The mess the CAA and ABTA have jointly managed to make of the collapse of Freedom Direct seems to get worse and worse.

Many customers trying to get their money back from the CAA were pointed towards ABTA, who then pointed them towards their credit card companies. This has angered the credit card companies and it does beg the question, what is the point of ABTA protection? Also, why is ABTA bonding so expensive if they are going to hide behind the credit card companies in the event of any failure?

ABTA are now saying they are the customer protector of last resort, but this seems to be news to the credit card companies. There is even talk of credit card companies threatening to stop working with the travel industry.  This is unlikely, given how much money they make from travel, but it is not inconceivable that the credit card companies will toughen up the terms offered to travel companies and make it very difficult for travel start-ups to get any terms whatsoever.

The whole mess of financial protection for consumers needs to be sorted and sorted soon.

The CAA today released its consultation to raise the ATOL Protection Contribution (APC). The document can be read here.

The consultation proposes that the APC is raised from £1 for ever passenger booked to either £2.50, £3 0r £3.50, with £3 the preferred figure.

The reason for the raise is that the ATTL, which is the fund where the APC goes, is currently £59m in the red. The report claims that £37m of this is due to the collapse of XL in September 08. The total cost to the CAA of XL’s failure was a staggering £89m (£21m repatriation, £65m refunds, £3m admin).

As a result of XL’s failure, the industry has to take up the burden. It’s just an idea, but in an ideal world, if a company such as XL went into liquidation, the CAA would become a secured creditor, if not for all costs, at least for those not covered by XL’s contributions. This could divert money from HMRC but would benefit the industry as a whole, and ultimately HMRC.

Another day, another couple of tour operators bite the dust. In Canada, Conquest Vacations has ceased trading after 37 years and in the UK, Freedom Direct closed its doors after 12 years.

Freedom Direct appeared to be a fairly safe company. With a strong turnover, and respectable profits in 2007, the company seemed to be looking forward with the re-launch of its website just a month ago. However, they were clearly working on paper thin margins and the CAA  saw something which made them take the decision not to renew their ATOL license at the start of the month and 16 days being unable to trade was all it took to drive Freedom into insolvency.

I have little knowledge of Freedom Direct or its business. However, I think the CAA really should look at when it renews its licenses. The policy of renewing licenses in April is of little use to anybody. Consumers, employees of Freedom Direct and the CAA have now all suffered as a result of the CAA’s decision to play Kingmaker with Freedom. That’s not to say that it was the wrong decision, the CAA can only renew licenses to financially viable companies. It is the timing of the decision that causes unnecessary repercussions.

By renewing (or not) licenses in April a large majority of a company’s bookings for the year will already be taken. This has harmed the CAA itself as Freedom Direct was only bonded to the tune of £750,000, which could leave the CAA with a shortfall of £1.25m to cover. It also doesn’t help consumers who have booked their holidays and now have to rethink.

Just before Easter does appear to be one of the most illogical times to end a travel company. Freedom Direct probably has a large number of customers in resort at this moment. Why not renew licenses at the start of November? This time of year is very quiet for travel, the CAA can assess the summer’s trading of each company and can have more recent accounts to look at. This would mean that a vast number of bookings wouldn’t be made in the busy January period, only to be cancelled.

There may well be a logical explanation for renewing ATOL licenses in April, but I can’t think of one. If you know of any reasons, please let me know.