UK: ATOL Reform Update – The 2012 Regulations

On 30 April 2012, the majority of The Civil Aviation (Air Travel Organisers' Licensing) Regulations 2012 came into force, revoking the 1995 ATOL Regulations (as amended). The 2012 Regulations have significantly expand the scope of selling practices which are caught by the ATOL scheme, provide more stringent controls on the contractual relationship between ATOL holders and their agents and clarify the ways in which ATOL protection is evidenced to consumers at the point of sale. The Minister of State for Transport, Theresa Villiers, has estimated that an extra six million holidays will be protected each year as a result of the changes implemented through the 2012 Regulations.

Background

The ATOL scheme was first introduced under the Civil Aviation Act 1971 to provide a degree of financial protection for consumers booking flight-inclusive holidays against the insolvency of their tour organiser. Under the current ATOL scheme, protection is achieved through the payment of an ATOL Protection Contribution to the Air Travel Trust Fund ("ATTF") for each ATOL protected holiday or flight sold (currently at a rate of Ł2.50). In the event of the ATOL holder's insolvency, the monies held by the ATTF are used to fund repatriation where a holiday has already commenced or a refund where it has not.

Since the introduction of the ATOL scheme some four decades ago, changing trade practices in the marketing and sale of holiday products have necessitated further amendments to the ATOL scheme so as to provide necessary levels of consumer protection and to bring it in line with parallel consumer protection legislation such as The Package Travel, Package Holidays and Package Tours Regulations 1992 (although the extent to which that has been successfully achieved remains questionable). The most recent changes, and specifically the introduction of the 'Flight-Plus' rules under the 2012 Regulations, can be attributed to a number of factors including the steady decline in the number of ATOL–protected holidays due to the increasing use of 'dynamic packaging' and the associated defeat of the CAA in the 2009 CAA v Travel Republic case. Other reasons include a perceived lack of clarity on the part of consumers as to when holidays benefit from ATOL protection and the Government's desire to increase contributions to the ATTF thereby decreasing the fund deficit which is currently underpinned by a Government guarantee.

CAA v Travel Republic

In the Travel Republic case, the CAA brought criminal proceedings against Travel Republic on account of its alleged sale of holiday 'packages' without holding an ATOL as required under the 1995 Regulations. Travel Republic, like many providers, offered various holiday components to consumers on its website, which consumers could then combine at their election to provide all the necessary elements for a holiday (so called 'dynamic packaging'), with the final price paid being the aggregate of the cost of the individual components selected. The CAA's case rested on its assertion that Travel Republic's sales practices constituted the provision of 'packages' and consequently that an ATOL was required under the 1995 Regulations. Travel Republic was acquitted at first instance and the case was appealed to the Administrative Court where Travel Republic was again successful. The Courts' reasoning, which was largely informed by the Court of Appeal's decision in the 2006 ABTA v CAA case, was essentially based on the idea that offering constituent elements of a holiday separately but at the same time does not meet the necessary requirements for the establishment of a 'package' because it cannot be said to be 'pre-arranged'.

The CAA's application to the Supreme Court to further appeal the decision was declined. As a result, the CAA instead pressed for legislative reform so as to capture the type of 'dynamic packaging' that Travel Republic and others were engaged in within the scope of the ATOL scheme and to increase the level of consumer protection available.

'Flight-Plus'

The key change under the 2012 Regulations is the introduction of the 'Flight-Plus' concept. In essence, a 'Flight Plus' occurs where a consumer books a flight out of the UK (or into the UK where the consumer commenced a journey in the UK and left by some other means of transport) and the same day or within a day either side of requesting to book that 'flight accommodation', the consumer also requests self-drive car hire and/or 'living accommodation' in connection with that flight booking. It is the time of making a request to book, rather than the time of the actual booking, which is key in calculating whether the temporal requirements for a 'Flight-Plus' have been satisfied.

The 'Flight-Plus' rules apply to any sales channel (online or otherwise) and the arrangement must cover a period of 24 hours or greater or include overnight accommodation. Subject to a number of qualifications, most other tourist services connected with the flight which are requested at the same time or a day either side of the request for a flight booking will be deemed to form part of the 'Flight Plus'. For example, where a consumer requests a flight to Orlando and a day later requests self drive-car hire and tickets to SeaWorld Orlando through the arranger, the SeaWorld booking would be protected under the 'Flight-Plus'.

