Analysis: Your guide to Atol reform

The government confirmed the biggest regulatory changes to affect travel for decades this week. Ian Taylor explains.

What did the government announce?

Companies selling holidays comprising separate flights and accommodation will need a Flight-Plus Atol or the cover of someone else’s from April 30. However, the new Atol Certificate – to be issued to customers booking a package, Flight-Plus or flight only – won’t be introduced until October 1.

A Flight-Plus booking will be triggered when a consumer “requests to book” as opposed to enquires about holiday arrangements. Flight-Plus will apply to separate bookings of flights and accommodation or car hire made on the same day or consecutive days.

Flight-only sales through third parties will need Atol cover except when by “appointed airline ticket agents”. Airlines continue not to need an Atol. The changes apply to micro-businesses (with fewer than 10 staff), but not to business travel. Accredited Bodies such as consortia can be licensed to provide collective cover so agents don’t need their own Atol.

What does it mean for agents/tour operators?

Agents who do not hold an Atol must decide whether to acquire a Flight-Plus licence or provide cover for these sales through an accredited consortium or business. Alternatively, they could choose to sell only protected holidays such as tour operators’ packages.

Whether or not agents acquire an Atol, they need to have ‘agency agreements’ in place with suppliers that clarify their respective roles.

The CAA has issued specimen agency terms. The agreements should be in place by April 30, although agents won’t need to prove this unless they or a company they sell fails. Atol-holders will have to show agreements are in place in future.

Existing Atol holders must extend their licence if they sell Flight-Plus holidays.

From October 1, agents must provide an Atol Certificate to clients at the point of first payment for a protected booking. That doesn’t mean agents have to create the certificate – the Atol-holder can do that – but they must ensure customers receive it. Until October retailers should issue an Atol Statement, with wording specified by the CAA, to Flight-Plus bookers.

How much will this cost?

Acquiring licences, providing financial guarantees and insurance, changing technology, preparing agency agreements and administering the scheme will add costs in addition to the £2.50 Atol Protection Contribution, the charge per passenger added to all protected bookings.

The CAA estimates the extra cost will average £3.90 per holiday once everything is in place.

However, start-up costs will vary according to how businesses arrange cover – whether under their own licence or an Accredited Body’s, whether a full licence or a Small Business Atol. The CAA estimates the total cost of licensing businesses at £1.2 million, but costs will vary from £400 for an Accredited Body member to £3,083 for a full Atol holder.

If new Atol-holders provide a bond as a guarantee for the first four years of a licence they face the biggest costs in the first year. The CAA sets bonds at 15% of licensed turnover and expects annual fees to be 4% of this. So a company with Flight-Plus turnover of £1 million a year might pay £6,000 for a £150,000 bond. Trust fund arrangements will cost less, but hold up cashflow.

Existing Atol holders will merely have to extend their licence to cover Flight-Plus sales.

Businesses with annual revenue of £5 million and above will pay the APC monthly, those below £5 million quarterly.

Is this the end of Atol reform?

No, it marks the first stage. The government will use the Civil Aviation Bill now before Parliament to give it the power to bring airline sales of holidays and ‘agent for the consumer’ sales under Atol. This is likely in 2013. The airlines will oppose this, but are unlikely to stop it.

The DfT has promised a changed scheme once the Air Travel Trust fund, which pays out when a company fails, is in credit – possibly by 2015. The CAA will consult in the meantime on alternative schemes. At the same time, Brussels is considering updating its rules on package travel (the Package Travel Directive) to include Flight-Plus holidays and possibly airline sales. This could see Europe-wide changes by 2014-16.

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