Stick with us, though, because this round of Atol reform could profoundly shape the way both tour operators and travel agents do business – at least when it comes to selling package holidays in a post-Brexit and post-pandemic world.

There’s been plenty of criticism, particularly from the likes of Aito, for the timing of the CAA’s initial consultation on Atol reform, which closed on 15 August.

But there are also genuine concerns about the severe impact the reforms could have on smaller operators and agents whose business models could be in jeopardy if the CAA insists on trust accounts to secure customer cash.

While the CAA says no decisions have yet been made about the future of Atol, the consultation document makes clear the regulator’s enthusiasm for trust accounts, which separate client cash until after the holiday.

“Following several large Atol failures in recent years, we have become concerned about the impact of businesses using consumers’ money as a source of funding working capital,” said CAA director Paul Smith.

There are plenty of supporters for the use of trust accounts, including Trailfinders, which already offers this kind of financial protection for customers.

“We urgently need to move away from the situation where today’s bookings are used to fund yesterday’s expenses, which is akin to a Ponzi scheme,” said Trailfinders chairman Mike Gooley in the company’s lengthy submission to the CAA.

But others, such as Abta, have been lukewarm on the advantages of trust accounts, amid warnings the reforms could create an unfair playing field for the package sector by increasing its costs.

Industry accountant Chris Photi, from White Hart Associates, called the timing of the reform “unfortunate”. “If this was being discussed in times of plenty, then segregation of customer monies could be relatively straightforward,” said Photi. “When travel companies are on their knees due to Covid, then trusts are very difficult to implement.”

The CAA has insisted it will “take full account of the need to allow the industry to adjust to any new arrangements”, but we await to see what this means in practice.

’Mandatory segregation’

Agents may also be compelled to use trust accounts to ring-fence customer cash for Atol-protected bookings. Alternative options are for agents to pass on all customer money immediately to the operator, or clients paying the operator directly, with agents waiting to get their commission.

This proposal seems mainly to have sprung from Thomas Cook Group’s failure in 2019, when it became apparent the company had not passed on pipeline money from retail bookings made with other Atol holders. But there are fears this approach could effectively be a “sledgehammer” for smaller travel firms, who face being punished for the practices of a failed industry giant.

Martin Alcock, director at the Travel Trade Consultancy, warned the mandatory use of trust accounts would be “ruinous for many small agents and would likely destroy the current agency model”, and should not be introduced due to “temporary conditions”.

“We do not believe the CAA has made a robust case for the mandatory segregation of funds into trust or escrow [accounts],” he said. “We feel the CAA’s current enthusiasm for segregating client monies as the default is being driven by a dearth of bonding and insurance capacity following the Cook failure and the pandemic.”

Alan Bowen, legal advisor to the Association of Atol Companies (AAC), argued the CAA’s suggestion that operators could ensure agents use trust accounts through the wording in their agency agreements was “unworkable”.

“We’re not opposed to trust accounts – they work for some, but they’re not the be-all and end-all,” said Bowen. “The idea of money being separated is great, but in practice it becomes impossible. They can’t monitor what money is going in or out of a trust account.”

One of the industry’s major worries is a potential lack of choice for those selling package trips if they are compelled to use trust accounts. There is support for using bonding and insurance as alternatives, although these markets have been hit hard by the pandemic.

Paul Mclean, managing director of insurance specialist IPP, said: “We would like insurance to be included as part of a choice of security, rather than forcing agents into having a trust account. We think, in line with the Package Travel Regulations, agents should have a choice.”

Renewals imminent

There are also concerns about whether pre-payments to suppliers will be permitted within trust account regimes and what impact this could have.

“There is no issue when funds paid by consumer A are used to pay suppliers for consumer A’s holiday, so it makes no sense to prevent it,” argued Tom Clay, financial director of Protected Trust Services.

“This will also disproportionately affect SME travel firms and new entrants who do not have the negotiating power to pay suppliers in arrears.”

Now the first consultation has closed, we will have to wait until spring 2022 to see the CAA’s detailed proposals – but expect trust accounts to be front and centre when the debate resumes next year.

A more short-term priority for Atol holders will be the next round of renewals at the end of this month (30 September), with 14 of the current top 20 Atol holders due to renew, including the top two – Tui UK and Jet2holidays.

Industry commentators expect operators to be “more realistic” in their licensed passenger numbers for the next 12 months, given the uncertain state of the market and upfront costs associated with a larger licence.

One clear trend is that the CAA has been looking to steer larger Atol holders towards trust accounts. It has also been asking for more information from operators – and that’s likely to make this renewal round “more painful”.

Michael Budge, head of Atol licensing, said the CAA was reviewing more than 300 responses to its consultation, and stressed no decision had yet been made on what course the reforms would take. A second consultation will be launched in spring 2022.