Clause 94 - Regulation of provision of flight accommodation
Civil Aviation Bill
Julie Hilling (Bolton West, Labour)
‘(2) For subsection (1) substitute—
(1) The Secretary of State must make regulations setting out a licensing regime for the purposes of regulating provision of accommodation in aircraft.
(1A) A person must not in the United Kingdom make available flight accommodation, either as principal or agent, unless the person meets the condition in subsection (1D) or (1E).
(1B) A person must not in the United Kingdom hold himself or herself out as one who may make flight accommodation available, either as principal or agent or without disclosing the person’s capacity, unless the person meets the condition in subsection (1D) or (1E).
(1C) A person (“A”) acting as an agent for another person (“B”), in the course of a business carried on by A, must not in the United Kingdom procure flight accommodation on behalf of B unless A meets the condition in subsection (1D).
(1D) A person meets the condition in this subsection if the person—
(a) holds and acts in accordance with a licence issued in pursuance of regulations under this section made by the Secretary of State, or
(b) is exempt from the need to hold such a licence as a result of provision made by or under the regulations.
(1E) A person meets the condition in this subsection if the person—
(a) is the operator of the aircraft on which flight accommodation is made available, and
(b) in making the flight accommodation available is acting as a flight-only provider.
(1F) The regulations under this section may make provision for the purposes of subsection (1E) about when the operator of an aircraft acts as a flight-only provider.”.’.
Roger Gale (North Thanet, Conservative)
With this it will be convenient to discuss the following:
Amendment 71, in clause 94, page 57, line 11, leave out ‘or (1B)’.
Amendment 72, in clause 94, page 57, leave out lines 26 to 33.
Julie Hilling (Bolton West, Labour)
Amendment 83 would bring airlines into the ATOL scheme without the need to wait for secondary legislation. There is no argument that the scheme is badly in need of reform. When it was introduced, 97% of holidays were protected compared with only 50% now, and there is great confusion about who is covered.
Three passengers sitting side by side on the same flight, going to the same hotel and having the same car hire, might all imagine that they would have the same protection, but in reality, they might not. If the first person booked their holiday through a traditional travel agent, it would be fully protected. Providing that the secondary legislation on the original ATOL scheme is passed in April, if the second person booked their flight themselves and then booked their accommodation with an agent or tour operator, they, too, would be protected. The third person might be on the same flight with the same pluses, but if they booked their holiday direct through the airline, they would have no protection whatever. It seems to me that if it looks like a package and feels like a package, it should be treated as a package.
The situation can be even more confusing: if, for example, someone booked a Virgin flight and a hotel through the Virgin website, they would be unprotected, but if they were transferred through that system into Virgin Holidays, they would have protection.
Even travel agents are confused in some situations. Usually, travel agents act as the agent for the supplier, so I think—I could be wrong, because this is totally confusing—that the travel agent books a package put together by a travel trade supplier. Sometimes, however, the travel agent might put together a package for the holidaymaker, so it then becomes an agent for the consumer. In such cases, the holiday is not covered at all. Research has shown that even travel agents do not know whether they are acting for the consumer or the supplier. If they do not understand whether holidays are covered, how on earth is the person purchasing the holiday to know whether they have ATOL protection?
When we took evidence in the Transport Committee and, I believe, in the Bill Committee, some witnesses said that we did not need to extend protection, because people were protected when they had booked their holidays using a credit card. I do not think I have ever booked a holiday through a credit card, mainly because in doing so, I would be charged extra costs. More and more people are using debit cards. Nevertheless, the witnesses who argued against extending ATOL because people were using credit cards could not provide evidence of how many people would and would not be protected. They recognised, however, that there might be a problem and that some people would be unprotected because they would not be protected through their card.
Insurance is another issue. Responsible travellers get their travel insurance when they book their holiday and ask for details of their insurer when they do so. However, that insurance does not cover airline or travel company failure; only specific insurance does that.
