The CAA released a summary of the record number of responses to its 2021 Atol Reform consultation last month. Ian Taylor reports on the industry’s views
The industry came down heavily against mandatory segregation of customer money in the CAA’s Atol Reform consultation, which proposed significant changes to the current Atol regime.
The key proposals were to limit the use of customer money to make advance payments to suppliers and introduce ‘risk pricing’ through a variable rate of Atol Protection Contribution (APC).
More: Trade rejects CAA proposal for compulsory segregation of customer money
Over 300 respond to CAA Atol reform consultation
The CAA outlined a series of options for protecting customer money, including use of trust or escrow accounts, a return to universal bonding or a combination of the two. Its summary of the industry’s 305 responses – a record number for a consultation – noted “a consensus” for change.
But the industry came down firmly against a compulsory ‘one size fits all’ approach, including compulsory segregation of funds.
Atol holders had even less enthusiasm for a return to compulsory bonding. But a majority favoured a CAA proposal that they be allowed to choose the form of financial security they use – the so-called ‘tailored’ option in the consultation – which could include bonding.
This would see the CAA set the level of funds requiring protection and allow Atol holders to choose the form of security to suit their business.
Atol holders were “sceptical” of the CAA’s suggestion that segregating payments might lead merchant acquirers to “make reduced or zero demand for security”, expressing doubt that any changes to the Atol regime would lower the cost of card-payment processing.
However, some proposals drew a more positive response, including a move to a variable APC rate.
Atol Protection Contribution
Most respondents to the CAA’s Atol Reform consultation considered the Atol Protection Contribution (APC) on holiday bookings should move from a flat rate to a variable one. But they disagreed about how the rate should be calculated.
“Some considered this would lead to a fairer system in which financially sound Atol holders are not subsidising riskier financial practices,” according to the CAA.
It proposed moving to a variable rate calculated on the basis of an Atol-holder’s risk, the value of a holiday, or a hybrid model taking both risk and value into account.
The CAA noted the hybrid model received most support, although no model attracted an overall majority.
The “integrated groups” preferred a risk-based model, while a majority of small business Atol-holders (SBAs) favoured a hybrid model.
There were concerns about the complexity of a hybrid model “and whether the CAA could create a sufficiently clear, transparent and fair hybrid model”.
Respondents in favour of a risk-priced APC argued “larger and riskier” companies should pay more. Some “strongly rejected” a value-priced APC, as it could “unfairly penalise secure, high-value and high margin operators”.
Travel industry associations favoured a risk-priced APC. Consumer bodies were split. None favoured a flat rate but there was concern at the transparency of such a model and how consumers would interpret varying rates.
Treatment of pipeline monies
A majority of responses to the CAA consultation agreed ‘pipeline monies’ held by agents on behalf of Atol holders should be treated the same as money from direct sales, so if trust accounts are in place, pipeline money would also be held in trust.
However, most Atol holders considered “money should be passed on immediately” once collected by an agent, although some noted “practical reconciliation considerations” meant a contractually agreed period “would be more workable”.
Some Atol holders felt “agents should not take monies from consumers” and payments should instead be made direct to the holiday organiser.
Those opposed to changing the way pipeline monies are treated considered the timing of payments to be “a commercial term subject to negotiation between the Atol holder and agent”.
The CAA noted concern that changing the way pipeline monies are treated “would mark a fundamental change to the retail business model”.
The regulator said it would not pursue an option to restrict customer pre-payments for holidays, with most Atol holders wishing to continue to set their own payment terms.
It noted the European Commission, which is reviewing the Package Travel Directive, has acknowledged that “limitation of pre-payments could worsen [the] critical liquidity situation” of businesses.
Changes to agency terms and APC collection
The CAA will proceed with small changes to agency terms and APC collection included in the consultation, but not all immediately.
The proposal to amend Agency Term 11 will go ahead so that future changes to agency terms automatically apply to all agency agreements, meaning Atol holders won’t have to update and reissue their agreements with agents upon every change.
The “vast majority” of respondents agreed this would be beneficial.
However, for the change to come into effect, Atol holders will be required to reissue all agency agreements so the CAA will postpone implementation until the extent of any other changes to agency terms due to Atol reform are clear.
The CAA will go ahead with a proposal to require Small Business Atol-holders (SBAs) and franchise members to submit APC returns quarterly the same as standard Atol holders. The requirement will come into effect in November.
The regulator also intends to proceed with a proposal to require all Atol holders to pay APCs direct to the CAA within six weeks of the reporting period. SBAs currently pay annually.
The requirement will also affect some franchise members. However, the details will go into the next consultation.
Next steps on Atol reform
The CAA promises a further consultation on detailed Atol reform proposals “later this year”. It has previously suggested this would appear in the summer, but the consultation is not now expected before October.
This may be a joint consultation with the Department for Transport, depending on the proposals, as some of the options would require legislation.
There is no indication of how long a transition period the CAA will allow for businesses to adjust to the new regime. The CAA summary of consultation responses notes “diverse opinions”.
It reported: “Those who . . . already segregate monies or have a bond in place typically selected a shorter period, around one-two years.”
However, others suggested three to five years and even 10 years, citing “the impact of the Covid-19 pandemic on balance sheets”.
Asked if the CAA should offer incentives for early compliance, a “majority of those in favour” felt a reduced APC rate would be “appropriate”. However, some felt incentives “would only benefit the largest Atol holders”.
More: Trade rejects CAA proposal for compulsory segregation of customer money