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Department for Tansport and Civil Aviation Authority announce consultation on reform of ATOL bonding

DEPARTMENT FOR TRANSPORT News Release (036) issued by The Government News Network on 2 April 2007

The Department for Transport (DfT) and Civil Aviation Authority (CAA) have today launched a consultation to seek views on options to reform ATOL bonding.

Reform would be an administrative simplification for tour operators and would not affect passengers. Since the introduction of ATOL in 1972, operators have always had to pay for arrangements to financially protect their passengers.

This document is the culmination of a consultative process with industry, which started in December 2005, on proposals to reduce the regulatory burden on tour operators. The consultation invites responses from stakeholders and other interested parties on two options for change: to continue the current bonding scheme with additional contributions to the back-up fund, the Air Travel Trust Fund (ATTF); or to replace bonding with an approach whereby tour operators would make contributions into a protection fund which meets all ATOL financial protection costs.

The second option proposes:

* the removal of bonding from 1 April 2008; and

* instead, tour operators make a flat rate contribution to the ATTF of £1 for each passenger booked on an ATOL holiday. This would cover all refund and repatriation costs arising from the failure of tour operators.

Transport Minister Gillian Merron said:

"The Government is committed to better regulation. This consultation is all about maintaining protection for the travelling public and reducing costly and unnecessary burdens on businesses. I welcome the consultation as a major step forward in ensuring a fair and effective system for the future."

Sir Roy McNulty, Chairman of the CAA, added:

"It is important to review the current bonding scheme, which has remained largely unchanged since the 1970s, and to consider whether it is still a proportionate approach to the risks that need to be addressed. Licence holders face increasing competitive pressures and these proposals represent an opportunity for them to reduce their costs."

The consultation is available on DfT's website at http://www.dft.gov.uk/consultations/open/. The deadline for responses is Friday, 29 June 2007.

NOTES TO EDITORS

1. Air Travel Organisers' Licensing (ATOL) is managed by the CAA and gives comprehensive protection from losing money or being stranded abroad to the 27 million people in the UK who buy air holidays and flights from tour operators each year. It is by far the largest travel protection scheme in the UK, and the only one for flights and air holidays sold by tour operators.

2. All tour operators selling flights and air holidays must hold a licence from the CAA. Before it gets a licence each operator is examined to ensure it is properly managed and financially sound, and it must lodge a bond - a financial guarantee provided by a bank or insurance company. If the operator 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 (ATTF), which is managed by the CAA and backs up the individual bonds.

3. European legislation on package travel requires travel organisers to provide refunds and consumer repatriation in the event of insolvency and in the UK this requirement for air tour operators is met by the ATOL scheme.

4. The Government and CAA are consulting on the reform of ATOL bonding for two reasons: firstly, to reduce costs to tour operators in line with the principles of better regulation and secondly, to replenish the ATTF. The fund has been in deficit since 1997 following a series of tour operator collapses during the 1990s. The Civil Aviation Act 2006 gave the CAA powers to require contributions from tour operators to replenish it.

5. In 2005-06, the ATOL scheme rescued or refunded over 21,000 holidaymakers and paid out over £8.8 million to those on ATOL-bonded holidays. In the past ten years, the scheme has rescued over 51,000 people from being stranded and refunded over 173,000 others to the value of £54.5 million.

6. Further information about ATOL is available on the ATOL website at http://www.atol.org.uk.

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Department for Transport Website: http://www.dft.gov.uk