The COVID-19 crisis has inevitably shone light, yet again, on the regulation of travel and specifically how firms are required by law to protect customer money.
This has led to much debate about trust accounts and increased interest in trusts from travel firms, regulators and financial institutions all looking to mitigate risk and repair damaged reputations.
However, opponents of trusts, including respected and senior figures in the sector, suggests there remains a lack of knowledge and understanding of how they work and are supported by the Atol regime. Sadly, unsubstantiated generalisations only serve to endorse the view that it is alright to use customer money to fund working capital needs.
One wonders what the reaction would be to a booking condition which states that the consumer’s holiday is protected by a bond and Atol and, for that reason, your operator is going to use your money to pay for the operating costs of the business.
It is perfectly reasonable to argue that Atols, sometimes supported by bonds, have not been terribly successful, something that only becomes apparent when a business unfortunately fails. Given the current state of the Air Travel Trust Fund that backs Atol, one assumes a ‘rebalancing of Atol’ consultation will be forthcoming in the not-too-distant future.
Time and again the Air Travel Trust Fund and acquirers (card companies) have had to step in and underwrite shortfalls. This could, of course, happen with a trust-backed Atol, but any losses will always be substantially mitigated.
While trust Atols are not a panacea for all situations that may arise in the matter of protecting consumer funds they are, in my opinion, the best protection model. Why else would the Civil Aviation Authority (“CAA”) and a growing number of acquirers, tour operators and travel businesses be moving to trust accounts?
Banks, card companies and regulators shoulder the maximum risk for protecting consumer Atol funds in the knowledge they are likely to have to make good the shortfall arising from a failure. These lenders of last resort have every reason to ensure that operators act in a manner that mitigates their risk. The situation is no different from when a business borrows money from a bank. These financial and regulatory bodies are not seeking to run the businesses of their merchants.
Given the general misunderstanding about Atol trusts, it would be helpful at this point to provide a brief outline as to how they operate. Trust Atols are a matter of law and both operator and trustee have to abide by the conditions of the Atol Trust Deed which is signed by the Atol ATTF trustees, the operator and the trustee.
The deed requires the following:
· All consumer funds have to be paid into the trust account within 48 Hours;
· Non-flight monies, including profits, may not be paid out of the trust Atol until the consumer has returned from holiday;
· Flight monies may be paid out of the trust account before the date of travel but only to organisations providing acceptable (to the CAA) levels of protection. These include:
o Another Atol holder;
o For an Iata booking, via BSP (Billing & Settlement Plan);
o For no-frills flights, under the protection of Scheduled Airline Failure Insurance (Safi).
· All funds received into trust have to be matched;
· Booking conditions cannot override the obligations of operating within the terms of the Atol Trust Deed so far as protection of consumer funds is concerned.
Trust account transactions are subject to review by the trustee and payments out of trust are carefully managed. The discipline of operating trust Atols has been widely recognised and supported by the CAA, operators, acquirers and banks. Such operating discipline fits comfortably within the processes and procedures that should exist within any well-managed business.
In the event that refunds are required (in March 2020 trust accounts should have been holding substantial funds) then, in our experience, payments have been made. To be fair, there remains the issue of operators having to work with the airlines to recover the flight element of some bookings, but a trust Atol places an operator in a far better position.
With a non-trust Atol consumer funds are likely to have been utilised and not available for refunds immediately, hence the Refund Credit Note (RCN) debate between Abta and government
Our experience of the past few months has been trust Atol operators were able to refund their clients with greater ease without ‘arm-locking’ the consumer to take an Refund Credit Note (“RCN”).
It has been claimed that travel firms may need access to consumer funds to pay for charter flights and committed accommodation. Such deposits, had they been paid by March, are unlikely to have been recovered by Atol operators not operating a trust. I understand that overseas accommodation suppliers have not been particularly forthcoming in returning funds to operators.
So, an operator facing such a situation is likely to have ended up having to raise new capital and/or obtain loans to pay for refunds.
RCNs issued by a trust Atol operator would be supported by cash in the trust, as opposed to those where the consumers’ funds have been passed on to a non-trust entity.
It also not true that trust Atols see prices rise substantially, indeed there is no empirical evidence that operating a trust leads to price increases. In my opinion, quite the opposite. Yes, there is the cost of deploying more capital but surely that is how it should be. To say prices will increase substantially assumes that market forces will have no bearing.
Perhaps trust Atols should not be required by operators who are well-funded and can demonstrate they are able to protect their consumers’ funds. One assumes the CAA knows this and has the ability to make the right determination.
The problem is insurers are not as willing to underwrite Atol and Abta bonds as they may have been six to twelve months ago. Insurance for anybody associated with travel has become a serious problem as insurers are not willing to underwrite the uncertainty and risks associated with the travel sector at this time.
It seems to me we would be far better off having a fact-based conversation, not emotional or self-serving commentaries, and develop an effective consumer protection solution.
Market conditions dictate trusts are here to stay and their significance and importance is growing. The move to trust Atols, where required, should be managed sensitively and with care.
The world has changed and it would be good to recognise that, rather than continuing to speak for an archaic, unworkable for most, and outdated model that has come up short on many occasions.