Chris Photi, partner, White Hart AssociatesThe Atol reform consultation issued last week is clearly written and well explained, albeit somewhat long at not far short of 200 pages. There’s one problem: is it really reform?

What was originally proposed in December 2009 – five specific measures including the encompassing of airlines into the Atol system for flight packages – was truly reform.

The original proposal would, in part, have required primary legislation and the tidying up of Atol regulations, which are old, tired, frequently amended and not fit for purpose. However, this has become a fudge with only two of the original five proposals – Flight-Plus and the Atol certificate – being put forward. 

The consultation proposes yet further complications for the already complex morass we call consumer protection. The inequities of the current system have merely been extended from tour operators to travel agents when compared to the position of airlines. 

Back in 2005 the CAA recommended to government that an all flights levy be introduced in order to provide acceptable consumer protection collected by means of APD. Simple, efficient, brilliant – I repeat the idea below and acknowledge it as the CAA’s and not mine.

Unfortunately, it was rejected by government. Even though the consultation contains a sop to bringing in airlines, the reality of carriers being involved in an all-flights levy is a long way off. Frankly I expect to be retired before I see it happen.

The best the travel industry can hope for is that airlines will be brought into the Atol scheme for holidays only sometime this decade – and believe me, it will take that long.

Even in the medium to long term we will not see ‘Every Seat Safe’, which in my opinion, and in the opinion of this publication, would show that the government was truly serious about consumer protection.

Contradictory proposals

The consultation contradicts itself. It demands that the travel industry provide clear and concise consumer guidance and protection for all Flight-Plus arrangements, but in the same document it refers to airlines providing a Flight-Plus arrangement without any consumer protection whatsoever.

How is that clear and unequivocal in the eyes of the consumer?

As always, the devil will be in the detail.  But I would highlight the following five points:

1. The written statement from the DfT accompanying the consultation states: “The reforms pave the way for further potential change to the Atol scheme in the medium to longer term”. However, the statement goes on to say “Once the scheme’s deficit has been paid …”. 

What it may as well say is that airlines will not be involved in the Atol scheme until the Air Travel Trust Fund (ATTF) is in surplus. The earliest the government predicts this will happen is August 2013. This is unbelievably optimistic.

2. A clear point in the consultation is the impact of Supplier Failure Insurance further expanded upon in the CAA notes to the guidance. This is a fundamental part of the proposed structure.

There are only two insurers that provide this insurance. There is frankly little or no marketplace. How, therefore, can you instigate a scheme on January 1, 2012 with a Supplier Failure Insurance market that is in a worse state than the CAA-decimated bonding insurance market?

3. There is currently a three-year moratorium on micro-businesses being further burdened by regulation. Of the potential 600 new Atol holders, as many as 550 could be micro-businesses and thus exempt from Flight-Plus.

This gets us down to the nitty-gritty. These proposals specifically target a handful of companies that the CAA and the government wish to bring into the Atol net.

4. The decision to end protection for customer money paid in advance for all Flight-Only sales has been included in the proposals to counteract those agents who would move to an ‘agent for the consumer’ model.

5. The ‘right to fly provider’ exemption that will replace the current ‘ticket provider’ exemption requires the agreement of the related suppliers (i.e. airlines). I can see very few airlines entering into this arrangement.

One only has to look back to the old Airline Deeds of Arrangement that used to apply. Virtually every airline withdrew those deeds after a period of time. 

The ATTF question

While there are issues of clarity, the bottom line is that this consultation exists to try to fill a financial hole – namely, the ATTF deficit. 

I fully appreciate that this is a necessity, but Flight-Plus will not achieve it.

The problem that the ATTF faces is entirely of the government and the CAA’s making, albeit with the travel industry’s blessing. It is down to their implementation of the ill-fated Atol Protection Contribution in place of bonds.

This was sold to the industry as a robust scheme that could withstand a £250 million failure, costing £1 a head. The large failure highlighted in the consultation is, of course, XL. 

This would have cost the ATTF £67 million or more without the residue of bonding held by the CAA. This £27 million failure precipitated an increase in APC from £1 to £2.50 in a very short space of time. So someone got their figures wrong from the outset.

The travel industry sectors that will most be affected by the proposed changes are going to seek the ‘agent for consumer’ route to avoid them. This will mean the amount of money projected to be generated from Flight-Plus will not be forthcoming – and I am already on record as stating that I do not believe this structure will collect any more annual revenues for ATTF than is currently the case. 

When the CAA was jousting with Abta and Travel Republic over what constitutes a package I could not find one of the elite travel lawyers who could find anything wrong with the Travel Republic model.

Around £2 million was spent in legal fees only for the courts to come to the same decision. I can now find no-one among the same elite group of travel lawyers who believes that a company cannot effectively and efficiently sell as an agent for consumer.

Indeed, Abta has generated quite clear and concise advice to its members in a guidance note dated June 30, 2011. The travel industry is therefore being made to go through an arduous process of consultation which will place added regulatory burdens on some, but will not in the long run generate the monies expected.

DfT has gone on record as stating that as many as 6 million additional individual holidays per year will be encompassed by Flight-Plus. The CAA itself felt this amount was excessive and estimated 4 million. 

Now the formal utterances refer to between 2 million and 6 million. How low will you go? All this is additional regulatory burden about which the travel industry, under advice from its lawyers, will once again prevaricate. What is the point? 

We will be sat here in two or three years’ time, depending upon the levels of material failures (and unless you have noticed, the market is dire) with an ATTF still in deficit. Rather than taking a step forward, we will have taken two steps back. 

What is needed is primary legislation change. A small levy should be placed on all outgoing flight seats, whether sold by an airline, a tour operator or a travel agent. This can be collected by means of APD, easily and cheaply, and then handed to the ATTF/CAA to care for customer repatriation and consumer protection. 

The cost of this will be no more than 50p per head (maybe initially £1 with the deficit) and the scheme would be impossible to avoid or manipulate. It is really that simple

Yes, primary legislation takes a long time to put in place – but no longer than the time for which this consultation has rumbled on. We have already spent two years debating Flight-Plus when that time could have been better spent preparing a more suitable alternative.

Ultimately, these consultations are a bureaucratic sop and the industry is going to be lumbered with Flight-Plus and all of the related costs of compliance. I would not mind if I felt that the changes would generate additional income for the ATTF, but sadly a lot of hot air (some of it mine, I admit) has been blown on something that will yield little.