Cnsultatin: Travel Trade Cnsumer Prtectin Measures Cmmissin Paper 8/2017 24 August 2017 Cmmissin fr Aviatin Regulatin 3 rd Flr, Alexandra Huse Earlsfrt Terrace Dublin 2 D02 W773 Ireland Tel: +353 1 6611700 Fax: +353 1 6611269 E-mail: inf@aviatinreg.ie
1. Intrductin 1.1 This cnsultatin paper seeks views frm interested parties n pssible refrms t the travel trade licensing and bnding regime. The current travel trade licensing and bnding scheme aims t prvide financial prtectin t cnsumers shuld their travel agent r tur peratr be unable t fulfil its bligatins under cntract. In such circumstances, cnsumers can make claims fr a refund fr the csts f trips nt yet taken, and fr repatriatin csts in the event that the cllapse ccurs while they are abrad. 1.2 Currently, if a licensed travel agent r tur peratr cllapses, the csts f claims and assciated administrative csts f prcessing thse claims are paid frm the bnd that the travel trade firm will have psted when getting a licence. If the bnd des nt cver the cst f all claims, the shrtfall is cvered by the Travellers Prtectin Fund. This fund was riginally financed by a levy n tur peratrs, but this levy was stpped in 1987. T date, it has nt been deemed necessary t reintrduce the levy. 1.3 A review f the current scheme is apprpriate. The riginal legislatin dates back t 1982, and it is almst a decade since the last cnsultatin with stakehlders n pssible changes t the travel-trade legislatin. Mrever, the cllapse f Lwcsthlidays.ie in summer 2016 has depleted mst f the remaining mney in the Travellers Prtectin Fund. 1.4 We are nw cnsulting n whether r nt the current scheme cntinues t meet the bjective f ensuring cnsumers are fully prtected in the event f future cllapses. If the answer t this questin is yes, is the scheme the best way f prviding this prtectin? If the answer is n, what feasible ptins fr a refrmed scheme can be cnsidered? 1.5 The Cmmissin, wrking with external advisrs, analysed industry data including past cllapses. We interviewed sme members f the industry and lked at sme schemes in place elsewhere in Eurpe. The findings f this analysis are included in a detailed reprt that the Cmmissin has, tday, published alngside this cnsultatin paper. 1 1.6 Sectin 2 f this paper prvides a summary f the findings f this reprt relating t the effectiveness and efficiency f the current scheme while Sectin 3 sets ut ptins fr refrm. Finally, Sectin 4 prvides a list f cnsultatin questins. The Cmmissin welcmes the views f interested parties n these questins. 1.7 Respndents shuld be aware that we are subject t the prvisins f the Freedm f Infrmatin legislatin. Ordinarily we place all submissins received n ur website. If a submissin cntains cnfidential material, it shuld be clearly marked as cnfidential and a redacted versin suitable fr publicatin shuld als be prvided. 1.8 Any party making a submissin has sle respnsibility fr its cntents and indemnifies us in relatin t any lss r damage f whatever nature and hwsever arising suffered by us as a result f publishing r disseminating the infrmatin cntained within the submissin. 1.9 Respnses shuld be titled Bnding f the Irish Travel Trade Industry and sent by email t inf@aviatinreg.ie r by pst t: Cmmissin fr Aviatin Regulatin, 3rd Flr, Alexandra Huse, Earlsfrt Terrace, Dublin D02 W773. 1.10 The deadline fr respnses t this cnsultatin is 5pm, Friday, 29 September 2017. 1 Link: https://www.aviatinreg.ie/_fileuplad/travel%20trade/ttcnsumerprtectinmeasuresreprt.pdf Cmmissin fr Aviatin Regulatin 1
2. Effectiveness and Efficiency f the Current Scheme 2.1 The Cmmissin is respnsible fr licensing travel agents and tur peratrs and als administers a scheme t prvide financial prtectin t cnsumers f these cmpanies. In 2016, we licensed ver 250 cmpanies with a prjected licensable turnver f 1.2bn. 2.2 All tur peratrs and travel agents trading in the State are required by law t be licensed and bnded t buy r sell verseas travel riginating in the State t destinatins utside the State r Nrthern Ireland. (They can qualify fr an exemptin as a retailer r rganiser established in anther Member State if they prvide the Cmmissin with sufficient evidence f security fr the prtectin f cnsumers.) All licensees are required t prvide a bnd. The current bnd required frm travel agents and tur peratrs is a percentage f prjected annual licensable turnver. 2.3 Since the scheme was intrduced in 1982, the size f cmpanies bnds has been set at 4 and 10 per cent f prjected licensable turnver fr travel agents and tur peratrs respectively. Shuld the bnd be insufficient t fund all claims, the Cmmissin can draw dwn frm the Fund. 2.4 The travel trade market has changed significantly since 1982. Material develpments include: a significant grwth in direct bkings with airlines and accmmdatin prviders; payments by credit and debit card prliferating; and travel agents hlding nt custmers mney fr shrter time perids, in part because f the greater use f scheduled airline services. 