Seismic Shift in UK Airlines

Several events in the UK have come together to change the way that the airline product is bought and sold in the market. Thomson has announced that effective November 1st it is cutting commission on flight only sales to 0.1% from the old standard 10%. It is thus just retaining the ability to pay commissions. At the same time it is ending is ATOL bonding of the flight only product.

"This decision has not been taken lightly but in making the amendment, we recognise the flight only landscape has altered greatly in recent years and Thomson Airways is competing with both traditional charter airlines and also other scheduled carriers," said the airline.

The challenge to the ATOL bonding was a battle the CAA who manages the scheme for the UK Government apparently lost a few weeks ago in the UK High Court. The now landmark case the CAA brought against Travel Republic (the UK Supreme Court refused to hear the appeal on July 29th), has effectively ended the traditional Tour Operator coverage for Flight Only sales. The longer term effect is that the charter seat only business is dead and replaced by a more normalized approach to the sale of flights. The distinction has been moot for a long time anyway. The former seat only carriers such as Thomson, Monarch and Thomas Cook with their respective airline brands are now free to compete directly with the LCCs and conventional airlines.

What is not clear is how the non-carrier seat only operators like KISS will be able to operate. That remains unclear.

The long term impact will be that these airlines will now operate a hybrid model but will look much more like a true LCC operator. In turn this will open up competition in the market which will be good for the consumer.

So the storied history of the seat operator market in the UK is no more.

An interesting side note is that this will be welcomed by the US companies such as Expedia who have been sniffing around the tour operators and remaining VTO players in both the UK and Germany. ATOL bonding and their airline operations have always made them nervous.

Finally this will put pressure on the UK government and the CAA for the whole bonding coverage. In light of other activities it may just be time for Her Majesty's Government to get out of the insurance business and return to regulatory activities.

Cheers







With thanks to widebodies.nl for the picture.

ATOL replacement Charge - All or Nothing

The Battle in the UK has raged for some time over the issue of when is a package not a package. it relates to the charges for ATOL protection administered by a legal quango called the CAA who also happens to be the Aviation Regulatory body for the United Kingdom.

With the recent win (now being appealed) by Travel Republic that effectively put a ring fence around dynamic packaging and enabled such dynamic products to be exempt the charge - the formal authorities are faced with a dilemma. What to do about customer protection and how to pay for it?

This seems logical enough. If the UK insists on having a scheme that protects consumers then surely it should implement a straight forward one size fits all protection scheme. Either flat fee or some scale based on the value of the product purchased.

Not so fast. The UK government already did that - its called the APD - the air passenger duty. A somewhat sneaky and clearly unpopular aviation head tax.

As the UK is an island and it is almost impossible to get from the country to another without some form of public transportation (although many have tried!) a comprehensive solution would seem to be the best way forward.

The UK Government will have to come clean and make it a once size fits all - recognizing the vast differences in pricing of the products. And that the APD issues need to be resolved. or they should pull both and put a commercial operation in place to replace ATOL.

There is going to be some head scratching in Whitehall

Cheers

Dynamic Packaging Protection - UK Battle

When is a package not a package?

This is at the core of the argument now being hotly debated in the UK. At the centre of the battle is the case of CAA v Travel Republic and Kane Pirie (TR's Managing Director).

The case was brought by the UK's regulatory body the CAA (Civil Aviation Authority) who is the official regulator for a number of things in the UK including Passenger Safety and the bonding of sellers of products (typically Tour Operators) through its ATOL licensing scheme.

The pursuit of Travel Republic is seen as a test case for the CAA in enforcing its recently broader based view that virtually all holiday sales of flights plus accommodation require ATOL cover. Dynamic packaging has been around for a while - some might say it rose to prominence about 5 years ago but the practice of bundling products has been around for years. The CAA and the bonding process in general has been viewed as inadequate especially following the very high profile collapse of the XL group in 2008. So why now and why pursue Travel Republic?

