Greater protection for holidaymakers
Holidaymakers will now have more protection from losses when a travel company goes bust, the government confirmed today.
The ATOL (Air Travel Organisers' Licensing) travel insurance scheme is to undergo a complete overhaul to give customers further protection if tour operators go out of business.
The changes will extend protection to another six million holidaymakers, including the increasing number of people buying flights and holidays separately. It's hoped these reforms will make the ATOL scheme, set up in the 1970s, better suited to the modern holiday market.
Shortcomings in the system were shown by a number of high-profile travel company collapses in recent years including XL in 2008, Freedom Direct in 2009 and Goldtrail and Sun4U last year.
Aviation minister Theresa Villiers outlined the changes in a statement to parliament today and said she would consider further changes through an Act of Parliament later in the year. A three-month consultation will begin in the spring between the government and members of the travel industry.
Subject to the consultation, the reforms will extend protection to include trips that fall outside the legal definition of a package holiday. Businesses will also need to be clearer and should not mislead consumers about their level of protection, but give a transparent and honest explanation and make it explicit that holidays are ATOL protected.
Another factor of the reforms is reducing the deficit in the government fund, which covers refunds and repatriation in the event of company insolvency, the Air Travel Trust Fund (ATTF). This fund relies on a government guarantee, worth £42 million, which ministers would like to reduce.
Villiers says since ATOL was introduced, it has provided protection for millions of holidaymakers but insolvencies in recent years show how important it is that customers are able to buy protected holidays.
"These changes will remove much of the confusion surrounding ATOL, while ensuring operators who offer such holidays provide customers with the financial protection they expect" she adds.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.