial protection following the collapse of XL Leisure Group, with senior figures at ABTA among those who believe there could be rapid progress.

TUI Travel chief executive Peter Long will meet transport secretary Geoff Hoon on December 4 and last week up to 30 industry leaders debated the issue at a meeting with the Civil Aviation Authority.

CAA consumer protection group director Richard Jackson described the meeting as “valuable” and acknowledged the current system is “hideously confusing to the trade and leads to a very confused customer”.

So there is a consensus on the need for change. Unfortunately, that is all there is. “There were 25 people at last week’s meeting and 25 different views,” says one of those present.

ABTA is trying to produce a coherent trade view. “There is a lot of disagreement and we are trying to come up with a solution,” says an ABTA spokeswoman. The association’s own lobbying efforts continue to focus on universal protection.

Long will call for an urgent review of financial protection, pointing out 98% of leisure air passengers were ATOL-protected 10 years ago whereas only 57% are today.

It is understood he will call for protection regardless of the carrier, regardless of how a booking is made and regardless of whether an airline seat is booked alone or in combination with other holiday arrangements. That may not please all ABTA members.

There is undoubtedly confusion among consumers. A survey of 700 adults on behalf of ABTA in September found 58% unaware whether their last holiday was financially protected.

Much of the confusion stems from the lack of universal cover. Some of it comes from the existence of alternative forms of protection – various insurance options and the use of trust accounts to protect consumers’ money. But there is also confusion due to the lack of publicity about the ATOL scheme, as an ABTA spokeswoman concedes: “It has never been promoted with big bucks.”

The CAA believes tour operators are in a position to prosper from a two-tier system of protection that offers consumer peace of mind for the price of a cup of tea. But there has never been agreement about who should pay and no company is comfortable marketing the possibility of failure.

At the same time, says the ABTA spokeswoman: “It has not been proved that ATOL protection gives [companies] an advantage. People do not appreciate protection. They buy on price.”

One senior industry commentator is sceptical about insurance as an alternative, pointing out: “There is scheduled airline insurance in the US, but it is removed when companies go into bankruptcy protection. UK consumers would not know when insurance has been withdrawn. Look at Zoom Airlines, where cover was withdrawn before the airline foundered.

“ATOL should be extended to all airline passengers, but the government has always set its face against it.”

That view was confirmed this week by British Airways, with a spokesman saying: “It would be unfair if our customers had to fund compensation for those who chose to travel on less-established airlines.”

Mike Carrivick, chief executive of the Board of Airline Representatives UK, agreed: “Our members do not want ATOL protection.”

He concedes: “Airlines do go bust.” But he asks: “Do you force travellers to buy travel insurance?”

Carrivick suggests the issue is more complex than some in the trade suggest. “Charter passengers buy in the UK and return to the UK,” he says. “But scheduled airlines have people who buy their tickets abroad. So you would still end up with people who were protected [on a flight] sitting next to people who were not.”

The issue may also be complicated by Brussels. The ATOL scheme predates the Package Travel Regulations that ensure the UK complies with the European Package Travel Directive, but it forms part of that compliance. It is difficult to envisage a fundamental change in the scheme until the European Commission revises that directive – something unlikely to happen before 2011. At the very least, this may give the government a let-out.

To those outside the trade, it may seem extraordinary that a system only introduced in April after considerable consultation should be under such scrutiny.

However, it was only the system of financing the ATOL scheme that changed on April 1. A system of repatriation and refunds has been in place for three decades.

And as Federation of Tour Operators director-general and ABTA head of development Andy Cooper argues: “The scheme was a compromise that failed to address a fundamental issue.

“There is always a risk that a compromise will fail – and anything short of comprehensive protection will be a compromise.”

The CAA view

The Civil Aviation Authority criticised some reports of last week’s meeting with the trade and of the financial fallout from XL Leisure Group’s collapse.

“It is wrong to say we called the meeting,” said a spokesman. “It was a commercially organised meeting to which a number of people were invited, including the CAA.

“We made a proposal about extending ATOL cover two years ago. The government made its decision. We are not making any proposals. We do not have a case [for extending ATOL cover].”

He described reports the ATOL-protection contribution on protected holidays may rise to £5 to cover the cost of XL’s collapse as “pure speculation”. “We do not even have every claim in yet.”

The CAA has previously pointed out that there can be no increase in APD without consultation.

It rubbished suggestions its financial modelling did not allow for a major industry failure until 2012. “Our financial modelling considered whether a large failure could occur immediately,” the spokesman said.

In fact, the modellers considered whether arrangements were robust enough to cope with two major failures by 2012 among what were then the big four tour operators. 

Calder and Josephides debate protection in TW

Share article

View Comments

Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.