The September 2020 ATOL renewals process presented many challenges for travel companies due to the Covid-19 pandemic. The UK Civil Aviation Authority (CAA) took a risk-focused approach in their assessments, subjecting large companies to rigorous reviews and financial analysis, while generally approving smaller companies if their pre-Covid financial accounts passed tests. Liquidity remained the CAA's key focus, with larger companies required to demonstrate adequate cash to customer funds ratios or provide additional funding. Some large companies were penalized for taking loans backed by government schemes that involved providing security. As a result of reduced bonding availability, trust accounts grew in prominence and some companies were required to implement them. The largest ATOL holders received restricted licenses requiring

1. observations from the
September 2020 ATOL renewals
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2. The September ATOL renewal round presented many
Covid-19 related challenges for those companies
seeking to renew their ATOL licences.
We helped 79 clients go through the renewals process.
Below are a few things we noticed.

3. 01
The CAA took a risk focussed approach to their assessments.
Large ATOL holders (ATOL turnover greater than £20m) were subjected to rigorous
reviews, in-depth financial analysis, and requests for multiple reforecasts.
Those applying for less than £5m ATOL turnover were generally waved through if
their most recent (and therefore pre-Covid) financial accounts passed the CAA’s
financial tests.
ATOL holders in the £5m-£20m turnover range were subject to a variety of
unpredictable approaches.
Risk

4. 02
Liquidity remained the CAA’s key focus.
Larger ATOL holders who were unable to demonstrate adequate cash to client
money ratios were required to inject additional cash or put security in place in the
form of bonding or a trust account.
Few concessions were offered on the required ratios, though in some cases,
companies were permitted extra time to arrange additional funding.
Liquidity

5. 03
Some large ATOL holders were penalised for providing security to lenders when
borrowing under one of the government backed Business Interruption Loan
Schemes (CBILS or CLBILS).
Typically the CAA insists on a ringfence structure which prevents lenders from
taking security.
However, in the challenging circumstances, it has not always been possible to
negotiate bespoke terms, particularly when borrowing comparatively small
amounts, and within challenging timescales.
Loans

6. 04
Despite the dramatic cuts to planned programmes, many businesses were forced
to maintain or even increase their bonds and other security mechanisms,
compared to last year.
However, renewing bonds was hard and finding new bonds was virtually
impossible after all major travel insurers cut their appetite significantly.
Many companies were left frantically searching for security to support their
bonding, such as letters of credit, cash and other collateral.
Bonding

7. 05
As a result of the dearth in bonding, trust accounts again grew in prominence.
Some of our clients are now required to implement a trust account before the
end of the year as a condition of their licence.
Trust accounts

8. 06
The largest ATOL holders were given restricted licences.
They must apply to remove the restrictions during the first quarter of 2021 and
will need to demonstrate they have adequate financial resources in order to be
able to continue taking new bookings after that date.
Similar restrictions were imposed on large ATOL holders at the March 2020
renewal.
Restrictions

9. 07
The market turned even more bearish, with planned 2020/21 capacity around 48%
lower than in 2019/20.
The top 20 ATOL holders, which now account for 77% of all ATOL authorisations
(up from 74% last year) reduced their collective capacity by 5.8m passengers.
Outlook

10. Info@thettc.co.uk
www.traveltradeconsultancy.co.uk
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