The failure of Lowcost Travel should not affect UK implementation of new package travel regulations, argues industry consultant Andy Cooper
When I took over the Federation of Tour Operators in 2003, I wrote a list of lobbying objectives, which started by calling for reform of the Package Travel Directive to reflect the changes in the market since 1990.
That objective was achieved, albeit 12 years later, long after I left the FTO. The new Directive now has to be implemented by December 2017, and must come into effect by June 2018.
Following the Leave vote in the referendum, there are question marks about what will happen to European legislation like this. While the implementation date is likely to be before the UK leaves the EU, the impacts will continue after the UK has left, so you can imagine there will be a debate about whether the Directive will be implemented at all.
On the positive side, the Directive is a consumer protection measure bringing more holidays into the scope of protection than the existing Directive, and probably bringing the financial protection scheme significantly closer to how the Atol scheme now works.
As the UK largely championed this reform, it is difficult to imagine the government would not want it to be implemented. However, a significant change brought about by the Directive is to the underlying principle of financial protection.
While consumers would remain protected by the rules in the country in which they bought their holiday, sellers will be subject to financial protection rules in the country where they are based, with a principle of mutual recognition of financial protection schemes.
A travel company based in Spain and subject to Spanish laws may sell holidays to UK consumers and, if they fail, the Spanish authorities would be responsible for ensuring the financial protection obligations are met – namely that consumers yet to travel receive a full refund of their monies, and those consumers already on holiday are repatriated to the place from where their holidays started.
This approach to consumer protection works fine as long as all EU member states have comparable levels of protection and this protection is adequate to ensure a comprehensive system of refund and repatriation.
Back in 2013, Lowcostholidays relocated its head office to Mallorca, partly for personal reasons, partly to take advantage of the lower cost of protection in place in the Balearic Islands.
At the time, the company said the following: “What we have done is completely legal and all our customers are fully protected under the European Package Directive with the full support of the Balearic Government.”
Paul Evans, the company’s chief executive, said: “We have the maximum bonding available under Spanish law and comply fully with EEC legislation and we believe and support all the moves towards European harmonisation.”
They were able to take advantage of another EU Directive, the Services Directive, which establishes the principle that a business based in one EU member state can trade in another, working through a single point of regulation.
While the CAA was unhappy about this situation and did not hesitate to voice its unhappiness, it was powerless to prevent Lowcost trading in this way.
As I said, this approach is fine as long as legal systems and regulatory frameworks are broadly comparable across all EU member states. The CAA believes they are not, and it will no doubt become clear in coming weeks whether they are correct.
It may be that all will go well, that the 27,000 customers overseas are repatriated efficiently and at no cost to themselves, and that the 110,000 customers yet to travel receive their money back without hassle.
However, if the level of cover is not as good as in the UK, holidaymakers who booked with Lowcostholidays may find themselves having to bear their own costs of getting home or not receiving full refunds.
Even though this should not be a problem for the UK authorities, there will undoubtedly be pressure brought to bear if consumers are out of pocket.
In the event of any problems, it will be easy for the UK Government to imagine the situation if it implements the Package Travel Directive.
This would oblige the UK to allow companies to base themselves in other countries, and rely on the adequacy of the protection regimes in those countries.
EU member states can challenge the levels of protection in other countries, but it would be harder for the UK as a non-member and therefore a non-participant in the EU working groups, to make and sustain a challenge.
Who in Brussels or other EU capitals will be interested in the UK view? So what if UK citizens are left high and dry? They voted to give up EU protection.
The UK government will no doubt be watching closely how the Balearic authorities handle this failure.
There is a legal maxim that ‘hard cases make bad law’, which means that what happens in an extreme case should not be the basis for a legal framework. However, there is a very real risk that if customers are left exposed, this may justify the UK changing its stance on implementation of the Package Travel Directive.
For me, the gains brought about by extending the scope of financial protection are so great that they should not be lightly sacrificed.
I hope that the UK government sees the situation in the same way, irrespective of what happens to the customers of Lowcostholidays.
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