Implications of the EC Package Travel Directive 1993 and financial protection for holidaymakers
As a result of an EC Directive, since 1993 all UK tour operators offering package holidays have been subject to the Package Travel Regulations. Although the legal definition of a package is complex most people understand what is normally meant by this term.
The two principal sections of the Regulations provide financial protection for prepayments and require tour operators to provide what is promised.
Amongst items covered are:
- A direct responsibility placed on tour operators for the safety of their customers. Tour operators are legally responsible for the components of the package - coach transfers, hotels etc, if negligence is proved. They cannot avoid responsibility by attributing it to their sub-contractors. UK customers can sue operators in UK courts and no longer have to pursue action against contractors in overseas courts.
- Prohibition of inaccurate brochure descriptions with penalties for non-compliance.
- Prohibition of last minute surcharges. Surcharges under two per cent of the package price cannot be levied at all.
- Legal remedies if necessary, in the form of holidaymaker compensation.
- A guaranteed refund if the operator goes bust. Repatriation if this happens when the customer is on holiday - something FTO members have been doing since 1970.
The FTO welcomed the new Regulations, and worked closely with the authorities to make them as effective as possible. The Federation regrets, however, that the EU did not require tour operators to be licensed. The long experience in the UK of the Civil Aviation Authority's Air Travel Organiser Licence (ATOL) scheme has proved the value of licensing
Financial Protection For Holidaymakers
The provision of financial protection for holidaymakers was first introduced voluntarily by the Tour Operators' Study Group (TOSG), the predecessor of Federation of Tour Operators (FTO), in 1970 and is now well established throughout Europe and incorporated in EU laws and regulations.
Everyone buying a package holiday in the UK or in another EU country should be financially protected by law. This means that if their tour operator fails they will receive their money back, or an alternative holiday from another tour operator with a price adjustment, if necessary. If customers are abroad at the time of a failure they will be brought back without charge and may well finish their holiday as planned (although the ability to allow people to complete their holidays on schedule will depend on the availability of aircraft seats).
Although UK law permits various types of financial protection, the normal method is by bond, with a reserve fund. A bond is a promise from a bank or insurance company to pay a specific amount in the event that a tour operator becomes insolvent. The amount of the bond is calculated as a percentage of its projected sales turnover. The reserve fund is used if the bond proves to be inadequate.
For package holidays which include a flight, the bonds are now held by the CAA. They require a minimum of 10 per cent of the projected turnover and their reserve fund, now the Air Travel Trust Fund, was established in 1974 and funded by a two per cent levy placed on package holidays for two years. In order to obtain an Air Travel Organisers Licence (ATOL) a CAA bond must be provided. FTO members, for their activities which do not include a flight, such as accommodation, cruises, etc. provide a minimum 27 per cent bond administered by the FTO Trust Fund.
In addition all FTO members give an undertaking to provide two per cent of their non-licensable turnover in the unlikely event that the 27 per cent bond of the failed member proved insufficient. ABTA and the Association of Independent Tour Operators (AITO) provide schemes for their members who offer package holidays which do not include a flight. These are generally referred to as non-licensable activities. ABTA also offers financial protection against the failure of its travel agent members.