The Package Travel Directive - knowns and unknowns

11 May 2018

A wise man once said that there are ‘known knowns, known unknowns and unknown unknowns. He may well have predicted the emergence of the new Package Travel Directive (PTD).

In summary the PTD, first published in the Official Journal of the European Union on 11 December 2015, did not have the planned consultations due for Autumn 2017 and missed the 1 January 2018 deadline to change the law – perhaps understandable given the momentous vote for Brexit. Harder to explain is the recently confirmed plan for PTD’s requirements to come into force from 1 July 2018. 

Despite PTD being a European initiative, the government has made it clear that it will implement it perhaps in the hope of currying favour to obtain a better outcome of the current negotiations but there must be serious doubts over whether this can be met in practice. 

The declared aim of the PTD is to create additional legal protection for consumers purchasing non-traditional packages and to a large extent is an attempt to address the change in consumer behaviour particularly the use of online travel websites.  When a consumer chooses separate components of their holiday from one business, either online or offline they will now be covered by the new PTD if two or more travel arrangements are booked within 24 hours of each other through links.

It is important to remember that the both the old and new PTD covers the sale of all travel packages and not just those including flights which are separately dealt with by the CAA’s ATOL scheme (which is a UK initiative and not mandated by the old or the new PTD.)

Although no system is 100% perfect, the CAA’s ATOL scheme has been relatively effective at monitoring the provision of flight inclusive packages and the implementation of ATOL certificates the ATOL Reporting Accountant (ARA) scheme has further enhanced this. The CAA have recently consulted on planned changes to not only ensure compliance with the new Directive but to further improve consumer rights. Some of the proposals have had a lukewarm reception from the travel trade such as the demand that information regarding ATOL protection appear close to every price in a brochure or on line. The CAA has even proposed that flight only prices, which are not subject to the new Directive at all, should have the cost of luggage and transfers close to the basic flight price

However, this may not the case for non-flight packages. The ability to monitor and police the new PTD must therefore be in doubt for non ATOL sales – under current plans the CAA will be the central register for ATOL packages but there will be no register for non ATOL packages. Whether non-flight package providers are ensuring adequate consumer protection must surely be one of the known unknowns. Indeed, in the past, such difficult questions have often only been answered after a business has failed.

One of the biggest changes will be to the information to be given to customers, not only through ATOL Certificates after purchase but even more importantly, information to be given before the sale takes place. Every organiser, and depending on the method of sale, in many cases the retailer, must ensure the potential customer has a fixed word document setting out in detail the type of sale, package or linked travel arrangement for example, being proposed, the customers rights as a result and even a link the whole set of UK Regulations. This may be relatively easy, if costly and time consuming in IT changes, but will be very difficult to achieve in the case of telephone or face to face sales. 

Financial Protection

The current law requires places a responsibility on the organiser of a package (two or more components sold at an inclusive price) to financially protect any payments received from the customer. This places an obligation on the organiser to protect the consumer in the event of any of the suppliers failing – either by refunding the payment, offering an equivalent replacement package or repatriating the customer. 

The previous Directive offered protection to holidaymakers who purchased a "pre-arranged" combination of travel services (e.g. a flight or train plus accommodation) at an inclusive price. 

Under current rules financial protection needs to be provided in the country where the package is sold, in effect where the consumer lives. Thus, an organiser usually needed to provide protection in each of the countries where sales took place. One of potential changes was that the new Directive encouraged and supported a business which had arranged financial protection in one EU state to be able to use that single scheme to support sales throughout the EU.

During the debate stage prior to the passing of the Directive, this change was hailed as a further step to encouraging cross border trading by some but also seen as encouraging a rush to find a ‘place of establishment’ in whichever jurisdiction offered the lowest cost of financial protection by others (as Lowcost Travel had previously done). The vote to leave Europe in 2019 has however possibly acted as a brake on either UK businesses looking elsewhere or overseas organisers seeking to develop the UK as a sales market. There is a fear that after the UK leaves the EU, if there is no agreement, the UK will re-impose the current ATOL regulations for sales in the UK,  and overseas an ATOL may no longer be considered as an acceptable alternative to the local scheme of financial protection.

