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April 16, 2008

New ATOL regulations may be anti-competitive

The Government’s recent decision to change the present bonding arrangements for holders of Air Travel Organisers' Licences (ATOL) could place some operators at a competitive disadvantage, the corporate events industry trade association Eventia has warned.  

Following a national consultation, the Government has announced that it is to replace the current bonding arrangements with a pooled scheme, based on a £1 per passenger ATOL Protection Contribution (APC) paid by the tour operator.  

The Civil Aviation (Contributions to the Air Travel Trust Fund) Regulations 2007 were laid before Parliament in October, allowing the Civil Aviation Authority (CAA) to implement the APC from 1 April 2008, but Eventia believes that many companies may not be fully aware of the detailed application of these new arrangements.

“Although the consultation was designed to reduce burdens on ATOL holders and replenish the Air Travel Trust Fund (ATTF), allowing the Government’s loan guarantee to be phased out, the new regulations could have serious implications for some firms,” said Brian Kirsch, managing director of insurance specialists Event Assured and Eventia board director. “Different arrangements will apply to newer companies, which could seriously impede their ability to compete, and may lead to an effective breakdown of the current insurance market for ATOL bonds.”

Eventia pointed out that, under the new arrangements, some categories of operator will still be required to provide a bond, as well as paying the APC levy. It says the firms affected by this ‘dual liability’ are those that:
– Have been trading for less than four years
– Have changed ownership in the past four years
– Fail to meet the CAA’s financial criteria

“A number of details have yet to be clarified,” Kirsch explained, “including how the CAA intends to apply the change of ownership rule or exactly what its financial criteria will be.”

He added that the CAA needs to make the situation clear as a matter of urgency.   “At present, it appears that some operators will be placed at a significant disadvantage and that the differing arrangements for new companies could pose a real barrier to entry in the sector,” said Kirsch.  

Eventia also warned that the insurance market for ATOL bonds will be subjected to adverse selection – namely that only companies in these non-standard categories will be required to bond.

“As the result of adverse selection, we expect some insurers will withdraw from the market altogether while other will almost certainly increase their premiums, to the further detriment of companies caught in this dual-liability trap,” said Kirsch.

Eventia is advising companies to check their exact status under the new arrangements and to attend roadshows on the subject being held by the CAA around the country. Several roadshows are already fully booked and companies are advised to check availability by visiting the CAA’s website at
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