UK: Government Publishes Its Response To The ATOL Consultation

Last Updated: 1 March 2017
Article by Rhys Griffiths

On 28 October 2016, the Department for Transport ("DfT") launched the first Government consultation on implementation of the new Package Travel Directive ("New PTD").  It was focussed on how the ATOL scheme should be changed to implement the New PTD, a fuller briefing for which can be found here.  On 9 February 2017, the DfT circulated its summary of the various responses and the Government's position on the issues (see here).  Here are the main points to note.

A simple answer

The Government is going to make the barest of changes to the ATOL scheme.  It is only going to make those changes which are absolutely necessary to implement the New PTD.  It will therefore push off consideration of wider structural changes to ATOL and its long stated desire to move responsibility for financial protection from the Government to the industry.  It will also leave for another day dealing with some of the inconsistencies and inefficiencies which are inherent in the ATOL scheme.  A summary of these other issues is contained in the earlier briefing linked to above.

Expanded definition of a package

The Government is intending to copy and paste the New PTD definition of a "package" into the ATOL Regulations.  This definition is very broad and will include practically all scenarios in which a consumer buys multiple travel components from a travel company at the same time.  It will catch traditional packages, flight-plus and even some click-through sales. The DfT will also finally close off the gap in the current ATOL scheme whereby travel agents selling flights as an "agent for the consumer" technically fall outside the ATOL Regulations, but which agree to abide by the AOL Regulations in return for a 50% rebate on their APC payments.  This gap will be closed where the travel agent is selling multiple travel components because such sales will be a "package" under the New PTD and will therefore fall squarely within the ATOL scheme.

Mutual recognition of insolvency protection regimes

In line with the rules of the New PTD, the Government is intending to include within the ATOL scheme all flight-inclusive package sales made by travel companies established in the UK, whether those sales are made to customers in the UK or other Member States of the EU.  This will therefore allow travel companies established in the UK to use their ATOL to cover all EU-wide sales, without needing to comply with the financial protection rules of any other Member State.  This change will go hand in hand with greater powers for the CAA to require information from travel companies about the nature of their sales. Interestingly, there is no further mention in the Government's response of the suggestion made in the consultation document that the ATOL scheme may discriminate between the level of protection offered to consumers resident in the UK and those resident in other member states of the EU.  The suggestion had been made that non-UK residents might only receive a refund if left stranded overseas, whereas UK residents would also be repatriated.  It would appear that the Government has decided not to pursue this suggestion.

What about Linked Travel Arrangements ("LTAs")?

The consultation suggested that LTAs (which include a flight) might not be included within the ATOL scheme.  It sought views on whether LTAs should instead be protected by some market-based solution.  The industry would appear less than keen on this option, preferring instead to include LTAs within the ATOL scheme.  However, in order to ensure that the Air Travel Trust is not exposed to the risk of failed LTAs, the Government is going to pass legislation to allow it to create a new Air Travel Trust (and associated levy) which will cater just for LTAs.

The future

The Government's response emphasises again that its long term desire is to move responsibility for the financial protection of flight-inclusive holidays away from the Government and to put it on a commercial basis with greater involvement from the market.  However, the response notes that such change will not be easy given the broad range of different views on this issue which range from maintaining the status quo through to moving to an entirely market based solution.  As such, the Government has indicated that it may adopt intermediate arrangements as a stepping stone to a full market-based solution to insolvency protection. Sadly, the Government appears unconvinced at the suggestion that there should be an end to the current split-system of regulation between flight packages and non-flight packages. The Government is only prepared to go so far as to say that there may be "some value" in seeking to bring the different regulations "closer together where there are clear benefits". The next stage in implementation of the New PTD will be the broader consultation on revising the Package Travel Regulations 1992.  This is due to be launched very soon and will provide the clearest guidance yet on how the Government intends to implement the New PTD.

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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