Trade rejects CAA proposal for compulsory segregation of customer money

The industry came down heavily against mandatory segregation of customer money in the CAA’s Atol Reform consultation of April to June last year, describing the proposal as “overly complex” and “unworkable”.

The consultation proposed significant changes to the current Atol regime, limiting the use of customer money to make advance payments to suppliers and introducing ‘risk pricing’ through a variable rate of Atol Protection Contribution (APC).

MoreAnalysis: Industry delivers lukewarm response to CAA proposals

The CAA outlined a series of options for protecting customer money, including use of trust or escrow accounts, a return to universal bonding or a combination of the two.

Its summary of the industry’s 305 responses – a record number for a consultation – notes a “consensus that change is necessary”. But the industry came down firmly against a compulsory ‘one size fits all’ approach, including compulsory segregation of funds.

The consultation proposed total or partial segregation and not just via a trust account, but also use of escrow or a separate client account although this would require additional security.

Partial segregation would allow removal of some funds from an account up to a limit set by the CAA. It gave as an example “up to 20%” of a holiday’s value.

In response, the CAA noted: “The majority of Atol holders and the travel industry do not believe the CAA should put in place mandatory segregation. Many considered the system to be overly complex, interventionist and unworkable.”

It acknowledged concerns at “the significant cost of pre-departure payments” and “around pre-payments, especially to major airlines”.

There was concern also at the additional cost and administrative burden of trust accounts and that segregation would have “a negative impact” on the financial viability of smaller Atol holders.

The CAA reported: “The vast majority indicated segregating funds would have a significant impact on their business . . . Segregating funds [to book flights] would require significant levels of additional capital to pay airlines.”

It noted Atol holders which responded in support of segregation “already segregate customer monies”.

On partial segregation, the CAA found: “Respondents typically felt less than 50% of customer monies should be segregated [and] . . . many stated the mandatory minimum should be as low as possible.”

Others felt it should be at a level “sufficient for prepayments and payments to suppliers”. Those in favour of segregation supported a minimum 70% to 100%.

This followed a general pattern in the responses, with Atol holders expressing support for options “aligned with their current business practices”.

CAA head of Atol Michael Budge said: “The collapses of Monarch and Thomas Cook, as well as the pandemic, highlighted the need to consider the means by which travel businesses can better protect consumers’ money.”

MoreAnalysis: Industry delivers lukewarm response to CAA proposals