What does Brexit mean for the travel industry?

By Lucy England, Simon Phippard

01-2021

The UK exited the EU on 31st January 2020 and the transition period ended on 31st December 2020. The Withdrawal Agreement did not contain any guidance in relation to the travel sector post-Brexit and while the detailed terms of the Trade and Cooperation Agreement (TCA) contain sections on air services and aviation safety, it does not expressly address the travel sector. 

So, what does this mean for travel companies selling to UK customers, and for UK travel businesses selling into the EU? 

PTD2 is part of UK law

EU law has had a significant bearing on the sale of holidays and other travel products in the UK for many decades. Much of this now derives from the 2015 EU Package Travel Directive (PTD2) which imposes duties on those organising or selling package holidays or selling or facilitating linked travel arrangements (LTAs). 

The Package Travel and Linked Travel Arrangements Regulations 2018 (2018 Regulations) implemented PTD2 in the UK and continue to apply now that Brexit has occurred. The 2018 Regulations protect consumers buying package holidays or LTAs through mechanisms for refunds and repatriation in the event of insolvency, as well as imposing additional obligations on the organisers of package holidays. At the point of sale, certain information must be given to consumers on whether they have bought a package holiday or an LTA and organisers of package holidays remain responsible for the performance of their subcontractors such as airlines and hoteliers.

A reminder about ATOL

The UK’s ATOL scheme implements the obligations imposed under PTD2 (and its predecessor) to have insolvency protection in place. 

Under the 2018 Regulations, organisers of package holidays and traders facilitating LTAs must have insolvency protection in place. The higher burden on package holidays requires ATOL protection. For LTAs, ATOL protection is optional, but some insolvency protection may be required, such as insurance cover, a bond or a trust fund AND ATOL protection is sometimes offered as a marketing tool to bolster consumer confidence. 

If the organiser goes into insolvency while the passenger is overseas, the fund established by the ATOL scheme, which is managed by the CAA, will ensure the passenger can return home. If the business goes into insolvency before the consumer travels abroad, s/he will be able to draw on the fund for a refund. 

Now, after Brexit, there is no obligation on remaining EU Member States to recognise the insolvency protection of UK organisers that sell to European customers. ATOL will continue to protect bookings that have already been made, but any sales after 1st January 2021 made by UK companies into EU countries will need to meet local requirements for insolvency protection. 

Equally, the UK (via the CAA) is no longer obliged to recognise EEA- based insolvency protection schemes of EU-based organisers which sell to UK customers. The UK has implemented a statutory instrument (SI) under which EU traders actively selling package holidays or LTAs to UK customers will be required to comply with the UK insolvency protection rules; in other words obtain an ATOL licence. The SI will not, however, have any effect on traders that are not targeting business activities in the UK. UK consumers may therefore be at risk if they purchase package holidays from EU-based traders and should enquire about applicable insolvency protection prior to purchasing

UK agents of EU organisers

UK travel agents selling packages organised by EEA-established organisers can no longer sell such packages in the UK solely as an agent of that organiser.  These UK travel agents will now need either to ensure that the organiser holds its own ATOL, or the agent itself will need to obtain an ATOL to cover those sales.

Are EU sellers at risk of enforcement action in the UK?

For EEA-established businesses selling into the UK, the CAA has said that until the end of March 2021 the CAA does not expect to actively pursue enforcement action against businesses which apply for an ATOL and make adequate progress towards obtaining it and whose UK sales are covered by insolvency protection that meets the standards applicable to consumers in their own country.

What about UK businesses selling into the EU?

For UK-established businesses selling packages into EEA countries, the CAA is not contemplating transitional measures. This is because the UK is no longer a member of the EEA, so no longer benefits from mutual recognition, and the authorities in those countries are no longer obliged to accept ATOL protection. Sales by UK-established businesses will need to be protected by means that are acceptable under the legal framework of the country into which they are selling, as is the case for businesses established in all other non-EEA countries. The CAA will continue to extend protection to bookings that were made under ATOL prior to 1 January 2021. 

What do UK travel businesses need to do? 

There are two options: 

1. Adopt a country-by-country approach so that the business complies with travel regulations (and insolvency protection requirements) in each of the jurisdictions into which it sells packages or LTAs; or

2. Create a new EU hub so that it can continue to benefit from the mutual recognition insolvency arrangements across the remaining EU Member States. 

Both options have pros and cons, but one of these options must be chosen if businesses want to continue to actively sell to customers across the remaining EU Member States.

If you’d like to discuss your options, get in touch with our Travel team who would be delighted to help.  

 

 

 
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