The Civil Aviation (Air Travel Organiser’s Regulations) 2012 (“ATOL”) helps protect travel arrangements which include Flights. An operator is obliged to obtain an ATOL licence which defines how ATOL funds are to be protected.
The Package Travel and Linked Travel Arrangements Regulations 2018 were introduced for travel arrangements Post 1 July 2018. Package holidays and linked travel arrangements enjoy different levels of protection under this law.
Consumers enjoy the best form of protection under the 2012 and 2018 (except for Linked Travel) legislation since they are entitled to a refund or to be repatriated should the travel company arranging the package become insolvent.
Linked travel arrangements comprise a combination of two or more types of travel services such as accommodation, car hire and other tourist related services. These enjoy a lower level of protection unless they are managed in a Trust account environment.
Legislation governing protection of consumer funds endorses the use of Travel Trust Accounts. ATOL & Non ATOL Packages enjoy the highest level of financial protection with Linked Travel Arrangements having a lower level of financial protection. However, the operation of a Trust account should ensure both Packages and Linked Travel enjoy the same high level of financial protection.
The 2018 legislation extended the rights enjoyed by consumers buying package holidays to millions of holiday bookings which previously sat outside the rules. That meant online travel agents (OTAs) and traditional high street agencies selling flights and accommodation became “organisers” of package holidays and the legislation ensured they had the same liabilities towards consumers as tour operators.
The use of Trusts has been on the increase with the CAA and the Travel Industry increasingly endorsing Trusts as the best form for financially protecting Consumer Funds. In general Bonds in most situations rarely cover the true cost unlike Trusts. Trusts lead to better capitalised businesses better able to withstand adverse developments such as Covid 19.
” In the event of any bank default, we accept no liability but will assist clients to recover compensation from any applicable financial protection scheme.”
All money paid by the traveller has to be held by an independent trustee until the contract has been performed. The money can pass to the organiser only when they provide evidence that the contract has been fulfilled or if evidence is provided that the organiser has repaid a portion of the money to the traveller or the money has been forfeited on cancellation by the traveller.
If the organiser is providing a package that includes the carriage of passengers then they must have insurance in place to cover repatriation, and if necessary, accommodation for the traveller
prior to repatriation. As above, the insurance should recognise the traveller as the insured person and therefore pay direct to the traveller in the event of insolvency.
The organiser may however combine the trust fund with insurance that is compliant. In that case, the organiser is only required to hold on trust sufficient funds to reach liabilities which are not covered by its insurance policy, any such insurance will be additional to the insurance that the organiser is required to put in place to cover repatriation costs (if applicable).
The ATOL Scheme is a statutory system covering most travel involving the sale of air travel. Its purpose is to protect the public from losing money or being stranded abroad because the travel provider that they have booked to travel with is not able to fulfil its obligations. The Consumers and Markets Group (CMG) of the Civil Aviation Authority carries out the function of granting, varying, renewing and administering ATOL licences. This involves fitness, competence and financial assessments as well as ongoing monitoring of ATOL holders.
If an ATOL holder fails, claims for refunds or repatriation costs of its customers are met by the Air Travel Trust (“ATT”). The ATT is funded by the ATOL Protection Contributions (APC) payable by ATOL holders for each passenger booked under a licensable transaction. The Civil Aviation (Contributions to the Air Travel Trust) Regulations 2007 enable the ATT to collect APCs from ATOL Holders for each person who books air travel covered by an ATOL. As at 31 March 2018 the ATT fund had a surplus of £170 million although this is likely to have turned negative in view of the cost of the Thomas Cook failure.
A person who holds an Air Travel Organiser’s Licence granted by the CAA under the ATOL Regulations 2012 (as amended) and includes those that hold an SBA (Small Business ATOL), a Trade ATOL, and a Franchise Member ATOL. ATOL Regulations 2012’ means the Civil Aviation (Air Travel Organisers’ Licensing) Regulations 2012 (as amended).
The CAA oversees the protection of ATOL consumer travel funds under a number of mechanisms, one of these being Trust accounts. The other traditionally recognised model is Insurance or Cash backed Bonds.
These Trust accounts are managed by Independent Trustees who are experienced and understand the business of protection of travel consumer funds.
Trust accounts ensure consumer funds are ring-fenced and separated from the Company’s own funds.
The trust model more readily enables the CAA to fulfil ATOL obligations in the event of the Travel Company is not able to do so in the form of refunds and repatriation.
Beyond Trust accounts there is a guarantee provided by the CAA’s Air Travel Trust (“ATT”). In the event of a shortfall, monies held in the ATT are used to meet refund and repatriation costs arising from a failure. The Fund is administered on behalf of the ATT by the Consumer and Markets Group (“CMG”) of the CAA.
In general ATOL Trust Deeds are settled documents that the CAA has refined regularly since 2012.
The Trust Deeds are well written and encompass all aspects of Trust arrangement funds. Trust ATOL applicants should, however, seek legal guidance to ensure a full understanding. PTT can provide detailed guidance so far as operational matters are concerned.
The types of ATOL Trust Deeds are for:
Standard Trust Deed.
