Travellers abandoned as credit cards & ATOL won’t pay out

4th September 2011  

Holiday4U - travellers abandonedThere was more bad news in the travel industry last month when Brighton based package holiday operator Holidays 4U collapsed without warning. The failure dashed the holiday plans of around 60,000 people onto the rocks, and stranded some 12,650 holiday makers abroad.

The company which also traded as ‘aegeanflights.com’, ‘Accommodation Overseas’ and ‘Holiday Beds’, advised the Civil Aviation Authority (CAA) that it had run out of cash and credit on 3rd of August.

Holidays 4U was bonded under the well-respected CAA Air Travel Operators Licensing (ATOL) scheme, but a conscious lack of transparency within the holiday industry means in fact many travellers will end up seriously out of pocket.

The problem centres on what is a package holiday (and what isn’t) and what is covered under the ATOL scheme. Consumers who booked flights through Holidays 4U (and other firms that have run into problems this summer) but then booked their accommodation through a different provider could well end up with little or no compensation for the loss of their holiday.

This is because whilst ATOL may cover the flight part of the booking, if your holiday accommodation is booked through a different source and the accommodation is still available, the ATOL scheme is unlikely to pay out. By law under the ATOL scheme only companies selling package holidays must offer complete financial protection.

Accommodation owners and hotel operators are saying if the accommodation is there, available as booked, and if holiday makers can’t get there to take advantage of it, it’s clearly not their fault. Under these circumstances, credit card companies are also unlikely to offer any compensation for the accommodation part of the trip if the flights are lost because of the operator’s insolvency.

The rise and rise in the use of the internet to seek out the best deals and prices on big-ticket items like holidays has meant that it’s increasingly common for consumers to research, package and book their holidays online avoiding going through a package holiday operator. This enables them to create their own perfect package of car hire, accommodation and flights, saving money in the process.

But booking holidays this way means that consumers frequently don’t have the consumer protection they expect, even if they book with a credit card. The holiday industry continues to suffer extremely tough trading conditions and as a result holiday companies and travel agents are being overly reserved about making the facts clear to the public.

Back in February 2011, Aviation Minister Theresa Villiers, promised that there would be modifications to the ATOL scheme to prevent consumers falling through the holes in the rules and to update the legislation for the 21st century. We’re told that in future:-

  1. Consumers buying an ATOL protected package holiday or Flight-Plus [accommodation] will get a recognisable ‘ATOL certificate’ confirming their rights under the scheme for repatriation and refunds if their travel company fails
  2. ATOL will try to ensure ‘agent for the consumer’ businesses arranging holidays are fully aware of their legal responsibilities to holiday makers
  3. The ATOL scheme will extend to Flight-Plus holidays comprising a flight and other component bought within two successive days

The Department of Transport is currently in a consultation period with travel industry on the changes, this ends on 15th September. A key reason for the relatively speedy timescale is that the Government wants the scheme to become self-sustaining; currently it operates with the benefit of a Government backed guarantee and it’s severely in deficit. The new rules are expected to add a cost of £2.50 per holiday booking to the travel industry’s contributions to the ATOL scheme, which will no doubt be passed onto the consumer.

The revised ATOL scheme is due to come into force on January 1st 2012, including the new Flight Plus clause, but commentators are already pointing to glaring gaps in the new regulations sighting the facts that airlines are exempt from the scheme so if you buy a flight direct online, you’re not automatically covered.

The changes will force around 600 existing companies who are ‘agents’ into the protection scheme. Unfortunately lots of smaller companies will initially avoid the need to join under the government’s moratorium on bureaucracy and red tape, which forbids the imposition of new regulations on firms with ten employees or less until May 2014. This means many holiday makers are still vulnerable for at least two more summers.


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