Travel Republic and its managing director Kane Pirie have been cleared of all charges relating to breaching ATOL regulations in a court victory that could see more travel companies operating without an ATOL licence.

Judge Nicholas Evans delivered the not-guilty verdict at Westminster Magistrates’ Court on Tuesday.

In a case brought by the Civil Aviation Authority (CAA), the online travel agency was accused of breaching ATOL regulations by selling unlicensed package holidays.

In his judgment, Evans said the prosecution had failed to prove that Travel Republic did anything other than “sell components of holidays separately, but at the same time”.

Legal adviser to the Association of ATOL Companies, Alan Bowen, said the verdict was disappointing and surprising.

“Other online agencies will see no reason to hold an ATOL if they can see there is a loophole through which they can operate. They will act as an agent so that they are not held responsible when things go wrong. The CAA could see fewer ATOL-protected holidays being sold,” he said.

On Holiday Group chief executive Steve Endacott said the ruling would prompt agents to use alternatives to the ATOL licence. “I expect a rise in the amount of agents using insurance-based protection rather than ATOL.”

Traditional tour operators could also rethink their business models in light of the victory. Classic Collection managing director Nick Munday said the operator would not be making any immediate changes to its business model but said the situation could alter in the longer term.

“It’s difficult to come from a licensed and bonded position and reverse yourself out of the ATOL scheme. It’s easier to be outside of ATOL and stay outside. I am not rushing out immediately to find out how to re-engineer our business. We will take stock of the situation and how the mood lies on bonding and VAT, and see how we stack up as a business.”

However, Sunvil managing director Noel Josephides said the verdict was “meaningless” because reform of the ATOL scheme by the government would force companies to look at their business models. “The noose will be tightened around the neck of the unregulated sector,” he added.

The CAA is considering whether to appeal the decision, and has 21 days to decide.