2.5 These changes are smetimes ffered as reasns why the current bnding levels are n lnger apprpriate, as the business mdels tday d nt crrespnd t thse in place when the bnding levels f 4% and 10% were determined. Are there material develpments in the market that have been ignred that are relevant when thinking abut the effectiveness and efficiency f the current travel trade prtectin scheme? Effectiveness f the scheme 2.6 The current scheme needs refrm if it is t remain effective. T date, it has been effective in the sense that cnsumers wh have bught verseas travel cvered by the current regime frm licensed and bnded Irish travel agents r tur peratrs have enjyed financial prtectin. Thse needing repatriatin have been repatriated, and thse with valid claims have been refunded in full. Table 2.1: Travellers Prtectin Fund levels and majr claims Value Amunt in TPF (end 2016) Tw Largest Draws Claims n TPF frm Failte Travel cllapse (2008) Claims n TPF frm Lwcsthlidays.ie cllapse (2016) 1.8m 1.6m 3.5m 2.7 Hwever, the Fund wuld be at risk in the event f anther majr cllapse r market-wide dwnturn. Nt all claims culd be paid in full shuld there be anther cllapse f the scale f Cmmissin fr Aviatin Regulatin 2
Lwcsthlidays.ie. If the scheme is nt refrmed cnsumers with valid claims may suffer as a result. The bnds will prbably suffice t prvide satisfactry prtectin fr thse that need repatriatin. 2.8 Average claims fr travel agents and tur peratrs have exceeded the current bnding levels. Hwever, there is ntable variatin arund the averages. The finding that the average claims exceed current bnding levels is driven by just tw cllapses, thse f Lwcsthlidays.ie and Failte Travel. Excluding these tw cllapses frm the data, the average cllapse has generated claims f 3% f prjected licensable turnver fr travel agents and 6% fr tur peratrs. 2.9 Mst claims relate t refunds fr upcming hlidays rather than repatriatin. Althugh mst travel-trade firms ught t be cash rich in the summer, this des nt lessen the likelihd f cllapsing ccurring at that time. Mrever, because claims against turnver will be higher fr summer cllapses, they are mre likely t result in draws against the Fund than cllapses at ther times f the year. 2.10 Current bnding levels are based n prjected licensable turnver rather than actual licensable turnver. The biggest risk regarding these prjectins might be that firms under estimate this figure. The available evidence suggests that mst firms prvide reasnable prjectins f licensable turnver, althugh sme appear t have underestimated (and thus had t pst a lwer bnd than wuld have been the case had they crrectly frecast licensable turnver). Firms that have bth travel agent and tur peratr licences tend t prject a greater share f turnver fr their travel agency business, t which the lwer 4% bnding rate applies. D yu agree with the finding that the current scheme is nt effective in prtecting cnsumers? Efficiency f the scheme 2.11 Leaving aside the questin f whether there is a need fr a financial prtectin scheme, the reprt des nt identify large cncerns with the efficiency f the current scheme. The licensing csts d nt appear t be material. Bnding csts are mre material, but remain a small fractin f turnver. When cllapses d happen, the administratin csts represent a small prtin f the ttal claims csts. 2.12 Hwever, the current scheme cannt prvide effective cnsumer prtectin withut refrm. In thinking abut refrm, careful thught has t be given t the effect that it will have n csts t the industry, t ensure that it remains as efficient as pssible while realising its intended plicy bjective. D yu agree with the finding that the scpe t reduce the csts f the current scheme while maintaining the current level f cnsumer prtectin is limited? Cmmissin fr Aviatin Regulatin 3
