NEWS TRAVEL WEEKLY BUSINESS CONTINUED FROM THE BACK
failure occurred in peak season. It suggests: “The repatriation of Monarch’s passengers was an operational success largely due to the CAA’s role as the airline’s licensing authority, its access to information to enable advance planning and the availability of alternative aircraft capacity at the end of the peak season. Whether such plans could be applied to larger airlines, airlines licensed by other authorities or at other times of the year is questionable.” The Monarch failure “dem-
onstrated protection is far from universal, often overlapping, and many consumers are unaware of what protection if any they benefit from”.
The document concludes: “The
nature and extent of protection is heavily dependent on the route by which a consumer makes an air ticket purchase.” Review chairman Peter
Bucks notes airlines “face many of the same risks” as travel firms, including “continuing downward pressure on prices”, and warns: “These factors have heightened the likelihood of insolvency and increased the risk faced by consumers.” He suggests “a fundamental rethink of the status quo”. The review will apply
four principles in reaching its recommendations. It will aim to “minimise taxpayers’ exposure”, “avoid duplication where possible”, “minimise constraints on UK airlines’ competitiveness” and provide “simplicity for consumers”. It proposes a period of
evidence gathering followed by a consultation and stakeholder working groups. The review will publish an interim report in the summer, with its final report to be sent to the secretary of state in December.
bit.ly/AirlineInsolvencyReview
‘Price in the risk of airline insolvency to end subsidy’
Ian Taylor
ian.taylor@travelweekly.co.uk
The current system of consumer financial protection against airline failure sees the travel industry “benefit from a form of subsidy” by the taxpayer, according to the Independent Airline Insolvency Review.
In its ‘Call for Evidence’ document
published last week, the review committee argues: “The current systems of protection do not deliver confidence that the welfare of citizens will be protected . . . Many passengers have no or only partial protection, while others may have several layers of protection.” It suggests that when
governments act to protect passengers’ interests when a carrier fails: “Ultimately, such action usually makes the taxpayer carry some of the burden.”
As a result, says the review’s call
for evidence: “The travel industry benefits from a form of subsidy from the taxpayer.” It argues: “Risk and the manage- ment of risk is at the heart of this issue. For passengers, an airline fail- ure crystallises the financial risks inherent in handing over money well in advance of service delivery. “For some passengers, failure will
create the additional problem of being away without any immediate means of getting home and the associated personal risks relating to accommodation and welfare. “When governments have inter-
vened to protect passengers’ inter- ests in situations such as Air Berlin and Monarch, they do so to correct this flawed risk management.” The review suggests: “How
you ensure passengers are not unwittingly exposed to risk, and the taxpayer is protected from sub- sidising the use of riskier airlines
by bailing out their customers when they fail, will require better or more consistent risk transfer than is presently the case.” One option to address this
would be to ensure “the cost of protection is factored into upfront flight costs” and “to price in risk to air travel in general”. This could be arranged
“through mandatory personal travel insurance paid for when purchasing an airline ticket or a legal requirement on airlines to protect their passengers from their own insolvency”. The review will also consider changes to airline insolvency, including proposals “to keep the fleet of an insolvent airline operating through administration” and to “enable regulators to intervene earlier or ensure passenger funds are handled differently when an airline is at greater risk of insolvency”.
CONTRAST IN COLLAPSE-HANDLING: AIR BERLIN AND MONARCH
The Airline Insolvency Review’s call for evidence contrasts the approaches taken by the German and UK governments to the insolvencies of Air Berlin, in August 2017, and Monarch Airlines last October. It notes: “Air Berlin had
•The ‘Airline Insolvency Review: A Call for Evidence’ can be read at:
a fleet of over 140 aircraft operating a range of short, medium and long-haul
services, including to the US. “Upon entering administration, Air Berlin was provided a €150 million bridging loan, backed by the German government, which enabled it to continue operating aircraft until October. “Monarch Airlines had a
fleet of 33 aircraft operating within Europe. Upon entering
administration, all operations ceased with immediate effect: all aircraft were grounded, leaving over 100,000 passengers abroad without their intended flight home. “The UK government mounted
an operation, organised by the CAA, to repatriate UK residents at a cost of approximately £60 million.”
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travelweekly.co.uk 19 April 2018
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