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l'ouri~m Management, Vol. 17, No. 5, pp. 31%321, 1996 Copyright © 1996 Elsevier Science Ltd

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The Package Travel Regulations 1992

Damp squib or triumph of self-regulation?

David Grant* Travel Law Centre, University of Northurnbria, Sutherland Building, Newcastle upon Tyne NEI 8ST, UK

The EC Directive on Package Travel (EEC/314/1990) was implemented in the UK in December 1992 by The Package Travel Regulations 1992 (SI 1992 No. 3288). The Regulations created a comprehensive scheme of consumer protection, the key feature being a bonding and security regime to protect holidaymakers in the event of insolvency by a tour operator. This article examines the impact of the Regulations on the UK travel industry. It concludes that the outgoing travel industry has successfully accommodated itself to the Regulations without major difficulties while the domestic industry has largely ignored the Regulations. Copyright © 1996 Elsevier Science Ltd

The EC Package Travel Regulations 1992 (SI 1992 No. 3288) became law in December 1992. They impose a comprehensive consumer protection reg- ime on 'organizers' (tour operators) and 'retailers' (travel agents). The main requirements are: that organizers provide financial security to consumers in the event of their insolvency; that they provide extensive information to consumers before they en- ter into package holiday contracts; and that organiz- ers accept strict, or near strict, liability for breach of contract.

In the period leading up to their enactment and for some time afterwards the Regulations caused much excitement in the travel industry. There was great agitation about the onerous new burdens that would be imposed on tour operators and travel agents and how difficult it would be to comply. However, with the passage of time that excitement has diminished considerably and the Regulations are no longer regarded as being particularly controver- sial. From a purely academic perspective it is a little

*David G r a n t is a lso E d i t o r of the Travel Law Journal.

disappointing that no great disputes have erupted over the application or interpretation of the Regula- tions and no major litigation has ensued as a result of their passage but perhaps that is no bad thing.

The purpose of this brief article is to offer a personal view as to why such a major piece of legislation has apparently given rise to so little difficulty in practice. 1 say 'apparently' because of necessity this is an outsider's point of view - but 1 have no evidence to suggest that this view is wildly wrong.

The first, somewhat complex reason is tied up with the structure of the travel industry. In 1992 the vast majority of foreign package holidays sold in the UK were sold by tour operator members of ABTA, the Association of British Travel Agents, through travel agent members of ABTA. The reason for this was simple, ABTA was a cartel held together by a provision in its Articles of Association called "Stabi- liser'. Stabiliser provided that ABTA tour operators could only sell their products through ABTA travel agents and, conversely, ABTA travel agents could only sell the products of ABTA tour operators.

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Failure to comply was a disciplinary matter for which the ultimate sanction was ejection from ABTA - in reality a commercial death sentence. Members therefore had every reason not only to comply with Stabiliser but also with all the other rules of mem- bership. These included two important sets of provi- sions. One was a requirement to protect consumers from the insolvency of members by acquiring a bond which could be called on in the event of insolvency. The other required compliance with a Code of Conduct which offered consumers of package holi- days contractual benefits over and above what they were strictly entitled to at common law. This was popularly known as ABTA's 'consumer promise'. Both of these requirements had been subjected to scrutiny by the Restrictive Practices Court in 1983 when ABTA had survived an attack upon it by the Office of Fair Trading (OFT) (Re Association of British Travel Agents Ltd's Agreement [1984[ ICR 12), The OFT had argued before the Court that ABTA operated a restrictive trade practice which was void under the Restrictive Trade Practices Act 1976 and should be restrained from doing so. ABTA managed to survive by establishing that its bonding scheme, supported by its rescue scheme for holi- daymakers stranded by the insolvency of its mem- bers and also its consumer promise, would, if re- moved, 'deny to the p u b l i c . . , specific and substan- tial benefits or advantages . . ,' (RTPA 1976 S.19(l)(b)).

Thus the very existence of ABTA depended on it being able to demonstrate that the public, through the bonding and rescue schemes and the consumer promise, were substantially better off than if ABTA had not existed as a cartel. So when, at the end of the 1980s, the EC proposed new legislation on package holidays which offered as much if not more to the public in the way of consumer protection than ABTA were already offering, then ABTA would have to respond or risk another visit to the Restric- tive Trade Practices Court. This they did in 1990. They revised their Code of Conduct to take account of the proposed new directive on package holidays. They offered at least as much to the consumer as the new directive and in some cases more.

