The Review on Airline Insolvency was finally issued by the Government this morning.
The Review was set up after the collapse of Monarch Airlines in early October 2017, at which time the government asked the CAA to repatriate 110,000 customers, including the majority who were not protected by an ATOL Certificate. The final cost to the government was over £60 million, in addition to the £30 million for those who were legitimately protected under the ATOL scheme.
At the time, the SPAA, the Association of ATOL Companies, and other trade associations expressed genuine concern that the decision undermined the whole reasoning behind the ATOL scheme. The decision was taken, coincidentally, on the first day of the Conservative party conference, where the scale of the stranded passengers was such that they felt they had no option but to repatriate all concerned.
When airlines are thought to be at risk, insurers simply withdraw cover, so the need for airline failure protection in another format is absolutely necessary to protect the customer, unless of course they are covered under ATOL through a tour operator or agent. No airlines have cover similar to ATOL for the consumer, so there is a major gap in customer protection.
The Review has proposed that the government set up a Flight Protection Scheme, administered by the CAA to provide repatriation, but no refunds, for those affected by the collapse of any airline operating out of the UK where the customer has a return ticket starting from any airport in the UK. The scheme would have two parts, airlines would have to provide a financial protection guarantee to cover 60% of the expected cost of UK passenger repatriation and also pay a levy of 6p per passenger to pay for a fund to back up the guarantee if it was insufficient, and to buy reinsurance as a last resort
The cost to airlines for the protection will, according to the figures in the Review, average 40 to 50p per passenger but be a lot less for well run and profitable airlines, and as high as £6.50 per passenger for those at the opposite end of the financial scale. The Review acknowledges that the scheme, and the cost of setting it up, may mean it will have to be introduced over a 5 year time scale.
However, airlines seemingly will NOT have to protect those sold under an ATOL scheme, which begs the question – how do they know which is an ATOL sold seat ? Already we are in to the practical challenges of administering such as scheme. The simplest answer is that all seats should be protected, even though they may be protected twice by different organisations, in that the airline provide cover for their part, and the tour operator provides for the whole package under the ATOL scheme.
We have no doubt there will be serious opposition from the airline industry, and it’s by no means perfect, but if approved, it is a huge step forward in trying to resolve an issue where this year up to 17 European based airlines have failed, and only Monarch customers were offered help in repatriation.