Ministers can’t afford to be left looking foolish a third time by failing to implement new insolvency measures protecting consumers against the collapse of another major airline.
Speaking exclusively to TTG following the collapse of Thomas Cook, Peter Bucks, chairman of the Airline Insolvency Review (AIR), said ministerial inaction would become “progressively less defensible” as time went on, especially if there was another large-scale failure.
The collapse of Cook last week pushed airline insolvency reform back up the government’s agenda after it was required – just two years after the collapse of Monarch Airlines – to mount another major repatriation operation, the largest in the CAA’s history, this time for more than 150,000 stranded passengers.
The AIR was convened following the Monarch failure in October 2017 and presented its recommendations to ministers in May this year.
While Bucks acknowledged there would have been insufficient time for the government to act on his findings before the demise of Cook, its failure was a “salutary reminder” of how “fiercely competitive” the air travel market has become.
“We’ve seen two of the UK’s major players in this market collapse within the space of two years; it would be irresponsible to assume there will not be others,” said Bucks.
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.”
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.
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.”
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.
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.
Bucks told TTG he was confident the Department for Transport, which commissioned the review, would still run the rule over his recommendations, despite the department holding only a six-week consultation (9 May to 20 June) on his findings as part of its “ongoing consultation on Aviation 2050”, the government’s future of UK aviation green paper.
“The government has yet to respond to our report,” said Bucks. “This is – understandably, I hope – a source of some frustration on my part. But it is important to recognise that even if government had acted immediately to implement our recommendations, many of the key measures could not have been put in place in time to deal with the collapse of Thomas Cook.
“As I recognised in our report, ministers would quite rightly want to weigh up our recommendations carefully before proceeding. As time goes by, however, inaction will become progressively less defensible, especially if there were to be another large-scale failure.”