The Civil Aviation Authority (CAA) is consulting1 on changes to the ATOL Standard Terms – the standard conditions attached to ATOLs2. The Department for Transport (DfT) has issued3, and is consulting on, its proposed changes to the 2012 ATOL Regulations4 to implement many of the requirements of the Package Travel Directive (PTD) into UK law. The Department for Business, Energy & Industrial Strategy (BEIS) is due to publish regulations5 after Easter (the 2018 Regulations), which will implement the remaining changes required under the PTD through amendments to the Package Travel Regulations 1992.
Fasten your seatbelts
In addition to changes required to implement the PTD, the CAA has also taken this opportunity to consult on proposals aimed at modernising the ATOL scheme. We discuss seven key proposals from the consultations:
1. As expected, the concept of a "package" will be copied out from the PTD
The DfT consultation paper proposes that the following types of air travel bookings will need to be protected as packages under the ATOL scheme:
- a bundle of travel services from the same point of sale, paid for as a single package;
- a bundle of travel services supplied under different contracts, via a single travel agent who either sells it to the customer for a total price or labels it as a package deal;
- package holiday gift boxes, where the accommodation is chosen after purchase; and
- a single travel service from provider A and a single travel service from provider B, where provider A transfers the customer's personal data (including payment details) to provider B. Provider B then targets the customer, who makes a 'click-through' purchase from provider B within 24 hours of their purchase from provider A.
As the new definition of 'package' will cover sales which are currently protected as Flight-Plus bookings, references to Flight-Plus will be removed from the existing ATOL framework.
2. In a departure from industry preferences, linked travel arrangements including a flight will fall outside the ATOL scheme
A Linked Travel Arrangement (LTA) will arise where the customer:
- chooses travel services from separate providers, through separate contracts and transactions, but which are facilitated by one trader; or
- books a travel service from provider A and is then directed to provider B to buy another service for the same trip within 24 hours of the first purchase, without the customer's data being transferred to provider B.
Responses to the DfT's 2017 consultation6 indicated a preference from the travel industry for LTAs including a flight to be protected within the ATOL scheme. But the PTD only requires an LTA facilitator to have sufficient protection in place to provide a traveller with a refund, not repatriation, in the event of the facilitator's insolvency. According to the DfT's latest consultation paper, bringing flight LTAs under the ATOL scheme could cause customers to mistakenly believe they would be repatriated if the facilitator failed, which risks diluting the ATOL brand. As the PTD is a "maximum harmonisation" EU Directive, the UK government can neither under-implement nor exceed the requirements of the PTD. The DfT's view is that this means it does not have the flexibility to provide full repatriation cover for LTAs via the ATOL framework.
Therefore, the DfT proposes to protect flight and non-flight LTAs outside the ATOL framework through bonding, insurance or trusts. But stakeholders will have to wait for BEIS to publish the 2018 Regulations for more specific information.
That said, under the DfT's proposals some customers booking LTAs will still benefit from partial ATOL protection: namely, if a customer books a package and then creates an LTA by purchasing an additional service. For example, if a customer buys a flight and hotel in a single package, this must be ATOL protected. If the trader selling the package then directs the customer to a second trader to buy car hire within 24 hours of purchasing the package, this purchase of car hire creates an LTA. As such, the original trader will not only need to be an ATOL holder to sell the package, but will need to have sufficient insolvency protection in place to refund the car hire as an LTA facilitator.
3. Mutual recognition under the PTD means that offering ATOL protection will allow UK-based traders to sell across the EEA, but EEA-based traders won't need an ATOL to sell in the UK
As anticipated, the DfT proposes to extend the requirement for UK-based traders (except airlines) offering packages including a flight for sale in the UK to hold an ATOL to cover such sales in the EEA7. Traders based elsewhere in the EEA selling such travel services are already exempt. The CAA does not intend to renew any ATOLs held by non-UK EEA traders, as these traders will need to comply with the PTD requirements in their country of establishment. UK-based agents selling packages organised by EEA traders will also be exempt for the same reason.
4. Regulations regarding agents acting for the customer or for ATOL holders will change, and a number of exemptions from the requirement to hold an ATOL have been tweaked
To implement the PTD's requirement that consumer protection extends to businesses selling, as well as organising, packages, the DfT has now proposed that agents procuring flights for the customer will need to hold an ATOL. This includes agents acting as an intermediary, unless they are a pure merchant acquirer (i.e. they are merely transferring funds and have no other involvement in facilitating the flight sale). Meanwhile, agents for ATOL holders, who are in practice organising packages, will also need their own ATOL under the DfT's proposals.
Some agents may be exempt from holding an ATOL on other grounds. The legislation will create a number of new exemptions and amend some existing ones.
5. The CAA hopes for new powers in case of turbulence – but they'll have to be patient
Perhaps unsurprisingly, the CAA's view is that its current powers to take a criminal prosecution or to revoke, suspend or amend an ATOL are not proportionate tools in all enforcement cases. The government's consultations introduce the prospect of granting the CAA civil powers to issue penalties, compliance notices, restoration notices, stop notices and enforcement undertakings. This change is part of the modernisation process, rather than mandated by the PTD, and so such powers would be granted in a separate process in 2019.
6. ATOL holders may have to provide more information to the CAA about corporate activity
New concepts introduced in the CAA's consultation focus on information requirements. The CAA proposes to amend the ATOL Standard Terms to require ATOL holders to provide "any information the CAA should reasonably expect to know". This includes any event which is likely to have a material impact on the financial resources or operation of the ATOL holder. Again, this is not part of the PTD implementation, but would bring the CAA's information requirements in line with those imposed on financial institutions by financial regulators.
The CAA will issue separate guidance on corporate transactions affecting ATOL holders, setting out the CAA's likely information requirements and the potential impact of a transaction on the ATOL.
7. The CAA will take on responsibility for issuing customers with ATOL certificates
Following a successful trial, the CAA announces in its consultation its intention to roll out an online licensing system. This system is expected to give the customer peace of mind that their ATOL certificate is genuine, but also give the CAA faster access to customer contact details in the event of another repatriation exercise of the scale of the recent Monarch collapse.
The DfT and CAA consultations finally provide some welcome clarity on how the PTD is expected to be implemented in the UK. However, the full picture, including a lot of the detail, won't be clear until BEIS publishes the 2018 Regulations after Easter, leaving stakeholders just three months to prepare for the most radical update to the regulation of package travel in over 25 years. But there may be a slight reprieve – outside the consultation, the CAA has suggested that it will not seek to take enforcement action against stakeholders who have not complied fully with the new requirements by the PTD implementation deadline of 1 July, provided that stakeholders have taken some steps to implement the changes.
Interested parties have until 23 March to respond to the DfT and the CAA consultations.
2 ATOL refers to Air Travel Organiser's Licence. It is a UK government-backed consumer protection scheme which ensures that customers booking a package holiday receive a refund or are repatriated if their travel company fails while they are abroad.
4 Civil Aviation (Air Travel Organisers' Licensing) Regulations 2012.
5 Package Travel and Linked Travel Arrangement Regulations 2018. BEIS carried out a separate consultation in 2017: https://www.gov.uk/government/consultations/updating-consumer-protection-in-the-package-travel-sector
7 The EEA is the European Economic Area. This includes all EU Member States plus Iceland, Liechtenstein and Norway.
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