OTAs are paying the price for airline failures

The new UK Atol consumer protection rules brought in in April are hugely unfair to online travel agents but they would be unwise to fight the government regulator over them.

That was the view of Chris Photi, senior partner at leading industry accountancy firm White Hart Associates, who was speaking at the latest Grant Thornton update today.

Photi said the Flight-Plus reform, which came into force on April 30, was simply a revenue raising exercise by the government and had nothing to do with enhancing consumer payment protection.

The regulations mean agents selling dynamically packaged holidays including a flight plus accommodation must be licensed and pay a £2.50 per person charge to the CAA.

Photi used the example of one of his clients, Lowcost Holiday Group, to illustrate the clear unfairness in the system because it does not include holidays sold by airlines.

He said, as had been pointed out by Lowcost chief executive Paul Evans previously, a customer can buy a holiday on the Lowcost Holidays website and have to pay the £2.50 but on easyJet Holidays’ site, which Lowcost operates, they do not.

“It’s the identical product, sold by the identical call centre, off the identical computer system,” Photi said. “How is that clarity? It’s as clear as mud.

“Who has this affected most? Online travel agents. True, [trade association] Abta will tell you that 600 plus of their members are directly affected.

“But all this Flight-Plus legislation was directed at was 15 to 20 of the larger online travel agents – that’s who the CAA wants the £2.50 from. It does not want it from the mom and pop agents.”

The Atol scheme is backed by a trust, the Air Travel Trust Fund (ATTF), that is used to pay out when firms go bust and to repatriate holidaymakers.

It is currently £25 million in the red and Photi said it is the need to replenish this fund that has driven the recent reform.

The UK’s largest online agent Travel Republic has fought a lengthy battle with the CAA over Atol winning a criminal court case and appeal brought against it.

The agency has since said it is seeking an Atol since Flight-Plus came in, and Photi advised firms not to fight the regulator even though he believes OTAs do not need to protect customers through Atol.

Photi said he has represented three OTAs with similar profiles looking to reduce the level of bonding Abta also requires from retail members since the introduction of Flight-Plus.

“They [the OTAs] take customer payments by credit card or debit card, so 97% of the money that they collect is already protected by the Consumer Credit Act 1974. There’s hardly a consumer protection issue here.

“The three OTAs source 97% of their flights from five airlines; three run by vertically integrated tour operators, the rest with two other airlines, and you can no doubt guess who they are.

“Of that 97%, 95% of their flying is with those other two airlines. The government clearly doesn’t think those airlines are going to fail because it hasn’t brought in an all-flights levy.

“This is sold to us as consumer protection but it’s not – it’s a money-raising exercise to fill a hole that has not been made by travel agents.”

Photi said the big claims made on the ATTF in recent years had, in fact, not been from agents but from virtually integrated operators with airlines who sold seats to the travel industry.

“This is an unfair scheme which is why the industry does not like it. Nevertheless, never pick a fight with a government regulator. Is there going to be compliance? Yes, broadly there is.”