§ 11 am
§ Laura Moffatt (Crawley)
I am delighted to have secured this debate, as it concerns an important matter that must be brought to Members' attention.
My hon. Friend the Minister will know that my constituency contains Gatwick airport, so the airline industry is important to Crawley and the surrounding areas. We welcome the Government's approach to airport expansion, air travel and the careful management that the air industry needs. I wanted to raise an important issue for holidaymakers that relates particularly to the air travel industry. All Members would welcome the expansion of travel for people who, for many reasons and especially for holidays, can now travel abroad. That must be welcomed, as it widens horizons, makes for a smaller world and improves our understanding of the rest of the world.
However, today's debate is not about the travel industry alone, but about the protection of travellers against the insolvency of the company with which they book. Only a few Members will have a major airport close to their constituencies, but all will have constituents who travel, and that is why the debate is so important. It affects all consumers in the United Kingdom.
I shall begin with an overview of the UK package travel industry. It takes 20 million people on holiday a year, employs 50,000 people and has an annual turnover of £8 billion. By any standard, that is a significant industry for the UK's economy and its citizens. Civil Aviation Authority figures show that around 60 per cent. of UK air passenger traffic to or from another European Union country is on charter airlines owned by or associated with tour operators. The largest tour operators in Europe are: Preussag of Germany, which owns Thompson; Thomas Cook AG of Germany, which owns Thomas Cook; Thomas Cook UK, which was formerly JMC; MyTravel, which was formerly Airtours; and First Choice Holidays. First Choice Holidays, Thomas Cook UK and MyTravel are all based in my constituency.
We know that since the events of 11 September, there has been increased insecurity in the air transport business, and companies have been hit hard. The business is settling down, but the impact of the cost of bonded insurance has been significant. It has widened the competitive divide between those that are required by law to carry ATOL—Air Travel Organisers' Licensing—protection and those that are not. Our world is also changing, and an increasing number of people choose to book not through tour operators, but directly, often via the internet, with companies such as easyJet. Such companies have offered highly competitive options that have opened up the possibility of foreign holidays to many, which I applaud.
The package holiday industry has changed dramatically since the legislation introduced in the early 1990s. The increased use of the internet to book travel, in particular, has affected many aspects of the business, including private as well as business travel. That change is significant, for reasons that I will outline. For now, however, I offer an overview of the scale of those changes.
285WH Personal use of, and access to, the internet has expanded enormously in the past 10 years. Between September 1999 and September 2002, internet usage doubled to 11.4 million households. By September 2002, 46 per cent. of all homes in the UK were said to have access. The latest figures show that 57 per cent. of the adult population—23.3 million people—have accessed the internet at some time. Some 46 per cent. of us have bought goods and/or services online.
This is a growing market. Increasingly, people may choose to put a package together themselves using the internet. In the past few years, low-cost, no-frills airlines have helped to expand the market. That is a good thing, which we should welcome because it has extended personal choice, increased competition and driven down prices. No-frills airlines have provided important business at Gatwick. There is no doubting the value and quality of the service that they provide to many of my constituents, but—and this is a big but—consumer protection legislation and regulation has not kept pace with those changes.
Air Travel Organisers' Licensing was set up after a spate of airline collapses in the late 1960s, which some of us here may remember, when many holidaymakers were stranded in Spain. In the 1990s, the legislation was revised, but at that time booking on the internet was not common. The scope of the existing regulations needs widening to ensure that a greater number of the 20 million Britons who go on package holidays each year are protected in a way that is equitable and transparent, regardless of how a booking is made.
Under package holiday regulations, operators are required to carry an ATOL licence, which the CAA issues. Crucially, however, the regulations do not cover package holidays booked through no-thrills airlines—I mean no-frills, because, in fact, they are quite thrilling, and certainly provide an excellent service. As I said, the package holiday regulations require holiday organisers to hold a CAA licence to provide financial protection for consumers in the event of insolvency.
Operators not covered by the regulations—mainly no-frills operators that offer internet booking—incur no such costs and so can be very competitive on price. Consumers, however, are often unaware of that. There are similar problems in other areas of the travel industry—for example, with coach holiday companies. Travelrisk Management contacted me about today's debate. It has problems with bonded coach holiday insurance, and is subject to the package travel regulations. People booking direct on the internet, however, have no such protection.
There is a need to ensure full consumer protection throughout the market. Recent figures provided by the Office for National Statistics show that the market is changing and that the number of travellers protected by ATOL bonding has declined in the past three years from more than 90 per cent. to 75 per cent. That could leave as many as 9 million holidaymakers each year with no financial protection.
