Thomas Cook's liquidation puts package travel rules to a test

Earlier today Thomas Cook, one of the world's oldest package tour organizers, entered compulsory liquidation, affecting about 600,000 travellers. The company explained its financial problems by a variety of factors: from political unrest in important holiday destinations to prolonged Brexit negotiations. Since the decision comes before the UK's exit from the EU, the follow-up process, including important consumer protections, is subject to Directive 2015/2302 on package travel.

A short history of package travel law

Source: Pixabay

Harmonised rules on package travel belong to the earliest EU instruments of consumer law. The relevant discussions date back to the 1981 Council resolution on a second programme for a consumer protection and information policy, and were based on pre-existing laws on package travel in Member States like the UK. Directive 90/314/EEC on package travel was first to harmonise this framework at the European level. It introduced a set of minimum protections for the travellers who bought 'packages', defined as a pre-arranged combination of not fewer than two tourist services (in particular transport and accommodation), sold or offered for sale at an inclusive price, when the service covered a period of more than twenty-four hours or included overnight accommodation. The directive laid down rules on pre-contractual information, the content of contracts, consumer's right to transfer the package, changes to contract terms, liability for non-performance as well as security for the refund of money paid over and for the repatriation of the consumer in the event of insolvency.

This framework was recently updated in the wave of a broader reform of the European consumer law. As of 1 July 2018, Member States are obliged to apply national measures implementing a new act - Directive 2015/2302 on package travel and linked travel arrangements. Unlike its predecessor, the updated framework provides for a full level of harmonisation. It addresses a similar set of matters as Directive 90/314/EEC, but in a much more comprehensive way. 

Insolvency protection

As regards insolvency protection, Article 17(1) of Directive 2015/2302 requires Member States to ensure that organisers established in their territory provide security for the refund of all payments made by or on behalf of travellers insofar as the relevant services are not performed as a consequence of the organiser's insolvency. If the carriage of passengers is included in the package travel contract, organisers shall also provide security for the travellers' repatriation. Pursuant to next paragraphs, an organiser's insolvency protection shall benefit travellers regardless of their place of residence, the place of departure or where the package is sold and irrespective of the Member State where the entity in charge of the insolvency protection is located (para. 3). When the performance of the package is affected by the organiser's insolvency, the security shall be available free of charge to ensure repatriations and, if necessary, the financing of accommodation prior to the repatriation (para. 4). For travel services that have not been performed, refunds shall be provided without undue delay after the traveller's request (para. 5).

This provides an interesting background for the today's coverage of Thomas Cook's liquidation. The UK government and the Civil Aviation Authority are reported to have launched "the largest repatriation in peacetime history" codenamed Operation Matterhorn. Hotels accommodating Thomas Cook customers have been informed that the cost of accommodation will be covered by the government, through the Air Travel Trust (ATT) Fund/ Air Travel Organiser’s Licence (ATOL) cover. Assistance will reportedly be provided to all customers, regardless of their nationality. It can be assumed that customers whose return flights were scheduled to countries other than the UK will also be able to reach their destinations, although current statements focus understandably on UK travellers. A dedicated website is further being launched "to let customers know how to get their money back", which suggests that refunds for services not performed will also be available.

Customers of Thomas Cook are therefore likely to obtain the protection provided under Directive 2015/2302. The ATT/ATOL cover appears to be directly linked to this framework. It requires ATOL holders to pay a fee of £2.50 for each traveller, which is held in a fund managed by the ATT. This fund is used to support consumers currently abroad and provide financial reimbursement for the cost of replacing parts of the package. While all of this points to the well-functioning package travel scheme, parts of today's reporting are painting a slightly different picture. 

For example, the UK government announced that it is "stepping in" to assist all impacted passengers, including those who are not ATOL protected. Considering that Thomas Cook is an ATOL holder, a question can be asked: which group of travellers is in fact covered by this statement and how significant this group is?

Of interest are also the widely reported last-minute rescue talks carried out between the company and the UK government. Prime Minister Boris Johnson revealed that the government had rejected a request from Thomas Cook for a bailout, while questioning whether directors of the company were "properly incentivised" to avoid bankruptcy. This seems to disregard the existence of insolvency protections discussed above, to which companies of this kind are also contributing. As long as the United Kingdom remains in the EU, it is also required to ensure an effective functioning of this scheme.

Concluding thought

Today's news about Thomas Cook's liquidation is remarkable for a number of reasons. It concerns one of the oldest organisers of package tours, established in the UK, which itself is on its track to leave the European Union. It raises the question about the functioning of existing insolvency protections and especially how they will apply to travellers from outside the UK. One can also wonder if their situation would be different, had the liquidation happened post-Brexit.

Thomas Cook's story also sheds light on the broader transformation of the travel sector. What the company has not mentioned as a likely factor for its financial troubles is the growing role of direct booking channels and new types of intermediaries, like online platforms. While effects of this transformation on the long-established companies like Thomas Cook may be regretted, its story should primarily be a wake-up call for the law- and policymakers. The potential connection between increased regulatory burdens and the inability to compete with other travel companies is perhaps one of the questions to be asked. More importantly, however, the collapse shows that package travel is no longer the principal way how people travel and this is not really reflected in the legal framework. The 2015 reform of package travel law has partially extended its scope to the so-called "linked travel arrangements", thus capturing at least part of the transformation. For now, however, the discussion does not ensure that interests of those who prefer to assemble their trip on their own are adequately safeguarded.

* The author carries out a research project on consumer protection in the collaborative economy, financed by the National Science Centre in Poland on the basis of decision no. DEC-2015/19/N/HS5/01557.