Law on Packages
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.
Financial protection of ATOL and Package Travel arrangements is enshrined in law under:
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.”
Independent Trustees and Insurance arrangements
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
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.
ATOL Holder
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).
Travel Trusts
General Principles
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.
ATOL Trust Deeds
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:
ATOL Holder Trust Deed
Standard Trust Deed.
Accredited Body (“AB”) 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.
ATOL Holder Trust Deed with Trigger Clauses
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.
Other arrangements for Franchise Member ATOL holders
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.
Matters to Consider
Develop Knowledge of operational aspects of ATOL Trust and Reporting
Payment of Consumer Remittable Funds into Trust, Their Maintenance, Claims by ATOL Holder and Reporting.
Arrangements with ATOL Holders Trust Bank account(s)
This is within the scope of PTT’s responsibilities.
Arrangements with Merchant Acquirers and receipt of funds into Trust account(s)
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 Accountants and their obligations
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.
Working capital and cashflow considerations
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.
Claims from the Trust account
ORS3: Official Record Series 3
Air Travel Organisers' Licensing
These Series provide detailed guidance in respect of The Civil Aviation (Air Travel Organisers’ Licencing) Regulations 2012 (as amended).
Anti-Money laundering
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.
Accountable Person
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.
Onboarding Process
PTT will require access to and require completion of the following processes and documentation as part of the onboarding process:
Trust Deed
Trust Specific Conditions
Decision letter for Grant of ATOL Licence and conditions
Establishment of Trust Bank Account(s) – a PTT responsibility
PTT Engagement terms and agreement
Know Your Customer documentation and processes
PTT to Develop knowledge and understanding of ATOL Holders systems and reporting processes
PTT to Develop iCheck processes
The ATOL Holder will be responsible for setting up (where applicable) the Interim Bank Account(s).
ATOL Holder Funds in Trust, Payment Request and claiming funds from ATOL Trust
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)
ATOL Holder Payment Request
- Performance
- Component Performance
- Component Reimbursement
- Flight: (i) Flight Carrier Reimbursement (ii) BSP Payment Performance
- ATOL Holder Package Reimbursement
- Refund
- Cancellation
- Limitation Expiry
- Closing Date Expiry
- Scheduled Airline Insurance Refund
- Supplier Failure Insurance Refund
- Insurance Premium Refund
- APC Payment Reimbursement
- Corporate Credit Card Flight Purchase Reimbursement
- Fees, Profits and Commissions
- any Licensable Transaction which has been fully performed (and fully performed shall have the same meaning as that term is used in The Package Travel and Linked Travel Arrangements Regulations 2018, Regulation 19(7)) prior to the date of the ATOL Holder Payment Request (‘Performance’);
- a component part of a Licensable Transaction (including without limitation the provision of accommodation, ferry or coach transportation or car hire but excluding Flight Accommodation) that has been fully performed prior to the date of the Payment Request and where the ATOL Holder acted as agent for the Supplier (which Supplier is not itself an Other ATOL Holder) of that component part (‘Component Performance’); or
- a component part of a Licensable Transaction (including without limitation the provision of accommodation, ferry or coach transportation or car hire but excluding Flight Accommodation) and which the ATOL Holder has paid to the Supplier of such component part but only if (A) the ATOL Holder acted as agent for the Supplier (which Supplier is not itself an Other ATOL Holder) of that component part; and (B) the Air Travel Trustees have confirmed that they are satisfied that the ATOL Holder is acting as agent for such Supplier and (as required by the Air Travel Trustees) that the ATOL Holder has obtained Supplier Failure Insurance acceptable to the Air Travel Trustees (‘Component Reimbursement’);
- An amount:
- that equals the sums for which payment has already been made by the ATOL Holder to the applicable flight carrier out of its own funds in respect of the booking for the Flight Accommodation for the Consumer and where such payment is in return for a Confirmed Ticket or Tickets for the flight requested by the applicable Consumers which have been issued to such Consumer and which guarantees such Consumer may travel on the normal terms of such flight carrier (‘Flight Carrier Reimbursement’); or
- that equals the sums that have been paid for airline tickets for the Consumer through the International Air Transport Association’s Billing and Settlement Plan (‘BSP Payment Performance’);
- ABC an amount in respect of any booking for a Licensable Transaction which the ATOL Holder sold as part of a Package and where the sums paid were paid to the ATOL Holder acting as agent for an Other ATOL Holder and which the ATOL Holder has paid to that Other ATOL Holder (as its principal) under the terms of its agency agreement and in respect of which the ATOL Holder has obtained Supplier Failure Insurance which the Air Travel Trustees have previously confirmed is acceptable (‘ATOL Holder Package Reimbursement’);
- an amount which has been refunded to the Consumer prior to the date of the Payment Request (‘Refund’);
- an amount where the consumer has forfeited his or her right to be repaid such Consumer Remittable Funds by reason of the cancellation of the contract relating to the applicable Licensable Transaction prior to the date of the Payment Request (‘Cancellation’);
- an amount of Protected Funds paid into the Trustee Account more than six years prior to the date of the applicable Payment Request (‘Limitation Expiry’);
- an amount of Protected Funds paid into the Trustee Account after the Closing Date (‘Closing Date Expiry’);
