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implications of changes in the ATOL scheme for tour operators and holiday companies

Travel companies can prepare with more certainty after the Coalition Government has unveiled its plans to increase protection for holidaymakers under the ATOL insurance scheme. The proposals follow a lengthy consultation which was started by the previous Government in 2009. 

Theresa Villiers' written statement on 3 February 2011 set out three key reforms:

  • A new category of 'flight plus' holiday will be created under the ATOL scheme.  This would cover holidays including a flight where the various elements were purchased within a specified short time period, and so look similar to package holidays, but are not packages in the traditional sense. 
  • Improvements in the information provided to consumers at the time of booking.  The new rules will require travel agents to make it clear when ATOL protection will not apply.
  • Standardised booking documentation so it is clear to consumers whether their holiday has ATOL protection.

None of this will come as a surprise to those operating in the travel industry.  In recent times, following the collapse of a number of high profile travel companies, there has been increasing pressure to extend consumer protection when it comes to holiday bookings. 

Where a travel company does not currently hold an ATOL, the 'flight plus' scheme could have a big impact on business. Unless the rules for first time ATOL applicants are relaxed, those applying will be forced to provide a bond for a minimum of four years. The bond must be to the value of £40,000 or 15% of the company's annual turnover.  Of course, this will not be of major concern to the larger operators in the sector but it will affect smaller travel agents who previously never had to worry about ATOL bonding or protection.  We await further detail on when exactly the 'flight plus' requirement will bite. 

Booking scripts and any standard website or brochure terms and conditions will need to be amended so it is clear whether ATOL protection will apply to a booking.  Travel companies will also need to ensure that robust processes are in place so that a consumer is left with no doubt in their mind when a booking is not ATOL protected. 

Many travel companies already use standardised booking documentation across their brands. It is likely that, further to the Government's consultation, the standard 'ATOL protected holiday' documentation will largely reflect what is already in use, albeit in a uniform format. Travel companies will, however, need to update their systems and IT to incorporate any changes. 

While the changes are being heralded as a welcome extension of consumer protection by many, they will inevitably encroach on the innovative way in which travel companies have sought to avoid the need to hold an ATOL or fall into the remit of selling a regulated package holiday. The boom in internet holiday sales and the websites which form the backdrop for such bookings have evolved to provide the ultimate in customer choice. At the same time, financial protection for holidaymakers has quickly fallen behind. 

Travel Republic successfully argued they do not need to hold an ATOL licence as they do not sell package holidays. Where they do sell package holidays they will do so as agent for one of the major tour operators. Travel companies that operate using a similar model will not, however, escape the 'flight plus' provisions unless they choose to only deal with bonded suppliers. 

There will now be a short period of consultation with interested parties before the proposed changes become law. The proposed changes to the ATOL scheme do not affect tour operator/ travel company liability for the performance of the holiday contract, but it is only a matter of time before the consumer benefits from increased protection here too. The Government's plans come at a time when the European Commission is considering changes to the Package Travel, Package Holidays and Package Tours Regulations 1992. 

This is a simplification of the law and, should you be faced with an issue following an accident out of your home jurisdiction, always make sure you have good advice from someone experienced in this area of law.

For further information, please contact Daniel Scognamiglio in the Travel team in Southampton at daniel.scognamiglio@bllaw.co.uk or call him on 023 8085 7339.

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