Civil Aviation Authority

The aviation industry is failing to provide passengers with adequate protection if airlines fail, according to a report by the Air Travel Insolvency Advisory Committee (ATIPAC). ATIPAC, which advises the Civil Aviation Authority, called for an end to the current system in which scheduled airlines are able to operate without offering passengers the same financial security that package holidaymakers enjoy, through the Air Tour Organiser’s License (ATOL) system.

Passengers flying as part of a package holiday with ATOL-protected operators automatically have a £1 charge added to the price of their holiday, which contributes to a regulated travel insurance fund. The news comes in the wake of a report by Blue Oar investments claiming at least 50 European airlines face bankruptcy if the current decline in the aviation industry fails to improve.

Rising fuel costs and the worldwide credit crunch have already seen at least 25 airlines go bust this year, including Silverjet, Eos, Maxjet, ATA and Oasis Hong Kong, while EasyJet, Ryanair and British Airways have announced cutbacks in flights this winter and falling profit in the last few weeks.

So how do you you protect yourself when an airline or tour operator goes bust? Who or what is out there? Some insurers offer Passenger Protection Insurance sold separately or Dynamic Packaging Protection as part of a travel insurance policy but always check the small print if this is offered because these are quite often restrictive in their cover. You can reduce the risk further by organising your travel through companies and agents covered by ATOL or who hold bonding through an approved body, such as ABTA or AITO.

ATOL stands for Air Travel Organiser’s licensing and is a protection scheme for flights and air holidays, managed by the Civil Aviation Authority (CAA) and protects the customer from losing money or being stranded abroad when a tour operator goes bust. All licensed firms have to lodge bonds with the CAA so that, if they go out of business, the CAA can give refunds to people who can’t travel and arrange for people abroad to finish their holidays and fly home. And ABTA? Members of the Association of British Travel Agents are required to provide financial protection for their customers which means that you can book your holiday knowing that if an ABTA member fails financially while you are on holiday, you can continue your holiday as planned.

If your holiday has not started, then you will receive a full refund or be given help to make alternative arrangements for the trip to proceed. Likewise AITO, or Association of Independent Tour Operators to give it its full title, require their members to protect their customer’s money in the event of an AITO member going into liquidation. Above all of this, it is vital you have a comprehensive travel insurance policy incase the worth was to happen.

Following last year's ruling in favour of Travel Republic at Westminster Magistrates Court, the Civil Aviation Authority (CAA) recently launched another criminal prosecution against the online travel agent. In 2009, it was held that Travel Republic had not breached the Civil Aviation (Air Travel Organisers' Licensing) Regulations 1995, which pertain to package holidays among other aspects of the travel industry. Subsequently, the CAA brought further legal action against Travel Republic but this time chose to argue the issue from a more pointed angle by asking: was Travel Republic in breach of its legal duty to hold an ATOL (Air Travel Organisers' Licence)?

The ATOL was drawn up with the intention of providing greater protection to consumers who opt for package holidays. In the event of a travel operator permanently ceasing its business operations for one reason or another, the ATOL enables the CAA to ensure that affected customers do not lose their money and that, if they happen to be abroad at the time the travel operator goes out of business, any stranded customers are allowed to finish their holidays in the knowledge that return flights have been organised for them.

Travel operators that hold an ATOL are required to enter into a financial guarantee scheme that is managed by the Air Travel Trust (ATT), which supplies the monetary funds to customers should a travel operator go out of business. Clearly, the question as to whether or not an online travel agent holds an ATOL is critical in determining its liability where problems arise. As such, the CAA was disappointed to hear the judgement reached by Nicholas Evans DJ in the latest case involving CAA and Travel Republic.

Crucially, he ruled that Travel Republic did not act as a tour operator and did not, therefore, require an ATOL. The decision meant that Travel Republic had not committed a criminal offence, as the company merely acted in the role of travel agent and did not assemble package holidays. Although the decision may surprise some customers who purchase package holidays through online travel agents, the reality is such that contract formation is nowhere near as simple as the purchase itself; in fact, it is often the case that several separate contracts are involved: one for the flight; one for the accommodation; and others for various components of the holiday.

The decision reached in CAA v Travel Republic will have a profound impact on holidaymakers, who are advised to keep accurate records of every step involved in the booking process; indeed, of particular interest in the present case were the call transcripts and recorded telephone conversations relating to the booking in question. When using the services of online travel agents, it is essential that customers read the small print carefully and retain electronic and printed copies of all agreements signed. The question as to whether a holidaymaker has booked a 'package holiday' or some other form is not always easily resolved, yet the distinction is crucial in determining whether a claim can be brought in the English courts or abroad. The travel law team at Blake Lapthorn will quickly identify what protection is available in a given case and what steps can be taken to resolve any dispute.