Legal expert Rhys Griffiths outlines issues with cross-border selling, PTD compliance and consumer awareness facing the sector
Travel companies again face uncertainty as we approach October 31 as to whether the UK will leave the EU at 11pm on Halloween.
We have been here before – twice in fact – but on each occasion one had the feeling that there would be some form of postponement and, indeed, there was. We are in the same position again, albeit now with a prime minister driven to take the UK out of the EU on October 31, “no ifs, no buts”.
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What did we learn before? Many travel companies had prepared for a hard Brexit on March 29 and again on April 12 because they simply could not afford to take the risk of not being ready.
In particular, those travel companies selling to EU consumers from a UK establishment could not afford to adopt a ‘wait and see’ approach in the hope that Brexit would be delayed. These companies had to have contingency plans in place such that, at 11pm on March 29 and on April 12, they were ready to press the button so that Plan B took effect and they were able to continue trading in the EU.
If it comes down to the wire again, or if we leave the EU this time, what should travel companies be doing?
What are the legal issues?
Travel companies are particularly vulnerable to the potential consequences of a hard Brexit. Customers may face travel disruption caused by delays in passing through ports and airports or unfamiliar new paperwork requirements causing problems on holiday – such as the requirement for international driving permits for car hire on holiday.
Those employed by travel companies also cross borders – coming from the EU to work in the UK and vice versa to work in resort. These arrangements need to continue after Brexit.
For UK travel companies that sell to customers in other EU markets, a hard Brexit will give rise to a critical problem in terms of their compliance with the EU Package Travel Directive (PTD).
Under existing arrangements, UK travel companies may rely upon the insolvency protection arrangements they have made in the UK when they sell packages and Linked Travel Arrangements to consumers in other markets. For example, UK travel companies will use the Atol scheme to sell flight-inclusive packages to customers in, say, Ireland and the Irish regulator has to accept these arrangements.
Upon a ‘hard’ or no-deal Brexit, the UK will become a ‘third country’ for the purposes of the PTD, like any other non-EU country. As a consequence, insolvency protection arrangements made in the UK will no longer be recognised by other EU regulators. So what must travel companies do?
Options for PTD compliance
The default position is that UK companies must arrange insolvency protection in accordance with the rules of each EU market they sell into.
This means a guarantee as determined by the Kammarkollegiet for sales in Sweden, a separate guarantee as determined by the Rejsegarantifonden for sales in Denmark, a CAR licence (or one of the permitted alternative options) for sales in Ireland, and so on. Clearly, setting up these separate arrangements is unattractive for a company selling into various EU markets given the time and expense involved.
Yet this has remained an attractive (or the least bad) option for many because it allows a company’s headquarters to remain in the UK. However, there are some unwelcome exceptions to this general rule.
Some markets, such as Sweden, will only allow travel companies to join their scheme if they have first created a local branch or subsidiary in Sweden. This can bring tax liabilities in the local market, undermining one of the major benefits of this option.
An alternative option, and an attractive one from a regulatory perspective, is to create an ‘EU hub’ – such as an EU place of establishment – and use the insolvency protection arrangements of the place of establishment to sell into all EU markets.
The trouble with this option is that a ‘place of establishment’ requires a real presence, ie an office and people. The rules are clear that a post box will not be enough.
There are structural ways in which the size of the footprint can be minimised, but a real footprint of some sort is still required.
These options are both workable for UK-based travel companies looking for a way to continue selling to EU-based consumers after a hard Brexit.
However, the reality is that both these solutions take time to set up and implement.
There are also broader challenges. Aside from the need to comply with travel regulations, there are similar cross-border issues in relation to selling travel insurance or transferring customer data.
Then there are practical risks to manage: travel disruption, exchange rate volatility and the right of employees to work in the UK and overseas, to name but a few.
What should travel businesses be doing?
Given the risk of a hard Brexit, travel businesses should be getting ready for it.
From a legal, regulatory and practical perspective, the first step is to understand how Brexit might affect a business so that steps can be taken to address the risks.
These steps take time to implement, so the sooner one gets going the better.
Finally, in preparing for Brexit, let us not forget the customer. Holidaymakers will need to do their part for a holiday to continue smoothly following a no-deal Brexit.
Are customers aware of the new requirements concerning passport validity, international driving permits, insurance green cards, and so on?
Such crucial details are probably not as widely understood as they should be, not least because information is not easy to find and digest.
Grasping the detail on these issues is likely to be important if businesses are to inform and reassure customers as we head towards Halloween.
Rhys Griffiths, Fox Williams: rgriffiths@foxwilliams.com