XL Leisure Group was the first of the UK’s top five operators to collapse since 1991 when it failed on September 12 last year, resulting in the biggest ever operation to bring holidaymakers home.
The collapse, allied to the recession, caused a crisis in the heavily indebted Air Travel Trust (ATT) fund, which pays out when there is a collapse.
However, the crisis would have been greater if not for the £42 million bond the Civil Aviation Authority (CAA) required XL to provide in March 2008. That led some in the industry to question why the CAA had renewed XL’s ATOL.
The CAA said it did so because refinancing “was advanced” and the company had “a credible business plan, based on reducing capacity”.
It also took account of the fact that “a number of ATOL holders had contracted with XL for summer 2008 programmes”. The £42 million bond was designed to cover a possible failure in the autumn or early winter.
XL never made it. The crisis in the world financial system hit the group’s leading lender, Icelandic bank Landsbanki, in August and credit dried up.
When the company went under, the trade rallied round to repatriate 44,000 customers – the majority completing their holidays. A huge operation was undertaken with little notice and completed in a fortnight. It was a triumph.
Refunding more than 200,000 customers with advance bookings proved more complex.
The CAA had to decide whether bookings where agents had combined XL flights with non-XL accommodation were protected by an ATOL, and reported:
“A significant number of holidays appear to have been sold in such a way that the whole package was not ATOL protected.”
It also had to consider the obligations of credit-card companies – a situation complicated by the lack of an agreement with the provider of XL’s card facility.
The failure exposed a gaping hole in financial protection, largely due to unprotected dynamic packaging, and highlighted the complexity of existing arrangements and the confusion among consumers – mirrored by confusion in the trade.
It blew a hole in CAA financial forecasts on consumer-protection funding to the extent that the £1 ATOL Protection Contribution (APC) must now rise to £2.50.
However, if the government proceeds with ATOL reform, following a consultation expected in November, the failure could still be seen to have had a positive impact in focusing government attention following years of neglect.
The cost of failure
The final bill for XL’s failure might be tallied this weekend with the passing of the deadline for submitting claims for refunds.
The Civil Aviation Authority (CAA), which oversees financial protection, had close to 10,000 claims to assess at the start of this month, but received few in the dying days. Most outstanding claims relate to bookings where documents issued by agents have not been submitted.
The value of claims paid by September 1 stood at £37.5 million. But the total could reach the £48 million – including £3 million in administration expenses – estimated by trustees of the Air Travel Trust fund in August.
Additional claims, possibly as high as £19 million, have gone to credit card companies, allowing the CAA to stick to its forecast of a total bill for the failure of £89 million – including £22 million for repatriating holidaymakers.
The XL collapse by numbers
Statistics
- 43,600: XL customers flown back to UK.
- 224: flights required for repatriation.
- 202,872: customers with advance bookings.
- 65,102: claims received (September 1).
- 5,324: claims paid or closed (September 1).
- 9,778: claims awaiting information/assessment (September 1).
Costs
- £22 million: cost of repatriation.
- £48 million: estimated cost of refunds to Air Travel Trust Fund.
- £19 million: estimated cost to credit card companies.
- £89 million: estimate of total failure bill.
- £41.7 million: XL bond.
- £37.5 million: value of refunds paid by September 1.
- £5 million: average annual cost of failures 1998-2008.
- £2.50: APC from October 1.