Industry gears up for flurry of tour operator collapses

Financial experts are predicting that there could be a rush of tour operators closing their doors in the coming weeks, as the deadline for ATOL approval rapidly approaches.

The Air Travel Organisers Licences currently operate a system which means that any firm must prove their annual financial fluidity in order to keep trading and many are expected not to be up to scratch when this year's deadline rolls around.

The requirements for an ATOL licence require a company to be able to demonstrate that they are not only solvent, but they also have maintained an adequate cash flow through the business and that they have adhered to all of the requirements set down by the Civil Aviation Authority.

The benchmark is deliberately set at a robust level to ensure that only firms who are financially secure enough are permitted to continue to take consumers' money and those who are in poor shape will be prevented from jeopardising any more holidaymakers' plans.

Experts in the industry have forecast that companies folding are likely to be seen from the end of September onwards, as the 1 October deadline approaches. Many travel firms have been struggling to remain competitive as online businesses corner the market on value, with air passenger duty and the rising cost of aviation fuel adding pressure from all sides. For many, the extra burden has become too much and hundreds of companies in the sector have been left with no option other than to be swallowed up by their

and enter into administration.

However, the industry as a whole is finding the current climate difficult with airline firms admitting that the tour operators are not the only ones facing problems.

One of the giants in the industry, British Airways has already fired a shot at the government for the impact of what it calls the 'destructive tax juggernaut' which is crashing through the industry, crushing smaller firms and severely maiming larger organisations.

BA also led calls for the government to think about what financial consequences the introduction of the European Union Emissions Trading Scheme was likely to have, which launches in January 2012, just a few short months away.

Despite many travel firms feeling the pinch on their profits, according to other research from insolvency specialists R3, Brits are as keen as ever to escape from the UK with 1.8 million opting to pay for a break with borrowed money.

The research revealed that the average amount borrowed per person had shot up by 40% to reach £1,581, a figure which boffins at R3 have calculated will take nine months to repay. This is two months longer than the typical debt repayment schedule for 2010.

R3 also said that their survey had shown that youngsters were the most determined to have a holiday, with 16-24 year olds the demographic group the most likely to borrow money for their getaway. According to the survey results, as many as one in ten 16-24 year olds resorted to paying for their holiday on credit, as they could not afford to fund it themselves.

The chief of R3, Frances Coulson, said the study showed that despite disposable income being far lower than before, individuals were prepared to simply take on more debt to get around the problem, rather than face more sacrifices.

However, Ms Coulson warned that around one in every four insolvencies was not caused by any particular event but merely by individuals living beyond what they could afford and opting to pay for what they wanted with borrowed money, a tactic which inevitably comes back to bite the debtor in the proverbials.