To ATOL or not to ATOL?

September 2022 is likely to see a further reduction in the number of small ATOL holders as balance sheet issues and the continued disruption to summer 22 flying programs lead more agents to question the wisdom of being an ATOL holder.

The “Dynamic Packaging” (DP) revolution partially caused the collapse of the big four tour operators Thomson, Airtours, Thomas Cook and First Choice, to one in the form of a weakened Tui Holidays. ?

This revolution was fuelled by a growth in freely available seats from low-cost carriers, however, with Jet2 holidays now representing 60% plus of sales on Jet2.com flights and Easyjet Holidays showing similar ambitions, DP players are left working with a highly hostile Ryanair or an erratic Wiz Air as the sources of cheap DP flying.

Legally low-cost airlines are allowed to cancel flights outside of 14 days of departure and pay zero compensation, with just the initial amount paid, refunded to the customer.

In effect this has given airlines like Wizz Air the right to launch speculative programs out of regional airports such as Doncaster and Cardiff, taking large amounts of customers' money in advance. I genuinely believe that Wizz had hoped for success, but at the first sign of poor load factors or potential losses, they have been allowed to cut and run with few penalties, leaving 10’s of 1,000’s disappointed holidaymakers to make alternative plans

What other industry is allowed to take cash from customers, hold it for long periods and then simply renege on the promised product delivery? I can’t imagine this ever-happing world of beds and sofas or even new cars, which all have similar long lead times.

Theoretically, ATOL holders have a legal responsibility to replace a cancelled or failed flight, but most large ATOL holders, unless a quick and easy alternative flight is available will simply cancel the customer's holiday and offer discounts to encourage them to book a new one with them.

Dealing with airline cancellations is much harder for high street agents and homeworkers, who rely on strong personal relationships with their customers, and they often result in many hours of extra work to protect hard-earned reviews, for no financial gain.

So, when the two cheapest airlines to many beach destinations are either Ryanair or Wizz, is it worth the risk of running your own DP operation as a retailer?

In the case of large OTA’s and homeworking networks like Travel Counsellors, the answer is yes, as the higher margins at their scale, more than counterbalance the admin hassles. Travel Republic has stuck by their principles and refused to work with Ryanair after the pandemic refund chaos, but like others have suffered greatly due to the cancellations of BA, Easyjet and Wizz, whilst Ryanair has operated the most flights on time.

For many smaller players, the operational risk and customer service hassle this suffer will have put them off self DP and it’s no surprise to see the rapid expansion of On the Beach-owned Classic Collections trade brand. ?Classic provides a fully bonded DP program featuring all the major low-cost carriers including Ryanair and a wide range of competitive bed stock via their parent's buying power. So why bother with your own ATOL, when you can return to being an Agent with none of the disruption and customer services risks?

Particularly, when Jet2 and Easyjet holidays are also happy to pay good commissions for holiday sales outside of their online stronghold. Obviously, these companies will look to drive the highest possible level of direct sales, but at least they do not own high street shops and compete on the same high streets, as the historic big 4 tour operators did.

The outbound beach holiday market is now dominated online by Jet2 and Easyjet holidays, supported by a commercially and brand savvy On the Beach. But each now offers fully bonded products to be sold in “face to face” shops and homeworking networks, giving them the ability to return to being Travel Agents, whilst leaving the risks and rewards of being ATOL bonded to the big guys.

The big guys will clearly dominate the online space, but there is ever-increasing space for high-touch, high-service Travel Agents as this is a space that the new players are keen to avoid.

There may have been better times to be a travel agent, but at least it’s a competition based on customer service and operational efficiency, with economies of scale not really being applicable outside of the ability to drive an extra 1-2% in override. This is why we are seeing so many new entrants in the homeworking sector and a brave few taking advantage of heavily discounted rentals to open new high street shops.

As ever the UK outbound market continues to evolve, but it’s easy to see what the volume of ATOL protected holidays may increase next year, but the number of ATOL licences drop markedly.