Simon Calder: A high price for low-risk holidays

The man who pays his way

"Millions of extra holidays protected as Government confirms Atol reform" – who could argue with such a good-news story, revealed this week by the Department for Transport? Me, for one. See if you agree.

A quick reminder about why the Air Travel Organiser's Licence (Atol) scheme exists. When package holidays were booming four decades ago, they had the added business appeal that they were healthily "cash-positive". Families traditionally paid a deposit in January and settled the balance two months before departure. A tour operator paying airlines and hoteliers in arrears could enjoy the comfort of a cash cushion for many months.

However, should spring sales looked sluggish, there was always the temptation to reduce prices below cost. At some point in late summer, cold arithmetical reality would displace warm optimism. In the ensuing collapse, thousands of holidaymakers could lose all the money and dreams they had invested in the trip.

At the time, the internet and no-frills airlines were still many years from elbowing their way into the travel industry, and almost every package holiday was sold through a recognised tour operator. The Atol scheme insisted each holiday company had a bond relative to its turnover that would safeguard travellers' money. And since 1973 it has conferred protection upon hundreds of millions of British holidaymakers.

Today, everyone who buys a package holiday gets Atol protection in return for paying £2.50 into the Air Travel Trust Fund. But that is not enough. After the collapse of XL, Goldtrail and Kiss Flights, the fund is £42m in the red. To me, that looks the opposite of a fund; a liability, indeed, that the government is keen to eliminate.

Meanwhile, the internet and low-cost carriers have made it easy for people to build "tailor-made" holidays – and easy for these travellers to lose a fortune if the airline goes bust. The transformation in travel has also made it easy for companies outside the tour-operator mainstream to offer what are packages in all but name – and law.

One company, for example, this week offered me an attractive holiday in Tenerife, flying out from Luton this afternoon for a week and staying in the lovely resort of Puerto de la Cruz, for £499 for two. The booking process is essentially no different from other, Atol-protected holiday companies. I avoid paying a fiver into the ailing fund, but don't get Atol cover if it all goes wrong.

The government aims to end the loopholes so that the Atol scheme covers "trips including a flight where the various elements are purchased within a specified short period".

In other words, if it looks like a package holiday, it's covered. Everyone's a winner: six million more holidaymakers will have their trips covered – and it will also bring in an extra £15m a year to replenish the Air Travel Trust Fund.

So why do I object? Because the present and planned Atol schemes distort the market. This year, as last, I shall pay around £20 in levies to the Air Travel Trust Fund. Yet all my bookings are with cash-rich firms who are highly unlikely to fail before the holiday happens. Where will that £20 go? To bail out travellers who bought holidays that were implausibly – and, as it turned out, unfeasibly – cheap.

I am all in favour of cut-price holidays, and of low barriers to entry in travel to let small companies to compete. But the price of financial protection should reflect the risk you take.

Just the ticket for scheduled flights

Abta, the travel association, is that rare trade body that promotes customers' rights as vigorously as the interests of its members. And Thomas Cook is a top-class tour operator currently sitting on several thousand pounds of mine that I have happily paid up for future travel. My admiration dwindles, however, when they line up to demand higher air fares. They want the £2.50 package-holiday levy extended to cover scheduled flights.

A spokeswoman for Thomas Cook said the firm hoped that "in future the scope of the Atol system is widened to include airlines". And Mark Tanzer, chief executive of Abta, pronounced himself "disappointed" that people who buy airline tickets will escape the £2.50 levy.

It is, of course, in their interests to see the price of "DIY" holidays rise. But it would mean passengers on BA, easyJet, Ryanair and other rock-solid airlines paying extra for a form of insurance they neither want nor need.

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