Package Travel and Linked Travel Arrangements Directive
Package Travel and Linked Travel Arrangements Directive
The Commission for Aviation Regulation (CAR) has published a report recommending changes to the rules governing insolvency protection for package travel 'organisers' and 'linked travel arrangement' (LTA) facilitators established in Ireland.
The current regime was introduced just last year by the European Union (Package Travel and Linked Travel Arrangements) Regulations 2019 (S.I. 90/2019) (Package and LTA Regulations), implementing EU Directive 2015/2302.
Who will this affect?
Airlines, passenger ferries, online travel agents/booking sites, travel intermediaries and any other travel service providers that meet the definition of an 'organiser' of 'packages' or a 'facilitator' of LTAs under the Package Travel and LTA 2019. Our earlier briefing and quick reference guide on the Package and LTA Regulations is available here.
What insolvency protection is currently required from organisers and traders facilitating LTAs?
EU Directive 2015/2302 (the Package Travel Directive) requires Member States to ensure that 'organisers' of 'packages' established in their territory provide security for the refund of all payments made by travellers where the relevant 'travel services' are not performed as a consequence of the organiser's insolvency. An equivalent requirement is included for traders facilitating LTAs.
The Irish implementing regulations, the European Union (Package Travel and Linked Travel Arrangements) Regulations 2019 (S.I. No. 80/2019) detail the nature of security required for entities established in Ireland. Under the Irish regulation, 'organisers' of 'packages' and 'traders facilitating LTAs' established in Ireland are required to provide security in the form of a bond from an authorised bank/financial institution or insurance undertaking consisting of either:
(i) 4% per cent of previous financial years turnover; or
(ii) 4-10% of the entities 'projected turnover' for the year for which security is being provided. Projected turnover means the total of receipts estimated by an organiser or trader in respect of package travel contracts or LTAs (as appropriate), to be sold or offered for sale during the period of the security being arranged.
Alternatively, 'organisers' and traders can purchase insurance from an authorized insurance undertaking.
The Irish Regulations came into force in March 2019, why are they changing so soon?
The recent CAR report forms the latest chapter of an ongoing reform project by the CAR initiated in 2017. The reform project was initially focused on the bonding arrangements for 'traditional' travel agents and tour operators selling overseas travel contracts commencing in Ireland and the operation of the Traveler Protection Fund (TPF).
In January 2018, the consultation was extended to cover the new rules introduced as a result of the EU Package Travel Directive which expands the scope of protection to cover 'dynamic' and 'click-through' packages as well as the entirely new concept of LTAs.
What will the new insolvency protection regime look like?
The ultimate decision as to what the new regime will look like is a matter for the Department of Transport and the Irish parliament. The CAR report paves the way for a more flexible regime involving the amount of financial protection required being tailored to the insolvency risk of individual firms. Much of the details of what this new regime could look like remain to be seen but some of the key changes would include:
Eligible Turnover – bonding will be based on the new concept of 'eligible turnover'. Eligible turnover is defined as 'projected turnover' (covering packages and LTA sales as per definition above) excluding payments made to suppliers immediately and payments made in arrears. This change will likely favour single service travel providers (e.g. airlines and car rental providers) which have larger proportions of 'non-package/LTA' turnover and any travel companies which either pass on money to suppliers immediately or do not take payment immediately
Trust Accounts – alongside the existing options for insolvency protection, companies will be entitled to meet the insolvency protection requirements by holding consumer money in a trust account with independent trustees. The CAR report sounds a note of caution indicating that this option will not be suitable for everyone and 'very clear guidelines' will be needed to govern such an arrangement as well as some form of back-up option
TPF Levy – 'organisers' and LTA facilitators will also be required to pay a levy based on turnover to replenish the TPF unless the option of obtaining firm level insurance is chosen
While a more flexible system for providing insolvency protection is likely to be welcomed by many in the travel industry, such a system will likely involve a higher degree of scrutiny over 'organisers' of packages and traders facilitating LTAs by the CAR.
The pace of change so far has been slow. It remains unclear when, and indeed if, the changes outlined in the December 2019 CAR report will take effect. For now, organisers and traders will need to continue to comply with the current insolvency protection regime as set out in the Irish Package and LTA Regulations 2019. On this point, the recent CAR report provides some interesting insights on how the CAR is enforcing the new rules introduced as a result of the 2015 EU Directive. The report reveals that, so far, no process is in place to determine a bonding rate of between 4-10% meaning that organisers and LTA facilitators have met the insolvency protection requirements by obtaining indemnity insurance rather than bonding.
A word on 'non-travel' packages
In its report, the CAR draws a distinction between packages involving 'travel' and so-called 'non-travel packages'. No such distinction exists under the EU Package Travel Directive. Under the EU Package Travel Directive, 'packages' and 'LTAs' under involve the combination of two or more different 'travel services' for the purposes of the same trip or holiday. 'Travel services' are defined as the carriage of passengers, accommodation, car rental and any 'other tourist service' not intrinsically part of a travel service.
The CAR has indicated in its report that no insolvency protection is currently being provided for packages/LTAs 'not involving travel' and that such packages and LTAs have are excluded from the scope of the consultation. The report further notes that the CAR is working with the Department on responsibilities for regulating packages and LTAs that do not involve a travel component. This is an interesting approach by the CAR. Organisers of packages which involve accommodation and an 'other tourist service' will need to watch this space for future developments.