Changes

Firstly, it needs to be said that the perception that there will be no significant impact in the obligation or legal liability for travel arrangers already selling packages is not entirely true. A key change is the widening of the definition of what constitutes a package and includes virtually all scenarios in which consumer buys two or more travel components. Those that currently sell Flight Plus arrangements which carry financial protection requirements but no liability for death injury or illness, will find such sales, believed to be around 3 million a year, to be packages in the future. From a single definition of what constituted a package the new Directive and the Regulations implementing them, see six potential definitions in future catching OTA’s and possibly many agencies who will unwittingly become organisers in future

There is also a clarification of what constitutes ‘other tourist services’ such as including excursions, ski equipment sale or hire and even pampering experiences. Given the pressure on agents to sell add ons as commissions continue to fall, even the sale of a spa package as an add on to a travel ticket will mean that the arranger may have provided a package with all the obligations that go with it (as long as the add on is at least 25% of the total) if the package lasts at least 24 hours  

Greater Rights for the Consumer

Amongst the important changes will be the enhanced rights for customers including:

  • Stronger cancellation rights giving consumers the right to cancel any trip where there are “unavoidable and extraordinary circumstances” at the destination, or close by and receive a full refund. The failure of government to give any assistance in defining what these circumstances may be is likely to be the cause of many disagreements
  • A maximum price surcharge of 8% (as against the 10% currently used in the UK) on possible price increases will apply – if this is exceeded then the consumer has the right to cancel without paying a cancellation fee.
  • The right to transfer the package to an alternative traveler up to 7 days before departure
  • The right to up to three nights’ extra accommodation in extraordinary circumstances where consumers are prevented from returning home as occurred during the 2010 ash cloud crisis Indeed there is no time limit on the above where notified in advance of reduced mobility or other needs.

Greater Liability for the travel Business

The package organiser will be completely responsible for any mistakes, or illnesses, injuries or deaths which occur as the result of the fault of any of their suppliers and will be unable to deflect blame onto third party suppliers. The consumer will now always be able to refer to their primary UK based organiser. This could potentially lead to more attempts at prosecution in the event of a tragedy similar to the carbon monoxide deaths in Corfu and the rise in gastric illness claims may now fall to those who previously thought they were no more than a booking agent. The need for public liability insurance has clearly grown and the need to avoid being caught by the Tour Operators Margin Scheme for VAT is another trap for the unwary.

Linked Travel Arrangements

PTD introduces the new concept of a Linked Travel Arrangement (LTA); in essence an arrangement which though not legally a package ‘looks like’ a package to the consumer – for example where, along with the confirmation of booking for the first travel service (e.g. a flight or train ticket), the consumer is invited to book an additional travel service to the relevant destination (e.g. accommodation or an excursion) with a link to the booking site of another provider.

The travel arranger is not providing a package but is merely facilitating the selection and payment of each travel component on a single visit or point of sale. In addition, an LTA will also arise where there has been the ‘targeted’ facilitator of the procurement of the second service within 24 hours of the original procurement. The definition of ‘targeted’ can obviously be open to interpretation and the facilitator must have a means of identifying those customers who on to book a second product which may not be easy to determine at the point of the first sale.
The consequences of this for the first provider (or facilitator) is that it must offer protection for refunds necessary due to its own insolvency including repatriation. 

It has also been confirmed that LTAs will not be included within the ATOL scheme but must protect the customers money, until such time as it is passed to a supplier by means of a bond, trust account or insurance. For those travel arrangers using a trust account there will now be an obligation to take out insurance for repatriation but at the same time will be able to hold a lower level of ringfenced funds in the trust as long as this is replaced by insurance. This may lead to uncertainty over whether there is adequate insurance cover and must beg the question over why a trust account should be maintained rather than just insuring everything.

Confusing but the key difference from a package provider is that the facilitator does not have a liability for the negligence or failure of one of its suppliers (something which is very much stronger for package providers as per my earlier comments).

However, an LTA will not be formed where the consumer is simply informed about further travel services in a general way, for instance if a hotel’s website includes a list of all operators offering transport oe excursion services to its hotel, independently of any booking.

Summary

From a consumer perspective the changes under the new PTD offer more protection especially with the expansion in the definition of what makes up a ‘package’. The practice of claiming to act as an agent for the consumer has also been caught and will not prevent a package being created.

Unfortunately, from the travel trade’s point of view, there are going to be far greater potential liabilities and therefore greater costs in order to try and mitigate those risks. The areas currently open to interpretation are also likely to lead to legal disputes in an increasing litigious environment. 

Finally, with all the changes necessary including enhanced IT systems and Terms & Conditions, the ability for businesses to meet this deadline must be in serious question. With no mention of a soft-landing approach, as things currently stand anyone not adhering to PTD’s conditions from 1 July 2018 will be breaking the law.

Contact us

If you would like to discuss the above subject further, please contact Rajeev Shaunak, Head of Travel & Tourism sector. Alternatively, send us an online enquiry.

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