The Package Travel and Linked Travel Arrangements Regulations 2018 (“PTRs”) came into force on 1 July 2018. They were expected to have a significant impact on the regulatory environment in the UK – levelling the playing field between online travel agents and tour operators; liberalising (or decimating, as some predicted) the insolvency protection regime; and confusing travel companies and customers alike by the introduction of a new type of regulated holiday called a linked travel arrangement.
As we celebrate the anniversary of the PTRs, now is a good time to pause and reflect on the impact they have had on the travel industry.
The impact on online travel agents
It was thought that the PTRs would significantly impact the online travel agents (“OTA”). They would become liable for the proper performance of the package holiday in the same way as tour operators, which would open them up to customer complaints, health and safety responsibilities and package holiday claims.
The reality is that most OTAs have managed the transition without much fuss. Many OTAs already looked after customers who encountered problems with their holiday because it was simply good business. Whilst some of the obligations imposed by the PTRs go above and beyond what they used to do already for customers, at least to some extent it has been business as usual.
What was certainly new and unwelcome was liability for customer claims. This has required the OTAs to implement systems to deal with PTR claims, as well as the arrangement of broader insurance coverage. However, this again is not wholly unfamiliar territory for OTAs. They were accustomed to receiving legal letters and personal injury claims before the introduction of the PTRs, as well as having to arrange insurance coverage. The practical effect of the PTRs has meant that more successful claims have been made against them, but the arrangement of claims handling systems and enhanced (and thus more expensive) insurance has been relatively straightforward to arrange.
It is also fair to say that many OTAs had already started to develop their own health and safety systems before the introduction of the PTRs. Whilst, historically, the OTAs would roll out the “agency defence letter” in response to customer claims, the reality is that no director wanted to face the prospect of having to explain to a Judge or a Coroner that the company did nothing in terms of health and safety. In our experience, OTAs already had some health and safety system in place before the introduction of the PTRs.
Given that the PTRs only apply to bookings made after 1 July 2018, it may be that summer 2019 is where we see a spike in claims against bucket and spade OTAs, but certainly so far the transition has been a smooth one.
Linked Travel Arrangements
LTAs have not been as interesting as the lawyers had hoped they would be. By the time the PTRs came into force, it was well understood that there were two types of LTAs and that insolvency protection only had to cover the money actually taken by the travel company. Perhaps the most significantly affected have been the airlines, given that many have affiliate relationships with accommodation and/or car hire websites, where customers are cross-sold to a third party website in booking confirmations.
Whilst the airlines did not like it, nor for that matter their affiliates, the reality is that compliance has not been particularly difficult. Given that the airlines are paid a commission on the number of customers who click-through and make bookings with their affiliates, there were already systems in place which tracked this data. Adjustments could therefore be made to these processes so as to identify the number of LTAs being sold (and thus the level of insurance coverage required).
Place of establishment rules
The place of establishment rules introduced by the PTRs were meant to liberalise the package holiday market in the EU. Travel companies established in a Member State would be allowed to sell into any other Member State using the insolvency protection scheme of its place of establishment. This would therefore allow ATOL Holders to sell package holidays to customers across the EU without needing to worry about having to arrange insolvency protection in each market into which they are selling. Has it turn out as expected?
The place of establishment rule has certainly simplified cross-border selling of package holidays in the EU. However, it is not perfect and there remain complications. Unhelpfully, the Package Travel Directive allowed Member States to broaden the insolvency protection requirements beyond packages and LTAs if they wished to do so. Some Member States have decided to adopt this approach.
For instance, France requires retailers to arrange insolvency protection in addition to organisers. Individual travel services must also be protected. Therefore, whilst travel companies established in the UK can rely upon their ATOL for (flight-inclusive) package holiday sales to French customers, other “top up” arrangements have to be made for the French market if the travel company is also retailing third-party packages or is selling individual travel services.
This means that we are left with an inconsistent regulatory environment across the EU. As a result, those companies wishing to sell across the EU have to go to the time and cost of ascertaining the legal position in each Member State and, where there are additional requirements as in France, separate arrangements have to be made.
Similarly to the place of establishment rules, Member States have retained a discretion to require travel companies based in other Member States to register with a national authority. To take France again as an example, a travel company selling from the UK into France must register with ATOUT France and, amongst other matters, provide a copy of its insolvency protection and civil liability insurance arrangements.
This is again sub-optimal for travel companies wishing to sell across the entire EU market. They must go to the time and cost of ascertaining which Member States have a registration requirement and possibly also engage local advisers to help with the registration if it is not straightforward.
The reality is that the ambition of removing barriers to cross-border trade has not been wholly achieved. Travel companies trading cross-border will still find that they are met with a patchwork of regulation, and that bespoke arrangements will have to be made in some Member States.
Race to the bottom?
The place of establishment rules introduced by the PTRs led many to fear that we were at the beginning of a race to the bottom. Would travel businesses leave the UK and seek out cheaper insolvency protection solutions elsewhere?
The reality is that we have not seen a mass exodus from ATOL and the reason for this is simple. The ATOL badge is perceived to be important and something which UK customers value. The commercial imperative is to stay within the ATOL scheme. Also, it is not easy to move. In order to sell from another Member State, the package holiday business must actually have the centre of its operations located in that other Member State. This is not easy to achieve for a company which has been long established in the UK. Practically speaking, one cannot easily “up sticks” and relocate elsewhere.
Ironically, the place of establishment rules have actually been a hindrance to some companies selling cross-border, who in fact would prefer to use the insolvency protection rules of the place of sale, rather than their place of establishment. Why? Because in some countries the local insolvency protection scheme is perceived to have strong brand value. For instance, some Spanish operators selling into the UK would prefer to do so under the ATOL badge – not a Spanish bond. Similarly, some UK operators selling into the Nordics prefer to join the local insolvency protection schemes because these are more likely to be recognised by local customers than the ATOL badge.
One issue which has emerged, and which remains unresolved, is Package-Plus. This is a scenario whereby a customer books, from a retail agent, a third-party package holiday and an ancillary (such as overnight hotel accommodation or a flight). Is this one big “super package”, for which the retail agent is the organiser, or is this a “package-plus” i.e. the sale of a package plus a (separate) sale of an ancillary.
This is not an easy issue, because there are imperfect outcomes no matter which side of the debate one falls. If the retail agent is the organiser of a super package, then that leaves the customer with no “package rights” against the organiser of the original package holiday. That is not a good outcome for a customer who has a problem, because the retail agent may have little commercial or legal leverage against the hotelier or the airline which has caused the problem. The customer will effectively be left without any effective recourse.
However, the alternative is not perfect because if there is a problem with the ancillary, then the customer will have to seek a remedy against the provider of the ancillary (e.g. the airline or hotelier). The customer will also be left without an effective remedy if the non-performance of the ancillary (e.g. a flight cancellation) means that they miss the start of the package (e.g. a cruise).
Overall, it is fair to say that the PTR has surprised us to an extent. Areas which were anticipated to have a significant impact have not turned out that way, whereas some of the perceived advantages of the PTRs (e.g. place of establishment) have actually proved to be a hindrance to some organisations. In terms of new law, we are still in the early stages and I dare say that we will see other issues emerge as the PTRs continue to bed in.
Rhys Griffiths, Partner and Head of Travel at Fox Williams LLP.
This article was first published in Travel Weekly on 5 July 2019.