BUSINESS NEWS airline failure protection and trust accounts at publication launch event. Ian Taylor reports
Bowen: Most trust accounts in travel don’t protect funds
Most industry trust arrangements operate outside Package Travel Regulation (PTR) requirements, a fact exposed by the Covid crisis, says Alan Bowen, legal advisor to the Association of Atol Companies. Bowen told a Travel Weekly Insight
event: “A PTR trust account operates on the basis all the money goes into the account and doesn’t leave until the holiday is over. You can’t use any of the funds to pay suppliers.
Alan Bowen “The trust accounts used by most
people don’t operate in accordance with the PTRs. They allow funds to leave to pay airlines, hoteliers and transfer companies on the basis that you insure against their failure.” But Bowen said: “There is no
claim on the insurance policy where the business doesn’t fail. “Companies running trust
accounts have been in no better position to offer refunds than companies which were bonded or had a licence under the Atol scheme because they couldn’t get the money back from the suppliers. The trust account hasn’t helped.” He said an anticipated CAA
review of consumer financial protection would examine the use of trust funds and “could be a real issue for a lot of people”. But he suggested the industry
“will be lucky to see anything” change even by 2022 given “the way this government tends to work”.
Captive insurer proposed to cover airline failures
The government will consider captive-insurer arrangements to provide financial protection against airline failure when it finally acts on the recommendations of the Airline Insolvency Review. The review, set up in the wake
of Monarch Airlines’ collapse in 2017, published a report in early 2019. Transport secretary Grant Shapps pledged again to overhaul the insolvency regime following the liquidation of Thomas Cook in September 2019. Deloitte partner David Gard said
a captive insurer for the airline and travel sectors had been proposed to the government as an alternative to trust arrangements or bonding. A ‘captive insurer’ is an insurance
company set up by an organisation, sector or group solely to insure itself. It is the model operated by Abta. Gard told a Travel Weekly Insight
Report launch event: “The transition to greater protection is challenging.
travelweekly.co.uk
challenges” to setting this up, saying: “It will take a number of years to build an appropriate level of risk capital.” But Gard highlighted the need to
Airline insolvencies have prompted review
The problem is people can’t afford to put aside money suddenly – the money is being used as part of the working capital of a business. “We’ve suggested a captive-
insurance arrangement because there isn’t a raft of insurance firms offering this [insurance] on sensible terms.” Gard said: “A captive-insurance
arrangement that covers both airline and travel tickets would charge a premium for each journey, with the capital held in a captive insurer that covers the risks.” He acknowledged “all sorts of
overhaul consumer protection, saying: “As a consumer, it’s not clear where you’re protected. We’ve seen airlines choosing not to provide a refund, but providing a credit note and positioning it so that, as a consumer, you don’t even realise you can get a refund. The existing protection arrangements aren’t funded in a way that gives the protection we require, so the government has to pick up the pieces.” Gard pointed out the approach of
card acquirers to airline failure risks adds to the challenge facing carriers but could support the captive-insurer model. He said: “There is an argument
that a combination of interim government funding and the credit card acquirer passing some risk capital into a captive-insurance company could offset the risk better.”
Photi predicts CAA to trigger moves to trust accounts
A CAA review of consumer financial protection, expected as early as January, will raise the prospect of more Atol-holders moving to trust arrangements. Chris Photi, head of travel and
leisure at White Hart Associates, believes a wholesale move to trust arrangements is inevitable. He said: “Migration to a trust
account is difficult, but I don’t see what alternative the CAA is going to have. I agree with Abta that there should be alternatives. But if you don’t have bond providers, how do you provide bonds? If you don’t have financial failure insurance providers, how do you provide financial failure insurance?” Photi suggested the CAA “has
tried to arm-lock operators into using trusts”, but said: “If you sell via travel agents, trusts aren’t effective because agents want to use clients’ funds as working capital. To suddenly say ‘All agents have to put money in trust accounts within 10 days of receipt’ can’t be done. “It requires agency agreements
to be redrawn. “The only way a trust
mechanism can work is if the CAA drives it through consultation and gets the industry to buy into it.”
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ravel Weekly
Insight Report for FREE, and to watch the launch debates, visit:
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7 JANUARY 2021
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