Air Travel Organisers’ Licensing

Mark Lazarowicz Excerpts

Thursday 22nd November 2012 Westminster Hall

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

On a point of order, Mr Williams. Before you start proceedings, can I raise a couple of questions? I am not sure what we do in the event of not everybody who indicated that they wanted to speak in this debate turning up. The Select Committee on Transport has scheduled two important debates for this afternoon. Does the Chair have any discretion to delay the start of proceedings to ensure that those who want and are expected to participate have the opportunity to do so? Previously, when I was a Minister, if I had been at a debate and there was nobody in attendance, or if someone to whom I had spoken in the Lobby and who had indicated that they wanted to speak was not there, I would obviously have wanted to ensure that they had a chance to speak.

What are the rules and protocols of the House in the Standing Orders? We would not want anyone to miss the opening speech from the distinguished Chair of the Transport Committee, my hon. Friend the Member for Liverpool, Riverside (Mrs Ellman), ably supported by the hon. Member for Milton Keynes South (Iain Stewart). The Transport Committee has spent a lot of time on the two reports. I know that my hon. Friend the Member for Edinburgh, Leith and Pentland—or is it just Edinburgh and Leith?

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

Edinburgh North.

[Jim Fitzpatrick]

My apologies. My hon. Friend the Member for Edinburgh North and Leith (Mark Lazarowicz) clearly has something to say in the debate, and it is important that everybody who wants to speak has the chance to listen to the opening speeches. Without an opening speech from the Transport Committee Chair to set the context for this debate—the Opposition have a few things that we would like to say, although the reports deal comprehensively with the issues, and the Government’s response is equally detailed—it would be helpful if you could advise us, Mr Williams, how we might proceed so that everybody who wants to participate can do so.

--- Later in debate ---

[Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Williams. I am pleased to present two Transport Committee reports for debate. Both are on aviation, and although they deal with complicated matters, they are vital to the public. The first debate is on the reform of Air Travel Organisers’ Licensing, or ATOL.

[Mark Lazarowicz]

Before my hon. Friend proceeds, does she agree that, although we are discussing the first report, it is particularly important that we have a Minister here to hear what is said about the second report? Important negotiations are going on in Europe about flight times, and many of us have constituents working in the industry who have contacted us about the matter. It would be amazing if we did not have the opportunity for a Government response on this important topic.

[Mrs Ellman]

I agree with my hon. Friend. I certainly wish Ministers to listen to what I have to say, and I have numerous questions to pose to them, but the proceedings have started, so I must continue. I hope that the Minister will arrive before I have proceeded much further.

The ATOL scheme was introduced in the 1970s, a decade in which there was a dramatic increase in the number of people travelling abroad on package holidays. ATOL is a Government-backed insurance scheme that protects holidaymakers flying abroad from the effects if travel firms go bankrupt. Holidaymakers can be reimbursed for the cost of holidays and repatriated where necessary. Over the past three years, 250,000 people have received refunds as part of the scheme and 100,000 have been repatriated.

Firms covered by the ATOL scheme charge each passenger £2.50 to cover the cost of ATOL. However, at the time of our inquiry, the Air Travel Trust Fund from which payments are drawn was in deficit to the tune of £42 million. That deficit is now decreasing. I would be grateful if the Minister could tell us the latest figure, as it is important to have. The deficit is falling because the charge per passenger was recently increased from £1 to £2.50, but the scheme remains controversial. Currently, only about half of holiday bookings are covered, an issue at the heart of ATOL reform.

The situation is complicated. Traditional package holidays sold by travel agents and tour operators are covered by ATOL. Holidays sold by agents or firms defined as acting as agents for the consumer, particularly online, are not. Firms selling holidays not covered by the scheme have a competitive advantage, because they do not have to charge for ATOL cover. However, it is not clear whether consumers are aware of that difference. There is also the problem of who pays for repatriating travellers stranded abroad by the bankruptcy of an airline or agent not covered by the scheme.

The Government are in the process of changing ATOL. Two reforms have already been made. First, “flight-plus” holidays—in which a flight plus another part of the holiday, such as a hotel booking or car hire, is bought within a 48-hour window—sold by existing ATOL operators are now covered. Secondly, customers buying holiday packages covered by ATOL must now be issued with a certificate telling them that that is the case. Those two changes are an advance.

