UK: Government Launches Consultation On Implementing The New Package Travel Directive

Last Updated: 10 November 2016
Article by Rhys Griffiths

The new Package Travel Directive ("New PTD") was formally adopted by the EU on 25 November 2015.  It represents the biggest change in the regulation of package holidays since the introduction of the original Package Travel Directive in 1990 ("Old PTD").  It significantly increases the footprint of what is a "package", as well as introducing a concept of "package lite" known as Linked Travel Arrangements ("LTAs").  Click here for a fuller briefing on the key changes which will be put on the statute books by 1 January 2018 and in force from 1 July 2018. 

Ever since adoption of the New PTD, the UK's travel industry has been waiting patiently for the Government to launch its consultation on how it should be implemented.  The industry were told in May 2016 to expect a split consultation, launched either side of the summer, but the intervening Brexit referendum brought that wish to an abrupt end.   At long last, on 28 October 2016 the Department for Transport ("DfT") launched the first part of its consultation, which is focussed only on how the ATOL scheme should be changed in order to implement the New PTD (see here).  Here is what you need to know about it.

A rushed consultation

The first point to note is that there is not long to respond.  The consultation will close at midnight on 24 November 2016, which gives interested parties a mere 4 weeks to respond.  This is much shorter than the usual 12 week period given in previous ATOL consultations, for instance the 2014 ATOL rebalancing consultation, the 2013 call for evidence on ATOL reform and the 2011 consultation on bringing flight-plus within the ATOL scheme. No doubt the Government is concerned that the delay in starting to consult means that there is now not long to consult, draft the relevant legislation and get it through Parliament by 1 January 2018.

Those wanting to shape the future of ATOL will need to react quickly, both in response to this consultation and the remaining legislative process.  For larger organisations or associations which need to consult with their stakeholders, this will not be easy, particularly if there is a desire to consult and consider the proposals comprehensively and carry out some financial modelling on the likely impact of the changes.

A limited consultation

The short timeframe for implementation of the New PTD, and the uncertainty surrounding the UK's relationship with the EU post-Brexit, means that 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 insolvency protection from the Government to the industry.  It will also leave to another day dealing with some of the inconsistencies and inefficiencies which are inherent in the ATOL scheme.

The consultation identifies some of the issues for consideration in the future and seeks views from the industry, which include:

(1)  If the new rules on the mutual recognition of insolvency protection regimes lead to enhanced risks to the Air Travel Trust (e.g. an ATOL holder significantly increasing its volume of licensable transactions by using its ATOL for all EU sales) then the CAA may seek additional financial security from that business over and above its APC payments.

(2)  The replacement of the current £2.50 flat levy for APC payments with a variable levy which is calculated by reference to the risk of the particular travel company.

(3)  Making the travel market more appealing to the finance sector so that it is more attracted to taking on responsibility for providing a market-based insolvency protection regime, possibly by (a) separating the repatriation and refund obligations, so that refunds are handled by some market-based solution and repatriation is handled by the CAA through the ATOL scheme; or (b) placing restrictions on when companies can take final balances e.g. four weeks before a holiday taking place.

(4)  Streamlining regulation and regulators so that we do not have the current split system between flight-inclusive packages and non-flight packages.

(5)  Tackling the inconsistent way in which the insolvency protection rules apply to the sale of flight-only, where some businesses must ensure that such sales are ATOL protected, whereas other businesses (e.g. the Airlines themselves) are not required to have ATOL protection.

(6)  Tackling the issue of overlapping financial protections which exist between the ATOL scheme and section 75 of the consumer credit act, which can lead to increase costs for travel companies and confusion on the part of the consumer.

In addition, as the focus in this consultation is the ATOL scheme, it does not address how the rest of the New PTD should be implemented.  The industry will therefore have to wait to be consulted on all other issues which do not concern insolvency protection for flight-inclusive packages, including the concept of Linked Travel Arrangement and how it should work in practice.  This further consultation will follow "in due course".

So, what changes will be made to the ATOL scheme?

Should ATOL be abolished?

It is heresy for some, but the consultation makes the point that the ATOL scheme is not mandated by the Old PTD, or the New PTD, and so should it be retained?  Alternatively, should there be some other scheme, whether run by the Government or a market-driven solution such as bonding or insurance?

Whilst the consultation flirts with the idea of abolishing ATOL, it soon rows back from it for the reasons set out above – there is simply not enough time to consider this option and for businesses to adjust before the deadline for implementation of the New PTD.  Nevertheless, the DfT does tantalisingly promise to consider the abolition of ATOL in the place of some other scheme in the long term.

Expanded definition of a package

The DfT 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 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.

What about LTAs?

Interestingly, the DfT may decide not to include LTAs (which include a flight) within the ATOL scheme.  It has asked for views on whether LTAs should be within the ATOL scheme, or whether they should be protected by some market-based solution.  It appears that the DfT's concern is the pollution of the ATOL brand.  This is because only the flight element sold by the first trader would be financially protected and not any subsequent components bought by the consumer.  This is different to packages, where the entire package is financially protected.  Accordingly, by using the ATOL brand to protect both, the customer may wrongly believe that the entire LTA is financially protected.

Mutual recognition of insolvency protection regimes

In line with the rules of the New PTD, the DfT 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 would therefore allow travel companies established in the UK to use their ATOL to cover all EU-wide sales, without needing to comply with the insolvency protection rules of any other Member State.

However, this is not without its problems and the DfT is clearly nervous about the potential exposure to the Air Travel Trust in dealing with foreign consumers.  If a UK-established travel company trading under its ATOL goes bust, leaving thousands of German customers stranded in Mexico, how will it arrange for them to be repatriated?  The DfT's answer may be not to arrange repatriation but merely to offer a refund.  This is not a very neighbourly thing to do.

No place for trust accounts?

The consultation refers throughout to the desire for market-based solutions for insolvency protection if and when the ATOL scheme does not apply.  Reference is made to such solutions potentially being provided by bonds and insurance by way of example, but no mention is made whatsoever to the use of trust accounts.  Why not?  It is specifically permitted as a form of insolvency protection under the Package Travel Regulations (along with bonds and insurance), and is currently used by number of travel agents and larger associations as part of their ATOL arrangements and also to protect non-flight packages.  One would expect some public discussion, consultation and analysis of this as a potential market-based solution.

Conclusion

At long last, the UK's consultation on implementation of the New PTD has begun.  It is limited in scope, but offers clear indications about how the ATOL scheme will be changed.  Promises are made about a more detailed root and branch review of the ATOL scheme in the future, and views are sought, but it remains to be seen whether there is the political will and ambition to see through such significant changes in the immediate future given the scale of other more pressing matters for the Government in extracting the UK from the EU.

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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