Alan Bowen, legal advisor to the Association of Atol Companies
The collapse of the Low Cost Group late on Friday afternoon seems to have come out of the blue. After all, travel businesses shouldn’t collapse in the middle of July when full payment for holidays in July, August and September should be in their bank account.
Indeed it is six years since the last major collapse in July and the legal ramifications of that are still rumbling on. Goldtrail collapsed in 2010, allegedly caused by the owner, possibly assisted by others, emptying the bank accounts and fleeing the country. Whilst there is no suggestion of anything illegal going on in Lowcostholidays, the customers are actually worse off than when Goldtrail failed.
Goldtrail held a valid Atol, and when the failure occurred the CAA stepped in and repatriated or refunded customers, as well as many of the travel agents who had been selling their products. The cost was more than £20 million, but the system worked and the consumer was protected. This time it may be very different.
Lowcostholidays rejected its Atol at the beginning of November 2013 and moved its head office to Palma, Majorca. It arranged, at seemingly much lower cost, a licence from the local government to sell package holidays, and advised that whether or not the sales complied with the letter of the law of what a package holiday was, flights and accommodation sold to the same person would be protected. Their website proudly announced they were “fully licensed” and unless you read carefully you might not have realised it wasn’t quite what you expected.
In theory when the travel business failed on Friday, the Palma government would have stepped in and guaranteed the accommodation booked for the 110,000 people yet to travel and the 27,000 then on holiday.
"Their website proudly announced they were “fully licensed” and unless you read carefully you might not have realised it wasn’t quite what you expected"
The press release from the administrators indeed provided the web address to look for advice, but if you do look there is not a word about Lowcostholidays, no press release, nada. In the UK, Abta and the CAA - neither of whom had anything to do with the Lowcosttravelgroup - were both able to issue advice on Friday. But not the one organisation that was supposedly in a position to help.
I suspect we may find that Spanish protection may not be all it is cracked up to be. If the rumour is true and there is only just over €50,000 in the pot, no one is going to get even a single euro back. Around 90% of travel insurance policies do not cover supplier failure, and the banks are not going to be too happy with the travel industry if they have to foot the entire bill.
All those who just bought accommodation only from the bed bank of course had no protection from the start, and judging by enquires over the weekend, there are a few agents who sold the accommodation with flights as a Flight Plus product and have not woken up to the fact that they now have to repay or replace the accommodation, which will not be easy in Spain or Portugal, or offer a full refund including the cost of the flights.
This may be the first time that the large insurers are facing major claims for supplier failure. Agents should be protected if the insurers pay out, but how many travel agents took a risk and didn’t buy it?
"I suspect we may find that Spanish protection may not be all it is cracked up to be. If the rumour is true and there is only just over €50,000 in the pot, no one is going to get even a single euro back."
As an industry we need to face up to some hard decisions, if Lowcosttravel becomes a consumer nightmare it will affect all of us. The need for UK regulation seems overwhelming, and this may be the case to stop the last 40 years of Atol protection being put at risk in the future.