Government relying solely on CAA and ABTA advice has been hugely damaging for the travel industry
The government must take advice from experts and overhaul regulation in the industry, instead of just listening to the narrow input of the Civil Aviation Authority (CAA) and ABTA.
The failure of Thomas Cook was a disaster for the 9,000 staff who lost their jobs, many of whom have yet to find alternative work.
But it has also been hugely damaging for the numerous companies that traded with Thomas Cook.
Frustratingly, much of the damage was due to our draconian rules and therefore avoidable.
Those rules may have protected consumers, but they’ve led to agents losing commission, operators facing huge bills to replace flights and others owed a small fortune from Thomas Cook’s retail network (see below ‘The big industry losers of the Thomas Cook failure’).
This is because the government has only listened to the vested interests of the CAA and ABTA, who want to protect the consumer, their reputation and themselves after a failure, but offer little help to beleaguered travel companies.
Of course, holidaymakers’ money must be protected.
But we need to get the balance right between consumer protection and creating a fair trading environment for tour operators and agents.
Lessons must be learnt from the Thomas Cook failure.
Now is the time to analyse the specific business risks of each company to ensure there is a fair and equitable regulatory regime.
For too long, large companies like Thomas Cook have been offered a preferred regulatory market-place over small and medium sized firms.
Ironically, Thomas Cook placed a far greater risk to the consumer than, for example, a large online travel agent where all customers are protected by credit and debit card chargeback cover and all have a pre-paid airline ticket.
The government and its agencies need to listen to the wider market, specialist professional advisers and related stakeholders.
They must stop relying, as they always have done, solely on the narrow input from the CAA and ABTA.
We are seeing the desperate outcome of that historic approach.
The big industry losers of the Thomas Cook failure
Crazy law on pipeline monies hit agents
The crazy laws around so-called ‘pipeline monies’ penalise honest travel agents and actually encourage them to act in an irrational manner.
Many agents will be holding on to monies taken from the consumer and in the normal course of business would pass them on to Thomas Cook Tour operations (TCTO), minus their commission.
Under Civil Aviation Authority rules, in the event of a failure, the agent must hold on to these monies for the benefit of the trustees of the Air Travel Trust fund. The CAA has announced that agents have until January 31, 2020 to return these monies.
But here’s the rub. The CAA will not allow agents to deduct their commissions from the monies held. Instead, the CAA will be paying agents an administration charge of just £50 per booking – not per passenger – leaving agents seriously out of pocket.
This is not only unfair, it’s ridiculous because it encourages agents to act irrationally.
If an agent believes an operator is on the brink of failure (and there were plenty of warning signs with TCTO), it should immediately pay the operator all monies owed, minus its commission, to avoid being out of pocket.
If agents had done this, the cost to the Air Travel Trust would have been much higher, but why should the agent care about that?
Under the current system, they are helping to limit the liability of the Air Travel Trust Fund and being rewarded with a kick in the teeth.
This cannot be right and the law must be changed.
Where was the travel trade association resistance to this when the CAA implemented these draconian measures?
I don’t recall any great debate about lost commission but surely a trade association like ABTA should have been fighting its members’ corner, as you would expect a trade association to do, and warning about the impact of this law.
Operators could rue buying cheap flights
Tour operators who sourced flights from Thomas Cook Airlines (TCA) for their tailor-made packages are another group counting the cost of the failure.
Some will ask why companies kept buying flights from TCA when it was well known the group was in a precarious position.
The simple answer is – price. TCA were cheap and if companies were buying their flights, others had to follow suit to stay competitive.
Fortunately, this sector of the market was savvy enough to pay TCA with virtual credit cards or corporate cards. Failing that, they will have had Scheduled Airline Failure Insurance (SAFI).
So, they will at least be reimbursed for the cost of those flights.
However, under the Package Travel Regulations, where the flight has been sold as a package, the operator has to replace the flight, even though the operator may incur ‘reasonable’ additional costs.
We all saw how flight costs jumped up at the time of the TCTO failure as companies scrambled to replace lost flights and the problem here is that courts and regulators have never defined what ‘reasonable’ is.
You can be sure that consumer protection groups will have a very different view from all other stakeholders about what it means!
Some operators could be in for a nasty surprise if the regulator has a different view of ‘reasonable’.
Operators punished for selling through Thomas Cook shops
Tour operators that sold their holidays through Thomas Cook’s retail network are the third group badly affected by the failure.
It is clear that Thomas Cook shops were encouraged to offer discounts to customers who paid for holidays in full, as opposed to using the standard terms of paying a deposit and then the balance 12 weeks before departure.
Furthermore, companies that wanted the privilege of selling through Thomas Cook shops had to offer the company extended credit terms.
So, Thomas Cook retail collected far more pipeline monies on behalf of operators than was originally expected.
And so, in turn, large operators, cruise companies and small businesses have all found themselves with far higher losses than expected.
Again, they’ve had little assistance from special interest groups and trade associations.
Even though ABTA will have retained pipeline money bonding from Thomas Cook – probably in excess of £10 million – none of it will find its way to hard up ABTA member operators because they gave Thomas Cook credit outside the normal consumer terms.
I’m not aware of one operator who has benefitted from this pipeline money protection.
What is ABTA doing with these bond monies? ABTA will use them to protect consumers and their logo, and their captive insurance company from customer claims – not what these bonds are intended to be used for.
Who, exactly, is standing up for those companies that have been hit by the Thomas Cook failure?
Footnote : The winners
Vertically integrated operators mop up capacity
With every loser, there has to be a winner.
In this case there are really two winners – the largest vertically integrated tour operators with airlines, TUI and Jet2.
With Thomas Cook gone, around 15% of people wanting a package will have to look elsewhere for holidays and the big companies are well placed to mop up that demand.
White Hart Associates are specialist accountants for the travel industry. Visit whitehartassociates.com or contact 0208 878 8383 for more information.