The extension of ATOL to certain flight-plus holidays is estimated to bring some 6 million additional holidays into the scheme, ensuring that 60% of holidaymakers are covered. The extra revenue brought into the scheme by those extra travellers should help reduce the charge per passenger, but operators have challenged the Government’s figures, claiming that the travel industry will find ways around the new regulations.

--- Later in debate ---

[Mrs Ellman]

My hon. Friend’s comments reflect views that the Committee has heard over a long period—we have been looking at the issue for a number of years. Particularly when people are stranded on holiday and have problems, we realise that those consumers simply did not know what they were covered for or indeed whether they were covered. That has to be a key issue for the Government. They have partially addressed it, but I will say later how I think that that is proceeding.

The Government were well placed to overcome the problem of that relative lack of formal reaction from consumers and consumer groups by commissioning their own research into whether consumers understood the concept of ATOL cover and whether they wanted it to apply to packages that they assemble themselves online. We must remember the changing nature of the way in which people organise their holidays, because individual consumers organising their own holidays and assembling packages online is a growing trend, so it is important for us to know what consumer views are and about the type of insurance that they think most appropriate. Up until now, however, the Government have not done that. The extension of the scheme has not been based on explicit consumer research, and I want the Minister to tell us why the Government did not do more to find out specifically what consumers want.

The Committee welcomed the introduction of the ATOL certificate, which will increase clarity for consumers about their cover. We have found a consistent issue over the years to be that passengers and holidaymakers simply do not know what they are covered for. There is a risk, however, that consumers who buy holidays that are not ATOL protected will not realise that. Owing to the Government’s positive action, the people who are now ATOL protected will know that they are covered, but the ones who are not covered will not know, because they will not have a certificate. Do the people without a certificate realise that that means they are not covered by ATOL? We simply do not know.

More could be done to inform consumers not covered by scheme of their position and options. The Government agreed to consider our suggestion, perhaps by introducing a voluntary scheme for airlines to inform customers of their protection—or lack of it—when buying a flight. Can the Minister tell me what progress has been made in taking that suggestion forward?

[Mark Lazarowicz]

That is important because, as my hon. Friend said, normal people make their holiday arrangements, effectively, by putting together their own packages, which raises the issue of what cover there should be in the event of an airline-only arrangement falling through if the airline goes out of business. There are clear difficulties with doing something at UK level only, as well as issues of practicality, but the report highlights the importance of voluntary agreements and discussion in the industry up to a European level. Does she think as I do, it important for the Government to be able to show that they are actively pursuing the possibility at European level? That is another point to which the Minister needs to respond when we reach the appropriate point in the proceedings.

[Mrs Ellman]

I agree with my hon. Friend that the matter needs to be pursued in the European arena, because the nature of air travel is such that it is likely to involve travel outside this country. We need to know from the Minister exactly what is happening and what progress, if any, has been made.

As my hon. Friend the Member for Poplar and Limehouse (Jim Fitzpatrick) mentioned, the Civil Aviation Bill includes clauses that will make more fundamental change possible. Such changes will be implemented, we are told, at a future date. Will the Minister say what the timetable for that implementation is? As my hon. Friend said, there was a debate on the subject yesterday, and amendments to the Bill were discussed, but we need to know the timetable so that we can monitor progress. During the Select Committee inquiry, the then Minister was asked how the Civil Aviation Bill would affect holiday insurance cover, and it was clear that there would be major changes. We need to know the detail of such changes, as well as the timetable for implementation of the Bill.

In future, packages sold by airlines and by those designated as agents for the consumer, will be included in ATOL. The Committee supports that change, because it is an anomaly that a holiday package sold by a travel agent has ATOL protection while the same package sold online by a firm operating as an agent for the consumer—for which there is a specific definition—is not covered. That is extremely confusing for the consumer, and one reason for the reform is to provide greater clarity for the consumer, as well as more comprehensive cover, and to create a more even playing field in the industry. When we conducted our inquiry, we spoke to a range of people, including those from the travel industry and its different sectors. One point made forcefully to us was that different parts of the industry would be affected in different ways, and a strong view from some was that there should be an even playing field for the travel industry itself. The Government are addressing that situation, but we need to know how the proposals will change it. We need to know what progress has been made on providing appropriate cover, clarity and even-handedness for the consumer, and on creating a more equal playing field in the travel sector.

