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The practice of having separate contracts for the sale of flights and accommodation, thereby avoiding the need to hold an Air Travel Organisers' Licensing (Atol) licence, will shortly be ending. But this still leaves many gaps in consumer protection.
The ATOL Regulations were introduced in 1972 to protect the public if a travel company goes bust. Operated by the Civil Aviation Authority (CAA), they cover all package holidays that include a flight, together with many flight-only deals. Travel companies are required to hold an ATOL licence and provide bonds so that, should they go out of business, the CAA can offer refunds or arrange for people abroad to continue their holidays. Crucially, scheduled airlines that sell seats on their own flights and authorised and disclosed agents of licenceholders are not required to hold a licence.
The mismatch between the ATOL Regulations (which do not mention packages) and the 1992 Package Travel Regulations have caused problems. The latter required insolvency protection for all 'package holidays'. Increasing numbers of travel companies have identified a loophole that allows them to sell a package but avoid the need for an ATOL licence by 'contract splitting'. This involves the company selling a flight as an agent for an ATOL licenceholder and accommodation and car hire, for example, under a separate contract. Neither contract requires an ATOL licence due to the exclusions in the legislation. The company may put separate protections in place for each component of the package or breach the Package Travel Regulations by not having any protections at all. Even the former can cause financial loss if one of the suppliers fails and the holidaymaker cannot recover their money for the other part of their holiday. For example, the flight provider might fail and the holidaymaker may either not find a replacement flight or have to pay a higher price to get a flight that enabled them to use their booked accommodation.
In August 2002, the CAA published a consultation paper proposing an amendment to the ATOL Regulations to require all companies that create air package holidays to hold an ATOL licence to close this gap in consumer protection. A substantial majority of ATOL licenceholders, consumer bodies, trade bodies and unlicensed companies supported the proposed change. The CAA concluded that there was sufficient backing, the Government agreed and, almost a year later, new regulations have been laid before Parliament. Set to come into force on 8 October, they will require all companies that sell packages including a flight to hold an ATOL licence. So those who use split contracts will be unable to do so without holding a licence.
However, this development only represents a small and not ideal step in the right direction. Although the ATOL Regulations have been brought into line with the definitions in the Package Travel Regulations, these definitions themselves are subject to much debate. In addition, the consultation paper received a significant number of responses arguing that the proposed change did not go far enough to deal with the recent changes in the way people buy holidays. This is particularly so with the increased popularity of budget airlines, which has led to a trend of holidaymakers booking separate holiday components - the unbundling of the traditional package holiday.
The CAA's response is that by closing the split contract loophole, consumer protection can be improved quickly and easily. But it also recognises that it is a major flaw in the current system that scheduled airline sales are not protected even when consumers purchase accommodation from a linked supplier.
In light of this, the CAA launched a major consultation paper in July 2003 on financial protection for all air travellers and package holidaymakers. This is a very welcome move, not only because the regulatory regime needs to keep up with the changing travel market, but also because the current regulations are complicated, confusing and misunderstood.
However, time is not on the CAA's (or the consumers') side. The percentage of total leisure travel falling within the scope of ATOL has declined from nearly 90 per cent to 75 per cent in just three years. Even the protection of booking by credit card looks under threat as pressure for EU harmonisation grows. The UK is currently the only country in the EU where credit card companies are liable in the event of a collapse of the tour operator.