Published on Wednesday, August 10, 2011
Emily Woods, solicitor at national law firm Berrymans Lace Mawer LLP, summarises the implications of the collapse of Holidays4U for the rest of the industry.
"The collapse of Holidays4U last week and the recent profit warning and subsequent resignation of the chief executive of Thomas Cook has once again re-focused attention on the fragility of the travel industry and brought the issue of the proposed changes to increase consumer protection to the fore.
As a travel provider offering flights as part of a package holiday, the 12,000 Holidays4U customers stranded abroad are protected under the Civil Aviation Authority's (CAA) Air Travel Organisers’ Licensing (ATOL) protection scheme.
The ATOL scheme protects people who buy package holidays that include a flight, through UK tour operators. Where consumers have booked a complete air holiday package, if the holiday operator collapses, customers will be able to complete their holidays if abroad and receive reimbursement of their cancelled holidays if they are yet to travel.
In excess of 20 travel providers have become insolvent over the last year and many consumers are finding out that they are not so lucky. More than half of the travelling UK public travel are consumers without (in full or in part) ATOL protection, having booked their flights directly with an airline, or through an independent online travel agent. They mistakenly believe that their dynamic “package” provides the same financial protection as a package holiday – however, if the travel company or airline fails, consumers face having to pay again for accommodation and flights home, and will not be able to claim a refund from the CAA.
The proposed reforms to ATOL which are meant to bring clarity to consumers and extend protection are therefore being scrutinised, prior to the end of the consultation period on 15 September 2011. The proposals are to:
• Include within ATOL protection, a new category of 'Flight Plus' holidays, comprising a flight and other key holiday components brought together within two successive days (akin to dynamic packaging);
• Change the documentation issued to consumers so that they are clear when they have booked an ATOL protected holiday and receive a standardised ATOL certificate at the time of booking confirming their rights for refunds and repatriation under the scheme, should their travel provider fail.
There are concerns that the proposed reforms do not go far enough to offer adequate protection, and there are calls to extend protection for all holidays however they are booked (including airlines who sell other holiday components, UK holidays, and “click-through” sales).
Agents are reacting differently to the current period of turmoil. A large independent online agent is responding to customer’s requests for greater protection by implementing the Flight Plus ethos already – it has ensured ATOL protection is in place, alongside trust arrangements approved by CAA and ABTA, in order that flight only, room only, and flight plus bookings are financially fully protected.
Other agents are considering ways to avoid ATOL costs and Flight-Plus. With concerns that they will end up out of pocket under Flight-Plus as they will be initially liable for all elements of the sale if any of the suppliers they use (including flights, accommodation and car hire) collapse, many agents are reflecting whether to become “agents for the consumer” (although the government does seem determined to crack down on those who seek to bypass consumer protection regulations by acting as this), register the company outside the EU, or even split up companies so that there are less than 10 employees (there is a moratorium on any new regulations until 2014 for business employing less than 10 staff).
In an industry where competition is fierce and the need to minimise costs is as important as ever in these economic times, any proposed changes that will increase costs for the industry are likely to be resisted and we expect there to be significant further consultation and comment before any proposals are finalised. As ever, travel providers have to maintain a difficult balance between customer and shareholder satisfaction.
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The recent insolvency of Low Cost Travel Group, one of the large players in the travel industry had a big impact on the travelers, hotels and all related players from both wholesale & retail arms. There were about 27,000 people on a holiday who had booked through the company comprised of a €200 million wholesale arm and €500 million OTA / retail arm.