The airlines have asked why they should be brought into the matter, but it is airline failures in the main that have caused people to draw on ATOL funds. Back in 1974, Court Line failed because of problems with the oil crisis and the parent shipping line, which impacted on Clarksons Holidays, and led to the creation of the ATOL scheme.
In 1982, Laker Airways collapsed, taking its subsidiaries, Aerosmith Holidays and Laker Holidays, with it. In 1991, in the midst of the uncertainty of the Gulf war, Air Europe went bust, taking down the International Leisure Group, which included such companies as Intasun; we will all be terribly upset to know that it also took down Club 18-30. At the time, ILG was the UK’s second largest operator.
Best Travel Group, which included Ambassador Airlines, ceased trading in 1994. Since then a number of other airlines have gone bust, including the XL Leisure Group, the Globespan Group, Kiss Flights and Freedom Flights. A substantial amount of money paid from the air travel trust fund was in response to airline failure. In the past three years, 51.2% of all claims on the fund have been as a direct result of airline insolvencies.
The collapse of XL Leisure showed that the ATOL system is no longer fit for purpose. When the CAA began repatriation and refund processes, it became clear that it was possible for two holidaymakers to have booked identical holidays and for one to be fully financially protected and the other to have partial protection or no protection at all. That was seen again with the failure of Goldtrail and Kiss Flights. The XL failure also demonstrated that it was extremely difficult to run an efficient refund scheme, because of the ever-increasing complexity of agents’ paperwork and the difficulty for the CAA in judging whether the claims were valid.
For airlines to argue that they should remain outside ATOL seems wrong—wrong because it is frequently the failure of airlines that draws on the air travel trust fund and they should therefore be paying into it, and wrong because passengers need to be clear when they are covered and when they are not. It is also wrong because if passengers cannot pay for repatriation, someone has to: the fund, another airline or the taxpayer. The airlines have also argued about competition. Again, there should be a level playing field for all people selling holidays. I can understand why an airline does not want to be brought in and wants to pay any extra money out when it has to. However, it just seems only fair that airlines should be brought into the scheme.
We all shop around for our holidays; if I am honest, I chose the last holiday I booked because it was £5 cheaper. We get down to very small margins when we book a holiday. However, the cost of ATOL is £2.50 for each booking, and that should be applied without delay. If we are to have an open and competitive scheme, there should be that level playing field and those taking money out of the fund should be paying into it. That would also put the trust fund back on to a strong financial footing; the fund is in deficit at the moment. That would provide clarity for travellers and it should be done now. I do not understand why we are waiting for secondary legislation when we have a perfect vehicle for primary legislation going through the House now.
I have a little worry that my amendment will not be accepted; I cannot understand why I might feel that. I want to finish with two questions. First, will flight-plus be introduced in April? Secondly, if the Committee does not accept my amendment, when will the secondary legislation be brought in so that airlines are incorporated into the ATOL scheme?
Jim Fitzpatrick (Poplar and Limehouse, Labour)
We very much agree with our hon. Friend the Member for Bolton West, whose amendment trumps our amendments 71 and 72. She has made an excellent case for the clause to go further. Everybody supports the ATOL scheme; it is a common-sense scheme, giving protection for passengers and travellers who lose money or are stranded. Amendments 71 and 72 also seek to extend the clause, although I should say that at this point they are probing amendments.
As my hon. Friend said, in 1997 ATOL protection covered 97% of leisure flights but in 2010 that figure was down to 50%. The Minister has announced that the reforms proposed in 2011, which were to come in on 1 January 2012, will now be introduced next month, so my first question is to ask her for an update about whether that is still on schedule. Secondly, the scheme has obviously not kept up with travel industry changes over the years. The air travel trust fund has been in deficit since the 1990s and, notwithstanding the reforms of 2008-09 and the ministerial statement in February 2011, it is still in deficit. Will she update us on where that now stands?
