Atol Reform consultation: The CAA released a summary of the record number of responses to its Continued from page 48
impact” on the financial viability of smaller Atol holders. The CAA reported:
“The vast majority indicated segregating funds would have a significant impact on their business . . . Segregating funds [to book flights] would require significant levels of additional capital to pay airlines.” It noted Atol holders
which responded in support of segregation “already segregate customer monies”. On partial segregation, the
CAA found: “Respondents typically felt less than 50% of customer monies should be segregated [and] . . . many stated the mandatory minimum should be as low as possible.” Others felt it should be at a level “sufficient for prepayments and payments to suppliers”. Those in favour of segregation supported a minimum 70% to 100%. This followed a general
pattern in the responses, with Atol holders expressing support for options “aligned with their current business practices”. CAA head of Atol Michael
Budge said: “The collapses of Monarch and Thomas Cook, as well as the pandemic, highlighted the need to consider how travel businesses can better protect consumers’ money.” The CAA promises a
further consultation on detailed proposals “later this year”. There is no indication of how long a transition the CAA will allow. The summary merely notes “diverse opinions”, with those who already segregate funds or have a bond opting for “one-two years” and others suggesting three to five or even 10. Abta has reported members require a five-to-10-year transition.
Pipeline monies: ‘Treat it the same as direct sales’
A majority of responses to the CAA consultation agreed ‘pipeline monies’ held by agents on behalf of Atol holders should be treated the same as money from direct sales, so if trust accounts are in place, pipeline money would also be held in trust. However, most Atol holders
considered “money should be passed on immediately” once collected by an agent,
although some noted “practical reconciliation considerations” meant a contractually agreed period “would be more workable”. Some Atol holders felt “agents
should not take monies from consumers” and payments should instead be made direct to the holiday organiser. Those opposed to changing the
way pipeline monies are treated considered the timing of payments to be “a commercial term subject to negotiation between the Atol holder and agent”. The CAA noted concern
that changing the way pipeline monies are treated “would mark a
fundamental change to the retail business model”. The regulator said it won’t pursue
an option to restrict customer prepayments for holidays, with most Atol holders wishing to continue to set their own payment terms.
Security: ‘Segregated cash won’t ease acquirers’ fears’
Atol holders delivered a “sceptical” response to a CAA consultation suggestion that segregating payments “may provide comfort to merchant acquirers”. The acquirers charge Atol holders
and agents for processing card payments. The CAA argued that if customer money is segregated, acquirers “will be less exposed to insolvency risk and may make reduced or zero demand for security”. But when the CAA asked
whether mandatory bonding or segregation of customer money “would help negotiations with financial stakeholders”, it found: “Most respondents were sceptical as to whether any of the proposed measures would benefit Atol holders in negotiating better terms with merchant acquirers. “Many expressed doubts that any
changes to the Atol scheme would lead to a change in merchant acquirer terms [because] the travel industry is seen as high-risk due to the CAA
46 2 JUNE 2022
directing customers to claim via their credit card.” Some respondents went further
and suggested that by restricting working capital and imposing stricter measures, “merchant acquirers might perceive the proposed measures as increasing their risk”. Only “a small number” were
optimistic about securing better terms. Others reported being requested to provide a security by merchant acquirers “despite segregating monies”.
A majority also rejected a proposal
to move to a wholly insurance-based Atol regime as an alternative to reform of the existing scheme. However, a “substantial number”
favoured this option, according to the CAA, although there was “a very different understanding” of what this would mean. It noted: “Those in favour
expressed a preference for the simplicity offered . . . and considered the financial market would offer a fairer approach to pricing risk.” However, most were concerned
“over the likelihood of insurers paying out”. There was also concern at the cost of premiums, at insurance policies being withdrawn during “difficult economic periods” and in relation to specific risks, and fear that this approach “would dilute the Atol brand”. Respondents across all groups
agreed the CAA should continue to handle claims and repatriation in the event of failures.
travelweekly.co.uk
PICTURE: Shutterstock/FOTOGRIN
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