The Civil Aviation Authority has launched a three-month consultation on its proposed reform of the ATOL system.

Changes could include preventing travel companies from using some or all of the advance payments they receive from customers to fund their day-to-day operations.

The CAA said reform was necessary to improve the ‘financial resilience’ of the ATOL system.

“At present, some ATOL-protected travel businesses use their customers’ advance payments for their holidays to fund their own operations, before the customers have had their holiday,” it said.

“This is a long-standing practice in the industry, but in some cases it may fail to incentivise sufficiently robust financing arrangements.

“The proposed changes will look at new approaches that would reduce the risk posed to consumers should any individual travel business cease to trade.”

In announcing the consultation, the CAA also pointed out that the COVID pandemic had highlighted the difficulty of some businesses in refunding customers, with some having already spent the advance payments they’d made.

The consultation will close on 30 July 2021. The UK CAA will then consider recommendations ahead of launching a second consultation making specific proposals in early 2022.

Director Paul Smith said: “Following several large ATOL failures in recent years, we have become concerned about the impact of businesses using consumers’ money as a source of funding working capital.

“That’s why we are seeking people’s views on changing these arrangements to further enhance ATOL protection of customers’ money. “The travel industry can be reassured that we understand the impact that the COVID-19 pandemic has had on their finances. We will take full account of the need to allow industry to adjust to any new arrangements that will be implemented following the overall consultation process.”

You can read more about the CAA’s proposed changes and complete its online survey here.