Will the failure of Lowcostholidays impact on the UK implementation of the Package Travel Directive?

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When I took over the Federation of Tour Operators in 2003, I wrote out a list of lobbying objectives, which was 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 FTO. The new Directive now has to be implemented into national laws 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. Whilst 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 that there will be a debate about whether the Directive will be implemented at all.

 

On the positive side for the UK, 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 why they would want it not to be implemented.

 

However, the other significant change brought about by the Directive is to change the underlying principle of financial protection. Whilst consumers remain protected by the rules in the country in which they bought their holiday, sellers will be subject to the 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 their holidays to UK consumers, and if they are to fail, then the Spanish authorities are those responsible for ensuring that the financial protection obligations are met, namely that consumers yet to travel receive a full refund of all their monies paid to the travel business, and that those consumers already on holiday are repatriated to the place from which their holidays started.

 

This approach to consumer protection works fine as long as all EU member states have comparable levels of protection, and that 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, but also partly to take advantage of the lower cost of protection in place in the Balearic Islands. At the time, they 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,” said Paul Evans, the company’s chief executive. “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. Whilst the CAA were unhappy about this situation, and did not hesitate to voice their unhappiness, they were powerless to prevent Lowcostholidays 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 believe that they are not, and it will no doubt become clearer in coming weeks whether they are correct.

 

It may be that all will go well, that the 27,000 customers overseas get repatriated efficiently, and at no cost to themselves, and that the 110,000 customers yet to travel all receive their money back without hassle.

 

However, if the level of cover is not as good as the UK, holidaymakers who booked with Lowcostholidays may find themselves either having to bear their own costs of getting home, or not receiving full refunds – and even though this should not be a problem for the UK authorities, there will undoubtedly be pressure brought to bear on them if consumers are out of pocket.

 

So, we need to watch this issue with interest.

 

The dilemma that the UK government will then face is that in the event of any problems in either repatriation or refund, that it will be easy for them to imagine the situation if they then implement the Package Travel Directive. The UK will be obliged to allow companies to base themselves in other countries, and will have to rely on the adequacy of the protection regimes in those countries. Whilst there are protections, in that EU Member States can challenge the levels of protection in other countries, it would be much harder for the UK, as a non-member, and therefore a non-participant in the EU working groups, to make and sustain those challenges. Who in Brussels or other EU capitals will be interested in the UK view, and so what if UK citizens are left high and dry? They voted to give up EU protections!

 

So, the UK government will no doubt be watching closely how the Balearic authorities handle this failure. There is a legal maxim “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 the implementation of the Package Travel Directive.

 

For me, the gains brought about by the extension of the scope of financial protection, for which many of us have fought for around 15 years, are so great that they should not be lightly sacrificed. I have to hope that the UK government sees the situation in the same way, irrespective of what happens to the customers of Lowcostholidays.

 

So my hope is simply that the failure of Lowcostholidays will not impact on the UK implementation of the Package Travel Directive.