ATOL Reform request for information: TTC response

In January, the Civil Aviation Authority (CAA) issued the latest instalment of its ATOL Reform Consultation. Travel businesses and industry stakeholders were asked to submit their response to the request for information document by 31 March 2023.

In a previous post, we highlighted our eight initial takeaways from the document. Here, we share details of the full response we’re submitting to the CAA.

Our overall views remain largely unchanged since our response to the original ATOL Consultation document. However, we add the following additional general comments:

The case for reform

In February 2023, the Air Travel Trust Fund (ATTF) published its accounts for the financial year ending March 2021. These accounts show the ATTF’s current resources and the number and cost of failures in the period since 1 April 2020 have been relatively low, particularly when viewed against the unprecedented challenges that ATOL holders faced during this period. We believe these accounts demonstrate clearly that ATOL holders are by and large, resilient, and the current regulatory structure has coped well. We therefore still do not accept that a convincing case has been made for wholesale, material changes.

Reform of airlines

The CAA’s original 2021 consultation document specified the key aims of reform:

“Giving consumers confidence that they would also get a better overall experience including the payment of refunds where that proves necessary”.

In our view, the single biggest cause of the travel industry’s Covid-era refund problem was the behaviour of airlines. In seeking to improve the sector’s resilience, the CAA is placing an undue amount of responsibility and cost onto ATOL holders, but they are only one part of the supply chain. We believe it is unfair and disproportionate to introduce material reform to ATOL holders without also accelerating the reform of airlines which was proposed in the Airline Insolvency Bill.

Broader holistic approach

There are several other regulatory reform processes currently in progress that will impact the travel sector. We believe that right now, there is a unique opportunity to reform the ATOL scheme in a way that simplifies the wider consumer protection landscape and eliminates duplication. In particular, we encourage the CAA to work more closely with the credit/debit card protection schemes and seek to align the ATOL workstream with the planned Package Travel Regulations reform process.

The reliance on customer money assertion

We believe there is a fundamental disconnect in the understanding of what is considered to be “using customer money”.

The CAA’s original 2021 consultation document asserts that, 

“many travel businesses are highly reliant on customer money as a source of funding working capital”. 

And section 2.3 goes on to state: 

“Customer money is the money paid in advance by the consumer to the ATOL holder for the licensable booking. The purpose of the money is for the ATOL holder to meet the costs of providing the holiday, whether paid to third party or in-house suppliers.

Issues arise when this money is used by the ATOL holder to fund other business expenditures rather than the specific booking.”

This implies that using Customer A’s money to buy Customer A’s flight or other travel services is an acceptable purpose. We agree wholeheartedly. However, our clients are routinely told by the CAA that they are “using customers’ money” when paying any suppliers in advance of departure. Even in the scenario where Customer A’s money is used to purchase Customer A’s travel services.  

We believe the practice of using customer money to fund “other business expenditure rather than the specific booking” is relatively uncommon, but it does represent a risk. 

We maintain our view that ATOL holders should keep their customer money in a client account, separate from their own company cash while they are custodians. This is a good working practice, followed by many other professions, including those of us regulated by the Financial Conduct Authority (FCA). 

However, we believe ATOL holders should be able to use a customer’s money to pay for that customer’s suppliers, under normal commercial terms. We, therefore, do not agree with the mandatory segregation of customer funds.

Individualised pricing 

In the original 2021 consultation document, the CAA asserted that: 

“The APC they [ATOL holders] incur may not be reflective of the risk individual ATOL holders or the value of bookings pose.”

We acknowledge this. Though we point out that the CAA already operates an individualised approach to risk management. When assessing large ATOL holders and those considered high-risk, the CAA imposes a range of interventions including bonds, trusts, escrows, guarantees and other structures. All of these mechanisms carry an implicit cost. In that way, riskier ATOL holders do already pay more. 

The CAA already operates a scheme whereby ATOL Accredited Bodies, who segregate customer monies and are thus deemed a lower risk, can benefit from a lower APC via a per-passenger rebate. We believe this is an equitable approach and could be extended. 

If APC must be reformed, we implore the CAA to adopt a simple, transparent approach for ATOL holders to understand and implement. 

You can view our full response here. If you would like to discuss any of the above or have a conversation about your response, please get in touch.