The Flight Protection Scheme (FPS) would protect all ex-UK passengers, irrespective of whether they hold an Atol certificate, and would crucially avoid a repeat of the government’s costly intervention in the Monarch crisis.
The failure of Monarch Airlines in October 2017 left nearly 100,000 passengers stranded overseas and affected another 750,000 passengers with forward bookings – only around 20% of which were protected under the Atol scheme. It triggered the UK’s largest peace-time repatriation exercise, at a reported cost of £60 million to the taxpayer.
The Department for Transport has since confirmed the final cost to the taxpayer of repatriating around 85,000 Monarch passengers came in at £40.5 million.
Established in January 2018, the Airline Insolvency Review – chaired by Peter Bucks – published its report on Thursday (9 May) recommending a new “formal repatriation protection scheme” covering all ex-UK air passengers holding a return ticket with an airline that becomes insolvent while they are overseas.
The scheme would require UK registered airlines to secure sufficient, and demonstrable, security through insurance or bonding to cover the cost of a repatriation operation in the event of insolvency, which would then be paid for through an, on average, 40p levy on air tickets, with an additional 9p surcharge during the first five years of the scheme to create an operational pot.
This would be used to foot the cost of repatriation, and allow passengers to reclaim costs arising from an insolvency – such as having to book rescue fares.
Bucks’ report recommends appointing the CAA the coordinating body for any such repatriation exercise, and providing it sweeping new powers to monitor and certify the financial health of UK registered airlines on an annual basis and impose conditions on their licences if there are questions around their financial footing.
Under the current airline licensing regime, air operating licences must be revoked immediately in the event of insolvency. The review recommends altering this legislation to allow the CAA to impose temporary licensing conditions to keep an airline flying and ensure any necessary repatriation operation can be carried out, at least in part, using the failed airline’s own aircraft – similar to how the German government handled the collapse of Air Berlin.
The CAA would also be tasked with coordinating with airlines serving the same, similar, or complementary routes, affected by an insolvency episode to assess and maximise available spare seat capacity, communicate this to affected passengers, and potentially even – Bucks told TTG exclusively ahead of the report’s publication – act as a proxy travel agent.
This, said Bucks, could be achieved through a new platform which could collate all available capacity and rescue fares on a single platform. “In the future, one could see the CAA effectively running a travel agency business,” he told TTG. “The challenge would be creating an interface integrating all the different airline systems, their availability and pricing points, and then allocating room to stranded passengers.
“If those technological obstacles could be overcome at a reasonable cost, then why not? It would be tremendous value to the consumer. But in the meantime, there are more rudimentary approaches that would be very helpful.”
These approaches, said Bucks, include the current voluntary rescue fares regime, which he said could be formalised under a single code of conduct to ensure best practice, such as allocating provision by each airline’s capacity on a specific route or encouraging airlines to temporarily operate larger aircraft on specific routes to generate additional capacity.
To avoid duplication of protection provided by the Atol scheme, the cost of passengers who hold an Atol certificate would not be counted towards each airline’s 49p per passenger contribution to the Flight Protection Scheme, while the scheme will be entitled to recover losses from third parties if it paid to repatriate a passenger that already had alternative protection – such as scheduled airline failure insurance.
Transport secretary Chris Grayling said reforms would need to balance consumer protection against the interests of taxpayers, adding any views on the report’s recommendations would form part of its ongoing Aviation 2050 consultation, which will run until 20 June.
“We said at the outset we did not think there was a single, easy answer – no silver bullet, no one-size-fits-all solution,” said Bucks. “Our work has confirmed that this is the case. The changes we recommend represent an evolutionary, incremental approach, with the aim of avoiding unnecessary disturbance.”
Bucks told TTG: “Ministers must have confidence passengers would be protected without the need for additional government intervention. We can't remove the taxpayer entirely from the equation, though, because the state is the only person with a balance sheet big enough to take the risks.
“We think we've come up with something that would minimise it [the role of the government] to a very substantial extent… while giving ministers the confidence they could shoulder the political risk.”
John de Vial, Abta's director of financial protection, said: “It is good to see the review has recognised there is a gap in consumer protection when an airline goes out of business.
“Abta has highlighted for quite some time that the current system is confusing and inconsistent for both customers and travel businesses.
“The review is important in terms of examining the options for addressing this gap, and Abta will be looking at the recommendations closely in order to assess how they could work in practice and discussing these with our members.”
The Association of Atol Companies said it welcomed the review following demands from the industry for a “simple and effective system” to ensure customers aren't stranded when an airline ceases operations.
Since the collapse of Monarch, the government has been searching for a solution to avoid costly repatriations again,” said the AAC.
“The proposals will not offer refunds for those yet to travel, but will solve the problem of getting people home after an airline failure.
“Since 2017, 19 European airlines have ceased trading, the most recent being Flybmi and WOW Airlines when the government offered no assistance for those stranded abroad.
“The current proposals would protect all tickets purchased in the UK on both UK-based and foreign airlines and the cost to consumers would be less than £1 each.”
Lindsay Ingram, AAC chairman, said: “It is imperative the government acts immediately to take steps to implement the proposals.
“In uncertain times, giving confidence to our customers is paramount and we look forward to urgent action being taken by the appropriate ministers.”
Tim Alderslade, chief executive of Airlines UK, the trade body for UK registered airlines, said: “Airlines face rising costs and this is not the time to make it more expensive to travel.
“50p may not sound much, but airlines operate on wafer-thin margins and passengers already pay over £3 billion each year to the Treasury in Air Passenger Duty.
“The chances of booking with an airline that goes bust remain extremely small. When it’s happened, airlines have demonstrated their commitment to bringing passengers home through voluntary rescue fares which worked extremely well and without any taxpayer liability.”
Dale Keller, chief executive of Bar UK, the Board of Airline Representatives in the UK, said: “We believe the risk assessments of a major airline insolvency, of the scale likely to trigger government intervention on assisting passengers home to the UK, remain overstated within the report.
“The European Commission estimates that between 2011 and 2020, only 0.07% of all passengers across Europe could be affected by airline bankruptcy, and of them, only 12% would require organised assistance in getting home. The recent failure of WOW Air required no financial intervention from the UK regulator, the CAA, and 13 airlines offered rescue fares to WOW Air passengers under an industry voluntary agreement.
“While we fully support a package of measures to enhance procedures and improve consumer awareness of the protection available to them, we do not support a passenger levy to build a fund since the vast majority of consumers who contribute in higher airfares would never receive any benefit.
“The real costs of collecting and administering the proposed 50p per passenger are likely to be significantly greater and the Airline Insolvency Report does not go into the complexity of how such a levy should be collected only on UK originating return journeys, or how the fund would be administered.”