The 'Flight-Plus arranger', being a person (other than the operator of the aircraft) who makes available 'flight accommodation' as a component of the 'Flight-Plus', must hold an ATOL. Importantly, the engagement of the 'Flight- Plus' rules is not dependent on the existence of a 'package'. As a consequence, providers engaged in sales practices which previously escaped the need for an ATOL (including the type of 'dynamic packaging' examined in the CAA v Travel Republic case) will now in many cases be caught by the 2012 Regulations and require an ATOL. 'Click through' arrangements (e.g. where provider A sells a flight and then provides a link to provider B's website where self-drive car hire is booked) will now require the 'Flight-Plus arranger' (i.e. provider A) to hold an ATOL.

Where the supplier of 'flight accommodation', 'living accommodation' or self-drive car hire becomes insolvent or the 'Flight Plus arranger' becomes aware that such services will not be provided for some other reason, the 'Flight-Plus arranger' is required to arrange an alternative at no extra cost to the consumer, or where that is not possible, provide a full refund. Where other tourist services forming part of the 'Flight-Plus' cannot be performed, the 'Flight-Plus arranger' must provide the consumer with a refund. As a consequence, where such cover does not exist already, those caught by the new 'Flight-Plus' rules should consider procuring supplier failure insurance.

Where the 'Flight-Plus arranger' fails (as opposed to its suppliers) the cost of repatriation or a refund, as the case may be, would be arranged by the CAA through the use of the ATTF.

ATOL Certificates

Under the 2012 Regulations, an ATOL Certificate must immediately be supplied to the consumer upon accepting payment (in whole or part) for an ATOL-protected flight, 'Flight Plus' or 'package'. The requirement to issue such confirmation at the point of sale should provide additional clarity to consumers as to when ATOL protection applies and the availability of the ATOL Certificates should assist in expediting claims for refunds or repatriation through the CAA where failures do occur.

Three variations of the ATOL Certificate will be used for 'packages', 'Flight-Only' and 'Flight-Plus' sales respectively. The form and content of those ATOL Certificates is prescribed by the CAA in Official Record Series 3, with each Certificate displaying a unique reference number, giving details of the booking and specifying the degree of ATOL protection afforded.

In response to industry feedback, the ATOL Certificate requirements will only come into force on 1 October 2012 so as to allow sufficient time for business and IT systems to be updated. Transitional measures apply in the interim whereby the ATOL holder must within three days of accepting payment supply a document to the consumer identifying the services paid for, confirming which of those services are ATOL-protected and giving the name and number of the ATOL holder providing that protection. Until 1 October 2012, the form of ATOL Certificates specified by the CAA in the Official Record may only be used with the CAA's prior consent.

Agency agreements

Another key change under the 2012 Regulations is that an ATOL holder making available and selling 'flight accommodation' to a consumer through an agent will need to have a written agency agreement in place with that agent. The CAA has published a schedule of terms to be included in such written agency agreement in its Official Record. Inter alia, the agreement must authorise the sale of flights and require the agent to issue an ATOL certificate in compliance with the 2012 Regulations at the point of sale on behalf of the ATOL holder.

The CAA has noted that the increasing lack of formal contracts between ATOL holders and their agents in recent years contributed towards confusion in some airline failures and consequently led to delays in settling consumer claims. Under the 2012 Regulations, in the absence of a compliant agency agreement, the agent would need to hold its own ATOL. It is therefore hoped that the new measures will assist in clarifying the relationship between ATOL holders and their agents and as a consequence lead to fewer delays in the payment of refunds to consumers.

Conclusion

Current indications are that the 2012 Regulations will, to a large extent, achieve the Government's stated objectives. Indeed, the recent application by Travel Republic for an ATOL is telling in that regard, given that Travel Republic's success in the CAA v Travel Republic case was one of the key drivers for regulatory reform. Having said that, a number of questions remain, including the effect that impending reform of the package travel regime at EU level will have on the ATOL system, the status of an ongoing loophole for holidays arranged on an 'agent for the consumer' basis (because they are not 'making available flight accommodation') and an arguable lack of clarity as to protection for 'Flight-Only' sales. Future change in respect of the latter issue has been catered for under s.94 of the Civil Aviation Bill 2012, which contains a clause which would widen the Secretary of State's powers to include holidays sold by airlines or arranged on an 'agent for the consumer' basis within the scope of the ATOL scheme. It has been confirmed that it is the Government's intention that such steps would only be taken following proper consultation with stakeholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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