CAA Must Tread Carefully on Proposed ATOL Reforms to Prevent Smaller Businesses Going Under

* Note: This press release was originally distributed by SEC Newgate on behalf of Xeinadin Group on 6 Sep 2021.

Proposed changes to ATOL being considered by the Civil Aviation Authority (‘CAA’) would need to be phased in gradually to prevent having a potentially drastic impact on smaller, otherwise healthy tour operators, according to a leading travel industry accountant.

Jonathan Wall, CEO of Elman Wall, which is part of Xeinadin, the Ireland and UK-based business advisory and accountancy group, says there is merit in proposals to mandate the segregation of customer monies to provide greater consumer protection. However, he is warning that without an appropriate time period for Covid-ravaged travel businesses to recover and build a cash buffer that would enable them to comply with mandatory segregation, a large number of well-managed, healthy tour operators could risk going under due to the negative impact it would have on cashflow.

The CAA has been consulting over recent months on its intention to introduce changes to ATOL.  The main changes relate to how ATOL holders fund their operations and how the use of their customers’ monies should be considered within the regulatory regime. 

Mr Wall, whose firm has acted for hundreds of travel businesses and currently acts as ATOL Reporting Accountants to over 100 ATOL holders, believes that the CAA should be cautious about making wholesale changes to a system that works well on the whole, on the back of a small number of high-profile failures of businesses that bear no resemblance to most ATOL holders.

Jonathan Wall, CEO of Elman Wall, part of Xeinadin group, commented: Between 2014 and 2019, 93% of customers affected by failures of travel businesses were due to Monarch and Thomas Cook  – both companies that arguably should not have had ATOL licences renewed for some years prior to their failure. I would urge the CAA to be cautious about making too many substantive changes to a system that largely functions effectively, as a result of the mismanagement of two giants who bear no resemblance to most licence holders. In my view, if not handled very carefully it could have a hugely negative impact on many principled and well-run businesses.”

In a submission to the CAA consultation, Mr Wall outlined a number of key arguments that included:

Mandatory segregation of customer funds

ATOL holders should have a choice as to continue to protect consumers by way of bonding or insurance-based models, rather than having to segregate funds. There should be an extended transition period towards segregation of customers’ monies whilst the industry recovers from the ravages of Covid, to avoid the potential mass failure of otherwise perfectly good tour operators due to the inability to cope with the cash flow requirements of a new model. This scenario would result in calls on the Air Travel Trust (ATT) and erode consumer confidence in the packaged industry.

To be viable, the Trust model must align with supplier payment requirements, a significant challenge.

Mr Wall, whose firm is authorised by the CAA to act as Trustees over clients’ money in ATOL Air Travel Trust arrangements, explained: “If consumer funds are held in escrow or trust until a holiday has completed, but suppliers, who would typically be due 70-85% of the funds held, require payment in advance of commencement of travel, the numbers won’t stack up and tour operators will face an ever-increasing cash requirement to fund this gap as their businesses grow.”

Airlines and Tour Operators must be aligned

There needs to be alignment between the duties and obligations of tour operators and airlines to their customers, both direct to the consumer and where a tour operator is an intermediary between the airline and the consumer.  Under current regulations, many tour operators have been unable to refund consumers within 14 days as they are required to under the Package Travel Regulations because monies paid to airlines (amongst other service providers in the supply chain) by ATOL holders in advance of travel were not refunded by the airlines in the same timeframe.

Mr Wall added: “It is difficult to comprehend that there is consumer protection in place for the sale of holidays, but not for the direct sale of airline seats.”

Inadequate training and standards for the ARA scheme

Mr Wall says it is far too easy for an accountancy firm to become an ATOL Reporting Accountant (ARA) and standards must be raised. The scheme was supposed to ensure the quality of financial information submitted to the CAA as part of annual accounts and ATOL Annual Returns, but the existing training model is wholly inadequate, and there is no ongoing training or quality control.  

Xeinadin was formed in 2019 through the merger of over 100 small and medium-sized accountancy firms, has annual revenues of over £100 million and over 1,500 team members. Predominantly focused on SMEs and owner-managed businesses, it aims to continue its development through acquisitions and organic growth, underpinned by its digital transformation and group integration programmes. 

Read Elman Wall’s full response to the ATOL Reform Consultation by clicking the ‘Download’ button below.


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