An end to split-contracting?

29.08.02 Share

 

CAA proposes changes to the ATOL Regulations

The UK's Civil Aviation Authority (CAA) has issued a consultation paper proposing changes to the Air Travel Organiser's Licence (ATOL) Regulations. The proposed changes will require that generally only ATOL licence holders will be able to sell packages which include a flight. This will have a substantial effect on "splitcontracting". The CAA's consultation period closes on 23 November 2002.

Why does the CAA want to make these changes? 

The CAA is concerned about the practice of "split-contracting" - i.e. selling air travel at the same time as (but separately from) other travel components such as accommodation and car hire. It wants to ensure that the entire package is bonded in accordance with the Package Travel Regulations. At the moment the CAA believes there is scope for agents to avoid the Package Travel Regulations leaving consumers without protection.

What are the proposed changes?

Under the current ATOL Regulations only the following can sell flight accommodation in the UK:

  1. Aircraft operators;
  2.  ATOL licence holders;
  3. Holders of exemptions issued by the CAA;
  4. Disclosed agents of ATOL licence holders;
  5. Ticket providers - i.e. those who can issue a ticket at the time of payment (usually IATA agents).

The CAA proposals are to prevent disclosed ATOL agency and ticket providers ((d) and (e) above) selling flights which are part of a package (as defined by the Package Travel Regulations).

Generally a person selling a package which includes flight travel will need to hold an ATOL licence. Given the potential and unclear breadth of the meaning of a package (see our earlier briefing note on the impact of the Club Tours decision on this issue which is available on our website) any person selling a flight at the same time as accommodation, car hire or other travel facilities is likely to need to hold an ATOL licence. This will be a significant change. Currently many agents "split-contract" (sell flights as a disclosed ATOL agent or ticket provider, and separately sell accommodation, car hire and so on) to avoid the need for an ATOL licence and consequent costs. This loophole is unlikely to continue to be effective.

The CAA seem in their consultation paper to acknowledge the difficulty of defining package and suggest that perhaps a medium term goal will be to secure an amendment to the Purchase Travel Directive.

How will the CAA cope with the increased number of ATOL licences?

The CAA acknowledges that there is potentially a significant rise in the number of holders of ATOL licences. It has no plans to increase its resource and therefore proposes to:

  1. Introduce a simplified ATOL procedure for small organisers;
  2. Introduce a "franchise" scheme so that members of a trade association who has had its procedures approved by the CAA can easily obtain an ATOL licence.

There are limited details in the consultation paper of how this is intended to operate.

Summary

  • Never Sell Flights - if you never sell flights then these changes will not be relevant to you. However it does emphasise that the regulation of the sale of packages appears to be tightening. If you are selling non-flight packages (eg accommodation plus ferry journey) then you should check that you are operating in accordance with the Package Travel Regulations.
  • Small Operators - if you are (even occasionally) combining sales of flights with accommodation or car hire (for example, if you are the operator of a villa who occasionally also sells flights) then you need to consider either obtaining an ATOL licence (which is likely to have a cost) or not selling flights.
  • Disclosed ATOL Agent/Ticket Provider - if you currently comply with the ATOL Regulations by acting as a disclosed agent or by buying a ticket provider then you will need to review your operations to see if you need an ATOL licence - "split-contracting" is unlikely to avoid needing an ATOL licence. If you ever sell flight accommodation at the same time as travel facilities such as accommodation and car hire then it is likely that you will need an ATOL licence. An ATOL licence is likely to impose an additional cost on you.
  • ATOL licence holder - if you are an existing ATOL licence holder then the changes will have little direct effect. However it may mean that your licensable turnover will increase and therefore there may be changes to the bond that you need to provide to the CAA.
  • Aircraft operator - if you are an aircraft operator you will be unaffected. The changes do raise questions about the future use of Deeds of Undertakings.

What to do next?

If you are affected by the changes then you should check the CAA's consultation paper. If you are a member of a trade association check whether they intend to respond. You will need to respond to the consultation process by 23 November 2002.

If the CAA decide to proceed with the changes it is likely that they will be introduced quickly with perhaps only a few months notice. Therefore you should carry out a review of your operations to consider to what extent they will be affected and how you will need to change.

Key Contact

David Lowe, partner, +44 (0)20 7664 0322, david_lowe@wragge.com

This alert may contain information of general interest about current legal issues, but does not give legal advice.

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