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

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• Mouse says:

  30 Apr30 April 04:34

  In the event of mandated ring fencing the additional cost of funding would need to be passed to customers through higher prices. Why not let customers decide – pay a surcharge for your money being ringfenced in exchange for a guarantee on receiving timely refunds.

  • Mark says:

    30 Apr30 April 08:29

    WHy would you pay a levy for something you’re entitled to anyway. I don’t understand why people waited, over a year in some cases, for a refund.

    Virgin owed my nearly £6000. Disney owed me about £3000. I just took them to court. Why wait!

  • Mikeact says:

    2 May2 May 17:45

    How would the guarantee work??

• 1ATL says:

  30 Apr30 April 06:05

  I think you’ll find the one funding the ATOL fee is more likely to be the client and not the travel agency/tour operator who would be the one responsible in taking the levy from the client, passing it on to ATOL and issuing the ATOL certificate. In order to operate as an ATOL bonded company in the first place, the travel agency/tour operator will have already needed to have stumped up a cash lump-sum based upon their turnover. It’s a bond held in trust to repatriate clients already abroad if a company folds. The company I used to work for was relatively small but the amount of cash that we had to stump up at beginning of trading to ATOL ran into millions. Asking for more money up front in this way to mandate this will bankrupt more of the industry. As a company we didn’t operate on the basis of spending clients money up front..We didn’t charge deposits and we didn’t charge the client in full until the days leading up to when the hotel required payment from us so funds were only passing into our account and out again relatively quickly. I think any self respecting travel company moving forward will have to consider a similar model away from one that is dependent on taking the clients money 10 weeks up front and using that for day to day operation.

• Mark says:

  30 Apr30 April 06:19

  The reform is about ATOL holders..these are not necessarily travel agents. Travel agents are often acting solely as the agent for the ATOL holders – the tour operator.

  Some agents also operate their own ATOL or have access to a group ATOL as part of a managed services type of agreement under companies such as Midcounties Co-operative, Advantage Travel Group etc.

  I suspect the major tour operators do indeed use client funds for day to day operating costs as they pay their suppliers on account (there were many stories in the news about hoteliers and TUI, for example), but this is not the case for many smaller, specialist operators who start paying money to companies who make up the components of the package as soon as the customer books and pays a deposit.

  It’s important to note that many component providers are clearly using customer funds as working capital. You only have to look at how slow they were initially to give cash back. Only this week, over a year after COVID started, have Air Transat started agreeing to refund their travel credits for cash.

  In normal times, if there was a destination which the FCDO decided was unsafe, the refund would be given immediately regardless of the funds being received back to the ATOL holder from the component providers. This could be achieved from working capital as the rest of the world was still on sale, and could be done in the knowledge that the ATOL holder would receive a timely refund from the component providers. It was the part of the risk of running an ATOL. Since everything suddenly stopped, full and quick cash refunds on everything before and without funds back from the component suppliers would have put most ATOL holders out of business. The ATOL claims would have taken months to complete (Thomas Cook claims only finished fairly recently) and credit card companies would have been inundated with section 75 claims, possibly increasing their charges to cardholders.

  The new scheme will need to be designed to do what ATOL wasn’t, which was to allow money to flow both ways quickly. Ultimately, I think the trust model will be what comes in.

  • JDB says:

    30 Apr30 April 08:06

    An interesting analysis. You mention Air Transat (which I think is a tour operator and airline) – it only started paying refunds this week thanks to a C$700m bailout from the government, c. half of which was earmarked for refunds.

• tony says:

  30 Apr30 April 06:40

  Is it not a bit short sighted that this only looks at travel agents and not airlines, who have a habit of doing exactly the same thing? While some of them are better capitalised, it’s far from universal and if one does go to the wall, it’s likely they’ve already mortgaged the family silver by the time they get there.

• Vistaro says:

  30 Apr30 April 06:43

  Why does HFP have to pay a four figure sum?

  • Sigma421 says:

    30 Apr30 April 06:53

    HfP is a credit broker because of the way it recommends and links to credit products. From what Rob has said before a lot of sites that do this are required to be FCA registered but are not (Moneysavingexpert, the main one that springs to mind however is).

    • Jack says:

      30 Apr30 April 07:45

      But wouldn’t moneysavingexpert be covered by the MoneySuperMarket group’s FCA license (Moneysavingexpert are owned by the MoneySuperMarket group)? I doubt the FCA are going to let a website that is viewed by millions a week, and whose chair is a well-known TV figure go unregulated.

  • southlondonphil says:

    30 Apr30 April 07:03

    I would imagine it’s something to do with Rob having commercial relationships with Amex etc. to promote Credit Cards in the blogs, and that comes with a number of compliance and requirements such as the mandatory interest rate ‘information sheet’ in the article and a fee to the regulator for acting as a credit broker/introducer.

