Carriers have hit back at a proposal for a 50p levy to be imposed to build up a fund to protect passengers against scheduled airline failure.
The Flight Protection Scheme was recommended yesterday in a long-awaited airline insolvency review triggered by the collapse of Monarch Airlines in October 2017.
The failure resulted in the government flying home more than 85,000 passengers from overseas at a cost of £40.5 million and led to calls for action to plug a hole in customer protection.
The trade has long been looking for a ‘per passenger levy’ on all flight departures from the UK and the collapse of flybmi in February intensified pressure for action.
But one airline executive called for the proceeds from Air Passenger Duty to be used instead of a fresh levy.
Dominic Tucker, head of UK and Ireland sales at low cost carrier Norwegian, said: “What’s wrong with using APD to cover this fund, I’m not sure what it gets spent on relevant to travel or the environment.”
The review’s final report proposes that a formal repatriation protection scheme be put in place that is “practicable, effectual and affordable”.
The financing structure for the scheme would see “the majority of costs met through requiring airlines to put up security that can be relied on to pay out on their failure.
“To cover the remainder of each airline’s exposure, and provide an income stream from which to meet the scheme’s current expenditure and establish reserves against future claims, we recommend airlines also be charged a small, per passenger levy.
“We estimate the costs of both the security and levy together, once the scheme is fully up-and-running, to average around 40p per passenger.
“To capitalise the fund, an additional surcharge of 9p per passenger would be required for a five-year transition period.”
It said: “The scheme should protect any air passenger whose journey began in the UK, and who has a ticket to return on an airline that becomes insolvent while they are already overseas.
“The protection would apply irrespective of how, or from whom, the ticket was purchased or paid for.
“To facilitate this, we recommend appointing the Civil Aviation Authority as co-ordinating body, and giving it a duty to use its reasonable endeavours to see that passengers are repatriated to the UK, on the same day and to the same airport to which they expected to return.
“As in many cases the actual delivery of the repatriation will largely be performed by third-parties in the private sector, we also recommend the CAA develop agreements to ensure they all work together effectively to develop and deliver a solution.”
Review chairman Peter Bucks confirmed that implementation will “give rise to some increase in costs, both in setting up and administering the new arrangements, and in financing the protection they will provide”.
He said: “We estimate that on average the new scheme would in total cost less than 50p for each passenger protected.”
The review suggests that the government “may wish to review the Atol scheme in the light of any wider changes to flight protection or consumer uptake of financial protection, with a view to possibly making further changes to the Atol arrangements if appropriate.
“In the longer term, it may make sense to combine the two schemes.”
Abta backed the review recommendations but industry body Airlines UK, which represents 13 UK-registered carriers, voiced concern.
The airline group’s chief executive Tim Alderslade said: “Airlines face rising costs and this is not the time to make it more expensive to travel.
“Fifty pence may not sound much but airlines operate on wafer thin margins and passengers already pay over £3 billion each year to the Treasury in Air Passenger Duty.”
He added: “The chances of booking with an airline that goes bust remain extremely small. When it’s happened, airlines have demonstrated their commitment to bringing passengers home through voluntary rescue fares which worked extremely well and without any taxpayer liability.”
However, Abta financial protection director John de Vial, said: “It is good to see that the review has recognised that there is a gap in consumer protection when an airline goes out of business.
“Abta has highlighted for quite some time that the current system is confusing and inconsistent for both customers and travel businesses.
“The review is important in terms of examining the options for addressing this gap and Abta will be looking at the recommendations closely in order to assess how they could work in practice and discussing these with our members.”
Bucks added:“We know passengers expect to be protected from being stranded overseas if their airline should collapse, but in practice, each year many people fly without any such protection.
“Although airline insolvencies are relatively rare, as we have seen in recent months they do happen – and at times have required Government to step in to repatriate passengers at great cost to the taxpayer.
“Our recommendations to government set out a series of practical suggestions to ensure that passengers are protected, particularly in the event of a large-scale collapse like Monarch.
“Ensuring all passengers can get home requires organisation, funding and in many cases more than simply rebooking onto other flights.
“I hope that the work of the review will – while there is no silver bullet – act as a catalyst to ensure that both passengers and taxpayers are appropriately safeguarded when airlines collapse in the future.”
Transport secretary Chris Grayling said: “We will now consider the range of options put forward by the review, and will work to swiftly introduce the reforms needed to secure the right balance between strong consumer protection and the interests of taxpayers.
“We welcome any views on the report’s recommendations and encourage stakeholders to respond as part of the ongoing consultation on Aviation 2050, which closes on 20 June.”
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