ABs’ are ATOL holders which allow other firms to trade under the terms of their ATOL and each has its own conditions of membership. Firms apply directly to the AB to become a member and will report to the AB rather than the CAA. The AB reports to the CAA regarding licensable business carried out by members under its ATOL. The AB is responsible for licensable losses arising from the collapse of an AB member. Each AB is required to hold an AB accreditation in addition to an ATOL. The AB loses its accreditation if it ceases to hold an ATOL or Its ATOL is suspended. To obtain an ATOL the criteria include financial, fitness and competence and to obtain an accreditation to be an Accredited Body the criteria include financial, systems, structure, governance controls and a trust arrangement.
supported by Deeds of Undertaking – These are Trust arrangements where a ATOL Holder maintains a dormant Trust which is activated when Trigger events defined in the Deed of Undertaking occur.
who have entered into a Franchise Agreement with the Air Travel Trust – The Franchisee enters into agreement with the ATT and, as part of this agreement, the CAA may grant an ATOL to a Franchise Member on the basis of its franchise membership. The Franchisee provides guarantees to the ATT to cover losses in the event of an insolvency. Each Franchise Member has its own ATOL and reports to the CAA individually under the terms of that ATOL as well as to the Franchisee. The Franchisee reports separately to the CAA.
Interim Accounts (Not Trust Accounts) are used by Trust ATOL holders to accumulate Booking Revenues which will be a mix of ATOL and Non ATOL funds. The ATOL holder is then required to identify funds in respect of Trust Bookings and transfer those amounts to the trust account(s) on a regular (mostly daily) basis.
Payment of Consumer Remittable Funds into Trust, Their Maintenance, Claims by ATOL Holder and Reporting.
This is within the scope of PTT’s responsibilities.
There can be a conflict between the days it takes Acquirers to pay funds into Trust and requirement of the Trust Deed that the funds be paid into Trust the day after collection.
ATOL Reporting Accountant (ARA)’ means a firm or individual who is a ‘suitably qualified accountant’ designated by its professional body under the ATOL Reporting Accountants’ Scheme (ARA Scheme) and who is engaged by the ATOL holder to report on information provided by the ATOL holder to the CAA. In a firm only an individual will be able to sign the AAR, although they would sign for and on behalf of the firm.
ATOL Holders need to model the impact of a Trust account when preparing working capital requirements and cashflow management. PTT can provide general guidance and assistance.
Air Travel Organisers' Licensing
These Series provide detailed guidance in respect of The Civil Aviation (Air Travel Organisers’ Licencing) Regulations 2012 (as amended).
PTT and its team are responsible for being aware of their Anti-Money laundering reporting obligations. If during the course of processing Trust payments PTT discovers evidence of fraud, theft of money or any activity that falls within the definitions of the Criminal Finances and Money Laundering Regulations (which are updated from time to time), PTT will follow these regulations in terms of reporting and disclosure to the relevant authorities.
ATOL holders are required to appoint an ‘Accountable Person’ from within the organisation to be responsible for all matters relating to the ATOL. This includes ensuring that the terms of the ATOL are complied with throughout the period and the completion of returns and any other declarations made to the CAA on behalf of the ATOL holder. The ATOL Regulations 2012 (as amended) require that the Accountable Person is normally a/the director of the company, the sole trader or a partner in a partnership.
PTT will require access to and require completion of the following processes and documentation as part of the onboarding process:
The ATOL Holder will be responsible for setting up (where applicable) the Interim Bank Account(s).
Consumer Remittable Funds’ means all monies paid by Consumers to the ATOL Holder or an Agent in respect of Licensable Transactions entered into by or through the ATOL Holder or an Agent on or after the Commencement Date whether such monies are payable to the ATOL Holder as a principal or as an agent or sub-agent for any Other ATOL Holder or whether such monies are payable to an Agent.
Protected Funds’ means Consumer Remittable Funds that have been paid to the Trustee Account and that have not been paid out by the Trustee previously.
There are detailed definitions of all of the important terms in the Trust Deed (Derived from the ATOL Regulations)
Travel companies operating with Trust ATOLs’ are aware trust arrangements work well and provide a higher level of assurance. No other consumer protection mechanism provides this level of comfort in protecting consumer funds.
The CAA conduct audits, arranges visits and telephones reviews to monitor the Trustees.
External parties such as Banks, Merchant Acquirers, Suppliers and Interested Third Parties derive great comfort and satisfaction from the existence of Trust accounts. With Trust accounts, they may not ask for security deposits or upfront payments. The combination of ATOL Trusts and oversight by the CAA are important considerations for these external parties.
Consumers would be gratified to learn their travel funds are controlled and protected in such a precise manner. An ATOL trust is solely focused on protecting their funds.
Merchant Acquirers generally are exposed to the risk of a travel business’s failure to the fullest extent due to the requirements of Consumer legislation. Consequently, acquirers do take steps to mitigate their liability at short notice by:
Tour Operator and Low-cost airlines amongst others have had restrictions imposed upon their funds by their acquirers. Acquirers can provide advantageous term to ATOL Trust operators.
Suppliers (accommodation and flight suppliers) generally ask for payments upfront and in advance of delivery of the service. That creates a further risk to consumer funds should the Supplier fail to deliver the service that has been paid for in advance.
In the early days of a Trust, it is not uncommon for a business to advise Suppliers and Merchant Acquirers of the existence of these Trusts and seek favourable terms.
The intentions of the CAA have been well served by the use of these Trust ATOLs. Furthermore, unlike Bonds there is a greater likelihood of monies being available in the Trust accounts thereby limiting the call on ATT funds. Bonds even in medium sized failures are rarely sufficient.
Trustees experience of working with Travel Trusts has been very positive as shown below. Trustees add to the assurance that Travel Companies seek in the practical operation of their Trust ATOLs.
The Trust model in our opinion is the best protection vehicle under The Package Travel and Linked Travel Arrangements Regulations 2018. The Trust model is unique in its effectiveness and the systematic manner it is defined and operated. It provides assurance to all parties involved including Consumers that consumer funds are being managed properly. External parties such as Banks, Merchant Acquirers and Suppliers derive great satisfaction from these Trust accounts
PTT confidence and faith in operating Trust accounts are supported by an objective assessment when considering key concepts applied in developing, maintaining and operating these ATOL Trusts. They are: