After another major airline descends into liquidation, Insurance Times looks at End Supply Failure and Scheduled Airline Failure - are they worthwhile?

It all started with Monarch – the UK’s largest chartered airline, which was originally earmarked to go bust by Bookmaker Paddy Power as far back as 2009.

In October 2017 it did just that; the airline entered administration leaving nearly 100,000 passengers stranded.

At the time, Monarch was the biggest airline collapse in UK history – until Thomas Cook entered compulsory liquidation in September this year. This left 150,000 passengers stranded, caused thousands of job losses and insurers were faced with a barrage of claims that subsequently sparked an inquiry into the organisation’s demise

The 178-year old firm was a national treasure; rival travel firm Hays Travel stepped in to buy 555 of Thomas Cook’s UK stores, safeguarding a significant number of jobs.

Meanwhile, there has been recent speculation that the brand name ‘Thomas Cook’ might make a comeback; this time as a digital-only travel agent after it was bought by Chinese conglomerate Fosun earlier this month, for £11m as reported in The Mirror.

But not all firms are this lucky. 

Icelandic low-cost airline WowAir ceased operations back in March, meanwhile in February, British regional airline FlyBmi collapsed causing nearly 400 job losses. Last year, in October, Danish airline Primera Air also collapsed.

As more and more airlines go bust, Insurance Times investigates whether End Supply Failure (ESF) and Scheduled Airline Failure (SAF) is substantial enough, what the difference between the two are and what needs to change.

Establishing a repatriation scheme

Direct Line’s underwriting manager Dave Allen told Insurance Times that both types of cover offer some additional protection, although ESF is broader than SAF since it covers other types of businesses, such as hotel, ferries and car hire.

Allen said that Direct Line Group supports recommendations that a repatriation scheme should be established, as consumer protection is  complex.

Direct Line Group contributed to the Department for Transport’s (DfT) Airline Insolvency Review back in March, which highlighted that there was a gap in protection available to passengers.

Peter Bucks, chair of the Airline Insolvency Review, stated that only those that have bought their airline tickets as part of a package covered by the Air Travel Organiser’s Licence (ATOL) scheme are fully protected when stranded abroad – this only amounts to a quarter of passengers in total.

In the aforementioned DfT report, Bucks proposed “a comprehensive scheme to protect all UK-originating air passengers, with the associated costs met largely, if not wholly, by the private sector”, referring to this as the “Flight Protection Scheme”.

He explained that this would be coordinated by the Civil Aviation Authority and would require each airline that serves the UK market to provide a suitable financial protection based on the estimated cost of repatriating its passengers.

Bucks added that this “would create a level playing field for all UK-originating passengers” and provide reasonable assurance of repatriation protection regardless of whether flight packages hold an ATOL certificate. He also hoped to make recommendations to enhance protection for future bookings and put the ATOL scheme on a “more commercial footing”.

Allen added that while the government chose to repatriate customers following Thomas Cook’s collapse, it was under no obligation to do so in instances where the flight was not booked as part of a package.

What is the difference between the two?

Steve Howard, head of underwriting and product at tifgroup, explained that SAF provides cover before or after the planned trip. In the case something goes wrong before the trip is made, a full refund of the return ticket can be sought at the cost of getting home in the same class as the outbound journey.

Like Allen, he agreed that ESF offers wider cover; it covers the financial failure of the individual components of the trip. These include scheduled airline, hotel, train operators, including Eurostar, car ferries, villas abroad and cottages in the UK, coach operators, car or camper hire companies, caravan sites, campsites, mobile homes, safari, excursions, Eurotunnel, theme parks or attractions.

He told Insurance Times: “Whilst it is clear that one provides more cover than the other, it is important to note that neither provide protection for package holidays.

“The other point to note is that neither protects against consequential loss, such as unused accommodation.

“End supplier failure covers the failure of individual components of the trip, but not the consequences on the other components if one part fails. So, those who dynamically package find themselves only partially protected when a travel company fails.”

Howard said this begs the question – why hasn’t the travel insurance sector done anything about this?

Not a new problem

This is not a new problem, Howard explained, but the answer lies partly with insurers and partly with the public themselves.

Insurance policies, generally, do not cover consequential losses and many insurers do not wish to expose themselves to the additional risks. If they did, they would naturally require an increase in premiums,” he said.

This is because customers buy on price rather than need, which means they are always looking for the cheapest option; Howard said this is the reason many customers dynamically package in the first place.

But, he added that tifgroup is actively trying to change this buying pattern by getting customers to understand that paying a little more for a travel insurance policy might save them more in the event of a claim.

Challenging the buying pattern

Travel insurer tifgroup has developed a product called Postcard, which provides ESF, and has extended its cancellation cover to include ’Cancellation for Any Cause’ - applying to situations that a customer could reasonably have been expected not to foresee or avoid.

Howard said that for those who dynamically package it would mean that they would claim for their airline failure under the ESF section, while the unused accommodation could be claimed under the cancellation section because passengers had to cancel their trip due to the airline failure.