So in 1992 when the EC directive on package holidays (90/314/EEC) was implemented in English law by the Package Travel Regulations the greater part of the outgoing travel industry had in effect already been complying with the new requirements for over two years. The two major planks of the directive - the bonding regime and the increased contractual rights - were already in place and although there were some differences between the ABTA regime and the new Regulations these were not substantial enough to cause major difficulties in practice. Thus for ABTA operators and agents the major upheaval took place when the 1990 Code of Practice was imposed.

ABTA has now abandoned Stabiliser altogether. The new market conditions created by the Regula- tions threatened renewed attention from the OFT and perhaps also the European Commission and a decision was taken to jump before they were pushed. This could have precipitated a mass exodus from the Association and with it a reduction in the powers of ABTA to enforce their consumer protec- tion regime. But this has not happened. Contrary to the expectations of many, ABTA has not frag- mented but has remained a potent force in the industry and as a consequence their Code of Con- duct and bonding scheme still effectively cover most outgoing package holidays. There have been minor defections by some small operators disaffected by the disciplinary procedures but not enough to cause anxiety.

A second reason for the lack of controversy surrounding the implementation of the Regulations is the response by the UK domestic travel industry to the change in the law. Whereas the outgoing travel industry, represented in the main by ABTA mem- bers, has a very high compliance rate and has taken the Regulations within its stride the domestic pack- age holiday industry has responded in quite the opposite way - by widespread non-compliance. While there is no doubt that domestic packages are covered by the Regulations in just the same way as foreign packages there is extensive ignorance of this. This is perhaps not surprising, The domestic package holiday industry is very differently constituted from the outgoing industry. Organizers of domestic pack- ages are often sole proprietors or very small businesses, many of whom have simply not heard of the Package Travel Regulations. There are pockets of good practice, for instance some of the larger hotel groups and organizations such as the RSPB and the Ramblers Association offer domestic pack- ages which comply with the Regulations, but they are the exception rather than the rule. Thus the Regulations have not caused a stir in the domestic travel industry because no one knows they exist.

Looking behind this non-compliance by the domestic industry it is possible to attribute this failure to the enforcement regime established by the Regulations. When the Department of Trade and Industry (DTI) framed the legislation it chose not to create a comprehensive licensing system. Such a system already existed in relation to air package tours and is widely regarded as a success. Any tour operator offering foreign package holidays by air must obtain an ATOL - an Air Travel Operator's Licence. The system, which is administered by the Civil Aviation Authority (CAA), requires tour oper- ators not only to be financially sound but also to be 'fit persons' and to provide a bond for the protection of consumers in the event of any company's in- solvency. This system, which pre-dates the Regula- tions by some 20 years, has been incorporated within

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the bonding scheme established by the Regulations. This has effectively created a two-tier bonding sys- tem - all tour operators have to provide bonding but only air tour operators have to be licensed. The DTI, by failing to extend the licensing system to all tour operators, thereby lost a golden opportunity for properly regulating the domestic travel industry. One has some sympathy given the enormity of the task - it has been estimated that there might be as many as 40 000 organizations in the domestic travel market that fulfil the definition of 'organizer' in the Regulations - but if the DTI had not been so wedded to deregulation and the philosophy of the free market we might today have a properly regulated domestic travel industry. As it is, the domestic industry blunders on in blind ignorance and consum- ers remain at risk - a triumph of dogmatism over consumer protection. Of course the scale of the problem when a country hotel offering murder mys- tery weekends goes bankrupt does not compare with the insolvency of a major tour operator but to the individuals concerned their personal loss is just as great.

A licensing scheme, however, is not the only way of policing the Regulations. In the absence of such a scheme this task falls, under the Regulations, to be performed by Trading Standards Departments. There is no doubt that they have approached the

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task with the professionalism that one would expect. However , they are hamstrung by lack of resources. They do not, in the main, have the means to be proactive or to engage in educational work. Instead they are reactive - responding to complaints re- ceived but not actively seeking out breaches of the Regulations. One senior Trading Standards Officer describes the situation as 'Deregulation by lack of resource'. Given also that the public are even less aware of the Regulations than the industry and therefore less likely to complain, this means that domestic organizers are effectively unregulated.

The picture that emerges therefore is one of contrasts: on the one hand a highly regulated out- going travel industry with a high compliance rate and on the other a largely unregulated domestic indus- try. The former has managed to accommodate the Regulations without difficulty because it had already established a regime which incorporated much of what the Regulations required. The latter sees no difficulties with the Regulations because it sees no Regulations. The picture might be very different, however, if the Regulations are ever properly en- forced against domestic organizers. If they were compelled to offer the level of financial security and consumer protection that is routine for outgoing tour operators then that might indeed give rise to concern on their part.

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