Changes in the level of internet access and the growth of the no-frills operators, which I very much welcome, have resulted in a significant reduction in consumer protection. Some 25 per cent. of consumers are exposed to some degree of risk, and most are not aware of that.
286WH An EU Council directive published recently recognised that the definition of "package" in the original 1990 directive was no longer adequate for the reality of the market. The CAA, which is aware of the increase in people using the internet who are therefore not covered by ATOL protection, recently conducted research into consumer awareness of the risks posed by do-it-yourself packages. It found that 29 per cent. of people regularly book their holidays via the internet and that 57 per cent. of those people did not know what ATOL protection was. When asked what they thought would happen if their tour operator went bust—we all hope that that will never be the outcome—people who had booked via the internet responded to a variety of suggested scenarios, and 50 per cent. of them consistently said that they expected to get a full refund.
I know that many organisations responded to a recent CAA consultation on that matter, and I want briefly to highlight a point raised in that consultation by the Consumers Association, which clearly represents those who may be affected. The association said that the issue to be resolved wasthe ambiguity in the current wording of the Package Travel Regulations, so that they clearly cover all tailor made packages.Those who are most vulnerable—people who have to operate to a tight budget, who may not have additional cover, who increasingly use the internet to reduce the cost of their annual holiday in the sun, and who will not be able to bear the cost when things go wrong—will always be the most affected. Although I do not understate the importance of ensuring a level playing field for business, it must also be recognised that the changing market is failing the people who are least able to protect themselves.
ATOL protection has served the industry well until now, but other models should be considered. For example, the Netherlands operates a system where cover is provided by a common bond, which passengers pay for directly, and it is held at an independently agreed level to cover any situation that arises. I know that the Minister is aware of that system. Clearly, any legislative changes should be Europe-wide to ensure consistency, and therefore the European Parliament, too, must deal with legislative change.
I ask the Minister to give a positive response to what I believe to be modest but fair proposals for changes to the law. Consideration should be given to extending the scope of the existing package travel regulations, and legislative time should be made available for that. I offer any support and help that the Minister might need to achieve that. Since the late 1960s, we have not experienced a time when hundreds or thousands of Britons are stranded abroad without any protection. However, I have outlined how difficult the market can be, and the careful handling that the airline industry requires because of the many airlines collapses around the world. We cannot ignore the possibility of that continuing to happen.
The growth of the airline industry and of air travel is to be applauded. My constituents travel as never before. I want to ensure that they will be protected in the unlikely event that problems occur, and that they can be brought home without difficulty. I sincerely hope that the Minister can respond positively to my request.
§ The Parliamentary Under-Secretary of State for Transport (Mr. Tony McNulty)
I congratulate my hon. Friend the Member for Crawley (Laura Moffatt) on securing this important debate. I am aware that some of our major tour operators are based in her constituency and that she takes an assiduous, active and informed interest in travel and aviation matters. She is a real credit to her constituents. I also thank her for staying miles away from the forthcoming aviation White Paper; other hon. Members might have taken the opportunity to get stuck into that.
ATOL is a statutory scheme managed by the Civil Aviation Authority. It was introduced in 1973, and protects holidaymakers from losing money or being stranded abroad if their tour operator defaults. Since 1990, it has been the primary means by which the UK has implemented the EC package travel directive. As my hon. Friend said, there are also a number of trade schemes to protect consumers of package holidays that do not involve air travel. If she wants to pursue similar matters in relation to coach travel and other forms of travel, I would be grateful if she wrote to me.
All tour operators selling flights and air holidays must hold an ATOL licence from the CAA. Before granting or renewing a licence, the authority carries out a range of checks on the firm's financial fitness and management structures. The licence holder must then lodge a bond—a financial guarantee provided by a bank or insurance company. If the licence holder subsequently fails, the CAA uses the bond to pay for people who are abroad to continue their holidays and travel home, and to refund those who have paid but have not travelled.
The ATOL system covers all air packages, flights, and flight-only seats on chartered flights, as well as discounted scheduled tickets that have been sold by a travel firm. Over 1,850 travel firms hold ATOL licences, thus protecting about 28 million passengers who book flights or air holidays each year. The value of the holidays that are protected is nearly £15 billion; the CAA holds bonds of nearly £2 billion. Over the past 17 years—the period for which consistent records exist—ATOL has covered over 300 travel organiser failures, at a total cost of £160 million. Almost 190,000 people have been brought home and more than 1 million people have received refunds.
