Over the last few years, we have witnessed a number of both new and established airlines suffering financial difficulties and entering into insolvency processes. For the UK, the most significant airline insolvency in recent years has been the entry of Monarch into administration in October 2017, following which the UK Government stepped in to repatriate some 110,000 passengers stranded abroad at a cost of c.£60m.
Following profit warnings issued by Flybe in October 2018, there was speculation as to whether there might be another UK-based airline casualty in the near future. Indeed, since the administration of Monarch, both Cypriot airline Cobalt Air and Icelandic airline Primera Air have ceased trading, causing havoc for thousands of travellers. Flybe has however just announced that its future has been secured by an investment of £2.2m from a consortium including Virgin Atlantic and Stobart Group, which should provide some reassurance to passengers who are looking to book their Summer 2019 holidays.
However, in an age of Brexit-related uncertainty, currency fluctuations, and unprecedented warm weather causing more staycations in the UK than before, it is perhaps unsurprising that consumers are concerned about how to protect themselves from any potential airline or travel holiday insolvencies. We set out below a reminder of our top tips for protecting yourself when booking your holiday.
- Book your flights and/or holiday on a credit card: Consumers who make their bookings by credit card (costing between £100 and £30,000) can claim for a refund from their credit card provider under section 75 of the Consumer Credit Act 1974 in the event of insolvency. This provision makes credit card providers jointly and severally liable for purchases made within the threshold values set out.
- Consider booking package holidays to obtain ATOL protection: By law, every UK-based travel company that sells holidays including flights is required to have an ATOL licence. Broadly, the ATOL protection scheme only covers flights when booked with either accommodation and/or car hire (which are also covered under the scheme) or where the flight is booked with a travel company but a valid airline ticket is not provided straightaway. Therefore, package holidays booked through UK-based travel companies should be protected by the ATOL scheme and ATOL-protected customers will be able to claim a full refund in the event of insolvency.
- Travel insurance: In addition to the above, it is always recommended to obtain travel insurance when booking trips abroad. However, check the terms carefully as many travel insurance policies do not provide protection for airline insolvency and therefore insurance (on its own) may not offer sufficient protection to obtain a refund.
In the meantime, as we reported in December 2017, the UK Government has launched a review into airline insolvency and in particular consumer protection in the event of an airline or travel company failure. In March 2018, the Government announced that the final report of its Airline Insolvency Review would be produced by the end of 2018, offering the Secretary of State recommendations on repatriation, refunds and on how the current financial protection arrangements for air-travel holidays can be put on a more commercial basis. An interim report was produced in July 2018 setting out the various options being considered to tackle the immediate repatriation of passengers of an insolvent airline and the alternative models for providing financial protections, including consolidation and the potential expansion of the existing ATOL-protection scheme. However, at the time of writing no final report has been provided, so watch this space.
In the absence of Government intervention in the meantime, our top tip for consumer protection remains: book your holidays on a credit card and (where possible) through companies within the ATOL-protection scheme.
Tim Carter
Lucy Trott