Debbie Venn (Associate, Commercial)

As everyone in the travel industry is aware, the Department for Transport (DFT) issued a consultation in December 2009 relating to proposals to update the regulatory framework for aviation. 

This consultation was open until 11 March 2010.  Responses were considered, and on 23 June 2011 a further consultation was issued on the reform of the ATOL scheme, in the form of ‘Flight plus’ proposals, together with new draft Regulations.  This consultation closed on 15 September 2011, and we all eagerly await the report on the consultation and on what Regulations might be put in place and when.

We have been watching comments flying in from various sources during the consultation process and have a few thoughts of our own on the proposals, which we thought we would share with you here.

Current position

The existing ATOL Regulations govern the sale of flights in the UK and a business can sell a flight in four different ways:

• the business is an airline;
• the business holds an ATOL licence;
• the business acts as an agent of an airline; or
• the business is a ticket provider.

If a business is taking liability as the principal of the contract and not acting as an agent, then it must ensure that it complies with the relevant regulations.

If a Principal is selling packages with flights, then it must:
- have an ATOL licence granted to it by the CAA, plus provide a bond / have suitable financial protection in place for the benefit of the consumer; and
- ensure that it complies with the PTRs, in addition to other legislation relating to contracts with consumers.

If a Principal is selling packages without flights, then it must:
- have a bond, insurance or a trust account in place (as per the PTRs); such a bond can be provided by ABTA, TTA, AITO, etc.
- as well as comply with the PTRs and other consumer legislation.

The initial consultation

This put forward the following suggestions:
Measure 1: to address perceived loopholes in the current scheme by the creation of “flight-plus” protection. 
Measure 2: Airline sale of “flight plus” – ie, bring the Airlines in
Measure 3: “flight only sales by third parties”.  This is to address the current situation where some flight only sales are covered by ATOL and some are not. 
Measure 4: new ATOL certificate - used to assist with the consumer being better informed. 
Measure 5: non air packages – allow companies whose main business is the sale of air packages to be able to protect non air packages under their ATOL as well. 

Further Consultation and draft Regulations

The aims of the consultation and draft Regulations are to provide clarity to consumers, the travel industry and CAA about whether a holiday is ATOL protected and to reduce the government’s guarantee of the ATTF deficit. However, the current Consultation on “Flight-Plus” arrangements poses various concerns, including:

• The definition for ‘flight-plus’ - the time differential between booking the different elements is suggested as 24 hours, however 24 hours is possibly too short to dissuade those who wish to try and avoid the Regulations.
• The “Flight-Plus” arranger under the proposed Regulations is not necessarily the principal contracting party in each instance, i.e., where the “Flight-Plus” arranger acts as retail agent on behalf of principal suppliers.  The draft Regulations need to make it clear that the “Flight-Plus” arranger is only responsible for the arrangements when acting as retail agent for an ATOL holder, and that they would not be responsible for the service provision itself or any non-performance or improper performance of the travel services (in the way that an operator providing a package in accordance with the Package Travel Regulations would be) – it is important that this distinction is made.  
• The Regulations need to clearly confirm that it is the CAA’s responsibility where an ATOL holder fails to deal with refunds and repatriation, but that the consumer will deal with the “Flight-Plus” arranger directly.  The ATOL holder would have paid the £2.50 APC to the CAA and the CAA must therefore be responsible to refund/repatriate the customers from that ATTF. 
• We are concerned with the proposal that the CAA will only repatriate consumers (and not provide a refund) for sale of flight-only by ATOL holders – this has the further potential to confuse matters as to what is protected under an ATOL licence and what isn’t. 
• The proposal to have in place a written Agency Agreement between the principal and the agent is sensible, but both parties should be responsible for getting this in place.  It is not clear from the draft Regulations what the repercussions of not having this in place are, but it cannot lead to consumer detriment just because the businesses have not got a written Agency Agreement in place.
• We are also concerned about the potential impact of having a moratorium for micro businesses.  The definition of micro businesses in the Consultation appears to be where a business has 10 employees or less.  However, many online businesses and travel agencies have less than 10 employees and there is a potential for many travel businesses to fall within the moratorium arrangements for micro businesses and not be required to have an ATOL in place.  The Consultation document refers to passenger numbers, however the definition for micro businesses in relation to the moratorium suggested by the Government does not relate to passenger numbers or turnover or risk.  It will cause huge confusion in the market place in the travel industry, and give businesses (especially those with overseas non-employee call centres) the opportunity to wriggle away from the Regulations.  This undermines everything that the Regulations are intended to do.  It would seem prudent to ensure that there is no moratorium granted for micro businesses under the “Flight-Plus” arrangements to ensure that the principles of consumer clarity and protection are at the forefront of the Regulations.
• There is also concern on how the ‘agent for the consumer’ argument will be addressed.  Enforcement on how this operates might be difficult, with an already overloaded OFT/Trading Standards taking responsibility for policing / enforcing this. 

The Regulations are supposed to be providing clarity, therefore we have to hope that these (and other) issues are fully considered when reviewing the responses to the Consultation, so that an industry-wide view can be taken into account when assessing the proposals.

We therefore wait with breath that is baited to see what other responses say and how these are addressed in the proposed Regulations.

Debbie Venn (Associate, Commerical) debbie.venn@asb-law.com or 01293603600