As the refund debate continues, TTG looks at what post-coronavirus consumer protection might look like
The way consumers see it, anyone who has paid upfront for a holiday has taken an extreme gamble; they’ve put a lot of money down a black hole owned by a company that could be in real danger of going bust and now, understandably, they want their cash back.
You can’t blame the calls for immediate refunds given the financial difficulties workers across the board are facing during the coronavirus crisis, but quite often, the agent can’t oblige, because the supplier has got the cash.
That’s one problem with consumer protection; the other is with Atol, which was brought to its knees by the Thomas Cook collapse. So what happens in future?
To address the first issue, many believe the whole structure of the industry has to change.
“It clearly can’t continue that suppliers can take money and say sorry, there are no refunds,” says Alan Bowen, the Association of Atol Companies’ legal advisor. “The relationship between tour operators and suppliers has to change.”
Iata allows airlines not to refund for 90 days. “For a lot of operators that’s the root of the problem,” he says.
Others believe the crisis means some agents will have had enough of the current system. Farina Azam, travel law expert at Kemp Little, says: “If something like this happens and airlines are not giving refunds within a reasonable time and you have to foot that cost yourself, there’s a feeling that maybe going forward you will tell customers to book their own flights.
“You’ll lose the commission, but the upside is you don’t have to have an Atol and don’t have to deal with cancellations.”
Many are pointing towards trust accounts, but as Chris Photi, head of travel and leisure at accountants White Hart Associates, pointed out.
“The thing the travel industry does not like about trust accounts is it is cash flow restrictive.
“It is clear from the refund credit note scenario that virtually the entire industry has a dependence on trading off customer cash.”
However, he adds: “I do think trust accounts are going to become more commonplace. It protects not only the consumer, but a variety of other stakeholders.”
Azam also points towards greater use of trust accounts, but like others, sees their drawbacks: “With trust accounts you then have to look at how you pay suppliers in advance. If you can pay after (the holiday), that’s ideal, but you have to be a pretty big player.”
There are signs banks, merchant acquirers and financial institutions are also fans of trust accounts.
Photi predicted trust funds “would be seen by many as a preferred way of securing stakeholders”, particularly among financial institutions and regulators. Companies that operate them, like Trailfinders, have been able to refund customers quicker because they have never relied on that money to fund businesses as a going concern, he says.
Bowen, however, points to one drawback with most trust accounts highlighted by the current crisis. “They allow monies to leave the trust account to pay the supplier and there is insurance against the supplier failure, but when there are no failures (such as during the lockdown), the money is not there, so they can’t refund customers any more than anyone else.”
Bowen also pointed to the cash flow issue. “The bigger you are, the more it’s going to cost – unless you own your own airline,” he explains.
Nevertheless, the attraction, at the moment, is undeniable. The Travel Trust Association received 60 enquiries about membership in April, up 50% year-on-year.
Gary Lewis, chief executive of The Travel Network Group, says: “We know there is a swell of support. Trust accounts have huge benefits to the discipline of a business and knowing where the cash is.”
He does not, though, predict a stampede. “Businesses are making decisions long-term based on whether they will survive until Christmas. The most important thing we should be talking about is how we get our industry through the next three months – that’s getting cash back from airlines and buying time for refunds.”
Protection of airline sales was in crisis even before coronavirus.
Photi is not alone when he says: “I have always thought airlines should be brought into the insolvency debate from way back.
“The Atol scheme will have to be reformed at some stage, it is no longer fit for purpose after Thomas Cook, and it will be beleaguered after Covid 19.”
Bowen explains: “The Air Travel Trust Fund – they spent most of the £400 million on back up insurance (on Thomas Cook). Now, if there are a string of failures, the government is going to have to pay for it.”
As many will remember, the government forked out on repatriation for Monarch and Thomas Cook Airlines’ scheduled air passengers (not covered by Atol), so it’s no wonder there’s a call to bring all airline sales under some form of protection – and given the current crisis and Cook’s collapse, no business can still argue they are too big to fail.
Are protection schemes necessary?
But do we need any protection systems? Doesn’t Brexit give us the opportunity to rid ourselves of the requirements of the Package Travel Directive?
Not according to the experts. Abandoning protection altogether would mean consumers will book direct with suppliers, or the week before they travel, which Bowen believes would destroy the industry as we know it.
“A lot of people are asking that,” adds Azam. “But the UK has always put consumer protection to the fore and was forefront in pushing for it in the EU.”
The Directive is as enshrined in UK law as the Package Travel Regulations and, Azam believes, will remain.
“I can’t see it is going to be any different. It would be very surprising if the government dialled back on any EU legislation.”
Proof of this, she says, is the government’s reluctance to amend the 14-day refund rule “even though it’s an EU law and others have”.
When all this is finally thrashed out, the industry may unusually have an ally in parliament with new tourism minister Nigel Huddleston. Unlike his predecessors, he has actually worked in the industry, as Google’s head of travel and in Deloitte’s travel, hospitality and leisure divisions.
Huddleston said last week it was important to find an alternative legislative framework on refunds. “What we need to do is find a way so this issue is not seen as businesses versus consumers.”