This year, the Government have taken steps to ensure that the ATOL scheme continues to provide sufficient protection for consumers. Several travel organisers and agents—mainly small ones—were avoiding the cost of ATOL licensing by selling the elements of a package holiday under separate contracts. They would obtain a flight from an ATOL licence holder and add it to accommodation or other services sold under a separate contract. A reference to ATOL could have misled customers into believing that all the components of their holidays were protected, only to find that they were only partly covered, or not covered at all, against the organiser's failure. On the recommendation of the CAA, and after fully consulting the trade and the public, we decided to change the regulations to close that gap. Agents that sell air package holidays under split contracts are now required to hold an ATOL licence.
As my hon. Friend said, the UK package holiday industry has been a great success story over the past 50 years. It has enabled millions of UK citizens to travel 288WH abroad, and to enjoy a range and quality of holidays that their predecessors could only have dreamed of. The industry has been innovative, competitive and imaginative, and the ATOL scheme has worked well. It has provided peace of mind at a reasonable cost for holidaymakers, for many of whom a holiday is the largest discretionary expenditure of the year. When the European Commission carried out a comparative study of protection arrangements across Europe, the UK scheme was singled out for its coherence and effectiveness. I fully concur with my hon. Friend's comments about the efficacy and success of the scheme to date.
I also agree with my hon. Friend that the market for overseas holidays is gradually evolving. Led by the no-frills—rather than no-thrills—carriers, most airlines now sell a substantial proportion of their tickets on the internet, and they are often linked to other services such as accommodation and car hire. As people grow more confident as travellers and consumers, more and more are putting together their own packages. In those circumstances, the purchaser has separate contracts with different companies and does not enjoy ATOL protection. As my hon. Friend says, that has led to calls from many in the tour operator business for the ATOL scheme to be extended. In particular, tour operators feel that they are disadvantaged if airlines selling via the internet and providing links to other services do not require ATOL protection.
The CAA recently conducted a major consultation exercise covering a wide range of financial protection issues, and the scope of the application of ATOL was one of the central questions addressed. The closing date for the consultation was a few days ago, and the CAA will now consider the many responses received. Many complex and problematic issues are involved, and I understand that it is likely to be several months before the authority can make recommendations to the Department for Transport. However, I can assure my hon. Friend that when we receive those recommendations, we will consider them thoroughly and with an open mind, and try to ensure that the ATOL scheme keeps pace with the evolution of the market, as we have done with the disaggregation of the holiday contract, and filling the gap. To say that is not to preempt what the CAA will say; we shall approach the recommendations with an open mind.
In the meantime, I recognise that it is not always easy for consumers to know whether they are covered. That is one issue that the CAA review will address. For now, I say firmly to consumers that if they want protection, they should always look for the well-known ATOL symbol. If there is any confusion about whether their holiday transaction is covered by ATOL, they should ask. If they do not see that symbol on their documentation, they must assume that they are not covered. Holidaymakers should remember what an excellent deal ATOL cover provides. I am told that the average cost is about £2 per person.
I should say something about the air travel trust fund. In the event of a failure, should a company's bond be insufficient to meet the cost of repatriation and refunds, the ATTF provides a back-up mechanism for everything else that is in place. I regret that the powers to replenish that fund were allowed to lapse in the 1980s, and the fund has been in deficit since 1996. However, it 289WH continues to provide funding of last resort by means of a commercial loan backed by Government guarantee. The Government intend to take powers to replenish the fund as soon as parliamentary time permits. In the meantime, we fully support the ATOL system and will continue to underwrite the fund's borrowing. Holidaymakers who book with ATOL licence holders can therefore be assured that if their tour operator defaults, they will be reimbursed if they have not yet travelled, or repatriated if abroad.
I am pleased to have this opportunity to debate these issues with my hon. Friend. No doubt we shall return to them many times in the coming months as and when the CAA consultation comes to fruition. Given the proximity of her constituency to Gatwick, and the fact that many of our major tour operators are located in her constituency, I fully understand that this is an important constituency matter for her. She deserves full credit for having done the broader leisure industry, and the country, a service by airing her views.
Initially, the CAA is on the case. As and when we review the results of its consultation, we shall see in what direction we should go to revise or reconsider the system. At that stage, which I fear is a few months off, I shall be more than happy to meet my hon. Friend, and whoever else she thinks appropriate, to discuss the CAA's findings and the outcomes, in the context of the matters that she has raised today concerning an industry that is important to the wider economy. For that, I am enormously grateful.
§ Sitting suspended until Two o'clock.