The CAA provided two small but significant clarifications on Atol reform at Abta’s recent annual Travel Law Seminar in London while insisting “no decisions have been made”.
First, CAA head of Atol Michael Budge confirmed businesses renewing Atols next March will do so under the current regime and not have to meet new requirements from April 1 despite the CAA’s intention to introduce a reformed scheme from next April.
This flexibility could also extend to the subsequent September renewals, with Budge suggesting: “There may be the option to sit under one regime or the other in September 2024.”
Second, Budge told the seminar that a variable rate of Atol Protection Contribution (APC) could be introduced from the April start date.
The industry had been led to believe a variable APC would require primary legislation. However, Budge said the change “would not require primary legislation but a piece of secondary legislation be set before Parliament”. This was subsequently confirmed by the CAA.
Budge also confirmed the follow-up consultation on detailed Atol reform proposals, now expected in the autumn, will be issued jointly by the CAA and Department for Transport – thereby confirming the proposals will require at least secondary legislation.
Segregation remains the CAA’s “preferred option” for reform, but Budge told the seminar: “There appear misconceptions about what segregation means.”
He insisted “we’re not saying anything will be mandated” and explained: “When we said segregation is our ‘preferred option’ that was not us saying segregation will be a requirement. Segregation may be as simple as separating customer money and demonstrating how you use it.
“That doesn’t necessarily mean trust accounts. It doesn’t necessarily mean segregation will be costly. It doesn’t necessarily mean businesses can’t pay suppliers in advance [from segregated funds].”
So segregation of customer funds could mean something as simple as a separate client account with no independent monitoring – although in that case it will in no way contribute to reassuring the CAA of an Atol holder’s financial security.
Budge added: “A number of businesses tell us they already segregate [customer money] and are using the money for the reasons they received it. Other businesses tell us they can’t segregate customer money. This comes back to the resilience of a business.
“If you already segregate, your business is more resilient. If you don’t segregate, you’re depending on customer money to fund your business.”
Budge confirmed the CAA’s target start date of April 2024 would be a “commence-from date, not a cut-off date” for the reformed scheme and the length of the transition period “will depend on the extent of change”. He insisted: “No decisions have been made.”
The Atol chief acknowledged “a desire for alignment of the Package Travel Regulations [PTRs] and [government] Airline Insolvency Review came through loud and clear” in industry responses to the CAA’s ‘Request for further information’ on reform proposals, along with “harmonisation of the PTRs and Atol reform”. But neither is going to happen.
Budge noted: “We continue to have discussions with the Department for Transport, but airline insolvency is a matter for ministers. Atol reform is not looking to address the issues of the Airline Insolvency Review.
“We continue to engage with the Department for Business and Trade [which is reviewing the PTRs]. [But] this is not about how we align the regulations.”
He reported the CAA received 289 industry responses to its ‘Request for further Information’ issued in January, almost as many as the record 305 responses to the initial consultation on Atol reform in April 2021.
His summary of the responses was succinct: “The diversity of opinion remains.”
Even on the issue of a variable Atol Protection Contribution, for which Budge noted “there is strong support”, there appears limited agreement on the basis for this variation and simultaneously a desire for “a transparent and simple APC”.
Budge concluded: “It’s clear the industry wants choice about how to provide financial security [and] there is a preference for an individual, risk-based approach. Methods of segregation [of customer money] are not fully understood and there was a lot of focus [in industry responses] on the costs.”
He added “a lot has been said about the industry not understanding the objective of Atol reform” and explained: “We’re looking to improve the resilience of businesses across the sector. We’re not looking to demand greater financial strength from every business.”
It is already 25 months since the initial consultation on this proposed reform. With the clock ticking down to April 2024, some clarification will be needed soon – surely by October at the latest if there is to be a 12-week consultation on detailed proposals.