Submission regarding Licensing and Bonding

Response to Invitation for Submission on Impact of Directive (2015/2302/EU)

23 June 2017

Dear Dr. Swinand,
Further to your letter dated 6 June 2017, set out below is the response of the Irish Travel
Agents Association (ITAA). This letter sets out ITAA’s views on:

  • Existing bonding and Traveller’s Protection Fund arrangements. We believe that
    the existing system is no longer suitable, it damages our sector and is unfair to our
    members.
  • Appropriate future bonding arrangements. We believe that a new system should be
    introduced that is equitable, transparent, is paid by all who benefit from the
    travelling public and should be focused on areas where the public is exposed.

The terms of reference within the “Travel Trade Customer Protection Projects, 19th May
2017” document states that the aim of the bonding scheme is to provide protection to
customers in the event of a travel agent or tour operator not being able to fulfill their
obligations under the (travel) contract. This aim was relevant when the regulations were
established in the early 1980s – when travel agents accounted for 80% of the trade, however
the aim is too narrow given that travel agents market share is significantly reduced to circa
18%. The regulatory and legislative framework under which the industry operates, and
which you are now reviewing, has not responded to changes in the industry, the travel trade
regulations in Ireland have increasingly grown out of touch with the industry, and the
traveling consumer.
An incomplete and inadequate travel trade licensing regime, coupled with a lack of proper
protections for the group of consumers who do not book through licensed and bonded
operators, is the major legacy of the lack of reform in this area.
1: Existing bonding and Traveller’s Protection Fund arrangements
1a: The current system does not reflect the changes in the industry
 
1. The travel sector has changed significantly over the last 15 years. In 2003 there
were 1.3 million charter seats managed by our agents, that number as of today is a
mere 165,000. Non-licensed / non-bond paying providers accounting for circa 82%
of the market.
 
2. Travel agent licenses are down 33% in 9 years (2008; 400 v 2017; 270). The travel
agent trade is shrinking, the relevance of the 4% levy will diminish further in the
coming years.
 
3. The actual need for significant bonding on travel agents is questionable, certainly
the agents pay-in more than they take-out. In the last five years, whilst weathering
the recession, only four licence holders failed which equates to 0.30% over 5 years
(assuming a minimum of 270 members).
 
4. Scheduled airlines now account for 90% of the leisure travel from Ireland. The public
are increasingly booking flights and accommodation with airlines and hoteliers
directly. This method of travel is not currently covered by CAR or the Bond.
 
5. Airlines and Accommodation retailers do not require a bond and technically
customers have no protection when they buy travel elements in separate
transactions. The new Linked Travel Arrangements, when law, will begin to capture
some of these purchases where two elements are bought separate – but only within
24 hours from the same provider.
 
6. The current regulations do not consider the changes in the methods by which
customers pay. Credit cards are used to pay for 70% of transactions (20% to 30%
three years ago). Credit Card companies offer a charge back facility. Where the
consumer has paid for a service that is not subsequently delivered (for example,
should the travel company fail), the customer is entitled to claim a refund through
their credit card. There is no risk to client funds and payments made by Credit Card
should, therefore, be excluded from the bonding requirements. Whilst credit cards
payment offers greater protection to customers, such payments are still bonded as if
they were in cash.
 
7. Travel Agents no longer carry significant customer funds that historically had to be
protected. Historically travel agents collected monies from customers two to three
months ahead and paid tour operators two months prior to the date of travel. Tour
Operators paid charter airlines two to four weeks prior to departure and paid
accommodation six to eight weeks prior to departure. There was a need therefore
for the public to be protected whilst the travel agents held their money. Now
customers payments are passed immediately to the airlines to secure a seat, this
typically accounts for 60% of a package cost. Customers pay the balance eight weeks
prior to departure and that is paid on to the accommodation provider circa four
weeks prior to arrival. Customer payment is now 70% by way of credit card or debit
card.
In essence, therefore:

  • 60% of the “package” does not need protection – it is passed immediately to the
    airlines and is not retained by the agent. 40% remains.
  • 70% of the “package” does not need protection – it is paid by credit card. 30%
    remains.
  • Therefore 30% of 40% i.e. 12% of the customer’s money needs to be protected
    for four weeks.
  • Travel Agents market has shrunk from circa 80% share to an 18% share.
    Comparing current trade levels to when the bonding legislation was introduced –
    The significance of this 12% is therefore 12% x (18/80) = 2.7%.

1b: The current system damages business.
 
8. The current system is damaging to travel agents who are operating in rural settings
in particular and is hurting the local economies of our member firms. Employment
has suffered because of closures – with little opportunity for replacement
employment in the area.
 
9. The ITAA holds circa €800k as a collective bond. This sum was collected from our
members and is now held aside at a time when it is desperately needed to invest to
protect our shrinking industry. The ITAA would use these funds to protect and grow
the sector.
 
