The September Atol renewal process is expected to be difficult with a senior industry figure confirming the CAA “has concerns” about the finances of many tour operators.
Alan Bowen, legal advisor to the Association of Atol Companies (AAC), noted the CAA’s financial requirements can be a shock to companies.
The CAA last week urged operators to apply for renewal “well before” the September 30 deadline. As of Wednesday, more than 45% of those due to renew this month were yet to apply.
Bowen told Travel Weekly: “At the last renewal [in April] someone was asked to put in £900,000.” That amount could be provided by a bond, but Bowen said: “They had no idea they could put up a bond.”
The costs of bonding have risen significantly, but Bowen explained: “If you’ve been trading for 25 years it would cost 5%-6% [of the amount], so about £45,000.”
More: Special Report: Operator tells of Atol renewal fears
He argued: “The CAA has concerns about capitalisation. If your business is solid and costs under control the renewals should be as normal. But a lot of businesses are not in that situation [and] some just won’t get a bond now because the bond market has shrunk.
“The CAA is telling some people to set up trust arrangements, it is so concerned about their finances. For new Atol applicants, the CAA wants trust arrangements from day one.”
Bonds are still available. The problem is “the only companies that need bonds are higher risk”, said Bowen
In the past, all Atol holders required bonds and bond providers could hedge their provision by having a mix of clients – the more high risk balanced against those presenting lower risk. That changed in 2008 when the Atol Protection Contribution (APC) on bookings replaced bonds for most Atol holders.
Bowen said: “Historically, you got a bond for 1%-2% [of the amount] so £10,000-£20,000 for a £1 million bond. But the costs have gone up and up. For new travel businesses now bond providers want 10%.”
He added: “The CAA is wary of making allowances after Thomas Cook and this year businesses will have a year of refunds and refund credit notes in accounts.”
The CAA applies up to seven financial tests when considering Atol renewals. Bowen said: “I suspect very few businesses will meet all seven tests.”