Speed read

  1. The British government has commenced an airline insolvency review, in the wake of recent high profile airline failures such as Monarch and Air Berlin, and on the premise that changes in the industry have outpaced protection regimes.

  2. The review will focus on two main areas: repatriation of stranded passengers and redress for consumers. There is a desire to minimise repatriation costs falling on the public purse and ensure that consumers have clear avenues of redress.

  3. The potential new measures for consideration include changes to insolvency and aviation laws to facilitate repatriation exercises and mandatory insurance. Conceivably, this could lead to a special administration regime for insolvent airlines.

Background

The British government has commenced a review of airline failures affecting UK passengers.

The first step is a call for evidence published by the Airline Insolvency Review team on 16 April 2018, seeking initial thoughts by 11 May 2018. The team will publish an interim report during summer 2018, with a view to having a final set of recommendations by the end of 2018.

The review comes in the wake of recent high profile failures, such as Monarch and Air Berlin, and amid concern that there may be more (and potentially bigger) airline insolvencies as the industry continues to change and consolidate.

The call for evidence notes that current measures for dealing with airline insolvency have not kept pace with changes in the industry, resulting in a greater risk of repatriation costs falling on the public purse and uncertainty for consumers. By way of example:

  1. The Air Travel Organiser’s Licence (ATOL) scheme was introduced in 1973, when package holidays (i.e. a flight plus accommodation and/or car hire) were growing in popularity. By law, UK package holiday sellers must be ATOL holders and contribute £2.50 to the scheme for each passenger booked. This funds the Air Traffic Trust Fund (ATTF), which is operated by the Civil Aviation Authority and can be accessed to meet passenger repatriation and refund costs when an ATOL holder fails. Today, however, an increasing number of flights are not booked as part of a package, taking them outside of the ATOL scheme.

  2. Currently, for consumers, there is a confusing patchwork quilt of protections against airline failure. This includes statutory protection under the ATOL Regulations 2012, the Consumer Credit Act 1974 and the Package Travel Directive 1992, and non-statutory protection such as the ability to make a credit or debit card “charge-back” and travel insurance.

Potential measures

The review will focus on minimising the need for government intervention and taxpayer cost in repatriation exercises and ensuring that consumers have clear avenues of redress when an airline fails. The potential measures for consideration include:

  1. Changes to insolvency and aviation laws and regulations, to allow insolvent airlines to continue to operate during an administration, for a temporary period long enough to repatriate passengers who have not completed their trips. Conceivably, this could take the form of a special administration regime for insolvent airlines, in which the usual administration objectives of rescuing the debtor company or realising its assets for the benefit of creditors are supplemented by objectives geared towards repatriation and passenger welfare.

  2. Changes to the legal and regulatory framework, to ensure that there is access to the data and airline systems needed to run operations effectively and efficiently in administration.

  3. Changes to the airline licensing regime, to enable regulators to intervene at an earlier stage and take steps to protect passenger funds, when an airline is at risk of insolvency.

  4. Mandatory travel insurance, to be purchased and paid for by customers when purchasing an airline ticket or to be arranged by airlines on behalf of customers.

  5. Replicating the ATOL scheme for all airline ticket sales, irrespective of whether booked as part of a package.

  6. Steps to make customers more aware of the risks and protections available to them, as well as the limitations on those protections.

Brexit

Finally, no review would be complete without consideration of the effect of the UK leaving the European Union (Brexit). The call for evidence acknowledges that the structure of international legislation and agreements underpinning the single European aviation market will be an important part of the Brexit negotiations and that the outcome of the negotiations may impact the context of the review’s recommendations.

Click here to read the full call for evidence.