8 takeaways from the CAA’s latest ATOL Reform update

The Civil Aviation Authority (CAA) issued the latest instalment of its long-running ATOL Reform Consultation in January 2023.  This request for information document builds on the original 2021 consultation and the 2022 summary of responses to give an update on the CAA’s latest thinking.

We’ve trawled through its 48 pages. Here are our eight takeaways.

1 – The CAA is on a charm offensive!

This consultation journey was only ever meant to involve two steps. This request for information is an additional afterthought, reflecting the strength of feeling in the responses submitted to date.  We think the CAA is seeking to reassure the travel sector that it understands the enormity of its proposals and the nuances of differing business models.

2 – Segregation of money is clearly the CAA’s preferred way forward.

References to the virtues of segregating money are littered throughout the document. While the initial consultation presented segregation as one of a number of tools, we think it’s clear from the tone that some kind of segregation is now the preferred way forward. However, the CAA does acknowledge there are multiple ways to segregate funds and has moved away from a one-size-fits-all solution.

3 – Fixed-price APC looks like it’s out in favour of a variable, risk-based APC.

The CAA is building its case for a variable, risk-based APC. We’re still unclear on precisely how risk would be measured. But we think it’s likely to reflect the method or proportion of client money segregation. Such a restructure of APC may need legislative changes, so the timetable will be driven by when time can be found in parliament. A general election could delay things further.

4 – It’s official! The government wants out of its guarantee.

The UK government currently sit behind the ATOL scheme as guarantor of last resort. Given the parlous state of the Air Travel Trust Fund, after the Thomas Cook failure and the Covid period, we’ve always suspected that getting taxpayers out of the guarantee was one of the primary drivers of ATOL reform. Now it’s official. The call for evidence makes it very clear upfront that the government wants out.

5 – Bonds are out of favour, but may still have a supporting role.

Surety bonds were always the CAA’s preferred method of financial protection. But not any more. The document lays bare their faults (sub-optimal, don’t improve resilience, insufficient capacity, costly) and firmly rules out a return to mandatory bonding for all ATOL holders. Instead, bonds and insurance are reduced to a bit-part supporting role, alongside segregation. 

6 – The CAA has ruled out the Financial Markets option.

One of the options proposed in the first consultation was to replace the entire ATOL scheme with a private financial markets solution. The idea received a barrage of criticism, mainly concerned with capacity limitations. As a result, this has now been ruled unlikely to be viable for covering the whole market. In truth, it always felt a bit like turkeys voting for Christmas. 

7 – No changes to pipeline money rules…for now.

The first consultation made high-level references to restricting agents from holding pipeline money. Unsurprisingly, this set hares running through a worried travel agent community. The latest document parks any discussion on pipeline monies until the wider scheme rules have been finalised. So, for now, at least, it’s business as usual. 

8 – The timetable is tight, but there should be a transition period.

There’s still a long way to go, but the CAA states it wants to start introducing new measures from April 2024. Considering how long it’s taken to reach this point, and throwing in the potential need for parliamentary time around a general election, that feels very ambitious. The CAA does make clear that they will be allowing an appropriate transition period. Though based on the comments thus far, “appropriate” means very different things to different people!

The closing date for this stage of the ATOL Reform Consultation is 24 March 2023. We’ll be posting our response on our news and insights page. If you want your opinions included in our reply or if you’d like to chat about any worries, please get in touch.