Written statement to Parliament

Reform of the Air Travel Organiser's Licensing (ATOL) scheme

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Speech about the government’s ‘in principle’ decision to reform the Air Travel Organiser’s Licensing scheme.

The Rt Hon Theresa Villiers

I am today (3 February 2011) announcing the government’s ‘in principle’ decision to reform the Air Travel Organiser’s Licensing (ATOL) scheme to improve clarity for consumers about its coverage and also to put the scheme’s finances back on a sustainable basis. There will be a full consultation on the details of the proposed reforms.

The ATOL scheme, operated by the Civil Aviation Authority (CAA), was introduced in the 1970s to provide financial protection for the purchase of package holidays in the event of travel company insolvency. Affected passengers are entitled to a full refund if they are yet to travel, or repatriation after completing their holiday if they have already reached their destination.

However, as a result of new ways of selling holidays and a recent court ruling, the scheme no longer completely fulfils its intended purpose: the proportion of holidays with ATOL protection has fallen, and it can be difficult for consumers and the travel industry to know which holidays are protected and which are not. The proposed reforms will make it easier for everyone to understand which holidays are covered, and will restore protection to what looks like a package holiday but now falls outside the legal definition.

The Air Travel Trust Fund (the Fund) provides the money for refunds and repatriation costs when a travel company becomes insolvent. For historic reasons the Fund had no income for a number of years. As a result of this legacy, combined with travel company failures in 2008 and 2010, the Fund’s deficit has increased significantly. Until it is back in surplus, it can only meet its obligations because of a government guarantee, currently £42 million, in support of commercial borrowing facilities. Reform is needed to secure the sustainability of the Fund so it can continue to provide financial protection for consumers, while reducing and eventually eliminating the exposure to taxpayers. It is envisaged that the ATOL Protection Contribution (APC) paid into the Fund will remain at £2.50 per holiday sale until the Fund is restored to health.

The last government consulted on reforming the ATOL scheme in December 2009, and the Coalition has continued work on developing these important reforms. In outline the proposed reforms would:

  • create a new category of ‘flight plus’ holiday in ATOL - this would cover holidays including a flight where the various elements were purchased within a specified short time period, and so look similar to package holidays, but are not packages as currently legally defined in the UK - new secondary legislation would be required to do this.
  • ensure that where businesses sell holidays that look like packages, but where the travel agent has arranged matters so they are acting as an ‘agent for the customer’ and so remain outside of ATOL, consumers are made fully aware of this, so that they can make an informed decision about their purchase - we are looking at using the Consumer Protection from Unfair Trading Regulations 2008 to enforce this measure.
  • replace the current arrangements with clearer, standardised information for consumers that their holiday or flight is ATOL protected - the CAA has already begun discussions with the industry about a recognised document, the ATOL Certificate, that would be both proportionate and fit for purpose - this can be done by CAA using its existing powers.

A consultation on the details of the proposals, including draft secondary legislation, is planned for the spring, with the aim of implementation by late 2011 or early 2012.

I believe there may also be a case for new primary legislation to address other issues in the ATOL scheme and will be considering that further in the course of this year.

Published 3 February 2011