Safeguards are needed to ensure consumers buying holidays from non-Atol travel companies based abroad understand what financial protection is provided.
The call is made by the Air Travel Insolvency Protection Advisory Committee (Atipac) in its annual report.
It highlights the relocation of Lowcostholidays to the Balearic islands as an example.
The committee says it “fears consumers are now increasingly unclear how their holidays are financially protected and what elements are covered if they purchase holidays from companies based outside the UK”.
Travel companies based in other EU states may sell package holidays in the UK, often online, and still comply with EU law providing they have a protection scheme in place that is compliant with the EU’s Package Travel Directive, Atipac adds.
Atol provides a level of protection that is not reflected in all other EU states’ schemes, though they may still be compliant with EU law.
Atipac chairman John Cox said: “It is currently unclear what level of protection Lowcostholiday customers would receive. It appears that, in the event of failure, consumers on holiday would have to repatriate themselves and then make their claims in the Spanish courts.
“There is a concern that other companies could follow suit and relocate to another EU state, not only to benefit from lower overhead costs but also to avoid the Atol protection contribution.
“Consumers must be made aware of the risk that a holiday booked with a company not based in the UK may have a lower level of protection than provided with Atol.
“We need to provide safeguards against companies relocating to other cheaper jurisdictions in a ‘race to the bottom’ that may not provide consumers with suitable protection against their financial failure.”
Atipac also suggests there should be a single government department responsible for travel protection schemes, in order to reduce the administrative burden, inefficiencies and give greater clarity to consumers.
Cox said: “The administration, and consequently the cost, of administering multiple protection systems is burdensome. One clear system covering both ‘licensable’ and ‘non-licensable’ would be simpler and less costly.”
Lowcost Holidays moved its UK business and forward bookings into its Spanish subsidiary in Majorca last November.
Chief executive Paul Evans said at the time: “Under the EU Package Travel Directive, all our customers will benefit from enhanced and full package travel protection under Spanish law, consistent with the EU package travel regulations.”