CAA Small Business ATOL Ruling – Officially ‘Ratained’, Practically Scrapped (05.03.15)

The Civil Aviation Authority has announced its response to the rebalancing of the Air Travel Organisers Licence (ATOL) scheme – with particular emphasis on the future of the Small Business ATOL (SBA).

Peace of mind holidays.

CAA in the business of monitoring and rebalancing the ATOL scheme.

The consultation proposed a number of measures, including the removal of the SBA scheme.

The CAA have announced that having reviewed the industry responses, they have now decided to officially ‘retain the SBA scheme – but in modified form, implementing a number of other changes’. The changes will take effect on 1 October 2015.

While this may be a subject most UK holiday makers will struggle to follow, they should be under no illusions about the devil in the detail in these changes when or if their holiday company goes bust before or during their trip.

In the meantime, for those of us charged with (a) operating safe and financially secure holidays and (b) complying with the government and EU package travel laws, it is hugely relevant and disproportionally onerous.

For the record, on the basis that these new proposals simply return to pre-SBA days when small and medium sized enterprises (SMEs) were hamstrung by disproportionate regulation, the CAA in reality are not ‘retaining’ the SBA, so much as returning to the dark ages of yesteryear with an enterprise-sapping compliance scheme. Which is a mistake.

SBA ATOL reform .. leaping back in time.

Small Business ATOL reform .. leaping back in time.

Having previously highlighted my concerns (ref’ Blog Posting ‘CAA Proposal To Scrap Small Business ATOL – Big Mistake’ 03.07.2014) I believe there are now four anomalies in the proposal announced by the CAA announcement:

1. Maintaining the SBA scheme, with the licence holder having a limitation of 500 passengers a year and a limit of £1 million or less of licensable revenue.

2. All new SBA applicants will be required to have a paid-up share capital of £30,000.

3. All new SBA applicants will be required to provide a minimum bond of £50,000.

4. All accountants reporting on ATOL holders must demonstrate their competence to sign off on ATOL reports to their professional accountancy body.

New proposals disproprtinate to today's market.

New proposals disproportionate to today’s market.

I believe the proposals are ill-judged because of the following:

1. £1 million turnover is in reality not a great deal for companies operating in today’s global travel market, especially when arranging long haul trips. In simple terms it sets the lead-in bar at approximately £2K per passenger. On the basis that flight taxes alone can make up 25% of this figure, a £1million turnover ceiling is unrealistic.

2. I believe £30,000 paid-up share capital is high for an SME operating with a SBA. Certainly it remains a big ask for a new start-up company. In addition this was the previous (pre- SBA) ATOL requirement for all ATOL holders – which the SBA was initially brought in to replace.

3. A minimum bond of £50,000 again falls in line with the pre-SBA requirements. So this once again negates previous SBA assistance regulation.

4. By over regulating accountants, SBA holders will potentially be charged disproportionately more than is necessary by their accountancy firms.

Do the CAA have the teeth for effective policing of UK travel industry?

Do the CAA have the teeth for effective policing of UK travel industry?

In conclusion I believe that at a time when legal tour operating compliance issues are confusing to consumers, as well as complicated for traders, an effective ‘raising’ (aka ‘dismantling’) of the SBA scheme will enhance the feeling of alienation among small travel companies. This will result in an escalation of non-compliance, which in turn will weaken protection of consumers.

While companies such as Nomadic Thoughts (along with other fellow members of AITO) will by nature fall in line with whatever regulations are proposed, I doubt very much whether other SME travel companies, who are already operating outside EU Package Directive regulations, will be incentivised to sign-up.

I believe this will therefore put the emphasis back on whether the CAA have the teeth for effective policing of the UK travel industry. Certainly they continue to have their work cut out keeping up with the 950+ SBA holders already in the scheme, let alone those operating outside it.

In addition, on the basis that these new regulations require SMEs to fall in line with previous pre-SBA regulations, the CAA should hold their hands up and admit that they are indeed ‘scrapping’, not ‘retaining’, their SBA scheme. They should acknowledge that they are thereby putting put SMEs at a severe disadvantage to the larger operators and airlines, let alone un-regulated, off-shore booking portals.

Departing on holdiay with peace of mind - essential.

Departing on holdiay with peace of mind – essential.