October 2016 ATOL consultation: the 8 things you need to know

Read Martin Alcock’s 8 tips you need to know for 2016 ATOL Consultation.

01 Oct, 2016 Updated 05 Mar, 2024

My Saturday evenings were much simpler in 1992.

Reclining on the pop-up chaise in my shell suit, savouring a Tizer on the rocks, watching the incomparable Jet from Gladiators pole-axe Contenders. In the next room, my Mam would Shake’n’Vac the remnants of my Findus Crispy Pancakes to the blissed-out beats of Right Said Fred. Good times.

Last Saturday night was a very different affair though. On the 27 October 2016, the Department for Transport released their Consultation on Modernising the ATOL scheme to accommodate the new Package Travel Directive and it wasn’t going to read itself.

Like I said. A very different affair. Though I was wearing a shell suit.

Much like my wardrobe, The Package Travel Regulations have been in need of an upgrade ever since 1992. In fact, here is a timeline showing how long the process has been going.

In November 2015, the European Parliament finally signed off the new Package Travel Directive text (PTD 2015) – a mere 8 years after kicking off the reform process.

After taking so long to get to the point, we now have a race on our hands.

The consultation process setting out how PTD 2015 will work in the UK has been beset by Brexit shaped delays. Given these new laws will apply to holidays departing after July 2018 and that many companies will start selling their Summer 2018 programme in the next 6 months, it doesn’t leave much time.

Theres still a huge amount to do but this is an important next step. The consultation runs to 24th November 2016 so make sure you have your say here.

In the meantime, here are my 8 key takeaways:

  1. Brexit shmexit

First lets clear up one common question. Does the UK even need to push ahead with implementing another European Directive given the results of the referendum on EU membership?

On this point, the DfT is emphatic. The UK will still be a full member of the EU in July 2018 when the new rules come into force so its full steam ahead to implement PTD 2015 in full.

Of course, there’s still a big question mark over what happens after the UK has left the EU, but then the travel sector is hardly unique there….

  1. Place of establishment

One of PTD 2015’s most controversial cornerstones is the move to a Place of Establishment basis. In a nutshell, businesses will be regulated in the EU member state where they are established rather than where they sell holidays.

There are many practical questions still to be answered on this, like how will UK citizens be protected from another Lowcostholidays situation, not to mention how the UK travel sector will react if the healthy Air Travel Trust Fund balance is spent refunding and repatriating non-UK citizens.

On the positive side, new legislation will enable ATOL holders to protect their EU sales under the ATOL scheme, likely through the usual payment of ATOL Protection Contributions. This will make it much easier for UK companies to sell into the EU without the need to establish companies and apply for licences in those territories.

  1. Flight-Plus is dead

Flight-Plus was only introduced in 2012 and has remained fairly misunderstood by consumers and large sections of the trade ever since.

The wider definition of a package in PTD 2015 means that pretty much all Flight-Plus arrangements will become packages. The DfT has confirmed the Flight-Plus concept will be consigned to the history books. Thanks for coming. Its been an emotional ride. Don’t let the door hit you on the way out.

  1. Flight-Only

Right now, the regulation of Flight-Only is a mess.

By way of recap, if a customer buys a Flight-Only direct from an airline, it’s exempt from the ATOL scheme. Buy the same flight via an agent and unless you get the ticket “immediately” you’ll get full ATOL protection but that agent will have to underwrite the cost of the airline failing.

To add to the confusion, the major vertically integrated tour operators (ie. those who own their own aircraft) regularly change their policy on Flight-Onlys to include or exclude them from ATOL protection to suit their wider business needs.

Most recently, Monarch reverted to selling their Flight-Onlys direct from the airline in October 2016 in order to claim the exemption from the ATOL scheme. Lest we forget, It was only 2014 that it brought them on to the ATOL scheme by selling them through First Aviation, their in-house agent, in order to reduce their Merchant Acquirer’s liabilities. Does the customer have a clue about any of this? I’d say its unlikely.

This is exclusively a UK problem too. No other EU member states require any sort of protection for Flight-Only.

There are only really 2 ways to tidy this up and make it clearer. Regulating all Flight-Onlys including the ones sold directly by airlines is off the table so the only viable option is to take all scheduled Flight-Onlys out of the ATOL scheme altogether. The DfT is seeking views on this option.

  1. Linked Travel Arrangements

We might well solve the over-complicated issues of Flight-Plus and Flight-Only, but we look like creating another in their place. The regulatory hospital pass from the EU known as Linked Travel Arrangements (LTAs).

Trying to define LTAs is an entire blog post in itself. Suffice it to say, the concept was mainly designed to protect sales where customers click through from an airline website onto an affiliate hotel partner. LTA arrangers only have to protect pipeline monies they are holding so customers purchasing this type of arrangement would have a significantly lower level of financial protection than when buying a full package.

Basically, LTAs look like an unworkable mess which explains why the DfT is wisely looking to sidestep them altogether. The DfT consultation suggests finding “market solutions” to cover LTAs and hints at a preference for keeping them well away from the ATOL scheme. It’s easy to see why. Bringing LTAs into ATOL would confuse the hell out of customers and severely weaken the ATOL protection message.

  1. Agent for the consumer

Agent for Consumer (A4C) is a legal switcheroo in the small print of terms and conditions whereby instead of an OTA acting as the airline’s agent in selling the flight to a customer, they act as the customer’s agent in buying the flight from the airline.

Its actually fairly common practice amongst OTAs as it helps avoid accusations they are organising packages and it wards off belligerent, agent-unfriendly Low Cost Carriers like Ryanair. It also nets OTAs a tidy 50% discount on their ATOL Protection Contribution (APC) for A4C sales.

If you don’t understand A4C, then you can be sure your customers don’t. One of the many reasons why PTD 2015 has outlawed it completely.

7. Business Travel

It’s long been a source of frustration for Travel Management Companies (TMCs) that they have to comply with ATOL protection in the first place. PTD 2015 will officially take TMCs out of the regulations, provided they operate under a framework contract with their corporate clients.

8. Other odds and sods

As a result of these planned changes, there’ll be tweaks to all key documents including Terms and Conditions, ATOL Certificates, agency agreements, confirmation invoices etc etc.

Written by Martin Alcock on 1 October 2016

ABTA, Regulation