Steve Endacott asks who is the CAA looking to protect with its Atol reform, customers or itself?

The CAA Atol Reform consultation document is clearly presented and contains a lot of common sense. However, as usual, the CAA has ignored the fundamental issues.

Consumers can buy unregulated DIY holidays with a few clicks of the mouse, booking flights via Skyscanner or direct with airlines and hotels via Booking.com, Trivago etc. These providers have no restrictions on how they use customer cash and no Atol bonding costs.

Although the Covid-19 pandemic has pushed customers back towards a human touch and personal service, there is a clear limit to how much of a price premium customers will pay for these services.

The government has already contributed to the destruction of our high streets by making them uncompetitive compared to internet rivals like Amazon via business rates and VAT.

The CAA is now doing the same to travel, by imposing an ever-increasing regulatory load and Atol-bonding costs that make Atol-protected holidays uncompetitive in price versus booking direct with airlines and building your own holiday.

In my experience customers booking on credit cards worry little about other elements of financial protection and never even consider health and safety issues.

Ridiculous situation

Although the word ‘aviation’ appears in the CAA’s name, it is ducking the question of how airlines protect customer monies, claiming it’s outside its remit and dependent on the government taking forward the Airline Insolvency Review.

As an industry, I suggest we refuse to co-operate with the CAA on this supposed consultation until this ridiculous situation is resolved and airlines are included.

Airlines and payments to them during the holiday booking process are fundamental to allowing trust fund structures to work smoothly and it’s unreasonable for the CAA to expect Atol holders to carry further regulatory burdens because it is scared of dealing with the powerful airline lobby.

The non-regulation of airlines when it comes to the use of customers’ money was the industry’s fundamental issue during Covid-19.

It’s well documented that when Covid-19 hit, none of the major UK airlines had sufficient cash to be able to refund customers, causing delays in refunds being processed which directly knocked on to the ability of OTAs and agents to refund customers even when trust funds were in place.

The CAA highlights “slow refunds” as a major driver for its suggested changes but is not including airlines in its recommendations.

The CAA is looking to push all Atol holders away from bonding to operating trust funds, but at the same time is greatly tightening trust fund payment terms and introducing variable Atol fees to allow it to reward/penalise Atol holders – with higher fees imposed on those who choose what the CAA considers higher-risk options.

The CAA is offering two types of trust funds.

  1. Total segregation

This will mean no supplier payments, e.g. to airlines, hotels or in travel commission, can be paid before a holiday return, with the Atol holder also having to fund all operational and advertising costs until the return date when their margins can be released.

This requires a few fundamental changes:

  • Airline payment – a huge increase in working capital will be required to fund these payments as customer monies cannot be used and unless forced by the government, it’s unlikely airlines will change payment terms.
  • Agent commissions – instead of remitting final balances net of their commissions, agents will have to pay gross and wait an extra eight to 10 weeks to receive a commission payment on the return of the customer, again requiring an investment of extra working capital.
  • Pipeline money – any money held by agents will need to be held in a trust fund or segregated account, increasing administration and reducing working capital
  1. Partial segregation

The CAA is proposing under partial segregation to allow 20% of the total price of a holiday to be paid in advance to airlines, with the Atol holder having to provide a bond equal to any extra needed to book flights.

For example, a £2,000 holiday would allow a £400 advance (at 20%) and if the flights cost £1,000 a bond to cover the extra £600.

The bond would be relatively cheap as it would be secured on money held in trust and needed primarily if the airline failed, but no market currently exists for this product.

Variable Atol fees

The CAA is suggesting, logically, that higher-risk companies or higher-value bookings should carry a higher Atol fee. However, it’s likely that this will mean an increase in cost over the historic, flat £2.50 fee and will give the CAA free rein to charge what it wants.

In reality, any Atol holder who wants to continue trading has no option but to say yes to what the CAA demands.

A cynical person would say the only thing happening here is that the CAA is increasing its protection and reducing the likelihood of a claim on the Atol [Air Travel Trust] fund.

In essence, it is forcing Atol holders to hold back further funds to refund customers for flight costs, when this would not be needed if the CAA were able to force prompt refunds from airlines.

Why should Atol holders take the hit on working capital for this? It must be boarding on a restraint-of-trade issue and is likely to result in a legal challenge.

Airlines should be brought in line

Many years ago, David Speakman (ex-Travel Counsellors) proposed a ‘travel bank’ that would hold all customer payments and automatically gave suppliers access to funds once they had delivered their element of a holiday.

This has to be the right approach and airlines need to be brought into line, accepting later payment when their flight seats form part of any holiday package sold, not just within their own holiday divisions. However, only the CAA and government can impose this.

The CAA’s proposed solution will simply push customers into buying cheaper unprotected holidays via the web or from travel companies domiciled in other European countries, not governed by the same excessive regulation the CAA is seeking to impose on UK travel companies.

I fully support the CAA’s core aims of speeding up customer refunds and restricting travel companies from funding their day-to-day operations from customers’ cash, since as an industry we have seen a lot of ‘naked swimmers’ as the Covid-19 tide has gone out.

However, the CAA’s current proposals will further tilt the un-level travel playing field to an extent that only the largest OTAs can take the hit on working capital, reducing customer choice in the sector.

It will also effectively force high street agents to sell a much narrower range of bonded holidays, reducing both customer choice and the number of holidaymakers overall protected by Atol. Neither of these should be the aim of the CAA.

This consultation is misguided and frankly highly dangerous, so please pay attention and resist its implementation.

Steve Endacott is chairman of Rock Insurance and comments regularly on industry affairs