Should tour operators be banned from using your money as working capital?

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• RussellH says:

  30 Apr30 April 12:23

  It is many years since I had some correspondence with the CAA about financial protection, but at the time they were totally fixated on their bonding model of financial protection – ATOL.
  The concept of bonding package holidays came in in the early 1970s, when first the TOSG (1970) and then ABTA (1972) started to offer voluntary bonding schemes, and then the ATOL, for TOs who wanted to include air travel in their packages became a legal requirement from 1973.
  Since then the CAA has held a legally enforceable monopoly in supplying financial protection to TOs offering packages that include air travel.

  When Court Line collapsed in August 1974 the then version of ATOL was shown to be seriously flawed – 35 000 pax were repatriated by the CAA, but 100 000 pax with forward bookings lost their money. This showed significant flaws in the original ATOL scheme, resulting in it being supplemented by the Air Travel Trust Fund.

  All TOs became legally required (EC Directive 90/314/EC) to have protection against financial failure in place for all holiday packages from the beginning of 1994. Bonding was one of three options that became available to operators, the others being financial protection insurance and trust funds. The CAA did not like either of these alternatives and insisted on the maintenance of the ATOL monopoly.
  They never explained their objections to me, just made statements along the lines of “We see difficulties with the insurance model.” I no longer have any of the correspondence for reference, though.

  However, this protection has always been focused on protection of the consumer against financial failure of the TO, not against the inability of the TO to fulfill the contract due to a pandemic or other happening that shuts down travel worldwide for a prolonged period.
  I would argue that this is not something that the private sector could, or should, be expected to deal with. Pandemics have not been routine occurences in human history, so I cannot see the insurance industry being prepared to even think about getting involved.

  Someone upthread commented that requiring TOs to follow a trust fund model was anti-competitive. Of course, any form of business regulation is, technically anti-competitive, but if done properly, the benefits to the public hugely outweigh the disadvantage to the business.
  From the point of view of my own business, It started to grow much faster once Directive 90/314/EC was in force.

• Lady London says:

  30 Apr30 April 12:38

  Can we have another article please

  “Should airlines be banned from using your money as working capital?”

  For this audience the question is far, far more likely to be about money paid for just flights, rather than any purchase under any sort of package arrangement.

  One could also ask “Is UK law strong enough to ensure a passenger booking through a travel agent must still be able to enforce the same rights as readily as if they had booked directly with the provider?

  In other words if an airline refunds the travel agent the travel agent shouldn’t be able to sit on the money. Ditto if a hotel is closed and unable to accommodate a booked guest, the guest should receive the same treatment by the hotel as if they had booked direct (good or bad).

• JC says:

  30 Apr30 April 12:41

  The position of profound ignorance in this article is quite special. Not just the apparent lack of awareness of the difference between tour operators and travel agents, nor how bonding works and what is called upon in the event of failure; but also the naive belief as to what constitutes a good company.

  Most of our small tour operator partners – the ones that the industry would benefit by losing apparently – have paid their suppliers AND their customers. Some of the larger ones (and no, you can’t draw conclusions as to which ones I mean) have been little short of a disgrace, still owing millions to businesses across the world. It might not matter to you, but to the cleaning maid in a poor country who lost her job and can’t feed her family, it’s everything.

  Still, as long as you like them and they processed your refund eventually eh?

  • Rob says:

    30 Apr30 April 12:48

    Clearly small operators who have been able to repay clients immediately during covid will also have no trouble if money has to be held in trust.

    The CAA makes the point very well – if you need funding to run your business day to day, get a bank loan or sell some shares. Don’t use money from your customers.

    • TimM says:

      30 Apr30 April 19:34

      Rob, I have a feeling that we rarely agree but this time I do, 100%.

      All the squirming and excuses I have read are a disgrace. Can we imagine a company taking your money, say, to build a house, spending it on marketing the next projects and delivering nothing except an industry-backed insurance policy that may or may not payout?

      These industry-wide bonding schemes should be for when all else fails not to allow extreme risks to be taken by companies that pay to join. The schemes are a classic moral hazard.

      Ring-fence clients’ money by law and apply it to tour operators, airlines and travel agents. Abolish the bonding requirements which just create a cartel of larger players or larger gamblers and then even out the playing field for honest, innovative new entrants.

      Bonding has followed the law of unintended consequences. It has led to the catastrophe of multiple tour operators, airlines and travel agents failing but the same people just starting up again – as if nothing had happened.

      If you don’t let these people borrow your money in the first place, i.e. in trust, escrowed or legally ring-fenced some other way, their business model does not work without scrutiny from their lenders.

      • Mark says:

        1 May1 May 06:48

        Nice idea but which airlines? British companies? Those that fly to the UK? Domestic only airlines will argue they’re already struggling against rail companies with APD and that they shouldn’t have to do this.

        Those flying internationally will say they compete globally and this would make them less competitive. You can guarantee they’ll fight tooth and nail against this sort of change. (Vaguely remember airlines being asked for a protection levy some years ago and screaming blue murder).

        Airlines seem to have the ear of government much more than TO’s / TA’s so the regulation will then fall on them alone. Should something like this happen again, you’ll then have TAs/TOs paying to service loans and maintaining the airline cash flow as they sit on refunds for months. Doesn’t seem particularly fair.

• JC says:

  30 Apr30 April 13:05

  Goodness me, do you not realise how airlines operate?

  • marcw says:

    30 Apr30 April 13:07

    +++++++++++1

• AJA says:

  30 Apr30 April 13:13

  I think the morally responsible way to run a TO business is to ring-fence customer money until the trip is certain to happen. The only money they should be using to run their business is the margin that they make on any booking. Otherwise it seems to be a case of robbing Peter to pay Paul. It seems wrong to me that if a trip is cancelled by the operating company that the customer is not refunded immediately, though I am ok with a period up to 7 days to allow the admin a chance to action the refund. If this means that some tour operators go out of business then that is the way it has to be. These days I suspect most people buy trips online anyway either directly with a tour operator or hotel or airline or via an OTA. Trailfinders manages to ringfence customer money then I think it’s clear it can be done.

• A.Masters says:

  1 May1 May 14:31

  I am still waiting for my refund from 2020. Booked package holiday with Alpharooms flights were with Ryanair. Ryanair emailed me to say my refund will go back on my card. I noticed that my flights were paid with Alpharooms own card and so I am still waiting

• Alex Sm says:

  3 May3 May 17:23

  You often use this infinity pool picture for illustration. Is it a stock one or is it @Rhys on of the HfP trips?

  • Rob says:

    3 May3 May 18:07

    It was supplied to us by BA, which means we can use it with no licence issues.

    It may be time to retire it!

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