Airline Insolvency Issues Addressed
There's nothing worse
than flying away from home only to later find out the airline
you've booked with has suddenly gone out of business.
Unfortunately, this situation has confronted many travellers, which
explains why the British government is working on measures to
prevent this kind of situation from arising again.
The UK's Civil Aviation Authority (AAA) is proposing to
introduce greater protection for passengers booking direct with
airlines. It wants individual passengers to enjoy the same
protection given on bookings through tour operators. This measure
is designed to cover the possibility of an airline going bust with
passengers stranded overseas.
The move follows a consultation in 2003, when the CAA set out to
investigate the problem where trends showed people were purchasing
separate travel components, often including flights on no-frills
airlines, rather than complete vacation packages. These bookings
carry either limited protection against insolvency or none at all,
but research showed that the public was not aware of that.
The CAA's draft advice, which is now being circulated to key
parties before being submitted to the UK Government, suggests that
advance payments for bookings direct with airlines should be
financially protected in the same way as vacation packages. It
means airline tickets booked directly may have to have an
additional charge or levy to cover the costs of the scheme. The
CAA's proposal would require a change in UK law.
Over the past seventeen years, Air Travel Organisers' Licensing
(ATOL) has managed over 300 tour operator failures, rescuing almost
190,000 people from being stranded and giving refunds to more than
a million others at a total cost of �160 million ($295
million). Since March 2003, 3,900 people were rescued or refunded,
at a cost of �1.3 million.
ATOL is managed by the CAA and gives comprehensive protection
from losing money or being stranded abroad to people in the UK who
buy air holidays and flights from tour operators each year. It is
by far the largest travel protection program in the UK, and the
only one for flights and air holidays sold by tour operators. The
problem is that ATOL is not set up to apply to tickets bought
directly from airlines.
The CAA says changing
patterns in technology and the increased availability of cheap
scheduled tickets has led to the public buying their holidays in
new ways. It published research indicating that there was public
confusion over which travel products included insolvency protection
and which did not, and put a series of questions relating to the
proper scope of consumer protection and the means by which it
should be provided.
All tour operators selling flights and air holidays must hold a
license from the CAA. Before it gets a license each operator is
examined to ensure it is properly managed and financially sound,
and it must lodge a bond, which is a financial guarantee provided
by a bank or insurance company. If it fails, the CAA then uses the
money to pay for people abroad to continue their holidays and to
travel home as planned, and to make refunds to those who have paid
but not travelled. If the bond is not enough, any shortfall is met
by the Air Travel Trust Fund, which is managed by the CAA and backs
up the individual bonds.
There is no equivalent scheme covering sales made directly by
airlines. Most passengers carried on charter airlines buy their
tickets through tour operators and are protected by ATOL.
Passengers carried on scheduled airlines are not protected by ATOL
unless they buy the seat, perhaps as part of a package, from an