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Travel giants to ringfence customer deposits to speed up refunds

Oliver Gill
·2-min read
Jet2 planes are seen parked at Birmingham airport as coronavirus spread - Reuters
Jet2 planes are seen parked at Birmingham airport as coronavirus spread - Reuters

The travel industry is in line for its biggest shake-up in almost half a century, as watchdogs prepare sweeping changes to reflect public anger over delayed refunds.

In an echo of the rules imposed on banks in the wake of the financial crisis, travel operators will be forced to “ringfence” customer deposits, ensuring that holidaymakers are able to access immediate refunds if their travel plans are disrupted.

The changes will be implemented over the next few weeks as companies apply to have annual operating licences renewed, industry sources said.

Downing Street is understood to have ordered officials to conduct a consultation in the coming months to fast-track the new regime into law, according to Whitehall sources. Operators such as Tui, Britain’s largest travel company, have been criticised for failing to refund customers after trips were cancelled as a result of the coronavirus pandemic.

The best and worst travel companies for Covid-19 refunds
The best and worst travel companies for Covid-19 refunds

Firms typically use holiday deposits as a vital part of funding their business. The travel industry lifeboat Atol was created in 1971 to step in if a company failed and the money was lost.

Ringfencing customer cash, a common practice in other industries such as banking and gambling, would mean firms would not be able to use the money handed over when booking.

Firms currently reapplying for their annual renewals will have to set up segregated accounts, sources said. Companies will be restricted to a number of bookings based on the amount of cash they agree to keep in trust.

Martin Alcock, a director at the Travel Trade Consultancy, said that while there were plenty of positives to segregating customer deposits, they were “not a panacea”. “They can be painful to set up, and they tie up a lot of cash... Many travel businesses will be unable to afford them,” he said.

The plans are aimed to also address fears that the taxpayer-backed Atol scheme is insufficiently capitalised.

Labour MP Meg Hillier, chairman of Parliament’s public accounts committee, said: “The flaws in the travel industry model have left consumers at the bottom of the heap for too long. When a business goes bust or a flight or holiday is cancelled, consumers often struggle to get their hard-earned cash back in any reasonable time.

“A new model that protects consumer cash is overdue. It will change the working model of many travel firms but it will provide much-needed consumer protection. The collapse of businesses and Covid have highlighted what can go wrong.”

The CAA did not comment.