Lowcostholidays has defended itself after the CAA issued a statement warning holidaymakers to be cautious about booking with the company and said it was launching a legal investigation.

The online travel agent said its move to base itself in Majorca had been made while fully abiding with legislation from 2012 which stated that companies established in an EEA state other than the UK are exempt from the Atol scheme for air packages.

Paul Evans, chief executive, said: “What we have done is completely legal and all our customers are fully protected under the European Package Directive with the full support of the Balearic Government.

“We have the maximum bonding available under Spanish law and comply fully with EEC legislation and we believe and support all the moves towards European harmonisation.”

He added: “We are a global company, operating in 47 countries with 50% of our business outside the UK and employ over 100 staff in our Spanish office.  When customers were offered the opportunity to cancel their bookings, less than 0.2% chose to and this move has had no impact on our forward sales.”

Speaking after Lowcost announced its move to Majorca, Don Carlos Delgado, secretary general of tourism for the Balearic Islands, welcomed the investment in the region and said it had complied with all local consumer protection laws.

He said: “Lowcostholidays is now fully licensed under Spanish and Balearic Law, which implements the EU Council Package Travel Directive (90/314/EEC), and complies entirely with all relevant financial protection arrangements, obligations and liability insurance requirements.

“Lowcostholidays has created over 100 jobs in Palma and we look forward to a long term and successful relationship with the company.”

Evans added: “When I set up this company almost 10 years ago, I wanted to offer great value flexible holidays to our customers.  This founding objective remains as important to me and my staff today as ever.  Our customers trust us and value the great priced holidays we sell.  This is why they book with us and we want to reassure them that our move to Spain and licence is fully compliant with all applicable laws.”