Industry financial adviser Chris Photi has described the September 2020 Abta bond renewals as “an ongoing bloodbath”, and suggested travel firms will have little choice but to operate trust models in the future.
Speaking during Tuesday’s Barclays Travel Industry State of the Nation – Part 1 (3 November), Chris Photi of White Hart Associates said: “Abta won’t like my comments I’m afraid but the September 2020 bond renewals continue to be what I can only describe as an ongoing bloodbath.
“There has been a relaxation of the 4% adjusted net current asset testing that Abta applies to their members.
“Nevertheless Abta is fighting to increase bonds as far as its members are concerned – when they can least afford to source them.
“Why? Well simply to protect a beleaguered post-Thomas Cook failure captive insurer.”
The captive insurer underwrites Abta bonding, following the collapse of Thomas Cook.
“I would ask the simple question, where does Abta’s increased bonding requirements come from?” said Photi.
“I would also suggest Abta needs to be more transparent with members in changes to the Abta rules. Their rules are published, but Abta are not applying those rules.
“They have not subjected their membership to any input or consultation.
“They are simply applying different methods based around the maximum protection view in relations of bonds.”
Photi questioned how much the “captive insurer” holds, stating that on 30 June 2019, it held £22 million, with the failure of Cook and others in the intervening period.
He said it was “very difficult to see” what travel companies have as alternatives to Abta bonding.
“As far as bonding insurance concerns, how many insurers will there remain standing?
“Bond insurance underwriters have already stated that they’re looking to halve their exposure on the bonds that they currently have for Abta, Atol and other reasons. They also have a jaundiced take on refund credit notes, and will assess these based upon the likelihood of them all having to be refunded.
“So we have the unenviable situation where Abta is seeking to protect its captive and the only way they can do this is to increase bonds – even though they know no insurer will increase capacity.
“I think it’s true to say that both the CAA and Abta have no desire to precipitate failure, but an intransigent approach will do just that.
“If there’s no bonding, if there’s no financial failure insurance – and trust me, there is a paucity of financial failure insurance available – and there is no other supplier failure insurance, where can a travel business go to look for consumer protection?”
Photi spelled out how the PTRs (Package Travel Regulations) give only one other alternative – the trust model.
Photi said he didn’t know how much money was in either the air travel trust fund or Abta’s captive.
“Both of these organisations talk about transparency, as far as their licence holders and members are concerned.
“They are after all your regulators.
“However what about their obligation to both the consumer and your industry to be transparent?”
Photi said the ATT accounts had not been published since March 2018, and Abta had not published updated information on its captive since June 2019, predicting this wouldn’t be shared until its June 2020 accounts are published – “well into 2021”.
“There is little doubt that both of those bonding and protection schemes are under the utmost pressure,” he said.
“And therefore that is going to transmit itself in some form or another to licence holders and Abta members.”
Photi said he agreed with Abta’s position that travel companies should have the three alternatives as outlined in the PTRs (bond with an approved organisation like Abta or the Atol scheme), financial failure insurance, or trust accounts.
But he argued: “If you can’t find any bonding for an approved scheme or the bonding that’s been set for you, what is your alternative? To look for financial failure insurance? There are hardly any insurers supporting this market. Most of them at best are supporting existing clients. If you’re looking to sort it as an alternative, you probably won’t find it.”
Photi said this was why of all the options, he believed the trust account model “should be taken far more seriously than perhaps this industry has done in the past”.
“There is little doubt that the CAA is taking this much more seriously.
“They are certainly looking at pushing a number of their members – maybe the entire industry in due course – to operate CAA approved trust accounts.
“Abta’s position is that they don’t accept trust accounts. They don’t think they’re a viable way at this moment in time of providing protection.
“Why is that? What I would suggest is it’s out of self-interest because their main competitor is the Travel Trust Association and Abta in fairness are on record as saying they will consider this means of consumer protection in the future, but only after there is a complete consultation on consumer protection in the UK, once again.”
What of the CAA’s use of approved trust accounts?
Photi listed On The Beach, Travel Counsellors and Trailfinders as using this type of model, claiming they were “perhaps were more successful in the whole Covid-19 refund approach than other organisations”.
“So there is no doubt that there are certain beneficial aspects to trust accounts.
“The negative obviously is the liquidity restriction on having consumer funds protected in a trust account. The only reason I mention trust accounts so often is that I think the travel industry is fast approaching a situation where it will have little other alternative to provide consumer protection.
“There’s little doubt that the PTRs are onerous and penal.
“They were never designed to cover a Covid situation.
“Unfortunately, there is an intransigence on the part of Abta and the CAA and the CMA in relation to the application of the PTRs in these unique times, as far as your travel businesses are concerned.
“As far as my travel clients are concerned, this isn’t a sustainable approach.
“One would assume that in a rebalancing or a consultation, there will be greater thought given to situations like we’re facing.
“No one wants to see consumers lose money. No one wants to see travel businesses fail and thousands and thousands of people lose their jobs.
“There has to be a social quid pro quo between those two regrettable outcomes. And it requires a good deal of thought.
“It is hoped that the government won’t only listen to the CAA and Abta as it’s always done in this arena. They should listen to other third party professionals and other stakeholders so that they get a balanced view of what the PTRs should look like when faced with an extremely difficult situation, like Covid-19.
Photi predicted that as far as the regulatory regime is concerned, there’s going to be “a lot that you will see take place in the interim” before summer 2021.
An Abta spokesperson said: “The bond renewal process is certainly extremely challenging and extended for some of our members – that is hardly surprising given the prolonged and global nature of the Covid-19 crisis.
"We are working through this with members and as they themselves work with their bank or insurance provider.
"The structure of bonds with a ‘run off’ period means that there was no cliff edge issue at the end of September.
"Talk of a ‘bloodbath’ exacerbates a situation for travel companies that is serious enough in reality.
"Maintaining the retaining support and confidence of the financial services providers that serve our market is important and we will continue to work through this with our members.”