Finally, what is the latest position vis-à-vis the European Commission, given that its current review of the consumer protection directive will impact on the package travel directive? During an earlier debate, the Minister was keen to argue that future-proofing against intra-terminal competition should be provided for in the Bill, so that we do not have to return to primary legislation. My hon. Friend and I are asking a question. The Bill provides an appropriate vehicle for future-proofing in respect of extending the ATOL scheme to airlines, should that be appropriate; the Government might have to comply with a new directive that required it. Surely the Bill would be a simpler way for that to happen, rather than our returning to primary legislation.
We are clear that the clause is a big improvement in providing assurance for the leisure industry and the travelling public. We support it, but we are keen to hear the Minister’s comments about not future-proofing for future requirements.
Pat Glass (North West Durham, Labour)
I speak in support of the amendments, and I echo what has been said by my hon. Friends the Members for Bolton West and for Poplar and Limehouse. We all agree that it is right to extend the protection given to holidaymakers by the ATOL scheme, which helps to protect people from losing money or being stranded abroad when travel companies fail. We all welcome such provisions.
Holidaymakers and travellers look for the kind of protections that ATOL brings and their value should not be underestimated. Over the past five years, about 100,000 passengers have been repatriated, more than 500,000 have received refunds under the ATOL scheme and more than 100 million holidaymakers have had some level of protection and support from ATOL even over that short period.
That protection is especially important when family incomes are being squeezed, and families have to think about whether they can get the money together to afford a holiday. If the money that they saved for a holiday is lost because they had no protection, that is a good reason to extend the scheme. We all accept the sense of changing and reforming ATOL to meet a changing market.
As we have already heard, the ATOL scheme came into existence in the 1970s, when families booked package holidays in traditional high street travel agencies. However, we have seen major moves away from traditional package holidays towards independent travel, a trend that has been facilitated by the emergence of low-cost, no-frills airlines and the use of the internet. Holidays are often created by consumers buying various component parts from a range of flights, accommodation and other options; Expedia and Skyscanner are two examples of companies that people can use to put together such packages online. Unfortunately, that trend has been coupled with the decline of traditional travel agencies, particularly small independent ones, several of which have gone bust or are under threat.
As a result of those changes in our holidaying behaviours, the proportion of holidays with ATOL protection has fallen—97% of all leisure flights in 1997 were ATOL protected, compared with fewer than 50% in 2010. It is therefore right to make changes to ATOL to reflect better today’s holiday markets and, as my hon. Friend the Member for Bolton West said, so that consumers can be clear about whether their holiday is protected.
We have also heard that the current ATOL scheme does not apply to airlines, which are specifically excluded under legislation, despite the fact that airline failures have taken a huge amount out of the fund. The amendment would ensure that the scheme covered all flights by removing the flexibility that the Bill gives the Secretary of State to exempt airlines if they sell flights on a flight-only basis.
I welcome the reforms in the Bill, which mean that ATOL will cover flight-plus holidays, which the Department for Transport defines as
“holidays consisting of a flight and accommodation or car hire, where the components are requested within a short period of time. Essentially they look like package holidays, yet do not fall within the legal definition of a package, and so are not currently protected by the ATOL scheme.”
Like many MPs here, I have had constituents in my surgeries who thought they had booked a package holiday, only to find that their package was made up of parts, each of which was supplied by separate companies, and that they were not ultimately covered by ATOL. That appears to be a particular issue with cruises. Someone will think they are booking a holiday that includes a flight and a cruise, but the two things are actually separate components. When something goes wrong, that person is not covered by ATOL.
I welcome the reforms, but I want them extended to cover all flights, and I am not alone in that. As we heard, the Select Committee has recommended on more than one occasion that all flights should be protected. Moreover, there is support from parts of the travel industry. The Association of British Travel Agents supports the idea that all flights should be protected, and it is working on that at the European level. As my hon. Friend the Member for Poplar and Limehouse said, ABTA expects the Commission to announce proposals on airline insolvency in the coming months.
Does the Minister feel that the Bill’s changes to ATOL will provide the best possible cover for holidaymakers and for people travelling on business or to see family members? What consideration did she give to reform options other than the one chosen in the Bill? Why was coverage of all flights ruled out? Would covering all flights not be the clearest form of protection for the customer, regardless of the purpose of their travel? Given that Europe may shortly propose that, and we may soon find ourselves back here looking at new legislation to amend these provisions, it would surely make sense to include such a provision now.
