As with 2020 before it, I am sure we are all pleased to see the back of 2021.
While 2021 brought with it brighter moments and more reasons for hope than we saw in 2020, it is nevertheless the case that 2021 was, if you will forgive me lending from the Queen, a true annus horribilis.
Nevertheless, it remains the case that there is much more cause for the optimism in the travel industry, as we move further into 2022 and that there is at least the possibility of a return to true normality as the year unfolds (or at least something far closer to normality than what we have become used to, over the past two years).
In the spirit of a return to normality, we look ahead to some of the key legal developments that are on the horizon in 2022.
Regulators: Spotlight on the Travel Industry
One of the more notable features of 2022 – from a legal perspective – is likely to be the extent to which the travel industry will remain in the spotlight of regulators like the Competition and Markets Authority (CMA).
Over the past 18 months, we have seen the travel industry come under intense scrutiny from regulators, as the impact of the COVID-19 pandemic compounded with the legal obligations imposed on travel companies by way of the Package Travel Regulations and consumer law more broadly. So far, this has culminated in the CMA taking direct action against a number of travel businesses and also issuing open letters to the industry in an effort to secure compliance with consumer law.
This heightened level of focus is a trend that is likely to continue during 2022. At the same time, the government is currently consulting on a proposal to grant greater enforcement powers to regulators like the CMA (and possibly wider bodies, like the Civil Aviation Authority (CAA)).
At present, if the CMA considers that a business is acting in breach of consumer law, it is not able to sanction that business itself. Rather, it must take the matter to court and seek either an enforcement order or prosecution against the offending business. This is a process that can take years to conclude.
However, the government intends to overhaul that process and instead empower the CMA to enforce consumer law directly.
The new approach, if implemented, would provide the CMA with the power to make its own decision as to whether a business has acted in breach of consumer law, rather than rely on the courts to do so. Further, where it has identified a breach, it would also provide the CMA with the ability to take a range of actions, such as directing the business to stop the infringement, ordering the business to compensate victims of the breach and, if appropriate, ordering the business to pay a financial penalty.
When taken together, the combination of increased scrutiny on the travel industry by regulators and the possibility of those regulators also being granted increased enforcement powers is something that the industry will need to pay close attention to.
In particular, to avoid facing problems down the line, it will be important for travel businesses to ensure that they are absolutely clear as to their legal obligations (both from a travel specific perspective, such as compliance with the Package Travel Regulations and ATOL Regulations, but also with consumer law more broadly) and that they are acting in compliance with the same.
Heading into 2022 it would therefore be sensible for businesses to carry out a review of their compliance with consumer law, focussing on their operating models, sales processes and consumer contracts (among other issues) to ensure that there are no nasty surprises waiting in store, as the year unfolds.
ATOL Reform: The protection of customer funds
Another legal development on the horizon for 2022 is the potential for reform of the ATOL Regulations.
In 2021 the Civil Aviation Authority (CAA) carried out a consultation on ATOL reform, focussing primarily on how to mitigate the practice of ATOL holders using customers’ money to fund working capital and how to make sure that the risks such an approach can pose to consumers are fully considered in licensing arrangements.
In its consultation, the CAA put forward several proposals which it believes may better protect customer payments and the speed of refunds being made to customers; including:
- Segregation of customer monies: Requiring ATOL holders to segregate customer monies from their operational cash balances. These segregated funds (which could be full or partial) cannot be accessed or used by the ATOL holder until successful completion of the customer’s holiday. ATOL holders would therefore be required to fund operational activities from alternative sources, and the segregated funds would have to be arranged so that they do not form part of the general estate of a company that enters insolvency and are held to the benefit of the Air Travel Trust for consumers in the event of a failure.
- Mandatory Bonds: Requiring ATOL holders to provide a bond (provided by a bank or insurance company) in an amount set to meet a mandatory minimum of customers monies collected by the ATOL holder, although those ATOL holders with a weak financial position may be required to provide a higher bond amount. However, in order to achieve the aim of improving financial resilience of ATOL holders, this option would need to be accompanied by a variable APC structure to allow for increased ATOL holder risk to be priced into the system.
- Hybrid Model: The CAA also proposed the option of a hybrid model, offering a choice between segregation of funds or bonds (or indeed using both methods in order to achieve the minimum level of protection required), allowing ATOL holders the flexibility to choose whichever option best suits their business model. This would likely be accompanied by a variable APC structure that led to the ATOL holders with a higher risk of failure, and/or bookings that would cost more to refund, paying a higher contribution
The consultation focussed on various other issues too, one of which was pipeline monies. The CAA noted that a potential risk to ATOL holders arose via the possibility of a retail agent suffering a financial failure, whilst holding on to customer monies. The CAA therefore raised the question of how pipeline monies should be treated and, in particular, whether there should be a requirement for:
- pipeline monies to be immediately passed on to the ATOL holder; or
- agents to be required to use a form of segregation (of the types set out above), if they continue to hold pipeline monies.
In the event the CAA implements any of the options proposed in the consultation, travel agents that are affected by this potential reform (either because they hold an ATOL or hold pipeline monies on behalf of an ATOL holder) are encouraged to start considering the impact this may have on their business model, including:
- In the event the CAA mandates the use of segregated funds, how well placed is the business to fund its working capital, and does the business need to consider seeking funding from alternative sources?
- How will the use of segregated funds affect how and when supplier payments can be made, and will it be possible to renegotiate supplier payment terms if needed?
The CAA has said that a further consultation, making specific proposals, is expected later in 2022.