- a specified part of amounts paid into the Trustee Account in accordance with ATT Approved Scheduled Airline Failure Insurance (Scheduled Airline Failure Insurance) where:
- the ATOL Holder has already refunded the applicable Consumer the amount that is the subject of the Payment Request in respect of whom payment is made to the Trustee Account pursuant to the Approved Scheduled Airline Failure Insurance; or
- the ATOL Holder has already paid an amount equal to or exceeding the amount that is the subject of the Payment Request in order to provide alternative travel services to replace the travel service that was not provided and which resulted in a payment being made pursuant to the Approved Scheduled Airline Failure Insurance (‘Scheduled Airline Insurance Refund’)
- a specified part of amounts paid into the Trustee Account in accordance with ATT Approved Supplier Failure Insurance where:
- the ATOL Holder has already refunded the applicable Consumer the amount that is the subject of the Payment Request in respect of whom payment is made to the Trustee Account pursuant to the applicable Supplier Failure Insurance approved by the Air Travel Trustees; or
- the ATOL Holder has already paid an amount equal to or exceeding the amount that is the subject of the Payment Request in order to provide alternative travel services to replace the travel service that was not provided and which resulted in a payment being made pursuant to the applicable Supplier Failure Insurance approved by the Air Travel Trustees (‘Supplier Failure Insurance Refund’);
- an amount by way of payment of a premium for insurance requested by such Consumer provided that such insurance has been issued to such Consumer (‘Insurance Premium Refund’);
- an amount equal to the APC Payments paid by, and not previously reimbursed to, the ATOL Holder, provided that the Air Travel Trustees have confirmed in writing that such amount has actually been received by the ATT and was paid by the ATOL Holder in accordance with its obligations under the Civil Aviation (Contributions to the Air Travel Trust) Regulations 2007 (as may be amended, modified or supplemented from time to time (the ‘APC Regulations’), which confirmation the Air Travel Trustees shall give promptly following the ATOL Holder’s written request for it, provided that the relevant amount has indeed been received strictly in accordance with the APC Regulations and such confirmation is attached to the ATOL Holder’s Payment Request for such amount (‘APC Payment Reimbursement’);
- provided that the card issuer has provided (and not withdrawn) to the CAA (i) a copy of its card scheme rules currently in force and applicable to the ATOL Holder; and (ii) confirmation that funds paid to the Supplier will be paid to the ATOL Holder by the card issuer, in the event that the Supplier fails to supply the flight purchased or the Supplier fails, both in a form confirmed in writing to be acceptable to it by the CAA, an amount equal to Consumer Remittable Funds that have become Protected Funds and that were paid by any Consumer in respect of any Licensable Transaction that equals the sums for which payment has already been made by the ATOL Holder to the applicable flight carrier using the ATOL Holder’s corporate credit card in respect of the booking for the Flight Accommodation for the Consumer and where such payment is in return for a Confirmed Ticket or Tickets for the flight requested by the applicable Consumers which have been issued to such Consumer and which guarantees such Consumer may travel on the normal terms of such flight carrier (‘Corporate Credit Card Flight Purchase Reimbursement’).
- Fees, profits and commission
- Where a Consumer has paid Consumer Remittable Funds that have become Protected Funds in respect of a fee or profit element to the ATOL Holder in respect of a Licensable Transaction that has been fully performed, the Payment Request (The ATOL Holder Payment Request Payment Amount) may include such fee or profit element.
- Where a payment is made pursuant to a Payment Request made under The ATOL Holder Payment Request Payment Amount, the ATOL Holder may retain any profit or fee element and shall pay the remaining amount paid to it to the applicable Supplier(s).
Confidence in ATOL Trusts
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:
- withdrawing facilities in times of increased risk
- demanding bonds (cash and/or insurance)
- operating deferrals and holding funds for periods of time
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.
Experience of ATOL Trusts
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.
ATOL Trusts in General
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
Objective Criteria and Concepts
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:
The Teams and Sharing of Information
By the nature of the processes involved it is possible to develop effective relations with the Management and Trust teams at the Travel Company thereby ensuring that claims from their Trust accounts are processed expeditiously and information is presented in a consistent manner for all claims thereby enhancing confidence in the process. There is clear understanding of the requirements as set out in the Deeds.
Cashflows
Cashflow considerations are paramount to all businesses operating ATOL Trusts. The Trust Deed format in terms of which elements of a booking may be claimed and when has been carefully drawn up to be fair to the Travel Companies whilst protecting Consumer Funds.
Systems, Efficiency & Effectiveness
We have developed systems geared to recording transactions and producing accurate claims data on a timely basis. The calibre of systems is enhanced when there is open sharing of information. The Trustees and Travel Company interact in a clearly defined manner so that claims are submitted and substantiated effectively and efficiently so that issues are identified and resolved promptly.
The Teams and Sharing of Information
PTT consider the costs of operating these Trust are reasonable and proportionate. Trustees can pass on cost savings by becoming more efficient in carrying out their role. Businesses operating these Trusts are likely to derive significant benefits when commercial and regulatory costs savings are taken into account. So, Merchant Acquirers, for one are likely to provide more cost beneficial solutions.
