The new director also sought
to persuade the government to impose a £1 financial-protection levy on all flights, something long demanded by the sector. He says: “An all-flights levy had been a proposal of my predecessor, but it needed to be substantiated and it needed a well-argued financial case. We did a lot of work with help from one of the big-four accountancy firms.” The government rejected the idea. The CAA fell back on a £1 levy on Atol-protected holidays, which became the Atol Protection Contribution (APC), introduced in April 2008. Jackson says: “How the ATT was
funded was not a big issue at the time.” However, bonding was a big issue, especially for the major companies. “We had £2 billion- plus in bonds,” says Jackson. “The industry’s liquidity [bank lending] was constrained and it seemed sensible to release that liquidity.”
Mergers and failures
So the APC replaced bonds for most companies after legislation in 2006 allowed a levy on Atol-holders to raise funds. The removal of bonding “helped
facilitate” the mergers of Tui with First Choice and Thomas Cook with MyTravel in 2007, says Jackson. “A big two were stronger
than a big four, but the bonding would have been considerably more [costly] for those two. It certainly helped them weather the [financial] storm [of 2008-09].” However, hardly had a £1 APC been put in place than the Atol scheme faced its biggest challenge in a generation. On September 12, 2008, XL Leisure Group went into administration with 85,000 holidaymakers
overseas and 200,000 bookings. Fortunately, the CAA had
required the company to retain a bond, but it was nowhere near enough. The collapse required the biggest repatriation and refund- paying exercise in the sector’s history. “The industry rallied round,” says Jackson. “We had professionals on the ground to keep people happy. The industry really did pull together.” But a £1 APC was no longer
tenable. Jackson says: “There was always a 5% chance it wouldn’t be enough. If XL had happened a year later there would have been more [money] in the fund.” The CAA consulted on an
increase. “The industry was talking about £5, which was helpful. We had representations that £5 was too much, that £3 was too much – £2.50 seemed defensible and not hugely disrupting to price points.” So the APC became £2.50 in October 2009, where it remains. Yet before the fund could be
replenished, in July 2010 Goldtrail Travel went into liquidation. The failure remains the subject
of legal action after liquidator PwC brought proceedings against several defendants for “dishonest assistance” to the owner. Jackson says: “We had our suspicions. The ATT took a big hit.” By then the CAA was “already
well down the road” to introducing a Flight-Plus Atol for agents selling dynamic packages, says Jackson. “It was the answer to the growth
of the internet, the low-cost carriers and dynamic packaging. If it’s still a holiday, it should be protected. [At the time] even if a consumer bought a flight and accommodation from the same company, it didn’t mean their holiday was Atol-protected.”
The risk-based approach started in 2005-06 and evolved. We needed a much better forward view on companies [and] built a risk-management department.
Flight-Plus came into effect
in April 2012, with the Atol Certificate following soon after. “The Atol Certificate gave us something to hang education campaigns on,” he says. “It’s getting steadily more recognition.” Changes continued thick and
fast. In 2014, the CAA unveiled plans to scrap the Small Business Atol (SBA) and make its financial assessments “more risk-based”. The SBA survived but other changes went ahead. Jackson says: “SBAs didn’t have any sort of financial check on them. An SBA could be technically insolvent but still trading. We were happy to say we wouldn’t get rid of them so long as there was a financial test.” He adds: “The risk-based
approach started in 2005-06 and evolved as we got better at it and the industry adapted.”
The new PTD
The new Package Travel Directive (PTD), adopted in November, requires industry compliance with new regulations by 2018. Yet the industry won’t see government proposals on implementation until the spring. Jackson says: “I would have liked to be further down the road. I’m handing over a blanker sheet of paper than I’d hoped. “There is an obligation to have the legislation in place by January 2018. Eighteen months is probably enough.” But he adds: “Given the way Whitehall works, you’re not looking at much change other than what is in the PTD by 2018.” Under the new regime, companies will be regulated in the country they are ‘established’ rather than where they sell. Jackson says: “How the place of establishment works is the big unknown. Do people move out of the UK to somewhere cheaper? If firms come to the UK, what liabilities are there to that? Could the regulator be allowed differential pricing for those outside the UK? What will constitute a place of establishment for non-EU companies? A lot of
questions need answering.” › Travel Weekly Executive Dinner, page 50
WITH RICHARD
On regulating travel “It’s a challenging but fun industry. People aren’t trying to obstruct you, but some look at the regulations and game them. [The CAA’s role] is to close off these avenues.”
“Problems arrive and you try to solve them – most of the time by a pretty bruising and bloody compromise, because of competing interests.”
On CAA Guidance Note 26, telling agents they may need an Atol for dynamic packages. [Abta challenged this in the High Court and won] “A large part of the industry was telling us Guidance Note 26 was too wimpy. The tone was ‘You might need an Atol for dynamic packages’. It wasn’t ‘Do this or we’ll punish you’. We became much more cautious on guidance.”
On charging Travel Republic with breaching Atol rules (2009) “We didn’t like to go to court, but we had to.”
On consulting the sector “When we make a proposal it’s not because we’ve made up our minds.”
On firms relocating abroad “We’d be happy to see higher- risk businesses go abroad and lower-risk move to the UK.”
On industry resilience “Operationally and financially the industry is more resilient [than 10 years ago]. Look at Tunisia and Egypt – the industry handled both.”
On regrets “It would have been nice to nail down the PTD, the broad lines of the Atol review and get the APC back to £1.”
11 February 2016
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