The answer lies in the contested issue of whether regulations cover the sale of "all" travel products. Further with concentration in the intermediary channels - there is a need for the CAA to get tougher. But there is another reason. The CAA's bond pool has been sorely tested by the recent demise of many retailers and wholesalers. Some have indicated that the bond pool may indeed be under water. The CAA has tried in recent years to broaden the pool by offering smaller retailers reduced rate schemes. Of course the real target are the Online Travel Agencies particularly Expedia. So it is a market dynamic issue that pits the traditional wholesalers (now largely concentrated among a few players) vs the OTAs and the consolidators. Also at stake is a possible advantage commercially in how the VAT is treated.

The case was filed in a lower court - Westminster Magistrates and was moved to Stratford before district judge Nicholas Evans - and TR/Pirie were both charged with 20 counts each of breaching the 1995 regulations. it was clear at the time that the case would ultimately end up in a higher court maybe even all the way to Europe's highest court.

Well Round 1 went to Travel Republic on November 11th.

The following day a number of comments were published by the UK's TTG. Check here to read them.

No one really denies Travel Republic has the best intentions at heart despite the stream of vitriol from the Government's QC who compared Pirie personally to Bernie Madoff. However this is a case that will run and run.

Ultimately we can speculate that if TR is successful - then the government will have to mandate a new scheme for consumer protection. However the government seems to have already jumped the gun by raising the APD much higher. While ostensibly a fee related to Aviation uses it is regarded more as a straight revenue tax to help HM Government pay its somewhat large (and growing) total revenue shortfall.

But caveat emptor is always the case. Should the Government win in the ultimate battle - then the face of consumer protection across Europe will change.

Gotta love those lawyers!

Cheers

UK To Up APD Levy

Rather than abolishing the APD levy the UK is raising it to GBP3.00 per pax. In the big picture scheme of things this is not going to cause holiday makers to change their behavior. However something needs to be done about the whole process of the a guarantee. Whether this is a head tax or a percentage tax will challenge even the best mathematician.

However I believe that the APD itself is flawed and a more generalist approach should be considered. Finding a solution to the LCCs products and including them along with accommodation only providers will be a challenge.

In the end - perhaps we should just accept that it is caveat emptor.

Cheers

XL Recovery - final stats

The CAA (UK's regulator) gave up the statistics from the repatriations it conducted as a result of the XL collapse. The numbers are staggering:

222 repatriation flights from 40 destinations,
repatriating some 83,000 holidaymakers to the UK,
in the 17 days following XL’s 12 September collapse

Wow!

Whose next?

According to Paddy's bets... it was Fly Globespan but they have taken the death list off the site.

Cheers

O'Leary Slams Regulator; Demands Boss's Resignation, The Professor Says Breakup.

Normally most of us have reactions ranging from a wry smile or a smirk to a rearranging of the clothing when we read or hear something from the flamboyant CEO of Ryanair.

Today's outburst is aimed at Dr Harry Bush the head of the UK Aviation Regulator the CAA.

The somewhat abrupt U-Turn by Dr Bush on the privatization of BAA plc is the issue. Earlier this week the CAA came out publicly in support of the breakup of BAA. And here MOL has a good point. For the past 20 years the CAA has rubber stamped what ever BAA wanted. While the charges, to those who follow Ryanair vs Dublin Airport (in all its guises), may sound remarkably similar - MOL does indeed have a solid case that the CAA as regulator has been somewhat asleep at the wheel while London's airports have deteriorated in service and capability over the last 20 years.

Veteran readers of this blog will recall the Professor's rants about the state of BAA and its service offerings over the last 3 years. Terminal 2 is a disgrace and now thankfully will be put out of its misery. Terminal 1 is finally starting to get some attention and Terminal 4 well the best description I can give it is downright grungy. T5 while a distinct improvement still has some fundamental flaws in its design and the quality of the workmanship was just appalling.

Compared to the simplicity of design of other new terminals for high volume airports elsewhere in the world - the CAA supervised BAA designs have been a major disappointment.

It seems that only now the regulator has woken up to the fact that there may be a problem.

So I will go one better than MOL and demand that the CAA be broken up into at least 2 possibly separate entities.

Airport/Airways infrastructure should be handled by a single entity. This is distinct function. Aircraft licensing and everything thing to do with registrations - should be kept or even placed into another.

Finally the bonding issue is not something that the regulator should be involved in. Make a decision and move on. This can be handled by a commercially mandated company. In the same way that the slot committee (Airport Coordination Ltd) is run.

Cheers

Timothy