A major overhaul of the ATOL protection scheme has been announced today by the Department for Transport.
Under a new flight-plus scheme, agents will find it difficult to sell a "dynamic package" without having ATOL protection.
They will have to put all income from "flight-plus" sales into a trust account until clients have completed their holiday.
Some in the industry have already said that this will hit cash flow and would be devastating for many agents.
Here's what Aviation Minister Theresa Villiers told Parliament she wants to do by the end of the year:
- Extend protection to include 'flight plus' holidays. This would cover trips including a flight where the various elements are purchased within a specified short period - essentially looking like a package holiday but falling outside the existing legal definition.
- Deter businesses from misleading consumers about their level of protection. Some companies offer holidays which might look like packages but make the transaction as an "agent for the customer" without explaining to the customer that this means forfeiting ATOL protection. These proposals are designed to provide customers with a clear and honest explanation so they can make informed decisions.
- Replace the wide variety of documents which companies currently issue with standardised information for travellers, making it clear when their trip is ATOL protected.
In a statement, she added: "Insolvencies in recent years have shown us how important it is that customers are able to buy protected holidays, but recent court cases have only served to highlight the fact that the scheme is in need of reform.
"These changes will remove much of the confusion surrounding ATOL, while ensuring operators who offer such holidays provide customers with the financial protection they expect.
"As well as improving protection for passengers, these reforms will help us put ATTF finances back on track so that taxpayers' exposure to the fund"s deficit is rapidly reduced and ultimately eliminated.
"I also believe there may be a case for new primary legislation to address other issues in the ATOL scheme and I will be considering this further in the course of the year."
ABTA said the reform was flawed because it excluded airline and website click-through sales from the scheme.
"These exclusions will perpetuate confusion among consumers," it said.
It also said the costs of the ATOL scheme to the travel trade, and ultimately the consumer, must not be at a level that will drive consumers to seek out cheaper, unprotected arrangements (such as booking direct with airlines) or wreck successful business models.
"The proposals must be backed by strong enforcement measures to avoid consumers being left unwittingly high and dry by unscrupulous traders," it said.
Derek Moore, AITO chairman, said: "There is obviously a lot of detail, and the devil is in the detail, but our initial thoughts are that we find the proposal very encouraging and it should help to level the playing field, bring credibility back to the ATOL system and it is good news for consumer.
"As AITO already believes in fully protecting any services our members, the CAA"s thinking is moving in our direction but is less welcome news to those who have misrepresented their intentions in the past."
TUI welcomed the announcement but said: "We are disappointed, however, that the Government has not announced any proposals to address the anomaly that continues to see flight only sales made by carriers exempted from the ATOL scheme while sales of flight only arrangements made by travel agents and tour operators are covered.
"We believe that this represents a missed opportunity and will continue to call on the Government to take the simple steps required to remedy this.
"Further, we continue to believe that wider reforms in the industry are necessary and we will continue to actively engage with the Government through the consultation process and beyond to help ensure that reforms accurately reflect the market place in which we operate and that customers benefit from a consistent level of protection."
Thomas Cook UK & Ireland said there is still going to be confusion for British holidaymakers.
"This is not the complete solution to consumer protection," said a spokesman. "We hope today's decision is just a stepping stone and that in future the scope of the ATOL system is widened to include airlines. Only when this is introduced will holidaymakers be able to have total peace of mind that their money is fully protected."
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By Bev Fearis
Thursday, February 3, 2011