10. Many airlines and Online Travel Agents, both of whom are increasing their market
share, are based outside of Ireland. Whilst profiting from the Irish consumer, they
are not paying for their protection.
 
1c: The current system is unfair to Travel Agents.
 
11. Airline Companies are now both major suppliers and competitors and are not
required to be bonded. The financial muscle of the Airlines is considerable, and they
have the potential to further eat into the Travel Agents diminished market. The
airlines offer a “no service”, low overhead cost allied to massive buying power – the
customer who chooses to avail of the personalised service of a travel agent is seeing
his/her preference restricted or eliminated.
 
12. Our members are competing with Online Travel Agents (OTAs) – Expedia, EBookers,
Edreams, Vatama etc – who are selling either flights only or accommodation only and
these activities are not required to be bonded. Expedia’s turnover alone was
reported at €39 billion. It is estimated that OTA turnover from Ireland is the region
of €200m-€500m. Similar comments can be made about “Bedbanks” – who too are
not required to be bonded.
 
13. The current system takes no account of the financial health of a company and is
very much a “one size fits all” model. By way of comparison the International Air
Transport Association (IATA) who regulate the credit worthiness of agents on a
similar basis to CAR, have a 3-tier approach (High, Medium and Low Risk) which
considers recent profitability, the reserves, potential exposure and net current
assets of each travel agent and tour operator. We believe that most of the travel
agents who have survived the recession are now Low Risk.
 
14. The average travel agent has a net profit equivalent to 1% of turnover – from which
it must pay loan capital repayments and capital expenditure. The requirement to
source and fund a bond equal to 4% of total turnover is another draw on scarce
resources both in terms of time and money. Time to complete the bonding process
and find a bonder plus the cost of the bond along with associated costs in obtaining
same.
 
1d: The current system is unfair to Customers.
 
15. If the objective of the legislation is to ensure that ‘consumers are fully protected’,
then the current system clearly fails. It is unclear if consumers are even aware of
what financial protection they have if they book through an ‘unlicensed’
company. They have no protection from their unlicensed travel supplier. They may
have protection from their credit card company but other payment systems may not
offer financial protection.
 
16. With the growth in new forms of travel supplier, any new legislation will need to
look beyond the industry as it was structured in the past. Consumers should be able
to book their travel arrangements in full confidence that they have adequate
financial protection.
 
17. A weakness in the present structure is that customers booking “accommodation
only”, airline bookings or travel vouchers from travel agents are not protected or
covered in the bond. However, as travel agents are instructed by CAR that they
must display their travel agency licence number in all publicity, this can give the
public a false impression that the customer is covered in all situations should a travel
agent be unable to fulfil the travel contract. Travel agents book a lot of
“accommodation only “for consumers who have booked their own passage.
 
2: Appropriate future bonding arrangements
Bonding should be

  • Equitable – rather than penalise the Travel Agents
  • Transparent – so as the public understand who covers them and who does not.
  • All inclusive – paid by all who benefit from the travelling public.
  • Focused – on where the public are exposed

 

18. Our Travel Agents hold the strong opinion that full consumer protection would be
assured if a charge of €0.50 was levied at point of origin of ticket issuance on all
travel transactions for customers.
 
19. Ryanair for example has achieved this quite effectively with its’ levy of €2 per
passenger to cover its potential claims/penalties for the purposes of Regulation (EC)
No 261/2004. It is now a norm in the sector that travellers pay more for each
element of a service – pre-booking a seat, priority access etc. Travellers are used to
such levies and its purpose is transparent.
 
20. The customer should be covered for all parts of travel, the customer is however
exposed in the areas in that these are not covered by CAR or a Bond. Airlines and
Accommodation retailers are not required to bond and technically customers have
no protection when they buy travel elements in separate transactions.

  • Flight seats bought directly from any airline.
  • Accommodation bought from hotels or a hotel intermediary (Bedbanks)
  • Holidays booked directly by consumers

In conclusion, we believe that the current bonding and protection fund schemes:

  • Do not meet the objective of ensuring consumers are fully protected in the event of
    future collapses. Currently, customers are overprotected in a narrow sector of the
    travel industry and not protected at all in the significant areas.
  • Do not represent the most efficient way of achieving CAR’s objective – the schemes
    should be equitable, transparent, all-inclusive and focused on the need of the
    customer.

We have not provided you with much by way of statistics or financial summaries. We believe
that you will have a deeper and more current database than ourselves in this regard. We
would be interested in your response to the 20 points we make herein and your application
of background statistic to same where relevant.
We hope that having considered the above, you will appreciate that the current 4% bonding
requirement is outdated and unfair. We ask to have the 4% bonding requirement replaced
with a cost-effective and transparent method which would see a charge of €0.50 levied on all
travel transactions for customers.

Yours sincerely,
Pat Dawson
CEO

Irish Travel Agents Association

Author Information

Travel Agent: Irish Travel Agents Association