The growing Elephants

The Air Travel Trust Scheme (ATT) which along with tax-payers underpins ATOL protection takes little account of risk. Making it an unfair subsidy scheme, to the detriment of the Tax-payer, the consumer and the Travel Organisers who choose to entirely ringfence Client money.

Successive governments have failed to address this, despite consultations spanning years. The issue they must address is that the travel industry is the sole outlier in the UK, where Client pre-payments can be legally embezzled, far ahead of them receiving the goods or services.

The 2024 DMCC Bill added blanket safeguards for (almost) all pre-payments. Unfathomably, Travel was excluded.

If you pay £5,000 today for a holiday next summer: Would you expect your payment to be retained to ensure your holiday can be paid for, or paid out the next week as a dividend to share-holders, or used to pay rates or salaries without your knowledge?



Investopedia Definition:

"Embezzlement refers to a form of white-collar crime in which a person or entity intentionally misappropriates the assets entrusted to them. In this type of fraud, the embezzler attains the assets lawfully and has the right to process them, but the assets are then used for unintended purposes."

The repeated failure to reform ATOL is due to the MO of a handful of operators out of the 1,035 who hold an ATOL: The Elephants in the room. The latest ATOL figures show the Elephants are growing.

ATOL holders fall in to three main camps from a risk perspective to the ATT:

Group 1: Airline Tour Operators who sell ATOL protected holidays and own the airline. Currently there are six of these (across 8 ATOLs) and they make up 55% of ATOL protected passengers. History shows that this model carries most of the risk to the ATT. Think Thomas Cook and Monarch, which all but cleared out the ATT and ended the insurance provision, leaving the tax-payer further exposed.

Group 2: Tour Operators who do not own their own airline and do not safeguard Client pre-payments in trust or escrow. This group comprise the greatest number of failures, but cost dramatically less when they fail than the first group, because often the flights have been paid for and are still operating.

Group 3: Tour Operators who safeguard Client money in Trust and Escrow do fail on occasion, but we can find no record of any of them costing the ATT a penny. Remarkably, if you have not (Mis) spent Clients pre-payments on your own running costs, then that money is still there!

Taking Thomas Cooks 2019 failure as an example: The day the company failed, having run out of customer money to use on running costs, the airline also failed. Those abroad had no flight home and those with holidays yet to travel had to be cancelled as the flights and in some cases hotels were no longer operating. The cost of their failure was paid for by the contributions of all three of the groups above and of course the tax-payer.

Group 3, historic data suggests, do not cost the ATT yet they are forced by the current scheme to subsidise the failure of their competitors. Such a government backed subsidy scheme could not legally be put in place today, which of itself should be a catalyst for change. Why did the 2024 DMCC bill exclude Travel?

The ATOL scheme must move the airline operators into a separate regime and then differentiate between groups 2 and 3 with a variable ATOL based on risk to end the legacy subsidy scheme and incentivise less risky business practice. The Travel industry must navigate towards the same standards of financial conduct as every other major industry.

Trailfinders voluntarily safeguard all Client payments in trust until their travel is completed and yet have been forced, over many years, to pay a 7 figure sum into the ATT to bail out the failures of those who have legally misappropriated Client money.

By moving the Elephants, the way to long overdue reform becomes much simpler.