Companies are entitled to have concerns about the proposed Atol reform, but some of the arguments against it don't hold much water.
Travel Republic managing director Kane Pirie presents the most forceful case and puts it well. But how strong are his arguments?
Kane argues: "The existing scheme has not been well run and is estimated to be over £50 million in the red." In fact, the deficit is not that high - although it would have been without the Atol Protection Contribution (APC) introduced in 2008.
For the first time since the late 1970s there is money going into the Air Travel Trust Fund (ATTF), as well as money going out to cover failures. About £50 million will have been paid in during the current financial year. So although the Goldtrail and Kiss collapses last summer will have made big hits on the fund, the deficit should not be above the £32 million it was last March.
The reason for the deficit is that no money was paid in for three decades. The CAA and industry recognised this was going to be a problem at some point. Successive governments declined to act until 2008, only for the financial crisis to serve up the most costly travel failure in history - XL Leisure.
"The tour operators have successfully lobbied for this deficit to be cleared by a new holiday tax on their competitors," Kane writes. This is partially correct. The tour operators have lobbied. But the APC is not a tax - it's a payment by consumers into a fund to protect their purchases. And tour operators did not lobby to clear the deficit - it is the government that demands the deficit be cleared. The tour operators lobbied for the extension of protection and the cost of providing it.
Kane says the deficit "by rights belongs to them" (the tour operators). How exactly? The deficit stems from payments to consumers whose holiday companies failed. The companies whose customers now pay in to it have not failed.
He also argues: "Customers already have good cover against the failure of their holiday provider through the protection on card payments."
This is questionable on four counts. First, card companies will not pay for repatriation. Second, card companies will only consider refunds on payments of £100 and above. Third, card companies consider each item in a claim separately, so claims for a flight, hotel, transfers, car hire would each have to be more than £100. Fourth, card companies frequently do not refund payments - as I know to my own cost.
But let's return to the deficit and who is responsible for it. The big two groups, Tui Travel UK and Thomas Cook, might account for nine to ten million Atol-protected sales a year. Let's say nine million at £2.50 a time - that is £22.5 million in payments to the fund in the current financial year, on top of payments of perhaps £16 million (some at £1 and some at £2.50) in 2009-10 and £9 million (all at £1) in 2008-09. Other tour operators will have made similar pro-rata payments. It does not look like the deficit belongs to the tour operators, does it?
So who is responsible? Well XL Leisure cost the fund £27 million. (The CAA's requirement that XL have a £42-million bond ensured it was not a lot more.) We await figures from the CAA and fund trustees on the impact of Goldtrail and Kiss. But if Goldtrail's failure cost anything like the £34 million I guesstimated last year, that pretty much answers the question of responsibility.
Of course, Travel Republic was a retailer of Goldtrail, Kiss and XL holidays. One estimate I've seen puts the cost of payments from the fund to Travel Republic customers at £6 million for XL, £3 million for Goldtrail and £3 million for Kiss, or £12 million in total.
So, while Tui and Thomas Cook customers paid in perhaps £47 million over three years, Travel Republic paid in nothing but played a part in £12 million flowing the other way.
Who does the deficit belong to again?
Comments (69)
Excellent analysis Ian.
To reiterate my own comments covered last Thursday on the ATOL reform announcement,
"it will be interesting to see the responses in the Consultation to those companies being dragged kicking and screaming into the ATOL regime".
Seems like we don't even need to wait for the Consultation!
Posted by Jonathan Wall,Elman Wall Travel Accountants | February 8, 2011 9:33 AM
Posted on February 8, 2011 09:33
Ian
A lot of vaild points but the queston is also does it go far enough?
Simple answer is not enought will be "dragged kicking and screaming into the ATOL regime" as it misses over 50% of the market.
The whole reform supports larger company's and these top ATOL holders have in the past hit the fund hard.
So there is a half heart effort to expand the cover provided to those that the goverment consider to kick and scream less.
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