Thomas Cook: Government must act on airline insolvency

The government has acknowledged the need for reform; speaking to reporters in New York last week, Boris Johnson said ministers needed to look at ways tour operators could protect themselves from bankruptcies in future, adding there needed to be systems in place to make sure companies like Monarch or Thomas Cook don’t end up going to the taxpayer for help.

Transport secretary Grant Shapps, meanwhile, told ministers the government “needed to look at whether it was possible for airlines to be wound down in a more orderly manner”. He added the government’s efforts would shortly turn to “working through the reforms necessary to ensure passengers do not find themselves in this ridiculous situation again”.

Cook’s collapse triggered Operation Matterhorn, the UK’s largest peacetime repatriation effort.

Matterhorn will run to twice the size of the Monarch repatriation effort two years ago and twice the cost at an estimated £100 million. “We’ve never had the collapse of an airline or holiday company on this scale before,” said Shapps.

In his report, Bucks champions the system in Germany where airlines are allowed to continue operating following a failure so they can repatriate their own passengers using their own aircraft rather than, as Shapps put it, requiring the CAA to “set up a shadow airline”.

“With Thomas Cook, I would focus on this question rather than having to charter capacity from all round the world,” said Bucks. “This isn’t ideal as the lead times are very short.

“The scale of the [Cook] charter operation does fall within the work we did, although we came to the conclusion it was at the upper limit of what one could reasonably expect [the CAA] to achieve, especially at this time of year.

“Thankfully, given Thomas Cook’s route network, it had a lot of long-haul competitors so some of those affected routes are served by other airlines who are able to service some of this capacity. But there is no doubt this an expensive way of getting people home.”

‘People would be prepared to pay more for protection’

Following the collapse of Monarch, the government was criticised for its unilateral repatriation effort, which failed to distinguish between Atol-protected and non-Atol protected passengers. At the time, some said it came at a detriment to confidence in the scheme, especially as the majority of Monarch passengers were flight-only.

With Cook, the situation is flipped, with the majority of Cook passengers – approximately 60:40 – travelling on Atol-protected package holidays. However, given the considerably unprecedented scale of Operation Matterhorn, the same concerns about the impact on consumer confidence in the Atol scheme have resurfaced.

The Cook failure will present issues for the CAA’s Air Travel Trust Fund, the pot into which £2.50 of every Atol-protected booking is paid to fund the scheme.

MORE: Looking at new solutions to airline insolvency post-Monarch

It most recently stood at around £175 million, but will be severely dented – if not completely wiped out – by the fallout from Cook, according to legal advisor to the Association of Atol Companies Alan Bowen, who said contributions may have to be increased to as much as £10 to repair the damage.

Bucks said the review’s research found that while there was a relatively low level of understanding of what Atol protection means, a far greater number of people recognised its benefits – and were willing to pay for it.

“The £2.50 Atol contribution was well within the limits of what people would be prepared to pay for protection,” said Bucks. “The majority of people would be prepared to pay more, as much as £5.”

Chartered repatriation ‘expensive’ and often ‘not practicable’

The terms of the review tasked Bucks with looking at ways to protect passengers and taxpayers from the impacts of airline failure, both in terms of private personal welfare and financial losses, and the public costs.

“The CAA deserves a great deal of credit for its highly proficient response to the collapse of Monarch and, now, Thomas Cook,” said Bucks. “But, as our report showed, mounting an operation to repatriate stranded passengers using chartered aircraft is an expensive way to go about it and, moreover, may not be practicable in every case because of capacity constraints.”

As to the question of whether any repatriation effort should extend to non-Atol protected passengers, the research carried out by the AIR suggested a precedent had already been set by the Monarch response and that the public would generally expect the government to intervene on their behalf, via the CAA.

MORE: CAA ’could assume travel agency role’ during future airline insolvencies

Bucks though said: “Whether repatriation should extend to all passengers or not, the CAA is still going to have to mount a major exercise,” adding there were both “practical and political considerations” to bear in mind, particularly given the timing of both the Monarch collapse and the Thomas Cook failure.

Monarch failed on the eve of the 2017 Conservative Party conference, while Cook’s collapse came amid rising tensions over Brexit, considered to be one of the factors that contributed to its collapse.