There have been calls for the Government to go further than they propose and to bring all international flights within ATOL, providing passengers with protection from airline insolvency. In our inquiry, we found different views in different parts of the travel sector. ABTA, the Association of British Travel Agents, has argued strongly for that, pointing out that tour operators often fail because airlines have run into financial difficulties. On the whole, the airlines oppose such calls, arguing that there is a significant difference between a holiday package and a flight. They suspect that the change would mean their being asked to bail out the air travel trust fund, which, they argue, has been emptied because of what they allege to be badly managed tour operators going bust. Those were the points made to us in our inquiry, although we did not get a unanimous view from those who came to speak to us.

On balance, it would be helpful to see international flights covered by ATOL. The additional cost per ticket would be small, consumers could be confident of repatriation in the event of an airline becoming insolvent, and the scope for operators to find loopholes in the ATOL rules would be reduced; quite a number of the witnesses to our inquiry felt that if a scheme for partial cover was proposed, part of the industry would find loopholes to get around the new regulations. The European Commission is looking hard at the question, and my hon. Friend the Member for Edinburgh North and Leith was right about the importance of looking at the issue across Europe. When a decision is taken in Europe, it is not taken just by another body with no reference to the United Kingdom Government. There is a process, and the Government and specifically the Department for Transport in this instance have a way of influencing what happens, and should advocate what they believe is best for our travel industry. Will the Minister update us on what is being discussed at European Union level, and on the Government’s view on the matter? It is important to know what the Government, through the Department for Transport or any other appropriate part of Government, are doing to pursue what they believe is the right way to proceed on travel insurance, and getting the best deal for British consumers.

[Mark Lazarowicz]

That is particularly important because in the few instances of airlines going out of business in recent years, most have been pretty small, and passengers have been picked up by other, larger airlines. However, low-cost budget airlines are now operating throughout the European Union, and many are based in other countries where a UK operator might not feel inclined to offer a replacement flight if it had no connection with the UK. Is that not an important reason for addressing the matter at European level, and why the Government must show that they are actively pursuing the issue to try to get an appropriate solution for consumers?

[Mrs Ellman]

My hon. Friend makes an important point. One issue raised during our inquiry was that the European travel package regulations are being renegotiated, which may take some time. That makes it particularly important that our Government, through the Department for Transport or whatever part of the Government is thought to be correct, advocate during the long-drawn-out discussions on that package, what is correct for UK consumers. It is an ongoing process, and it would be helpful to know what the Department is pursuing in this area at European level, what stage those discussions have reached, and how it will be involved as they proceed and before the extensive European travel package regulations are finalised.

The charge of £2.50 per passenger to pay for ATOL is unfair, because it is not linked to the value of the holiday booking or any assessment of risk. Someone booking a cheap package deal with an established operator pays the same for protection as someone buying a luxury trip to a far-flung country with a niche provider. That is unfair, and the situation would be even worse if flight-only bookings were included, because the ATOL charge could be a high proportion of the cost of a cheap flight. The Government have agreed to re-evaluate the level and the basis of the charge. Will the Minister say what progress is being made with the review?

On the long-term options for ATOL, we considered whether it should be scrapped altogether and replaced with private insurance. We concluded that that was not possible. Few insurance policies are available to provide the same level of protection, and the Government cannot avoid their responsibility swiftly to repatriate people stranded abroad because a travel firm has failed. The EU package travel directive requires the UK to provide a financial protection scheme for holidaymakers.

Nevertheless, there is scope for further reform, particularly when the scheme’s deficit has been cleared. In the Committee’s view, a reformed scheme must distinguish clearly between financial protection for consumers, which might sometimes be covered by private insurance, and repatriation, which is unavoidably an issue for the Government. The scheme should be industry funded, not reliant on Government guarantees as at present, and perhaps it should be managed by the industry. Consumers should have a greater say in deciding what is covered, and there should be more research on what consumers want. There must be more clarity and more public information, so that consumers are clear about when they are covered and when they are not. The Committee would like the cost per booking to come down, and be proportionate to the price of the package. If that were done, much of the controversy about the scheme might fade away.

In recent years, the internet has enabled some people to bypass travel agents and tour operators, and to put together their own package holidays. The ATOL scheme has not kept pace with that development. It has run into financial difficulties, and there is now confusion about who is covered by the scheme and who is not. The Committee welcomes the Government’s steps for reform, but there is much more to be done. I look forward to hearing about further proposals for change.

The nature of the leisure industry and holiday bookings has changed. Travel protection needs to reflect those changes and consumers’ needs. The Department has started to address that, but a great deal more needs to be done, and I look forward to hearing from the Minister what steps are being taken, and what the Government’s plans are.