‘Zombie companies’ battled to secure Atols in September renewals

Healthy booking figures and record Atol capacity following three strong years meant straightforward licence renewals for most companies in September, yet Atol specialists report a minority of businesses struggled to renew.

Smaller mass-market operators, companies carrying Covid debts and those moving above the CAA’s £20 million Atol turnover threshold had most difficulty – with more firms falling into this category as the threshold has not changed for a decade.

Chris Photi, partner and head of travel at White Hart Associates, described last month’s renewals as “fraught and as difficult as I can recall since Covid”, saying a minority of “zombie companies [those with significant unpaid debt] simply can’t meet the CAA tests”.

He reported the CAA had lessened its requirements to renew some licences, noting: “The industry’s finances are generally stronger, with many companies having had three successful years and repaying much of their Covid debt, but a minority continue to struggle and have not recovered from Covid. They take up a lot of the CAA’s and our time and effort to agree licensing renewal terms.”

Photi added: “The CAA has no desire to precipitate a failure and have lessened their requirements at times, albeit using licensing and booking restrictions as a backstop in the event businesses fail to meet the revised requirements.”

Travel Trade Consultancy director Martin Alcock agreed, saying: “I share the view that 90% of businesses are fine but 10% awful. Clients sailed through [the renewal process] provided they could meet the CAA’s requirements.”

He suggested: “The biggest problem has been with companies going from below the £20 million Atol turnover threshold to above it.”

Alcock noted the CAA “applies a completely different set of requirements and a bunch of financial tests” above the threshold and can order a business “to put X amount of money back into the company”.

He added: “The £20 million threshold hasn’t changed for 10 years and it’s capturing more and more businesses – especially a lot more owner-managed operators, putting pressure on fairly well-run businesses.”

Alan Bowen, advisor to the Association of Atol Companies, told Travel Weekly: “Some businesses still have a lot of debt from Covid and it’s sitting as a liability in their accounts. Some of my clients have been looking at these [indebted] companies to buy them, but when they see the debt, they don’t want to take it on.”

Alcock highlighted the pressure on “mass-market operators without a point of difference”, saying: “It’s so low-margin, it’s hard to see a future for those unless they can get scale.”

He added: “The CAA can impose restrictions and monitor companies closely – we see that all the time. But it has a cut-off for renewing a licence given the renewal deadline. 

“So, the CAA is damned if it does and damned if it doesn’t [renew]. If it takes a licence away, it kills the business. If it allows a company to trade and it fails, people ask why it granted the licence.”

Alcock noted: “Keeping a business going can help the Air Travel Trust fund. The CAA has to be pragmatic.”