3. Refrm ptins 3.1 The need fr refrm is prmpted by the fact that the existing scheme wuld n lnger be able t prvide full financial prtectin t all affected cnsumers shuld there be a large-scale cllapse. Mst firms will nt cllapse. Thse that d, in mst cases, will result in claims that are less than the sums that travel trade currently have t bnd. The need t refrm is t cver the tail risk f a single firm cllapsing with a large value f claims relative t its bnding level. 3.2 The current scheme intends that all custmers shuld enjy financial prtectin. The reprt has attempted t identify refrms that wuld allw the scheme t have been able t meet all claims shuld there be tw large cllapses in quick successin, generating claims in line with the tw cllapses that gave rise t the largest claims in the last 10 years. D yu agree that the scheme needs t be designed with sufficient cntingency t be able t meet all claims in full in the event that there are tw cllapses in a single year that give rise t the same level f claims as the tw largest cllapses in the histry f the scheme? If nt, what criteria wuld yu prpse? 3.3 Table 3.1 belw sets ut five ptins and Table 3.2 assesses hw they fare against three criteria: the need fr legislative change; the impact n scheme effectiveness in terms f the cnsumer prtectin ffered; and the impact n scheme efficiency in terms f the csts f the scheme t the industry and the regulatr. Table 3.1: Pssible Refrm Optins Item Optin A Optin B Optin C Optin D Optin E Bnding, travel agent 200% 4% 4% 8% 8% Bnding, tur peratrs 100% 10% 10% 20% 20% PLTO definitin N change N change N change Excludes payments passed nt supplier immediately and bills paid in arrears Excludes payments passed nt supplier immediately and bills paid in arrears One-ff levy N 2.5%, TO nly 0.35%, 0.35%, 0.25%, On-ging levy N 0.2%, TO nly 0.03%, 0.03%, 0.02%, Other - - - - Firms cannt exceed PLTO. Firms must identify at pint f sale t cnsumer whether eligible t claim. Cmmissin fr Aviatin Regulatin 4
Table 3.2: Assessment f Refrm Optins Item Optin A Optin B Optin C Optin D Optin E N legislative change Impact n effectiveness Impact n efficiency ~ Are there ther refrms that yu think shuld have been cnsidered? Hw wuld these refrms ensure that all cnsumers prtected enjy full financial prtectin? 3.4 The reprt favurs Optin E. This wuld require legislative change. A change in bnding levels alne is unlikely t be the mst efficient respnse. Unless sme way is fund t identify in advance which cmpanies may cllapse and generate large claims, it wuld require all firms t pst much larger bnds than is currently the case. Althugh many f the industry stakehlders interviewed indicated a preference fr higher bnding rates rather than a levy, the scale f the change in bnding rates is unlikely t be what they had in mind and arises frm the fact that the gal is t devise a scheme that is rbust t all types f cllapses, including tail events. 3.5 One refrm that requires n change in legislatin wuld be t impse a levy n tur peratrs. This wuld impse a burden n ne sectin f the travel-trade industry that is hard t justify. An ptin wuld be t intrduce a levy n tur peratrs that culd then be extended t cver bth travel agents and tur peratrs. 3.6 Cnsideratin culd be given t refrming the way that bnds are calculated t align better the bnding requirements with the risks assciated with a given travel-trade firm s business mdel. Our advisrs have suggested that the level f the bnd culd be calculated t exclude frm licensable turnver payments frm custmers that are passed nt suppliers immediately and/r bkings frm business custmers that are inviced after the travel. This wuld be mre administratively efficient than the Cmmissin determining frm scratch a risk adjusted bnding requirement fr each individual firm. 3.7 Anther suggested area f refrm is designed t limit the scale f claims that can arise frm an individual travel-trade firm cllapsing. The reprt suggests that firms shuld nly be allwed t sell verseas travel fr s lng as their licensable turnver is less than r equal t the prjected turnver n which their bnd is based. T help with tracking this, they suggest firms shuld clearly identify whether the hliday is cvered at the time f the sale. Which f the refrms d yu think we shuld pursue, if we cnclude that the current scheme needs changing? Why? Cmmissin fr Aviatin Regulatin 5
4. List f cnsultatin questins 1. Are there material develpments in the market that have been ignred that are relevant when thinking abut the effectiveness and efficiency f the current travel trade prtectin scheme? 2. D yu agree with the finding that the current scheme is nt effective in prtecting cnsumers? 3. D yu agree with the finding that the scpe t reduce the csts f the current scheme while maintaining the current level f cnsumer prtectin is limited? 4. D yu agree that t be effective, the scheme needs t be designed with sufficient cntingency t be able t meet all claims in full in the event that there are tw cllapses in a single year that give rise t the same level f claims as the tw largest cllapses in the histry f the scheme? If nt, what criteria wuld yu prpse? 5. Are there ther refrms that yu think shuld have been cnsidered? Hw wuld these refrms ensure that all cnsumers prtected enjy full financial prtectin? 6. Which f the refrms d yu think the Cmmissin shuld pursue, if we cnclude that the current scheme needs changing? Why? Cmmissin fr Aviatin Regulatin 6