OPINION: Consumer Protection and Travel Agency Licensing

The Travel Compensation Fund (TCF) was established solely to protect travel agents and their clients – now that’s in jeopardy, says Travel Australia chairman, Barry Mayo. He urges all travel agency owners to take an interest.

by Barry Mayo

How many travel agency owners have read the Travel Industry Transition Plan – Consultation Draft and the AFTA Response? If you haven’t I strongly urge you to do so.

The national plan to deregulate Australia’s travel industry and remove the consumer protection provided by the TCF appears to be a case of ‘throwing out the baby with the bathwater’.

There is little doubt that the current regulatory framework has its faults however to proceed down this path without understanding what the alternative is, would not only be inappropriate but irresponsible, as would a decision to proceed with a transition plan that predisposes the closure of the TCF currently protecting consumers against loss in the event of a licensed travel agent failing to deliver services it has contracted to provide.

Before any decision can be made to close the TCF there has to be a clear understanding within the industry and in the marketplace that there will continue to be effective consumer protection.

Just as important is protection to traders from any under-capitalised and inexperienced newcomers entering the travel market.

Until there is a clear understanding of what exactly will replace the TCF and the suitability of any replacement scheme in terms of its compensation mechanism to protect consumers and its attention to trade protection, it would be reckless for MCCA Ministers to proceed with even tacit approval for the winding up of the TCF.

Any TCF replacement should offer:
a) prudential oversight of travel agents to ensure that we only license persons who have sufficient financial resources to trade and

b) provision for compensation to consumers who suffer loss in the event of the financial collapse of a travel agency.

The TCF should not be abandoned until an effective, improved and enforceable replacement has been established.

It is easy to forget why travel agency licensing was introduced along with the TCF. Back in the early 80s there was a spate of travel agency collapses with huge consumer financial loss and severe disruption to their travel plans.

It was as a result of the adverse publicity that this attracted (incidentally this also led to a serious loss of public confidence in dealing with travel agents) that the federal and state governments legislated for travel agency licensing and the formation of the TCF.

This in effect reinstated consumer confidence in dealing with a travel agent.

To start out as a travel agent today, as in the 1980s, you do not need big capital investment and yet consumer-booking transactions can be very large in monetary terms, often requiring payment many months in advance before any contracted services are received.

In fact it’s not unusual for travel agents to hold hundreds of thousands of dollars on behalf of clients. This therefore suggests that prudential oversight of new entrants with its financial monitoring of agency accounts is essential not as a barrier to entry, but as a means of reducing risk to consumers and avoiding loss of public confidence in all travel agents as a result of transgressions by a few.

The Travel Industry Transition Plan – Consultation Draft prepared by the COAG Legislative and Governance Forum on Consumer Affairs, contains a number of key assumptions that appear to have guided the development of the draft transition plan which are simply incorrect.

One such example is that "Prudential oversight similar to that provided by the TCF is provided by other national laws and industry arrangements which cover a great proportion of the intermediary sector".

This is substantiated by claiming that trends towards consolidation are resulting in fewer but larger agencies operating as publicly listed companies subject to regulatory duplication.

This presumably refers to the Jetset Travelworld Group (JTG) which contains the Harvey World Travel, Jetset Travel, Travelscene and Travelworld brands whose members are primarily independently owned and operated either as a franchise or as part of a buying group and who are not covered by ASX Listing Rules or ASX Corporate Governance Principles and Recommendations.

Consequently there is no prudential oversight to ensure financial solvency, transparency or accountability of these and many other non-JTG travel agencies.

Travel agents need to ask themselves what they would do if a travel agent in the next suburb fails and consumers aren’t compensated.

Bad news travels fast and no doubt such a situation could provide a challenge for legitimate travel agents.

The winding up of the TCF without an effective and enforceable replacement will place consumer funds at risk and jeopardise consumer confidence in travel agents at large but in particular, the many small and medium sized independently owned travel agents who make up the bulk of travel agency outlets together with the Flight Centre Group.

In its submission to the COAG Legislative and Governance Forum on Consumer Affairs, in relation to the Travel Industry Transition Plan Consultation Draft, AFTA responded that "Australia has a regularity and licensing scheme that is outdated and no longer fit for purpose" and that it’s now time "to future-proof the Australian travel industry to ensure its globally competitive and has a robust and appropriate regulatory structure".

Yet nowhere does AFTA appear to demonstrate what a new structure will consist of or look like other than to state it will take the form of a "voluntary industry accreditation scheme incorporating a voluntary code of conduct".

AFTA claims a voluntary industry code of conduct will provide greater consumer protection and refers to the Code of Banking Practice as an example from which to develop a voluntary code of conduct for travel intermediaries.

There is no disputing the appropriateness of the Code of Banking Practice for the banking industry, but to compare this with the travel agency industry which does not require significant capital investment and whose product could be argued to be intangible and often only received long after payment, is disingenuous.

AFTA also contends that credit card charge-back provides protection for consumers in their dealings with travel agents and yet it is often the travel agent who is left out of pocket when, through no fault of the travel agent a supplier fails and payment is reversed.
If there is no TCF protection provided to consumers then undoubtedly the likes of Consumer Advocacy Groups will encourage consumers to use credit cards increasing the exposure to agents even more if a supplier fails.

It has been previously argued that an alternative to the TCF could be insurance and that removal of the TCF will create an environment for the insurance industry to develop measures to protect agents from rogue agent behavior that risks undermining consumer confidence in all travel agents.

Inquiries by House of Travel have indicated that insurance companies and underwriters currently have no interest in providing comprehensive cover as a replacement to the TCF due to the absence of information on travel industry financials and consequently the difficulty in assessing the size of the risk to be underwritten.

Should meaningful consumer protection not be an integral part of whatever the outcome of the Travel Industry Transition Plan, then we can expect increasing media interest when distressed consumers are impacted by the collapse of a travel agent.

The result will be a likely loss of public confidence in dealing with travel agents, particularly as existing safeguards under consumer protection laws cannot guarantee consumers a refund.

This will lead to consumers dealing directly with suppliers both within Australia and overseas. A consequence of consumer loss of confidence in the travel agency industry will mean consumers miss out on the value that an experienced consultant can add to their travel arrangements.

In terms of dealing directly with suppliers overseas this could, in some cases, result in increased risk for Australian consumers that can currently be avoided by consumers dealing with a licensed Australian travel agent.

If we are to have forward looking ‘future-proofed’ regulation then it must also recognize that commencement of business as a travel agent does not require big capital investment and therefore any replacement of the current regime must be preventative rather than reactionary.

There is no benefit for the consumer or the industry if the proposed voluntary methods for self-protection result in increased consumer exposure and loss of consumer confidence in travel agents and increased risk to travel agents.

The Travel Industry Transition Plan – Consultation Draft states that the administration costs to Australian travel agents covered by the national scheme are estimated to be $19.57 million per year.

A KPMG study commissioned by AFTA claims that this places a considerable administrative burden on the industry.

In looking at our own businesses we estimate the cost for House of Travel’s two travel agency businesses to comply with TCF requirements is less than $5,000 for both company and the reason this is low is because we are a reasonably large corporate entity and we already have to do most of the work required by TCF.

With regard to a travel agent with turnover of less than $2.5m, we would estimate that it costs them between $3,000 and $4,000 per year as they would not usually require an audit.

Are these amounts too high a price for travel agents to pay for consumer confidence, travel agency quality and an appropriate level of consumer protection?

If you’re a travel agency owner, please take an interest in this and have your say because it could change your business forever.