  • Rob says:

    30 Apr30 April 07:24

    It is illegal to write about credit cards in the UK – if the writing involves linking to the card providers website – if you do not have a credit broking licence. Having a credit broking licence means you need to pay into the FCA compensation fund.

    For total clarity, this applies even if you don’t get paid for the sale of credit cards. Simply linking to the card providers website counts as ‘marketing’ (irrespective of any payments) and is an offence unless licenced.

    • Mark says:

      30 Apr30 April 08:31

      I take it there must be a dispensation for referal linking?

      • Rob says:

        30 Apr30 April 09:11

        There is a ‘friends and family’ dispensation, because if not you could be fined for telling your mate to get a BA Amex (as you are not licensed to sell credit products).

        Putting a referral link on Facebook etc would be different.

        • RussellH says:

          30 Apr30 April 10:21

          When doing e-Rewards surveys about banks, they ask why I gave a bank a particular score.
          I have a stock phrase about not bein FCA regulated and thus unable to advise, which I paste into every box on the survey.
          🙂

    • Blindman says:

      30 Apr30 April 09:42

      As a business expense surely this reduces your tax burden?

      How many millions of AMEX points do you get from referrals which then allows you to fly free?

      • Rob says:

        30 Apr30 April 09:49

        90k per year per card family, same as you.

      • cinereus says:

        6 May6 May 11:07

        He gets more than just MR points.

• Alan says:

  30 Apr30 April 08:01

  I must say I’ve been very impressed with how Trailfinders have handled things during COVID and will certainly be booking with them more in the future.

  • Number9 says:

    30 Apr30 April 09:37

    Yes me too, I paid them £6300 in 2019 for trip April 2020 obviously cancelled re booked it several times. Then few weeks ago I decided sod it i am going back to my original trip ( Japan) so have rebooked it for March 2023. It’s all paid for they will have had my money for 3 years. I only rebooked because I know my money is ring fenced in clients trust account. I would never have done it otherwise.

    • Jan de W says:

      30 Apr30 April 10:56

      We are rare users of travel agents but used Trailfinders for a lengthy trip to Japan in Nov 2019. They were exemplary in every aspect and truly professional, both here and in Japan. They would certainly be my first stop for travel agents. It was comforting to know that my funds were ring fenced and not being used for day to day operations. On top of that owner Mike Gooley, is a keen rugby lover and sponsor of Ealing Trailfinders, so he gets extra points for that too!!

• Michael Jennings says:

  30 Apr30 April 08:01

  The other change I would like would be to make it possible to make changes to your booking directly via the airline when the flight is cancelled / rescheduled at any time after the booking. Having to do it via the travel agent causes many difficulties / expenses.

  • Mikeact says:

    30 Apr30 April 08:56

    Absolutely, I wouldn’t use a travel agent in a million years , having been caught out like this while overseas.

    • Mike White says:

      30 Apr30 April 11:09

      That advice applies to anything, incl hotels. Always book direct.

      • Michael Jennings says:

        30 Apr30 April 16:06

        Hotels are very seldom more expensive when booking direct. Flights often are.

• Laurie Edmans says:

  30 Apr30 April 08:07

  Requiring capital would push up costs and reduce competition. The equivalent requirements have destroyed the mutual life assurance industry which had been the main pillar of such provision for 150 years. In that case, it can be defended because someone’s life savings (or their family’s financial security on their death) could be lost if the company collapsed. Losing a holiday is horrible and upsetting, but almost by definition is not an unaffordable threat to the holidaymaker’s overall financial position. It’s not like giving your solicitor the money to buy your house.

  Requiring capital would be handing a competitive edge to big players, who would generally like to see smaller ones out of business. They are therefore likely to lobby for the capital requirement, and unlike small businesses will have people who have the time and contacts to do this.

  If they succeed, the likely outcome is not just that the cost of servicing the capital will be added to the cost of holidays, but with reduced competition, bigger providers will seek bigger margins.

  Having a capital requirement sounds like a good idea, but the consequences in something which is not central to someone’s finances, are negative. It boils down to paying an insurance premium to cover a risk which virtually everyone can afford to bear themselves. Which (I am a sad insurance person) the insurance textbooks tell you, falls into the category of risks that can be insured, but shouldn’t be. (Like PPI was)

  The other downside is that it will make entry into the business much more difficult fir new entrants, stifling innovation, again to the detriment of customers.

  For holidays, a horoughly bad idea.

  • Lady London says:

    30 Apr30 April 12:01

    @Laurie is your comment about mutuals hinting about why LV (a mutual and one of the best) got sold to Bain Capital?

This article is closed to new comments. Feel free to ask your question in the HfP forums.