Protecting consumers from travel company collapses
The past week has been a horror week for at least some travel companies and their clients. On September 20 Australian industry professionals learned that two previously well-respected Australian wholesale brands, Tempo Holidays and Bentours were placed into liquidation by their Indian based parent company Cox and Kings.
Travel arrangements for which clients paid their travel agents who duly passed on to either Bentours or Tempo were not paid by parent company Cox and Kings to the hotels or ground operators which operated their overseas tours or accommodation. That client money was used to fund attempted acquistions by Cox and Kings management.
This unethical abuse of client money will long sully the once good name of Cox and Kings. This company has traded since 1758 but is now in serious debt and its own survival hangs by a thread. A self-inflicted victim of its own actions.
On Monday 23 September one of the most iconic companies in global tourism, Thomas Cook (established in 1841) and the pioneer of package tours and travellers cheques suddenly ceased trading when its was unable to raise sufficient capital to pay debts of UK $1 billion. The Thomas Cook collapse impacted on a staggering 600,000 predominantly British and European travellers and has led to the instant closure of all Thomas Cook owned enterprises, which included travel agencies, resorts, a 100 fleet airline, ferries, hotels, resorts, coaches, tour operators and travel agencies.
22,000 Thomas Cook management and staff are jobless. Like many corporate collapses, this has been a disaster in the making for at least 12 years but kept secret within the company (apart from senior management) and the wider travel industry. If there is any major root cause of the collapse it has been a result of Thomas Cook trying to be all travel, tour and hospitality services under the one corporate roof and doing some of them well and some of them not so well. This made Thomas Cook’s weaker divisions (such as its airline) vulnerable to leaner and meaner competitors.
The fact that Thomas Cook had 600,000 of its clients stranded on a single day demonstrates it was still achieving impressive business turnover – even on its final day of trading. There is a good news story which arises from the Thomas Cook collapse and an object lesson to the travel industries of countries which fail to adequately protect travel consumers from corporate collapses.
Some 600,000 people (including 150,000 British) had their travel arrangments disrupted or curtailed by the Thomas Cook collapse. Despite this, almost all package tour clients will be able to get home from their destinations and have their money refunded through two governnent backed consumer protection schemes which cover business insolvencies (ATOL in the UK and the European Package Travel Directive in the EU). Both insolvency protection schemes are government backed but almost entirely funded by consumers or companies. For simplicity, I’ll focus on the British scheme ATOL Air Travel Organiser License).
This scheme has been operating in the UK since 1973 and it protects consumers who purchase package tours (air plus some land or cruise arrangemments). The consumer or the travel company pays a fee of UKL2.5O (A$5) per person usually costed into the price of the package tour. ATOL’s primary purpose is to protect travel clients in the event that company with which they booked in the UK collapses.
This week’s Thomas Cook collapse affected 150,000 British travellers, of whom nearly all are covered by ATOL. ATOL’s level of funding prior to the TC collapse stood at UKL400 million. Should the cost of repatriating and refunding affected Thomas Cook clients exceed this sum then the British government covers any excess. See details of ATOL ATOL is an effective scheme and incorporates a mix of user pay with government backing. The Thomas Cook collapse has led to the biggest ever peacetime repatriation of Britons and most of it is funded by ATOL. Additionally, ATOL refunds most if not all of money which a consumer lost for travel due to a company collapse or insolvency.
This begs the question, if this scheme works so well in Europe and the UK why do we not have something similar in Australia, New Zealand and in fact all major tourism generating countries. Most people impacted by the Tempo and Bentours insolvency are now enduring hell in seeking to obtain financial restitution.
Some is recoverable from insurance but in Australia there are only 15 insurers which will cover company insolvency in addition to standard travel insurance at a very hefty premium. AFTA’s chargeback scheme which applies to the insolvency of ATAS accredited businesses is certainly helpful but as two of my closest friends, affected by the Bentours and Tempo collapse are now finding, reimbursements only apply to payments made with credit cards. If you paid by cash or cheque-tough luck.
Many Australian travel industry leaders and especially travel agents and wholesalers do not want a return of the old Travel Compensation Fund for a range of valid reasons- largely the large up front fees for business owners. However, I think a scheme based on ATOL which is is overwhelmingly user pay per client per booking backed but not necessarily funded by government would be a very positive step in protecting consumers from the distressing and financially damaging impact of company insolvencies. I would like to hear the response of CATO, ATEC, and AFTA to this concept. The Thomas Cook collapse is a very loud global wakeup call to the global travel industry to effectively address this issue.