Why Google is set to be the winner from new customer protection proposals

Steve Endacott, current chairman of the Association of Travel Agents, explains why he believes the latest draft Package Travel Directive will give Google and Booking.com a major cost advantage.

The Association of Travel Agents (ATA) initial reading of the draft Package Travel Directive (PTD) was positive. It appeared that the European authorities had listened to our key argument, that agents must be allowed to continue to act as agents when selling "dynamically packaged" holidays using low-cost carriers and hotel suppliers.

The concept of "Assisted Travel" seemed to be added specifically to allow travel agents to sell holiday elements in the same way customers book them online, which would have been a key concession. Online, customers book and pay for a flights eg. easyjet in one transaction and then immediately follow this with the booking and payment for a hotel from a different provider eg. Booking.com. The "Assisted Travel" provision excludes a holiday booking from being a package as long as each element is booked and paid for separately.

However, clauses elsewhere regarding making multiple bookings within one visit, will make it virtually impossible for most high street agents and OTAs to come within the definition of "Assisted Travel" and these bookings instead will be classed as packages. Ironically, "Assisted Travel" will cover all bookings made via Google for holiday components and will therefore give Google compiled unprotected holidays a major cost advantage over travel agents, the very thing the ATA have been arguing against.

"Assisted Travel" seemed to try to allow agents to continue to "manually" create "dynamically packaged" holidays by putting holiday elements together, but arbitrarily insists they take payment separately for each element of the holiday, one component at a time. Unfortunately this ignores the practicality that customers want to know that they have secured their chosen holiday accommodation, before booking a flight or visa versa.

Under the current drafting, however, if these same components are offered in a basket approach by an OTA, these elements need to be treated as a full package and financially protected. To be fair this is actually very similar to the "Flight Plus" model introduced by the UK Government in 2011 and if the draft PTD’s only applied financial protection in the same way this does, then few OTAs would complain.

The draft PTD goes considerably further by imposing all the full liabilities of a standard package. The problem is that this does not recognise the differences between a traditional tour operation, which the original PTD was designed to cover, and the modern internet world of dynamically packaging OTAs.

The major tour operators own their own airlines and work with a narrow range of hotels, with representatives in resort and local ground handling partners. This gives them a great deal of control over their product offering and the ability to deliver the health and safety requirement, as well as the quality of the product in resort.

On the other hand, the online travel agency model has hardly any control, since they do not own the airline, work with a massive range of hotels and do not have a presence in resort. In my opinion the rapid growth of this sector proves that customers understand this model. They are happy to book more "independent" holidays without the hand holding of the traditional operators, because they are much cheaper, even though they offer a lower level of protection.

The European bureaucrats have not presented any research showing customers are unhappy or unaware of this reduced protection. However, the current drafting will make it very hard for OTAs to continue to deliver these holidays and creates an anti competitive environment, which could dramatically restrict customer choice.

OTAs often sell more than 50,000 hotels, either via direct relationships or "bed banks". Is it really reasonable to expect an OTA to accept responsibility for the health and safety standards of such a range of hotels, whilst sites selling "hotel only" like Booking.com, can sell exactly the same hotels to customers with no such liabilities?

In the modern internet world Google is actually the largest "travel agent", since with one click customers can move between booking flights with easyJet and hotels with Booking.com. The fact that they make two separate payments seems a strange thing to define whether they need the protection provided by the PTD. This has been imposed simply because the European regulators drafting the revised PTD recognise that it will be virtually impossible to track such transaction over the internet or decide which party should provide protection under their current definitions.

Most players would agree that the travel market is evolving into a spectrum with the major tour operators’ "differentiated" product at one end of the spectrum and the giant Booking.com at the other selling virtually every hotel available. The major tour operators have been vocal about how they are positioning themselves out of the commodity market, which is the lifeblood of dynamic packaging and are focusing on differentiated product that only they can offer. Obviously from their perspective dragging the OTA community into the full package regulations is a positive move. It will push up the prices of the holidays offered by OTAs, making their own products look more attractive. Not surprisingly, they have been using both their strong influence within ABTA and direct lobbying to push for just such an outcome.

The OTA community provides consumers a lot of convenience and financial security by offering a basket approach to booking a holiday. However, the imposition of further regulatory burdens threatens OTAs ability to be cost effective, compared to a customer using Google to book their own components individual.

For example, my own company, On Holiday Group, has to pay a massive £200k a year plus for public liability insurance, because the market for this product is so limited. Therefore, the extra cost of liability insurance, increased compensation payment and further regulatory cost could easily push up holiday prices by £10-15 per person even before we consider the application of TOMS VAT.

The key flaw with the proposed revised PTDs, as they stand, is that they will create an uneven playing field. In a commodity market, even a few pounds can make the difference to a holidaymaker, who is simply not focused on the potential down sides when booking. In my opinion, they are likely to vote with their fingers and build holidays using Google to find flights, hotels and transfers, which they can book individually at lower cost, without the extra £10-£15 per person OTAs will now have to charge them.

The net result could therefore be that the new regulations push more customers away from booking via OTAs, who offer financial protection under Flight Plus, to un-regulated and unprotected holidays. The biggest winners under this legislation will be companies like Google and Booking.com, which as we all know pay little tax in the UK, whilst UK based jobs will be destroyed as many OTAs will be forced to consider relocating to countries that do not impose these burdens or simply shutting down.

For many years the UK industry, lead by ABTA and supported by the CAA, have been calling for an "All Flights Levy", where it would be the airlines responsibility to provide financial protection for their failure. Combine this with the obvious move of making individual hotels responsible for their own health and safety via a centralised accreditation scheme and you have the right solution. This would cover the whole of the booking spectrum including customers’ component bookings using Google and provide the level playing field the ATA continues to fight for. However, unfortunately this would appear to be a pipe dream and the ATA will continue to focus on amending the current drafted regulations.

The good news is that the European regulators so far have been willing to listen to common sense and have already moved substantially in their drafting. Therefore, it’s a time to just work harder and explain the issues clearly and forthrightly. The ATA will certainly not be giving up the fight to get a fair and balanced solution, but does need the support of the entire agency community who are all going to be adversely impacted if the draft legislation is not changed.