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The Thomas Cook fallout: All the legal implications of a tour operator failure

Features29 Oct 2019

What are the legal implications for travel agents if a tour operator fails? Farina Azam, partner and travel lead at Kemp Little, shares her insights.

Farina Azam, partner and travel lead at Kemp Little

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Find out the legal implications for travel agents if a tour operator fails

If the demise of Thomas Cook has taught us one thing it’s that the effects of a tour operator’s failure – especially one as big as Thomas Cook – has far-reaching consequences for the travel industry.

Here, I consider the effects of a tour operator’s failure on agents who have sold a failed tour operator’s package holidays.

Staking a claim

Once a tour operator fails, all forward bookings with that tour operator are cancelled.

Customers will be entitled to a full refund of all monies paid. Where customers have paid the retail agent by credit card, there’s a risk that the customer may request a chargeback from their credit card company – which will then come out of your pocket.

To reduce the risk of this happening, you should contact affected customers promptly and inform them of how and where to make a claim on the failed tour operator’s financial protection arrangements (see box, right).

As a retail agent, payments you collect aren’t suitable for Section 75 chargeback claims (you’re not the supplier of the services being purchased) and you should try to defend chargeback claims on that basis.

However, this doesn’t stop customers claiming for these refunds, and in some cases, being successful.

Cancellation of bookings may also affect the commission you’re entitled to – check the terms of the agreement you have with the tour operator but it’s not unusual to have terms whereby commission isn’t paid in the event the booking is cancelled.

If already paid to you by the operator, it might need to be refunded.

Commission is sometimes payable on cancellation charges collected from the customer – but no cancellation charges will be collected in circumstances where the customer receives a full refund of monies paid.

In the pipeline

“Pipeline monies” are holiday payments received by you from customers for deposits or balance payments that have not yet been sent on to the tour operator.

Although again it depends on the terms of the agency agreement, generally speaking these pipeline monies will legally belong to the failed tour operator.

Retail agents are generally holding these payments “on trust” as an agent for the tour operator.

While it can be tempting to use this money to refund affected customers, this could lead to a claim being made against you by the failed tour operator’s administrator or liquidator.

Instead, these payments should be forwarded on to the administrator or liquidator (and they’ll be in touch to advise you of how to make this payment to them).

Keeping it covered

Package deals:

If customers have bought a package holiday, they should be directed to the financial protection provider (whether that’s the CAA for Atol-protected packages, or Abta/Abtot or such other insurance or trust-account provider for non-Atol packages).

Bookings safeguard:

Depending on the arrangement the tour operator had in place, there may also be protection for single-component bookings, such as accommodation-only bookings.

Flights only:

Flights sold on their own may also be Atol- protected. Flight tickets that have been issued using Iata or otherwise, as an agent of the airline, may still be valid.

Customers should be advised to check with the airline in question.