Firms could exploit Flight Plus “loophole”, insists travel expert

Large travel companies may still try to exploit a possible loophole in the new ATOL regulations to avoid paying millions of pounds in air passenger charges, a senior travel accountant has claimed.

Chris Photi, a partner of  White Hart Associates, said there was nothing to stop companies carrying more than 200,000 passengers a year setting up subsidiaries elsewhere in Europe to avoid the legislation.

"That’s about as big a loophole as you can get," he said. "I am not saying anyone will do this, but I wouldn’t be surprised if one or two did decide to go down this route.

"A lot of the larger travel businesses already have establishments in other parts of the European Economic Area that they could use these to avoid complying with Flight Plus or any ATOL regulations."

However Richard Jackson, the Civil Aviation Authority’s group director responsible for consumer protection, said he was confident such a move would be blocked by the EU Services Directive, which prohibits companies from shifting their business overseas purely to avoid legislation in their home country.

"The Directive says a company can’t move its business offshore if it’s a charade," said Jackson. "If people want to do this I hope they will come to talk to us first, but actually what we are seeing is that even off-shore companies are applying for ATOLs for the confidence these give the consumer."

Speaking at the annual Barclays Travel Forum, Photi admitted that using an offshore subsidiary to sell holidays in the UK was complex, but he said larger companies might consider it worthwhile to avoid paying the £2.50 per passenger fee to the CAA.

"If you’re only carrying 2,000 passengers a year it might not be worthwhile, but if you’re carrying 200,000 you could be saving £500,000-plus a year.

"We have only had the new ATOL Flight Plus legislation for six weeks so when people have had time to consider the rules, we’ll see what they decide to do."

Steve Endacott, CEO of online travel agency On Holiday Group and an outspoken critic of the new Flight Plus legislation said non-compliance was not a sensible option. "There is a general acceptance that it is here now," he said.

Endacott he was less concerned about the impact of the new Flight Plus legislation on agents since it had become easier over the past few months for them to buy insurance against supplier failure. However, he still queried how the CAA will force an agent to refund passengers if an airline they sold went bust, especially if this forced the agency out of business.

Jackson said agents would have to take out insure, sell only ATOL-protected seats or choose their airlines more carefully.

By Linsey McNeill