Finally, I want to ask the Minister about timing. Initially, she said that the Government’s reforms would come into force on 1 January 2012, in time for the peak summer holiday booking season in January and February. In October 2011, however, she announced that the date would be postponed until April 2012. Why has there been a postponement? Is there not a danger that many holidaymakers and travellers will not be covered this summer if they book before April? How do I and other MPs here explain that to constituents who turn up in our constituency surgeries this summer after finding that they are still not covered by the ATOL scheme?
The amendments are the best way of ensuring that holidaymakers have protection, and I hope members of the Committee will support them.
Theresa Villiers (Minister of State (Rail and Aviation), Transport; Chipping Barnet, Conservative)
I am really pleased with the support that the Committee has demonstrated for the clause. It is welcome that this important improvement in consumer protection has managed to generate such a significant level of cross-party support.
As we heard, the ATOL scheme has been successfully protecting holidaymakers from insolvency in the travel trade since the 1970s. Last year, ATOL protected 18.5 million holidays and flights. That included 47,000 passengers who were repatriated by the Civil Aviation Authority when their travel company failed while they were on holiday. A further 146,000 people were given a full refund.
Where it applies, the scheme provides much-valued protection for holidaymakers’ money, allowing them to book with confidence, knowing that their money is protected in the event of an insolvency. However, I agree with the shadow Minister and the hon. Member for North West Durham that we need to modernise ATOL so that it better reflects how holidays are now bought and sold, particularly in the light of the increased use of the internet.
It has become increasingly difficult for consumers to know whether their holiday is a package holiday, and so protected under the ATOL scheme, or whether it is a holiday that resembles a package, but falls outside the legal definition and so does not benefit from full ATOL protection. That gives rise to the sort of problems mentioned in particular by the hon. Member for Bolton West. Those problems have also been highlighted over a period of many years by the Transport Committee.
The Government are taking forward secondary legislation to bring flight-plus holidays sold by travel agents into ATOL. In response to the first of the hon. Lady’s questions, we expect to implement that from 30 April. From 1 October, consumers will also get a standardised ATOL certificate when they buy a protected holiday or flight. We allowed an additional period before the introduction of the formal certificate to give the industry a little more time to prepare. In the interim period between 30 April and 1 October, consumers will still be informed where they are protected by ATOL. It is only until 1 October that they will not get the formal certificate.
These reforms have, as hon. Members have mentioned, been broadly welcomed by many in the travel trade, including the Association of British Travel Agents in its recent evidence to the Committee. Clause 94 allows the reforms to go further, by giving the Secretary of State new powers to make regulations to include holidays sold by airlines and those arranged on an agent-for-the-consumer basis into the scheme, in so far as such regulation is consistent with EU law.
The Government believe that they should have the power to include airline holidays and those arranged on an agent-for-the-consumer basis in the ATOL scheme. The powers could be used to improve clarity further for consumers on the scope of the scheme and to create a more coherent and consistent regulatory framework for businesses. Including airline holidays, packages and flight-plus in the scheme was widely welcomed by many in the travel trade. Although most airlines do not support the change, some do, as Barry Humphreys from the British Air Transport Association acknowledged in his evidence to the Committee in our first week of sittings.
Should the clause become law, I would expect to consult in 2013 on new draft regulations to give effect to the changes, alongside an impact assessment. A decision to proceed would be taken on the basis of the consultation responses and the conclusions of the impact assessment. That process would help us assess the cost impact of such a change. We would also need to consider the extent to which the change would further improve clarity for consumers about the scope of the scheme. We would also look at issues around competitive equality between airlines and the rest of the travel trade and between airlines themselves. That element of the decision-making process is important.
It is for those reasons that I cannot accept the amendment from the hon. Member for Bolton West, although I warmly agree with more or less everything that she said. Requiring the Secretary of State to make new ATOL regulations regardless of the outcome of the consultation or the results of an impact assessment would not be appropriate. It is important that those matters are fully considered before a decision is taken to go ahead with secondary legislation.
