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Travel industry news

10 May 2019

BY James Chapple

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CAA 'could assume travel agency role' during future airline insolvencies

Peter Bucks’ Airline Insolvency Review report puts forward a CAA-coordinated “Single access point” for rescue fares, which could take the form of a bookable platform, among other suggestions designed to mitigate airline insolvency. James Chapple reports.

Peter Bucks
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CAA 'could assume travel agency role' during future airline insolvencies

It took the input from 3,669 consumers, 33 stakeholders; 108 one-to-ones; five workshops; three expert advisory panels; and two public evidence sessions to come to one conclusion: a levy on all ex-UK air tickets to protect passengers in the event of airline insolvency.

 

Sounds familiar, doesn’t it? Well we’ve been here before, sort of. There have long been calls and campaigns for a formal airline insolvency and repatriation scheme, led most notably by Aito director and travel industry stalwart Noel Josephides, but the Airline Insolvency Review’s Flight Protection Scheme is the first time such a proposal has been put before ministers.


The review, convened following the failure of Monarch Airlines in 2017, was tasked with coming up with a repatriation scheme that is simple, that minimises the effect on the taxpayer, and ensures passengers are repatriated and compensated quickly – all without putting UK-registered airlines at a competitive disadvantage.

 

Air ticket levy

The “less than 50p” levy recommended by chairman Peter Bucks would protect all ex-UK passengers holding a return ticket with an airline that becomes insolvent while they are overseas, irrespective of whether they are protected under the CAA’s Atol scheme.


At around 40p per passenger, with an additional 9p surcharge for the first five years, the levy would create a operational pot, not unlike the Air Travel Trust – or “Atol” – fund, which would then cover the cost of repatriation in the event of an airline failure.


Airlines would be required to put up sufficient, and demonstrable, security through insurance or bonding to fund the scheme, proportional to “each airline’s risk of failure”, which Bucks said would be determined by market forces. This cost would then be covered by the ticket levy.


“We are assuming the market will price it as they would any form of credit – according to risk,” Bucks told TTG. “The one thing they [the airlines] do not agree on is the levy. I’ve been encouraging them to turn their minds to a better way of financing this if this is the bit that sticks in the craw – if they can, power to them.”

'Repatriation toolkit’

The repatriation scheme itself would be coordinated by the CAA with the aim of repatriating passengers – on the same day they were due to return and to the same airport – via three main methods, used interchangeably to a greater or lesser extent, which Bucks describes as a “repatriation toolkit”.


The first is a more formal rescue fare regime bound by a single industry-driven code of conduct designed to maximise the use of spare seats on complementary routes.


The second would see the CAA encouraged to develop stronger relationships with airlines to ensure it there is readily available capacity it can call at short notice on to bring people home by organised charter.


Finally, new laws permitting airlines to operate while they are in administration would allow carriers facing insolvency to fly their own passengers home before being wound down, much like how the German government handled the collapse of Air Berlin.


Perhaps the most pertinent recommendation is giving the CAA greater access to passenger data prior to a failure so it can establish likely passenger numbers and eventually develop “a single access point” for rescue fares, potentially in the form of a bookable tech platform that collates all available repatriation capacity and rescue fares allowing passengers to confirm their flights home.


“In the future, one could see the CAA effectively running a travel agency business,” said Bucks. “The challenge would be creating an interface integrating all the different airline systems, their availability and pricing points, and then allocating room. If those technological obstacles could be overcome at a reasonable cost, it would be of tremendous value to the consumer.”

'Level playing field'

Part of the review’s remit was to assess and simplify the protections available to consumers – such as Atol, consumer credit and scheduled airline failure insurance (SAFI) – to create a “level playing field” and reduce overlap between different forms of protection.


The scheme would be entitled to recover losses from third parties, such as insurers, if it ends up paying for repatriation where a passenger has arranged their own cover. Airlines, meanwhile, will not be required to pay the Flight Protection Scheme levy for passengers with Atol protection.


Bucks’ report also recommends requiring airlines demonstrate their financial fitness on an annual basis; develop repatriation plans; ensure the CAA has access to any necessary data; and notify the CAA of any adverse change in financial situation.


Bucks believes the toolkit, along with many of the report’s other recommendations, could be implemented in isolation, even without reforming repatriation protection itself to more closely monitor and ensure the health of UK registered airlines, albeit while admitting instances of insolvency are “rare”.


Transport secretary Chris Grayling said the reforms would need to balance consumer protection against the interests of taxpayers, adding any views from stakeholders on the report’s recommendations would form part of its ongoing Aviation 2050 consultation, which will run until 20 June.

'No silver bullet'

“We said at the outset we did not think there was a single, easy answer – no silver bullet, no one-size-fits-all solution,” Bucks concluded. “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.”


By the report’s own admission, holiday protection is complex. “Consumer research shows few travellers think about [the] risks when they book a flight or understand how they could protect themselves,” it reads. Around 80% of passengers who book outbound flights from the UK have some form of protection against financial loss. However, only the 25% with Atol protection “are assured of being able to get home in a timely way at little or no extra cost”.


Many end up paying “unnecessarily” for more than one form of protection, while others have nothing. And when asked, most say they would expect assistance from their airline, insurer, or tellingly, the government following the precedent set by its decision to repatriate all Monarch passengers unilaterally.


This political imperative, Bucks admits, is a “real issue”. “The approach we took was to come up with recommendations that provide an automatic response delivering a reasonable level of protection to all ex-UK passengers... so ministers could have confidence passengers would be protected – without the need for additional government intervention.”


He added, though, it would remain for ministers to decide whether they could shoulder the burden again.

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