Airline insolvency solutions 'risk devaluing existing financial protections'

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Travel Network Group chief executive Gary Lewis told TTG that if the government resolves to protect all air tickets, it would give consumers less reason to book with TTNG members who already offer full financial protection through the Atol scheme.

His warning comes amid a further delay to the publication of the review’s findings, which has been put back until May, TTG understands.

Chairman Peter Bucks had been due to report to ministers in January, which then became March and now May. The Department for Transport did not respond to TTG’s request for confirmation.

Lewis said while he welcomed the review from a consumer perspective, solutions such as a levy on air tickets risked devaluing one of the main reasons for booking with TTNG members.

“Our members already offer financial protection, inclusive of flights, through the Atol scheme,” he said. “There’s debate to be had about whether the system we [travel] have is the best or most efficient, but we have to be careful what we wish for.

“Our industry has for many years built up public trust in Atol, Abta, The Travel Trust Association, etc. If there was a levy, then it gives people another reason not to book with our members, as it would be repeating part of that protection.”

Other senior industry figures, meanwhile, have raised concerns over whether the government will actually act on Bucks’s recommendations, despite a flurry of airline failures in recent months.

Primera Air and Cobalt Air failed last October, followed by Germania and Flybmi in February.

WOW Air’s future, meanwhile, hung in the balance at the weekend after Icelandair walked away from a potential rescue deal, although the airline is now in talks with investors.

“It would be a mistake not to take this opportunity to safeguard the travelling public,” Aito director Noel Josephides told TTG.

The review was convened following the collapse of Monarch in October 2017. The government immediately ordered the repatriation of all 110,000 Monarch passengers stranded overseas, regardless of whether they had Atol protection or not, at a cost of around £60 million to the taxpayer.

Bucks was tasked with finding a more elegant solution that would address public expectation of government in the event of future insolvencies following the precedent set by its reaction to the Monarch crisis, and remove any burden to the taxpayer.

Proposals discussed in an interim report published last year included a levy on all airline tickets, including flight-only bookings, to fund additional protection, or a market-driven insurance model, among other options.

Josephides continued: “Powerful players in the market worry a levy on outbound airlines would affect their business by boosting public confidence in booking with these smaller, less-established carriers – who can offer cheaper fares – safe in the knowledge they won’t lose their money and will be repatriated in the event of failure.”

He added any legislation arising from the review must not act as a barrier to new airlines entering the market.

'Clearer, fairer, more transparent system needed'

Alan Bowen, legal advisor to the Association of Atol Companies, accused the government of “fiddling while Rome burns”.

“We know change won’t be immediate, but we would like to see at least the beginning of action with publication of the report,” he said. “It will need primary legislation and I fear some airlines or airline associations will do their best to stymie the whole idea.”

John de Vial, Abta’s director of financial protection and financial services, said the association had long lobbied for a “fairer, more transparent” system of airline insolvency protection.

“Our response to the review called for a solution that enhances consumer clarity around what is protected, prevents market distortions, avoids duplication of consumer protection costs for businesses providing protection, and makes sure funds are immediately available in the event of a failure to pay for repatriation,” said de Vial.

“The review’s interim report made clear the ongoing nature of this risk. Following Monarch, and other even more recent failures including Flybmi, we urge the government to act on this matter. We understand the report has been delivered and is now with the minister, and is expected to be published in the coming months.”

A spokesperson for Airlines UK, the trade body for UK registered airlines, said the current voluntary system of other airlines offering rescue fares in the event of an insolvency was effective, adding some of the proposals raised in the review’s interim report risked pushing up costs for airlines and consumers.

“We agree with Peter Bucks who has rightly highlighted airline insolvency is a rare occurrence. We believe rescue fares represent the de facto ‘go to’ solution in most cases.

"We saw during last year’s Cobalt and Primera Air insolvencies, and most recently with Flybmi, how the existing and voluntary rescue fares regime has worked effectively to assist at very short notice stranded UK passengers without incurring tax payer liability.

“At a time of rising costs for airlines, and faced with the recent collapse of another UK carrier, this is not the time to be adding additional financial burdens on the industry, for example, through a new levy on airlines to fund rescue flights.

"A levy would represent another cost that is passed on to consumers, who already pay the highest rate of Air Passenger Duty in the world in addition to ever increasing airport and infrastructure charges.”