Government scheme must be backed by hard cash – TravelMole Comment by Jeremy Skidmore
I’m sure I don’t need to remind you that last month the government rejected an across-the-board consumer levy, or around £1, for all air travellers.
However, it now appears package operators will be able to replace bonds, which are costing them a fortune, with a consumer levy. This is a welcome move because the cost of protection for even a small operator can be as high as £50,000.
Secondly, the new system will be a single per-customer transparent levy to build up a fund. This is further good news, because it means that holidaymakers will see it on their invoice and know they have bought financial protection. Also, tour operators will not be able to gain a competitive advantage by offering to include the fee in the cost of a package.
So far, so good. But if we are going to move to this new system within the next six months, it is absolutely vital that the government underwrites the scheme until a substantial fund is built up.
The Air Travel Trust Fund is around £10 million in debt, so if you switch to a consumer levy overnight without a safety net, what happens if there’s a substantial failure?
Also, by focussing only on ATOL holders, it will take many years to build up a fund of around £250 million (a figure that many experts have said is a sensible ceiling).
There’s another consideration in all this, too. Underwriters tend to prop up failing companies and allow them to limp along until we hit the quiet shoulder season. Financially stable operators hate this practice because it allows the failing company to take peak-season bookings that others could have had. Also, like US airlines that hide behind Chapter 11 bankruptcy, these insolvent operators trash the market by cutting prices to try to get some cash into the business before it folds. Under a new levy system, that wouldn’t happen. An operator that could not pay its bills in July or August would fail, which might lead to a huge call on the new fund.
This levy is a step in the right direction, but as the Civil Aviation Authority points out, there are plenty of issues to iron out.
What’s your view?
Phil Davies
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