The permissive power for the Secretary of State to make ATOL regulations in the Civil Aviation Act 1982 appears to have worked reasonably well over the past 30 years in allowing the scheme to be amended as and when necessary. It would be difficult to bring airlines in directly via primary legislation without potentially having to repeal the existing ATOL secondary legislation and putting everything in a Bill. It would also mean that updating ATOL legislation in the future could be made more difficult, because more of it would be hard-coded into primary legislation. That is why we have stuck with how ATOL is currently delivered, with permissive powers in primary legislation followed up by decisions in secondary legislation.
I cannot see a strong case for moving away from that general approach. We are more likely to be able to respond in a timely and effective way to the concerns expressed by the hon. Member for Bolton West if we stick with the approach that gives the Government powers to do this after appropriate consultations and impact assessments have been carried out and properly considered. I hope the hon. Lady is reassured by the Government’s commitment to consulting on the draft regulations that are to be made under the new power in 2013.
The amendments tabled by the Opposition Front-Bench team would bring all flight-only sales into ATOL. The requirements they seek to impose on airlines are not consistent with section 64 of the Civil Aviation Act 1982 or EC regulations on airline operating licences, both of which set out the conditions that airlines must meet to obtain an operating licence from the relevant national authority that would permit them to carry fare-paying passengers. Those conditions, which include safety and financial considerations, apply across the EU, without discretion for member states to impose additional requirements. EU airlines, therefore, are already licensed to carry fare-paying passengers. Requiring such airlines to obtain an ATOL licence for flight-only sales would not be consistent with existing UK or EU law.
Unless the Opposition are prepared to amend or repeal the European Communities Act 1972, which I suspect they are not, it is not open to Parliament to adopt the amendments, because they would be inconsistent with our obligations under the European Union treaties. That said, the change sought by the amendments is under active consideration at EU level. As the shadow Minister mentioned earlier, the Commission is currently considering the package travel directive, but it is also reviewing various options for providing financial protection to passengers in all flight sales, including those by airlines.
We will carefully consider any proposals made by the Commission on that subject, which we expect later in 2012. We will consider the points raised today in our response to and engagement with the Commission. As part of our engagement with the Commission, and to support it, we expect to seek views from interested stakeholders, including those in the travel trade, airline businesses and consumer groups, on both the airline work and the package travel directive.
If changes were to be made to the flight-only regime, the pros and cons would need to be considered carefully at both EU and domestic level. Consumer confusion is not necessarily as intense for flight-only sales as it is for package-type holidays; that should be acknowledged. It is easier to distinguish between a flight booking and a holiday with a number of components, including a flight, than between a package in a legal sense and other, similar-looking types of holiday. Nevertheless, as I have said, the Government will have in mind the points raised by the Committee as we engage further with the Commission.
The shadow Minister asked for an update on how the deficit affects the ATOL scheme. The existence of a deficit does not in any way jeopardise the payment of refunds from the ATOL scheme to those who are entitled to them, and it is always worth making that clear. The deficit means that, in effect, the taxpayer, in certain circumstances, may be required to meet some of the costs of refunding passengers who fall within the scheme’s scope and whose tour operator has gone bust.
The deficit currently stands at £38 million. We expect the changes to flight-plus proposed in secondary legislation to assist in addressing that deficit, so that, over time, we can move to a position in which the fund becomes financially self-sustaining and no longer requires a Government guarantee from the taxpayer. We hope that may happen within three years, but we are not setting a definite target for the moment. The proposed changes to flight-plus should provide assistance.
I think I have addressed most of the points raised by members of the Committee, but if they want to come back to me on anything, I would be delighted to listen.
Julie Hilling (Bolton West, Labour)
I am, of course, disappointed that the Minister does not feel able to accept my amendment, but I need to reflect on her reasons for that. I may return to the subject on Report. I urge her to take action as soon as possible to bring airlines into the scheme. I beg to ask leave to withdraw the amendment.