Airline Insolvency Issues Addressed

There's nothing worse than flying away from home only to later find out the airline you've booked with has suddenly gone out of business. Unfortunately, this situation has confronted many travellers, which explains why the British government is working on measures to prevent this kind of situation from arising again.

The UK's Civil Aviation Authority (AAA) is proposing to introduce greater protection for passengers booking direct with airlines. It wants individual passengers to enjoy the same protection given on bookings through tour operators. This measure is designed to cover the possibility of an airline going bust with passengers stranded overseas.

The move follows a consultation in 2003, when the CAA set out to investigate the problem where trends showed people were purchasing separate travel components, often including flights on no-frills airlines, rather than complete vacation packages. These bookings carry either limited protection against insolvency or none at all, but research showed that the public was not aware of that.

The CAA's draft advice, which is now being circulated to key parties before being submitted to the UK Government, suggests that advance payments for bookings direct with airlines should be financially protected in the same way as vacation packages. It means airline tickets booked directly may have to have an additional charge or levy to cover the costs of the scheme. The CAA's proposal would require a change in UK law.

Over the past seventeen years, Air Travel Organisers' Licensing (ATOL) has managed over 300 tour operator failures, rescuing almost 190,000 people from being stranded and giving refunds to more than a million others at a total cost of �160 million ($295 million). Since March 2003, 3,900 people were rescued or refunded, at a cost of �1.3 million.

ATOL is managed by the CAA and gives comprehensive protection from losing money or being stranded abroad to people in the UK who buy air holidays and flights from tour operators each year. It is by far the largest travel protection program in the UK, and the only one for flights and air holidays sold by tour operators. The problem is that ATOL is not set up to apply to tickets bought directly from airlines.

The CAA says changing patterns in technology and the increased availability of cheap scheduled tickets has led to the public buying their holidays in new ways. It published research indicating that there was public confusion over which travel products included insolvency protection and which did not, and put a series of questions relating to the proper scope of consumer protection and the means by which it should be provided.

All tour operators selling flights and air holidays must hold a license from the CAA. Before it gets a license each operator is examined to ensure it is properly managed and financially sound, and it must lodge a bond, which is a financial guarantee provided by a bank or insurance company. If it fails, the CAA then uses the money to pay for people abroad to continue their holidays and to travel home as planned, and to make refunds to those who have paid but not travelled. If the bond is not enough, any shortfall is met by the Air Travel Trust Fund, which is managed by the CAA and backs up the individual bonds.

There is no equivalent scheme covering sales made directly by airlines. Most passengers carried on charter airlines buy their tickets through tour operators and are protected by ATOL. Passengers carried on scheduled airlines are not protected by ATOL unless they buy the seat, perhaps as part of a package, from an ATOL holder.

FMI: www.caa.co.uk