The high-profile collapses of Monarch Airlines and Thomas Cook, in addition to the Covid-19 pandemic, have tested the financial resilience of the ATOL regime in recent years and drawn attention to the way customers are protected when travel companies fail.
This article explores the ATOL regime and why it’s so important to the travel industry. It also complements our recent “back to basics” webinar on the same topic which is available to view here.
What is an ATOL?
Any company, irrespective of where they are based, which sells flights to the UK market, whether on their own or as part of a package holiday, must obtain a licence from the Civil Aviation Authority (CAA) known as an Air Travel Organiser’s Licence (ATOL).
The ATOL scheme is a financial protection scheme run by the CAA and funded by contributions from travel companies. The scheme was introduced to provide protection for customers in the event that their travel company ceased trading before or during their holiday.
ATOL holders must provide a form of security to the CAA which it can call upon in the event of the failure of the ATOL holder, such as a bond or by ringfencing customer monies.
ATOL holders must also pay £2.50 per traveller into a fund – the Air Travel Trust Fund – which is managed by the CAA on behalf of the Air Travel Trust. The security and the fund are used by the CAA to refund customers for any affected parts of their trip and/or repatriate customers if they are abroad at the time of the travel company’s failure.
What travel sales are caught by ATOL?
There are three types of activity which require an ATOL. Anyone carrying out one of these activities will require an ATOL unless they are able to rely upon an exemption (which we summarise below):
1. Making available flight accommodation
This captures anyone involved in the flight supply chain, including the operator of an aircraft, tour operators who sell flights or flight-inclusive packages and the travel agents and resellers appointed by the airlines and organisers.
2. Agent for the consumer
Historically, it was thought that travel agents could take themselves outside the remit of the ATOL Regulations by acting as an ‘agent for the consumer’. However, when the ATOL Regulations were amended in 2018, a new category was introduced to close this perceived loophole. This captures companies that ‘procure flight accommodation on behalf of a consumer’. This is a common model for online travel agents which purchase flights from low-cost carriers for their customers.
3. Facilitating someone else to sell flights
If a company facilitates another company to make available flight accommodation (whether flight-only or flight- inclusive packages), the facilitating company will be within the scope of the ATOL scheme if the facilitating company also receives the customer’s payment and passes it in whole or in part to the company that makes available the flight accommodation.
This category is generally perceived to catch platforms and marketplaces which may not themselves be selling or buying flights , but merely create the forum for sellers and buyers to connect. If these intermediaries handle the customer’s payment then they will be within scope of the ATOL Regulations.
Are there any exemptions?
Yes. Some exemptions are available in the CAA’s Official Record Series 3 (ORS3) (here), whereas others are listed in the ATOL Regulations themselves. Six of the most common are:
1. Aircraft operator
Aircraft operators are exempt from the ATOL scheme, whether they sell flight-only or flight-inclusive packages. However, if an airline sets up a separate group company to sell flights (e.g. a separate holiday company) then this company will not be exempt because it is not the operator of the aircraft.
2. Agent for the ATOL Holder
This exemption is very common between tour operators and travel agents. A travel company may rely on this exemption to make flight-only or flight-inclusive package sales if it has been appointed as an agent for another company which already holds an ATOL. There must be a specific ATOL agency agreement in place between the two companies which must be in the prescribed form issued by the CAA.
3. Airline ticket agents
This exemption applies to flight-only sales by agents appointed directly by the airline. To take advantage of this exemption, a travel company:
4. Business travel exemption
This exemption captures flight sales (or flight-inclusive package sales) to corporates in the B2B space. A travel company may take advantage of this exemption if they are making sales to their corporate clients for business travel. To do so, there must be a framework agreement in place between the company selling the travel services and the relevant business.
5. Flight only ticket fully paid exemption
This exemption applies to flight-only sales and applies where the travel company seeking to rely on the exemption purchases the flight directly from the airline and pays the full cost to the airline at that same time.
The purchase may be made through a direct connection (e.g. an API link) or though using the ‘services of a fully automated flight reservation system’ such as a GDS. The airline must immediately issue a confirmed ticket which the travel company immediately supplies to the customer. The airline must also not have terms of business which say it can refuse to carry any passengers that have not booked directly with the airline.
The availability of this exemption is very fact specific and depends on how flights are sourced and the relevant payment flows. It is likely to apply to online travel agents who pay the airline in full using a virtual prepaid credit card when the customer books and then issue a confirmed ticket immediately to the customer.
6. IATA Exemption
This exemption applies to IATA accredited agents authorised by the relevant airline in accordance with the IATA passenger sales agency rules. It allows the IATA accredited agents to sell flight-only without the need to ATOL protect the sale, provided that certain financial conditions are met.
What if I need an ATOL?
If you have decided you do need an ATOL, it can take months to obtain one and so businesses are well advised to apply early.
The process includes applying to the CAA through an online portal, satisfying certain financial criteria and passing requirements relating to ‘fitness and competence’. Most businesses, and certainly new applicants, are required to provide security (such as a bond or a ringfenced trust account) to hold some or all of the customer’s prepayments.
Once you have an ATOL, there are maintenance requirements including ongoing reporting obligations and payment of the ATOL protection contribution – the £2.50 per passenger charge.
ATOL Holders must provide certain prescribed information in their marketing materials and terms and conditions, as well as providing an ATOL certificate to all customers whose trips are ATOL protected which sets out the details of the protection.
What does this mean for me?
If you think your company falls within the scope of the ATOL Regulations, or are not sure if it does and would like to discuss it, or if you need advice on anything else mentioned in this article, please get in touch with a member of the travel team.
You can register online or follow us on Twitter or LinkedIn to receive our latest news, events and publications.